Northern Ireland Assembly, 15 June 2010
I begin by referring to an issue that I raised yesterday: the cost of local government reform. I declare an interest as a member of North Down Borough Council. I welcome last night’s decision to defer the reform of local government. It has been clear for many months that the original drivers for RPA cannot be achieved. The main driver for reform was savings to the ratepayer, and as those savings cannot be guaranteed, it would have been a case of throwing good money after bad. In the present economic state, it would be irresponsible to spend £118 million that we do not have in the Budget to fund those changes. I do not intend to repeat the points that I made yesterday. However, I emphasise that it is essential that we review all the priorities, policies and decisions that were made during the good times.
It is important that we see the Budget in the context of the present state of the Northern Ireland economy, which is fragile and needs tender nurturing. A recent Ulster Bank report indicated that in the second quarter of 2010, economic growth of 0·4% was achieved and the projected growth for the whole year is less than 1%. That indicates that economic recovery is extremely weak and must be treated with care. That was prior to the euro zone crisis, the Greek bail out and Mr Cameron’s latest cuts prediction.
In addition, the growth in the economy has been limited to the service sector, with manufacturing and construction continuing to decline. A major factor in the growth in the retail sector has been the influx of shoppers from the Republic to take advantage of the weak pound. However, in recent months, there has been a significant decline in the value of the euro, and as a result, traffic from the Republic is beginning to dry up. If that continues, we might fall back into recession. That is the present economic climate.
Economic activity is extremely low. There is plenty of spare capacity in the economy. Within the private sector, the service sector is producing 11% below its 2007 peak. In addition, manufacturing is down by 15% from its peak, and engineering is down by one third. That has been reflected in the level of unemployment, which has risen for 26 consecutive months. The rate of job loss has also been much more severe here than in the rest of the United Kingdom. Although unemployment fell last month, that is likely to be a blip, especially when the public sector cuts begin to hit. The Ulster Bank reports that the level of unemployment may not peak until 2012. Therefore, that is the economic climate in which we are presenting this Budget. Another worrying feature is house prices. The Royal Institution of Chartered Surveyors survey for March 2010 showed that house prices had fallen for the thirty-second consecutive month. That is very worrying.
We must ask ourselves how the Budget will impact on those economic problems. What will it do to generate economic activity? How will it reduce the unacceptably high levels of unemployment?
We must also consider the new political context in which we are working, and, in particular, the cuts that were recently set out by Mr Cameron. Mr Cameron frightens me. In comments made just before the election, he singled out the Northern Ireland economy for cuts. I am fearful of the damage that Mr Cameron’s policies will do and that they will undermine our fragile economic recovery. His record on the economy is consistent, in that he has been consistently wrong on all major economic decisions made over the past 20 years. It would appear that Mr Cameron hopes to maintain that record by getting it wrong again and destroying our recovery and slashing public services before Northern Ireland gets out of recession.
Mr Cameron’s record goes back to 1992, when he was economic adviser to Norman Lamont and Britain was forced to leave the European exchange-rate mechanism. Since then, Mr Cameron’s right wing economic views have led him to oppose the minimum wage and the decision to give independence to the Bank of England. We are fortunate that Mr Cameron was not in charge during the past few years, because his policies of refusing to help the banks and of cutting capital investment during a recession are similar to those that were adopted following the 1929 Wall Street crash, which turned into the Great Depression of the 1930s. It concerns me that the impact of applying such policies to the Northern Ireland economy would be extremely serious.
Mr Cameron’s recent response to the Budget is, therefore, disingenuous in the extreme. We have been faced with the worst global financial crisis, and the Government had no alternative but to stimulate the economy. Without those measures, unemployment could have been as high as 5 million. There was no alternative, just as cutting public expenditure now is a measure for taking us back into recession and increasing the hardship felt by millions of ordinary people throughout the United Kingdom.
At present, the Northern Ireland economy is not capable of taking further cuts. There will be severe cuts in the longer term, but those will have to be phased in. It is important to get out of recession first. We are in extreme danger of ending up with a double-dip recession. The Tory, and now Liberal Democrat, economic policies are driven by the need to make immediate cuts in public expenditure, regardless of the impact on public services and ignoring the risk of a double-dip recession. Proportionately, Northern Ireland has a larger public sector than other parts of the United Kingdom, and that will, inevitably, lead to a disproportionate reduction in services.
Cuts in public expenditure are essential, but not at this stage. The introduction of further cuts now, given the earlier Budget cuts, would lead to a significant increase in hardship, particularly as Northern Ireland, unlike the rest of the United Kingdom, has barely emerged from recession. The economic recovery must be sustained, not choked at birth.
The actions of the Lib Dems are particularly disappointing. Nick Clegg went into the election with a manifesto pledge to delay spending cuts until the time was right. He immediately caved in to Tory demands, tore up his manifesto and became a cheerleader for instant cuts.
Further cuts are being demanded, and that is the issue on which I appeal to the Minister. Mr Cameron said that we could defer further cuts until next year, and I appeal to the Ministerto follow the example of his Scottish counterpart by doing so. The Scottish Government plan to defer £332 million of cuts, and their Finance Secretary, John Swinney, said that he would defer the savings until next year:
“in order that we can entrench economic recovery.”
He added:
“At a time when economic recovery is extremely fragile, the spending cuts outlined by the Treasury risk undermining recovery and damaging our comprehensive work to support the Scottish economy.”
The Government in Scotland are saying that they cannot impose those cuts now. The Northern Irelandeconomy is much weaker and more vulnerable than that of Scotland, and we have already suffered cuts and made significant efficiency savings. Enough is enough: we must follow the Scottish example and defer further cuts until next year.
It is not sensible to tear up budgets that have already been allocated, and therefore, despite the reservations that I expressed yesterday, I support the Bill. We must re-examine our priorities and reconsider our previous decisions. We must ensure that scarce resources are allocated in the most efficient and effective manner. Their allocation must be focused on encouraging enterprise and expanding the private sector. In the short term, it is inevitable that the public sector will be reduced, but that will create an opportunity to develop new business, particularly in the green economy.