Predicting the future for La La Land – by an independent finance expert

 

 

The great thing about predicting the future is that there is no-one to tell you that you are definitely wrong.

In fact recent global events such as the Brexit vote and the election of Donald Trump have highlighted that even the least likely of predictions can end up being correct.

For those of us living on the other side of the border from the Republic of Ireland (which is my way of having to avoid the nonsense of choosing between referring to ‘Northern Ireland’ and ‘The North’) one might say that predicting the future should be quite easy.

After all for many years we have lived in the Groundhog Day of political stalemate, massive central government fiscal intervention and the three ring cultural circus of marches, flags and language.

Lost somewhere in the time warp between 1690 and 1916, there is almost a soporific comfort to not having to care about the present never mind considering the future.

Indeed we still appear to have so much to say about the past that it could be decades before we move into the twenty first century!

Life outside our little Northern cocoon is moving on and events in Great Britain, Ireland, Europe and the rest of the world are having a profound effect on the place we refer to as home (by whatever name).

Indeed the easiest and first prediction I will make is that events outside of Northern Ireland/the North will shape our future much more profoundly than anything that happens inside our boundaries.

The main event at present is Brexit and how this may impact on our dealings with the Republic of Ireland in both economic and social matters.

There has been a lot written about the impact that a revitalised border could have on both parts of this Island, yet at present no one really has any tangible answers to the many questions.

Nobody really knows whether Brexit will further divide this island or bring it closer together. Indeed no one can fully answer whether more division or more unity will be a good or bad thing socially, politically or economically.

Whilst the Irish diplomats in Brussels have played a blinder in persuading the EU to make the Irish border one of the top three issues for the Brexit negotiations, one can’t but help feel that it is more of a sacrificial pawn in the forthcoming chess match, to be used in the initial skirmishes between London and Brussels.

The truth is that London, Dublin and Brussels all have their eyes on much bigger fish than our neck of the woods and it would be foolish to think otherwise.

There are of course other dynamics in play outside of our six counties that are likely to have a profound effect on our future. A key one is Scotland. It still amazes me how little discussion took place about what would have happened to the ‘Union’ between England, Wales and Northern Ireland had our Celtic cousins voted to leave the UK in 2014.

Whilst there are those who would swear that Northern Ireland would have remained as British as Finchley, I am not sure the good people of Finchley would have been so supportive.

Let’s face it, there is little in the way of strategic benefit to England in being tied to the North of Ireland and the whole Scottish Independence referendum debate brought into sharp focus how much it costs to prop up Northern Ireland –money that is not being spent on English hospitals, schools and roads.

The Scottish independence movement may have passed its high water mark and the drop in the price of oil, which is predicted to remain low for the foreseeable future, is likely to spike the SNP guns for now. Nevertheless, no one should be under the slightest doubt that if the Scottish Independence movement surges again and succeeds in a future referendum, it will have a profound impact on the status of Northern Ireland.

Other matters that could significantly affect our future include the knock on effects of a post Brexit EU whose smaller countries may start to question the benefit of being locked into a Franco/German central alliance.

The concern for Ireland’s UK border may soon be drowned out in the quest to hold onto other Union dissenters and this will have a negative impact on future financial assistance for Ireland and its border counties.

The impact of the Trump led Make America Great Again” campaign must also be factored in. Whilst The Donald loves Ireland and its beautiful golf courses (especially the Trump Doonbeg Course), his economic policies are aimed at creating more jobs in the US at the expense of jobs in other countries.

The Irish low tax offering is clearly in the sights of the White House policy makers and this is not going to help Ireland’s future economic growth plans.

Whilst the Irish policy makers have been nimble and sure footed in the past, this problem is not going to be easily solved and together with the adverse impact that Brexit could have on Irish exports to the UK, this could mean that the renascent Irish economy could be in for a bumpy ride over the next decade.

Needless to say these are the issues that will be of deep concern to those living in the southern part of the island of Ireland for some time to come, and despite the recent paper from the Irish senate on the potential for an united Ireland, it is hard to see there being much in the way of enthusiasm for such a proposal to become a reality for some time to come.

This then brings me to my second prediction, which is that the future of the North will not be resolved until there is some honest debate and discussion about the dire state of the Northern Ireland economy and its utter dependence on central government subsidy.

I have referred to La La land in the title to this article. That is because we do indeed live in La La land. Each year, the North’s public expenditure deficit runs to nearly £10billion or, in more comprehensible terms, over £5,000 per man, woman and child. Whilst there is some debate on the exact number, it is crystal clear that the cost of public expenditure far outweighs the current tax raising capacity of those living in Northern Ireland.

There are deficit deniers who think that the books are completely cooked and that the deficit is really fake news and a means of propaganda to show undue reliance on the British state. Unfortunately, this is not the case and the large annual deficit is a stark reality.

Whilst there is undoubtedly room for criticising the lack of transparency and ease of access to current public income and expenditure numbers, the Department of Finance did produce a ‘profit and loss’ account for NI for a number of years – in a document called the Northern Ireland Net Fiscal Balance Report. (However for some unspecified reason, this report has not been produced since 2013/14.)

This report provided easy to digest access to the nuts and bolts of our public income and expenditure.  In simple terms the last analysis showed that the public expenditure in Northern Ireland was about £24bn per annum and the taxes raised were just under £15bn. The shortfall of circa £9bn, a.k.a. the block grant, is what keeps the ship afloat and is financed by the UK Treasury.

To to be fair, the North is not the only region of the UK to run at a deficit, most regions also run at a deficit, with London and the South east, together with Government borrowing, picking up the tab.

The real story is that the deficit per capita of NI is the largest in the UK. This one fact is not only why there are many on the other side of the Irish Sea who would like to detach themselves from us, it is also why the current union is likely to remain in place for the foreseeable future.

It is a dirty little secret that no one wants to admit to. The British Government want to keep it under the radar as it quite rightly provokes unwelcome comment from English voters.

Republicans know that a large annual deficit makes the unification argument much more difficult to sell to those living south of the border, who are already strapped for cash.

Unionists don’t like it because it highlights how badly the union is in fact working from an economic point of view.

We need some honesty about the figures and how bad they really are. We don’t need to dwell on the figures or blame someone for them, we just need to have a long hard look about what the figures are really saying and how we might go about doing things more creatively and with the aim of starting to help ourselves rather than constantly blaming everyone else for our problems.

The other thing that needs to be addressed is our unashamed entitlement culture.

There is a shared mantra that we are entitled to everything for free and that someone else should pay.

Our politicians believe that UK Government should increase the deficit funding ad infinitum.  Our citizens believe that free unlimited healthcare, education, transport, water etc. etc. should be provided to everyone.

Public sector cost reviews are talked about but rarely implemented and the false idol of applying tax raising powers is almost a taboo subject. It’s time for us to wake up to the reality of our economic situation.

At present the NI economy just does not stack up. Whilst it is very expensive for the UK government to fund our annual deficit, they appear to accept that this is the price of keeping a lid on the ‘Northern Ireland problem’.

They are also desperate to avoid changing the status quo in a devolved region lest it opens any possible additional front in respect of their ‘Caledonian’ problem.

At the same time there is no prospect of the North going it alone. Our narcotic like addiction to central funding and the resultant dependency culture means that an independent Northern Ireland is not going to be a financial reality even in the medium term.

A united Ireland does hold certain economic attractions, and, absent the clear concerns of the unionist population, there could be fiscal and societal benefits from the island coming closer together.

That said an annual public expenditure deficit approaching £10bn would be just too much for a fragile Irish economy to stomach at present, especially given the ongoing uncertainties arising from Brexit and the new US economic policy.

There is clearly a need to rebalance the NI economy and this will occur either voluntarily over time or, by necessity, due to reduced subsidies. Until then the costs of funding the North will fall squarely on the UK taxpayer and one must ask, how long will this go on for?

The time is ripe for an honest discussion to take place about the costs and subventions that go to make up the economy in Northern Ireland.

Do we currently have the personnel with sufficient experience and independence of mind to facilitate this discussion?

There is no room for hidden agendas of any kind to be allowed around the table or else the discussions will go nowhere.

This leads me to my third and final prediction. There will be a new settlement between both parts of this Island and Great Britain that will bind us together more closely than is currently the case. When this will occur is not immediately apparent but it is clear that Brexit has moved this agenda forward considerably.

We live in a time when there are more catholic unionists than ever before, more protestant nationalists than before and where the majority of people could possibly be described as agnostic pluralists.

The UK and Irish governments are very closely aligned in many matters and the level of cross border cooperation (pre Brexit) is at its highest level ever. The tectonic plates of change have been shifting slowly beneath our feet but we in the North are too busy cutting off our noses to spite our faces to notice.

There are of course many societal and cultural differences on the island that make a case for immediate unity very difficult to justify – nevertheless in the post Brexit world that we will eventually find ourselves in, could it be possible for citizens in the north of the Island to be under the oversight of two sovereign states, with most of the local decision making taking place in a fully functioning and representative local assembly?

Indeed – would this formula make the causes of Unionism and Nationalism redundant?

Could people then start to focus on matters of economic and social substance, thus recolouring the political map with Blue and Red as opposed to Green and Orange, so that citizens would vote on socio economic beliefs rather than by what religious tribe they were born into?

Could such a focus on socio economic matters lead us to the means of rebalancing our own economy and moving away from the self-perpetuating reliance on state aid that has held us back for so long?

Unless those who are currently unwilling to step up to the plate and get involved in shaping the political future of Northern Ireland do so, we will continue in this suffocating virtual reality that is La La Land where neither side can win with the result that everyone loses.

In the end all societal predictions come down to the actions of people.

Do we have enough forward thinkers on all sides to move our society forward if all of my predictions happen? If so the future of La La Land could be peaceful, positive and prosperous. That is a prediction we would all like to see come true.

2 thoughts on “Predicting the future for La La Land – by an independent finance expert

  1. Great article.
    The Block Grant and it’s effect on the local economy and real cost to Central Government is never mentioned. A very simple example, and I do mean very simple.
    Say the Block Grant is cut by £1 billion. Central Government will lose all of the tax revenue including VAT income as that £1 billion is no longer rolling around the economy. Don’t forget money is not just taxed once, it is taxed every time it is spent. On top of that there is income tax and national insurance contributions lost as jobs are lost. Then you have the increase in welfare payments that must be met from making people unemployed.
    To make it simple .let’s say that £1 billion is paid out in wages and salaries. The first thing that happens is around 25% or £250 million is paid back to the government in tax and national insurance. That leaves £750 million. If that is spent on Vat or fuel tax products the Government takes another 20% back. That leaves £600 million to travel through the economy and the same process starts again. You could make a case that the Government will through continuous taxation get all of the £1 billion back.
    There is a saying that goes, Money is never lost, it just changes pockets. That brings us to, what does the government do with the £1 billion they cut from our Block Grant? Do they just send it to another part of the UK economy?

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