UK public funding shortfall may be costly
NORTHERN Ireland could face its share of a £20bn bill to balance the UK public finances, according to a new report from business advisors, Pricewaterhouse Coopers (PwC).
The latest UK Economic Outlook (UKEO) says that additional tax rises or spending cuts of around 20 billion, over and above current plans, will be needed by 2013/14 to close the UK fiscal gap.
PwC's chief economist, Esmond Birnie, says that in 2009 the Northern Ireland economy shrank by around 4.5 per cent - but due to continued public expenditure this was the lowest level of economic contraction of all 12 UK regions.
He says that the local economy will now grow by around 0.9 per cent in 2010 - marginally ahead of Scotland and Wales – but that the lack of a large and and internationally-competitive private sector, combined with a sharp fall in regional public spending may mean problems from 2011 onwards:
"The Executive has already identified around 370m of savings that it intends to make in 2010/11.
"But if a new government decides to bridge the 20 billion gap by equal measures of spending cuts and tax increases, the Executive faces the challenge of identifying substantial new sources of income or imposing even stiffer cuts.
"Depending on how much central government is prepared to shelter spending on health and education, the Executive could face a further shortfall of between 500 and 700m over the next three years.
"With the private sector lacking the critical mass to make up the shortfall, the prognosis is of a particularly difficult period ahead."
PwC says that the number of people of working age claiming unemployment benefit in Northern Ireland increased by 16,500 - 42 per cent - in the 12 months to January 2010.
The business advisors forecast that unemployment will continue to rise during 2010 from the January level of 56,100 to around 63,000 before the end of the year. However, Esmond Birnie says the requirement for employers to report only redundancies of 20 or more persons, plus a rise of 12,000 in the number of economically inactive people, may collectively serve to conceal the real level of unemployment.
UK GDP is projected to grow by around one per cent in 2010 and around 2.5 per cent in 2011; although consumer spending is expected to remain low, reflecting households' high levels of debt and fears of stiff post-election new taxation and of growing unemployment.
PwC says these concerns will extend to Northern Ireland and forecasts that the local economy will grow by around 0.9 per cent in 2010, but subdued domestic and consumer demand and the lack of a large core of high added-value private sector exporters, could restrict growth to around two per cent in 2011.
The report warns that employment and growth prospects for private sector companies remain uncertain with business confidence still low. PwC says Northern Ireland employers are reporting increased input costs combined with an inability to increase output prices and sustain profitability. Around a third of private sector employers have told PwC that they expect to operate during 2010 in survival mode.
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Tuesday 14 February 2012
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