Another wasted year for building economy

Comment
Comment

It seems that 2014 has been another wasted year in terms of building the local economy.

There have been many welcome announcements from international businesses setting up here and shiny office blocks are starting to fill up with new employees. Unfortunately these much-heralded newcomers are the icing on an insubstantial cake.

Headline employment figures are moving in the right direction but at a much slower rate than elsewhere in the UK, and Northern Ireland continues to have the largest proportion of economically inactive people of any UK region.

Youth unemployment remains particularly problematic, with 21 per cent of under 25-year-olds jobless, compared to 15 per cent on the mainland. This is worrying as it creates a pool of disaffected young people for gangsters and extremists to exploit.

Figures produced by the NI Statistics and Research Agency have revealed that for 2013 output per person here grew by less than one per cent, while the north west of England and Wales, regions often used as benchmarks for Northern Ireland, both grew by 3.4 per cent, highlighting that Northern Ireland failed to bounce back from the recession with the same vigour. Other British regions recorded growth of between two and three per cent.

There is now a clear trend showing Northern Ireland’s economy diverging from that of the rest of the UK.

According to Ulster Bank economist Richard Ramsey, our economic prosperity, relative to the UK, is now lower than at any time since 1997 (when the relevant records began).

Another economist, Esmond Birnie of accountants PwC, said that the gap between Northern Ireland’s economy and the UK as a whole has become a “gulf”. He noted: “There certainly is clear evidence of recovery, but it is more about slowly catching up on where we were in 2007, than demonstrating real growth of the kind being achieved by other regions outside London.”

The gap with the UK economy was closing in the period following the end of the Troubles, before the economy was hit by the wrecking ball of the recession. At the time a complacent Stormont grandly declared that “Northern Ireland was well-placed to weather the economic storm”, and the political class went back to their expenses forms and did nothing of substance to prepare for the downturn.

Despite repeated warnings over many years and from many quarters that the public sector here is too large, too expensive and unsustainable, Stormont has failed to rebalance the economy.

In the two years to March 2014, public sector employment rose by almost 1,800 and civil service salaries have continued to grow faster than earnings in the private sector. This has cemented the anti-business ethos and makes it difficult for employers to recruit the best staff.

CBI NI director Nigel Smyth recently said: “Average earnings in the public sector still remain unsustainable, and unaffordable, 40 per cent above private sector levels.”

As a result of Stormont’s failure to act we are now facing a very hard landing as government funding dries up.

And what of the economic future?

In a recent report, PwC, a business usually noted for adopting a cautious and diplomatic tone, has reported that Stormont’s financial plan for the next two years “does not really balance” and “fails to provide fundamental reform”.

PwC’s analysis also suggests that economic growth here is set to slow down. Noting that this year’s economic growth of around 2.2 per cent is being fuelled by consumer spending, the firm predicted that next year economic growth will fall to below 2 per cent, the lowest rate of improvement for any British region.

The report noted that the rise in consumer spending is a result of withdrawing savings or increasing personal debt rather than real economic growth.

Getting to the crux of the economic challenge, PwC reported: “The disproportionally small private sector cannot compensate for the sharp decline in both public spending and anticipated public sector employment, with modest growth in manufacturing sales and exports being delivered by fewer than a dozen companies.”

The PwC report concluded: “The overall outlook for NI is particularly downbeat.”

Elsewhere in the world, politicians would be convening emergency summits on how to get the economy kick-started, opposition parties would be lambasting the governing parties for their mishandling of the economy, and everyone would be promising to get their act together for the future.

The occasional principled politician might even apologise and resign.

Not in Northern Ireland. In typical form, Stormont spin doctors took aim at the messenger.

A spokesperson for the Department of Finance said PwC’s report lacked “any worthwhile insight or understanding of the complexities of public expenditure” and showed “...a deficit in depth of knowledge and analysis.”

No amount of official protest can hide the fact that we have an economy that is falling behind, a widening gap with the rest of the country, no plan that analysts consider credible, and no preparations for significant structural reform.

In the latest attention-seeking crisis show the political class stood shoulder-to-shoulder and pushed out a begging bowl. It was a deeply shaming spectacle.

It is understandable that the nationalist and socialist parties would seek to undermine the economy or to promote welfare dependency and maintain an excessive state sector, but unionists really should be thinking about how continued economic underperformance is now a festering sore that is poisoning our relationship with the rest of the United Kingdom.

l The PwC ‘Northern Ireland Economic Outlook’ report can be read at http://pwc.blogs.com/files/nieo-final_171214.pdf