Esmond Birnie: ​UK economy suffers from a lack of investment but NI is even worse

By investing we will probably end up with less jam today but we do create the capacity to have much more jam tomorrow.

A lack of investment is also a major reason why output per person or per worker tends to be lower in the UK as compared to many other economies: the British productivity problem.

Some commentators blame a lot of this on Brexit but the chronically low level of investment long pre-dates 2016. That said, anything which increases the cost of doing business in Northern Ireland may be harmful to investment levels, and that includes not just Brexit but the particular policies associated with it such as the Protocol/Windsor Framework.

Whilst we have a UK-wide problem, what is especially worrying for us is that the position here in Northern Ireland appears to be even worse.

Our rates of investment, whether by businesses or the public sector, fall behind even the fairly low standards set by the rest of the UK.

That reduces our capacity to have sustained improvements in prosperity.

We know that Northern Ireland investment rates are very low because of some innovative research published last week (August 30) by the Northern Ireland Statistics and Research Agency (Nisra) (Structure and Performance of the NI Economy 2018 and 2019).

This showed that the total size of the Northern Ireland economy, ie Gross Domestic Product (GDP), in 2018 was £47.6bn and then £50bn in 2019.

It also showed that household consumption represents the bulk of the regional economy, ie £30bn, with government spending a further £13bn and then investment (‘Gross Capital Formation’) £7.1bn.

The exports from the region and the imports coming in were roughly the same.

That investment level of £7.1bn may seem a considerable sum of money but it is important to compare the rate of investment with that in the rest of the UK, ie investment per person in the population.

Nisra show that Northern Ireland’s investment rate is only £3,775 per head of the population compared to the UK average of £6,121.

The Northern Ireland rate is only about 60% of the UK average.

Northern Ireland already faces the challenge of the Irish Sea border, which will be intensified in October.

In the same way that there has been very little interest in investment levels in Northern Ireland, similarly there has been very little interest in how that trade barrier will raise business costs here.

If costs are higher businesses will be even less inclined to invest.

I’m also surprised how little concern there is about the on-going public expenditure implications of the Windsor Framework. Central to the framework is the continued operation of the TSS (Trader Support Service). During 2021 and 2022 £170m was spent on the TSS in each year. So, what is the long run public expenditure implication of the framework? Is this an effective use of public money and who, ultimately, is going to foot this bill – Stormont or the UK government?

Or will the TSS disappear, and be a further burden on businesses who are already not investing enough?

Does the lack of investment really matter? Yes is does.

This is especially so if we are concerned about Northern Ireland’s economic livelihood not just for the current generation but for future generations.

Our public choice to emphasise jam today translates into an industrial and commercial sector which, on average (there are obvious notable exceptions) is less innovative than its counterparts elsewhere.

Jam today policies in the public sector mean our provision of infrastructure and hence service delivery is falling behind elsewhere.

And none of this takes into account the truly enormous investments which are going to be required to hit carbon zero standards, whether in terms of re-fitting household heating or shifting to electric vehicles.

It remains fundamentally unclear how Northern Ireland is going to pay for that bill.

It is all very well having the optimism of Gone with the Wind’s Scarlett O’Hara regarding ‘Tomorrow, is another day’ but sometimes the financial problems of today will be the same tomorrow.

All this represents a subtle but profound problem.

Sadly, this dearth of investment hardly figures in political debate.

There seems to be a general public and political reluctance to accept that if we want more of certain desirable things we will have to find resources for those things, sometimes at the expense of other things we might also wish to have.

Rather than face hard decisions the tendency has been to always lean in the direction of supporting consumption much more than investment: Jam now rather than next year or the year after.

We don’t have domestic water charges, welfare benefit receipt rates are well above the UK average, we try to maintain pay parity with Great Britain, sometimes funding for public capital spending has been switched to fund current spending, and so on.

There may be arguments for many of these policies but taken together they represent our long run bias towards the jam today economy.

Of course, some will say, this situation is yet another reason why Northern Ireland has an urgent need of a restored regional government.

I would sound a note of caution about that.

A truly accountable government would, of course, be desirable in a number of ways but we have got to remember that our current economic predicament – especially in terms of the lack of investment – is the result of decisions made by Northern Ireland administrations, whether devolved or direct rule, over the decades.

A French prime minister of the 1950s said ‘To govern is to choose’.

Hitherto, those who have wished to govern Northern Ireland have been very reluctant to make the hard choices but this is not sustainable.

If we want a more prosperous future we must invest more.

Dr Esmond Birnie is Senior Economist, Ulster University Business School