Thursday 29 April 2010

There's a cold wind coming

Despite the unanimity of the Northern Irish parties – and Gerry Adams call for unity to counter them – there will be significant cuts in public spending following the Westminster election.

Economic commentator Will Hutton, quoted by the BBC, 'has warned that the NI public sector will face cuts irrespective of who wins the election':
' … in the past 15 years taxes raised in a "bubble economy" in the south east of England had been redistributed to other parts of the UK, including Northern Ireland, through a growth in public sector jobs.'

The Institute for Fiscal Studies (IFS) warned that the UK faces the deepest spending cuts since the late 1970s if the three main parties are to meet their budget commitments. The years between 2011 and 2015 must see the largest cuts since 1976-80, according to the IFS.

What will it mean for Northern Ireland, and particularly for the 'constitutional question'?

Firstly, of course, it will remove the safety net that Northern Ireland has enjoyed since the start of the global economic crisis. Many commentators had remarked that the size of the public sector in Northern Ireland would cushion it from the worst of the effects – and so it appeared to be. Unemployment in Northern Ireland did not rise as fast or as far as in the south. But now, when the rest of the world appears to be coming out of crisis, Northern Ireland may be heading into one of its own.

Although unemployment rates in Northern Ireland are relatively low, recently they have started to increase rapidly. There are only two Northern Irish constituencies in the 'top 25' in the UK in terms of their unemployment rate (West Belfast and Foyle); but in the 'top 25' of unemployment increases during the period February 2009 to February 2010 there are fully eleven Northern Irish constituencies – with East Belfast at number 2, with an increase in unemployment of 51.6% in one year. So unemployment is already racing upwards, and that will increase. At the same time, benefits will probably be frozen or restricted.

This will not provide much support for the unionist mantra that 'Northern Ireland is better off in the UK'. If the cuts come fast and deep (i.e. if the Tories win in Britain) then the effects will be clear in time for next year's Assembly (and local?) elections. Any hopes the UUP may have had of increasing their Assembly presence would probably be dashed, and their hopes of attracting Catholic votes would remain still-born.

In a situation of increasing unemployment and with London appearing to cut back its subsidy to Northern Ireland, the perception of marginality will increase – unionists will increasingly feel let down, and nationalists vindicated. If the south is coming out of recession at the same time (and it is expected to do so in 2011) then nationalists in the north will be reinforced in their belief that the north would be better off in a re-united Ireland – and unionists would have few counter-arguments.

The reaction to the inevitable cuts in Northern Ireland will combine with a period of increasing interest in Northern Ireland's creation (the decade of centenaries), and a narrowing of the gap between unionism and nationalism in the polls – and between Protestants and Catholics in the census.

All of these factors will keep alive – and probably reinvigorate – the constitutional question, just at the time when unionism is hoping to bury it.


JC Skinner said...

ROFL at the Republic exiting recession by 2011.
We all had a great laugh at the ESRI for that spin earlier this week.
The recession will last longer in Ireland than almost anywhere, including Britain, who still have a currency devaluation card to play in a crisis that we handed in a long time ago.
Otherwise, I concur with everything you say. Bad as the South will get, and it will, Unionism will increasingly be struggling to justify London dominion.
I feel the DUP at least are already coming partly to terms with all-island activities.

Paddy Canuck said...

"Britain, who still have a currency devaluation card to play"

Yeah, why be fiscally responsible when you can just inflate your way to prosperity on the backs of your grandchildren? Let those unborn little buggers take the hit! Not like them damn foolish Irish with their ropin' it in because they CAN'T flush the euro down the toilet all on their own...

JC Skinner said...

Everytime the IMF go into a basketcase economy, their prescription is fiscal cuts and currency devaluation.
Devaluing rather than defaulting on sovereign debt IS more fiscally responsible.
And it's infinitely more responsible than lumping 46,000 per capita debt onto the citizens of your nation in return for a bust bank and loads of bogey property loans that will never show a return.
If Ireland could devalue, they would have already, probably more than once, on previous evidence.
That they can't at this point in time is a major problem for them, as it is for the likes of Greece and Portugal.
My point remains - Britain has that card to play and has a number of possible exits from recession.
Ireland does not, is accruing debt at a frightening rate just to balance the current budget, and is seeking to take on tens of billions worth of junk from Fianna Fail's pet bank and specudevelopers.

Paddy Canuck said...

"Devaluing rather than defaulting on sovereign debt IS more fiscally responsible."

Personally, I think paying your bills and learning to live within your means is more fiscally responsible. I don't care how you slice it -- debt is debt. And when you're talking hundreds of billions or trillions of dollars, pounds, euros, whatver, it's the enslavement of the unborn by the living. If Britain were in the euro and perforce had to be a good neighbour (however reluctantly, like Ireland), I think their grandchildren would thank them for it. The ones who'll be paying for inflation's benefits today certainly won't.

Yeah, it's hard for Greece and Portugual, et al., I admit. But people 50 years from now didn't create that problem and it shouldn't be left to them to correct it. It was caused by spending in this generation that was, frankly, unsupportable. It's time people faced up to that. Raise taxes, cut what isn't really crucial, and bite the bullet.

JC Skinner said...

Paddy, you're still missing the point.
Britain is paying its bills. Ireland, just about. All of the British parties intend to introduce cuts to 'live within their means'. Meanwhile Ireland is borrowing at the rate of a half billion euro a week.
As I said before, Britain has options to counter the recession that Ireland doesn't have. It also still has an export base and is not as exposed to global markets as Ireland (world's most globalised economy last three years running.)
Britain is therefore much better placed to ride out the recession, even if there is a currency speculator tilt at sterling.
And Britain doesn't have a NAMA ahead of it either.