Austerity in 2010 was a cause of subsequent weak economic output, according to some leading economists. “The UK’s underperformance arguably owes rather more to austerity and George Osborne than to Brexit and David Cameron,” wrote London School of Economics professor Jonathan Portes a few days ago.
Portes, a former government economist, pointed out that the negative divergence between UK economic performance and that of other leading European nations began before Brexit, coinciding more closely with the decisions taken by the Conservative-Liberal Democrat government to cut back on public spending.
The impact of public spending on economic performance and productivity is sometimes overlooked. Take the NHS for one thing. And this an activity where if England is in severe difficulty, Northern Ireland is in mega crisis. Even before Covid, waiting lists here were more than 800 times longer than those in England, when numbers are adjusted for population size.
Examination of the economic inactivity statistics for NI – where our numbers are the worst in the UK – reveals that ill health and disability are among the most common reasons preventing people from working. Given the serious difficulty businesses are currently struggling with in terms of recruiting, it is plain to see the connection between the need for NHS improvement and economic benefits. Not that this is simply a matter of spending more money – rather, there needs to be investment in reform so that expenditure leads to better outcomes for patients, shorter waiting times for consultations and surgery, and also to more people being available to work.
Another example is childcare. The Northern Ireland Fiscal Council recently warned that NI spends less on childcare than the rest of the UK. Yet caring responsibility is another widespread cause of adults being unavailable to work. Unless we invest and spend more on childcare, we are depriving parents (mostly mothers) from being able to work and starving employers of often highly skilled staff. In addition, the usually high cost of commercial childcare can make it barely worthwhile to leave home for work.
The most obvious connection between public spending and economic outcomes is skills. It is our schools, colleges and universities that produce the raw materials that lead to economic benefits for our whole society. As with the NHS and childcare, there needs to be up-front investment in reform, as well as ongoing improved financial support.
NI has one of the worst outcomes in Western Europe for school leavers without strong employability skills – which most specialist observers recognise is an unintended result of academic selection. Those left behind at 11 far too often stay left behind, including when it comes to job opportunities. Meanwhile many employers report needing more young adults with high level relevant skills emerging from our colleges and universities.
These are all examples where we need to be spending more money, not less, at least initially to make core changes to the way our society operates. Austerity imposed here will make this situation worse, not better. We already have NI departments on track to overspend by more than £600m this year, leaving little scope for cuts next year.
However, this is not to say that NI should just take a begging bowl to Westminster and demand extra. There are opportunities to be more efficient, via reform. One example is NI Water – if district rates bills were broken down to show a separate charge for water (without any increase in the total rates bill) then NI Water could borrow against that revenue stream – and invest more to help our economy to grow.
It is a similar situation with the Housing Executive. A change in its constitution could allow it to borrow more commercially, improving the quality of homes and creating a further economic stimulus. Reforms to the NHS, NI Water and the Housing Executive have been stuck in the quagmire of party political rows for years and have not taken place at the scale and speed required.
Analysis of NI spend, compared to other UK nations, provides another insight. Specifically, we allocate more to leisure and culture than other nations, while spending less on transport and the environment, for example. Could we have a public discussion on whether these are the right priorities? We also invest less on the capital projects that can drive our economy forward over the longer term.
Austerity is the wrong choice for any part of the UK, given the evidence of its impact last time. While we need to be spending smarter, that does not mean spending less. In NI, we need investment and reform – in our NHS, schools, universities, childcare. It is the lack of reform in those areas that is a major cause of our economic productivity being around 15% less than that of GB. Cutting spending on those services will only make this worse.