Give Stormont more powers to fix economy, says think tank

Ironically it delivered its findings two days before the Secretary of State for Northern Ireland finally cut Assembly members’ salaries in response to their failure to form a working government in Northern Ireland.

The IPPR Commission on Economic Injustice was founded in the immediate aftermath of the Brexit referendum. Many had interpreted the result as a rejection of the status quo and that it provided strong evidence that many parts of society feel that the economy is not working for them.

The Commission, whose members include the Archbishop of Canterbury as well as figures from industry, the City and trades unions decided to examine the state of the UK economy and to propose solutions to reform it.

In the build up to publication a number of detailed reports were also compiled on some of the issues covered in the final document. Scope reported on its examination of the impact of automation and AI on the economy here.

The final report, running to 200 pages is one of the most important analyses of the economy to have been published in recent years and it is intended to start a debate about how we can address the major concerns that it spells out. It has also published the results of an opinion poll it commissioned to test whether people agree with its diagnosis and support the remedies it puts forward.

Remarkably there is overwhelming agreement amongst the public about what has gone wrong and what needs to be done about it. This cuts across those who voted both leave and remain in the referendum, and those who vote both for left and right wing parties. This suggests that it cannot be ignored by policy-makers and that we can expect at least some of its ideas to find  their way into political manifestos, and ultimately government policy.

The report has received media coverage, but mainly around its proposals on taxation. What it has to say about Northern Ireland has not been covered at all which is a pity because what it proposes could totally transform our economy if we ever have a government with sufficient competence to act upon it.

First some context. The report is not an attack on any political party or politician – it stresses that our economic problems have developed under successive governments of all political stripes.

Yet it concludes that “the economy is not working for most people. Earnings that have been stagnant for a decade are combined with greater insecurity at work” with young people hit particularly hard, destined to be poorer than their parents. Whole communities feel left behind.

It is not as if everyone is suffering, however. Some people have been doing very well indeed. And some sectors of the economy are thriving. “. We have global success stories in sectors such as car manufacturing, life sciences, finance and creative industries. The problem is that there aren’t enough of them and too few people have been sharing in them”

The report argues that we need to have a fairer economy, and that a fairer economy will be a stronger one.

It cites five factors that are dragging the UK economy down: what growth we do have is overwhelmingly powered by household debt and rising property prices; we are too reliant on imports; many sectors have low productive which is the result of paying low wages with too many poor quality, insecure jobs; the UK is falling behind in adopting new technologies which further weakens productivity and there are too many sectors where there is not enough competition (in banking, internet services, mobile telephony and the like).

There has been economic growth but it is not reaching the less well-off. The report states that between 1979 and 2012, only 10 per cent of overall income growth went to the bottom 50 per cent of the income distribution, and the bottom third gained almost nothing. Meanwhile, the richest 10 per cent took almost 40 per cent of the total.

The net result is that 14 million people – 22% of the population live below the poverty line, hence the explosion of food banks in recent years.

This disparity between the haves and have nots is geographical too. The report notes “In London, the UK has the richest region in northern Europe, yet the stark fact is that we also have six of the ten poorest regions, making the UK the continent’s most geographically unbalanced economy.”

It argues that the gap between rich and poor areas in the UK has grown far too wide, and that this is an economic injustice which needs to be corrected. It states that more devolution is required to correct this.

Economic power is vested in London – it is surely no co-incidence that that is where infrastructure investment is concentrated. More has been spent on infrastructure in the capital than in the rest of the country combined. And the total value of housing stock in London is now greater than the housing stock of all of Scotland, Wales, Northern Ireland and the North of England combined

Of the devolved institutions it is only Scotland that has any significant economic powers. The report concludes that it is “no co-incidence” that in the last 10 years Scotland has outperformed all other re land border with the rest of the UK.

The report describes the Northern Ireland economy as being “weighted towards low-wage, low-productivity service sectors, such as retail, tourism and health, and although some manufacturing sectors have grown strongly over the past 20 years, in particular chemicals and engineering, they remain a small component of Northern Ireland’s economy. The city of Belfast is one significant exception to this picture.” Belfast is cited as an exception.

It is simply not possible to transform the Northern Ireland economy from Westminster, if only, as the report point out, because Whitehall lacks the local knowledge and commitment. Success will demand the decentralisation of both economic powers and resources.

Scotland is currently able to borrow 15% of its annual capital budget (around £450 million) up to a maximum of £3 billion. The Commission wants to see this increased and for both Wales and Northern Ireland to have similar powers. In addition the Scottish government enjoys devolution of some tax revenues, VAT for example and by 2021 will receive around 50% of its income this way.

In contrast the only devolved taxation for Northern Ireland are rates and passenger airline tax.

Even including Scotland the UK collects the lowest amount of tax at a local level of all G7 countries.

The report concludes: “It is clear why other countries have more decentralised governance. Devolution of control over economic policy has multiple benefits. First, and most basic, is the superior level of attention, responsiveness and insight that sub-national policymakers can give to their economies.”

In relation to the broader economy the Commission wants to see a National Economic Council set up which would include economy ministers from all devolved regions together with representatives of civil society. Together they would draw up plans both for the UK as a whole and for each region of it.

A fund of £10 billion would be set up to address economic imbalance between regions and each would have its own industrial strategy (Northern Ireland already has one in draft form, but no Minister to sign it off).

The Commission also wants to see devolved administrations take over some aspects of immigration policy so that they can fill skills gaps in the workforce if needed.

Finally it wants to see a National Investment Bank with a division in Northern Ireland which would stimulate the economy by providing loans to scale up businesses to help stimulate exports.

The proposals are wide-ranging, and well worthy of further debate. However a functioning government in Northern Ireland would have to be in place – and given all the disturbing revelations that have surfaced in the RHI inquiry we would need some assurance that both Ministers and their departments are sufficiently competent to be trusted with more power.