INTERVIEW: With London unveiling its spending review, the Assembly must get its balance sheet in order. FRANCES McDONNELL interviews Northern Ireland Minister for Finance Sammy Wilson
OPPORTUNITY COST is a concept Northern Ireland's Minister for Finance is more than happy to embrace. However, former economics teacher Sammy Wilson fears many of his ministerial colleagues in the North's Executive have yet to come to grips with one of the science's most basic notions which measures the cost incurred for not being able to do something because you have chosen to do something else - in terms of your time or your money.
After next Wednesday, every Minister in Northern Ireland will have no choice but to put the concept into practice as the coalition government in Westminster unveils the results of a Comprehensive Spending Review that will set out the government's four-year spending plans.
That the review will contain drastic public expenditure cuts designed to help the UK get its £109 billion (€124 billion) annual structural deficit under control has been well-flagged. The UK is paying about £120 million a day in interest charges to service its deficit. In the budget last June, David Cameron's government signalled that spending would be £83 billion lower in four to five years' time.
The review will, according to the UK treasury, "necessitate some tough choices about how the government allocates spending" because of the scale of Britain's deficit. What this means for Northern Ireland is that it is likely to lose a slice of the annual subsidy it receives from the treasury - more than £9 billion, roughly £5,000 per person in the North.
Northern Ireland's political leaders have been campaigning for a special dispensation from any sweeping social cuts. They argue that a deal struck with the previous Labour government as part of the peace process in 2006, promising investment of £18 million over 10 years, should be honoured.
But there is strong speculation the North could see budgets cut by more than £2 billion in the review. In this worst-case scenario, PricewaterhouseCoopers forecasts 20,000 public sector job losses and 16,000 private sector job casualties.
According to the Minister, it is inevitable people in Northern Ireland will be out of pocket. "We know that is going to be the case in a UK context. If you are trying to reduce the amount of money spent in the public sector and close a gap between the things that we want to do and the amount of money Westminster gives us, then there are bound to be implications for individuals.
"That happens in all of our personal lives. As a nation, we have had 10 good years where money was being spent by the government. We were overcommitted - we are now borrowing £1 in every £4 that is spent in the public sector," says Wilson. "Individuals know they couldn't do that in their households for ever - they would have to start cutting back, there would be things they could no longer do that they used to do."
He expects any proposed cuts will be greeted initially with hostility but he hopes in the long run people will see potential cuts for what they are. "I think people understand we have to reduce spending. People also know that, if you don't fix that, eventually you are going to hit the buffers. We've all benefited during the good times but we are going to have to tighten the belt during the hard ones."
Wilson is the first Northern Ireland Minister for Finance in the Assembly's short history to be in a position where he must look for ways to save money and ask colleagues to make cuts. He is resigned to "difficult days" ahead.
"It is a new experience for us all. For the whole period of direct rule, we were always able to blame someone else or tell someone else to sort out whatever financial problems there were. And during most of the devolution period, we were able to give goodies to people and now that is going to end," he says.
Some of the goodies he refers to include the Assembly's decision to freeze the domestic regional rates, award free public transport for people over 60 (which currently costs about £30 million a year) and dispense free prescriptions which costs the Department of Health about £13 million.
He is not of the opinion that anyone who can afford to pay for a prescription should be getting it for free and hints that "goodies" could be the first things to come under review following publication of the review on Wednesday.
The Minister is keen to stress that, despite the concerns about Westminster's drive to cut public expenditure overheads, the Northern Ireland Executive will still be "spending significant amounts of money" in the local economy.
"We are expecting to take a hit of less than 10 per cent on current spending and over 30 per cent on capital spending over the four-year period. But that still leaves us with over £10 billion that we are spending, plus whatever comes though on welfare and other benefits on top of the money that is handed down to us from Westminster.
"I do want to put it in context because there is this impression almost that government activity is going to implode at the beginning of the next financial year in Northern Ireland and that is not the case."
He admits, however, that the North will be in a very "different position than we have been in for the whole period of devolution". It will, the Minister predicts, be something of a culture shock.
He expects there will be some resistance to any cuts, particularly in light of the fact there are elections in the North next May.
"I suppose it will be a test of the maturity of the Assembly. People are going to have to raise their hands for difficult decisions, some of which are not going to be all that popular. But it is part of the responsibility.
"I would prefer, like everybody else, to be able to say to everyone who comes to the door, 'I can sort that out for you; here's a few more pounds'. Politicians like that. They like to be able to do popular things. I don't think anyone relishes the fact that they are making announcements that might see people lose their jobs or make it more difficult for people to pay their mortgages."
For the first time in Northern Ireland, politicians will be faced with crucial spending decisions that will impact on everyone's lives.
"I can't say 'let's just hope that Westminster gives us more money' when I know they are not going to or 'let's just resist the cuts' when I know that we have a budget that we have to present to the Assembly. We can't stick up a poster and say resist the cuts.
"If you don't take resolute action, you will make that pain even worse for people. Indecision sometimes in these things makes the problem far, far worse," he warns.
He agrees that Northern Ireland presents its own particular economic conundrum even before any proposed public expenditure cuts are taken into account.
"We don't have all that much control of the levers of the economy. We are a regional economy, 90 per cent of our budget is determined by decisions made by the treasury on a strict formula which is not negotiable. The other 10 per cent we have some control over, because we can raise revenue locally and we can make decisions about the priorities that there are."
But as a former assistant chief examiner for A-level economics in the North, he is more than aware of the "implications of not doing things".
There is one rule that most economics students learn in the first week that some Northern Ireland politicians have still not grasped throughout their whole time in the Assembly, he says. "If you choose one thing, you can't have the other - it's the whole concept of opportunity cost. You have a finite amount of resources available to you and that means if you decide to do this with it, then you can't do the other with it.
"If the pool of resources is reduced, you have to make choices within that limited pool or with that smaller cake. That is the most important lesson that needs to be learnt in this current climate - we have to make a choice," Wilson says.
He has put three questions to each of Northern Ireland's 12 government departments in advance of the spending review.
"First of all, can you find efficiencies within your departments? Secondly, can you reduce the amount of bureaucracy within your department? And thirdly, are there things your department is doing that aren't really all that high priority that wouldn't have a big impact if you stopped doing them?"
These, he believes will form the foundations for building a new budget in the North, but the Minister is convinced that Northern Ireland will also have to find new ways of raising cash itself. "Given the scale of the reductions, even if you do all those things, we are still not going to be able to bridge the gap. We have to start looking at other things to raise money. There has to be a balance between making reductions in how much money we spend as well as are there things we can raise revenue from.
Source: Irishtimes.com
