Budget
The first Conservative Budget for 19 years was delivered by George Osborne. Colm Heatley looks at the impact on Northern Ireland and measures the local political reaction.
While George Osborne only made passing reference to Northern Ireland as he delivered the first Conservative budget at Westminster for 19 years, some of its key proposals are likely to impact Northern Ireland more than any other region, especially given the ongoing debate over welfare reform in the region.
It was a budget which both gave and took. The measures which grabbed the headlines included Osborne’s setting of a new national `living wage’ at £7.20 per hour, effective from April 2016, a freeze in working age benefits for four years and a cut in tax credits and universal credit. Additionally corporation tax will be cut to 18 per cent by 2020 while public sector pay rises will be capped at 1 per cent per year until 2019.
With an economy dominated by small businesses, a political system deadlocked over the implementation of welfare cuts, the recent introduction of a “fantasy budget” and long-standing calls for a reduction in the rate of corporate tax to boost the economy, it isn’t hard to see why George Osborne’s budget has particular significance for Northern Ireland.
Political lines were quickly drawn. While all parties expressed concern over the impact of welfare reform for the region, Sinn Féin described the budget as an “ideological attack’’ on the welfare system whereas the DUP said it underpinned the urgency to find an agreement for Northern Ireland.
Under the chancellor’s welfare proposals, working age benefits, including tax credits and housing allowance are to be frozen for four years, starting in 2016. Child tax credit will be limited to two children from 2017; currently families relying on credits receive £2,800 per child, with no limit on the number of children eligible. This measure is likely to impact on Northern Ireland more than any other region.
In 2012/13, the last year for which full statistics are available, data shows that benefits and tax credits contributed
22 per cent to household income in Northern Ireland, six percentage points above the UK average. Additionally family size in Northern Ireland is higher than the national average. The income threshold for tax credits is also to be reduced by almost 40 per cent to £3,850 from its current level of £6,420.
The introduction of a national living wage at £7.20 per hour for over 25s, (the current minimum wage is £6.50), and set to rise to £9.00 per hour by 2020 will impact small businesses, especially those in hospitality and retail, which according to the Low Pay Commission are the sectors with the highest proportion of workers on the minimum wage. Tourism currently contributes around 5 per cent of Northern Ireland’s GDP and has been marked out by Stormont as a key strategic growth area.
However, Osborne has also offered a cut in National Insurance contributions for employers. From April 2016 business will have their employer National Insurance bill cut by £1,000, meaning, says the Government, businesses will be able to employ four people full-time on the national living wage and pay no National Insurance at all.
The capping of public sector pay rises to 1 per cent a year until 2019 will be felt more in Northern Ireland than elsewhere. Currently public sector employment accounts for just under 28 per cent of the total workforce in Northern Ireland, compared to 24 per cent in Wales,
22.1 per cent in Scotland and just 17.4 per cent in England. It remains to be seen how this measure will bed in, especially after the public sector strike in 2015, which was one of the biggest in the region for years.
Aside from political considerations, Osborne’s budget is largely motivated by a desire to reduce the budget deficit, currently at 4.9 per cent, with the aim of running a surplus by 2020. To help achieve this, the budget has a total of £12 billion in savings from welfare reform by 2019-2020, £5 billion savings from combating tax avoidance in the same period and has an additional £20 billion earmarked in the Autumn budget. Again Northern Ireland with an average annual public expenditure per head of £10,867, the highest in the UK, will be most impacted.
The commitment to reduce the rate of corporation tax to 18 per cent by 2020, with an interim cut to 19 per cent in 2018 is good news for Northern Ireland. Not only does it bring it closer to the Republic of Ireland’s 12.5 per cent rate, more significantly it would reduce the cost to Stormont of reducing the rate still further. The British government has already signaled that the executive must shoulder the cost of cutting the company tax rate to a level on a par, or below, the Republic’s rate, so this measure could potentially save Northern Ireland tens of millions going forward.
Other more general measures included in the budget were, the setting of the Annual Investment Allowance at £200,000, a freeze on fuel duty and an increase in tax free allowance to £11,000.
DUP Finance Minister Arlene Foster said that while she had reservations about the impact changes to tax credits will have on people in the region, the measures contained in it should come as no surprise.
“The budget clearly reflects the UK government’s policy aspirations,’’ she said. “It is now time for the Executive to face the reality of the financial context and agree a way forward on the local implementation of welfare reform. We have an unsustainable budget position for 2015-16 and we must press ahead with the implementation of the Stormont House Agreement.’’
Sinn Fein MLA Conor Murphy described the budget as an “ideological commitment to attack public services.’’
“It was a clear assault on working families and those on low pay,’’ he said. “The reality is that the austerity agenda of the British government is at the root of the problems facing the executive. Those difficulties have been compounded (by the budget) and plans for a further 20 billion pounds in cuts to public services in the Autumn.”
The UUP had an upbeat assessment of the budget, focusing on the cut in corporation tax.
“It will be good for the economy and it will also make the cost of lowering the rate of corporation tax in Northern Ireland to 12.4 percent much more affordable,’’ the party’s Adrian Cochrane-Watson said.
The SDLP’s enterprise spokesman Patsy McGlone said the budget was not one for working people and described it as a “disaster.’’
“We said we could not do a deal on welfare reform until we knew what the Chancellor’s plan was,’’ he said. “We take no joy from being right.’’
The Alliance Party’s Stephen Farry echoed the comments of the UUP and DUP, expressing concern at the impact of some measures while stressing that the budget should act as a catalyst for a comprehensive budget deal between Northern Ireland’s parties.
With the clock-ticking on the Assembly’s lack of agreement on a budget and welfare reforms it remains to be seen whether Osborne’s measures can indeed spur a deal or entrench positions.
• New national living wage (over 25) £7.20 an hour April 2016: £9.00 by 2020
• Inheritance tax threshold to increase to £1m, phased in from 2017, new £325,000 family home allowance
• Personal allowance: people start paying tax £11,000. 40p rate threshold to rise to £43,000 next year
• Mortgage interest relief for buy-to-let homebuyers to be restricted to basic rate of income tax
