Stormont hits the iceberg – what now?

As Northern Ireland’s devolved institutions shudder, where now for welfare reform, corporation tax and political stability?

First Minister Peter Robinson and Enterprise Minister Arlene Foster had been planning to head to the United States this weekend to celebrate St Patrick’s, complete with a story of political stability and a pending reduction in corporation tax to 12.5%. The intention was to start on the West Coast, with industrialists there, and then cross over to Washington DC. They would perhaps have said a few words about improved working relationships, seeing off doubters, and even the power of compromise. Oh dear.

What has happened is probably a lot simpler than many are trying to make it – from its point of view, Sinn Fein negotiated very badly ahead of the Stormont House Agreement. In return for Welfare Reform (which it had presented as “Tory cuts”), there would be “£2 billion extra spending power” (none of which consisted of truly new money under the Executive’s sole competence) and “an all-Ireland corporation tax”. This was always going to be a hard sell ahead of key elections, and at the weekend’s Ard Fheis it proved impossible to sustain.

Welfare Reform

The Welfare Reform Bill was due to pass Final Stage this week, and would probably have received Royal Assent mid-month. The reason for the speed was to get it implemented as soon as possible, thus avoiding the repayments (commonly but erroneously referred to as “fines” or “penalties”) due for running a different system from the rest of the UK under “parity“.

The Bill is almost identical to that passed by the UK Parliament for Great Britain in 2012.

However, Sinn Fein’s stated intent to use a Petition of Concern, backed by the SDLP and Greens, would have seen it defeated – thus, the Bill would have fallen. DUP Minister Mervyn Storey thus opted not to move it (i.e. remove it from the schedule), leaving the Bill stalled (but not fallen) pending negotiations.

Quite what this means is anyone’s guess.

It is well to be prepared for just about anything, but currently we would not expect to see the Bill back before the Assembly this side of the UK General Election on 7 May.

Corporation Tax

The passing of the Welfare Reform Bill through the NI Assembly was directly and deliberately linked in the Stormont House Agreement to the passing of a Corporation Tax Bill through the UK Parliament for operation potentially as early as the 2017/18 financial year.

The delay on the former means the latter – implementation of a reduced rate of Corporation Tax in Northern Ireland as per the draft – will surely not now proceed in time for 2017/18. We have remained of the view all along that it is unlikely ever to proceed, as public opinion was already shifting against (in a way to which Sinn Fein and other parties would be likely to respond).

Institutions

The Ulster Unionists have suggested the Welfare Reform Bill was necessary to the Stormont House Agreement, and the Stormont House Agreement was necessary to Stormont itself remaining in operation. This is the same logic as past statements from the DUP leadership.

Certainly, the first part of this is true – the Stormont House Agreement did hinge on a resolution to Welfare Reform, and that resolution has now unravelled. Thus, in effect, the Agreement no longer applies unless it can be put back together by a further deal (in practice between the DUP and Sinn Fein) on Welfare Reform. Whether the devolved institutions depend on the Agreement is more debatable.

The more immediate problems are financial. Without a deal on Welfare Reform, the Assembly Budget, which was the immediate reason for crisis last autumn, is no longer correctly assessed. The 2015/16 Budget assumed implementation of Welfare Reform halfway through the financial year and removal of repayments for breaking “parity” from then (an effective saving versus the previous year of between £40m and £57m); this is no longer the case. However, it also assumed a significant fund for “mitigation”, which presumably will not now apply either (this would go about halfway to addressing the balance).

In the longer term, the unravelling of the Stormont House Agreement may mean the removal of all the UK Government’s commitments – on spending on Shared Education and the Past, on higher borrowing limits, and even perhaps on switching money from current resource to capital to pay past debts. The most obvious victim of this would be the Voluntary Exit Scheme through which 10% of Northern Ireland’s public sector workers are being encouraged to leave service in return for a pay-out; this would no longer be viable without the borrowing and permission to use capital spending.

Politically, there is the suggestion that the institutions will now collapse, causing an Assembly Election to coincide with the UK General Election on 7 May. This is unlikely as, strictly, the timescale does not allow it even in the event of immediate resignation. 

Financially, it is a marginal problem for 2015/16 which can probably be address in Monitoring Rounds. In the longer term, it is a more serious problem, although even then limited by the fact that much of the vaunted “£2 billion extra spending power” was not really extra money. There is a real risk, however, that the “Voluntary Exit Scheme” will be abandoned, replaced by “natural wastage” and surely, in some specific instances, compulsory redundancies.

Current position

The Assembly’s plenary sessions have been suspended, but the Assembly itself has not. The party leaders met within hours of Sinn Fein’s announcement, as they are collectively responsible for implementation of the internal side of the Stormont House Agreement.

In theory, life goes on as normal, just without a Welfare Reform Bill (or, in practice, the financial deal agreed at Stormont House). In practice, it is likely that the British Labour Party’s call for the UK and Irish Government to reconvene talks will be heeded, with Secretary of State Theresa Villiers now coming to Stormont, although quite how much time the UK side would wish to put into it within two months of a General Election is dubious.

Stormont is rarely dull – even if sometimes we may wish it were!

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