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Welfare Reform: what next for Northern Ireland?

Today sees the debate on the final stage of the Welfare Reform Bill in the Northern Ireland Assembly. Given the Petition of Concern brought forward by both Nationalist parties (and the Greens), it is bound to fall.

What next?

Firstly, the Northern Ireland Assembly becomes bound to pay for Northern Ireland’s welfare system in its entirety. This will cost £300 million per year extra, plus whatever the set-up costs are for the separate systems (notably IT and general administration) which could run past £1 billion.

Secondly, December’s Stormont House Agreement falls. The UK Government’s enabling of transfers between current and capital spending (including for the voluntary exit scheme for public servants), its allocation of funding for Shared Edcuation and Dealing with the Past, and the passage of the Corporation Tax Bill are all predicated on Welfare Reform proceeding. This also means that agreement with the UK Government on extension of loans and loan repayments will no longer apply.

Thirdly, it becomes impossible to fund Northern Ireland public services based on a Budget predicated on the arrangements of the Stormont House Agreement and the UK Government paying for welfare. The Civil Service would have to take over and could spend only baseline amounts (effectively 90% of last year’s base budgets without any extra resource allocations) – effectively a 28% reduction in current resource spending overall (with welfare costs included).

Clearly, the latter situation is unthinkable.

Other options remain:
– the return of a Welfare Reform Bill to the Assembly under accelerated passage and with priority (it is unconventional for a fallen Bill to return in the same legislative term, but much about Northern Ireland government is unconventional!)
– an amendment to the Welfare Reform Act 2012 in the UK Parliament to extend it to Northern Ireland (again, this would be unconventional without Legislative Consent, but is theoretically possible);
– an amendment to the Northern Ireland Act 1998 in the UK Parliament to add “welfare” to the list of reserved matters (also unconventional, but now surely the most likely course of action). Any of these itself would come with a significant risk. The first could again see the Bill fall; the second would cause (at least feigned) outrage at the UK Government overruling the local representatives without a local mandate; the third would lead to public questioning about whether other things should also be “un-devolved”.

In theory, there is no threat to the Executive and Assembly themselves. Any of these things could happen and it would continue to operate as normal. However, they would lead to further public disenchantment with the Assembly’s ability to make decisions in the real world – given serious concerns about Health reforms, debates over progressive social policy, and gridlock in the school transfer system. It is inevitable that these will at least lead to a reform of the Assembly’s operations (perhaps most obviously the Petition of Concern); it could also lead to a resignation of First or deputy First Minister forcing an election, but it is hard to see how that solves very much. Any “return to Direct Rule” is a remote prospect, literally – it is only feasible after an Assembly Election which fails, for any variety of reasons, to form an Executive.

As we know from the past month, nothing is predictable!

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UK Election: Projections

Our UK projection appears in a pdf here.

In Northern Ireland, we project:

Antrim, East – DUP hold (Wilson by 20 points)
Antrim, North – DUP hold (Paisley by 25 points)
Antrim, South – DUP hold (McCrea by 10 points)
Belfast East – DUP gain from AP (Robinson by 10 points)
Belfast North – DUP hold (Dodds by 10 points)
Belfast South – SDLP hold (McDonnell, possible recount)
Belfast West – SF hold (Maskey by 40 points)
Down, North – Ind hold (Hermon by 15 points)
Down, South – SDLP hold (Ritchie by 15 points)
Fermanagh & South Tyrone – SF hold (Gildernew, possible recount)
Foyle – SDLP hold (Durkan by 10 points)
Lagan Valley – DUP hold (Donaldson by 30 points)
Londonderry, East – DUP hold (Campbell by 15 points)
Newry & Armagh – SF hold (Brady by 10 points)
Strangford – DUP hold (Shannon by 20 points)
Tyrone, West – SF hold (Doherty by 25 points)
Ulster, Mid – SF hold (Molloy by 25 points)
Upper Bann – DUP hold (Simpson by 5 points)

Guide to UK General Election

The United Kingdom General Election takes place on Thursday, 7 May to elect 650 members of the House of Commons, the primary legislative chamber in Parliament.

Government

Unlike in other countries with Presidential systems (such as the United States and France), the outcome also determines the Executive – in effect, the House of Commons is also the “Electoral College” which will endorse or reject a prospective Prime Minister and his/her Cabinet of Ministers.

Typically, since the War, a single party has held the majority of seats in the House of Commons and has therefore been able to form a single-party government with its Leader as Prime Minister. Where no single party has a majority (as was the case at the last election and in February 1974), it is said to be a “hung parliament“.

System

The electoral system is simple yet controversial. 650 Members of Parliament (MPs) are elected individually from 650 “constituencies” of roughly equal size (533 in England, including 73 in London; 59 in Scotland; 40 in Wales; and 18 in Northern Ireland – London is under-represented and Wales over-represented currently). The candidate achieving the highest number of votes is elected directly – there are no “run-offs” or preferential voting, nor is voting compulsory.

In practice, this system favours larger and regional parties (Conservative, Labour, SNP, DUP) and frustrates smaller parties with evenly spread support (Liberal Democrats, Greens, UKIP).

Results in each seat are often shortened to give the name and party of the winning candidate plus the number of votes they won by – so, if he/she wins by a gap of 1,000 votes, this is referred to as a “majority of 1,000” (a specifically electoral term – no doubt it jars with mathematicians!)

Phraseology

The constituencies are identical in 2015 to those in 2010. This means that, during Election Night, it will be possible to predict the overall outcome even from early results, depending on whether each party’s vote share is generally up or down – this includes a concept, for comparing Conservative versus Labour performance, known as “swing” which shows how many seats each party would take from the other if each of the two parties’ vote shares changed similarly across Great Britain.

Results are generally declared compared to the previous election. Where the same party wins the seat, it is declared a “hold“. Where a different party wins the seat, it is deemed a “gain” (this equates to the American “pick-up“). Where specifically an incumbent MP loses a seat, he/she is said to be “unseated“. (Occasionally, where a seat has been lost during the term, for example through a defection or by-election, other terms are used – “win” for if the seat is retained by the party holding it at dissolution of the last parliament if that is different from the one which won it at the last General Election; “regain” if it is regained by the party which won it at the last election but lost it during the term. Nevertheless, the overall scores are now typically tallied solely by “holds” and “gains” versus the previous General Election, regardless of what happened in between.)

A constituency which is close is said to be a “marginal” (equivalent of an American “swing state”). A constituency which is predominantly urban (known as a “borough constituency”) has different spending limits from one which is predominantly rural (a “county constituency”) – as well as being smaller, urban areas typically see lower turnout and thus declare their results much earlier.

Parties or candidates which form a common “faction” in the House of Commons are said to “take the whip“, meaning that they agree to vote the same way on every issue where there is an agreed party line. This is most notable with regard to Northern Ireland: the Ulster Unionists traditionally “took the Conservative whip” until 1973 (and expressly would have done so again in 2010 had they won any seats); the SDLP does “take the Labour whip” (although has not absolutely committed to it from 2015); the Alliance Party, although aligned in Europe, currently does not “take the Liberal Democrat whip”.

The final UK General Election outcome is declared usually in terms of the largest party and how many seats it is above or below an absolute majority (for which 326 of 650 seats are required). The 2005 result, therefore, is stated as “Labour victory with a majority of 66 – meaning that Labour had 66 more seats than all the other parties put together; the 2010 result is stated as a “Hung Parliament with the Conservatives short by 19″ – meaning that the Conservatives were the largest party, but needed another 19 seats to have a majority over all the other parties.

Typically, a majority of over triple figures (as in 1945, 1959, 1983, 1987, 1997 and 2001) is referred to as a “landslide“, giving the winning Prime Minister huge freedom and leeway in Parliament; a majority of between 20 and 100 (1955, 1966, 1970, 1979, 1992 and 2005) is referred to as “working“, giving the winning party enough room to lose a few seats during the term and still serve for the full five years; any majority of less than 20 is referred to as “narrow” and is seen as unstable and usually precipitates an early election (which is possible even under fixed parliaments by losing a Vote of No Confidence, as last happened in 1979).

Position

In 2010, the outcome was:

  • Conservatives 307 (including one delayed by-election) – Conservative whip 307;
  • Labour 258 in Great Britain only, plus SDLP 3 in Northern Ireland – Labour whip 261;
  • Liberal Democrats 57 in Great Britain only – Liberal Democrat whip 57;
  • SNP 6 in Scotland and Plaid 3 in Wales – Nationalist whip 9;
  • DUP 8 in Northern Ireland – DUP whip 8; and
  • Greens 1 in England, Alliance Party 1 in Northern Ireland, an Independent in Northern Ireland, and the Speaker (from England) – non-aligned 4.

This adds up to 645 – Sinn Fein in Northern Ireland won five seats in 2010 but does not sit in the House of Commons.

This outcome gave the Conservative/Liberal Democrat coalition subsequently formed a “majority of 76″.

Versus 2010, therefore, this means the Conservatives need 19 net “gains” for an absolute majority and Labour needs 68 (perhaps a couple fewer if the SDLP in Northern Ireland continues to take its whip, as it has since foundation in 1970). With Sinn Fein likely to retain four of five seats (not actually taken) and the Speaker retaining one (bound by convention to vote with the government, with minor exceptions), in practice 322-323 seats would theoretically suffice for a majority.

So, with the Conservatives needing 19 net gains and Labour 65-68, where are the marginals and how will Election Night run?

2200 BST – Polls Close

Polls close at 10pm across the UK, and instantly broadcasters will provide the result of an “Exit Poll” taken in marginal seats, announced in terms of seats won (as opposed to vote share).

This is generally extremely accurate – in 2010 it projected Conservative 307 (actually 307), Labour 255 (258), Liberal Democrat 60 (57). Likewise in 2005, it had the Labour total absolutely accurate and the Conservatives and Liberal Democrats within 10. Even as long ago as 1970, the exit poll in a single constituency proved more accurate than the pre-election polls taken across the country.

The most notorious exit poll was in 1992. It was about to project a Labour majority but was changed within seconds of 10pm to declare a “likely hung parliament, Conservatives short by 23” – in fact, the Conservatives had won with a 21-seat majority. Nevertheless, this was a highly unusual election and, in any case, exit polling has improved vastly since.

2245 – First Declaration

Sunderland South (actually now “Houghton and Sunderland South”) has been first to declare since 1992, and will likely be so again.

In 2010, this seat was: Labour 50.3%; Conservative 21.4%; Liberal Democrat 13.9%; Independent 6.4%; BNP 5.2%; UKIP 2.7% – giving Labour a lead of nearly 29 points over the Conservatives.

There is little doubt that UKIP will surge here (they are likely to more in the east than the west), most likely to around 20%. Much of that will come by taking the BNP and Independent vote from last time, but some of it will be at the expense of what were the three “main parties”. The first question will be who the UKIP votes have come from.

If Labour is still above 50%, it could be looking at an overall majority, as its vote will have held with UKIP taking votes only from the other two parties (in effect). Around 47% may be regarded as par, particularly if the Conservatives are also down at least three points (and thus in third place). Much below 45% and Labour could be in some difficulty (particularly if the Conservatives remain above 20%), although the scale of that difficulty would be hard to assess accurately from just one result.

0100 – Next Declarations

By now, other northeast constituencies such as Sunderland Central, Washington & Sunderland West, Durham North West and Durham North should have declared – all safe Labour seats with vote shares last time ranging from 42% to 52%. Again, UKIP should surge to 15-20% in each, meaning that all three main parties would expect to lose share (if there are any which do not, they are doing well).

Nevertheless, until we hear from the London seat of Dagenham & Rainham, we will still only be hearing from one part of the country. This will be the first seat to declare which is in anyway marginal (held by Labour 40.3% versus Conservative 34.3%). As it is still in the east of England, a UKIP surge is again to be expected (the BNP alone had over 11% in 2010) and should secure the seat for Labour – if somehow the Conservatives win, an absolute majority for them should not be ruled out; if UKIP wins, a serious breakthrough is likely and a Hung Parliament is certain.

0200 – Early declarations

A lot of the declarations around now should be from borough constituencies in Northern Ireland – and are therefore almost irrelevant to the overall election resultOne to watch is Belfast South, held by the Labour-whipped SDLP incumbent who won last time unopposed by Sinn Fein but now is facing a challenge from the DUP and (at the outside) the Alliance Party – all three parties were in the 19-24% bracket at both elections since 2010.

Also declaring around now still in the North East of England are Darlington (held by Labour since 1992 and perhaps thus far the least vulnerable seat to a UKIP surge; Labour won by eight points last time), Durham City (the first clear indication of the LibDem retreat outside core marginals, having scored 37.7% here last time) and Easington (where they tend to weigh Labour votes rather than count them…)

About now we may also get the first seat in the English Midlands, Nuneaton – the first true marginal of the night particularly if Labour is hoping to gain ground. Labour lost it to the Conservatives last time but is still under five points behind, meaning that a win for Labour here would be a clear indication that the parties are about level overall in terms of votes, setting Labour up to be at least the largest party.

It is possible that around now we will also get the first seat in from Wales, probably Vale of Clwyd – Labour holds this by almost exactly seven points over the Conservatives and it would herald nothing short of a disaster if there were any problem for it here.

In Scotland, Na-hEileanan an Iar (Western Isles) may declare first (depending on the weather), but it is entirely a-typical and always has been (it is held comfortably by the SNP yet returned a strong vote against independence in September); the first mainland declaration is likely in Angusalthough as this too is held by the SNP with the Conservatives in second place, it may not tell us much about any SNP surge against Labour and the Liberal Democrats in the rest of the country.

Some seats in the south of England may begin to drift in around now. Of interest would be Battersea in London, a classic bellwether constituency historically and still one, having been gained by the Conservatives from Labour last time by twelve points.

The swing from Conservative to Labour in London is likely to be greater than in the rest of the country, meaning that even seats held by the Conservatives by twelve points (around 6,000 votes typically) are in play as “marginals”, even in the event that Labour does not secure an overall majority.

0300 – Hunt for Marginals

Unless there has been a particularly high turnout, results should be flashing in regularly now.

Remember, Labour will be well ahead at this stage regardless of the final result, as urban Labour-leaning constituencies tend to declare first.

In Scotland, we may by now have the first indication of the SNP surge. Can they take Lanark & Hamilton East or East Kilbride just south of Glasgow (overturning a Labour lead of 28-29 points and nearly 15,000 votes in each), Glenrothes (surely not, from fully 40 points and 17,000 votes back), or even Fife North East (currently held easily by the Liberal Democrats with the other three main Scottish parties all about even well behind)? A real indicator may be Gordon Brown’s old seat of Kirkcaldy & Cowdenbeath where the new Labour candidate defends a 50-point lead which should mean the seat is held, but where the margin for a non-incumbent Labour candidate will tell us much.

In Wales, Carmarthen East should provide a first seat for Plaid (held by nine points from Labour) unless Dwyfor Meirionnydd (another safe Plaid seat) counts particularly quickly, and Carmarthen West for the Conservatives (also by nearly nine from Labour). If Nationalists are having a very good night, Plaid may also fancy its chances of overturning a seven-point deficit to Labour in Ynys Mon (Anglesey).

In Northern Ireland, the first (and perhaps only) Independent win of the night should by now have been declared in North Down.

Further south, Northampton North and South were both Conservative gains from Labour last time – if Labour takes the former, it will be a sign that it is approaching largest party status; if it takes both an overall majority is in prospect. Oxford East may give us some idea of the Liberal Democrat demise in seats they do not hold; they targeted this one last time but should fall much further than nine points behind this time; Thornbury & Yate may be the first declaration from a Liberal Democrat-held marginal – a loss of this seat to the Conservatives, where the margin is currently 14 points, would herald real disaster. Castle Point is an oddity, taken by the Conservatives from an Independent last time but actually one which should fall safely in the Conservative column.

In London, Putney was long a standard marginal but should really remain Conservative unless Labour is on for a working majority. On the other hand, if the Conservatives were to overcome a five-point deficit to take Tooting from Labour, the Prime Minister may safely begin planning his next five years.

For an absolute majority, the Conservatives would probably need to have taken the lead in total seats won by about now.

0400 – Outcome apparent

The outcome should be now be apparent.

In England, seats such as Chester may by now have indicated the Conservatives are losing too many seats in the north to Labour to hold their current position or even to remain the largest party; Carlisle, a later declaration, will also be interesting from this point of view. On the other hand, Labour’s hopes of largest-party status may well by now have been hindered by losses such as Dundee West and even Inverclyde in Scotland to the SNP. This will turn seats such as Kingswood near Bristol into real bellwether Conservative-Labour marginals; if Labour is to become largest party it will also need to take at least some seats in the South East declaring by now, such as Hastings & Rye (where a UKIP incursion would help, surely).

The Liberal Democrats should by now have some seats, such as Bermondsey and Yeovilon the board thanks to well-known and widely respected incumbents.

Labour’s failure to guarantee office may have been confirmed by now in the south, such as again in Basildon South and perhaps even Bedford, where the Conservatives are just three points ahead; it would also want to take Peterborough for any chance to govern alone. The Liberal Democrats’ losses should begin to mount up, by now including Brent Central and perhaps Hornsey & Wood Green to a Labour Party now rampant in inner London. A real Liberal-Labour bellwether will be Bristol West, where the Liberal Democrats defend a 20-point (11,000-vote) lead, but may even sneak back in with “lent” Conservative votes (watch for that candidate going well below the 18.4% scored last time).

In Scotland also, towards this time, the Glasgow seats may well all have declared – safe Labour may have become safe SNP, or it may not, but either way a tale will be told!

By now also we may have individual stories too. Can UKIP take Great Grimsby from Labour? What will the Leader of the Opposition have been able to say at his own Doncaster North count? Will the Conservatives have held their only Scottish seat in Dumfriesshire or even picked one up on a split in Edinburgh? Will the Liberal Democrats have held on to that eternal Liberal-Conservative marginal of Sutton & Cheam?

We will probably not yet know, however, whether UKIP has won Clactonwhether the former Scottish First Minister has gained Gordon for the SNP from the Liberal Democrats; whether the Conservatives have benefitted again from a Labour-Green split in Norwich North; what the Prime Minister has had to say at Witneyor, perhaps most eagerly anticipated of all, whether the Deputy Prime Minister has held Sheffield Hallam for the Liberal Democrats from Labour.

0500 – Stories still being told

It will probably be longer yet before we know whether UKIP has taken Boston & Skegness or Thanet South from the Conservatives (the latter is their own Leader challenging); and whether the Greens have held their only seat in Brighton Pavilion. We will also not yet have heard from the two genuine three-way marginals in England at this election – Cambridge (currently Liberal Democrat-held) and Watford (currently Conservative-held but with a directly elected Liberal Democrat Mayor challenging in a seat which was Labour before 2010). We will also not yet know the fate of the most senior Liberal Democrat Cabinet Minister in Inverness defending from the SNP, nor of his party colleagues in places like Taunton Deane or Torbay trying to fend off Conservatives.

An unusually late declaration also is expected from that standard Labour-Conservative marginal of Birmingham Edgbaston, which often gives a clear indication as to whether or not the Conservatives can win a majority.

0600 – A new dawn?

We will still be awaiting some interesting results such as Berwick upon Tweed (Liberal Democrat defence but without incumbent) and Hexham (the northernmost Conservative seat in England), and we may even still have recounts in the closest seat last time, Fermanagh & South Tyrone (Sinn Fein against a jointly endorsed Ulster Unionist candidate).

We should, however, have a clear idea by now how it has gone – at least in terms of which is the largest party.

The very last declaration may well be St Ives, where the Liberal Democrats will hope to defend a lead of below four points (1,800 votes) from the Conservatives.

UK General Election – Sentiment Analysis

It is proving extraordinarily difficult to run Sentiment Analysis successfully for such a complex UK General Election.

However, some trends we have picked up:

– the Liberal Democrat vote is much steadier (though still generally in decline) in constituencies with a well-known candidate (not always necessarily the incumbent), giving them probably 30-40 seats;

– the Conservatives are almost bound to gain at least one seat in Scotland almost by chance due to the split against them (although they may lose the one they hold);

– the DUP vote will be down on 2010, although unevenly depending on context (perhaps more so in safer seats; thus probably not enough to cost them any, although it is tight);

– UKIP will probably win 3-4 seats (Farage, Cardwell, perhaps Reckless plus probably one more by chance on an even three-way split against them); and

– the Greens are too hard to pick up geographically (it is hard to run sentiment with precision as their target seats are usually in divisions of a city – e.g. a particular Brighton seat or a particular Norwich seat), but there is no reason to doubt their polling score of about 5-6% in England.

Asher’s Case is highly complex

We do not profess to be legal experts, but we have drafted Equality Schemes for both public sector and voluntary bodies in Northern Ireland and the Republic over the past fifteen years.

So, what about the Asher’s case? It is complex. We see no evidence of bias in the media, but we do see challenges around dealing with the detail of the case.

Space does not permit us to do this either, but a few points are worth noting.

Firstly, equality law in Northern Ireland is a hotchpotch of regulations and orders, primarily following on from provisions made in Equality Law elsewhere in the UK, and in the Northern Ireland Act which gave force to the 1998 Agreement. Consideration is being given to a Single Equality Bill (the UK Parliament passed such an Act in 2010 applying to England & Wales and Scotland, but equality law is devolved in Northern Ireland).

Secondly, equality law in Northern Ireland does allow religious organisations specifically to discriminate on religious grounds, including on employment and service. This does not, however, apply to religious people or to people operating indirectly on behalf of religious organisations.

Thirdly, consumer law in Northern Ireland does allow a service provider to refuse service; essentially there are two exceptions to this – it may not abuse this to promote reduced prices; and it may not do so in a way which discriminates against someone on the grounds of various things, including (relevantly here) political opinion and sexual orientation.

There are several ways in which the bakery could defend itself. It could say that it has a policy of avoiding political slogans at all on cakes it bakes – which, if not demonstrated to be false (say, by past cakes), would almost certainly clear it. It could argue that it did not wish to bake that particular cake simply because it did not want to, but that it was unaware of the sexual orientation of the customer – which would be trickier, but theoretically possible (and seems the most likely line). It could argue that it believes the provisions applying to religious organisations should apply to it – which would surely be rejected.

It is a surprise to us that the Equality Commission took this particular case given it is not clear cut and there is a real risk of defeat. However, to be fair to it, either way the outcome will be of significant legal interest.

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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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Analysis update – NI budget

The Finance Minister is currently presenting a revised NI Executive Budget to the NI Assembly, after consulting on the Draft Budget and the availability of some additional funds through Barnett Consequentials and non-use during the current financial year. This follows on from and is complementary to our analysis of the Draft Budget.

Figures apply only to Current Resource spending except where specified.

Extra Allocation

The Executive is promoting an “extra allocation” of £150 million for Resource spending – around 1.5% extra.

The “extra” money comes from:

  • an allocation by the UK Treasury through Barnett consequentials (most obviously from the £1.7b increase in NHS spending for 2015/16) – £79m;
  • money not used to mitigate welfare reform – £43.1m; and
  • reduced requirements identified in monitoring rounds – £30.5m (although other pressures see this effectively reduced to £28.1m).

This is below £150m, and the latter strictly applies to 2014/15 not 2015/16, but there are also some helpful sundries including £10.7m from the revaluation of public sector pension schemes, £5.9m reduction in interest repayments, and £1.3 in increased rates revenue (although there are is also an overcommitment of £4.4m to address in the current financial year, and some other minor negatives).

This, plus the ability to use Capital funds to pay back loans and welfare deductions to the UK Treasury, is sufficient to mean that total Current Resource Spending will be only £60m lower in 2015/16 than 2014/15 (assuming that the NI Executive is allowed to keep an unallocated £13.9m to run over).

There is also an allocation of £18.7m which had not previously been agreed for European projects, and some re-adjustment on the capital side which does not affect current resource spending directly.

The term “extra” is used in the sense that no Department will lose out versus its position in the Draft Budget. The extra money will be allocation additionally to that.

Executive Change Fund

The Minister’s Statement also includes the allocation of £30 million held in the “Executive Change Fund”, held aside as money to be bid for for “innovative reform” by Departments.

Health

Health receives no “extra” money. It receives £4 million (c. 13%) of the “Executive Change Fund” allocation – much lower than its share of the overall Draft Current Resource Budget of 47%.

Some concern is hinted at concerning the “performance” of the Department of Health, Social Services and Public Safety in managing its budget.

Education

Education does well, receiving almost half the “extra” allocation (£63m), an increase of 3.4%. It also receives £1.4m from the “Executive Change Fund”, much less significant.

Justice

Policing receives an extra £20m, which means the overall spend on Justice rises 2%.

Enterprise

Enterprise had already done well from the Draft Budget, and an extra £3m goes directly to Invest NI.

Employment and Learning, which is likely to merge with Enterprise at the end of the financial year, receives the biggest share uplift at 5% (£33.2m), although this is against a very unfavourable initial allocation.

Other Departments

Other Departments receive extra allocations of up to £5 million. Another £5 million is set aside for a “Social Investment Fund”.

New Northern Ireland Current Resource Departmental Expenditure allocations in revised Budget for 2015/16

New Northern Ireland Current Resource Departmental Expenditure allocations in revised Budget for 2015/16

Rates

No revenue raising applies. The average household in Northern Ireland will pay £812 in “household taxes” and zero extra for water (versus £1322 in Scotland, £1433 in England and £1613 in Wales where water delivery is charged extra).

Notification of amendment to Recommendations for Written (Ulster) Scots

Since 2012, Ultonia Language Services has maintained a grammatical and orthographical standard for writing (Ulster) Scots based absolutely on the conventions used in Ulster Scots – A Short Reference Grammar (published by Ultonia Publishing).

This is a notification of some minor amendments to formation of past forms.

1. For regular verbs ending in a vowel cluster but not -e, the recommended suffix is now -ed (replacing -d, which is now rejected) – therefore poued not poud.

2. The strong verb frys ‘freeze’ is now considered to be Class I (not Class IV fruis, which is now rejected), past form fris.

3. The strong verb leak ‘leak’ is now considered to be Class IV (not Class II lek, which is now rejected), recommended past form lak.

4. The strong verbs break and speak now take the recommended past forms brak and spak (replacing braek and spaek, which are now rejected).

5. The strong verb present form shuit ‘shoot’ is now recommended to be so written (replacing shoot, which remains optional); this effectively places it in Class II, but it remains listed separately.

The presence of a velar consonant after the root vowel is now taken to explain the anomalies in Class II (e.g. fecht-focht versus get-gat) and Class IVb (e.g. break-brak versus beat-baet).

Corporation Tax (NI) Bill – Overview

The draft Corporation Tax (Northern Ireland) Bill was published last week, with the Secretary of State pledging her best endeavours to have it on the statute book by May’s election (in other words, by the end of March). This is an extremely challenging timescale, but any new government would be bound by the spirit of the Stormont House Agreement to proceed with it anyway. So, what is it?

Background

The Republic of Ireland’s economy grew rapidly from the early 1990s to the early 2000s, moving from GDP/capita 20% below the EU average to 40% above in just over a decade. Campaigners, particularly businesses, argued that one of the key components of that success was its rate of Corporation Tax (i.e. the tax incorporated businesses pay on their profits), which were placed at much lower than the EU mainstream and were thus seen as an easy way of promoting inward investment from North America. It was suggested by them, in Northern Ireland and elsewhere, that a similar policy should be tried. This analysis is, however, contested – for example, the Republic of Ireland also made use of tax loopholes so that some large investors were able to avoid paying any Corporation Tax at all. There are also questions over the long-term sustainability of the policy and whether “GDP/capita” is a sensible measurement of economic progress in any case.

The proposal is generally referred to in Northern Ireland discussion simply as “Corporation Tax”, understood to mean the reduction of Corporation Tax in Northern Ireland to match the rate across the border.

In fact, the proposal is specifically to transfer the power to set the rate of Corporation Tax to the Northern Ireland Assembly, and then only for companies with a presence in Northern Ireland on profits attributable to trade in Northern Ireland outside the broad finance and oil industries. It is noted also that the power to move the rate downwards would require the Northern Ireland Executive itself to find, from Departmental Budgets, money to pay back to the Treasury to make up the difference. (It is commonly stated that this comes about because of “EU rules”, and indeed it does; but in fact it also comes about under the existing UK financial policy known as “Parity”, which is currently topical due to Welfare Reform).

The assumption is that the Assembly would immediately use this power to reduce the rate to the current rate across the border, i.e. from 20% (the UK rate from April 2015) to 12.5% (the Irish rate). However, that is not contained in the Bill. The Assembly could in theory (as has been mooted already by the Enterprise Minister) reduce it further, perhaps to 10% or even nil; on the other hand, there is an increasing body of opinion which supports transfer of the powers but does not support using them immediately, given the Executive’s ongoing Budget difficulties.

1. Rate Application

After passage of the Bill, there would be a “Northern Ireland Rate” (of Corporation Tax) and a “Main [i.e. UK] Rate”.

The “Northern Ireland Rate” would apply to trading profits of SMEs whose costs and employee time are largely (75%) in Northern Ireland and to the profits of a large company attributable to a presence in Northern Ireland, and also excludes certain industries.

This is designed to stop large companies simply shifting their nominal HQs to Northern Ireland from elsewhere in the UK.

2. Rate Setting

The “Northern Ireland Rate” would simply be set by resolution of the Assembly at any time before the start of the financial year. If one is not set, the existing rate continues to apply.

In practice, this would appear to make the setting of a lower rate for 2017/18 unlikely but conceivable.

3. Application

The Bill distinguishes between “Northern Ireland profits” (i.e. profits due to activity based in Northern Ireland) and “mainstream profits”. The former is taxed at the “Northern Ireland Rate”, and the latter at the “Main Rate”.

Losses are relieved as far as possible against the relevant rate.

The objective here is that the “Northern Ireland Rate” would be paid on profits due to trade attributable to activity in Northern Ireland. This is designed to encourage local employment and, again, to stop companies simply shifting nominal HQ from elsewhere in the UK (or anywhere else, for that matter).

4. Definition

To qualify to pay the “Northern Ireland Rate”, a company must be a “Northern Ireland Company”. To do this, it must meet the aforementioned conditions concerning trading and presence in Northern Ireland and must be in a “qualifying trade” (although a “Northern Ireland Company” may pay the “Northern Ireland Rate” on profits from “back-office functions” even of a non-qualifying trade).

A “Northern Ireland Company” may be a “Northern Ireland SME” or a “Northern Ireland Large Company” (or a large company with a “Regional Establishment”, see 5 below).

This is primarily designed to encourage local entrepreneurship across the board, but to stop any threats to London or Edinburgh as the UK’s prime financial centres (finance is a non-qualifying trade).

5. Regional Establishment

Large companies may qualify to pay the “Northern Ireland Rate” (if the above conditions are met) on profits from a Northern Ireland trading arm. To do this, they will formally have to set up a “Northern Ireland Regional Establishment” – essentially a devolved part of the company meeting the trading and presence requirements.

This is designed to enable investors to pay the “Northern Ireland Rate”, but only on Northern Ireland activity.

6. Profits and Losses

Where a company is in a non-qualifying trade (notably finance) but has some back-office functions, it may declare its profits (and losses) separately – paying the “Main Rate” on front-line (non-qualifying) activity, and the “Northern Ireland Rate” on back-office activity.

This is complex, but seems designed to boost Northern Ireland’s growing back-office finance industry.

7. Other Provisions

Other provisions include the allowance of relief against establishing a “Northern Ireland Regional Establishment”; the payment of royalties at the “Main Rate”; makes the “Northern Ireland Regional Establishment” effectively a separate but not independent enterprise; and distinguishes “back-office activities”.

8. Assets

Essentially, assets used for the purpose of making a profit payable at the “Northern Ireland Rate” are set against the Northern Ireland Rate.

This is extraordinarily complex, depending on the type of company, its trade, the location of its activities, the date of establishment of the asset, the purpose of the asset, and so on. Accountants and lawyers will have a field day!

9. Credits

R&D credits are assessed against the “Main Rate” (generally and where possible). The adjustments required to achieve this are, again, extraordinarily complex.

The idea is to ensure no one loses out (or is dissuaded) from R&D activity.

10. Land

Profits and losses on land are treated similarly to assets and credits above.

11. Film

Film tax credits remain in place and the system is designed to ensure they are unaffected by film companies paying the “Northern Ireland Rate” or “Main Rate” as appropriate.

As this is a key industry for Northern Ireland currently, the objective is clear.

12. Television Production

Television Production is treated as film above.

13. Video Games

Video Games are treated as Film and Television Production above.

14. Theatrical Production

Theatrical Production is treated as Film, Television Production and Video Games above.

15. Intellectual Property

Intellectual Property deductions from Corporation Tax payments are separated into “Mainstream Deductions” and “Northern Ireland Deductions”.

16. Partnerships

Partnerships will be dealt with similarly to companies (although a new term, “Northern Ireland Firm”, is used for them).

17. Non-qualifying trades

Non-qualifying or “excluded” trades include lending, investment, investment management, re-insurance, long-term insurance, and oil and gas exploration. The Treasury has the right to amend this list, and to define “back-office activities”.

This is designed to protect key sectors elsewhere in the UK. The specific omission of oil and gas exploration (and any activities around the UK’s Continental Shelf) may also be preparation for the day a similar Bill is demanded for Scotland.

18. Note

The Stormont House Agreement sets the year from transfer of powers at 2017, but does not say exactly when that year (this is relevant, because the Northern Ireland Assembly has to pass a resolution to change the rate before the beginning of the financial year).

The Bill does not clarify this, and indeed does not even reference 2017. It merely gives the power to the Treasury to declare when the transfer of powers applies.

19. Politics

The Bill is highly complex, filled with highly technical language and even complicated mathematical formulas! This does demonstrate that a lot of work has gone into it and it is a serious attempt at offering Northern Ireland a central tool to “re-balancing its economy” away from dependence on the public sector (i.e., crudely, subvention from Great Britain).

The Bill does its best to ward off any threats from the rest of the UK, removing from the equation in particular key Scottish industries (finance and oil). Nevertheless, it is inconceivable that the Scottish Government would not demand the same powers if Northern Ireland were ever to use them and be seen to benefit; and it is equally inconceivable in the current climate that they would not get them (indeed, as noted at 17 above, the Bill seems already written for that inevitability).

An increasingly widespread view is that the powers should be transferred but not necessarily used (and certainly not immediately). This carries a degree of risk, as the UK Government sees the Bill as a generous devolution uniquely to Northern Ireland of a highly useful economic tool. There is a risk, therefore, that the UK Government’s response to any future “begging bowl” would be simply to recommend to the use of that economic tool. This risk may not be significant, as the UK Government effectively rejected the “begging bowl” at Stormont House last month in any case.

There is also an increasingly apparent tendency for Nationalist parties in Northern Ireland to be swayed by broadly “left-wing” views, which oppose this tax reduction at the expense of a loss to funds for public services.

20. Economics

The actual economics of using the powers in the Bill to reduce the “Northern Ireland Rate” to 12.5% are highly contested.

The case for is that it would make Northern Ireland a uniquely appealing location to invest – within the UK but with lower corporation tax and property costs; within the Irish Corporation Tax zone but with lower housing costs, lower VAT and more favourable income tax bands (reducing employee costs). As a headline alone, reduced Corporation Tax would be a significant advantage to those promoting Northern Ireland.

The case against is that those benefits may be outweighed by the loss to the funding of public services and the uncertainty around what the actual cost to Northern Ireland Departments would be. Already, the sense is that Northern Ireland’s government structures are simply not up to the challenge of managing spending reductions; to add further strain by using the powers transferred would have unpredictable (and surely disadvantageous) results.

It is a finely balanced case, also prone to external shocks (such as the potential eventual devolution of Corporation Tax to Scotland, and what it would mean if the Scottish Government used it either to go to 17%, as the SNP has advocated, or even to 12.5% to match Ireland). The outcome of the debate, as with the outcome of actually using the powers transferred, is unpredictable!

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“Stormont House” deal – financial/political implications

As in Scotland, five parties have been locked in negotiations for weeks in Northern Ireland and have now reached a deal which impacts on finances and the political institutions. This is a brief, immediate, overview of what has been agreed.

Welfare Reform

The Welfare Reform Bill will pass the Northern Ireland Assembly by the end of February 2015, to be implemented by the end of March 2016.

The faster implementation proceeds, the lower the “deduction” from Northern Ireland’s devolved budget will be – if it takes the whole of the 2015/16 financial year, it will be £114 million.

The NI Executive agrees to pay the administration and costs for anything it does differently – it has already been agreed this would cost around £17 million to avoid the so-called “Bedroom Tax”.

Finance

The Financial Deal effectively means that money may be relatively freely passed between Capital and Resource (current) budgets.

The £650 million of “new and additional funding” in fact covers only those things which are partly the responsibility of the UK Government (e.g. Commissions on the Past, Identity, Historical Inquiries and Implementation) or which have to be agreed with the UK Government (essentially for Shared Education campuses).

The £350 million of increased borrowing for Capital projects is over four years, and is effectively to cover for the re-allocation of other money from Capital budgets.

The £900 million of resource re-allocation over four years essentially allows money from Capital budgets to be used for:

  • paying for a “Voluntary Exit scheme” to reduce the size of the Civil Service and public sector at large (£700m);
  • payment of this year’s UK Treasury loan (£100m); and
  • payment of any deductions for breaching parity on welfare (up to £114m).

Additional Tax Powers

The deal allows for the devolution of landfill taxes, aggregate levy, stamp duty and most notably Corporation Tax (specifically on trading profit) by mid-2017. The last of these is additional to those powers proposed for Scotland; on the other hand, income tax powers are not proposed for Northern Ireland.

Institutional Reform

The most surprisingly advanced section of the deal is perhaps that on institutions, which essentially allows for the creation of an Official Opposition from the next Assembly Election (2016).

The proposal is that instead of forming the Executive automatically “by d’Hondt” (the mathematical formula which determines the number of Ministers for each party and order of choice of Ministry), parties which would be entitled to a place in the Executive would meet to agree a Programme for Government and any party not in agreement would be entitled to opt to go into Opposition instead, with appropriate allocations of speaking rights and research funding.

The Deal also agrees:

  • reduction in the number of Executive Departments from 10 to 7 (plus OFMDFM and Justice) from 2016;
  • reduction in the number of MLAs from 108 to (likely) 90 from 2021;
  • some changes to the operation of Executive meetings;
  • changes to protocols around the use of the “Petition of Concern” (although these are not expanded upon); and
  • re-establishment (in effect) of the Civic Forum.

The Departments are not expanded upon, but it is likely that in effect Culture, Regional Development and Employment/Learning will be merged into others (most obviously Education, Environment and Enterprise respectively).

New Public Bodies

There will be new Commissions and various other bodies on Identity, Oral Archives, Historical Investigations, Information Retrieval and Reconciliation.

It is proposed that Parades be devolved, effectively to OFMDFM.

Conclusion

Much of what was supposed to be agreed during last year’s “Haass Talks” remains unresolved, mainly handed over to new bodies.

There is clear agreement to proceed with Welfare Reform and institutional reform (to allow formation of an Opposition).

There is some flexibility over finance, but really very little clearly new. Most notably, current budgetary pressures are not significantly helped.

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