Tuesday 12 December 2017

North suffers its biggest hit in living standards since the crash

Dr Tom Healy Director of the Nevin Economic Research Institute
Dr Tom Healy Director of the Nevin Economic Research Institute
Stormont
Colm Kelpie

Colm Kelpie

Northern Ireland has taken the biggest hit in living standards of any UK region since the crash, research claims.

The North has moved from being the region with the fourth lowest income per household in 2007, to being the lowest in 2014, according to the study flagged yesterday by the trade union-funded Nevin Economic Research Institute (NERI).

The stark data comes as the private sector in the North has experienced a rapid slowdown since the end of last year, although activity rose fractionally in March for the first time in four months.

New business continued to rise marginally, and firms took on extra staff, according to the latest Ulster Bank Purchasing Managers' Index (PMI) for the North.

But research from independent UK think tank the Resolution Foundation based on living standards in different regions found that Northern Ireland has experienced the biggest squeeze on living standards since the downturn of all regions and nations in the UK.

Typical incomes fell by 6.7pc between 2007/2008 and 2011/2012. They were still 4pc below their pre-downturn level last year. The average household in the North making just £20,930 per year, compared to the UK average of £23,540. That compares with Scotland at £23,006, Wales at £21,018 and the North East at £21,374.

The think-tank said Northern Ireland's position is explained by its poor jobs performance - its employment rate is still 2pc below its pre-downturn level - and the fact that it has experienced by far the biggest pay squeeze in the UK, with typical wages falling by 13.4pc, the Resolution Foundation said.

NERI director Tom Healy said in his weekly blog yesterday that the implications of declining living standards over a prolonged period "spells significant trouble for any future political or economic settlement in Northern Ireland".

"Policy solutions along the lines of further fiscal austerity or measures to lower corporation tax more than other European regions and steal some foreign direct investment or measures to bleed the public sector in the faith that the private sector will blossom are probably doomed to compound problems," Mr Healy said.

The living standards data comes as the March Ulster Bank PMI for Northern Ireland notes that the region's private sector has experienced both a rapid recovery and a rapid slowdown all in two years.

"Whilst a moderation in growth was always anticipated, the speed and scale of the slowdown since the fourth quarter of last year was perhaps faster and more marked than had been expected," Ulster Bank economist Richard Ramsey said.

"Northern Ireland's private sector recovery continues to lag significantly behind that of the UK. Scotland and Northern Ireland were the only two regions within the UK to report a decrease in business activity in the first quarter of the year.

"Meanwhile the same two regions recorded the weakest rates of employment growth over the same period."

The headline seasonally adjusted Business Activity Index posted 50.2 in March, fractionally above the 50.0 no-change mark. This was up from 48.8 in February and signalled the first rise in activity since November last year.

Q & A: Why is Northern Ireland's economy lagging behind other regions?

The answer is complex. The UK Resolution Foundation, an independent think-tank, has blamed the North's poor employment performance, claiming employment is still 2pc below its pre-downturn level.

By contrast, accountancy giant PwC says employment is growing, but it blames a poor recovery in wages, productivity, and living standards. And with further austerity set to come, political problems could emerge.

What, if anything, is being done to change this?

London is keen to boost the private sector in the North as the region, largely as a result of the Troubles, has been too heavily reliant on the public sector for too long. For example, between 2008 and 2014, the civil service headcount dropped by 16pc in Britain, but employment in the Northern Ireland Civil Service remained static, PwC has pointed out.

In a bid to boost the private sector, Northern Ireland is expected to get powers to set its own corporation tax rate this year, to bring it in line with the Republic's 12.5pc and allow it better compete for investment.

Will that affect the Republic?

That remains to be seen, but the business lobby groups and Government here have all argued that an improved all-island economy would be a positive.

What are the economic links between Northern Ireland and the Republic?

Given the fact that we share a land border, there are strong links in terms of trade. The value of cross-border trade increased in 2013 by more than 7pc to a value of €3.04bn.

A study by cross-border development body Intertrade Ireland, published in 2013, found that Northern Ireland accounts for a very small proportion of goods exported from the Republic. However, for exports from Northern Ireland, the Irish market is very important.

Irish Independent

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