We should reflect on the reality of UK public finances

The UK Government is facing into an increasingly precarious financial and economic position.

Unfortunately, the full impacts of the Middle Eastern crisis are yet to reach local households, businesses and the wider economy. So far, effects have been relatively speculative and the scale of the crisis will soon become a painful and potentially enduring reality.

Meanwhile, populist pressures on both sides are driving overly simplified narratives regarding the need for more public spending, trivialising the severity of the financial situation.

Such misguided narratives have dangerous implications. Policy-makers, business leaders and the mainstream media have a moral responsibility to reflect/report on the full context.

Live: Autumn Budget 2024

Diesel, petrol and home heating oil prices continue to fall across Northern Ireland

UK public sector net debt is now close to 100% of GDP - levels not sustained since the early 1960s, outside of crisis periods.

The novel aspect of this particular - again, still largely incoming - crisis is that the rise in public debt has coincided with sharp rises in the Government’s borrowing costs, with ten-year UK gilt yields now in the region of 5%. At the time of writing the 30-year yield is in fact approaching 6%, a level not seen since 1998.

Whilst actual debt levels were higher during Covid, for example, the cost of servicing this debt was at a much more affordable level – in fact, rates were so low that public borrowing was almost free. This made it much more feasible for Government to provide support, such as via furlough and business loans.

High borrowing costs today reflect markets’ perception of increasing risks associated with the UK’s particular economic outlook.

This represents a uniquely challenging scenario for the UK Government – it is both particularly exposed to the incoming crisis and ill-equipped to withstand it.

The cost of servicing UK public debt is already approaching £110 billion annually. This is comparable to major areas of UK public spending, such as on education (approximately £100bn) and represents one of the most significant and growing pressures on public finances.

This cost is unsustainable, displaces productive spending on public services and further threatens the wellbeing of the UK economy, that of its people and its international standing.

This painful reality demonstrates the critical role of fiscal rules in ensuring a Government’s financial stability.

I have previously argued for revisions to the UK’s current fiscal rules, and maintain the position that where additional strategic expenditure enhances future outcomes and creates interim economic gain, this should be disaggregated from other spending pressures.

However, these are very specific and conditional suggested revisions and, as we are seeing in live time, fiscal rules in and of themselves are a financial necessity.

For Northern Ireland, the real-world consequence of the current fiscal context is that there is minimal scope for any additional Government spending.

Notwithstanding the legitimacy of ongoing political discussions regarding the adequacy, or otherwise, of public spending in NI – which ought to focus more on relative need in a capital expenditure context – it is important to be realistic as to the (un)likelihood of such assistance materialising.

Of course, we should also continue to double down on transformation, to spend funding more efficiently and effectively, and urge for a review of economic (dis)incentives facing the Executive.

This aside, what else might the Executive do? As a starting point, it should seek to mobilise private finance and actively crowd-in the private sector, working to incentivise cooperation to deliver across a range of policy areas.

While previous Private Finance Initiatives (PFIs) and Public Private Partnerships (PPPs) have been subject to criticisms regarding rates of profit realised by private sector interests – and, of course, all public sector expenditure should be responsible and value-for-money – there remains scope to explore productive and affordable funding partnerships.

This is particularly so in the context of limited public funding and given the alternative scenario of policy inaction.

Given the fiscal reality, the public may well prefer to see the private sector receive a return for a shared role in the delivery of enhanced social housing, key infrastructure and energy sustainability – as opposed to a continued absence of progress.

Indeed, we would be in a much better position to withstand the incoming energy impacts from the current crisis had we been more creative and aggressive about such strategic investment – the failure to sufficiently invest in energy efficiency and self-sufficiency has been a costly mistake.

Further, the absence of a wider Investment Strategy for NI means we are actively incurring future detriment.

We are failing to invest sufficiently in future economic, environmental and social objectives, and so not driving an inclusive and sustainable future for this region.

We are failing to invest in the requisite skills and infrastructure to sustain such a future, including via a sustainable higher education funding model.

Worse still, we are seeing a displacement of such skills and enterprise over the border, where investment is being undertaken – a trend that is not likely, or even necessarily possible, to reverse.

And yet, it looks increasingly unlikely that the Executive will agree a multi-year Budget, with the consequence that we have no collective financial perspective beyond a year in advance.

The Executive should recognise the limitations of appealing to a financially constrained and otherwise distracted UK Government and instead take responsibility for delivery of local outcomes – such is the very rationale for a devolved Government.

• Jodie Carson is a professor of strategic policy in practice at Ulster University