The Economic Impact of Welfare Reform

Last week CEE launched its fourth research report, this time on the issue of welfare reform.

These reforms, undertaken by both the previous Labour government and the current coalition government, involve reductions in a range of benefits and therefore have significant implications for government spending. Given that the Northern Ireland economy is highly dependent upon social security expenditure, CEE commissioned Professors Beatty and Fothergill of Sheffield Hallam University to estimate the impact of the reforms on expenditure in Northern Ireland and its District Councils.

The findings are startling. All else being equal (e.g. demographics, employment levels), approximately £750m per year less will be spent in Northern Ireland in 2014/15 than would be the case were the reforms not to proceed. This works out at £650 for every adult of working age in Northern Ireland, compared to the GB equivalent of £470. The loss is particularly high in more deprived areas such as Strabane, Derry/Londonderry, and Belfast.

These findings highlight a number of challenges, including dealing with the foregone spending power and the prospect of widening economic inequalities. Rather than engaging in these issues, political commentator Newton Emerson argued that it is inaccurate to talk about money being ‘taken out’ of the economy because welfare spending puts "money into the economy only after the taxes to fund them have been taken out”. While this is true of the UK economy as a whole, it is less true of Northern Ireland which receives more in public spending than it contributes to taxation. Indeed Emerson concedes as much when he jokes that welfare reform is more like “leaving money in England”.

Disappointingly, the Minister responsible for welfare reform also declined to address the economic implications. His department issued a press release which stated that “Social security spending in Northern Ireland is projected to increase from £5.5bn in 2012 to £6.3bn by 2018 and it is inaccurate to say that social security spending is going to be reduced by £750 million”.

This is astonishing. Of course total welfare spending will continue to rise, not least due to population growth and ageing (pensions make up around half of welfare spending). The report does not compare spending from one year to the next. It estimates the spending foregone as a result of the reforms. In very simple terms, without welfare reform there would be an extra £750m on top of whatever is spent in 2014/15. There is no discrepancy between the figures - they are comparing two different things.

Whether these are honest misunderstandings or deliberate attempts to misrepresent the report, the fuss over ‘whether the figures are right’ served to stymie important debates. Regardless of one’s position on welfare reform, this does no service to the economic interests of Northern Ireland.

The opinions, views or comments in this article do not necessarily reflect any views or policies of NICVA.

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