Tax rises needed in North to pay for services - expert

A tax increase in the North will be necessary to maintain frontline public services, an economist claimed today.

With British Chancellor Alistair Darling announcing his budget on Wednesday, the North faces its most challenging financial circumstances in decades, Alan Bridle said.

The UK’s fiscal position has deteriorated and there are possible changes to how money is allocated to the regions, the Bank of Ireland official added.

Mr Bridle said: “If the quality of frontline public services is to be maintained, then the reality will be some combination of reducing government costs, an increase in the regional tax burden and greater involvement for the private sector at a time when private finance is constrained too.”

Major government plans to sell off and lease back official buildings to the private sector to raise cash were terminated earlier this year as the economy worsened.

The Executive has ambitious plans to build thousands of affordable homes as well as other costly measures.

The Department of Finance is keen to ensure Whitehall spending commitments given at the time of devolution are honoured.

Ulster Unionist Assembly member David McNarry has claimed there is already a huge black hole in the public finances, which Finance Minister Nigel Dodds hotly disputes.

Mr Bridle added: “In the short term there is an opportunity for Northern Ireland to begin preparations for the more austere spending round to come while also funding short-term investments to mitigate the downturn.”

He said there was speculation of a “tweak” to the Barnett allocation which decides how funds are distributed from London to the regions and added the UK fiscal position had deteriorated since initial projections for the spending review were published.

He said motorists and car dealers were hoping for details of a possible car scrap scheme to encourage purchases of new vehicles and said pensioners were awaiting news on whether the Chancellor softens government’s commitment to link the rate of state pension to average earnings before 2015.

Low-income households may be offered a little recession relief but there would be a long squeeze on public finances.

Mr Bridle added: “To date, the local Executive has yet to experience the huge shock to public finances that both the London and Dublin governments have faced but with the shortfall in capital receipts, a series of unplanned commitments including civil service backpay and the potentially significant issue of future financing of Northern Ireland Water, the arithmetic is looking trickier, even before arrangements for the transfer of policing and justice are agreed.”