Every so often I find myself working on topics that grab more attention than us humble economists are used to.
I remember it happened the first time, about 20 years ago, when I was lucky enough to support in developing the first forecast model to assess what a lower corporation tax rate would mean for Northern Ireland.
There were a few things over the years since that have attracted interest but my work on Casement Park, specifically the economic impact of hosting five games of the Euro 2028 football tournament, has gained more attention than I ever could have imagined.
That work identified a positive spending impact here of £106 million when all the visitors, teams and media visitors are counted.
More than that, showing that we can host major events has been a key part of how we have completely flipped our international reputation from one where images of conflict have been replaced by the likes of the MTV awards, The Giro d’Italia, and golf’s Open Championship.
All of this has helped attract inward investment. Regrettably, our reputation as a place that can deliver successful major events has just taken a massive kick in the gut from the announcement that Casement will not now be built in time to host any Euro 2028 games.
We can wave goodbye to sharing in the economic windfall the tournament will bring – the recent tournament in Germany generated €7.4 billion of an economic return (maybe I was being conservative in my £106m estimate).
Potential investors want to invest in a place that is well governed, stable, and can deliver what it says it will.
The Casement-Euros debacle fails us on all these fronts. Thinking beyond the immediate frustrations of not getting Casement funding, I fear that the UK government pulling the plug is a portent for some serious budget pain to come.
On the same day that it was confirmed about Casement funding, the UK government announced a pause on Northern Ireland’s city deals.
While there has been some rowing back from that, it was a nervous moment.
As a reminder, city deals here are worth more than £1.5bn and have been described as once in a generation game-changers for regeneration here.
I’ve been reasonably cynical about their ‘game changing’ status in the past, preferring instead that a way had been found to invest £1.5bn in solving for the fact that almost 50,000 people are on housing waiting lists.
Setting that aside, pausing an investment of that scale would be highly damaging to our efforts to create a more productive and innovative economy.
What is driving this? The Labour government is pushing a hard line that it has been left a mess to clear up by the previous government.
For example, there was nothing in budgets for public sector pay settlements of more than 2%.
With the increasing number of strikes that were happening, and with pay review bodies recommending more than 5%, budgeting for 2% was entirely unrealistic.
An additional £9bn has now been allocated for public sector pay, adding to the unexpected ‘black hole’.
Other items have contributed to Labour’s financial woes, such as energy costs and interest payments. All in all, the deficit is around £22bn.
Sir Keir Starmer has been at pains to point out that the budget in October will have to be painful to maintain fiscal prudence.
Now, I know the last time prudence was thrown out the window was the ‘Trussonomics’ farce, so I’ve some sympathy for taking an approach that doesn’t spook the markets but I’ve no sympathy for choosing austerity as the alternative.
We don’t have to have it. There are other options available, including changing the fiscal rules or even paying less interest to banks, via the Bank of England, for holding reserves.
The government is paying 5% interest or £35bn a year on reserves at the moment.
Following the same route as the European Central Bank, which tiered its interest rate on reserves, could reduce the budget deficit considerably.
While some are pitching this idea, I would expect that Labour will instead run with a tightening of the belt approach and also raise taxes in areas where they haven’t made promises not to.
In the scenario where spending is constrained at a UK level, an already stretched Northern Ireland budget will become even more challenging.
As we have seen with Labour’s attempts to roll back on city deals, this could have significant negative consequences for our ability to address long standing challenges.
I asked the question before the election if ‘things can only get better?’ It may well be worse.
Andrew Webb is chief economist at Grant Thornton
