New investment in NI is good news, but long-term challenges still need to be addressed

By Conor Lambe, Economist at Danske Bank

Following a period of negotiation, the Conservative Party and the DUP have concluded their talks and reached a confidence and supply agreement that will provide the Government with a majority for most major votes at Westminster. As part of this agreement, Northern Ireland will receive £1 billion of new investment, and be granted some flexibility around how to spend close to another £500 million that had previously been allocated for shared education and housing.

Set against the size of the block grant – around £10 billion – and the size of the Northern Ireland economy – about £34 billion – this is not a massive sum of money, but it is a material one. The financial package is broadly designed to be distributed over either the next two, or in some cases, the next five years.

A total of £400 million has been allocated for spending on the York Street Interchange and other hard infrastructure projects. As well as this, another £150 million has been granted for improving broadband provision. Investing in projects linked to transport networks and digital infrastructure can have short-term benefits for the economy by providing work for the construction businesses that will deliver the projects. But, when chosen correctly, investments like this can also boost the productive potential of the economy over the longer-term. For example, they can make it easier for goods and people to move around the country, for businesses to attract workers from further afield and for organisations to use technology to drive efficiency and cost reductions. Northern Ireland does face challenges with regards to infrastructure, so this additional investment is welcome news.

There is also a combined £450 million for transforming the health service, relieving some of the current pressures in health and education, providing support for people with mental health issues and to ensure that the gains from economic growth are also felt in some of the poorest areas of the country. These investments should deliver some benefits for wider society, so they too should be welcomed.

As well as the additional financial investment, there were a number of economic policy initiatives included in the deal that weren’t directly allocated funding as part of this package and that will require further steps to be taken before they can be delivered.

It was noted that corporation tax will be near the top of the agenda for a new Executive. A lower rate of corporation tax does not represent a silver bullet for the local economy, but it would be a useful tool for policymakers when attempting to attract foreign investment to Northern Ireland. So the mention in the deal of some options being developed around this for inclusion in the autumn 2017 Budget is good to see.

In March, the House of Commons Northern Ireland Affairs Committee published its report on using tax changes to boost local tourism. The report recommended further study into the impacts that changes to VAT and Air Passenger Duty could have on tourism in Northern Ireland, as well as the accompanying costs of these tax reductions. As part of the deal agreed by the Conservatives and DUP, a study will be undertaken covering these issues.

It was also signalled that work will take place towards a number of city deals and Enterprise Zones. While Belfast and Derry/Londonderry stand out as the most obvious candidates for a city deal, these measures are potential policy tools that could be used to drive inclusive, sustainable growth – one of the pillars of the Department for the Economy’s Draft Industrial Strategy. It would be encouraging to see some of the smaller cities throughout Northern Ireland also benefitting from these arrangements in the future.

This additional investment is good news for the Northern Ireland economy, but it is obviously not a panacea. Northern Ireland continues to face challenges around its weak productivity performance, high levels of economic inactivity and, of course, preparing for the changes that Brexit will bring. Addressing these long-term issues should be at the top of the list of economic priorities for Northern Ireland’s policymakers.

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