North’s retailers feel the budget squeeze

Retailers in the North this weekend are counting the cost of last week’s emergency budget in Britain.

Chancellor of the Exchequer George Osborne’s first budget included a package of spending and welfare cuts and tax increases aimed at saving an estimated £40 billion.

In an effort to tackle Britain’s spiralling deficit, Osborne unveiled plans to raise capital gains tax, introduce a levy on banks, reform welfare payments and freeze public sector pay for two years – but it is his decision to raise Vat from 17.5 per cent to 20 per cent from January that has caused most consternation among business leaders in the North.

‘‘The chancellor has described this budget as ‘tough but fair’, but how exactly is the Vat hike fair in any way for small businesses and retailers?” asked Glyn Roberts, chief executive of the Northern Ireland Independent Retail Trade Association.

Figures released last week showed that the North was the only region in the UK to record a monthly rise in the number of people claiming jobless benefits. Roberts is concerned that the increase in Vat, which the British treasury expects will raise £13 billion across Britain in extra taxation, could further destabilise the North’s already slow recovery.

‘‘The Vat increase is a regressive move which will do absolutely nothing to restore consumer confidence and increase spending,” Roberts said.

‘‘This is a major mistake, it is bad news for small businesses and it will cost Northern Ireland’s consumers greatly.”

Roberts estimates that average small retailers will have to spend around £2,000 re-pricing their stock to reflect the new Vat rate. ‘‘This is a further expense for retailers at a time when many are struggling to survive,” said Roberts.

Hugo Thomas, of Hugo Thomas menswear on Belfast’s affluent Lisburn Road, agreed. ‘‘Suppliers and stockists will all have to change their pricing structure, which is a major hassle, on top of the loss in margins,” he said.

The level of Vat in Britain was reduced from 17.5 p er cent to 15 p er cent in November 2008 in an effort to encourage spending at the start of the downturn, but Thomas feels the initial measure did little to help smaller businesses.

‘‘When the 2.5 per cent Vat decrease happened, it didn’t make a lot of difference. But I do think this 2.5 per cent increase will make a significant difference to small traders.

I think, psychologically, it could be a bigger barrier for customers. It’s something we definitely don’t need right now,” said Thomas.

With consumer confidence low and the North’s heavily public sectorreliant economy hit by the new pay freezes, Thomas believes that retailers will have to bear the cost of the Vat increase, rather than passing it on to shoppers.

‘‘People go to small, independent retailers looking for value, so passing the increase on to customers just isn’t an option. It’s going to affect us directly at the tills,” he said.

It has been a turbulent 18 months for many smaller retailers in the North, and Thomas envisages a difficult year ahead: ‘‘We are treading water probably for the next year. I don’t think anybody is making a profit; we’re all just hanging in and waiting for the upturn.”

James Rider, manager of HMV in Donegall Arcade in Belfast city centre believes larger retailers are better placed to weather the storm caused by Vat increases.

‘‘Unlike smaller retailers, who would have just cut all prices by 2.5 per cent when Vat was decreased, we made significant reductions on big-ticket items, rather than cutting prices across the board.

Now when the Vat increases come into force, we can make some savings on cost and the rest on big-ticket items,” he said.

Rider also expects to see a significant amount of big-ticket sales in the months before the Vat increase comes into force, in January. ‘‘For smaller items, such as CDs, a 2.5 per cent saving on £20 is not going to make much of a difference, but it you’re talking about a new games console or an MP3 player, it can. I think we will see a larger that average trade in those kind of lines before Christmas,” said Rider.

Esmond Birnie, chief economist with PricewaterhouseCoopers, Northern Ireland, thinks that the Vat increase may even help the North’s economic recovery, at least in the short term.

‘‘The move could help the recovery this year with people doing a lot of big-ticket shopping this year to avoid being hit with an extra 2.5 per cent in January,’ he said.

Birnie estimates that the Stormont executive could be faced with further budget cuts in the region of £300 million for the next fiscal year, on top of the £490 million in spending cuts that have already been announced since February.

But he believes that the latest round of cuts could have unexpected political consequences for the North’s devolved assembly.

‘‘This is an opportunity for the executive in Stormont to say ‘there’s a climate in London that is open to increased devolution of economic policy so let’s go for it’.

‘‘Either we decide to stay the way we are and remain a permanently depressed region reliant on Westminster or we begin to take charge of our own economy. Only time will tell what choice we make.”

Appeared in The Sunday Business Post on June 27

Budget Reality Hits the North

This piece on budget cuts in Northern Ireland appeared in today’s Sunday Business Post

The protracted talks between Sinn Féin and the DUP to rescue the North’s power sharing government may have hinged on the devolution of policing and justice powers to Stormont. However, a way from Hillsborough Castle, the big issue for many in the North is the prospect of swingeing budget cuts.

Early in January, Sammy Wilson, the North’s finance minister, announced cuts in government spending of £367 million in the coming fiscal year.

The axe is due to fall most heavily in the health service, where cuts of more than £113 million are being proposed. A young doctor who works in a large hospital on the outskirts of Belfast said she was worried that the quality of patient care would suffer as a result.

‘‘Today, we had a meeting at which we were told that the trust’s budget has been compromised and that we will have to try and save money anywhere we can,” said the doctor, who did not want to be named.

‘‘But already we are not allowed to prescribe certain drugs because they are seen as too expensive and we are told to manipulate our hours so that we don’t get paid overtime.”

The North’s health minister, Michael McGimpsey of the Ulster Unionist Party (UUP), has said he will resist any budget reduction ‘‘very strongly’’.

But Brian Campfield, spokesman for the public sector trade union NIPSA, said he believed individual ministers would struggle to stop the cuts.

‘‘The parties are basically administering a budget that was given to them by Westminster and which they have very little say on,” Campfield told The Sunday Business Post.

‘‘All the main parties are tied together as part of the [power sharing] political arrangement, so it is very difficult to generate any real opposition.” Campfield sees the round of cuts as a harbinger of what awaits the North after the British general election later this year.

‘‘This is a sign of what is going to happen down the line,” he said. ‘‘Regardless of whether it is a Labour or a Conservative government, we will be paying for the bank bail-out for years to come.”

Education has often proved a controversial subject during the life of the current government. The Sinn Féin minister Caitriona Ruane’s move to abolish the 11-plus exam is opposed by many unionists and resisted by a growing number of grammar schools.

Now the Department for Education and Learning has seen its budget for next year slashed by more than £73 million.

‘‘This cut will have a significant impact on the delivery of education in Northern Irish schools,” said Lexie Scott, president of the Ulster Teachers’ Union and principal of a primary school outside Ballymena.

‘‘Northern Ireland has one of the largest class sizes in Europe. One in eight schoolchildren are educated in classes of over 30. Instead of budget cuts, we need action to be to be taken to address this.

‘‘Less than 20 per cent of newly-qualified teachers get work in Northern Ireland.

There are in excess of 8,000 unemployed teachers. We have come across many cases of people who have spent four years in third-level education training to be a teacher and a couple of years looking for work and who are now working in low-level, menial jobs.

We need to provide more employment for these teachers, not less.”

Scott acknowledged that over administration in the education sector was a major issue, but blamed the current political system in Stormont for its failure to address the problem.

‘‘Over 40 per cent of the education budget goes on school maintenance, but the Executive is so bogged down in state matters that it is not passing the necessary legislation to deal with the situation,” Scott said. ‘‘The whole process is really dysfunctional.”

The cuts in health and education have grabbed the headlines, but every department in the devolved Northern Ireland Executive will be affected by the proposed spending reductions. More than £80 million is being cut from regional development, a further £30 million from the Department for Social Development and £24million from Enterprise.

As in the Republic, the arts budget has also been slashed. Next year, the Department of Culture, Arts and Leisure will see a £25 million drop on current spending levels. Nelson McCausland, the North’s Minister for Culture, has already indicated that the Arts Council of Northern Ireland should plan for budget cuts of about £1.1 million in 2010/11.

Belfast-based theatre company Kabosh is one of many arts organisations that rely heavily on Arts Council funding. Hugh Odling-Smee, its creative director, said some groups would find it difficult to survive the next 12 months.

‘‘There is a sense in which arts funding is much easier to cut than health or education, but at the same time it’s worth remembering that the arts budget is pretty minuscule compared to other areas,” he said. ‘‘A cut like this will make a huge difference; we are talking about people’s livelihoods here.”

The arts in the North have enjoyed a significant amount of capital spending in recent years. Belfast’s renowned Lyric Theatre is due to reopen next year following an £18 million makeover, and a similar amount is being invested in a new purpose-built arts centre, the Mac, in the city centre.

Derry’s Waterside Theatre and Playhouse have also been renovated, and smaller venues have been built across the North. Odling-Smee said he was concerned that funds might not be available to run all of these new facilities.

‘‘We are opening these great new theatres and venues, and we are trumpeting Belfast as a city of culture, but are we going to have the money to run them all?” he said. ‘‘Or will they turn into white elephants?”

However, he believes that, because of the political situation, t he large-scale protests against cuts in the Republic are unlikely to be replicated north of the border.

‘‘If we wanted to have a campaign, where would we protest?” he said. ‘‘There would be nobody in the minister’s office to protest at. The politicians we could actually appeal to are not actually focused on the budget; they are focused on the heavy brinkmanship politics. I think they would be much better off making themselves available.

‘‘Issues like policing and justice are obviously important and are not to be taken lightly, but finding a way to solve the hole in our budget is the big issue in peoples’ lives right now.”

The Hillsborough agreement will go a long way to deciding the short and medium term future of the North, but whatever happens, for Odling Smee and many across the North, stability offers the only route out of the budgetary crisis.

‘‘At some stage, we are going to have to sort out how do we pay for ourselves,” he said.

‘‘Her Majesty’s Treasury isn’t going to support us forever.

But then, for that, you need a stable government.”