Northern Ireland builds a Potemkin village to look good for the G8

A teachable moment in austerity.

Northern Ireland is in a tricky situation. It's hosting the G8 summit in the luxury Lough Erne resort in three weeks time, in the midst of an economic slump which has rendered much of the nearby community of Fermanagh a ghost town. That's not the sort of thing which any nation wants to deal with; it's embarrassing enough when the neighbours pop over and you've forgotten to do the hoovering, let alone when you don't have a fully functioning economy in your rural outskirts. And while George Osborne isn't exactly hiding the fact that the UK is in dire economic straits, the chancellor still wants to put on a brave face in front of Vladimir Putin. So what do you do? Build a potemkin village, of course! The Irish Times reports:

Just a few weeks ago, Flanagan’s – a former butcher’s and vegetable shop in the neat village – was cleaned and repainted with bespoke images of a thriving business placed in the windows. Any G8 delegate passing on the way to discuss global capitalism would easily be fooled into thinking that all is well with the free-market system in Fermanagh. But, the facts are different…

The butcher’s business has been replaced by a picture of a butcher’s business. Across the road is a similar tale. A small business premises has been made to look like an office supplies store. It used to be a pharmacy, now relocated on the village main street.

Hopefully, the Chancellor does, in fact, know that the economy in rural Northern Ireland is suffering somewhat. It's his job, after all. So the Potemkin village is just for the sake of appearances in front of the neighbours. Still, while he's out there, he could learn a thing or two from the Northern Irish Departments for the Environment and Social Development, like how to justify economic stimulus:

All is paid for by so-called dereliction funding. About £300,000 was made available by the Department of the Environment and the Department for Social Development. A second round of funding is expected… The short-term beneficiaries were local builders and painters who were called in for the spruce-up.

But as Keynesianism goes, this is a pretty poor attempt at it. It suffers from the same false economies that most of the UK's policy does these days. If you're going to spend money with the aim of a) sprucing up a town in preparation for international visitors and b) providing work for local builders and painters, then a far better sort of stimulus would be to increase your initial outlay, to £3m or even £30m, and try to fill those properties with real businesses, rather than pretty pictures of businesses. In the short term, the cost will be more, but there's no substitute for having a thriving local economy, and you'll soon earn the outlay back.

But if Osborne understood that, we wouldn't be in this mess in the first place.

Enniskillen in Country Fermanagh. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty Images
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There are risks as well as opportunities ahead for George Osborne

The Chancellor is in a tight spot, but expect his political wiles to be on full display, says Spencer Thompson.

The most significant fiscal event of this parliament will take place in late November, when the Chancellor presents the spending review setting out his plans for funding government departments over the next four years. This week, across Whitehall and up and down the country, ministers, lobbyists, advocacy groups and town halls are busily finalising their pitches ahead of Friday’s deadline for submissions to the review

It is difficult to overstate the challenge faced by the Chancellor. Under his current spending forecast and planned protections for the NHS, schools, defence and international aid spending, other areas of government will need to be cut by 16.4 per cent in real terms between 2015/16 and 2019/20. Focusing on services spending outside of protected areas, the cumulative cut will reach 26.5 per cent. Despite this, the Chancellor nonetheless has significant room for manoeuvre.

Firstly, under plans unveiled at the budget, the government intends to expand capital investment significantly in both 2018-19 and 2019-20. Over the last parliament capital spending was cut by around a quarter, but between now and 2019-20 it will grow by almost 20 per cent. How this growth in spending should be distributed across departments and between investment projects should be at the heart of the spending review.

In a paper published on Monday, we highlighted three urgent priorities for any additional capital spending: re-balancing transport investment away from London and the greater South East towards the North of England, a £2bn per year boost in public spending on housebuilding, and £1bn of extra investment per year in energy efficiency improvements for fuel-poor households.

Secondly, despite the tough fiscal environment, the Chancellor has the scope to fund a range of areas of policy in dire need of extra resources. These include social care, where rising costs at a time of falling resources are set to generate a severe funding squeeze for local government, 16-19 education, where many 6th-form and FE colleges are at risk of great financial difficulty, and funding a guaranteed paid job for young people in long-term unemployment. Our paper suggests a range of options for how to put these and other areas of policy on a sustainable funding footing.

There is a political angle to this as well. The Conservatives are keen to be seen as a party representing all working people, as shown by the "blue-collar Conservatism" agenda. In addition, the spending review offers the Conservative party the opportunity to return to ‘Compassionate Conservatism’ as a going concern.  If they are truly serious about being seen in this light, this should be reflected in a social investment agenda pursued through the spending review that promotes employment and secures a future for public services outside the NHS and schools.

This will come at a cost, however. In our paper, we show how the Chancellor could fund our package of proposed policies without increasing the pain on other areas of government, while remaining consistent with the government’s fiscal rules that require him to reach a surplus on overall government borrowing by 2019-20. We do not agree that the Government needs to reach a surplus in that year. But given this target wont be scrapped ahead of the spending review, we suggest that he should target a slightly lower surplus in 2019/20 of £7bn, with the deficit the year before being £2bn higher. In addition, we propose several revenue-raising measures in line with recent government tax policy that together would unlock an additional £5bn of resource for government departments.

Make no mistake, this will be a tough settlement for government departments and for public services. But the Chancellor does have a range of options open as he plans the upcoming spending review. Expect his reputation as a highly political Chancellor to be on full display.

Spencer Thompson is economic analyst at IPPR