By Andrew Webb, Chief Economist, Grant Thornton Ireland 

Andrew Webb
Andrew Webb

As the end of a year draws near, I look back at the articles from this time a year previous and check how events panned out compared to predictions.

This time last year, I was writing that consumers were in downbeat mood and that 2020 would be ‘bumpy’. I was writing that there was more than a fair chance of a recession. I hadn’t even heard of Covid-19!

I was basing a ‘bumpy’ year on Brexit and a US Presidential election. These have provided their fair share of intrigue and concern but both obviously pale in comparison to the chaos of Covid-19.

The events of this year have pushed Northern Ireland deep into economic turmoil. The Covid-19 pandemic has wreaked absolute devastation across our society.

The human cost is difficult to comprehend, both in the tragic loss of life and in the impact on livelihoods. The associated mental health impact of lockdown and career insecurity is a significant issue running alongside the more obvious issues of Covid-19. The stop-go nature of the last nine or 10 months has delivered significant economic scarring, as redundancy announcements reach record monthly levels.

Since March, more than 10,000 redundancies have been proposed and employment has declined for the first time since 2012. Perhaps one of the most visible signals of our economic pain has been through our empty town and city centres and the absence of visitors across our key tourism destinations for the most part of the year.

News of a vaccine programme does offer some hope that an air of normality can return and the hope for beleaguered traders is that a successful vaccination releases a wave of pent up consumer demand that jump starts the economy.

A key player in driving the economy back to health will be our local councils. Our 11 local authorities play a critical role in the economic support networks and in the vibrancy of our town and city centres – but are they in sufficiently good enough shape financially to drive the required economic growth?

The 2020 report from the Local Government Auditor suggests that reduced resources mean that Northern Ireland’s councils face significant challenges to their financial sustainability and capacity to maintain service levels.

The Auditor found that Councils here are raising almost a billion in revenues and spending £1,023m, a shortfall between councils’ income and expenditure of £106 million in 2018-19.

Expenditure has exceeded income in each of the previous five years, increasing notably since 2017-18. Interestingly, capital expenditure, which ran hot in the run up to the creation of the new councils, increased in the last year for the first time since the formation of the new 11 council model.

The capital expenditure seems to be driven by investment in a long overdue refresh of leisure centres. Not only has this investment improved the quality of provision, the build phase has acted as a significant economic stimulus.

Following the same trend as capital spending, borrowing levels have increased significantly for the first time snice the formation of the new councils. Outstanding loans now total £527 million, with Belfast adding £26m in loans between 2017-18 and 2018-19.

During the same period, Derry City and Strabane reduced loans by £3.5m, more than any other council did. The favourable current lending environment, with rates exceptionally low suggests now is a good time to push ahead with borrowing for investments.

In the context of challenging economic times, where Council’s incomes have been depleted, the Auditor notes the challenge in terms of financial resilience.

Compounding the financial challenges faced by Councils is the loss of EU funding. Councils have been an important conduit for delivering EU funding programmes. The starkness of this issue was laid out by Economy Minister Dodds last week when acknowledging her Department is facing a £70m shortfall in funding in 2021/22 from the loss of EU funding. The forthcoming Shared Prosperity Fund shows no signs of filling that void.

Looking for a positive, while the financial situation for councils looks uncertain, their role in regeneration and economic development is set to ramp up dramatically through the City Region and Growth Deals.

All Councils are now part of a deal which, when delivered, commits over £1.2 billion in capital spending initiatives that are aiming to improve public realm, tourism innovation and overall economic performance.

Their success is needed more than ever. Let’s hope 2021 sees rapid progress on that front, and let’s hope it sees Councils in a more financially robust position.