Update: What effect did Northern Ireland’s spend local scheme have on the economy?

To boost the economy after lockdown, the devolved government in Northern Ireland gave every citizen a £100 ‘spend local’ voucher. New data show where and when vouchers were spent, enabling an evaluation of the scheme.

Northern Ireland’s ‘high street spend local scheme’ opened for registration on 27 September 2021, with the first cards issued in October (see Figure 1). Under the initiative, each person aged 18 or over was entitled to apply for a £100 card, which could not be used for online purchases.

The original deadline for the money to be spent was 30 November 2021, but due to demand and the logistics of issuing cards to 1.4 million people, this was initially extended to 14 December and then subsequently to 19 December.

Figure 1: Northern Ireland’s spend local card

Source: Northern Ireland Executive, 2021

Was the scheme a success?

By the end of the scheme, 1,399,051 residents had been issued with spend local cards, 99.6% of which were activated. This led to £136.5 million (97.6% of total issued) being spent (Department for the Economy, DfE, 2022).

The former economy minister Gordon Lyons (whose department was responsible for the scheme) stated that ‘the purpose of the High Street Scheme is to stimulate local businesses, including retail, hospitality and service sector outlets, which had been hit hardest during the pandemic’ (DfE, 2021).

Of the £118 million spent in retail businesses, 43% was spent in retailers that had not been required to close under the 2020 lockdown regulations. In other words, nearly half of the retail spend went to businesses that had remained open and prospered during lockdowns.

The scheme’s overall effect on the local economy can be determined by how much additional expenditure it generated. This is known as its ‘additionality’.

The scale of this additionality can be measured by the size of what economists call the ‘fiscal multiplier’. This is the mechanism through which government expenditure can have a greater effect than its initial value, due to indirect expenditure.

For example, buying £100 of goods in a shop not only directly pays the wages of the employees there, but these employees will also spend part of the wages they receive on other goods and services, generating further indirect expenditure in the wider economy.

A variety of factors determine the size of this fiscal multiplier, and thus the degree of additionality for Northern Ireland’s spend local scheme. We look at three factors: substitution effects; leakages; and timing.

Substitution effects

Substitution effects lower the fiscal multiplier. While people were each given £100 to spend as they choose, there was no guarantee that it would promote new, additional expenditure. Instead, consumers may have used their card for purchases that they were already planning to make, and either save £100 of their own money, or use this cash to pay off existing debts.

A survey carried out by the Department for the Economy after the launch of the scheme found that 44% of respondents intended to spend or had spent the entire £100 on something that they had been planning to buy anyway (DfE, 2022). Only 22% of respondents stated that that would not use any of the £100 on something they were already intending to buy.

Of the 62% of respondents who planned to spend most or all of the £100 on something that they would have bought anyway, 70% said that this freed up money in their budget. Of these, 15% said that the money freed up would be used to increase their savings and 27% said it would be used to pay off debts or bills.

Expenditure on groceries has a larger substitution effect, as this is regular and planned spending, which in turn will have lowered the fiscal multiplier. The statistical report on the scheme released by the Northern Ireland Statistics and Research Agency (NISRA) does not report the expenditure on groceries and in supermarkets (NISRA, 2022).

Nevertheless, £50.7 million or 43% of the spend on retail was in stores that had been open during the lockdown restrictions of 2020. The vast majority of these were supermarkets. In other words, close to 37% of the scheme’s total spend went to supermarkets. By way of comparison, in its evaluation of Jersey’s spend local scheme, the Jersey Public Accounts Committee was critical that 22% of the spend went to food retailers.

Leakages

Leakages lower the fiscal multiplier. Northern Ireland is a very open economy: around 46% of goods and services purchased by businesses come from outside (NISRA, 2021). Parts of the retail sector also have high representation by UK-wide chains, including supermarkets (Kantar, 2021).

Among survey respondents, 67% stated that they intended to spend all or most of their £100 in small local businesses (DfE, 2022). Unfortunately, the spend data from NISRA do not shed any light on this issue.

Given the high proportion spent in supermarkets, it is very likely that a substantial proportion of extra expenditure by consumers leaked out of the local economy.

Timing

Finally, timing can raise or lower the fiscal multiplier. Retail and hospitality expenditure experiences seasonality. As research commissioned by the Department for the Economy shows, spending on shopping and going to pubs, cafes and restaurants is highest in November and December, and lowest both at the beginning of the year and between August and September.

This means that a scheme operating during this quieter time, and coinciding with the ending of other business support, would have had the greatest additionality, raising the fiscal multiplier.

The positive effects of the Northern Ireland scheme on the fiscal multiplier were dampened by its delayed start and implementation, as well as its continuation through until 19 December.

The data released by the Department for the Economy only show the number of transactions per day during the scheme’s life, shown in Figure 2. The busiest period was during November, with the highest peaks in activity occurring across the four weekends of that month, followed by a peak during the final weekend of the scheme in mid-December.

Figure 2: Number of card transactions per day

Source: DfE, 2021

While a detailed breakdown of expenditure over time has not been published, we can use figures for total expenditure provided in the Department for the Economy’s regular press releases to identify when spending took place.

Approximately 54% of total expenditure occurred during November, with 27% occurring during December, and only 19% in October. The Department’s commissioned research recommended that the scheme should end before the Black Friday weekend, supposedly the start of the Christmas shopping season in late November.

But over one-third (approximately 37%) of the scheme’s total expenditure occurred during the two weeks up to and including the Black Friday weekend – between 15 November and 30 November. Overall, 73% of total expenditure occurred during the two highest months for retail sales annually, therefore lowering the scheme’s fiscal multiplier.

While the spend local scheme was running, it was credited with ensuring Northern Ireland saw a shallower decline in retail footfall relative to the UK average. But evidence from NISRA’s retail sales index suggests that this did not translate into better sales performance.

Indeed, Northern Ireland saw retail output decrease 1.1% over the final quarter (October-December) of 2021, compared with Great Britain, which saw a much smaller decrease of only 0.6%. By the end of 2021, retail output in Northern Ireland remained 4.4% below the pre-pandemic level, while in Great Britain this had recovered to 3.0% above the pre-Covid-19 level.

Together, the evidence on substitution effects, the potential for leakages and the poor timing of the scheme suggest that the spend local scheme’s fiscal multiplier was much lower than was either originally intended or would have been hoped for.

How could the spend local scheme have been improved?

First, it should have been operated from late August through to October – the months that have much lower retail spending than November and December. The delays in implementing the scheme meant that the additionality from the injection of £136.5 million was severely dampened.

Second, the scheme should have been more targeted at businesses that were forced to close by the lockdown requirements of 2020. Businesses – such as supermarkets – that remained open throughout the pandemic should not have been part of the scheme.

Third, there is evidence that a transfer targeted at disadvantaged households provides a stronger boost to overall spending (Andreolli and Surico, 2021). The spend local scheme would have had a greater economic effect if it had been targeted at pensioners and those on income support.

The cost of the scheme, at £145 million, was financed as part of the in-year allocation within the Northern Ireland Executive’s 2021/22 budget. This was partly funded by Covid-19 money carried over from the previous financial year, with the spend local scheme representing 21.1% of the in-year allocation.

Other areas receiving funding as part of this allocation included the economic recovery programme (£130.8 million), education (£64.7 million) and health (£70 million). Expenditure on the spend local scheme represents money not spent on other areas that are priorities for the Northern Ireland Executive.

Therefore, a post-scheme evaluation needs to happen to determine whether this policy experimentation was cost-effective and worth repeating. This will require better data to help policy-makers understand how much was spent in supermarkets and grocery stores, and how much was spent in UK multiples. There also needs to be a survey focused on the extent to which substitution effects occurred.