Read Pivotal’s response to the Northern Ireland Affairs Committee’s Inquiry into budgetary management in Northern Ireland and the impact on public services.

A Budget for 2022–23 was not agreed by the Northern Ireland Executive before the First Minister resigned on 3 February 2022. The budgetary problems in 2022–23 came about through there being no Budget and no Executive, together with a very challenging external context of rising pay, energy and others costs. Some of these budgetary problems also had their roots in failures in decision–making in earlier years. Having an Executive in place would not have avoided all of these budgetary challenges, but it should have meant better financial management and reduced the likelihood of an overspend.

The short–term nature of budgetary management in 2022–23 was very damaging for strategic decision–making. On the most part, the focus for NI Departments and organisations funded by them was on survival only, since they lacked the stable budgets needed for any longer term planning of service delivery.

The Budget for 2022–23 set by the Secretary of State in November 2022 was balanced in a technical sense, but this was achieved in part by ‘borrowing’ £297 million from the funding allocation for 2023–24. This creates a peculiar V–shape in funding, with a fall of 6.4% in real terms in 2023–24 and then a rise of 1.9% in 2024–25. The Fiscal Council estimates that this means a real terms funding gap for NI of £808 million and £558 million respectively over the next two years. Moreover, the V–shaped profile of spending is very unhelpful for any longer term reform or workforce planning.

Northern Ireland starts 2023–24 with a bleak combination of no Executive, no ministers, no Budget (although it is due to be set soon), rising pay and other costs, and the requirement to repay £297 million out of this year’s block grant. The funding settlements for Departments in 2023–24 look likely to be flat–cash at best, and less than this for most departments. Our view is that funding pressures over recent years mean that there is limited scope for further short–term efficiency savings. Longer term reform of public services could yield savings, but this requires stable budgets and planning, and will not be achieved in the short–term. Without any new revenue sources, cuts to services seem inevitable in the coming year, as we are seeing already for some Departments.

Meanwhile there is an urgent need for a strategic, long–term approach to all public services in Northern Ireland, including overdue reform. The last multi–year budget for Northern Ireland was for 2011–15.

The Barnett formula has prevailed for more than 40 years as the accepted method of allocating funding to Scotland, Wales and Northern Ireland, despite being introduced as a temporary measure. Until recently, Barnett had always provided NI with funding per head which was at least 25% above levels in England, but the ‘Barnett squeeze’ is gradually narrowing this premium. Consideration should be given to whether a ‘floor’ mechanism should be added to the formula for Northern Ireland, as is the case in Wales.

In the absence of additional funding from the UK Government, raising more revenue locally should be properly considered as a potential way to ensure that essential services can be funded. Northern Ireland’s politicians have been very reluctant to look at these options in the past, but in our view there is a need for more realism about the budgetary challenges NI faces and the likelihood of increased funding for services coming from other sources. In particular, the lower charges paid by NI households for rates and water stand out in comparison to what households pay in the rest of the UK. Looking further ahead, the Fiscal Commission has provided a thorough assessment of possibilities for increased devolution of tax raising powers, but these need to be considered over a longer time period and so do not provide any options for dealing with the immediate budgetary pressures.