Recounting the cash

A review of a spending review, as a tight new financial year approaches.

Money is on the mind of most MLAs as inevitable budget cuts loom. In draft form, the Executive has now set out how it intends to use its money in 2010-2011.

Finance Minister Sammy Wilson presented the draft revised spending review plans to the Assembly on 12 January and they are currently being debated in the Assembly’s committees.

The Executive’s original budget was approved by the Assembly in January 2008 and covers 2008-2011. As Sammy Wilson openly admits in the revision paper’s introduction, times have changed, not least with rising fuel prices, the property downturn and “deterioration” in UK public finances. He defends the Executive’s record to date and warns about the prospect of reduced funding from Westminster from 2011- 2012 onwards.

In the two previous financial years, most financial pressures were covered using in year monitoring but, as pressure was set to increase, Wilson commissioned a review of the remaining plans last summer. He still hopes for “significant progress” against the Programme for Government’s targets, even within these new limits, and calls on other ministers to publish their spending plans on departmental websites.

There are four main funding sources for the province:

1. The Barnett formula (89.8 per cent projected for 2010-2011)
2. Rates (consisting of the regional rate and district rate)
3. Borrowing under the Reinvestment
4. and Reform Initiative (current limit £200 million per annum)
5. EU funding

Regional rates had increased under direct rule but the Executive brought in a freeze for domestic charges over the 2008-2011 period. A 20 per cent discount for single pensioners aged over 70 was also introduced. As direct rule increases for non-domestic customers were more modest, the Executive agreed to allow for small further increases, to a maximum of 2.7 per cent per year.

The Budget also anticipated a slowdown in public spending and, in response, instructed departments to deliver 3 per cent efficiency savings per year. These savings were expected to release £790 million by 2010-2011 and the department’s monitoring round information suggests that good progress has been made against this target.

Northern Ireland does not receive any extra money for water and sewerage services from the Barnett formula so the cost must come from existing funds. This, in turn, puts pressure on other public services. The Budget was based on the assumption that the subsidy to Northern Ireland Water would be gradually reduced over time.

This ‘water pressure’ currently adds up to £210 million per year but saves the average household £400. When the Civil Service equal pay claim and other pressures are added, the overall pressure comes to £367 million in Wilson’s assessment.

A reserve fund, for ‘planned over-commitment’, was well-stocked in the days when public spending was rising. It stood at £100 million in 2008-2009 but fell to £60 million in 2010-2011 as the money was dispersed to other projects through in-year monitoring.

On average, departments would be making savings of 2.6 per cent in current expenditure.

However, DHSSPS will be required to save 2.1 per cent, a slightly lower figure as health and social services are treated as a higher priority. DRD and DETI also have below average savings, so that those departments’ spending can be focused on economic infrastructure.

Overall, the Executive’s budget would only see a minor decrease, when compared to the 2008-2011 Budget.

Current expenditure falls by 0.1 per cent and capital investment by 1.0 per cent. This represents an improvement on previous end-of-year under-spends.

The Executive still nearly meets its targets of £9 billion current expenditure and £1.4 billion capital investment in 2010- 2011.

One innovative proposal is the £26 million Invest to Save fund, where the Executive would set aside a pot of money to deal with anticipated budget cuts. Departments which then need upfront support for a project would then bid to the Executive for funding.

Committee responses will be co-ordinated by the Finance Committee and a number of debates are expected to follow in March, with the plans aimed to be finalised by the new financial year.