Budget pressures

agendaNi summarises the Executive’s difficult financial situation.

Northern Ireland’s draft Budget must be drafted by 31 October in order for the province to benefit from a £100 million loan from the Treasury.

The arrangement – approved by the DUP and Sinn Féin but opposed by the other Executive parties – follows several weeks of deadlock over welfare reform and budget management. The UUP, SDLP and Alliance Party called for a more comprehensive financial agreement.

The Treasury plans to deduct £87 million from the block grant in this financial year if welfare reform is not implemented. However, the Budget has been exceeded by around £200 million – a shortfall mainly due to overspends elsewhere.

“The short-term assistance of £100 million from Treasury will not undermine devolution but instead give the Executive temporary relief to manage one-off budgetary difficulties faced this year,” said Finance Minister Simon Hamilton. He allocated £125 million in the October monitoring round to alleviate specific financial pressures (see box).

To deal with the £25 million over-commitment, Hamilton encouraged all ministers to make savings in the remainder of this financial year. Successful funding bids in the January monitoring round were “highly unlikely”.

Head of the Civil Service Malcolm McKibbin has been asked to draw up options on further pay restraint and reducing the public sector headcount. The public sector currently employs 212,000 people: 30 per cent of the workforce. The DUP and Sinn Féin have agreed, in principle, to implement a voluntary redundancy scheme for public sector employees although details have yet to be agreed.

The Executive’s Budget for this financial year is £11.9 billion, of which the vast majority (£10.7 billion) is covered by the block grant from the Treasury. A further £8.6 billion is allocated for demand-led annually managed expenditure, including £5.6 billion for social security benefits.

The largest current expenditure budget is health (£4.6 billion), followed by education (£1.8 billion) and policing and justice (£1.2 billion). Regional development – mainly transport – accounts for the largest capital budget (£613 million), followed by health and education (£183 million each).

Under the Barnett formula, Northern Ireland has the highest per capita spending in the UK (£10,876), followed by Scotland (£10,152) and Wales (£9,709). The overall per capita figure for England is £8,529 with the lowest ranked region being the South East (£7,638).

Under a needs-based formula, it is likely that Northern Ireland will lose out as its gross value added (GVA) per head is higher than that of Wales or North East England. According to the same measurement, the Welsh Valleys, Anglesey, Durham and Blackpool are poorer than any sub-division of Northern

October monitoring round

Source: DFP