Stormont’s ability to deliver public services in Northern Ireland comparable to England is coming under increasing pressure from a squeeze on the block grant, a new fiscal report has stated.
The Northern Ireland Fiscal Council’s first annual report on the sustainability of public finances said determined efforts were needed to use funding as efficiently as possible.
The Executive’s spending on public services is largely financed by a core block grant from Westminster, which evolves according to the Barnett Formula.
This ensures that when the UK Government increases spending in the rest of the UK on services for which the Executive is responsible in Northern Ireland, the block grant rises by broadly the same amount in pounds per head.
But the report said spending per head was much higher in Northern Ireland than England when the formula was introduced, so this produces a “Barnett squeeze” with the percentage premium of the block grant over equivalent UK Government spending shrinking over time.
The report said the block grant per head is set to fall from 38% above equivalent UK Government spending in 2017-18 to 25% above at the end of the current UK Spending Review period in 2024-25.
The report stated: “Various studies have been undertaken to estimate the premium necessary to deliver equivalent public services in Northern Ireland to those in England or elsewhere in the UK, based on different characteristics of the population.
“None of these studies is particularly recent, but our review suggests that the relative need for spending may be about 20% higher in Northern Ireland than England.”
The report projects that the block grant per head premium could fall below this level in the early 2030s, dropping below 10% in the late 2040s and to just over 5% by the end of a 50-year projection in the early 2070s.
It said this would confront the Executive with several choices:
– simply to accept a lower quality of services than England
– to try to increase the efficiency with which NI services are provided
– to cease or reduce the provision of lowest priority services
– to make additional “fiscal effort” (raising regional rates and/or fees and charges such as domestic water charges)
– to seek greater tax raising or borrowing powers from the Treasury
– to seek additional funding from the UK Government
The report said additional funding from the UK Government could be attached to another political agreement designed to restore or sustain the Stormont institutions, like the New Decade New Approach deal of 2020.
It added: “But financial support of this type is typically time-limited and earmarked for particular purposes, which is not conducive to long-term planning and reform.
“A more durable option would be to seek a similar agreement with the UK Government to that reached by the Welsh Government in 2016, setting a floor under the block grant premium at an agreed estimate of relative need and an additional uplift to Barnett formula increases to slow the rate at which the premium approaches the floor.”
The NI Fiscal Council was set up by Finance Minister Conor Murphy to provide ongoing independent oversight of the budgetary process under the terms of the New Decade, New Approach agreement that restored powersharing at Stormont in 2020.
The sustainability report is one of two required each year from the council, alongside an assessment of how the Executive balances its budget.
The report will be followed later this month by a supplementary volume on sustainability in the health system, the Executive’s biggest budget item.
