The Northern Ireland Executive has agreed a loan from the Treasury to prevent them going into the red. But lack of agreement on welfare reform and financial penalties means the Executive is likely to face tough financial choices ahead
In July this year, the Northern Ireland’s minister for finance and personnel (Simon Hamilton MLA) announced £77.9 million in budget cuts This equated to an immediate reduction of 2.1% in the revenue of each department, with the exception of health and education. This was needed to cover additional allocations of some £50 million as well as a previous over-commitment in the revenue budget.
At that time the minister also warned of the need for further cuts in October, if there was no agreement on welfare reform, to cover the penalties likely to be imposed by HM Treasury. He indicated this was likely to represent a further 2.3% reduction to departmental revenue budgets.
Speaking at CIPFA’s Northern Ireland Conference, the minister confirmed that £87 million in welfare reform penalties will have to be found in the last 6 months of 2014-15, as well as other emerging pressures. The minister stated ‘The heady cocktail of austerity plus departmental pressures plus the self-inflicted wound of welfare reform penalties means that our budgetary difficulties are moving to a whole different level’.
The minister called for urgent decisions by the Executive to avoid the risk of overspending in the 2014-15 financial year. However, at a meeting of the Executive to discuss budget pressures, no such decisions were taken, leaving a shortfall of some £200 million to be addressed in the last 6 months of the financial year; £87 million in Treasury penalties over welfare reform and over £100 million in emerging pressures. This equates to a 4% cut for each department, rising to 6% if health is again protected from reductions.
Last week, as deadlock in the Executive continued, the Head of the Civil Service in Northern Ireland issued a formal warning to HM Treasury that the Executive will breach its spending limits by the end of the year.
In response to talks with the DUP, George Osborne has agreed that HM Treasury will provide a loan of £100 million to help avoid the Executive breaching their spending limits. However, this will be deducted from the block grant for next year, and is conditional on the Executive agreeing a draft budget for 2015-16 by the end of October. The Chancellor also confirmed his intention to impose further financial penalties of £114 million in 2015-16 if no agreement is reached on welfare reform.
Although the loan from the Treasury may help to ease the pressures faced in the latter half of this year, together with the issue of welfare reform and the threat of further penalties, it effectively shifts the £200 million shortfall to the 2015-16 budget. If no agreement is reached on a way forward for welfare reform, the process of agreeing a draft budget for the coming year is likely to be extremely challenging.
