Navigating Northern Ireland’s financial settlement

21 Jan 15

The recent Stormont House Agreement appears to promise Northern Ireland another £2bn in additional funding. But a careful look at the detail tells a rather different story.

The Stormont House Agreement – the deal struck in Northern Ireland just before Christmas following weeks of cross-party talks – has been heralded as the basis on which to resolve Northern Ireland’s well-publicised budget difficulties. But careful examination of the measures places a question mark over whether there really is an additional £2bn of funding for Northern Ireland. In other words, has the Northern Ireland Assembly achieved a significant negotiation win here with the Treasury, particularly in the light of the continuing austerity measures faced by other UK regions?

Navigating a path through the information available results in the conclusion that, while there are new flexibilities here, new money for existing services is more difficult to identify. The package is also dependant on agreement of a balanced budget by the assembly, which was announced on January 15.

The almost £2bn package includes £650m of reported new and additional funding. £500 million of this is capital funding over 10 years to support shared and integrated education projects and £150m is revenue funding over five years to support the establishment of bodies dealing with the past, including an Oral History Archive and a Historical Investigations Unit.

There is a further £900m of funding flexibilities ie funding normally ring fenced for capital that can be used to support revenue spending. This package includes £700m of capital borrowing that was allowed under the Assembly’s Reinvestment and Reform Initiative (RRI), which permitted local borrowing of up to £200m per annum for strategic infrastructure projects, to now be used to fund a voluntary exit scheme over a period of four years.

There is also funding flexibility to repay the £100m loan facility provided by the Treasury to ease the 2014/15 financial pressures from capital budgets or from asset sales.

And there is additional flexibility on how deductions from the Northern Ireland block grant are taken to pay for costs associated with not implementing the Westminster welfare reforms (£114m due from the 2015/16 block grant). This flexibility also allows deduction from capital budgets.

Additional capital borrowing of £350m for infrastructure projects is also included. Over a four-year period this will mean £100m in each year from 2015/16, with £50m in 2018/19.

The package of measures could be viewed as £150m of additional resource spending for new bodies to deal with the legacy issues of the past. The additional capital packages (£500m for shared education and £350m of additional borrowing) are merely replacing capital that would have been available (albeit all through local borrowing) that is now being used to finance voluntary exits (£700m RRI). So, the net effect on capital results in £150m additional capital spending available to the local assembly. This may, however, be used up repaying the Treasury loan facility and/or welfare reform penalties. Therefore it is difficult to see where there is any new money for existing services.

The Office for Budget Responsibility estimates that Northern Ireland can expect its resource departmental expenditure limit (DEL) to fall by a further 13% in real terms by 2019. Savings arising from voluntary exit could merely be going towards meeting further cuts in the block grant

Tough choices lie ahead for the Assembly, particularly as any mitigation of welfare reform will be at a cost to the local budget. The Assembly also needs to find ways to re-balance the economy between the public and the private and voluntary sectors and to manage this with limited resources available to invest in supporting growth measures in those sectors. It could also shortly be considering corporation tax reductions that will also come at a cost the assembly budget.

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