Northern Ireland takes the initiative on needs-based funding

1 Jul 15

The Barnett formula is increasingly regarded as no longer fit for purpose. A recent report from the Northern Ireland Assembly helps make the case for a needs-based approach.

The Finance and Personnel Committee of the Northern Ireland Assembly has published its report into the operation of the Barnett formula. It asks the Department of Finance and Personnel and the wider executive to establish how a needs-based assessment would be best designed to take account of the Northern Ireland context. Further, they are linking in with colleagues in Scotland and Wales to look at grounds where joint proposals may be put to the UK government for improvements to the operation of the Barnett formula to increase transparency and provide clarity on areas such as formula bypass and, going forward, where adjustments are made to block grant funding to take account of devolved tax arrangements.

In CIPFA’s evidence to the committee, the institute advocated a proactive approach to setting the policy agenda and taking the lead in regard to regional funding settlements. During the Northern Ireland Assembly debate on the committee’s report, chair Daithí McKay referred to this evidence as ‘compelling given the external pressures for change’.

Funding through the Barnett formula has been the subject of much debate across the UK devolved regions of Scotland, Wales and Northern Ireland. While it has merits in its simplicity of application, it has also come in for a significant amount of criticism due to its failure to reflect need and providing for an inequitable settlement for the regions when compared to England.

Within current devolution arrangements questions over funding through the Barnett mechanism have not been fully explored or addressed in a co-ordinated manner.  Scotland has gained agreement from Westminster to maintain the Barnett funding mechanism in the Scotland Bill currently progressing through the House of Commons.  Wales, on the other hand, has been given the opportunity of a floor in the funding mechanism, essentially to mitigate any future convergence of funding with English levels, within the proposed Wales Bill. So, there is a divergence of approach to funding the regions developing and this may be further complicated by developments in regional devolution and funding settlements within England as and when this progresses.  

Northern Ireland, through the committee’s report and recommendations, has recognised that the future for the Barnett formula is somewhat uncertain, given the increased push for devolution across UK cities and the clamour for further powers to be devolved across the UK regions, particularly revenue-raising powers and other fiscal levers.

Northern Ireland recognises its own particular needs as it has had a lack of infrastructure investment due to its political history and has a need to address the balance in the economy between the public and private sectors. Funding that recognises this need and drives incentives to improve the wellbeing of people and the performance of the economy is now what is required. This will serve to improve the accountability of our elected representatives and, if independently overseen, serve to increase the transparency of funding arrangements to the devolved administration.

What is becoming clear is that the current Barnett funding mechanism does not provide a clear relationship between expenditure on the services provided and the taxes raised to pay for them and with increasing devolution it therefore seems increasingly unfit for purpose. With that in mind and in the interest of a fair funding settlement for the region, the committee has taken a positive step forward in this debate.

Resolving a fair funding settlement for the region is a vital ingredient in supporting a more accountable and transparent relationship with the local electorate. Elected representatives should now look ahead to the tools required for robust fiscal management in new circumstances ahead. And, the case for strengthening the financial management environment needs to come forward on the agenda.

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