A Fresh Start in Northern Ireland

18 Dec 15

Following an agreement to end the devolution impasse in Northern Ireland, the Executive now has to deliver amid both funding constraints and moves towards tax localisation.

After the recent protracted talks between the main parties in Stormont, the UK and Irish governments, a way forward has been found. The impasse on setting a balanced budget and implementing welfare reforms in Northern Ireland has been resolved. The publication of A Fresh Start – The Stormont Agreement and Implementation Plan on 17 November 2015 was the expressed collective agreement of the parties on how to get back to normal business.

The background of course was back in December 2014 the original Stormont House Agreement was reached after eleven weeks of multi-party talks. Those talks involved the local political parties as well as the UK and Irish governments. 

That agreement was underpinned by nearly £2bn of what was described as ‘additional spending power.’ However during the summer it was clear that the implementation of the agreement had stalled. At the time there was a real risk of the local institutions of government collapsing, leading to a return to direct rule from Westminster. In early September a fresh round of talks began. The aim of these talks was to secure the implementation of the Stormont House Agreement and to deal with continued paramilitary activity. The outcome is the Fresh Start document.

This new agreement contains the financial package originally agreed in the Stormont House Agreement, plus some additional funding and flexibilities. There is also ‘new money’ available, but a lot of this is ring-fenced for specific purposes. There is funding available to address welfare fraud and error of £25m for up to five years, and also additional funding of £60m, over five years, to support the delivery of shared future measures and programmes.

Security and policing do receive a boost with £160m over five years to tackle paramilitary activity. This is also supported by further measures including the setting up and funding (£3m over four years) for a new monitoring and implementation body in this area. It does however need to be borne in mind that in certain areas this UK government funding is to be matched by the NI Executive, which will draw funds from resources directed elsewhere for delivery of existing services. A significant commitment from the NI Executive is to allocate £585m from its funds over four years to top up the UK welfare arrangements that are being implemented following this agreement, which will impact on available funding elsewhere. The agreement also paves the way for implementation of corporation tax powers locally that will result in adjustments to the Executives block grant funding for any tax variation locally. The Executive has stated its commitment to implementing a corporation tax rate of 12.5% in 2018.

Since the agreement, the UK government’s Autumn Statement has set out the position on funding for the period to 2019/20. We now know that Northern Ireland will take an effective real terms cut, 5.3% by 2019/20, in its budget which will lead to further financial challenges for the Executive to balance the books.

A significant measure in the Fresh Start agreement is the plan to establish an independent fiscal council for Northern Ireland. This is an important step in bringing the required independent scrutiny and transparency to the Executive’s forecasts and budgets, particularly in the light of being able to raise more income through tax measures locally. Ensuring the appropriate remit and powers for the fiscal council will be critical to its success, but this measure does have the potential to bring an end to the problems the Executive has had in setting previous budgets and the improve the forward financial planning of the Executive.

There will be continued financial challenges ahead and by the end of this spending review period we should expect a smaller state sector in Northern Ireland. The balanced budget that is now expected to be put before the Assembly in January 2016 will be the first sign that the devolved administration, complete with a new First Minister, remains in place, and with the opportunity to deliver locally for Northern Ireland.

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