Options limited as restored Stormont has aspirations far in excess of cash resources

It is understandable that the Finance Minister feels he must try again to get some more money from HM Treasury. There is an immediate explanation for the Executive’s predicament — restored Stormont has aspirations, as summarised in the New Decade document, far in excess of cash resources.

There is also a deeper explanation — the relationship between the Northern Ireland devolved administration and the London Treasury has always been fraught.

The main problem is the demand for public spending here far outstrips existing funding.

In the last few weeks we have seen bid after bid as education, health, infrastructure and public housing have all put forward their “needs”.

This situation did not arise out of the blue in early 2020, it has been brewing for a decade or more

— in particular during the so-called “austerity” era post-2010.

As early as 2010 some commentators were warning that a failure to fundamentally reform public service delivery in Northern Ireland would eventually produce a crunch.

Notwithstanding some reform initiatives, such as Reform of Public Administration, opportunities were missed — the reduction in the number of councils did not really deliver cost savings, limited development of delivery of central services, reform of health delivery repeatedly delayed, domestic water charges nearly introduced in 2008 but were not.

The status quo was maintained — like Dickens’ Mr Micawber it was hoped largely in vain that “something would turn up” but now the day of reckoning has come.

Back in early January, consideration of the recent statements of Permanent Secretaries and the NI Audit Office suggested additional funding pressures of the order of £4.5bn+ for “capital” (ie once off) — mainly Bengoa, waiting lists, potholes, NIW and York Street Interchange — and £0.5bn+ for current (ie annual, recurrent departmental spending) — mainly on schools but also health, universities and Justice.

Given what we have been told by various ministers and senior officials during the last month, it would be comparatively easy to inflate those figures to £5.3bn+, allowing additionally for the schools estate, road upgrades generally, digital improvement, and well over £1.5bn annually.

The latter allows additionally for about £400m rather than £250m for schools, money for police pay and numbers and large sums for NIHE housing maintenance and for adapting transport to carbon zero, and a possible long run support for farming as funding from London falls below that which the EU would have provided.

It is almost certain that HM Treasury will not give the Finance Minister what he is asking for. They may show a little bit more generosity in terms of loans or various regulations rather than in terms of hard cash.

The NI Finance Department may have to show some willingness to move in directions which the London Treasury would wish — for example, the Treasury might cancel the debt held by NIHE if Northern Ireland changed the status of the 85,000 housing stock from outright public ownership.

In terms of what the Executive can do, the options are limited.

They need to be more single-minded about priorities. Not everything can be done and certainly not everything within the next two years.

Greater efficiency in spending is needed — last year’s NI Audit Office report on public procurement needs to be acted upon swiftly.

Another is looking at the options on use of private capital — this is not to recommend returning to PPP/PFI but there are other options. Notably, the ownership status of the NIHE housing stock.

Revenue raising will have to be considered — least week’s announcement of an increase in NIHE rents was indicative.

Dr Esmond Birnie is a senior economist with Ulster University