Belfast Telegraph

Wednesday 17 September 2014

Executive must explore all options to soften its Budget

Sammy Wilson has done all his sums but questions remain about key economic and social issues

Before Christmas, Finance Minister Sammy Wilson announced the broad outlines of the Executive budget from 2011-12 to 2014-15.

There was considerable relief that a coherent disciplined budget was approved for consultation.

That coherence is now in doubt. Difficult decisions have emerged and political tensions about priorities have grown rather than been reconciled.

The overall budget message was clear. Current spending would fall in real terms by about 8% in four years. The capital budget would fall in 2014-15 by nearly 40% from the 2011-12 level.

Public consultation is now open until mid-February.

The tempting conclusion was that, for current spending, an annual cut of 2% should be manageable even with some pain and, for capital spending, the large reductions would fall most on the construction sector, mainly affecting private sector businesses. The 2% real reduction in spending would be more manageable because the public sector pay bill (over half of the current budget) would be trimmed as many pay rates would be frozen.

Nearly all the Ministers and their departments have proved to be less sanguine about the outcomes. No department claims to be comfortable ‘doing more with slightly less’.

The Northern Ireland budget should be judged on three levels. First, are the first year (2011-12) allocations manageable? Second, is the four-year planning period to 2014-15 being used to identify a logical evolving framework? Third, have the Executive used selective flexibility to minimise emerging difficulties and maximise extra funds?

The second and third questions cannot be answered with confidence. Even the first is doubtful.

For the financial year starting in April 2011, three departments are challenging the process and are looking for help from the rest of the Executive.

The Department for Employment and Learning has published an outline budget which does not balance. A first year gap is explicitly acknowledged. The idea that a Minister could start the year expecting to overspend by £40m would not be acceptable. DEL has also fudged its budget statement by avoiding answers to questions on university funding. The Executive will presumably look for clarity on university fees policies and how extra fees would help to avoid very difficult spending reductions in both universities.

The Department for Social Development has published an outline budget which the Minister, Alex Attwood, says he does not wish to accept, implying that he hopes that Sammy Wilson can offer extra help — an unlikely scenario.

The proposed budget hints at — but avoids firm commitments — the need for a radical rethink on the financing of the Housing Executive and its policy on rents.

The sharpest crisis is revealed in the Department of Health budget. It starts from a below parity budget (compared to England) and estimates that the existing funding gap will widen by a further £380m by 2014-15. The scale of the shortfall leads into a frightening list of possible cuts where firm decisions are awaited.

There are difficult problems for Regional Development with large capital bids for water, roads and transport alongside a series of revenue raising measures from motorists and public transport users.

The budget for Invest NI (within the DETI allocations) causes serious concern. Growing the economy remains the priority yet the Invest NI budget will mean that it does not have sufficient funds to support the foreseeable number of new investment projects. Northern Ireland is at risk of missing available job opportunities.

Finally, the Executive has shown little willingness to consider all possible extra revenue raising mechanisms and has avoided any consideration of out-sourced capital projects (following the Scottish example). Details on funds from Social Housing, Belfast Harbour, asset sales and a tax on shopping bags are still not fully agreed.

Sammy Wilson has managed the arithmetic. However, along with his Executive colleagues, serious questions remain on key economic and social issues. The Executive has foregone some options. The impact of the Budget could be softened.

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