Painful decisions ahead due to big number of claimants
Spending on welfare benefits is proportionately higher in Northern Ireland than in Great Britain. That's because the incidence of the number qualifying for benefits, whether caused by unemployment, ill health, disability or low income, is greater than the average in Great Britain.
The debate about welfare reform raises complicated issues. The discussion about the merits of the universal credit system and other related changes has provoked questions on whether the principles underpinning the welfare proposals in Great Britain are possibly unintentionally unfair to Northern Ireland.
These more fundamental questions must be directed to the implications for the Stormont budget.
As a general guide, Northern Ireland represents 2.94% of the GB population. The Barnett formula, dealing with comparable service areas (and excluding spending on national debt and defence) allows Northern Ireland to gain additional budget spending in line with 2.94% of the GB changes, or 3.4% when the comparator is England (not GB).
This aims to give NI a fair share to keep in line with GB (or England).
Public sector spending per head in NI (in 2012-13) was 24% higher than the UK average. This favourable margin of 24% was partly a result of higher social security spending, costing just over an extra £1bn. Since the scale of personal social security benefits per person applies evenly across the UK, this extra £1bn is mainly the outcome of a greater number of eligible claimants, not higher rates of benefit to an individual.
The contrast between the parity of individual benefit levels and the number of claimants raises a critical question on how this extra spending should be assessed and its implications for the Barnett formula. The formula gives NI an adjustment in proportion to population. That does not assess whether there are other factors which should take account of structural or social differences.
Those differences can be seen in social security spending, in law and order budgets, in spending on economic development policies, as well as spending on agriculture and housing. There is an understandable argument that some of these major differences (or extra spending needs) are not taken into account in the incremental changes allowed by the Barnett formula.
If the Barnett formula allocated to NI an adjusted extra margin, allowing for these inbuilt factors which increase public spending (relative to GB), this would reduce the pressure to trim the fiscal advantage that currently accrues to NI.
On the existing Barnett formula mechanisms, the scale of the NI contribution (or charge) on the UK deficit comes sharply into the spotlight. NI's fiscal deficit is estimated to be proportionately over double the UK average. That comparison opens up the question of what NI should be asked to achieve.
The fiscal deficit accruing from NI is usually accepted as being too high. That does not give a point of reference for what would be an acceptable adjustment and the Barnett formula, because it relies on an incremental formula, avoids that as an explicit policy objective.
In terms of social and economic policy there are (at least) two possible contrasting subjective judgments on the present allocation of public spending to the devolved Stormont Government.
The frequently used comparator relies on the arithmetic, which points to public spending being over 20% higher per capita and presumes that that extra spending is too generous and should be narrowed.
An alternative formulation would search for an objective which allowed for the justifiable and more continuing demands (or needs) for higher public sector spending. With an appropriate adjustment for welfare reform (to adjust social protection spending), law and order, economic policy and housing, there might be a more generous outcome than comes from the present Barnett formula mechanism.
That would open the route to a difficult debate. A debate that assessed the necessary (and hopefully diminishing) need for higher levels of public spending would clarify an objective framework to be agreed between Westminster and Stormont, with some painful conclusions.