Northern Ireland needs a larger public sector infrastructure programme that supports improved standards of service to match the best available in other regions of western Europe.
There is already a comprehensive working infrastructure, but to match the best there are notable deficiencies. Alongside the possible changes to grow the private sector infrastructure is a high priority. The infrastructure programme relies on funding allocations from the Exchequer budget.
Unfortunately, within the reductions imposed as part of the recent budget settlement, the capital budget is already decided and will be smaller in 2011-12 than in 2010-11. In the year just ended, the expected spending was nearly £1.5bn.
In 2011-12, the allocation is only £1.2bn. This falls well short of the ambition for an average £1.8bn as envisaged four years ago when the investment strategy was published.
The Northern Ireland programme already relies on supplementary borrowing of £200m each year from the Treasury as well as some transfers, averaging about £100m each year, from within the Executive budget. The Executive must seek to improve access to capital funds.
Some capital funds might be raised through the sale of publicly owned assets. However, at present that is commercially ill-advised while property prices are regarded as unusually low.
Unless there can be new revenue charges, further funds must depend on extra forms of external borrowing.
The problems of living within the Treasury allocation of a reduced capital budget also apply to the other devolved governments. Scotland, in particular, offers a useful comparison.
In 2008, the Scottish government set up the Scottish Futures Trust (SFT), a separate company owned by Scottish ministers. The unique feature is that the SFT is empowered to become involved in leveraging a big increase in infrastructure investment.
At first sight, the SFT invites comparison with the Northern Ireland Strategic Investment Board (SIB). However, the Scottish institution has wider powers and is more at arm’s length from the official civil service structures.
The relevance of the SFT for Northern Ireland is seen in the announcement that in 2011-12 it will manage capital project valued at £9bn.
Proportionately, Northern Ireland is close to one-third of the size or scale of Scotland so that the £9bn might be equivalent to about £3bn in Northern Ireland.
For Northern Ireland there is an interest in this wider role of the SFT compared to the SIB and also in the ability of the SFT to manage funding. The SFT terms of reference include:
- managing and leading projects
- broker for public authorities to collaborate on projects
- advise and organise funding and financing
- validate projects by scrutiny and diligence
- providing expertise on infrastructure investment.
The contrast with the SIB is the role of the SFT in organising funding and finance, with involvement in types of contract chosen, including the non-profit distributing model (a tighter mechanism than the public private partnership (PPP) concept) or the tax increment financing (TIF) vehicle. The business plan for the SFT in 2011-12 includes assistance on a number of conventional contracts alongside a range of non-profit distributing (NPD) projects in transport, health and education and a large TIF regeneration scheme including part of Edinburgh.
Reports suggest the Scottish government has encouraged SFT to expand their activities and, for NPD schemes, have constrained the total commitment by limiting the size of the annual revenue budget increase needed to make the long-term payments. The Northern Ireland Executive has been reluctant to look for more PPP capital schemes. Perhaps the new type of contract which limits the profitable abuse of PPP contracts could give enough reassurance to allow a reassessment.
The Scots, under First Minister Alex Salmond, are looking closely at Northern Ireland’s concepts on corporation tax. Now, the compliment can be returned if the ideas of the SFT are adopted locally.