Belfast Telegraph

Wednesday 22 October 2014

Ulster budget has become a 'health versus the rest' battle

Challenges: Health Minister Michael McGimpsey (centre)

Sammy Wilson, as Minister of Finance and Personnel, has a good understanding of the scope to vary the regional budget.

Starting from an acceptance of the baseline figures stemming from the Barnett formula, he argues the Chancellor has deprived Northern Ireland of £4bn that might have come here if the UK budget had remained static. This maximises the cumulative impact. More conventionally it could be described as annual, starting at under £1bn in year one and growing to more than £1bn in year four.

Northern Ireland still has proportionally higher public spending than any other UK region. Sammy Wilson believes that the proposed budget allocations, broadly agreed by the Executive, are appropriate.

Considering the health budget, Michael McGimpsey disagrees. With respect to housing and social welfare, Alex Attwood disagrees. For employment and learning, Danny Kennedy has reservations as revealed in the debate about university funding. Mr Wilson challenges critics to state where extra funds could be found to meet more competing priorities.

That points to three key questions about the budget. Does the budget raise the optimum level of internal revenue? Has it seriously tested the scope for economies in current spending? Does the budget use local discretion to maximum advantage in supporting capital budgets? In this difficult budget debate, the answer to these questions is "no".

The Executive, misguidedly, has taken a political decision to refuse to introduce direct water charges.

That contentious decision is reluctantly accepted in this brief response.

Revenue funding: The budget minimises the locally raised revenue by allowing the gap between Northern Ireland domestic rates and the comparable English council tax and water charges to widen further.

If local households faced the same level of these charges as households in Liverpool, Northern Ireland would raise an extra £308m each year.

That increase would be unrealistic as a one year adjustment but even a move to go part way to parity of charges could mean an extra £100m a year within a couple of years.

Spending economies: The budget has not explicitly tackled the ideas of the CBI (NI) in a search for internal budget economies.

The minister has no doubt asked each department to look for economy and efficiency savings.

Capital budgets: The draft budget uses some local initiatives to bring small sums into the capital budget. These are small-scale, counter-productive and sometimes unrealistic.

Moving current spending to capital is appealing but it, along with less revenue from rates, adds to the severity of the squeeze on Invest NI and the health service.

Larger capital funds, raised in other ways, could help the construction sector and ease other problems. The options include being prepared to copy the Scottish idea of a mechanism to permit some significant capital projects on a non-profit basis, financed by public private partnerships or a variant as a form of contractor finance.

Alternatively, a scheme to take the capital assets of NI Water into a defined separate non-profit enterprise so that it could borrow funds commercially would, when operational, release funds currently diverted from other programmes.

The process has become a 'health versus the rest' challenge, partly because the Executive has, indirectly, raided health to subsidise current and capital spending on water. The health budget argument reflects no credit on the whole budget debate.

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