Someone needs to come up with budget options for 2018
The Stormont budget for 2018-19 is heading for a deficit of £200m to £300m just to meet the needs of current services.
Officially, nobody has firm plans on how to manage this shortfall. The budget arithmetic for Northern Ireland poses near-insoluble problems. Is the Stormont administration being asked to deal with the unwanted consequences of decisions by the UK Government, or to what extent is the Stormont administration now facing the consequences of its own earlier lack of budgetary discipline?
There must be an acknowledgement that UK Government budgetary policies have penalised the Northern Ireland budget as a consequence of cuts and policy changes to reduce the UK budget deficit. That is a challenge that is still a problem. Northern Ireland has lived for the last 10 years with a falling public spending budget (measured in inflation-corrected terms).
There will be different opinions on whether Northern Ireland has been treated fairly in the UK budgetary arithmetic. To argue that the result is unfair is to challenge the working of the Barnett Formula. Proportionately, the Barnett Formula affecting the devolved administrations is difficult to seriously fault. .
From 2010-11 until 2017-18, the Barnett Formula for public sector current spending has left Stormont with a shrinking allocation. Corrected for inflation, the Stormont current budget in 2017-18 is approximately £0.7bn lower. That 7% cut in the current budget is not a deliberate action affecting only Northern Ireland. The impact of the UK Government budget policies in NI is expected to be partly offset by the public spending deal signed by the DUP with the Conservative Government. However, the effect on current spending will still leave a straitened budget. The pending budget problems mean that someone somewhere should be examining options.
A budget briefing by the Department of Finance summarises what each of the departments say they might do. The mistake is that asking a public service provider how to manage with a reduced budget is close to asking them to volunteer for suicidal actions. Civil servants do not easily or competently manage their own demise. Not a single department has volunteered to saving funds by introducing a further voluntary exit scheme. Part of the preparation for tightened budgeting for 2018-19 and onwards should be an examination of the scope to increase revenue from devolved taxes or charges and reduce costs and benefits in which Stormont has already used devolved discretion.
The cost of delegated Executive decisions in recent years is considerable. This can be partially quantified by identifying schemes in the Stormont budget that make Northern Ireland services more generous. Top of the list, with little surprise, is the cost of not introducing domestic water and sewerage charges. This effectively earmarks more than £150m.pa that would be available for other uses. Next highest cost is incurred through the partial de-rating of manufacturing industry which costs nearly £60m. Still not introduced but relevant for the next budget is the pending annual cost of corporation tax revenue foregone. The Department of Finance quotes an expected cost of £250m pa.
There are a number of other spending programmes that are more generous in Northern Ireland. The official budgetary outlook points to several schemes which might each affect more than £8m pa. This includes prescription charges (£20m), university fees (no figure quoted), community care packages (circa £22m), concession fares (£8m), small businesses rate relief (£17m) and Housing Executive rents (not quantified).
If Stormont has serious budget problems, are all of these existing discretionary measures untouchable?