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Stormont cuts must be spread over longer period to beat crisis

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Finance Minister Simon Hamilton

Finance Minister Simon Hamilton

Finance Minister Simon Hamilton

The Northern Ireland Executive is facing a serious financial crisis. Simon Hamilton has outlined that the Executive needs to reduce planned spending by £872m next year. The key spending total for current public sector services will be just over £10bn, variously to sustain the health service, rebalance the economy, and provide education services for all school pupils and supporting people going to universities.

There are other separate strands to the budget. There is a capital investment budget of £1.1bn and a separate budget to pay for welfare and pensions. However, the big challenge of painful changes lies in current spending.

Stormont ministers should not have been taken by surprise. They have had nearly four years' notice of the Block Grant allocation which, in real terms, has been falling. However, preparation for the impact of lower real spending levels has been inadequate.

Part of today's problems lies in a failure to plan in advance to live within our means.

At first sight, the problem is worrying but not large.

The current budget for 2015-16 is 'only' reduced by 2.1% - a net reduction of just over £200m.

That cut of £200m is deceptive. It needs to be amended to take account of a range of complications to deal with extra spending commitments in departments which will exceed their budgets. Health is the biggest (but not the only) example.

In reality, the total cuts and re-allocations add up to £872m, or close to 9% of the current budget.

When this reduction is shared out, some departments face horrendous challenges. Indeed, reductions so large that the delivery action plans lie outside the past experience of any of the ministers or today's civil servants.

Our public finance problem calls for the allocation, or re-allocation, of £872m in a budget of just over £10bn. A difficult, if nigh impossible, challenge!

The published responses to the budget consultation make grim reading. Even the health department, with a special top-up allowance of £200m, still points to the necessity for difficult decisions on selected spending reductions.

Do the Northern Ireland Executive and the Stormont Assembly need to do this, and do it this way?

There are two further critical questions.

First, should the Block Grant allocation from the Treasury be challenged? Has it now been squeezed to the point where it is inadequate to meet legitimate social needs?

This is not easily argued. The current Block Grant makes Northern Ireland the most generously treated region of the UK. There is a margin of over £700 per person (or over 7%) when Northern Ireland is compared to the next highest region, Scotland. A large part of the local advantage comes in higher social security and public order spending.

A plea for an improved Barnett formula would face serious challenges from other regions.

Second, should the Executive consider alternative methods of raising funds to offset some of the spending cuts?

The average household in Northern Ireland pays about £500 a year less in charges, rates and local service costs than households in England. That gives Northern Ireland an advantage worth over £350m each year. Should some of that be clawed back to the local budget?

This would be the option that might be expected from the Treasury.

It is not easy to resist. Closing the gap on rates, housing rents and water charges become serious proposals.

If the minister, Simon Hamilton, and the Executive can deliver an operationally practical budget, they will have survived the most demanding test yet faced.

Sadly, the budget deficit now being faced is too large to be removed in one single budget.

The Treasury must realise that the arithmetic is badly flawed. If the Stormont budget is to survive, the required financial adjustments will need to be slowed and planned over a three year period. Northern Ireland needs even more generous help from the Treasury.


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