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The public purse plan for 2021: tidy up and build a constructive recovery

The finances of the public sector in Northern Ireland have been stressed and strained during 2020 in ways that have no precedents in living memory. The public sector budget approved in January 2020, in retrospect, bears little resemblance to the actual records of what actually happened, writes John Simpson

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Parliament Buildings at Stormont

Parliament Buildings at Stormont

Getty Images/iStockphoto

Parliament Buildings at Stormont

With the arrival of Covid-19, conventional expectations and rules were side-lined. Now, nearly a year later, the public sector finances show little resemblance to the original budget allowances. In aggregate, Stormont budgets are estimated to be about £2.5bn higher than was originally expected. This is probably over 30% higher than first expected even before furlough payments are added.

The enhanced Stormont budget is only part of the story. In arrangements that fell outside the usual devolution arrangements for Stormont (or for the Scottish and Welsh administrations), the UK Treasury has financed payments made to help sustain employment using the Treasury arrangements to pay the agreed share of furlough payments to employees without normal full-time employment commitments.

In retrospect, in 2020 the public sector has been required to adjust to the spending priorities created by large medical and social needs as a response to immediate problems caused by the prevailing impact of Covid-19. Despite the pain and hardship of coping with Covid-19, most medical and other public services have been maintained. Schools have re-opened, many employees have been able to work from home and essential businesses continue to function, sometimes mainly on-line. 

But as we move into 2021, new spending baselines have been reshaped by the events in 2020.

The challenge for the Northern Ireland is to rebuild an economy that generates an increase in employment and also increased personal incomes. These challenges would be more manageable if resources were not needed to continue to fight the Covid-19 agenda. 

That brings together two overlapping assumptions. First, the scale and cost of the application of professional and medical expertise to Covid-19 must ease. Second, the funding for devolved government must be sustained and adequate for a refreshed better targeted programme for Government.

Late in 2020, although these assumptions seem optimistic, in order to offer a constructive agenda for 2021, the expectation of an improved personal, economic and medical environment will help to illustrate some of the parameters for a stronger society.

The Chancellor of the Exchequer has decided that, instead of a multi-annual review of public spending for the UK, for possibly 2020 – 2024, that in current circumstances he should postpone the challenges of a multi-year budget and will, for this one year, only commit to plans for a single budget year.

That ‘one year only’ decision is disappointing for the Stormont administration because there is a pressing need to set a longer timeframe to rebuild and revitalise the local economy.

The difficulty in framing a multi-annual budget is easily stated. It stems from the instability and uncertainty of the budget arithmetic when the baseline for the next budget is subject to the uncertainties caused by the scale of the budget deficit created in 2020-21 whether at a UK level or simply for Northern Ireland.

The Chancellor, as he makes commitments for 2021-22, must frame a budget that is both correctional and acceptable. In political terms, this will be a critical test of the political acceptability of the scale of the UK budget deficit in the year following the largest peace-time deficit since the 1940s.

The competing pressures to avoid more austerity or avoid the emergence of unwelcome inflationary pressures bring together competing judgements on fiscal policy which would be divisive.

The management of the national and regional budget deficit will be critical in a Northern Ireland context. Locally, that question converts into a search for an agreed reshaping of the scale of the Barnett consequences for the Northern Ireland budget. Ideally, Northern Ireland interests would combine to obtain a more generous settlement which would offer an easier baseline on which to build a coherent investment programme to be delivered over a multi-year period.

Sitting in the agenda for Stormont ministers, particularly Conor Murphy as Finance Minister, is the commitment made in the last high level agreement with Westminster that a Fiscal Commission should be set-up to examine the merits (and demerits) of the current fiscal arrangements affecting the local public sector.

In particular the Fiscal Commission would be expected to assess whether the present arrangements allow Northern Ireland an adequate capital spending, or infrastructure budget. There is, in the Northern Ireland political parties, a search for mechanisms to allow larger capital programmes.

The recent Special Advisory Group, reporting to Nichola Mallon, was unanimous in suggesting that Northern Ireland should appoint an Infrastructure Commissioner. It agreed that a coherent comprehensive planning approach was needed.

The Fiscal Commission, when it is appointed, might also examine the merits of another plea recently made by Conor Murphy. In his plea, he asks that the Treasury might allow the NI budget to use some funds, earmarked for capital projects, to be transferred to current (or resource) spending projects. This would draw on the evidence that all too often capital projects develop more slowly than budgets could allow so that temporary excess funds could be usefully reapplied.

The Fiscal Commission might also be asked to examine whether the Stormont Government might have authority to borrow on capital markets to supplement the capital budget which emerges from the Barnett allocations.

There is plenty of work for the Stormont Government to do in planning a more coherent and persuasive long-term budget. It would also be useful if the ground rules could be more generously interpreted to clarify what Stormont could do in supplementation of the expected Barnett settlement. 

Budget 2021 is much more than an incremental add-on to present commitments. It must instead be used as a fresh opportunity for improved organisation of how our funds are used, including a tighter control on local discretionary spending.

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