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Stormont cuts: Budget reductions, even with staff drop, will be stressful

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Economist John Simpson

Economist John Simpson

Economist John Simpson

Despite contrary fears, there is now a budget which matches how much we spend with the likely available revenue.

The budgetary arithmetic is easily summarised. In 2015-16 resource (or current) spending is expected to be £10,019m and capital spending £1,187m.

Resource spending is set at £213m less than was set out in the original baseline for 2015-16. Superficially, the changes seem quite small. Current spending measured in cash terms is to fall by 2.1% (or in real terms near to 4%)

The financial pain emerges because some departments face demands which are so strong that priority allocations have been needed. Health and Social Services gains £150m. Enterprise, Trade and Investment gains £10m.

That creates an overall deficit for other departments of £473m which has been allocated falling proportionately most heavily on Culture, Arts and Leisure, Employment and Learning, Environment, Social Development, and Finance and Personnel.

The scale of the budget deficit should have been appreciated two to three years ago. However, the real test during 2015 will be whether the reductions can be achieved. Budget reductions of 10%, even with a workforce reduction programme, will be stressful.

Two features of the draft budget merit particular emphasis. First, the minister Simon Hamilton has set the scene in the context not of a stiff one-year adjustment but in the context of a continuing year-on-year reduction up to 2019. Other ministers and senior civil servants must evolve major restructuring plans, sometimes based on curtailing low priority services, to provide public services to acceptable standards (although possibly less extensive) on reduced budgets.

On these expectations, linked to the Office of Budget Responsibility forecasts, the political imperatives from Westminster are not expected to change.

Second, the minister has opened the way to more ambitious interventions to allow a larger programme of infrastructure investments. Northern Ireland is to have a separate investment fund which he hopes will be launched with capital backing of up to £1bn. In some novel ideas, he sees a role for this fund in borrowing from the European Investment Bank and as an intermediary in the allocation of Financial Transactions Capital from the Treasury. Most interestingly, he suggests it may act on social and affordable housing, energy production, renewable energy, telecommunications and urban regeneration.

How quickly can this investment fund be established and how flexible will its remit be? That poses a welcome development against the worrying budgetary background.

Belfast Telegraph