Esmond Birnie: Extra cash will inevitably come with the price tag of accountability and control
It wasn't just Storm Brendan which stormed into Northern Ireland yesterday morning. The Prime Minister came to celebrate and congratulate regarding Saturday's restoration of devolution.
Boris Johnson refused to be drawn on precisely how much extra funding London would be providing, although there is an expectation that the Secretary of State will provide more clarity in due course.
Whilst we do have access to the detailed case which Northern Ireland's Department of Finance may have made to the Treasury in London, we can use a variety of official sources such as statements by permanent secretaries and the Audit Office to estimate the scale of the funding gap.
One category of demands are those which require a once off increase to reform services or make good an historic deficit. This category includes:
- Clearing the health waiting lists - £350m (ie £50m in each of seven years).
- Implementing the Bengoa structural reforms to health provisions - £750m (ie £150m in each of five years).
- Roads, to restore and repair after years of neglect, £1,2bn.
- Building new roads and other new physical infrastructure (such as the York Street Inter-Change) £200m plus.
- Water treatment and sewerage £2,5bn (spread over 2021-2027).
It is clear that these sums for capital spending are enormous and total about £5bn.
They should be compared to the existing capital budget of the Stormont departments which is only about £1,500m annually.
Importantly, there are also funding pressures in terms of day-to-day or recurrent spending in the Northern Ireland departments, all of these figures are annual spends:
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- Health pay parity with GB - £50m.
- Welfare reform mitigation - about £125m.
- Education - £250m.
- Universities - £50m.
- Many other demands such as extra police and health staff.
The annual current spending budget of the Northern Ireland departments would need to expand from about £10bn by a further half billion or so.
Once again, very large sums of money.
Obviously, like other parties to the New Decade, New Approach agreement the Government should honour its commitments.
A careful reading of the text of that agreement implies that London will foot the bill for extra spending on health - ranging from pay all the way through to Bengoa.
However, there is no similar commitment regarding wider infrastructure. Here, the agreement simply reiterates that Northern Ireland will get its Barnett share of extra spending in Great Britain.
If, as the Conservative manifesto suggested, government spending in GB does increase by about £25bn over the course of this Parliament that would imply (assuming a 2.5% share) that five years from now Northern Ireland's Block Grant from London would be £600m higher per annum.
The increase is likely to fall short of what is being demanded and whilst going forward there will be some funding provides by both the Irish government and also the EU, that will be relatively small.
Difficult though this may be to say, the Government (and the Treasury in particular) does have a case for being very careful about delivering a cash bonanza.
The RHI scandal illustrates that it is very necessary to have "capacity" to spend extra money wisely and well.
In his Stormont speech the Prime Minister rightly stressed the value of leadership.
Some of Northern Ireland's current spending demands arise precisely because of decisions made - or not made! - by previous Stormont administrations.
To simply bankroll this situation might encourage fiscal irresponsibility in the future - what is termed "moral hazard".
It is not self-evident why the sum of domestic rates and water charges is so much lower in Northern Ireland compared to a comparable region such as Wales.
For sure, as we wait to read the finer detail, any large scale extra money will come at the price of accountability and control - this is probably inevitable and a good thing too.
Esmond Birnie is a senior economist at Ulster University