Economists have been giving their views on the latest Budget for Northern Ireland, as delivered by Secretary of State Chris Heaton-Harris.
Cuts are not the way to get parties back to the Executive table,” says Paul MacFlynn, senior economist at the Nevin Economic Research Institute (Neri).
“The Northern Ireland budget announced by the Secretary of State represents the beginning of what is set to be a very difficult period for our public finances.
It was clear from the briefing given alongside this budget document that the Northern Ireland Office lays the blame for our current predicament firmly at the feet of Northern Ireland’s political parties and their failure to form an Executive.
While the absence of devolved government is regrettable, it is certainly not the case that formation of an Executive would magically make all our problems disappear.
To be clear, the economic context of our current budgetary position was determined in Westminster, not Stormont. Yes, the absence of an Executive has contributed to a deterioration in the management of day-to-day spending, but the vast majority of Executive overspend was unavoidable.
You would think, from the rather condescending tone of the Secretary of State’s remarks, that government departments here had simply blown all their pocket money on sweets. Obviously, the situation is much more complex.
Sometimes we talk about the cost-of-living crisis as something that only affects household budgets, but the truth is it impacts across all areas of the economy and public services are no exception.
All government departments have faced significant increases in costs this year. That is on top of the lingering pressures from the pandemic period. While the budget statement makes some acknowledgment of these pressures, the clear implication is that these are problems to be solved on Stormont’s ledger, not Westminster’s.
The budget statement appears to provide a mechanism to avoid Northern Ireland breaching its financial limits for this fiscal year, but if anything, it is simply pushing these problems down the road to next year. This is extremely short-sighted as we already know that the cost climate in 2023 is going to be even tighter than it was for 2022.
The most notable element of this budget statement is what it tells us about the years to come. The Autumn Statement was quite clear that cuts are on the way and we have now got a taste of how that is going to be presented to us.
It is clear that the UK government intend on contracting public spending in Northern Ireland and have no interest in understanding how that will impact on the delivery of services here.
There was little or no indication from the NIO as to how our government departments will deal with one of the largest elements of spending, public sector pay.
We know from the latest results of the Annual Survey of Hours and Earnings that public sector pay in Northern Ireland has fallen steadily in real terms and is now below the level it was 20 years ago when adjusted for inflation.
It is clear now from yesterday’s statement, and the Autumn Statement that preceded it, that we are back to the same flawed policies of the 2010-15 era. Westminster will decide the scale of the cuts and Stormont will be expected to deliver on the detail.
It is hard to believe that such an arrangement will have all our MLAs beating a path back to the Executive table.”
Meanwhile, senior economist Dr Esmond Birnie, a member of the NI Fiscal Council set up to scrutinise public spending, says: “An even tighter squeeze could be on its way.”
“The Secretary of State has managed to bear down on some of the overspending that departments have been projecting against their available funding for public services in this financial year (2022-23).
However, there remains a gap of more than £330m that the Treasury has agreed to cover in the short term but would then be removed from the Block Grant next year.
By implication the positive Barnett consequential of additional funding in 2023-24 – a result of the spending decisions in the Chancellor’s recent UK Autumn Statement – is now largely spoken for. It will not be available to fund additional spending at that point. So, further fiscal pain but delayed.
This reduction in 2023-24 would intensify an already tight squeeze on spending per head relative to England next year as well as adding greater volatility into the path of funding.
He also highlights the fact that spending by the Department of Education may still overshoot even these new plans, implying the risk of an even bigger reduction in next year’s Block Grant.
The Secretary of State warned that he would consider water charges and/or rate increases to ensure that next year’s Budget balances if the Executive has not been restored and he is still in charge.
As regards capital investment, the Secretary of State proposes to address the impending overspend by borrowing an extra £60m on top of Draft Budget plans produced in December 2021, which will modestly increase the debt interest bills that have to be met from the Block Grant and the Regional Rates in the future.”