Budget 2022-2025: Update from the Finance Minister

The Spending Review Announcement detailed a multi-annual budget, a first in ten years, and is something that has been welcomed by the NI Executive as there is recognition of the extreme difficulties in planning on year-to-year funding.

Following the Spending Review Announcement, the Department of Finance will draft a Budget to take to the Executive for Agreement and then hold a 12-week public consultation. Given that it is a three-year budget, the Department hope to give as long as possible for people to digest and feedback on the information provided. The multi-annual budget should also give the necessary time to enable it to be aligned with the Programme for Government.

The budgets over the past ten years have been gradually decreasing whilst public services are continuing to be stretched. Despite there being a marginal increase in some areas, it does not provide sufficient money for the much-needed investment in public services.

The Health Service was facing significant pressures pre-pandemic, and these issues have been heightened further due to Covid-19. The Executive also recognise the cost-of-living crisis that is growing due to various factors including rising energy prices, the increase in National Insurance and the cuts to Universal Credit. Furthermore, Northern Ireland also faced the significant shortfall in EU Funding, which many sectors had relied on. The Minister acknowledged that the Executive had also relied on the certainty of the EU funding to help support the VCSE sector.

The Minister stated that contrary to the Chancellor’s remarks during the Spending Review Announcement, Northern Ireland will not be getting an additional £1.6bn but rather it will be £450m, £670m and £866m over the next 3 years with limited flexibility to carry over unspent money to the next year. With an increasing pressure on public services and taking into consideration the rates of inflation the Executive will be working from a mainly flat budget as the largest increase represents a 0.9% real term increase to the Executive’s budget next year, turning to zero real term change by 2024-25.

The Executive have always agreed that health is a top priority as broad themes they also want to see sustainable economic development, green growth and sustainability in tackling inequalities to be prioritised. The Minister acknowledged that the further the Executive work their way down the list of priorities will be dependant on the resources and funding available to them.

In addition to understanding the priority areas for funding, the Minister explained that the Department have also been working on procurement policies to ensure Social Value is added to Government contracts, which will be mandatory from June 2022, as will the obligation on those awarded contracts to pay the living wage to their employees.

The Financial Context

Following on from the introduction by the Minister, Joanne McBurney, Acting Head of Directorate - Budget Director, provided the financial context in which the NI Budget will be agreed. The Spending Review was announced on Wednesday 27^th October and set the Executive’s spending increase for the next three years. Ms McBurney noted that it is important to be aware that much of the Spending Review funding comes from the Barnett Formula and is based on changes to Whitehall Department budgets, however there is also some ringfenced funding included.

Although the Treasury has stated that Northern Ireland will receive £1.6bn increase compared to the 21/22 position, it is important to understand that the treasury lowered the baseline by removing certain time bound allocations which have happened since the spending review in 2015. Northern Ireland has previously used those time bound allocations to fund recurrent pressures and formed part of Department’s everyday spending.

The perspective taken by the Department of Finance is that their published 2021-22 Budget provides a more realistic comparison and upon examination concludes that it is not therefore a £1.6bn increase. The increase will be 0.9% next year, 0.4% the following year with the third year seeing a flat budget.

Local Budget Process

The indicative timetable proposed by the Department seeks to have a draft budget ready for the Assembly by mid to end November, followed by a 12-week consultation period with a final Budget in place by late February – early March. It should be noted that there is a legislative requirement to have a budget in place before ethe start of the next financial year.

The NI Executive sets their Resource DEL budget by producing Department Baselines based on the outcome of the previous year’s budget excluding time-bound/ringfenced items and in-year allocations. The budget in terms of Capital DEL is different as it starts from a zero baseline and is built up from a list of projects that require financial input.

The Spending Review has again come late in the Autumn which means that the Executive have a relatively short period of time to publish a draft budget before Christmas, and before they do so they have a number of key areas to consider:

• There is a consensus that health is a top priority – but how much is enough?
• Funding required for other priorities
• Should Departmental Baselines be cut in order to redirect funding?
• Approach to regional rates
• Transformation
• Longer term financial sustainability

Prior to Departments Budget Envelopes being set, funding for Strategic Executive Priorities will be taken into consideration. For the 2022-2025 period these include Historical Institutional Abuse Payments, Victims’ Pension Payments and Welfare mitigations.

Engagement by the Executive has helped to develop the priority areas which also include the Four Covid Recovery Strategy Pillars – Sustainable Economic Development, Green Growth and Sustainability, Tackling Inequalities and the Health of the Population.

Once the budget is allocated to the various Departments, it becomes the responsibility of the individual Ministers to decide on spending priorities in terms of their portfolio of work.

Question and Answers

Following the presentation from the Department, the floor was opened for a question-and-answer session.

Will the three-year funding cycle from the recent spending review be reflected by Departments and other agencies when administering money?

It will be the responsibility of each Department to develop their own set of priorities but for those who are in receipt of core funding, this multi-annual budget should give organisations a three-year certainty.

Although the Department of Finance can’t tell Departments how to prioritise, the Executive recognises the value of public services, and that the VCSE sector stepped up during the pandemic to provide care and support to people where the public sector couldn’t. The Executive know that without the VCSE sector, a lot of what was achieved during the course of the pandemic in terms of supporting communities would not have been possible. The Minister would sincerely hope that this is reflected by the Departments and his Executive Colleagues during the allocation of funding.

The Department of Finance are encouraging other Departments to be aware of the services and projects organisations are delivering so that they can determine if funding is best provided through a grant rather than a contract. They highlight that looking at the administrative side of funding is important to ensure the efficiency and effectiveness of the financial side.

With regards to the priorities within the Programme for Government transcending the traditional portfolios of Departments, will there be an extra onus on Departments to come together on these particular issues?

The objective has always been to align the Programme for Government and the budget to ensure a clear picture of priorities moving forward. The Department of Finance view the PfG as an enable rather than prescriptive in funnelling money to specific areas.

The Departments are accountable for how they spend their allocated budgets and undergo audits and scrutiny processes, but it is recognised that in the long term it will be beneficial to get better on how new projects are delivered and areas of need are measured.

Given that COP26 is currently underway, will there be any particular packages with regards to climate change and sustainability?

The focus for the COP26 conference will be on investment for countries who are reliant on fossil fuels and how the larger countries can help support them however there will be ongoing engagement with the Treasury on this.

The Executive have recognised sustainable recovery and green growth as a priority going forward.

Will the Executive prioritise the approach of early interventions across policy areas?

A multi-year budget will allow Departments to be more strategic and efficient with their allocated envelopes. The decreasing funding determines that Departments will have to do things in more innovative and efficient ways and get more value for the limited investment available. Early interventions in certain areas will be one of those tools. The Department of Finance want to provide not only the budget but also want to work with other Departments to help ensure strategic planning.

It should be noted that within the three-year budget there is very limited carry over for unspent monies. This will be raised with the Treasury as the more flexibility there is then there is more chance of avoiding an end of year rushed financial spend.

Will there be an opportunity to use money from the Soft Drinks Levy to prioritise and fund certain policy areas i.e. the treatment of Type 2 Diabetes?

These areas are what have become known as hypothecated areas. In some instances, the revenue earned may be ringfenced however it is usually not the case.

Last year Northern Ireland received a Barnett Consequential for cladding issues following the concerns raised by the Grenfell Tower fire tragedy, however the Executive did not have the relevant information available to spend this money on cladding issues in the timeframe provided therefore it was spent on other areas. This happens on occasions if there are different priority areas in the devolved regions that that of England.

Sport and physical activities are great ways of promoting good physical and mental health. Northern Ireland currently has sports organisations who are ready and willing to provide and offer more services, but their facilities aren’t fit to meet the need. Should they prioritised as they could help alleviate the pressures on the health services?

The Executive will set high level priorities and it is the responsibility of each Department to then prioritise their work and projects under each of these themes. Health is in large part the responsibility of the Department of Health but not exclusively. Departments should recognise contributory factors that areas of their portfolio, such as sport and sports facilities, fall within the Executives priorities and fund/prioritise them appropriately.

Are there any proposals or plans going forward for a dedicated capital fund for the third sector to work with the acquisition of surplus public assets, and public assets in general?

The issue of community asset transfer is currently under examination with the hope of changing Departmental and Official’s understanding that the value of an asset is solely based on monetary terms but rather it can also be looked at in terms of the value it can bring to a community.

The idea to proceed through a capital fund has been discussed and the Department hope to make more progress on the best process or approach that will provide an effective policy within the accounting responsibilities of Departments.

Does the Finance Minister and the Department have any ability to encourage the Department of Health with regards to transformation, specifically in relation to the role of the Voluntary and Community Sector?

The Department of Health do currently take up the majority of the budget but going forward it is hoped that more strategic ways of managing the pressures on Health will be put in place. The Executive recognises that it is not about finding more and more money for the health portfolio but enabling the Department of Health to transform and do things better.

Although the Executive agree that the area of Health is a top priority, there is also recognition that there needs to be effective and positive outcomes from the money allocated.

Will the Department of Finance be looking at where other funds can be raised or/and saved i.e. water charges, prescription charges etc?

The Minister views proposals such as the introduction of water charges, re-introduction of prescription charges or scrapping of free public transport for over 65’s as counter-productive as they would put an additional burden on households.

A Fiscal Council, a long-term organisation, has been established to look at public finances. It will provide advice and critique NI public finances. A Fiscal Commission has also been established however it is a shorter term, and largely academic exercise. Scotland and Wales have both had previous versions of this type of work carried out, but this is a first for Northern Ireland. The role of the Commission will be to look at what additional powers or levers could be devolved from the Treasury to help NI raise funds. For example, Scotland used an element of income tax to help boost the funding for their health service.

It is expected that the Commission will report back in early 2022. The outcomes and findings will then be for the incoming Executive, following the May 2022 election, to take forward. The recommendations will need to be negotiated with the Treasury and may also require legislation if changes are agreed.

Will Children and Young people be engaged with on this consultation?

There will be a 12-week consultation following the publication of the draft Budget, including events and an online submissions process. The Department will be examining all avenues to ensure as many sections of society are engaged with as possible.

Will Childcare and Early Years be prioritised in the incoming budget?

The Department of Finance sets the budget for each Department however it is up to the individual Departments to prioritise where their funding is allocated with regards to their portfolio. A Childcare Strategy and Early Years Policy is something that the Executive are keen to introduce however it hasn’t yet been decided as to what Department this would come under.

The pandemic has pushed certain areas further down the list of priorities, but it is hoped that they will become a focus again going forward. There is a recognition that policies such as childcare, skills, sport etc feed into the Executive’s priorities and therefore should be prioritised by the individual Departments.

Should the equivalent to ESF (European Social Fund) not be ringfenced?

The ringfenced areas were essentially decisions made by the Westminster Government.

ESF and other European funding schemes, which the Executive and the VCSE sector have come to rely on, have now been stopped and the UK Shared Prosperity Scheme and other pilot funding schemes introduced.

Although these schemes may undoubtedly provide some benefit to Northern Ireland, the Executive unfortunately doesn’t have any input to them and has no substantial involvement in the assessment of how the money is distributed.