This is 'as good as it gets' and future spending rises will be more modest

The third draft budget since devolution is now as "good as it gets" in the context of the Barnett formula, which dictates public spending levels in Northern Ireland, according to the North's finance minister.

Mr Mark Durkan has warned that Northern Ireland cannot expect spending levels to increase "so substantially" for much longer and subsequent budgets are likely to feature a much greater contribution towards spending from the public.

The Barnett formula determines how much Northern Ireland receives from the United Kingdom treasury for public services based on a population share calculation.

The departmental expenditure limited allocation set by the UK Treasury shows a rise in public expenditure in 2002/03 in Northern Ireland of 5.8 per cent, or around 3 per cent above general inflation.

"Barnett means less growth for our spending power than in England," Mr Durkan told the Northern Ireland Assembly yesterday.

Despite the restrictions of the Barnett formula, the North's finance minister does not believe that the latest draft budget is a cosmetic exercise by local politicians.

"We have ensured that we can continue the work we set out on last year in trying to make good some of the historic deficits that we have inherited."

He believes that the Assembly is moving away from pre-devolution patterns and priorities in the latest budget draft.

"We are following through with patterns of investment that did not exist under direct rule. We are also preserving the facility that we created last year of Executive Programme Funds. This is one of the key devices we have for driving a wedge between the pattern of expenditure that we had and the patterns that we are trying to create.

"We do need to go further and we do need a radical reappraisal of the balance and focus of our expenditure. We always need to keep looking at these issues, and the spending review next year requires serious thought. We cannot work on the basis of every one being able to assume that what they have they hold," Mr Durkan warned.

Business leaders in the North have welcomed the commitment to invest more in infrastructure and education.

Mr Nigel Smyth, director of the Confederation of British Industry in Northern Ireland, said it would be generally viewed as a positive budget, but the business community recognised that the Assembly regarded health and education as priority funding issues.

According to Mr Philip McDonagh, chief economist with PricewaterhouseCoopers, the decision to reduce the level of funding to the Department of Enterprise, Trade and Investment could cause some concern in the North.

"Nobody can argue about increased funding for health and education but, in real terms, there is less funding for economic development in Northern Ireland and that must be seen in the current economic context," Mr McDonagh said.

Mr Durkan is adamant that Northern Ireland must now re-prioritise its spending requirements and look for new ways of raising finance.

"What we need to do is use the means we have with devolution to decide whether we want to invest more in our public services, and I believe the Northern Ireland public want more investment in public services," he said.

Although the Northern Ireland Assembly has no tax-raising powers it can raise revenue from regional rates.

In order to support the proposed £6 billion draft budget the Minister of Finance has proposed that domestic rates should be increased by 7 per cent and non-domestic rates by 3.3 per cent.

"If we were to raise rate revenue and water charges roughly equivalent to the pattern in England we would have something like £300 million of additional spending power for public services," Mr Durkan told the Assembly yesterday.