Absence of executive exacerbates North’s budgetary problems

While the Government in the Republic finds itself in an extremely strong financial position right now Northern Ireland faces a very difficult budgetary situation over the coming year.

The North’s problem partly reflects the economic difficulties that the wider UK is facing. Last year UK government borrowing amounted to 5.5 per cent of national income: in contrast the Republic of Ireland recorded a surplus of 3 per cent. This means that British government has very limited resources available for public services, and the funding it provides to the regional administrations in Scotland, Wales and Northern Ireland is being squeezed. Although higher taxes could avoid the need for cuts to public spending that approach is anathema to the Conservative government.

The UK’s budget in March provided for an increase of only 1 per cent this year in government expenditure. Given the very high rate of inflation this is a big cut in real terms. For Northern Ireland the situation is even bleaker. The planned reduction of 0.4 per cent in discretionary expenditure is both a real and a nominal cut.

The pain for the North does not end there. With no government in place in Stormont, last year saw an unplanned deficit. The excess of £300 million (€343m) will be the first charge on any new monies. So if London makes supplementary payments to regional governments this year for pay increases that amount would be clawed back from the North’s share, unlike what would be the case in other regions.

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As the Northern Secretary has blamed the overspend on the absence of an executive in Stormont, that may explain the penal approach to paying off the deficit.

The reduced budget puts the Northern Ireland civil service in an exceptionally difficult position, having to impose serious cuts in services without any democratic guidance as to where they should fall. In earlier years, when it was possible to largely maintain services at an unchanged level, it was somewhat easier for the civil servants to muddle through. This year painful choices are inescapable.

Funding for NGOs and community bodies are among the first cuts to be made because these payments need to be renewed each year. By contrast, legislation would be needed if there were to be major cuts in public service employment.

Public expenditure per head in Northern Ireland is much more generous than in the UK as a whole. Spending per head on housing is more than twice that elsewhere in the UK, spending on the police is 40 per cent higher, and spending on education and health is around 10 per cent higher. Thus there is little sympathy in London for Northern Ireland, and a degree of impatience with the failure to have a government to manage its regional budget.

In the long term a Northern Ireland government could make much better use of its resources by undertaking major structural reforms.

In 2006 the then Northern secretary Peter Hain highlighted the inefficiency of having multiple schools for different denominations serving the same community. Research findings show the serious social and economic consequences of the streaming of pupils into separate grammar and secondary schools. Children from a disadvantaged background are particularly the losers from an underperforming school system.

Amalgamations of local schools would not only free up resources to strengthen the education system but could also foster wider social and economic progress. However such a reform would be very contentious as well as taking many years to implement. Thus it is not an option for a government of civil servants.

In the longer term the North – and the Republic – could also make better use of healthcare resources by concentrating them in major centres of excellence rather than spreading out across many small facilities. But that would also be a slow and contentious reform.

The North’s civil servants have few options for the short term. Restricting public service pay is on the menu but at a time of high inflation it would not look fair, and civil servants would probably be loath to implement it.

The treasury would probably welcome the introduction of water charges (as in the rest of the UK), or of higher university fees (as in England). Together such measures could raise over £400 million (€457m). However, neither measure would go down well with the elected representatives of Northern Ireland.

The North badly needs a functioning government, getting the assembly up and running again. But if restoration of a devolved government means passing the responsibility for making unpalatable decisions on public spending back to politicians that’s an unappealing prospect for many of them.