There is an urgent need to transform how we fund public services in Northern Ireland to avoid an ongoing cycle of financial dysfunction.
The Budget resulted in more generous funding outcomes for NI than was widely anticipated.
The executive’s block grant for 2025-26 is £18.2 billion, which includes an additional £1.5bn acquired via Barnett consequentials, arising from higher public spending levels in England.
The additional Barnett consequentials for 2024-25 go some way towards offsetting the overspend accrued thus far within the current financial year.
However, financial risks remain. A previous overspend of £559 million incurred between 2022-24 was written off as part of the financial package for restoration with the UK Government.
This was subject to delivery of a balanced budget in 2024-25 and the development of a budget sustainability plan.
Any executive overspend this year could therefore recreate massive financial pressures to the detriment of public services and our economy.
As an unfortunate consequence of this financial legacy, a significant proportion of any new funding has already been absorbed by retrospective financial pressures.
This was demonstrated in the allocations outlined in the October monitoring round, which were dominated by commitments to public sector pay pressures.
As such, the outcome of this Budget will likely be limited in terms of improved services or outcomes for the region.
The wider impact of this financial legacy is two-fold; firstly, inefficiencies in the system are further embedded as they are now funded retrospectively.
Departmental overspends are effectively absorbed, which reduces internal incentive for reform.
Secondly, there are costs associated with spending foregone. There are missed opportunities for reform and investment, including in preventative spending.
Inefficiency is breeding further inefficiency and we face the risk of becoming trapped in a cycle of fiscal dysfunction.
Whilst patients languish on waiting lists, there are associated mental health impacts, risks to the incurrence of more severe health outcomes and lost economic activity - all of which are costly to society and our economy.
A relative absence of investment in wastewater infrastructure in NI inhibits planning approvals and has resulted in zones where development is no longer viable.
This has the potential to act as a brake on economic activity. There are lost opportunities in terms of construction output and challenges with respect to securing investment, including from FDI, due to accommodation shortages.
Meanwhile social housing shortages continue to deepen.
Notwithstanding the executive’s financial challenges, the reality is that it is less costly to mitigate against than to repair damage – particularly when impacts are likely to be deep and lasting for our economy, society and environment.
More sustainable public finances are the key pathway to a more aspirational future.
There are arguably three core components to improved financial prosperity and sustainability for NI, namely; adequate baseline funding, transformation spending and Executive incentives.
The finance minister recently published a budget sustainability plan. As alluded to in the plan, NI’s level of baseline funding is arguably still open to debate.
A fiscal floor of sorts was implemented as part of the UK Government’s restoration deal, which set future funding for NI at 124% of that in England to reflect our relative need.
However, the finance minister has indicated that this ought to have been baselined to the start of the current spending review period.
Having been involved in the discussions with Treasury around a fiscal floor, it was also argued that the Fiscal Council’s derivation of 124% as the level of relative need for NI was based on policing and justice spending during a particular time period, which may or may not have been truly reflective of underlying need.
Other considerations subsequently factored into the Fiscal Council sensitivity analysis could imply a higher Fiscal Floor for NI.
However, even if a revised financial framework were negotiated with the Treasury over the coming months, this would not be a silver bullet in resolving our financial difficulties.
Transformation is therefore essential. In this regard, the new transformation unit creates opportunities for departments to bid for share of the £235m fund.
However, an innovative and refreshed approach to funding public services needs to be mainstreamed across government.
There may be value in liaising with academia and industry in this respect, to draw upon and drive strategic research in areas that could unlock efficiencies and solutions.
Artificial intelligence, for example, offers potential for savings and reform.
Investing in preventative healthcare, such as in areas relating to sports and nutrition, screening and improved access to primary services, is also likely to generate improved efficiencies and remove pressure from the system.
Behavioural insights could also play a preventative role in nudging individuals and businesses to make decisions that are less environmentally damaging, mitigating against the incurrence of future costs.
Finally there is the issue of executive incentives. Improved economic and financial outcomes are currently of no direct benefit to the Executive, with any associated proceeds accruing to HM Treasury.
A sustainable fiscal framework for NI might thus also incorporate renewed tax-varying powers, drawing upon the recent work by the Fiscal Commission, that incentivise decision making that is both economically and financially sound.
An executive that is financially incentivised by improved prospects - including those that arise in the medium to longer term - has the potential to unlock behaviours that would drive better outcomes for this region.
- Jodie Carson is a professor of strategic policy in practice at Ulster University
