AnalysisIssues

Budget 2022-25: The inflation factor

Northern Ireland’s first multiannual budget in almost a decade is expected to be published in March 2022 but Finance Minister Conor Murphy MLA has criticised the allocation for “a flat budget over the period”.

In his Autumn Budget and Spending Review, UK Chancellor Rishi Sunak outlined an allocation which he described as the largest annual funding settlement for devolved governments since 1998.

However, an extra £1.6 billion per year for public services in Northern Ireland outlined by Sunak was quickly challenged by Murphy, who said that the reality was an additional £1.9 billion over three years, something he described as “nowhere near enough”.

The Department of Finance’s estimation is for a day-to-day increase of £450 million in year one, £670 million in year two and £866 million in year three, when compared to the Executive’s 2021/22 budget.

While the Finance Minister welcomed the increase in cash, he said that it represented a “flat budget” by 2024/25 when factoring in inflation.

“This Spending Review was the opportunity to deliver a budget which would have enabled the Executive to rebuild public services and spur economic recovery. However, it provides a marginal real terms increase in funding next year which will be far outweighed by increased demands on public services, particularly in light of the ongoing pandemic,” said Murphy.

“It provides a marginal real terms increase in funding next year which will be far outweighed by increased demands on public services, particularly in light of the ongoing pandemic.” Finance Minister Conor Murphy MLA

In contrast, the Treasury says that the 2.1 per cent real term increase in day-to-day spending and 2.5 per cent a year increase in infrastructure spending out to 2025 gives the Executive “sufficient funding certainty” to plan in-year spending and to provide additional future investments in areas such as health, social care, and education.

Multiyear budget

The New Decade, New Approach agreement committed the Executive and the UK Treasury to multiyear budgets for Northern Ireland. Signed in January 2020, the emergence of the pandemic has been blamed on a delay to date.

Since 2008, two multiyear budgets (2008-11 and 2011/15) and two single-year budgets (2015/16 and 2016/17) have been set. Following the collapse of the Assembly, the Secretary of State set three single-year budgets, followed by a further 2020/21 budget set by the restored Executive.

The absence of multiyear budgets to enable long-term planning for transformative change across Northern Ireland’s has pressurised sectors and workforce planning.

In June 2021, a report by Northern Ireland’s Audit Office (NIAO) examining Northern Ireland’s budget process identified the challenges, stating: “The short-term nature of annual budgets creates difficulties for future planning and innovation across the public sector. The absence of a medium-term dimension to financial planning and prioritisation has been the subject of significant criticism…”

The Northern Ireland Executive has agreed that health is its priority. The portfolio currently receives around half (£6.5 billion) of the annual day-to-day spending budget for Northern Ireland. During the pandemic, significant additional funding has had to be allocated to health to help meet the needs of Covid-19 and there are concerns that much of the extra £1.6 billion a year for public services announced in the UK’s Autumn Budget will be needed just for services to stand still.

In June 2021, Health Minister Robin Swann MLA launched a roadmap for tackling Northern Ireland’s waiting list crisis. The plan, which has yet to have funding agreed, would itself require £700 million over five years. Such a figure does not factor in investment in wider necessary health transformation and looks set to squeeze allocations for other departmental commitments included in New Decade, New Approach such as investment in education, delivering an energy strategy and Northern Ireland’s environmental priorities.

Outlining the Executive’s priorities, Murphy said: “The Executive has agreed to prioritise health. There is also consensus that additional resources should be diverted to support economic development including skills, the transition to net zero and tackling inequality. Departments have been asked to submit proposals against these priorities. It will be challenging to deliver on all of these given the limited funding available to us. The task for the Executive now is to make the best possible use of the resources available.”

Air Passenger Duty

A move also partially welcomed by the Finance Minister during Autumn’s Budget was the decision to cut Air Passenger Duty (APD) by half on internal UK flights. The call for APD to be removed in Northern Ireland by businesses and politicians in Northern Ireland has been long-standing for over a decade.

Those in favour believe that a reduction in the cost of air travel would boost connectivity for the region, increasing trade, tourism and making it more attractive for inward investment. Previously, EU law has meant that a Northern Ireland specific change to APD would come at a cost to Northern Ireland’s block grant, a risk which raised some objection. However, Sunak’s decision to set a new domestic band of APD at £6.50 to all flights between airports in England, Scotland, Wales, and Northern Ireland from April 2023, negates a specific approach for the region.

“Airports are a crucial part of our economic infrastructure and are key to regional connectivity. The fact that APD does not apply in the South creates an uneven playing field across the island. While it is disappointing that the Chancellor has not abolished APD it is welcome that it has been lowered. However, I would have preferred to have seen this reduction applied sooner than April 2023,” said Finance Minister Murphy.

Levelling Up Fund

Outside of the Budget, Northern Ireland also received £50 million from the UK Government’s Levelling Up Fund, billed as a programme to invest in infrastructure that improves everyday life across the UK.

The scheme has been criticised as lacking depth in long-term planning for those areas of the UK that are economically struggling, instead appearing to be project specific.

The Chancellor announced which projects had been successful in the first round of bids for the scheme, which is set to total £4.8 billion over four years. Of a total of 105 successful funding bids announced (£1.7 billion), 76 successful projects were announced for England, 11 for Northern Ireland, 10 for Wales and eight for Scotland.

Financial allocation of the scheme is not subject to the Barnett Formula.

In total, for the devolved regions, £170 million was allocated to Scotland, £120 million for Wales and £50 million for Northern Ireland.

The Finance Minister now faces a tight timeline to produce a budget for Northern Ireland before the end of the financial year in April 2021. Given that the budget requires a three-month consultation process, it is expected that a draft Budget will be published before the end of 2021.

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