Finance Minister Conor Murphy MLA: Budgeting in a pandemic
Finance Minister Conor Murphy MLA discusses the outlook for public spending in Northern Ireland, his department’s response to Covid-19 and progress on establishing a Fiscal Commission for Northern Ireland.
Over one year on, what is your assessment of the financial support the Executive has received to deliver on New Decade, New Approach (NDNA) commitments and to what degree has it delivered on expectation?
The NDNA commitments are additional and long-term in nature. Delivering on those commitments requires an uplift in the Executive’s annual block grant for everyday spending of at least £1.2 billion. Instead we got one-off funding which is just £134 million next year and zero the year after that. The capital commitments of NDNA require approximately £7.5 billion over a number of years. Next year NDNA provides less than £28 million of extra capital. So that gives you a good indication of how inadequate the NDNA funding is.
The British Secretary of State’s view is money for NDNA commitments should be found from within the block grant. In other words, by cutting other public services. That is simply robbing Peter to pay Paul and is not acceptable.
Nevertheless the Executive will do its best within the resources at its disposal to deliver NDNA commitments. We have already delivered a pay award to health workers and teachers, increased the number of nursing and midwifery undergraduate places as part of a three year plan, and published a Mental Health Action Plan.
What are some of the specific challenges faced by the Department of Finance since the onset of the Covid-19 pandemic and how has the Department sought to mitigate the pandemic?
Responding to Covid-19 has presented a massive challenge to the operation of government and to the delivery of public services. Although the outlook for the Executive’s core block grant is not great, a significant amount of funding, totalling over £3 billion, to respond to Covid has been provided. This was a significant level of money which came at short-notice at different points throughout the year. Financial planning was therefore difficult but I will ensure this money is fully allocated to departments. In making those allocations our priority has been to ensure public services and particularly our health service receive the funding they need, to protect vulnerable people, and to support businesses.
The speed at which this money had to be put on the ground has also been challenging. Schemes that usually would have been designed and consulted on over many months were being turned around in days or weeks. This has heightened the risk of mistakes being made but in the emergency situation we faced it was important to not make the perfect the enemy of the good. The Auditor General and Public Accounts Committee have recognised the exceptional circumstances we have faced.
In terms of mitigating the damage caused by the pandemic my department is responsible for rates relief. One of the most important economic interventions made was the rates holiday which amounted to almost £300 million. All businesses received a four-month rates holiday and a 12 month rates holiday was provided to over 25,000 retail, hospitality, tourism, leisure and manufacturing businesses. Next year will also be difficult as we move towards recovery, so I will freeze the regional rates in 2021/22 for businesses and households. I have also committed to providing further rates support to businesses in 2021-2022 and will announce the details of this shortly.
Usually, my department allocates funding to other departments but my officials have really stepped up to directly assist with the Covid response.
For example, Land and Property Services (LPS) was repurposed to also pay out business grants. It administered the £10,000 Small Business Support Grant, which very quickly paid out £245 million to businesses during the first lockdown. When the Executive had to reintroduce restrictions to control the spread of the virus, LPS stepped up again to put in place the Localised Restrictions Support Scheme for businesses legally required to close or severely limit their operations. To date, over £188 million of support has been issued to more than 14,000 businesses through this scheme. That is a phenomenal amount of grant support that LPS has provided, all the more so given that the organisation has no prior experience of this type of scheme.
My department also took on new emergency powers to deliver emergency funding for airports. This is important if we are to retain our connectivity as we move into the recovery phase. The rates and wider support provided to maintain airlines and the Belfast International, Belfast City and City of Derry airports totals some £20 million.
You described the recent draft budget as ‘difficult’. What were the implications of the Spending Review on public services? And what, if anything, would alleviate the pressure?
Essentially, we’ve received a flat-cash budget for everyday spending on public services. Considering departments identified pressures of £1.7 billion, we are a long way short of what we need. With increased demands on public services and taking account of inflation, this is effectively a cut to departmental budgets. So, it will be a challenge merely to deliver existing services at their current levels. In this difficult context the Executive has prioritised welfare reform mitigations, Agenda for Change pay, pupils with Special Educational Needs, and holiday hunger payments.
Funding for the Covid response is around £1 billion next year compared to approximately £3 billion this year. That money will very quickly be used up dealing with and recovering from the huge impact of the pandemic on our health service, our economy, and our society.
It’s also not helpful that the Spending Review announced in November set the Executive’s budget envelope for the 2021-22 financial year only. The announcement so late into the financial year severely curtailed the time available to develop the Executive’s budget. Our ability to plan has been further disrupted by the British Government not providing a multi-year budget, as promised in NDNA. I hope that we can move to a multi-year budget that moves decisively way from the years of austerity our public services are yet to fully recover from.
So, the implications of the budget are not good. Obviously the roll out of vaccines will ease some of the pressure but the Executive will have to use its resources as well as it can. We have the ability to carry over £300 million of Covid funding into the 2021/2022 financial year so that money will help with the recovery.
The capital situation is a little better, it has increased by approximately £100 million. But this is not really the level of economic stimulus we need and it was disappointing that the Chancellor’s Budget did not provide any additional Capital for the Executive to allocate.
The Executive has access to a borrowing facility of up to £200 million per year under the Reinvestment and Reform Initiative. The draft budget proposes £140 million in borrowing for NI Water and social housing. This will help kickstart the construction sector as we recover from the pandemic and also as we continue to adjust to Brexit. The Executive will decide whether to draw on its borrowing facility as part of the final budget.
What does the British Chancellor’s latest budget announcement mean for Northern Ireland?
There are some welcome measures: the extension of furlough and support for newly self-employed, as well as an additional £400 million in funding for the Covid response. However, everyday public spending has only increased by £4 million on the Spending Review outcome and there is no additional capital funding. So the public spending outlook remains difficult.
The direction of travel signalled by the Levelling Up Fund also concerns me. The British Government continues to bypass the Executive, taking control of funds from Westminster instead of enabling funding decisions to be taken by locally elected ministers. That is an ominous sign in terms of replacement EU funding and devolution generally.
The Executive opted not to raise revenue through regional rate rises and one of the key planks of the NDNA deal was an increased emphasis on the region beginning to raise more of its own revenues. What is your outlook on the potential, and impact, of greater levels of devolution in fiscal policy?
The Executive decided to freeze the regional rate in light of the continued impact of Covid-19 on the finances of households and businesses. It would be counter-productive to raise this tax in the middle of a pandemic which has caused huge financial distress. I called on councils to consider taking the same approach when setting their district rate and I am glad that none of the 11 councils increased their rates significantly during this difficult time.
It is true that the Executive has a very limited suite of fiscal levers in comparison to the other devolved administrations. I am in favour of the Executive having more options and more flexibility in terms of revenue raising and tax policy. This needs careful consideration which is why I want to establish a Fiscal Commission, similar to those which have already reported in Wales and Scotland. The Commission could comprehensively consider what powers could help the Executive deliver on its Programme for Government. Also, greater flexibility to borrow, build up reserves, and carry over money from one year to the next would help the Executive to plan its finances on a more long-term strategic basis.
The draft budget allocated no money to paying victims and the Secretary of State insists that the current block grant is sufficient to make year one payments. How can the Victims’ Payment Scheme be sufficiently resourced to ensure payment to victims do not face further delay?
In terms of the Secretary of State’s focus on the first year, this is a scheme which could last over 30 years so trying to cobble the money together from one year to the next is not good enough. Victims need long-term certainty over funding.
From September 2020 the First Ministers, the Justice Minister, and myself were trying to get a meeting with Brandon Lewis to discuss funding arrangements. He eventually met with us in the middle of February 2021 so the discussion on funding is now finally underway.
We told the British Government that it designed and legislated the scheme and that under its own policy it should fund the scheme. The scheme delivered by the British Government goes well beyond what was agreed at Stormont House, and it could cost over £1 billion. Paying that from the Executive’s block grant would have a devastating impact on other public services. Nevertheless, we are totally committed to delivering the scheme and I am willing to recommend to the Executive that it meets some of the costs. I hope there is a long-term solution to this issue very soon.
What are your department’s priorities over the remaining lifetime of this mandate?
Although the pandemic has delayed a lot of other work my department has done a great job in progressing my mainstream policy agenda. The Dormant Accounts Fund has been launched. The heads of terms for the Derry City and Strabane City Deal has been signed. I intend to establish a Fiscal Council and Commission shortly. Peace Plus is about to go out for consultation. Legislation on Changing Places facilities is progressing. And I recently announced a number of Connect2 hubs which will make it easier for civil servants to work close to home.
But I am conscious that there is only a year left of the mandate, so I’m keen to get as much delivered as possible. One of my priorities is procurement. We spend approximately £3 billion through procurement and I’m keen to ensure that this spending is harnessed for the maximum social good. The Procurement Board is currently developing a new policy on the inclusion of social value in all government contracts. For the first time, this will make scoring for social value mandatory in government contracts. That is a game-changer in terms of how we use our spending power and I hope to bring that policy to the Executive shortly.
