Finance Minister Nigel Dodds explains the Executive’s financial challenges and highlights devolution’s fiscal achievements.
As Northern Ireland moves into its third year of devolution it is important that we take stock of what we have achieved to date and the challenges that lie ahead. This applies to an even greater extent to my role as Finance Minister where the past year has seen a radical change in the global economic outlook.
At the start of the 2008-2009 financial year the main concern was in respect of rising inflation as oil prices continued their ascent towards the eventual peak of $147 a barrel in July 2008. At the same however, house prices were falling as the inevitable consequence of the property price bubble bursting. Although house prices have fallen by over a third over the course of 2008 they are still 17.7 per cent higher than in 2005 which highlight the unsustainable growth experienced in 2006 and 2007.
The Executive entered 2008-2009 with plans for record levels of capital investment and funding for our public services to support departments in delivering against the ambitious targets set out in the Programme for Government, following years of mediocrity under direct rule Ministers.
However, even at the start of the year it was clear that the downturn in the property market would have a significant impact on the capital receipts which underpinned the Executive’s investment plans. The choice that we faced was to press on with disposals which now represented poor value for money or to wait until the market improved. I believe that the Executive took the sensible longer-term approach, although this unfortunately resulted in some misinformed accusations regarding budgetary shortfalls.
These fears have now been shown to be thoroughly misplaced with departments’ latest forecasts suggesting that they will have delivered £1.5 billion of net capital investment in 2008-2009, representing an increase of over 30 per cent on the previous year. This has allowed a large number of major projects to be taken forward over the course of the year, including £200 million in our schools, £200 million in healthcare, £150 million for roads projects and £300 million to improve water and sewerage services. Even in terms of social housing, where the challenges have been most acute, the level of new build activity this year is expected to be 50 per cent greater than in 2006-2007.
At a time when the local construction sector has been faced with an unprecedented decline in private sector activity, this additional public sector investment has provided a real boost. It is also worth remembering that as recently as 2005-2006, almost £230 million of capital funding by departments was left unspent at the end of the year. It is a tribute to both the Executive and managers on the ground that performance has improved so markedly in recent years.
Although there have been those who have said that the Executive should have gone further in terms of out initial plans I would suggest that this is to ignore the financial realities. Similarly, if we had taken the easy route of simply setting our sights lower then, while avoiding the more spurious allegations of black holes, we would not have come anywhere close to the improvements in our schools, roads and hospitals that have been achieved over the past year.
Of course capital is only one side of the story, and the Executive has made significant progress over the past year in terms of reducing the burden on both local households and businesses from the freeze in regional rates through to the introduction of free travel for the elderly. The main challenge has been in response to the global economic downturn, where I announced a £70 million package of measures last December including a £150 fuel credit payment for low income households.
As we move into the next two financial years the Executive will need to rise to the challenge of the more constrained budgetary environment across the UK. However, while we face continued pressures in terms of the downturn in the property market there are also the plans and resources in place to ensure that most projects can be taken forward as planned. As I have already indicated, simply lowering our aspirations is an easy way out. The people of Northern Ireland expect, and indeed deserve, more from a locally accountable Executive.
This is not say that the Executive will not be faced with some difficult decisions, particularly in terms of the fundamental choice between more funding for priority public services targeted at the vulnerable versus the burden on firms and households. These are decisions that my ministerial colleagues and I will take in the best interests of all the people of Northern Ireland while recognising the imperative of maintaining financial discipline.
As a devolved administration, our national government also has an important role to play in terms of the economic levers it has under its control. The key issue for 2010- 2011 will be to ensure that all efficiencies made by departments can be retained within Northern Ireland in line with previous commitments. I continue to press the case on this matter with Treasury amongst other issues to ensure that local public services are adequately funded.
Although the current economic conditions continue to constrain the sums available to the Executive, they also present opportunities in terms of the cost of delivering public services. At the time the Budget was being developed inflation was expected to be 2.7 per cent over the three years to 2010-2011 whilst the latest projections suggest that deflation is a real possibility with the price of crude oil over a third lower than in January 2008. In terms of capital investment, construction prices are expected to be over 10 per cent lower than previously forecast.
This in turn highlights the trap that politicians and commentators often fall into in terms of focusing solely on the headline figures as regards funding levels. We must all remember that budgets and funding levels are not ends in themselves and that what ultimately matters is the healthcare that is provided to the sick, the quality of teaching that is delivered to our children and standard of or economic infrastructure that is in place to enable local business to grow.
In the same way that we have seen that increased funding is no guarantee of improved services, it is also possible to deliver better services even at a time of funding constraints.
This is the real challenge that the Executive faces currently. There is little point in arguing for more resources from the Treasury when the UK budget deficit is expected to rise beyond 10 per cent of GDP, just as it is not possible to revisit the Executive’s budget plans without first deciding which services should have their existing allocations reduced.
Instead we need to focus on delivery by squeezing the most out of every pound of taxpayers’ money by ensuring that our policies and programmes are fit for purpose, and by following through in terms of efficient and effective implementation.
In short, an Executive that delivers for the people of Northern Ireland.