Super-parity targeted in public finance squeeze

The introduction of prescription charges, water charges, and increasing university tuition fees are all measures being considered in an ostensible attempt to improve the financial outlook for public services in Northern Ireland.

In the 2022/23 budget settlement, Northern Ireland received almost £13 billion in its block grant, as per the Barnett formula. However, a further £1.3 billion was awarded through non-Barnett additions, regional rates, and treasury reserve.

It is estimated that the region receives around 20 per cent more per head than equivalent UK Government spending in other parts of the UK. The launch of the consultation can be interpreted as a thinly masked move by the Secretary of State Chris Heaton-Harris MP to recover some of his Government’s spending, essentially aligning Northern Ireland with Great Britain on economic spend from central government.

If implemented in full, measures suggested in the Department of Finance’s consultation could raise an additional £700 million, however, full implementation is very unlikely.

The fiscal sustainability of Northern Ireland public finances has been brought into sharp focus by political instability and sustained high inflation, but challenges have been long-standing, underpinned by a large public sector, relatively low household income levels, and the legacy of the ‘Troubles’.

The Department of Finance projects that some £2.3 billion is required to mitigate the impact of inflation on day-to-spending to ensure 2023/24 and 2024/25 services could be delivered as per 2021/22.

A strong case has been made in recent years for increasing the fiscal devolution for Northern Ireland, however, any move would require Executive approval. In the meantime, the Secretary of State has directed all department public secretaries to launch public consultations on measures to support budget sustainability by raising additional revenue, with the Department of Finance providing an overarching document set out the financial context for the consultations.

Department of Finance Permanent Secretary Neil Gibson speaking at the revenue raising stakeholder event in Belfast.

The Secretary of State has now directed departments to consult on:

Department of Agriculture, Environment and Rural Affairs (DAERA):

  1. Reducing compensation rate on bovine tuberculosis programme.
  2. Increasing College of Agriculture, Food and Rural Enterprise (CAFRE) tuition fees to the same level as in England.

Department for the Economy (DfE):

  1. Increasing university tuition fees and aligning the student loan repayment period to the same level as in England.

Department of Finance (DoF):

  1. The review of non-domestic rating support schemes, including non-domestic vacant property relief, industrial de-rating, freight transport relief, and the exemption for student halls of residence.
  2. The removal of domestic ratings allowances, including the early payment discount, the maximum capital value cap and the landlords’ allowance.

Department of Health (DoH):

  1. The introduction of prescription charges.
  2. The introduction of domiciliary care charges.
  3. The retention of hospital car parking charges.

Department for Infrastructure (DfI):

  1. The introduction of domestic water and associated charges (this should also include the removal of non-domestic water allowances and charging for septic tank desludging).
  2. The increase of private street fees.

Policy divergence between Great Britain in Northern Ireland, often referred to as ‘super-parity’ was analysed in 2022 by the Northern Ireland Fiscal Commission, which outlined the associated costs for each department. Super-parity refers to areas where Northern Ireland has made policy decisions to diverge from central policy, and therefore forgo certain streams of revenue or spend differently, compared to other parts of the UK.

It is mainly these areas that are set to be targeted in an revenue raising decisions. However, senior economists have said that super-parity is one of the most misrepresented areas of public finances in Northern Ireland, mainly, because it also experiences sub-parity where spending lags the rest of the UK, for example, around childcare provision.

Alongside the consultation on aspects of fiscal sustainability, the Department of Finance has also asked for views on the removal of a range of domestic and non-domestic rates relief. The Secretary of State is legally required to set the regional rate for 2024/25 if no Executive is in place by March 2024.

Domestic and non-domestic rates raise around £1.37 billion annually, 45 per cent of which is funded by domestic rating, with the regional rating providing approximately 4 per cent of the Executive’s public spending. There are seven proposals to changes to rate reliefs, including the removal of three domestic reliefs, namely, the 4 per cent early payment discount, the maximum capital value cap valued at more than £400,000, and a 10 per cent landlords’ allowance of rates on rented property which is paid in full by the 30 September.

Whether or not the measures being consulted on will ever come to pass is debatable, however, undeniable is an evident push by the UK Government to reduce any special financial arrangements for Northern Ireland economy, over other devolved regions. Cynics might point to the move by the Secretary of State as the latest evolution of his attempts to force an end to the Stormont deadlock.

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