The restoration of the Northern Ireland Executive earlier this year also heralded a renewed discussion about the devolved government’s lack of financial clout. The devolution settlement agreed for Northern Ireland in 1998 saw the creation of an Executive with significant spending powers. However, these powers were not matched by any significant tax raising abilities. Many see this imbalance as a roadblock to economic development in Northern Ireland, but as this new NERI Working Paper argues, the reality is somewhat more complicated.
Yes, the Northern Ireland Executive does lack the necessary financial incentives to make some of the more significant economic policy interventions that are needed to boost performance. However, it does not necessarily follow that giving the NI Executive greater fiscal powers will suddenly remedy this situation.
The Northern Ireland Executive has earned a bad reputation for financial management over recent years, particularly regarding the RHI or “Cash for Ash” scandal that brought down the previous Executive in 2017. While the political fallout from that crisis centred on allegations of corruption, the controversy also revealed a key element of Northern Ireland’s flawed devolution settlement.
Before looking to new fiscal powers it is necessary to examine the existing expenditure powers that we currently have and ask ourselves whether they actually work for Northern Ireland. This working paper contends that rather than just attaching new fiscal powers to Northern Ireland’s existing competencies, we should seek broader reform. The paper proposes a new settlement whereby significant fiscal powers could be devolved to Northern Ireland without undermining the resources necessary to maintain public services.
Envisaging this new settlement requires us to finally abandon the notion that Northern Ireland should be financially self-sufficient. Fiscal powers for Northern Ireland must be about creating economic incentives for the devolved government, not about plugging holes in UK budget settlements.
The current financial settlement in Northern Ireland is a bad advertisement for devolution. The ‘Cash for Ash’ incident shows just how dysfunctional these current arrangements are. Adding fiscal powers to the existing settlement would likely give rise to even greater policy blunders. A new settlement is both necessary and desirable.