The UK Government and Northern Ireland Executive have agreed to implement a needs-based funding mechanism starting from the 2024-25 financial year.
More specifically, from 2024-25, if the Northern Ireland Executive's un-ringfenced block grant funding per head falls below 124% relative to equivalent UK Government funding in England per head, a 24% needs-based factor will be applied to the Barnett formula. When Northern Ireland Executive relative funding is above 124%, a 5% transitional needs-based factor will apply. This approach mirrors the needs-based funding factor model agreed with the Welsh Government.
This is a significant change. It provides a stability of funding at a particular needs level which has never been committed to before.
In the short term, it means that approximately £24 million from the Spring Budget Barnett consequentials will be available for allocation in the upcoming June monitoring round. Furthermore, any future Barnett allocations in 2024-25 will be at this increased level.
This new mechanism is crucial in addressing fears of a funding cliff edge in 2026-27. The concern here was that additional once off-funding from the financial package (which was part of the agreement for the restoration of devolution), runs out Northern Ireland was looking at a future with funding levels below relative need.
Nevertheless, despite the positive step of the move towards a needs-based funding mechanism, Northern Ireland is not flush with cash following this announcement. It is however recognition that delivering public services on par with those in England requires at least 24% higher investment due to differences in efficiencies, economies of scale and the different profile of needs in Northern Ireland.
The agreement ensures that Northern Ireland will be funded at 124%. This is the estimate of relative need which the NI Fiscal Council put forward, based on a replication of the Holtham Commission methodology for Northern Ireland. This number is not without contestation and the defining of objective need is up for debate. The UK Government has also committed to reviewing Northern Ireland’s relative need if multiple independent and credible sources provide evidence that relative need is different to 124%.
We still need to be cognisant of the fact that years of underfunding beneath this needs level significantly impacted public services. The consequences of this will continue to take its toll in the years ahead. It led to the decimation of public services, some of which was protecting the most vulnerable members of society. We often hear it’s hard to stop doing things, but in reality, it’s harder to get things off the ground, and started.
Beyond this however even with this new needs-based mechanism the NI Executive will still be faced with hard choices about how and where to spend their money. Ensuring sustainable public services in Northern Ireland requires more than just adequate funding. It also demands a strategic prioritisation of government focus and the development of a comprehensive plan for sustainable public finances.