Northern Ireland is in the dark on our per head funding allocation from the UK Government.
We do know however that our current funding per head allocation is below that what we need to provide public services on par with England.
There’s been a lot of talk in the media of late about Northern Ireland’s public finances. But despite all of the talk most people would be surprised to know that Northern Ireland is in the dark on our per head funding allocation from the UK Government. We do know however that our current funding per head allocation is below that what we need to provide public services on par with England.
Even if you are of the disposition that Northern Ireland has historically got more than its fair share, you still cannot reasonably argue that we need ignore or berate politicians seeking solutions to current underfunding. It's important to address the current underfunding to ensure that public services can be adequately provided now.
The logic behind the argument that people in Northern Ireland must suffer some sort of repentance for past use of public funds is one that reminds my generation of the narrative that surrounded the austerity years following the great financial crisis. We were told over and over that the years of excessive indulgence had came to an end. The party was over. We were puzzled. It was a party we were never at. It was a party we were never invited to.
Treasury last published the NI spending premium in December 2021, when it was 121, having fallen from a value of 127 the year before. That is, for every £100 spent in England, £121 was being spent in Northern Ireland. More recently, the Secretary of State Chris Heaton Harris said on 20 September 2023 that “the NI Executive receives around 20 per cent more per head than equivalent UK Government spending in other parts of the UK”.
Recognition of the recent underfunding of Northern Ireland is part marked by the allocation of £1.04 billion over the next two years, as part of the financial settlement. The figure corresponds to the estimated gains that departments in Northern Ireland would have experienced had the proposed 24% Barnett uplift been implemented during the last UK Spending Review in 2021, according to assessments by the NI Department of Finance.
This alongside a move to include a ‘needs-based factor’ in the Barnett formula from 2024-25 demonstrates that the UK Government corresponds with the view that Northern Ireland needs more in public funds to deliver public services on par with England.
What is new however is that from 2024-24 the Barnett formula will have a new needs-based factor applied to it. The Barnett formula is the equation used to determine what share of UK public funds is assigned to Northern Ireland. The new needs-based factor means that future monies received via the Barnett formula will be increased by 24%. This appears to mark acceptance that NI needs about 24% more in public funds to deliver public services on par with England, as per the estimate from the NI Fiscal Council.
But does NI really need such a funding premium over England?
The easy answer to this is that the UK Government has accepted for decades that it is reasonable for funding per head to be higher in Northern Ireland than it is in England. Northern Ireland is not unique here. The same can be said of Scotland and Wales.
The reasons for this are as simple as they are complicated. The reasons have got to do with differences in population sparsity, income deprivation, ill health, ethnicity, numbers of children and numbers of old people. Historical accident plays its part too.
The need for 24% more is not an uncontested one. Others say we need 27% more. Others say we need 30% more. This is all just to provide public services on par with England.
But even in spite of the precise funding premium which might be required for Northern Ireland it is not the case that from 2024-25 Northern Ireland will receive public funding which matches its needs.
This is because while the per-person increments passed onto the NI budget from 2024-25 will mean Barnett consequentials are 24% higher than was previously the case, this does not get us to the 124% estimate of relative need immediately.
This is because what is being proposed isn’t a turn towards a needs-based approach to public finances. Our funding allocation from the UK will still be determined by the Barnett formula, albeit one which includes a needs-based element.
Without boring you with the detail, the NI Fiscal Council has projected that using the 24 per cent Barnett consequential uplift it will take until 2035-36 to get to funding which equates to relative need.
Eleven years. It will take us eleven years to get to the most conservative estimate of our relative need. The uncertainty in this is also not to be exaggerated. And so, in reality where we have got to is a place where we’ll get a bit more money via the Barnett formula, but we’re still unsure about funding adequacy in the future.
The reason for this long lead in isn’t set in stone and is still up for negotiation as part of the promised discussions between the UK Government and the NI Executive on a new Fiscal Framework for Northern Ireland.
The Fiscal Council’s analysis does make excruciatingly clear that the mechanism used to get to the needs level is fundamental. We could get there faster by applying some other needs-based factor to Barnett.
But in the end this incorporation of a needs-based factor to the Barnett formula still means that the formula works only to determines changes in Northern Irelands block grant, rather than actual level (as is most common internationally). It also means that relative funding per person in NI is still influenced by a mix of historical accident, trends in relative population growth, and rate of growth of spending in England.
The other option is to abandon the Barnett Formula and move towards a true needs-based approach to public finances. If we go that road, those involved in discussions about a new fiscal framework should have that conversation about where the fiscal floor should be set.