In this blog, NERI Co-director Paul Mac Flynn discusses the state of Northern Ireland's public finances.
Northern Ireland’s public finances are in a very sorry state. Without a devolved government, senior civil servants are forced to plan cuts in public expenditure, larger in scale than anything experienced during the depth of the 2010 austerity programme. How have we come to this calamity and is there any way out?
The first thing to be said is that it is impossible to make judgements about public spending in Northern Ireland today without looking at the path they have followed to get here. While the most recent budget furore centred on a Stormont overspend in the last financial year, that was merely the straw that broke the camel’s back.
The main source of our funding in Northern Ireland, the block grant, remained flat in real terms for the 10 years between 2010 and 2020. At first glance that might seem ok, as funding kept pace with inflation for all those years, why couldn’t we maintain services? But that analysis doesn’t cut it. The calls on public expenditure during those years had grown significantly. Not only did the population increase, but the needs of that population had increased too.
One of the benefits of advances in medicine and technology over the last number of decades is that people are living longer. That’s great, but it also means we need to look after them for longer. It means that we need to spend much more money in a number of areas, health and social care in particular. And we have. Health spending has been one of the areas where spending has increased dramatically over the last number of years. So what’s the problem?
The issue is that while we have been pumping more money into health, there has been less and less for other departments. Other functions of government have had to pare back significantly to the point where they now only provide core services. This adds to the already increasing pressures on our health system. But surely all this money flowing into health means that at least we’re getting that right?
To look at the current state of our health system, you would not think it has been the beneficiary of the most generous public spending settlements in recent years. The problems facing our health system are myriad and complex but by no means unique. All developed countries are facing the same demographic trends and the resultant challenges in health spending. The common thread for all countries is that health needs have changed and therefore health services also have to change too.
This brings us to the issue of public service reform. At various points throughout a number of public expenditure crises, someone will inevitably step out and announce that reform is the magical solution to all our problems and that if only we’d get on with it, nirvana awaits us.
The fact is that our public services are in need of reform, but to think that it will solve all our current woes is fantasy. The problem is that public service reform, and in particular health service reform, is notoriously difficult to deliver. Nobody likes change, but the people who rely on these services on a daily basis like change even less. Grand plans sound great in the abstract, they are altogether different on the ground. It doesn’t help that in the past ‘reform’ has been used as a cover to disguise cuts in service. Therefore, in order to push through reforms you need to have sufficient funds available to be able to ease the transition in services.
The Bengoa report on health service reform outlined that the current system needs a 6% real terms increase in spending every year just to hold steady. This means that in order to be able to make any meaningful reforms, health spending needs to increase beyond 6%. How many times did that happen in the 10 years before covid? Once.
We’re caught in a doom loop. We need to make the reforms in order to get a handle on spending, but we can’t make the reforms because all our funding is going into maintaining the existing system. This is all before we talk about future health needs arising from new treatments. Over the coming years, people are going to want to have access to these new medical innovations in order to improve and extend their quality of life. This will require more funding and we can’t escape that either.
We can blame our politicians for many things, but the truth is that the authors of our current misfortune are in Westminster, not Stormont. If the UK doesn’t want to fund a proper welfare state, then there is very little we can do about it here. While the restoration of a Northern Ireland Executive is more than desirable, the fact is that it is not capable of changing the weather in His Majesty’s Treasury.
There have been many pundits on the media lately saying that Northern Ireland shouldn’t be going back to Westminster with the begging bowl, and that we should be able to sort this out for ourselves. I think that advice has scant grounding in reality.
The only real game changer is to change the game at Westminster.
This blog appeared as an article in the Belfast Telegraph on Tuesday 6th June 2023.