Welcome to the first Northern Ireland Affairs Committee hearing on the funding and delivery of public services in Northern Ireland. I welcome our witnesses; could you please introduce yourselves and say what your position is?

I am Stephen Farry, co-director of the Ulster University strategic policy unit. I should declare, for those who are not aware, that I was previously an MP. I am in the unusual position that I gave evidence to this Committee prior to becoming an MP, I served on the Committee, and I am now giving evidence after the fact—so I have done the full NIAC sandwich.

It is great to have you back.

Good morning. My name is Dorinnia Carville and I am the Comptroller and Auditor General for Northern Ireland.

I am Robert Chote and I am chair of the Northern Ireland Fiscal Council.

My first question is to Ms Carville. In your view, what is the state of public services in Northern Ireland?

There is no doubt that there are significant challenges facing the public sector in Northern Ireland. I have been in post now for just over two and a half years, and during the course of my work I have certainly reported on a lot of areas facing challenge, probably most notably in the health sector—we have published reports around waiting lists, access to mental health services and access to general practice—but more widely than that I have had recent reports looking at the schools estate, child poverty and the ability to deliver on major capital infrastructure projects. I think it is fair to say that in the reports we have published it is not a particularly positive read. The outcomes that are desired in those areas are not being achieved, and the services are not meeting the standards that have been set for them. You will appreciate that the reasons for this differ with the subject area, but there is some commonality in the reasons why public services are struggling. Funding has had a significant impact across all the work we have done. The health sector in particular will cite workforce pressures in that sector. We have seen quite widely an impact where we do not have the required skills in all areas. We saw that quite significantly in major capital projects and the ability to deliver there. Due to these pressures, Departments are concentrating on, and have been for the last couple of years really, delivering their statutory services—they are firefighting, if you like—and that has really impacted on the pace of change and transformation. There has been a real lack of focus on preventive measures, early intervention and trying to achieve longer-term cost savings. It would be remiss of me not to mention that the lack of Ministers for the period when the Assembly was not there definitely had an impact as well, and public servants were working in a very difficult environment, especially those senior public servants who were having to act sometimes in place of Ministers. We obviously now have our Assembly back, which is great—and, if I can end on a positive, we have the scrutiny committees back. The Committee that I work most closely with is the Public Accounts Committee, and what I see there is a real drive and a real pace for impact and for change. You will see that in the recommendations coming out of their inquiries to date: they are very time-bound and very focused on making an impact and making changes that will benefit the citizens of Northern Ireland.

As you know, the council looks at the high-level budget and allocations there, so Dorinnia is maybe able to go in to it in more detail. There are a couple of points that I would pick up and emphasise. One clear piece of evidence of the pressures facing public services is the fact that there has been overspending of the available funding, so Departments have found it hard to keep within the available funding that they have had. That reflects a number of factors: the pressures, as you have described, around health and the need for preventive work and so on, and, as Dorinnia said, the pass the parcel of responsibility for the budget—going from an Executive through to caretaker Ministers, then through the Secretary of State, then back to the Stormont institutions—is clearly not an environment conducive to everybody being able to plan and reform public services and take long-term transformational decisions. One of the difficulties with both the caretaker period and the period with the NIO in charge is that they did not feel they had the political or, in some cases, legal authority to take big, substantive decisions, and that is contributing to some of the broader difficulties. Obviously, in some respects the difficulties are common to the UK as a whole. The impact of inflation and pay pressures is not unique to Northern Ireland, but combining that with the particular challenges of the squeeze on the Barnett formula and the pass the parcel control of budgets has not made life any easier.

To put this in context, the news headlines both in Northern Ireland and the UK as a whole at the moment are dominated by the crisis in the health service, but it is important to understand that the magnitude of what we are talking about in Northern Ireland compared with Great Britain is enormous. That is even the case for waiting lists; in some situations it is now over a year in England and that is rightly getting considerable pushback, but for some conditions you are talking four or five years in Northern Ireland. The sheer scale of the crisis is that much greater. It is also important to widen out the term “public services”, and not just to focus on health, education and so on in that narrower sense, but to look at things like the economy and our ability to invest in those types of improvements, whether in skills or in infrastructure, to ensure that Northern Ireland remains fully competitive in that particular respect. We should also reflect that across a lot of indicators, Northern Ireland is performing worse than virtually every other part of the UK. Economic inactivity is the one that is usually cited, where the figure is around 26% or 27%; that has been a very sticky problem over many decades and it has not shifted in any meaningful way. Looking forward, there are two things to be conscious of in terms of potential risks. A lot of the additional money now available to the Executive, which we will come to talk about later, has arisen from Barnett consequentials from additional spending decisions taken here in London. That will obviously offer a boost in terms of the quality and outcomes of public services, but the danger in Northern Ireland is that that money is simply sucked up to balance the books, and the situation almost of running to stand still is further embedded and we end up with those gaps widening further. The other thing we need to be mindful of is the potential risk of two-speed public services emerging—the one I would have in mind is health, where we would end up with a situation where, due to waiting lists, we see more and more people opting out of the national health service route and going private. Obviously, those who have money are able to afford that option, so we then end up with a two-tier situation in which those on lower incomes are more deeply affected by the public spending pressures, and that builds a sense of inequality in society. I am not aware that that has been quantified in recent times, but it may be something to keep an eye on.

Good morning to you all. My first question is a general one: which public services are most in need of improvement? Can you even quantify that or narrow it down? Dorinnia, maybe from your experience you might be able to talk to us about where, in the past, you have seen the greatest deficit in the ability to deliver public services.

Obviously, with my work, I do not look so much at the funding allocation process—Sir Robert can probably talk more to that—but in terms of what I have seen in my work to date, thinking across all the Government Departments, I would have to say that I cannot think of one Department that has ever said to me in the last couple of years, “My funding is adequate,” or “My funding is sufficient.” But there certainly are certain Departments where the struggles, if you like, have become more acute, and we have seen that. Two Departments in particular come to mind, the first being the Department for Infrastructure, who, certainly in my time in office, have repeatedly felt—and we have reported on it in the past as well—that they start the year with a baseline budget that is not met, and that has been compounding over many years. We did a report a number of years back around the structural maintenance of our roads that really drew out the fact that that particular Department, year after year, was starting under their budget need and relying on in-year monitoring. That really impacts on their ability to plan longer-term projects. A big part of that Department is dealing with day-to-day work, but large infrastructure projects need long-term, sustainable funding, and that Department was not getting it. Sir Robert might wish to pick up on the current process, and I know that DfI have maybe fared relatively better in the proposed budget, but that had a long-term impact. The other one would be Health. I audit all the public bodies, and when the local Assembly was down and we were in the budget situation that Sir Robert outlined, the trusts in particular were in a budget deficit situation for a large part of the year. They have a statutory responsibility to break even in terms of the budget they are given, and they felt from the outset that they were not going to be in a position to do that. Even cutting services still would not have facilitated them doing that. When the Assembly stood back up, the package that came with it allowed them to balance their books in that particular year, but they continue to face real pressures. We have looked at other areas and, as I say, every Department has their pressure. For example, we looked at mental health services, and the Public Accounts Committee looked at this. There is a 10-year strategy in place and it is largely agreed that it will make a difference, but the funding package was never there to deliver on it so it is already behind. There are lots of examples like that.

You started off your answer by saying that you have never had a Department indicate to you that they would not wish to have more money. Fair enough—that is understandable. Have you ever had a Department indicate to you a level of defensiveness that suggests they do not have room for improvement and that they do not accept the criticism of their inability to deliver good public services? To put it another way, in fairness to you and your role, do you find yourself routinely making the same recommendations, on a repetitive basis, because lessons have not been learned about the effective delivery of public services?

Yes—I think it would be fair to say that, certainly in our role, we do end up being somewhat critical a lot of the time. It is human nature that people put up a defence to that sometimes. We end up giving recommendations for improvement; Departments are at liberty to accept or not accept those recommendations. I would say that in the main they are accepted. I think public servants are always striving for improvement—I have to acknowledge that and commend public servants for that—so there is always that willingness to improve. With regard to the second part of your question, Gavin—on lessons learned—unfortunately, we in the Audit Office do see ourselves coming back to topics and making similar points, or highlighting where actions have not been taken in areas where Departments committed to achieve improvements. One springs to mind: last year I did a follow-up report on major capital projects. The office had previously looked at it four and a half years beforehand, in 2019. These are big, signature infrastructure projects that the previous Executive collectively said were of significant importance to Northern Ireland. The budget had been ringfenced, but they had not been delivered on time and to cost. Only one has been delivered to date; four years later, still only one has been delivered. There are many issues with all these projects, but the ability to deliver on time and to cost is a repeated problem. The Public Accounts Committee drew that to the attention of Departments back in 2019. That Committee is in the middle of a follow-up inquiry, and is taking evidence from the head of the civil service because its members see the matter as of such significance, asking, “How do we get this right?” There are many areas where we come back and look at lessons learned. A number of years ago, we did a piece on locum doctors and patient safety, and again repeated points. The local PAC also held an inquiry into the child poverty strategy at the time when a new anti-poverty strategy was being drafted, and they said very specifically in their report, “We are concerned that the lessons from the child poverty strategy will not be learned and the repeated mistakes might come forward in the anti-poverty strategy.” They formulated recommendations for the Department, which is currently at the stage of drafting that strategy, to bring it forward to the Minister. The issue is something that we are all very attuned to, but unfortunately it is happening, Gavin.

Thank you—that is a useful example. Sir Robert, you chair the Northern Ireland Fiscal Council, but you have experience and professionalism born out of knowledge in London and Whitehall and the structures here. In an earlier answer, Dorinnia said that there are deficits not only in funding, but in skills and in capacity. How do you feel the Northern Ireland civil service and the structures to deliver public services there fare compared to their counterparts in England, Scotland or Wales?

I would emphasise the quality and the professionalism of the individuals working in the civil service, and that is true on both sides of the water. Famously, I think you would look at the structure of the Executive Departments as being more siloed than is the case at Westminster. Obviously, given the nature of the constitutional structure around the way in which the Executive and the Assembly work, you have Departments with legal personalities, single accounting officers, and no pretence at there being collective responsibility at a ministerial level across that. In particular across areas of cross-cutting work, one senses that that is harder to achieve in the Northern Ireland context than it is in the Whitehall context, which is not to say that Whitehall does it terribly well either.

Is that a structural problem within Northern Ireland, or is it a consequence of enforced multi-party coalition Government?

It is obviously hard to know with a natural experiment without changing it from one way to the other, but it is clearly about both the nature of the Departments and their relative autonomy in Northern Ireland, plus the fact that the Department of Finance is less powerful most of the time than the Treasury here, and that the Executive Office does not really pretend to play the cross-cutting role that the Cabinet Office does at the Whitehall level. Obviously, Jayne and colleagues at the top of the NICS work very hard on ensuring that there is thinking, working and communication across the system as a whole, but you would certainly expect those structural features to make a difference. At the margins, again, it is hard to say how that feeds through to particular outcomes. In some cases, of course, you also have Departments where one or two arm’s length bodies are very significant spenders within the Department—NI Water within the Department for Infrastructure, for example. There is no precise equivalent to that at the UK level. There are differences in responsibilities as well as in the way the system is organised.

I have two brief points to add, but before that I must say that the legal nature of devolution in Northern Ireland is different from both Scotland and Wales, where it is devolved to a collective; in Northern Ireland it is devolved to individual Departments, so there is a different legal regime to that, which makes things somewhat difficult. The first point I want to make is that health dominates the narrative around public service challenges at present. Gavin will readily identify with this as well: whenever we talk about budget debates, health is always prioritised in that debate, because people’s lives are at stake. In the short term we can see that has a higher priority than the long-term investments, which people recognise are important, but they just have to keep people alive and ensure people are well. We are not seeing that shift in the debate: health is seen too much as a matter for the Department of Health, rather than something that is for all Departments to contribute to. What happens in terms of education and early years investing in children is important; what happens in terms of the economy and giving people jobs is important, but we are not fully having that conversation. We are seeing health too much in a silo in that respect, and that builds on the point around prevention. At the moment, there is too much firefighting. We are just trying to keep the services afloat, rather than looking to see how things can be done better and achieve better outcomes. As a consequence, we are perhaps not seeing the same shift towards prevention that is happening in other jurisdictions. One thing we have identified in the universities is around the concept of preventative DEL, which is about carving out a proportion of the resource DEL—it will be different for different Departments, given their particular responsibilities—and trying to ringfence some money. That does not stop other expenditure on prevention happening, but does at least focus minds. Demos, Public Health England and the Institute for Government are pushing that—I think they wrote to the Chancellor prior to the autumn Budget, trying to encourage consideration of that type of issue.

May I make one small observation, Chair?

Yes.

Thank you, Chair, for that indulgence. On that point, I was listening to Sir Robert, and one thing in my mind at the minute in terms of health is that we have a situation where people are blocking—I hate that word—the flow of leaving hospitals, because we do not have enough people working in domiciliary care. When I previously sat in the Assembly, I raised time and again what the Department for the Economy, for example, was doing with the DoH to say, “We know there is a shortage of people working in these areas. We know there are barriers, whether it be private insurance for cars or issues around mileage.” Would that be an example of the sort of thing you are talking about when you say that health is getting far and away the lion’s share of the block grant, but there is no evidence, or little evidence, that they are working in a collaborative way with, for example, DftE on jobs and how we get people into those roles?

Skills is a key driver. Workforce is an issue across the board, particularly in the health service, but if you look at economic inactivity in both directions, getting people a job will reduce their risk of health problems coming up, and at the same time having an effective health service to address some of the long-term conditions that keep people out of the labour market is also crucial. It is a joined-up issue in both directions.

As you know, the restoration package has short and long-term elements to it. There is short-term budget support to deal with the fact that it was happening at a time when Departments were overspending against the available funding, so there are large chunks of money—about £500 million each for 2023-24 and 2024-25 into 2025-26—and then that falls away. Then you also have the advantage of the fact that there is now a top-up to future Barnett consequentials that comes in as and when the UK Government increase spending in England on things for which the Executive is responsible in Northern Ireland. Clearly that short-term stabilisation money has been helpful; it was in some senses inescapable, given the degree of overspending at that stage. As you are aware, the council did some work suggesting—we put lots of caveats around this—that roughly 24% more needs to be spent per head on public services in Northern Ireland to deliver quality and quantity of services and outcomes equivalent to England. In the absence of that short-term stabilisation money, the premium would be lower than 124%, and with it, slightly above. One should not place too much emphasis on a snapshot in one year for the financing of public services to be sustainable. It is not just the amount of money, but the reasonable assurance that it is there on a stable basis looking forward, so that people can do workforce planning and transformation and so on. One challenge at the moment is that that short-term stabilisation money runs out, thus confronting the Executive with a potential cliff edge in 2026-27, when that money goes away, but the 24% top up to the Barnett consequentials will not have been large enough to fill that gap. There is a particular challenge around that point. That cliff edge could, in theory, move forward to 2025-26 if the Executive do not manage to balance the budget this year and also meet their commitment to deliver some £113 million of additional revenue, too. The money has clearly helped in the short term. Departments are still overcommitted. They are saying that they are overspending relative to available funding. Thanks to the money that came in as a consequence of the last UK Budget, that number is now much smaller and more manageable for 2024-25, but the Treasury has already signalled that it will need to think about potential flexibilities and how you smooth things through to 2026-27. I doubt that there is a serious prospect that the cliff edge will be brought forward, but it is still a big challenge when you get to that point. The short-term stabilisation is certainly helpful, but does not on its own put you on what looks like a sustainable pattern for five years ahead.

At one level, as I say, it is better to have it than not. One thing that it has obviously helped to deal with—this would be true again of the money that has come through as a consequence of the most recent Budget, which was a larger addition to the block grant than the Executive had been anticipating, simply because it was a bigger spending UK Budget than anticipated—is pay pressures. That was essentially via the Barnett consequentials, and it is helping the Executive to deal with the same problem that meant the UK Government felt they had to increase spending here. Pay, because it is in particular areas such as health, is obviously such a large part of the budget. Helping with that is clearly very important.

I do not know. I remember from the work we did that, if memory serves me right, average hospital stays were about one and a half days longer in Northern Ireland than in England. Clearly there is the interpretation of why that is, which comes very much to your point. Is it because of “relative inefficiency” in the Northern Ireland health system; is it because actually Northern Ireland is better at recognising the clinical need for keeping people in hospital for longer; or is it because there are problems in other public services that mean the constraint is on people being able to get to good care outside? I do not know whether those numbers have been updated. I suspect that sort of thing is a longer term reform issue, so it is more an issue for whether the transformation work and the ongoing funding can help with that over five years. I do not know whether in the short term the hospital time numbers have moved sharply and, if they have, I would be wary about wanting to see a longer period before being confident that we understood what was going on.

Very briefly, on the stabilisation money, Sir Robert, you are right to say that there was an allocation within that £3.3 billion of £1.1 billion for stabilisation money. There was also circa £658 million for immediate pay pressures to meet pay awards. As you know, that is a one-off allocation for pay awards and it is not recurring, although pay is. How horrified were you when Government simply said, “Use the stabilisation money to meet the pay pressures in years 2 and 3,” once it was baselined?

“Horrified” is not the word I would use. I looked at it and, as I say, this was a package that had short-term, up-front money and it was a valuable contribution to longer term sustainability through the Barnett top-up, but the gap in the middle clearly did not present a stable basis for people to be able to expect to plan on that. I looked at that and concluded that the Treasury is going to have to come back to this; this is unfinished business. Of course, as part of the next stage of the fiscal framework discussions, there is going to have to be some discussion about how to do that. Your point about pay being an ongoing expense, not just a one-off one, applies in some other areas of procurement and bought-in services as well. As we would have discussed before, undue reliance on one-off, earmarked dollops of money is generally not the best world to be in. It is often better than not having a one-off dollop of earmarked money, but you want to move to a situation where there is a more stable underlying basis upon which Departments can plan, rather than reliance on a succession of political agreements to come up with particular pots of money to address short-term problems.

I think it is important to note that, whenever we talk about the stabilisation money, significant as it was, it still was not enough, for example, in this current financial year to balance the books. There was a very considerable overspend, which has been largely mitigated by the greater than expected in-year Barnett consequentials. Even with the stabilisation money and those Barnett consequentials, there is a still a deficit of about £160 million on the books that has to be addressed before the end of the financial year. If not, the first of those cliff edges comes back on the books. Hopefully, that will be addressed over that period of time, but that still is a significant gap in that respect. I should also declare for the record that I was part of the negotiations around the financial package. Without contradicting what I just said about stabilisation not being enough, one of the difficulties with the package is that the money for transformation, by contrast with stabilisation, was relatively small. We are in a situation where we have the short-term sugar rush for two years of stabilisation, and then it ends. By contrast, the money earmarked for transformation is £235 million over five years—that is £47 million a year, which is relatively tiny, even in the context of the Northern Ireland budget. That does not mean that transformation will not be happening outside that pot of money, but it shows that the balance of that was tilted more towards stabilisation and managing the crisis, rather than trying to do things differently, so that we end up having more sustainable budgets down the line. We need to have that greater shift away from this ongoing crisis management towards doing things differently and getting better outcomes as a consequence.

Sir Robert, what is your assessment of the effectiveness of the Executive’s budget sustainability plan? Do you think that it is sufficiently ambitious? I know the revenue-raising targets were stretched over a couple of years. Were there measures that you would have anticipated seeing that are not in there?

I think it is fair to say that the budget sustainability plan combines a set of unobjectionable things that you would say about wanting to run budgets well. Obviously, the proof of that pudding is over the longer term in the way that things are managed, thought through and planned. On the revenue raising, clearly this is very important in the sense that the agreement was that the additional £130 million had to be raised, and if not, I think the Executive were going to have to pay back £559 million, which is essentially the money that they had to borrow short-term from the Treasury to cover the overspends of the previous two years next year. That would clear it or, as we say, it would basically bring forward this cliff edge. The most important thing about the budget sustainability plan is whether it is able to avoid that hit in ’25-26. Clearly, as part of the Budget, the Executive have been willing to take some decisions on revenue raising, so you have a 5% increase in the domestic rate and a 3% increase in non-domestic rates. I think the non-domestic rates being a bit smaller is probably in recognition of the impact that the national insurance contributions change is having on employers. The most important thing is that it avoids that cliff edge coming earlier. You could say, “Well, how plausible would it really be for the Treasury to demand this money back? Even if the Executive had not done that, all you are doing is creating another hole that they would in some other way have to fill in.” Nonetheless, the willingness to look at different revenue-raising options and to take some decisions on that will contribute to getting to a more sustainable position and is more likely to make the Treasury amenable to coming up with some sort of imaginative way to deal with the later cliff edge that we were just talking about with Ms Ingham.

So it does tick that box. Obviously, this time last year there was a lot of discussion, understandably, about the deficit, what the Treasury was offering and the need to revenue raise—

Helped, as you say, by the fact that more time was provided—

Of course. And would you characterise that plan as ambitious?

Anything that requires additional revenue raising at a time when household finances are under—

Do you think Ordnance Survey map charges and increases and so on show the vision that the Executive need to transform public services?

No, it shows you what you need to do to deliver on the commitment to avoid a problem with the Budget allocation further on. There is then a wider set of issues around charging, including, most famously, debates around water, as well as other broader charges across the public sector and scope on the revenue-raising front. But, as you know, the Executive are very limited in terms of their tax-raising capabilities—they are essentially limited to the rates. If you look at the possible amounts of revenue, water is always pointed at, but that is off the table for pretty much everybody across the political spectrum.

Dorinnia, Stephen referenced potential shortfalls this year. Do you think the Executive are on track to deliver a balanced budget in the coming financial year?

Certainly they are still facing significant challenges, and as both Sir Robert and Stephen have said, there is still around £150 million at risk. There will be a January monitoring round now, and the monitoring rounds are a good opportunity to look at how the entire system is doing. In my work on the financial audit side of things, I still have a lot of the Departments that are, through the risk registers, highlighting concerns and pressures. I do not think the Departments feel confident that they will deliver it, but they are certainly working very hard to do so and there is a collective willingness to do so.

Do you think that is possible given the increased budget settlement for next year, even though some of it is short-term and there is huge need. Do you think it is possible with effective decision making, addressing silos and so on, as we have discussed? As somebody in your profession, do you think it is legitimate to ask them to deliver it?

I am ever the optimist, and I am probably not close enough to the budget monitoring rounds to know the particular pressures or where Departments may be considering cutting services or holding back, but at this stage of the year I err on the side of optimism. I will not know that until we come to the end of March and I start my financial audit cycle. I could not say with certainty until I see the figures, Claire—sorry.

Departments have managed to deal with overspends larger than that at this stage. It is down; the potential overspend was about £830 million in October, and is now, as you say, around £148.6 million—a little less than £150 million.

The trajectory is not bad.

One thing Departments can do is simply delay expenditure. If they just delay it into the following year, that is not necessarily fully dealing with it, but at this point I would be surprised to see an overspend at the end of this year of less than £150 million, but it is stretching, nonetheless. The danger is that it is dealt with in a way that just pushes the can slightly further down the road.

Stephen, in its response your unit made a number of recommendations about ways to make things more sustainable—things like preventative DEL spending. Do you think that with the figures on the table and sufficient joined-up thinking and vision, it is possible for the Executive to deliver decent public services and a balanced budget? Separately, are you optimistic that they will do so?

First, on the public finances, we are dealing with a very challenging situation, Claire. On the surface, the very large Barnett consequentials of £918 million in-year, which in effect turns into £1.5 billion for the next financial year on paper, may well solve the problems for the Executive. However, we have to bear in mind, first, that even with the £918 million in-year, we are still running a deficit. There were deficits for the past two years too, so there is a structural problem within the Executive. Does that shift from £918 million to £1.5 billion address those immediate problems? I am not sure it does because there are other pressures coming through the system, in the sense that the national insurance increase for employers has not kicked in. It will affect all parts of the UK, of course, but it may well eat up things. There are public sector pay pressures that will be adding to that. Even beyond the current situation, there are other inescapable pressures that still have not been met. We are in a situation where there may be slightly more breathing space to keep the lights on, but we are not seeing the shift towards doing things differently, in terms of transformation. The types of areas that we were trying to highlight include preventative DEL and the wider discussion around prevention. At times, there is a reluctance to consider a shift left—or upstream, depending on the language—and doing things differently. The results often do not emerge for several years down the line, so it is seen a as a bit of a punt. That means that, in the short term, what you are trying to do to sustain public services becomes even more challenging because you are taking money away from that and people are reluctant to do it. If you do not break the cycle, we end up in a perpetual situation of not just maintaining the status quo but falling behind other jurisdictions, in terms of outcomes, so we need a much more fundamental shift. We will probably touch on this in greater detail, but I do not think that the fiscal floor shift, in terms of numbers—even if we move from 124% to 127%—will be a game-changer in terms of getting us out of the current hole, and nor will revenue raising necessarily do that because there is a lead-in time. Even if it were politically possible to do some of the measures, there is a lead-in time for water charging of a couple of years to get the systems operational, so those are not necessarily going to be magical solutions for us.

You are right, and I think colleagues will come back to that. That is my point. There was a lot of talk about getting this right a year ago, but it feels like we are maybe back into some of the old habits. Clearly, judging by your submission, you are disappointed in the lack of ambition in this first budget. Do you think it is possible that it was the levelling budget? Do you anticipate seeing a bit more ambition and bravery from the Executive in the subsequent years of its mandate?

We need to recognise that the Executive has delivered a draft budget, and they did it in a reasonably timely way, so that is positive, but there is an overall sense that this is essentially biding time. This is more or less more of the same that has happened in Northern Ireland.

Do you think we are setting our expectations a wee bit low after two years of negotiations? After 10 months back, we are just getting a draft programme for government and a draft budget. Do you think we are setting our expectations a bit low if we are celebrating just getting drafts?

In defence of the Executive, there is a recognition that the next iteration is the real game-changer, because we are potentially moving to a multi-year budget. The Executive have put through their draft programme for government, and there may well be different views about how good the PFG is. We are now seeing the potential for the linkage between the programme for government and the budget in the years ahead, so hopefully we will see the step change that we are looking for. I recognise the point you are making, in the sense that we are still doing a lot of what was done in previous years, and we are just trying to make do, but that opportunity for change may well come soon.

Multi-year budgets are something many of us are breathing a bit of a sigh of relief around. In my constituency of Weston-super-Mare it is seen as a game changer and a move away from a very destabilising period for public services. In your view—and I do not mind who goes first—what effect would multi-year budgets have on establishing sustainable finances?

Clearly it is very desirable. In the Northern Ireland context, this is the tenth or eleventh consecutive single-year budget. That is a different situation from the UK, because for Northern Ireland to run a multi-year budget you need to have the institutions to be stable and in place, and you need to have a multi-year budget at the UK level to give you a multi-year block grant settlement. We have not had that for a decade or more. Coming back to Claire's last point, at the UK, and, arguably, the Executive level, this budget is the last one-year one and there is a bit of throat clearing ahead of what people hope to be a greater degree of medium-term thinking and planning. The UK Government wants to get to having three-year budgets, essentially with a one-year overlap, so you would come back and review the third year as the first year of the following budget. That is not a huge move toward a very multi-year approach, but it is clearly better than nothing. However, it depends on whether this cliff edge can be sorted out. Obviously planning across it, with that change, would be very odd. This is because you are then trying to take the advantage of a multi-year budget to do planning, but also you have an implausible drop in funding that you might assume would then move again. Assuming that that can be sorted out—and there appears to be a will to do so—it could be very useful in the Northern Ireland context. One caveat is that the UK Government does change their spending plans more frequently than its multi-year budgets. Take the draft budget that was published for consultation but never agreed by the previous Executive in 2021. Imagine that you set your workforce planning based on that. If you go back now, the amounts of money are actually very different from what was put in there, because the UK Government has felt the need to increase public spending here since then, and that is fed through to consequentials. A multi-year block grant settlement clearly gives Departments and the Executive as a whole, a greater and more stable platform from which to think about and do sensible things. But that does not mean that it is written in stone, and it is not written in stone for reasons that are outside the Executive's control: namely, if the UK Government changes its spending plans, which will then move the numbers.

From my perspective, we have called for multi-year budgets and do see the benefit in certain areas of our work as well. Put quite simply, it will allow for longer-term planning, especially for large infrastructure projects and things that by their nature cannot be delivered within a one-year window. The element of certainty and stability for Departments that would come with that should not be overlooked. We have all talked about this constant firefighting mode that they have been in. We have to be very clear that multi-year budgets in themselves are not the full answer. We would like to see a multi-year budget and it needs to be linked to the programme for government and the outcomes that are going to be achieved. We need to monitor those outputs as well. It is about really making ourselves accountable for spending and not forgetting about monitoring the achievement of what we are doing with the multi-year budgets. There is quite a process there that we would like to see in place.

Could I just come back on that? We often talk about changing the levers and then expecting things will be delivered. But if you are talking about responding to a decade of single-year settlements and firefighting, is there a process of cultural change and a bit of support that needs to happen within the public sector and the civil service to be able to move to delivering in a longer-term sense? Does that make sense to you?

I understand the question that you are asking. I think it will certainly require a shift, though my sense is that public servants have felt very frustrated by the lack of multi-year budgets. There is a real desire for them. I know cultural change is usually quite difficult but I do not think, in this circumstance, that that change would be inconceivable because the desire is there. Capital projects, by nature, are multi-year, so there are, obviously, certain projects for which you do have to go out and do multi-year procurement for certain services. Public servants have had to plan for multi-year spending in the absence of multi-year budgets, so I think the mechanisms are there.

I will make a related point on budgets. I agree with what my colleagues have said about multi-year budgets but we are talking about the 10 or 11 years of single-year budgets and some of those budgets were actually agreed after the start of the financial year, rather than before, which has created real uncertainty, particularly for those organisations that receive grants from Government. Departments can spend at their own risk but where you have, particularly in the community voluntary sector, organisations getting grant aid money, and that cannot be agreed, that creates real uncertainty for their staff and they often lose people. Often, in terms of process, they have to put people on protected notice, so some people will move on from their jobs and the organisations lose capacity from that, so that has been a structural difficulty in the system. That also has knock-on effects for things like pre-planning of commissioned places for health training through universities, and, obviously, workforce is absolutely crucial to the health sector, so we are trying to avoid that. The current year’s budget was agreed in May. That is relatively understandable, given that the Assembly had just been restored in February and people were just getting their feet under the table in the new Departments. However, whenever the NIO were striking budgets, they often happened after the start of the financial year and that did cause added inefficiency in the system.

Thank you all for coming. My wife is in Northern Ireland this week and it is pretty snowy and cold, so well done for making it over the Irish sea and a happy new year to you. I have a couple of quick things to ask. Sir Robert, it is nice to see you again. You touched on the £559 million overspend. I want to unpick that a little. In your view, what would be the impact on public services in Northern Ireland of having to repay that £559 million?

It would be a significant short-term hit to the budget. It is not only a significant sum of money but you would be getting the news of that at very short term; we would be talking about that next year. Some people would say that the threat to withdraw that, at that sort of level, is therefore not credible but if it were to happen then it would severely complicate the task of people trying to manage public services through the next couple of years.

From my perspective, public services are already under considerable pressure, so any further debt—if you like—that is added is only going to put them under increasing pressure. We have touched on the need for transformation and change, and Stephen has talked about the relatively small sums of money that are ringfenced for that, so any additional space for change or transformation outside of that would be very difficult indeed.

Essentially, we are talking about the two cliff edges. I agree with Sir Robert that the £559 million may not even be fully levied in the context that there was a continued overspend, but I think there will be a means to address the current overspend to avoid that happening. The bigger cliff edge is the end of the stabilisation funding of £520 million a year and how that will be picked up, in terms of the black hole, and to what extent any potential change in the fiscal framework or the fiscal floor—which is obviously far from agreed—or revenue raising can address the removal of that money. I would be sceptical that that is going to be the case.

Do you think that Northern Ireland can get away with not repaying that £559 million, if you see what I mean?

If it was asked for it?

Yes.

No. That would then have even more serious consequences in terms of the Treasury’s provision of money in the future. There is a requirement under UK legislation for the Executive to balance its budget. Balance, in this context, can include a loan to help you do that, which was the way in which it happened over that period. There is a question mark as to whether, if the Treasury was inflexible, it would simply be creating more problems for itself as well as for the Northern Ireland Executive, looking forward. That is the sort of grey area about how credible this is. The same issue arose when you had the second year of overspend in the period in which there was a pass the parcel on the budget. It is about how credible was it for the Treasury to demand the money back, given the consequences that it would have had for public services. There is an element of game playing inevitably, here. But if you take the strict rules, then it would be very problematic for the Executive, in terms of the resources that the Treasury was willing to provide in future. In a realpolitik world, there would be a negotiation about if you can really expect to remove that, given the consequences that would have. It would be a more extreme example of the quandary that the Treasury found itself in, in discussions with the Executive with NIO over the previous two years.

Yes, it speaks to the challenge of decisions that I think we are all trying to tease out here. Sir Robert, you have just touched on this, and I would be interested to hear from all three of you on the Treasury, the UK Government and such. What benefit do you think the Government's growth agenda can play in helping alleviate some of the pressures it faces, and to alleviate some of the pressures facing Northern Ireland and its public services?

The key thing to bear in mind is that the vast bulk of what the Executive has available to spend is essentially down to the block grant. The changes in the block grant reflect changes in UK Government spending, essentially, on things in England for which the Executive is responsible in Northern Ireland. Anything that makes the UK Treasury happier to think that it can spend more money in a sustainable way and that would include a good performance in the UK economy—underlying performance, not just a sort of short-term sugar rush—would provide more money through to the Executive, if that is reflected in UK Government Budget decisions. As we have discussed before, one of the ironies is that there is not a particularly close relationship between the performance of the Northern Ireland economy and the amount of money that comes into the Executive, because it is coming in from the block grant. Yes, there is some money coming in from the rates, but the relationship between what you get in from the rates and the performance of the economy is not a particularly straightforward one. Clearly, having an improved performance in the Northern Ireland economy is great for Northern Ireland households, jobs, employment, and earnings, which is devoutly to be desired, but it does not have a direct impact through to the amount of money that the Executive spends. Similarly, if the UK growth performance improves—which is a good, desirable thing and will bring in more tax revenue, generally—to the extent that is then reflected in the UK Treasury then feeling that it is willing to spend more money, that will show up in Barnett consequentials.

I would restate the point I made at the start that the additional Barnett consequentials coming across may simply help avoid a greater default in Northern Ireland happening, in terms of the public finances, or avoid a default happening at all. The question is can Northern Ireland, under devolution, do things its own way in terms of local decision-making? Can it replicate the scale of investment that is happening in England, Scotland and Wales on the back of that additional resource, or do we see that gap actually widening? Because obviously there is a big investment happening in health and even in education. Going back to the previous Government, there was a notable increase in health spending in England, which was not replicated in Northern Ireland. So, we end up in a situation where we are better able to keep the lights on in Northern Ireland and there is less risk of a problem, but at the same time we are not doing the equivalent investments that are happening elsewhere. Consequently, we fall behind further.

That is interesting, Professor Farry. Sir Robert has just touched on rates. Is there more space? Where is Northern Ireland in the scale and table of rates? I know there are issues about paying for water and all the rest of it, but where is Northern Ireland and where are Northern Ireland households in relation to, for example, my constituents in Newcastle-under-Lyme or indeed in Surrey, Northumberland and the rest?

It is a frequently asked question. It is interesting to hear the contrasting perception of MPs in England compared with the local situation. Revenue raising is very heavily politically contentious. Under the budget sustainability plan, £113 million was identified. There is potential for more revenue raising. Whether we will see a political consensus around that is challenging. Some of those will have lead-in times. I think that the sum total of what are called the “super priority” measures is around £590 million to about £690 million, in terms of what could be raised compared with some of the measures that have happened in England. But even if all that was done, I am not sure that that in itself would be a game changer for Northern Ireland. Also, some of those measures, even if they were politically acceptable, would have a lead-in time in terms of infrastructure. For example, around water, you are talking 18 months to two years potentially to have the infrastructure for domestic billing to happen. Previously decisions were taken not to install water meters in new houses, for example, which maybe makes that even more challenging in terms of having the physical infrastructure to proceed with some approaches to charging. Obviously, there are other approaches you could take for which meters would not be needed. It is not easy to turn that tap on and off, if you will pardon the pun.

Just for clarity, I was not advocating. I do not want to—

No, absolutely not—nor was I, for the record.

I was just unpicking and trying to understand. Thank you very much.

Thank you all for your answers so far. I was going to ask a question about the likelihood and impact of the funding cliff edge, but you have talked quite a lot about that. It seems to me that that cliff edge is receding somewhat; feel free to contradict that if you disagree. I would like first to establish that I understand things correctly and then ask you a question that is perhaps zoomed-out slightly. The fiscal framework that the Executive are currently working to, in relation to the UK Government, includes the target for £113 million for income generation by April 2026, alongside the budget sustainability plan itself, which is under way and delivering a balanced budget in 2024-25. If those three things are delivered upon, then this £550 million historical departmental overspends will be written off by the Treasury. So far, so good?

Yes.

Good. It seems like the Exec is on target currently to meet that £113 million income generation. There is possibly about £80 million already secured. Here’s the question—sorry, I have one final point before the question. On the balanced-budget piece, the Finance Minister acknowledged late last year that the Exec was still on course to overspend. Professor Farry, you said, I think, at the time it was £267 million, but you said it is more like £160 million now.

Under £150 million now.

The November number was £158.6 million.

It is on the record; great to hear it. I guess the question is: is it correct to say that, if the Exec deliver on the income generation target, then the £550 million debt will still be written off, even if there is a significant in-year overspend again this year or next year?

The historical overspend will be written off if there is no overspend during this current financial year, so that £148 million does have to be addressed by one means or another. But as Sir Robert and Dorinnia have said, there are measures by which that can be managed. It is a significant sum, but they will manage that, so hopefully that issue does not become a live one and they will be able to generate the £113 million in terms of revenue raising. On the surface, that will be addressed. Those are low-hanging bars in terms of the challenges for Northern Ireland in terms of the wider picture. In some senses, the bigger issue is: what is going to happen when the £520 million stabilisation fund is removed from the picture in the following financial year of ’26-’27 in the light of the structural problems that we have in terms of Northern Ireland’s budgets? We have, none the less, the additional Barnett consequentials coming through, which may ease the scale of the pressure. The challenge is that with that, there are other pressures in the system such as the employer’s national insurance rise, which will eat a lot of that up. We are still in a situation where, structurally, the Executive will potentially be running future deficits, just given the scale of what they are doing, unless things are done radically different in the approach to this. We are hopefully—I say this with caution—not going to face that in the immediate future but structurally, Northern Ireland’s approach to finances is not sustainable in the medium term.

I will open this question up to the other panellists as well. Are you confident that the £148 million projected overspend, as we sit here and now, will be balanced by April this year?

I wouldn’t bet my house on it.

It has been possible to manage down gaps larger than that at this point in the year. One way you can do that is in part by delaying expenditure into next year, which to some degree is kicking the can down the road, but it is at the manageable end of overspends at this point in the financial year.

That said, it is by no means certain. All public bodies are sitting with certain things that they cannot delay. For public organisations, on average, probably more than 70% of their recurrent funding is their pay bill. That will not go away. I take Sir Robert’s point that it has been managed in the past, but Departments are still indicating to me that the situation is not without its pressures.

Do you have the same confidence—if I can say that word—for financial year ’25-’26, in terms of a balanced budget for the Executive?

It is too early at this stage to see. We will see as we move into the year, when the Department of Finance gets data from the Departments every month as to whether they are living within that budget at that stage. Clearly, it is a lot more likely that you can be within budget having seen the increase in Barnett consequentials that are coming through, entirely taking Stephen’s point that this will partly be swallowed up by the same pressures that have required the UK Government to increase spending at the UK level. It is too early to say yet whether there will be ongoing pressures at that stage. Clearly, you are further away, so there is more chance to take decisions that can have an impact at that stage, but if you look at the last few years, there have been ongoing pressures and it has always been a challenge to get those numbers to match up to the available funding.

I will ask one last question, which is slightly more esoteric. Is there a chance that the Executive is being rewarded by the UK Treasury for what some might describe as fiscal failure?

Moral hazard?

That was my follow-up question; I actually have that written down. Is there a moral hazard, here?

That may well be a perception of the situation. From the Northern Ireland context—maybe this will be reflected by political parties across the spectrum—there is an argument that Northern Ireland has not been funded in line with its relative need. That is the crux of this debate around the level of the fiscal floor—whether it should have been in place earlier and whether it is indeed the right figure currently. There are probably two different perceptions of the point from different places.

I can tell that you are a former MP. Sir Robert?

Obviously, there is art and science in the 124% estimate, but you can take that as a reasonable basis. The Treasury has for decades accepted the fact that Northern Ireland needs to spend more on public services per head of population than is spent in England, and that the funding system should deliver that. It is very clear about that; it would make the same arguments in the other devolved Administrations as well. Funding per head was higher than 124% some years back. We had a period in which it was falling very sharply towards 124% and essentially going through it. In a sense, one of the things that the Executive were having to deal with—again, pass the parcel was operating—was that squeeze in relative terms as you moved from what looked like a comfortable funding position, but probably did not feel like it at the time, to one that looked much closer to a reasonable estimate of need and was then going under that. The Treasury was willing to accept the 124% estimate as a basis for the interim package, and doubtless people will want to come back to that number from both directions as time goes by. When you look at the way in which the Treasury has dealt with the overspends and has been thinking about the fiscal framework, you see that it is obviously trying to balance the fact that there is a genuine need to provide adequate funding for Northern Ireland and the fact that it comes predominantly from the block grant—so there is a responsibility on the Treasury to ensure that the system is working in that way—with, on the other hand, an entirely understandable view in the Treasury that you need to ensure that people work with the budgets that they have to work with. The Treasury wields the stick in that argument just as much around the corridors here as in its relationships with the devolved Administrations. There are more complications in how you have to do that—there are fewer flexibilities around that than some Departments would have—so the Treasury is always trying to balance the fact that you have to provide a basis for sustainable public services and the fact that you have to try to encourage all the devolved Administrations and every Department very carefully about the sort of transformation work that you could do. Are you spending your money efficiently? Are you taking the scope to raise revenue where it is appropriate and within the responsibility of a particular Department or organisation? The Treasury is wrestling with that dilemma everywhere and all the time.

That probably leads us nicely on. Sir Robert, you talked about the Treasury recognising that there was a need for additional funding in Northern Ireland, as to other parts of the UK—certainly when we are talking about the fiscal floor. Why does Northern Ireland need that additional level of funding?

There is a variety of reasons. The most comprehensive exercise looking at this, on which we based our 124% estimate, actually spanned the different devolved Administrations. Gerry Holtham did it when there was a discussion about a fiscal framework in Wales some years ago. You are looking at issues such as the age structure of the population, the fact that Northern Ireland has a relatively rural population compared with England, the proportion of people on benefits, the proportion of people from ethnic minorities and so on. Gerry Holtham used that exercise to come up with estimates of relative need for spending per head across the different devolved Administrations. In addition, with Northern Ireland there is the specific issue of the relative need for spending on security, policing and justice; there are obviously special security and political factors playing into that that make it harder to just come up with some sort of metric that you can apply across all the regions of the UK to come up with a number there. One of the debates around whether 124% is the appropriate number is: on what basis should you try to calculate the relative need for spending on policing and justice? Some people say that it should be higher, and some people would say that they are content with that. Agriculture is another area that was not in the original Holtham analysis, but the sparsity of the population, age structure, benefit dependency, policing and justice and those sorts of things have always been accepted as part of that calculation.

There are two further things to say around the fiscal floor argument. There is this debate about the level and whether it should be 124% or higher. That is perhaps the crux where there has been a lot of focus. It is fair to say that the actual impact in terms of resources of even a shift from 124% or higher, if that can be achieved, will be fairly minimal in the grand scheme of things. We are talking about perhaps an additional couple of hundred million pounds. It is also worth noting that the fiscal floor, at present, applies to Barnett consequentials. It remains the official position of the Northern Ireland Executive—indeed, many people and parties argued for this at the time—that they should both be backdated to the start of the previous spending period—the multi-year budget for the UK in the early part of this decade—and also baselined. Sir Robert can put me right on this if I get it wrong, but, in practice, with the interim fiscal framework, both of those angles are off the table; essentially, we are simply talking about that discussion about 124% versus something higher. And that has to be properly evidenced if there is going to be a change in that particular regard, and I am not sure that we are seeing a lot of evidence coming through at this stage. Given the timing of the next spending review happening across the UK, that piece of work probably needs to be concluded fairly sharpish over the next number of months. That is not going to be an elongated process so there is a lot of work to be done in a short period of time to build that evidence base, and I am not sure that we are at that stage of having compiled it just yet.

It seems absolutely right that moving from 124% to 127%, for example, would not make a big financial difference, certainly in the near term. It would build up over time, but it would be a relatively small amount. That is because the 124% is applying not to the calculation of the total block grant; it is applying to any additions to it—or, in principle, subtractions from it—as the UK Government changes spending in the UK. An alternative model would be to say, “Let’s forget about the Barnett formula altogether and simply set the Northern Ireland block grant at 124%—or 120-something per cent—of spending in England per head,” and therefore move it on to judging need for the block grant as a whole, rather than as an addition. That would be more consequential more quickly. That might be one way of trying to deal with how you can cope with this gap without providing dollops, because just increasing that 124% will not resolve that 2026-27 cliff edge. However, moving to a directly needs-based funding model in Northern Ireland alone would not be straightforward because you would then be looking at Wales and Scotland. The Scottish Government, I think, would be particularly nervous at the possibility that you might move in that direction—towards a directly needs-based view—given the funding there historically. As ever, moving from a funding position that in part reflects historical accident to something that is coherently designed is never a straightforward exercise.

We know!

We are at that point in the proceedings where the excellence of your answers has stolen some of the questions. We were going to talk at this point about actual levels of need in Northern Ireland, but I think you—particularly Stephen and Robert—have actually covered that really neatly. I will therefore steal Gavin’s question No. 10, which I think actually comes back to one of the points that you were just making, Stephen. You made the very powerful point that just moving to 127%, let’s say, would not make a material difference, and Robert echoed that. Robert, you also mentioned the nervousness from other parts of the UK if we fundamentally transformed the model. Given that we have the model that we currently have, the interim fiscal framework states that there will be a “consideration of a review” at some point, if there are enough sources that can demonstrate that the need might be different to 124%. Are you aware of those kinds of sources? What would those sources be? What kind of evidence would you draw upon—or would be drawn upon—in order to make that determination of increased need? What evidence would be required to be brought together to demonstrate a greater need than the 124%?

I think that it was important and necessary for that mention of flexibility to be in the interim fiscal framework, to get agreement at the Executive level for that to go through. Whether the Treasury, in its heart of hearts, thinks that there is a possibility of there being a large volume of independent evidence suggesting that that number should be different is possibly debatable. If you go back to when the Department of Finance gave evidence at the Stormont Finance Committee, their focus was around the policing and justice issue, because it is essentially a category of spending with issues unique to Northern Ireland, rather than trying to unpick or recalculate all the Holtham work, where there are different judgments you could take that would push that up but there are also judgments you could take that would push that down. On the policing and justice issue, essentially you come back to debates around what is the appropriate period in the past to look at in an appropriate way, if you cannot measure need directly. Some people have tried, around police numbers for example, in the Northern Ireland context. You look at the levels of past spending and try to infer it from that. Do you look at the last period in which the UK Government were setting the budget, as that is their revealed indication of how much ought to be spent there? It sounded very much that if there was any sort of focus, it would be around that item. That is not without risk. I have to say that if you were trying to run a big public campaign with the Treasury, saying that you needed additional money on the basis that Northern Ireland is expensive to secure and police, whatever the rights or wrongs of that, it is also sending signals to people that may have some unintended consequences in terms of attractiveness to investment, etc. It will be interesting to see whether they pursue that line, but certainly the way in which the Department of Finance was describing it, that seemed to be the focus of where you would look for different evidence. On the calculation stuff, as I say, I suspect that the Treasury could find some arguments to say that it should be lower, to match any other argument that came along to say it would be higher—but policing and justice is a more unique issue.

Stephen, do you want to come in on that?

Robert has largely set it out. To answer your first question—what efforts are happening at present?—anecdotally I know that the Department of Finance in Northern Ireland is seeking people to come forward; I am not sure that there has been a huge number of people who have been able to produce that robust evidence base to date. Again, we are probably looking at a fairly short timetable in terms of doing this piece of work as well, given the timing of the wider spending review for the UK, which is coming along. Even with that, with the scale of the shift from 124%, even if we managed to achieve 127%, it is not going to be the game changer, in light of everything else that we have talked about previously.

Moving the numbers may not be easy in itself; it also may be opening up an undesirable can of worms. One of the other omissions from the original Holtham calculations that I think you mentioned was the absence of agriculture. Is that something worthy of pursuit? Does Northern Ireland agriculture require additional support relative to, for example, the rest of the UK? Could that be a productive way forward?

This is inevitably going to complicate the calculation, both of how high Northern Ireland’s spending is relative to UK Government spending and then, possibly equivalently, the discussion of need, because in the Budget the Treasury removed the ringfence around agricultural support funds. As you will recall, there was support coming from the EU and when we left the EU the Treasury said essentially that it would guarantee to pay the same amount of money—there is a debate as to whether it did or not—through to the end of the Parliament. We then had the end of the Parliament. I think that around £300 million is essentially going to be in the baseline from 2025-26 onwards. Taking that on its own, you have increased the Barnettable funding and that would push up the premium relative to England. Equivalently, you could say, “Well, you shouldn’t do that without at the same time adjusting your estimate of need equivalently, so you have got it on both sides of the balance sheet.” I suspect that there is quite a lot of techy conversation going on between the Treasury and the Department of Finance as to exactly how that happens. One thing we have been very keen on is actually seeing some backdated estimates of what the Treasury believes the premium to have been in the past and to be at present. They have put out estimates of the premium alongside the Budget—which, as I say, is a bit above 124% with the package, and a bit below it without it—but I suspect that in the final fiscal framework, all the numbers will need a bit of tweaking to reflect the fact that you have now had this ringfenced agricultural support going into the baseline. Someone may correct me if I am wrong, but I think that there is a smaller sum of money on cyber-security, which was earmarked and now is not. So the balance between the overall pot versus the little additions to the pot may have changed slightly at the margin, and that will mean tweaking lots of calculations.

Reference was made in some earlier answers and conversations to the public sector transformation board, which of itself is of course to be welcomed. Transforming public services without just rattling the begging bowl—I do not use that term in a pejorative sense—is often not for the squeamish, and it requires political stability, agreement about its necessity, and agreement about what is in scope and what is out of scope. Should we have any concerns about the ability of the transformation board to deliver?

The amount of money that is at stake here, in terms of the board having to make decisions, is relatively small: around £47 million a year for five years. Stephen made the point in his recent report that all Governments, including the Northern Ireland Executive, should be thinking much more holistically about transformation and doing things better and more efficiently—well beyond what you could cover with some projects that add up to £47 million. A decision that the board will have to take in the advice that it gives to the Department of Finance is whether you spread even that small £47 million thinly over a large number of things, or confine it to maybe two or three that are likely to be more impactful. That will be one important decision. My understanding—colleagues will correct me if I am wrong—is that there have been, not entirely surprisingly, bids for much more than the available sum of money—about three times that sum. It remains to be seen, therefore, which of these will be favoured, which look sensible, which look sensible but unfundable. If you had things that were sensible but could not be done with the £47 million, it would obviously be desirable to encourage those to be done anyway. The board itself is relatively small. There is an interesting question about what the make-up of that board is over the longer term. Do you want it to fulfil a longer-term function, linked or not linked to funding? Who are the right people to be on it? Should it have a more independent membership than it has at the moment? It is at a relatively small scale at this stage. We haven’t seen its recommendations, and we don’t know what the long-term vision for its role is. But it is a good thing to have as a start.

Can I ask Professor Farry—I suppose we are getting the band back together, Stephen.

Yes, indeed.

I have a terrible sense of déjà vu. The question I wanted to ask you is this. Witnesses have referenced, and we all readily understand, the historical challenges of delivering public services across Northern Ireland. Ms Carville has referenced the by-product of Stormont not sitting, etc., in terms of driving forward change. The backlog for the impetus for change is greater than it would be in other parts of the UK. I am not saying that that will be welcomed, but is it readily understood? In the trade-off between maintaining the functioning of Stormont per se and some of the very pressing, sometimes dated public sector reform challenges, where do you see the pinch point, and which side of the coin comes up top?

It is relatively understood by professional public servants that things need to be done differently. I think the difficulty is that people are captive of the current crisis that they are in and they are constantly firefighting, so there is no space and time to do more creative thinking about transformation and how things could be done differently and better. They are essentially tasked with keeping the lights on. Often, some of the more transformative issues will require a longer lead-in time to show the benefits of doing things differently. In theory, transformation will provide more efficiency in the use of public money but, perhaps more importantly, better outcomes in health, education and so on across the board. It does need to be done—essentially moving from a situation of perpetual crisis, financially, to a time where there can be proper planning. I suppose you could argue that there is no better time than a crisis to do things differently. I think it is fair to say that the sums earmarked for transformation are relatively small. Sir Robert talked about the bids being almost three times what was available. That could mean one of two things. It either means that there is a huge hunger in the system for transformation projects or, equally, it could mean—which often happens with these earmarked funds—that you see Departments trying to shift current inescapable pressures that have not otherwise been addressed through the budget into this fund. It may well be a mixture of both of those, but we certainly need to see more creative thinking. Of the 29 projects shortlisted by the board, I think 11 are being taken forward. Eighteen of that 29 are still alive, and they are all digital, interestingly. The majority of the 29 were of a digital nature. Those are being considered collectively as part of a technology landscape review happening under the Department of Finance. That is a bit more context about what is going through the transformation board. The final thing I will say on transformation is that I think the Executive needs to find an opportunity to argue for more resource for transformation. If there is to be a second round of negotiations with the Treasury—in terms of how to open up additional funds to keep the lights on—then it may well be that offering to do more transformation and being held to it is the opportunity through which this can be achieved.

Would you like to see a more bargaining mindset from HMT, which effectively says, “We understand the issues, pressures, history and the need for additional per capita expenditure, but there has to be a quid pro quo”? Perhaps for every pound saved you get whatever it may be—I will not go into the semantics of the numbers. Do you think that would help drive the understanding of necessity, and that this is not an issue that can be dodged?

There is a logic in upping the transformation narrative and the funding structure around that. There may well be a trade-off in getting additional resource earmarked for transformation. Part of the pushback that comes from the Northern Ireland political system is that there are some people challenging why the NIO are even involved in this process. That has become a source of discontent but, from my own perspective, I see the logic in it. This has been part of a financial package coming from the Treasury and it is an obvious desire to ensure that they are getting results in that respect. None the less, it has become contentious. Just for clarity, it is Julie Harrison, the permanent secretary at the NIO, who sits on that transformation board.

Ms Carville, your observations?

To pick up on both of your points to some degree, I think it is too early to cite any concerns. That is from my knowledge of the transformation fund; it is not something that I have audited. I have indicated to the head of the civil service that I will audit it in due course. The areas that the proposals are being assessed against are very welcome. They are focused on financial sustainability, change, and the early prevention piece, and they are aligned to the programme for government. The head of the civil service has given me a briefing on it, and at the core of it all they are seeking innovation. To pick up on your second point, it is not to go unnoticed that through that period of single-year budgets and lack of governance, a risk aversion has naturally crept in among Northern Ireland civil servants. Innovation and risk aversion do not sit well together. We published a good practice guide two years ago on innovation and risk management because there is a real need for innovation, especially when we are thinking about transformation. Innovation absolutely does bring risk but there needs to be a lack of risk aversion and well-managed risk-taking to drive forward innovation. That will be a challenge on delivery but there is a real willingness and real leadership from the top to try to achieve that.

What else could the UK Government do to help drive that forward by deploying their good offices, experience and expertise? We have often used the phrase “devolve and forget”—one devolves a competence and therefore presumes that it is manifest within the devolved area. One of the downsides of devolution is that the devolved areas can become very inward-looking and lack confidence in reaching out to ask Cardiff, Edinburgh or London—take your permutations thereof. In order to help fill the lacuna that has been created because there has not been any transformation due to political instability, what more could the UK Government do to help fill that skills gap—that appetite gap? Do you have any observations on the appetite of the Executive and Stormont in a wider sense to reach out to other devolveds within the UK to say, “How did you do it?” or, “What are you doing in this space? Can we pick your brains? Can we second?” and so on?

Certainly in my work, when we look at whatever subject matter we look at, we always try to benchmark and look to other jurisdictions—“Where is doing the best work?”—and learn from that. Typically, they are our nearest neighbours—England, Scotland, Wales and the Republic of Ireland—but we look further afield as well. We often highlight in our publications someone that is doing a particular area well. I am working very closely with the Public Accounts Committee. It has three inquiries under its belt and two in transit. They are doing the same thing: they are looking to other jurisdictions. To take your point, I can only speak for that Committee, but there is an appetite there to learn from who is doing it well. They have been commissioning their own research papers in certain subject areas and looking to England and Scotland. We did a report a couple of years ago on capacity and capability in the Northern Ireland civil service. The Public Accounts Committee predecessor took that report and made a direct recommendation to try to build a model based on the UK Cabinet Office model. There is an evidentially based keenness to look at other jurisdictions, learn from them and work collaboratively together where it is in the best interests of the people of Northern Ireland.

Thank you, Chair. It is lovely to be back.

It is lovely to have you.

This is at the crux of what we are trying to get at. Transformation is going to be key in terms of Northern Ireland public finance. One of my great bugbears is procurement. I know that the Public Accounts Committee and the Northern Ireland Assembly considered the Northern Ireland Audit Office’s 2023 report on Northern Ireland public procurement. We know that public sector bodies are responsible for the awarding of contracts per annum worth £2 billion to £4 billion. That is a huge amount of money, and a significant amount of money within the block. I was shocked to learn that the Committee came to the conclusion that there is no specific public procurement policy in Northern Ireland that helps, in their words, to meet Northern Ireland public procurement objectives. That does not sit well with me at all. I am not sure how we expect Departments in Northern Ireland to go about the job of transformation if we cannot even get this most basic premise right. It is almost as if we are penny wise and pound foolish. I am not asking you to comment on that because that is a political statement; that is my job. But the fact that we have a system of government that enables not only a system of constant collapse—to pick up on another colleague’s point, although they did not use the phrase “bad behaviour”, does that reward bad behaviour? In my opinion, it absolutely does. These globs of money, as we have talked about throughout the morning, are not specific. They are not overarching in nature or long term, and therefore, ultimately, we are chasing our tail, and it is the people in Northern Ireland that are losing out. We are not seeing that more clearly anywhere at the minute than our hospitals across the north. Are there any concerns around public procurement in Northern Ireland as it stands at the minute? If so, how does that relate to the overall task of transformation?

I will start. As you mentioned, we published a report on procurement. Every organisation is procuring; it is fundamental and a lot of money is spent in this area. When we came in to scope out where our work could make the most impact, there was an absence at that high strategic level, so it ended up being a very strategic report because the starting point—where I usually go to look for things—really was not there. I was quite surprised by that as well. You will see that some of the recommendations in our report are about getting the strategic picture right, and obviously seeing that the mechanisms and processes will flow underneath it. There is a lot of good being done in procurement as well, and we tried to bring that out in our report. But large-scale repeated procurement failures have led to a dissatisfaction in the system as well, which has played its part. When the Public Accounts Committee held its inquiry on it, although it heard evidence from witnesses that the structures were sound, it said in its report that it remained unconvinced that the structures were right. It has called for some very timebound responses to that. The members of that Committee displayed real unease coming from constituents about an overcentralisation of process in some areas as well. The Committee asked for some quite fundamental reviews in that area, because it is an area where we can potentially make a lot of impact. Forgive me if I am telling you something that you already know, but the process following the Public Accounts Committee inquiry is that the Department is required to respond officially to the recommendations. That is due very soon—probably in the next month. The Department of Finance will be the lead Department, but it is a cross-cutting area. We have nine CoPEs in place in Northern Ireland, and one of the things that our report drew out is that they are not all working collectively. The procurement policy only applies to central Government, for example—it is not required by our local government partners. There is a disparate system at the minute, and the Public Accounts Committee were trying to make recommendations to drive forward positive change in that way. The Committee will then follow up on those recommendations once it gets the response back.

I have to run to a meeting, but it was nice to see you and thank you for your answers.

As you probably saw, I was scribbling away and crossing out every follow-up question I had. Thank you—it has been interesting, and your answers have been very fulsome. We have talked a lot about cliff edges and the hope that multi-year budgets now will give more certainty and ability to plan long term, which is excellent. All of us from local government greatly appreciate that, so I can only imagine what it has been like for the Executive in Northern Ireland. The Executive have such minimal fundraising powers, and you have touched on the political ramifications of such decision making, but at some stage, if you want to keep some of the super-parity measures that you have—I would defend many that are in place now—how is that going to balance up? Is it inevitable that the Executive are going to have to start making some tough decisions on raising funds?

I will kick off. Obviously, there is a lot of pressure building. Clearly, the view of the Treasury is that Northern Ireland should be doing more on revenue raising. I think there is a tacit acknowledgment across most political parties and the Executive that they need to be inching into that territory. The counterpoint to that, which is often raised, is that people will push back and say that in the context of pressures on households in the cost of living crisis, imposing some of these measures will make life very difficult for a lot of households, so do not do it at this particular point in time. Lisa Wilson was due to be with us at one stage. If she was here, she would say that if we factor in the relative need, the scale of that super-parity may well be challenged to a certain extent in practice. In practice, yes, that gap will have to be closed to a certain extent because it is one of the levers the Executive has for the sustainability of budgets going forward, and they will have to look at some of those, although it is notable that they have officially ruled out some of the measures at this stage in some statements by Ministers, so the field for those has potentially been narrowed. I suppose the wider point you make is in terms of incentivising the Executive to do things differently. The Executive is very dependent on the block grant—almost 95% of their resource comes from that, so revenue raising is a very small element in that regard. There is an issue too—especially with some of the taxes being raised on a wider UK level—that even if we saw a massive improvement in the economy, the Executive would not necessarily see the benefits from that. We do not want to end up in a situation where we see a real increase in growth and economic output in Northern Ireland but that does not feed through to the level of the block grant. That dissymmetry could emerge and lead to the Executive not necessarily investing in the economy—it may make it more of a public service manager trying to manage things. That is perhaps a wider conversation that needs to be opened up around the economic levers available to Northern Ireland.

From my perspective, I do not get involved in the revenue-raising debate—that is outside of my remit. One of the roles that our office plays is, if you like, the stereotypical accountant. There are always two ways to look at balancing the books: there is raising more money and there is cutting costs, and certainly the role of our office is to keep reminding people, “Are you doing things as efficiently as possible? Can you be doing more to deliver services efficiently?” Going back to some of my comments at the start, Departments have not been able to think because they have been so busy firefighting; they have had difficulty in recent years. The transformation funding is one lever and one opportunity, but certainly through our work we are constantly asking the question: can that service be delivered more efficiently? We should not forget about that side of things.

I have a couple of observations, one of which is, as you say, on super-parity. When you make a choice to be more generous in some areas of policy, then that is creating costs that are competing against other priorities, but it is a perfectly legitimate thing to want to choose, within the overall funding pot you have available, where you want to devote the relative resources. On revenue raising, clearly one possibility is that you have greater devolution of tax-raising powers along the lines of Scotland and Wales. That gives you greater opportunity to choose to raise more money and to use the tax system to try to influence people’s behaviour in different ways, or to be more or less redistributive. That is not without risk. You have seen a different experience across Scotland and Wales where, because of the way in which the block grant is adjusted, Scotland has had to raise taxes to stand still to a degree that has not been faced in Wales in the same way. So you are taking a bit of a gamble on the robustness of your revenue and whether you might need to start raising rates just to be where you are to begin with. In terms of the pressures and the challenges on households, it might be worth focusing briefly on water, where you have a regulatory process in which you have a Utility Regulator, the Department for Infrastructure and NI Water all together. Ultimately, the Utility Regulator makes a decision, but it has to be a collective discussion because it has to be affordable within the Executive’s budget. The last price control—the period over which there is an agreement on what NI Water can spend, what it can charge and so on—was based on the idea that you would keep charges constant in real terms. That means constant in the sense of non-domestic water consumers paying a charge and domestic consumers not paying a charge. Instead, the Department for Infrastructure essentially provides a subsidy to NI Water to compensate for households not paying the charge. There has been for some time big debate about whether you need to have more investment in the water area. There are issues around performance of the company and the delivery to existing customers, but there is also a broader debate about whether you need more investment in infrastructure to be able to support wider residential and commercial property development, which would be good for economic growth. Interestingly, Dorinnia’s colleagues produced a report which recognised from some of the work the Utility Regulator had done that the performance of Northern Ireland Water across different metrics has improved significantly. Its operational efficiency relative to the best companies in England and Wales has improved over time. You might say that on performance grounds, leaving aside the development constraints, maybe you do not need to shove an enormous amount more money in here in terms of relative performance. But at the end of last year, Ofwat said that the performance of the water companies in England and Wales was not good enough and it has basically sanctioned them to increase charges by 20% to 50% in real terms over the next five years, presumably on the basis that that will fund investment that can improve both sewerage and water provision performance. What do the Executive think about what Northern Ireland Water can do in response to that? They are not, I would imagine, going to be terribly keen on seeing that sort of increase in non-domestic bills, and it would be very difficult for DfI to find the money for a subsidy that would cover what would be a really big increase in domestic charging as well. You can point to a particular area where, essentially, through a different model—these are private and, in the case of Welsh Water, mutual companies, but they are charging their consumers more to put more money in. In Northern Ireland, you have a publicly owned water company that gets 20% of its money from non-domestic charges and 70% of it from a subsidy that comes out of the Executive’s pot. It is another bit of the super-parity. On the face of it, over the next five years, it looks harder for NI Water to be able to match the sort of increase in investment that Ofwat clearly thinks is necessary in England and Wales. That is just a micro-example of some of those challenges.

We have touched on it, but once more for the tape, what progress has the Joint Exchequer Committee made on the final fiscal framework, and what should it contain?

I do not think we have a timescale for this. There are various elements to it, one of which is nailing down how the 124% mechanism will work. That might well be tied down to issues like how you define the premium, how you adjust this for the fact that you have agriculture moving into the baseline, and how you deal with the cliff edge. In terms of its impact on the funding for public services in Northern Ireland, those are the key elements. Clearly, within that would be the possibility of revisiting the devolution of tax and spending powers. Our near-namesake, the NI Fiscal Commission, under Paul Johnson made some recommendations in that space, but as I say, that would present both opportunity and risk. I do not see a great appetite to go charging down that particular pathway. I suspect much of the focus would be on what you get out of the medium-term financial position, but there is also the long-term fate of the transformation board and issues like that. I have not heard a date by which—

Do you get a sense that there is much going on? Again, there is a lot of chat.

As Stephen has said, you ideally need to get something in place by the time the next spending review is reaching conclusions and the block grant settlement for 2026-27 onward.

We are facing a fairly tight timescale in that particular regard, so these discussions will need to be bottomed out over the next number of months. In so far as people have been seeking that independent advice around the 124%, there has been communicated a sense of urgency around this needing to be done over a fairly quick timeframe. I think the Executive did well to get the interim fiscal framework in place quite speedily after restoration. That was one of the very positive outcomes, but more work remains to be done. Having this structure in place is obviously beneficial as a more formal means of communication around these issues. Of course, there are always channels that happen prior to that, but it creates a structured agenda over issues to be addressed. I suppose the issue is to what extent we can widen this out when we talk about transformation in a longer-term timeframe and on a greater scale.

Thank you. I am just going to end with a few questions on the impact of the autumn Budget. If you have already spoken about this, you can keep your responses brief. In your opinion, what will be the impact on public service delivery of the autumn Budget’s approximately £19 billion allocation to Northern Ireland in 2025-26?

On the surface, the £19 billion figure is very impressive and probably exceeded the expectations that people had as to where that was going to land. There is a sense that this will provide greater headroom to manage the firefighting pressures that Northern Ireland is on. I do not think it is big enough to get us out of this trap of us constantly being in firefighting mode, so it may not be a game changer in that regard. We should bear in mind that the bulk of Barnett consequentials, in year, were not sufficient even to pay off the overspend, and then you factor in other aspects of the Budget, not least the employers’ national insurance requirement, public sector pay and other inescapable pressures. In a sense, it is not going to balance the books for Northern Ireland.

Does it help begin the process of public service reform?

It may create a little bit more breathing space but I do not think it is big enough to have that change. We need to move from essentially a burning platform to try to do this, and I am not sure it is at a level to get us away from that particular context. I go to the point I made at the very start: in England and elsewhere the effect of that additional UK-wide Budget, with the big increase in spending, will in due course be seen in improved outcomes for public services. That may not necessarily be the case in Northern Ireland due to the wider pressures that are being faced, and that may end up in a situation where the gap in performance measures between Northern Ireland and the rest of the UK widens in the short to medium term.

Dorinnia, have you made any assessment of the Budget?

No. From my perspective, I almost have to reserve judgment until I see how Departments then perform against their allocations in terms of the block grant. The one thing I would note at this point is that, in the context of the pressures that are being faced and in the context of the agreements that have been made with Treasury, I am not hearing a sense from Departments—it is not euphoric, let’s say. There are still pressures ongoing and I would still anticipate seeing the outworkings of those pressures throughout our work, certainly in the short to medium term.

The headline impact is that there is £640 million more for 2024-25 and £1.5 billion more in Barnett consequentials for 2025-26. Of the 2024-25 figure, the vast bulk—about 85%—of that, not surprisingly, has gone to Health and Education. As Stephen said, it has basically helped us whittle down the prospective overspend from more than £800 million to less than £150 million, with pay obviously being a key part of the pressure that is being faced in the near term. The additional £1.5 billion for 2025-26—if we look at the resource, which is the day-to-day spending—is a 1.3% real increase, so better than flat relative to inflation, but clearly lots of pressures and by no means straightforward. As I mentioned before, on the resource side, Infrastructure and Justice have probably seen the biggest increases relative to what they had been planning to get in 2024-25. They are relative winners on the resource side. On the capital side, it is Communities and Education. The jump from 2024-25 for Communities is for social housing. For Education, I think it is the school campus that is seeing the additional money. There are substantive additions to resources there, but also the Executive has taken full advantage of the limited borrowing powers that they have on the capital side, which is beneficial. The point to come back to, though, is that all the narrative at the UK Budget level is, “This was a big increase in spending, partly paid for by tax and partly by borrowing”, but the message to Whitehall Departments is certainly, “Don’t think there are further big jumps coming in the next spending review, over the coming years”; it is more, “We’ve seen a step change here, but you should be thinking about living with that.” We will wait to see what comes with the spending review and further statement in the spring. That increase is clearly welcome and bigger than the Executive expected, but it is not starting a trajectory of much bigger real increases stretching as far as the eye can see.

Okay. If you can answer my last question, please do. I will start with you, Stephen. Is the Northern Ireland Office itself receiving enough funding to allow it to support the Northern Ireland Executive?

Oh, um—probably more or less okay, I think. It is important to recognise that the NIO is funded at a greater level that the Scotland or Wales Offices would be, in comparative terms. Equally, the NIO is probably dealing with a broader range of challenges than its equivalents will be. A lot of the legacy issues eat up a lot of the time of civil service and Ministers. In essence, there are three issues in the NIO narrative at this stage, which I am sure the Committee is familiar with: legacy, issues around the Windsor framework implementation, and public services. Those are the three big ticket issues on the agenda for the Secretary of State.

I am afraid I cannot offer any comment. The NIO sits under the remit of the National Audit Office, so it is not something I am familiar with—apologies, Chair.

No, that’s fine. Robert?

I am sure that Julie Harrison would wish me to say that she could do a lot more with a lot more money. No, I have no particular insight into whether the NIO is adequately funded. Clearly, one of the differences from the other territorial offices is that, periodically, the NIO has to step in for the Executive when the institutions are not functioning. That is not an issue that the others have to confront. It obviously complicates the fact that the NIO needs to be ready to do that if it has to, in a way that the others do not.

I thank you all for your time today.