Third Report - The funding and delivery of public services in Northern Ireland

We are concerned about staff recruitment and retention in the health service, with thousands of empty posts and a reliance on costly agency staff. The equivalent of 26.3% of the Northern Ireland population are on waiting lists, with some going on to develop further health complications while they wait. While the Government’s announcement of £584 million towards the settling of pay claims for 2023/24 across the public sector - including in health - is welcome, questions remain as to the ability of the Northern Ireland Executive to fund future years’ settlements beyond this funding. We therefore invite both the Government and Northern Ireland Executive in response to this report to set out their assessment of this future funding. We also recommend the introduction of a statutory duty on the Department of Health to publish an assessment of its health and social care workforce projections.

After years of under-investment, the education sector has been struggling to fulfil its statutory duties. Spending per pupil has been consistently lower in Northern Ireland than in England. We are particularly concerned about the future of provision for children and young people with Special Educational Needs (SEN), with the number of pupils with SEN growing by 60% over the last ten years and this trend only likely to continue. SEN provision makes up a significant amount of EA spending. We recommend, as did our predecessor committee in 2019, that the Northern Ireland Executive take proper account of the increasing numbers of children with SEN in Northern Ireland when allocating budgetary funding to the Department of Education.

Cuts in police officer numbers due to recent budgetary pressures will impact on the PSNI’s visibility and ability to respond to increased demand. Officer numbers have dropped some way below the 7,500 committed to under the New Decade, New Approach agreement in 2020. More complex crimes, threats to staff and the raised threat level all need to be addressed, too. Given the severe funding situation which the PSNI faces, we urge a rethink by the Treasury, Northern Ireland Office and new Northern Ireland Executive of the PSNI’s financial framework. This would ensure that the PSNI has a greater variety of options in dealing with any financial difficulty in future, which is critical given the importance of the Police Service’s role in Northern Ireland’s post-conflict society.

The voluntary, community and social enterprise sector has struggled in the recent funding environment, and this is likely to have piled further pressure onto stretched public services. When making future budgetary decisions the Northern Ireland Executive must take account of the significant contribution that the sector offers and provides often to the most vulnerable.

The delivery and timing of the UK Shared Prosperity Fund (UKSPF) caused considerable distress and uncertainty in the sector, particularly the decision to communicate the outcome of applications on the day European Social Funding ceased. The Government has announced that decisions on the future funding of UKSPF from April 2025 are a matter for the next Spending Review. However, the 36 The funding and delivery of public services in Northern Ireland voluntary, community and social enterprise sector in Northern Ireland requires more immediate clarification to ensure that it can effectively plan for the viability and continuity of the services it offers from April 2025 onwards. Before the end of the first quarter of the 2024/25 financial year, we recommend that the Government publish information regarding the scope of future UKSPF allocations for public bodies and third sector organisations.

Northern Ireland’s public services, especially in the health, education and justice sectors, are in a poor state after years of political instability, lack of funding and of reform. The additional £520 million per year promised by the Government in 2024/25 and 2025/26 will help to address pressures in the immediate term, as well as public sector pay offers for 2023/24. However, the Northern Ireland Fiscal Council has warned of “an abrupt ‘cliff-edge’ drop in funding” from 2026/27. Given this concern, we invite the Government to set out its assessment of the implications for public services of the expected drop in funding from 2026/27 and the rationale for its decision on the two-year stabilisation funding in response to this report. (Paragraph 38) Funding, reform and absent institutions

Single-year budgets and a lack of an agreed Programme for Government have not allowed for long-term thinking and planning for public services and spending in Northern Ireland over recent years. We urge the Executive to commit to returning to multi-year budgetary settlements following the next UK Spending Review as part of its sustainability plan. Even under multi-year budgets, however, Northern Ireland departments are unable to take forward surpluses. We urge the Executive to commit to returning to multi-year budgetary settlements following the next UK Spending Review as part of its sustainability plan. Even under multi-year budgets, however, Northern Ireland departments are unable to take forward surpluses. This matter should be included as part of the upcoming Fiscal Framework discussions between the Government and Northern Ireland Executive.

We are pleased to see reference to the publication and implementation of a fiscal sustainability plan as part of the settlement between the Government and Executive, which will include detail on long-term budget planning. It is noted that there is a strong view that the Government’s conditionality for writing-off Executive ‘debt’ is unacceptable and that these debts exist primarily due to the underfunding of public services. The Government should, in response to this report, clarify how it intends to evaluate and monitor the implementation of this plan given their view of the conditionality of the £559 million departmental overspend write-off.

The transformation agenda is critical to getting Northern Ireland’s finances onto a sustainable footing and cannot be delayed any further. The underfunding of local public services by the Treasury and the lack of an Executive for five out of the last seven years has undermined progress and difficult political decisions which should have been made were avoided even when the institutions were in place, further prolonging reform. This Chapter of our report has highlighted the scale of transformation required for Northern Ireland’s public services, particularly in health and on the implementation of the 2016 Bengoa Report. Transformation should be mainstreamed across all aspects of Government. The Northern Ireland Executive The funding and delivery of public services in Northern Ireland 37 must set out its plans for public service transformation in an agreed Programme for Government and establish the Public Services Transformation Board without delay to unlock additional ring-fenced funding. The Northern Ireland Executive must set out its plans for public service transformation in an agreed Programme for Government and establish the Public Services Transformation Board without delay to unlock additional ring-fenced funding. This plan should include the articulation of a clear understanding of what transformation entails, with aims, objectives, estimated costings and savings, and performance metrics.

Northern Ireland would benefit from being more entrepreneurial in how it bids for funding for public service reform - for example, by linking its bids into wider Government agendas and aims including cross-Departmental working, partnership with the business community and third sector. We recommend that the Treasury work with the Northern Ireland Civil Service and the Northern Ireland Office to provide guidance on how such investment cases can be built.

Many of the structural, resource and funding issues facing Northern Ireland have been a long time in the making, but the lack of ministerial direction and accountability in recent times has not helped the plight of public services in Northern Ireland. Core reforms required across public services have not been taken forward and the absence of the Executive between February 2022 and February 2024 delayed the introduction of new legislation and undermined the effective scrutiny of decision- making. However, by far the greatest threat remains chronic underfunding, below need, of NI public services by the Treasury. This includes the operation of the current fiscal floor proposed by the Government, which by design, fails to provide a recurring uplift to the block grant commensurate to the level NI was funded below need between April 2022 and the present day. (Paragraph 64) The block grant and the Barnett Formula

Decisions by UK Governments to reduce overall UK public spending have a significant impact on the funding Northern Ireland receives through the block grant, which makes up the vast majority of its expenditure. With tighter budgets in England, annual allocations to Northern Ireland under the Barnett formula have been squeezed.

We endorse calls for a review of the fiscal framework for Northern Ireland and welcome the willingness of the Government to open negotiations with the Executive in this regard. However it is deeply regrettable, because of the failure to baseline the new needs-based Barnett factor as if it had been in place at the point public spending in Northern Ireland fell below assessed need–April 2022–that the new formula will operate as a fiscal ceiling, rather than as a floor, slowly lifting Northern Ireland’s funding to a point below which it should never have been permitted to fall in the first place. A review of the exact calculation and assessment of the needs-based factor should be included as part of the terms of reference for the upcoming Fiscal Framework negotiations between the Government and Northern Ireland Executive. (Paragraph 77) 38 The funding and delivery of public services in Northern Ireland Alternative ways of raising revenue in Northern Ireland

We note that there have been calls that any consideration given by the Northern Ireland Executive to revenue raising should only take place once UK Government funding at levels equal to or above assessed need has been restored. The Northern Ireland Executive should take the needs of lower income households into account when considering a range of revenue raising options to protect and improve public services and provide more sustainable public finances.

We welcome the work of the Independent Fiscal Commission for Northern Ireland on further fiscal devolution. The devolution of such powers will not address the difficult situation in which public services currently find themselves but could help strengthen the economy and increase the fiscal accountability of the Executive. Income tax devolution has precedents in Scotland; devolution of the apprenticeship levy could complement the responsibility Stormont has for education and skills; and taking up corporation tax powers would acknowledge Northern Ireland’s unique geographic and economic position within the Union. However, further fiscal devolution comes with potential risk too. We welcome the work of the Independent Fiscal Commission for Northern Ireland on further fiscal devolution. The devolution of such powers will not address the difficult situation in which public services currently find themselves but could help strengthen the economy and increase the fiscal accountability of the Executive. Income tax devolution has precedents in Scotland; devolution of the apprenticeship levy could complement the responsibility Stormont has for education and skills; and taking up corporation tax powers would acknowledge Northern Ireland’s unique geographic and economic position within the Union. However, further fiscal devolution comes with potential risk too. There is a need for a much greater level of stability before we should consider significant additional changes to the fiscal powers in Northern Ireland. We do not believe that income tax should be devolved to Northern Ireland at the moment. Separately, we would question whether the administrative capacity is in place to manage what is an extremely complex and fundamental element of the taxation system. Upcoming Fiscal Framework negotiations between the Government and Northern Ireland Executive should include reference to further fiscal devolution. We recommend these negotiations start in the first half of 2024. (Paragrap