Northern Ireland Affairs Committee
Oral evidence: Northern Ireland Executive finances, HC 412
Wednesday 15 July 2026
Ordered by the House of Commons to be published on 15 July 2026.
Members present: Tonia Antoniazzi (Chair); Chris Bloore; Claire Hanna; Adam Jogee; Mike Kane; Mr Paul Kohler; Katrina Murray; Gavin Robinson; Sir Alec Shelbrooke; David Smith; Robin Swann.
Northern Ireland Assembly Committee for Finance member present: Diane Forsythe MLA.
Questions 1 - 61
Witnesses
I: Sir Robert Chote, Chair, Northern Ireland Fiscal Council; Jonathan McAdams, Chief of Staff, Northern Ireland Fiscal Council; Maureen O’Reilly, Member, Northern Ireland Fiscal Council.
II: Rt Hon Hilary Benn MP, Secretary of State for Northern Ireland; Julie Harrison, Permanent Secretary, Northern Ireland Office.
Examination of witnesses
Witnesses: Sir Robert Chote, Jonathan McAdams and Maureen O’Reilly.
Q1 Chair: Welcome to the Northern Ireland Affairs Select Committee. This is our session on Northern Ireland Executive finances. We are joined by Sir Robert Chote, chair of the Northern Ireland Fiscal Council, Maureen O’Reilly, member of the Northern Ireland Fiscal Council, and Jonathan McAdams. Welcome everybody.
We are also joined today by Diane Forsythe MLA, the deputy chair of the Northern Ireland Assembly Committee for Finance, who will be asking questions of both of the panels that we have this morning. The Committee for Finance has been undertaking valuable scrutiny of the ongoing absence of a Budget in Northern Ireland and we wanted to formally join with it today, as we take evidence from you and the Secretary of State. Thank you, Diane, for joining us.
Sir Robert, without a Budget, Departments are now reliant on limited contingency funding provided through the vote on account and the Northern Ireland Act. What impact will this have on the provision of public services?
Sir Robert Chote: Thank you very much indeed for the invitation. It is a pleasure to be here, as always. Clearly, it is not unprecedented, but it is regrettable that the Executive has not managed to agree a Budget, even at this stage into the financial year. That is not good for accountability or ability to plan, deliver and reform services. Clearly, it is an environment that is not conducive to the best possible fiscal and public service decisions.
The immediate impact is that, under the vote on account at the moment, there is the ability to spend 45% of the amount of resource and cash that was allocated in the Budget Act for the previous year. At the end of July, if there is not an agreed Budget, there is then the ability for the Permanent Secretary at the Department of Finance to agree to higher amounts of spending relative to last year, potentially up to 95%. In previous years in this situation sometimes those limits have been used gradually. You move to 60% first and then further on to that.
The longer the period during which there is no agreed Budget goes on, the more uncertain the environment becomes. You also come up towards buffers, so the statutory limits on the amount of resource and cash that can be deployed. There is an additional wrinkle that, if you get to the point at which it does not look as though a Budget is going to be agreed during the course of the financial year, the Executive or Departments are not able to make use of the income that they generate, so, in the case of the main spending Departments in the Executive, the fees and charges that they would raise. That is an additional potential source of strain.
In extremis, if you go further on through to the end of the financial year without agreement, it comes potentially to the point at which the UK Government would have to legislate for a Budget at the end point. It is clearly desirable, from everybody’s point of view, that it is possible to get to a Budget, not simply one that is a paper agreement but one where the aspirations for service delivery and policy are consistent with the available funding. In an ideal world, we would be doing that over a three-year multi-year Budget. Even getting it to one year seems at the moment quite challenging.
Q2 Chair: You say that the powers might have to come here. A lack of a Budget is going to be unsustainable for Departments. At what point does it become unsustainable?
Sir Robert Chote: It is hard to put a precise point in the legislative timetable. At some stage a judgment has to be reached that there is no realistic prospect of a Budget being agreed. That is the point at which the accruing resources—this availability of being able to use the income—is there.
It comes down to a point, at some stage, of what the UK Government are prepared to say about the circumstances in which they would be willing to legislate for a Budget. That obviously has the potential to concentrate minds.
Q3 Robin Swann: Sir Robert, to clarify that point about the 45%, 60% and 95%, that is of the baseline. That does not include Barnett consequentials or in-year monitoring that goes to Departments. Theoretically, some Departments could reach their financial cliff edge earlier than others. Would that be correct?
Sir Robert Chote: The 45% or 95% numbers are relative to the amount of money that was agreed for last year under the Budget Act. It is not taking into account further movements in resources or cash since then.
Q4 Gavin Robinson: Good morning to you all. Sir Robert, you will recall back in December 2023 there were discussions at Hillsborough Castle. It is becoming a recurring theme. At that stage, the Government agreed to write off £559 million. There was consternation that they did not backdate that to the start of the CSR period, but a recognition that the spending and the need for spending was not being met by the resource available. Last year, the Government had to provide £400 million, recognising the overspend that had been accrued and a requirement for that to be paid back over three years. Do you think it is fair to give the impression that Northern Ireland Ministers have become normalised to overspending?
Sir Robert Chote: There is a degree of normalisation. The use of the Treasury reserve is supposed to be for exceptional, unforeseen, one-off factors. It is getting less exceptional with the passage of time. The Treasury agreed most recently, as you say, to provide £400 million, which was to cover about 90% of what looked like the prospective overspend at that stage.
It has also been, relative to what the Treasury’s statement of funding policy would normally say, relatively generous. That is being spread over a number of years. There was not an accompanying requirement, as there had been on previous occasions for example, for the Executive to raise a given amount of revenue, as was the case in the package that accompanied the restoration last time.
Clearly, the Treasury finds itself in a difficult position. Refusing the money would have serious consequences for near-term management of the public finances in Northern Ireland. Providing those resources without conditionality attached to it arguably creates an environment in which people assume that this is going to happen again.
In the same way that financial investors occasionally engage in what is called the TACO trade, which is that “Trump always chickens out”, the danger is that the parties play a TACO trade where the Treasury always chickens out, or is encouraged to do so. There is this inevitable tension here with the desire not to do anything that would be destabilising and have serious consequences for the citizens of Northern Ireland. On the same hand, if you continue to provide that sort of resource that is supposed to be exceptional but you move in a direction where it looks like it is normalising, that does not set up incentives that encourage nettles to be grasped.
Q5 Gavin Robinson: Using the TACO acronym almost makes it seem trivial, but there are structural deficiencies that Government could productively be engaged in trying to fix. It was clear to us, at least in December 2023, that, when Government were writing off £559 million and then giving money to satisfy a pay award, they did so for one year, and yet pay awards are recurring pressures, unless you deal with the totality of the number of staff involved in administering public services in Northern Ireland. When that was highlighted, you will remember that the Government said, “You can take that £1.125 billion stabilisation fund and use that in years 2 and 3”. Here we are in year 4 and, lo and behold, there is a difficulty. How do you feel the Treasury was able to satisfy its own criteria that the requirement for £400 million in the last financial year was unforeseen?
Sir Robert Chote: It is for the Treasury and the broader UK Government to justify the decisions that they ended up taking. One consequence of providing that profile of support was that it smoothed out, to some degree, the cliff edge in funding that was implied by the way in which the restoration package was put in place, which, as you described, had an element of short-term budget support that came to an end. In a sense, that ended up smoothing that out.
You are right to highlight pay as being a consistent structural challenge here. As we have explained and discussed, I think, with you before, this is partly reflective of the way in which the Barnett formula operates. If the UK Government provide an X% pay increase for public sector workers for whom there are comparable workers and comparable spending in Northern Ireland, because the Barnett formula matches pound for pound per head, not in percentage terms, and Northern Ireland has a relatively large public sector workforce and a relatively large public sector, the Barnett consequentials that arise from the increase in UK Government spending necessary to deliver an X% pay increase do not finance an X% pay increase in Northern Ireland.
That is a matter of arithmetic. One can argue whether it is fair or not. In terms of the Executive having to manage their resources and balance their budget, they therefore face choices about whether to move on pay parity, change the size and structure of the public sector or find money from elsewhere by dealing with other areas of super-parity or revenue raising. The logic of that arithmetic is pretty inescapable. As you imply, it has been an important factor behind the overspending pressures in recent years.
Q6 Gavin Robinson: I agree. Looking at England, 18% of all employees are within the public sector. In Northern Ireland it is 26%. That is only one tension. The other tension is that many of the employees are governed by national pay awards and their negotiating bodies do so on a national basis. The internal tension is that you would retain parity for those where you have to, because of national awards, but potentially lessen parity for others who are not governed by national awards. That creates tensions within the workforce in Northern Ireland.
Finally from me, the £400 million was given as a Treasury reserve in March or February of this year. On the likelihood of it being paid back, you will remember that it was structured in three years for repayment.
Sir Robert Chote: It was £80 million, £160 million, £160 million, yes.
Q7 Gavin Robinson: It was back-ended. Do you see any likelihood, as we sit today, almost four or five months into a financial year with no Budget agreed, of those repayments being made?
Sir Robert Chote: The need to repay that is part of a broader picture in which it looks as though we do not have yet the firm month-by-month forecasts from the Department of Finance based on what it hears from other Departments about the amounts of money that they expect to be spending. Broadly speaking, there is about a £1.5 billion gap between the amounts of money that Departments say that they need this year and the amount of available funding. While £80 million is not a trivial sum of money, it is, in a sense, relatively small compared to that total.
Some of that £1.5 billion is not necessarily recurrent. It may be one-off payments. There is a broader challenge about avoiding an overspend and confronting the Treasury and the Executive with the same sets of choices and trade-offs to make as they had last year, even leaving aside the question of the repayment of the first tranche of what was, in effect, a short-term loan.
Q8 Mike Kane: Sir Robert, can you go through that again? Where are we up to now with financial overspends by the Executive this financial year?
Sir Robert Chote: At this stage, we do not have the concrete information that we will get later in the year, which is when the Department of Finance is going round and getting firm forecasts of spending from Departments. Based on the information that is available and what you hear, a number of Ministers have already said that they do not believe that they can stick within the funding allocations that have been pencilled in in the contingency plans. At the moment they are operating guided by, but not, in a formal sense, constricted by, indicative spending totals for each Department by the Department of Finance. Already Ministers are saying that they are over that. As I say, it looks like something in the £1.5 billion area, but we will get a clearer sense of that as you move further into the year. The Department of Finance is doing that month-by-month forecast process, but it is looking like another challenging year.
Q9 Mike Kane: To clarify, in any organisation where I have been chief exec or that I have managed or chaired, in either the public or the private sector, there is always a budget against or an actual against budget. Do we not know what the first quarter is for the Executive?
Sir Robert Chote: In terms of the reporting as you go through the year in actual spend—Jonathan, you may be able to help on that—normally the best indication you get is what the Department of Finance hears from other Departments about what their projected spend over the year as a whole is likely to be. One challenge, as you would know, from a private sector perspective and from Departments, is that, in many Departments, the flow of spending is not even through the year. You can compare first quarter against first quarter of the previous year. I am not sure that the data for that would give you a more robust view of the prospective overspend than the question of simply asking Departments, albeit they have incentives to say things that will get outcomes they would like to see. Jonathan, is there an outturn through the year?
Jonathan McAdams: Yes, and the first monitoring round takes place in June, so where we are in early July it is probably being worked through at the moment, where the interdepartmental movements are. Usually the first quarter of the year—month 13 in effect—takes up a lot of the Department’s time. Basically, where are the accruals for the first quarter of the year? Where is the cash position versus what should have gone out the door? That is usually what takes up the first chunk of the time and then June monitoring. We should have that actual spend against budget round about now. One technical point is that, on spend against budget, it will be interesting to see what budget they use as the baseline spend, since there is no agreed Budget, but that is by the by.
Q10 Mr Kohler: Thank you for coming. I was going to ask you about what the UK Government’s approach to the overspends does to incentivise them, but you have already answered that. What is the solution? Do the Executive need tough love? Are they too big to fail?
Sir Robert Chote: We have moved into a situation over time where there is a tendency to provide dollops of funding that are then returned to. Sometimes that is linked to particular political agreements or packages. Sometimes it comes in the form of calls on the reserve, which are loans, but those loans are sometimes written off.
I come back to what I said earlier. It is not without cost for the people of Northern Ireland to take a tough approach on that and to say that we are simply going to require any overspend this year all to be paid back next year, which is what the letter of the Treasury’s statement of funding approach would be. If you provide a bail-out on particular terms, other things being equal that is weakening the incentive.
In the past you have had a situation where the Treasury has, or the UK Government have, provided financial support, but with strings attached. That could be around, for example, work around transformation or reform, but also, as in the past, a requirement to raise £113 million of additional revenue. There is a question for the UK Government of what they would do if and when an overspend persists through the course of this year and they are confronted with whether to provide short-term financial support at the end of the year again. Not doing so is not uncomplicated because of the way in which the estimates process operates. Indeed, in a world in which the UK Government are required to legislate for a Budget, if we get right towards the end of the line, they will need to decide what, if any, strings they wish to attach to that.
There have been previous occasions when the UK Government have been more explicitly in charge, because you have not had a functioning Executive, when they could have made the choice to impose difficult decisions around rates and things such as water. They have chosen not to do that on the grounds that they do not feel they have the political or perhaps even legal legitimacy to do that. I would suspect that, if we get to that position, it may well be the sort of thing that a UK Government would wish to think about.
If we are in a situation where we have a new Prime Minister and a new set of Treasury Ministers, I am sure that people will tell them that you only have one chance to make a first impression. If you want to get away from the cycle of the expectation that there will always be a bail-out coming along, you only have one chance to do it.
Q11 Mr Kohler: How do you avoid the criticism that those strings undermine devolution and the argument for more localism from the incoming Prime Minister?
Sir Robert Chote: Other things being equal, by attaching those sorts of strings you are making requirements. Of course, this is in the absence of a Budget in which the Executive have decided how to deal with matching their policy and service delivery aspirations to their available funding. I suspect that the Treasury would say, “This is your choice. If you agree a Budget and sort this out, we do not have to do that or require those strings”. It is above my pay grade to say whether it should do that, but I am sure it will be thinking about it.
Q12 Mr Kohler: On the opportunities, in the past have the strings included looking at the fact that there are lower domestic rates and higher business rate relief? Have those strings been attached in the past?
Sir Robert Chote: The last time the Secretary of State was in charge of the Budget, there was not a decision to take that sort of decision. There has always been a sense, when the strings of budgetary power are not entirely but primarily in the hands of the civil service or the Northern Ireland Office, that this is not an ideal environment to make really big, controversial decisions. You would rather that those were owned domestically. Maybe you argue that, in extremis, if there is no ability to get agreement in Stormont on this, that that is an environment in which you should put that forward. That is a decision for the UK Government to take. It is both a strategic and a tactical one, I suspect.
Mr Kohler: We could explore that later with the Secretary of State.
Q13 Claire Hanna: The Finance Minister himself has since disavowed his Budget, and I know his colleagues have said that it could not have worked for them, but he presented it as transformative a few months ago. You said that it balances on paper, but that that is unlikely to be how it would unfold. Why is that?
Sir Robert Chote: At the time that the Department of Finance put out the draft Budget, it added up on paper in the sense that the sums of money indicatively allocated to Departments were consistent with the amount of money available from the block grant, borrowing, rates revenue and, less visibly, fees and charges. It in a sense then became somewhat unbalanced, because that was before the Treasury agreed to the bail-out. Therefore the draft Budget did not include, coming back to the earlier question, the £80 million that will be provided for this year. In that sense, it had added up.
The Budget itself, rather like the indicative contingency envelopes that the Department of Finance has asked Departments to work with now, we felt was relatively neutral, in the sense that it was essentially rolling forward the allocations from previous years, taking into account things that had been earmarked by the Executive or by the UK Government, one-off factors etc. Neither the Finance Minister’s draft Budget nor the contingency envelopes implied a dramatic shift between Departments and between parties. It was a relatively neutral template against which everybody else can come in.
We are hearing at the moment from a number of Ministers that they do not think that they can live within those indicative allocations. I have heard fewer suggestions as to what should be done with that, given the overall quantum that should be dealt with. The messaging has moved rather on to, “If we had more money, there would be less of a challenge for a number of Departments”, and moving to Wales or Scotland levels, which I am sure we will come on to.
Q14 Claire Hanna: We certainly will. Your report also suggested that there was little public appetite to seize the opportunity of a multi-year Budget for reform and revenue raising. What sort of decisions could the Budget have taken but did not, in your view?
Sir Robert Chote: Maureen may want to come in on this. Across different Departments, there are a whole variety of areas in which people have looked at potential reforms to structure of delivery. You could have a pile of reviews of the health system on the desk and I could probably barely see you over the top of them. There is no shortage of ideas that are around there.
From people I speak to in health, for example, the Permanent Secretary there and colleagues have been doing important thinking and going through it, and some other Departments maybe not quite as much. It is thinking about what service delivery looks like, where there is inefficiency, where there is the scope to focus resources, where there are choices about wanting to be more or less generous in particular areas than, say, the UK Government as a system. Maureen, do you want to say a bit more about what the reform agenda might look like?
Maureen O’Reilly: There is the transformation funding and what it is going to mean. We are still early days in terms of how that might roll out, with education being key, for example, and special educational needs. There is an opportunity now to test how transformative we can be. We have been here before, but we actually have funding in place to do that; that is ringfenced. I am not entirely sure that we have a clearly defined set of impacts for those, but there is something in place that is being actively pursued at the moment, so it will give us an opportunity to see.
Q15 Claire Hanna: I think we heard that the transformation fund was underspent. Is that the case?
Maureen O’Reilly: That is right, yes. It seems to be underspent for the moment. In fairness, they did a lot of work to try to get it off the ground. Arguably, it was quite fast in terms of how the money came in. There is an underspend, but it is in its infancy, so we need to give it time to actually see what it does going forward. It is an opportunity.
Q16 Claire Hanna: Colleagues will get into the Budget process and that system of advances and extra money. Are there ways that you think the UK Government should try to incentivise that political appetite for hard decisions that you talked about? Have you any thoughts about Stormont reform or changes to how strand 1 operates that might help?
Maureen O’Reilly: From the transformation perspective, it is having clearly defined impacts provided on that, alone even, and I am not entirely sure what those are. From that specific perspective, there is an opportunity for Treasury to think, “What do we want out of this in terms of transformation?” I am not sure if that kind of narrative is taking place between the two. There is something there that could be worked on.
Sir Robert Chote: We come back slightly to the earlier discussion. If you have everybody sitting round the table thinking, “If we hold on out here, there will be some more money coming in from London in due course”, that is not a conducive environment to doing some of this. In terms of the way in which Stormont operates, we have a period in which we are running up to a fresh set of elections. Is there a set of decisions that the Executive or the parties could be encouraged to take, under the veil of ignorance before they know which Departments they are going to be in charge of under a new mandate, for example? There might be possibilities there of trying to get agreements before people have particular skin in the game. A realist might say, “How much change would an election likely make to composition, so how much would that drive?” That might be something that you could look at.
Q17 Gavin Robinson: Ms O’Reilly, on the transformation fund, I think you are being kind to the Executive and giving some space for them to work through applications to the fund that would be truly transformative. My big concern about transformation funds is that Departments put in applications for IT or systems refresh, so things that, ordinarily, through capital depreciation, they should be budgeting for anyway. I almost feel like it becomes not transformational but just an additional fund through which they can provide a new capital purchase. It gets dressed up in a transformational way, but the truth is that the BlackBerrys were dying anyway, could not be recharged, had no functional purpose, and they needed to buy new phones, for example. Do you share those concerns?
Maureen O’Reilly: I am not working with the detail of it, but the business cases were put through for it. If they are put through properly, you would know what you wanted the impact to be at the end. It was put through a transformation committee, I think. That should avoid your concept of more of the same. It really all is determined by what you expect the outputs and impacts to be. That, again, is back to a business case that actually looks transformative.
There are certain parts of it that you would have to transform because the spending patterns were unsustainable, special educational needs being one case in point. If you do not do anything, the consequences are really very serious not only financially, but even from a paper perspective. If you get money, you know what you have to do and you know what difference you have to make, that is where you will know that you have made that difference.
Sir Robert Chote: The flipside of the coin is that one should not be thinking about transformation and reform as being confined to the things that come under the envelope of that particular scheme. That should be mainstreamed in what any Department in any jurisdiction would be thinking about in terms of all the potential for transformation in delivery of public services anyway. If they are thinking just about what ticks that particular box, you are in a difficult position. You are in trouble to start with.
Gavin Robinson: Thank you. I think you are provoking our curiosity to follow this a bit further.
Q18 Sir Alec Shelbrooke: I am listening very carefully. “What is the incentive to run a Budget or even decide on a Budget?” has rippled throughout. You keep talking about sending a message. What, in reality, can that message be? Look at the issues that there have been in this Parliament around trying to cut the welfare budget. What in reality do you believe can be done without causing mass civil unrest?
Ultimately, there is that balance. It goes back to whether it is too big to fail. Is it just, “I am afraid the only answer is for you to change the funding formulas from Westminster and give more money”? That plays into, “Why bother trying to run Departments and set your own Budget?” You talk about sending a message from the new Prime Minister. I agree with you that any leader who comes in has about 100 days of power and then it is gone. What would be your message to the new Administration? How do you realistically think that that could be achieved?
Sir Robert Chote: At the level of the Executive, it is confronting the sorts of choices that confront Governments and Administrations, and indeed confront the UK Government at the maximum level. You have to decide what your realistic resources are looking like, what your aspirations are, what your priorities are, where there is scope to stop doing things that you are currently doing that are not particularly effective and where you want to prioritise.
In the Northern Ireland context, the dream has always been to have an agreed, well-thought-out programme for government, with a set of priorities and a degree of focus, and to ensure that the money follows the strategy, so that therefore the Budget is aligned with that. That has not turned out to be a straightforward thing to do or deliver. There are clearly choices to make about what you do and do not do, both on the spending side and on the revenue raising.
You are right to say that, in the Northern Ireland context, the block grant is a very large chunk of what the Executive Departments have to spend. You would need to move the rates revenue by a lot to make a huge percentage difference to that quantum, but none the less it is not trivial. Any Government confronted with this sort of situation are likely to be thinking about what we are spending on and how, what revenue we are raising and how, and where our priorities lie, and trying to think strategically about where that goes. In terms of the things that, quite legitimately, the Executive have decided they wish to provide in terms of super-parity and relative generosity, are those still the things that we want to do? Are there areas where we think that there are potential efficiencies to be delivered?
As for any Government in this sort of situation, to say that there is nothing one can do is a counsel of despair, but you have to recognise the arithmetic. The Executive are in a situation where their Budget is largely externally determined. For the good of the people of Northern Ireland and the quality and quantity of public services that they are getting, you need to be in a situation where you are planning, ideally over multiple years, on the basis of, “What are our policy aspirations, what do we want to deliver and is that consistent with the resources that we have, or are likely to have, available to us?”
Q19 Sir Alec Shelbrooke: That is the answer that would be expected from any Government in this situation, but I want to dig down to this. When you say sending a message, are you talking about the Government saying, “We are not writing off debt. We are not going to give you any money. You have to handle this”? Do you think that that is an impossible task in the way you have just described it? I suppose my question keeps digging down to “What is sending a message?” The Budget keeps getting bailed out, one way or another. How do you create the incentive? What is sending a message?
Sir Robert Chote: A world in which you have the parties able essentially to sit around and say, “Experience suggests to us that, if we continue to overspend, at the end of the day, the Treasury will come along with a chunk of money. It will spread it over a number of years and there will not be many strings attached”, is not an environment in which you are encouraging, at the margin, sensible long-term decision making to take place. That is not to say that there are not other compelling reasons why Governments may feel that that is the most sensible thing to do.
If we are in a situation where we are coming up to potentially another overspend that the Treasury has to decide how to deal with, and even the possibility that it might have to legislate for a Budget, what support it would provide and on what terms, and what encouragement there would be to policy effort, is something that an incoming Administration, if you see what I mean, should give careful thought to. If you are in a world in which they conclude that the incoming Government are basically going to provide some dollops of money at the end of the year if they are overspending again, that just perpetuates that cycle.
Q20 Robin Swann: Thank you, Sir Robert. I recall one specific piece of work that you, the Fiscal Council, did looking at the health budget. In an earlier comment you mentioned that the Department of Health is working round its current budget in year 3, as was. Health is doing something and other Departments not quite so much. Why do you think that that is?
Sir Robert Chote: To one degree, health is by far the largest spender in the resource budget for the Executive. Not entirely surprisingly, a good deal of effort and scrutiny has been placed on that. As colleagues will know better than I, there have been many studies of inefficiency and potential reform within the health system. My sense is that the officials are taking this seriously in terms of coming up with ways to do this.
From Department to Department, some Departments will have more or less scope to think imaginatively about delivering reform. There will be areas where they have greater or lesser flexibility. How much of the resource is expended through arm’s-length bodies rather than something over which there is direct control? Those structures can matter as well. In the case of health, for example, you are dealing with multiple health and social care trusts. With education, it is a single Education Authority. There may be a whole variety of different structural, as well as personnel, factors that would feed into that.
Maureen O’Reilly: I agree. It has been one of the most looked at, and we have had Bengoa. There are a lot of things that have been sitting in reports on the shelf in terms of thinking about the scale and the fact that there are solutions there. They are now being worked through, which is good to see in terms of things such as waiting lists.
Q21 Robin Swann: This is a phrase you used earlier on. All those reports talked about a recurrent Budget and the golden egg of the three-year budget. Sir Robert, in an earlier comment you seemed to indicate that you thought that the Executive, if they agreed a Budget, would not be fit to get to a three-year Budget. That was an inference I picked up from what you said. Do you think that that is a real threat at this moment in time and that we will be lucky to get a one-year Budget, let alone a three-year Budget?
Sir Robert Chote: The golden opportunity for multi-year budgeting, which I think everybody agrees is a desirable situation to get to, because it makes service planning and planning of workforce easier, and you can take more sensible and long-termist decisions in that context, requires the Stormont institutions to be functioning and the Treasury to have agreed a multi-year budget at the UK level. That implies a multi-year settlement for the block grant. That is what we have at the moment, so potentially this should be an opportunity for that to work reasonably well.
The fact that the UK Government set a multi-year spending review and a multi-year settlement for the block grant does not mean that that is then in stone for those three years. You can look back at past situations where there has been variance. None the less, it is better than having no real sense of where the Budget is going to be going in those out years, so that is a desirable position.
At the moment we have a situation where we are now some months into what should be the first financial year here, and there is no agreement around that. In that context, could one move from that to an agreement on a three-year Budget, and particularly a three-year Budget that would encapsulate any sort of strategic reallocation across time, reflecting changing policy priorities and policy decisions, as distinct from, “It has been such a struggle to get to the point at which we can agree year 1, so we will just pencil in for years 2 and 3 something that is broadly similar”? I would love to see a programme for government that encapsulated a set of strategic decisions that might imply different allocations of resources over that, but at the moment it is proving hard enough to get to a situation where you can agree a Budget for the financial year that we are now well into.
Q22 Robin Swann: In regards to the work that has been done, you mentioned Treasury. What is your assessment of the accuracy of the figures that were calculated by the Treasury in its recent open book exercise? It seemed to me quite a thin document.
Sir Robert Chote: For that document, the broad thrust that there are potential decisions that could be made to strengthen the public finances across spending, revenue and reform and transformation is a familiar message, not a new one, and a perfectly reasonable one. There were areas of that report where we did not feel that some of the sums of money looked particularly plausible, or the most likely figures you would come up with, for example around health as to whether there would be the scope for the sorts of savings that they are implying.
To be fair to the Treasury, it was not suggesting that it would expect all £3 billion of the total sets of savings or fiscal effort that it identified to be grasped. None the less, there were some areas of it that you would arch an eyebrow at. That does not detract from the fact that the overall message of there being decisions that could be taken around revenue, charging and spending was there. One should not let the best be the enemy of the good.
Q23 Katrina Murray: I am going to ask you to expand on the answer you have just given to Mr Swann, if you could, Sir Robert. How many of the options that the Treasury gave do you think the Executive need to implement to get a balanced Budget over the timescale?
Sir Robert Chote: We have looked across the broad messages that were said. As I say, some of the relatively large numbers do not look like immediately the first ones you come up with. That is partly, I think, because it has looked at spending relative to need at a relatively aggregated level, rather than Department by Department. One could query some of those sorts of areas.
In terms of the overall quantum, you can take the sense at the moment that there is probably about £1.5 billion of pressures; i.e. Departments say they need about £1.5 billion more than is currently available in terms of funding. You might want to take off that the fact that some of that might be non-recurrent requirements, so particular one-off chunks of spending that are needed and well identified. You certainly would not need to deliver a whole £3 billion to get to a position that would be a lot stronger and more sustainable than the current one.
Jonathan McAdams: I will interject there with one bit of additional information. When we looked at the UK Government’s restoration package, which Sir Robert has already mentioned, there was an agreement to find £113 million. The UK Government had suggested that that should be done by raising rates, because it is the single largest lever. The number of other levers that the Executive has—maybe it is the Pareto principle or something like that—shrinks away very rapidly. If you avoid doing some of the bigger things, such as water charges or rates, you might have to do a dozen or two dozen other smaller measures, each of which will be politically difficult. That is a piece of work that we looked at when we looked at the restoration package and how the £113 million might be funded. It is probably easier to make a smaller number of larger decisions.
Sir Robert Chote: That is a challenge that has confronted UK Chancellors over the years as well. If you have a hole to fill or something that you wish to fund, do you do one big unpopular thing or a selection of small unpopular things? I think that George Osborne’s experience was that trying to do lots of small unpopular things can bite you at the end.
Q24 Diane Forsythe: I want to take the opportunity, Chair, to thank you for the invitation to be here on behalf of the Northern Ireland Assembly Finance Committee. It is great to be able to work together with this Committee on these finance issues. Sir Robert and team engage regularly with us on the Assembly Finance Committee, so it is really good to be here today to speak to you on this.
Sir Robert, many of the challenges identified in the report, such as public sector pay and revenue raising, are recurrent themes that come through. You have spoken in this session about the need to move away from the bail-out funding to something more sustainable. In terms of these recurrent pieces, do you think that future UK Government support should be linked to the implementation of specific and particular reforms, policy delivery or revenue-raising measures? If so, what conditions do you think would be the most effective in doing that?
Sir Robert Chote: That would take us too far down into making particular prescriptions around policy. The general principle is that, if you are going to be in a situation where you set up an expectation of additional dollops of money coming along, in an environment in which there is greater certainty, given an understandable desire to get to a sustainable outcome, with an eye to how decisions are viewed elsewhere in the UK, having some sort of requirements or strings attached to those is not something you would be surprised by. As we have been saying, there was indeed a revenue requirement attached to the last restoration package.
There is a balance as to how prescriptive it is sensible for the UK Government to be. This would be the case for any of the devolved Administrations. We come back to the earlier point about the disincentives you can provide if the UK Government are being too specific and, in particular, if you end up with dollops of money that are tied to one-off, earmarked projects. A world in which there is a relatively straightforward, clear Budget that the Executive know that they need to stick to and can try to stick to is important. Strings attached can be an important part of that, but you could end up in a world in which you are being too intrusive and too micromanaging. That would probably backfire, so there is a balance to be struck.
Q25 Diane Forsythe: We have had the Finance Minister, and in fact the entire Executive, stating that Northern Ireland is not being treated on an equitable basis compared to Scotland and Wales in terms of funding. Do you think this is a fair or persuasive argument to put to Government?
Sir Robert Chote: We had a look at the arithmetic on this in the last sustainability report that we produced. For those of you who have it to hand, on page 26, chart 4 you have a picture where, over the course of the current spending review, each of the devolved Administrations is getting funding of the order of 123% to 125% of spending per head on comparable activities in England.
The Northern Ireland Executive are, roughly speaking, funded at a level consistent with estimates of need that we have drawn up. That was based on Gerry Holtham’s analysis for Wales that he redid and came up again with a pretty similar number. The estimates of need for Wales and Scotland are older, again arising out of the Gerry Holtham work. Wales’ estimate of need is roughly 15% above English spending per head and Scotland about 5%. You have roughly comparable premia in terms of the amount of funding relative to English spending, but different levels of need.
One way is to look at that and say that Northern Ireland is underfunded relative to Wales and Scotland. If you are the Treasury looking at that, you would say that Scotland and Wales are overfunded relative to need, whereas Northern Ireland is not. It depends on whether you are viewing the glass half empty or the glass half full. The Executive have emphasised the comparison with Wales and Scotland in a way that I suspect may not have pushed them up the Christmas card list in Cardiff or Edinburgh for drawing attention to that quite as starkly.
Diane Forsythe: Going back to the previous point that we need to move to address recurrent funding, public sector pay and the need for the transformation of services, given that we are, as I see clearly in the graph, coming in close at that level of need, we do not have that extra money to invest to save in order to transform our public services. Do you think that that is reflective and that we need to address that first to bring us back to this point of need?
Sir Robert Chote: In terms of the arithmetic, we agree with the numbers that were put out that, if you were to fund relative to need consistent with Wales, it would be out an additional £1 billion. Consistent with Scotland, it would be an additional £3 billion.
An interesting question now in particular is that we have an incoming Prime Minister, one presumes, who is obviously very focused on devolution within England and the potential levels of funding and generosity relative to need there. We are moving into an area where the discussion around funding relative to need could end up being broadened from here. On the notion that therefore the UK Government are going to provide Northern Ireland with additional resources to match those two, they will have an eye to how that plays in the rest of the UK at the same time. It is for the Executive to decide what bargaining line they take. It is not a straightforward one for the Treasury or the UK Government to agree to.
Chair: Thanks for your time, everybody.
Examination of witnesses
Witnesses: Hilary Benn and Julie Harrison.
Q26 Chair: This is the second panel of our brief inquiry on the Northern Ireland Executive finances. I would like to welcome the Secretary of State, the right hon. Hilary Benn MP, and Julie Harrison to the Committee today. Thank you for joining us. We are three months now into the financial year, and Northern Ireland remains without a Budget, as you know. Can you update us on your discussions with Executive Ministers to urgently find a resolution on agreeing this Budget?
Hilary Benn: Thank you very much for inviting us to come in and talk about this. I have had a number of discussions with the Finance Minister in April and May. I talked to the party leaders on 11 June about the Budget. We convened all-party talks, as I think the Committee is aware—indeed, one of your members was present there—on 2 July. Clearly, there being no Budget is a problem and we need to find a way through this. I had said in the run-up to this that the Executive needed to meet the Government halfway.
First, we need to understand what these pressures are, because Northern Ireland is a particular place where the phrase “pressures” has a special meaning. The obvious question to ask is, “What is a pressure?” Is it a completely unavoidable piece of expenditure there is no hope of avoiding? Is it something that you would like to do? Is it all points in between? We need to understand that better. We reached agreement that there would be full disclosure to the Treasury and the NIO. Julie, as Permanent Secretary, led the discussions on the Friday and the Monday, and we can update you on how that has gone.
Secondly, we need to see a plan for how the Northern Ireland Executive are going to get to fiscal sustainability and how they are going to take forward public service reform. If one is to characterise the history here, first, Northern Ireland is being funded at its level of need. That is a really important point. It is being funded at its level of need. Secondly, on top of that, additional finance has come, granted in lumps and bumps, as a result of restoration funds. When the Executive was last restored, there was a package of, I think, some £3.3 billion.
There are choices to be made, and it is a really important point to get across. As I have said to the party leaders, all Governments have to make choices. Those are choices about what you spend on, what the priority is, how you use money as efficiently and effectively as possible and how you choose to raise money if you do not have enough to meet all the priorities that you would like to spend on. It is fair to say that there has not been a great deal, historically, of prioritisation or revenue raising. It is a point that the Northern Ireland Fiscal Council itself has made in its various reports.
We are in the process of analysing the disclosure that we have had from the different Government Departments. Clearly, Northern Ireland needs a budget. This is the next stage in a process that we and the Executive parties are leading on to try to find a way forward. It has to be on the basis of established facts about the nature of the pressures.
Q27 Adam Jogee: Secretary of State, good morning. It is nice to see you. Can I ask a quick question to follow up from that introduction? In your discussions with the party leaders, can you confirm to the Committee that there was political buy-in from all the political parties to deliver a Budget? Are you reassured that that political commitment is there?
Hilary Benn: The parties will have to speak for themselves. It is the responsibility of the Northern Ireland Executive to produce a Budget. That is part of their job. The Finance Minister published a draft three-year Budget at the start of the year. One thing the Government have done to try to help was to agree a spending review over three years. It is the first time since 2011 that the Northern Ireland Exec would be in a position, if they wished to and were able to, to set a three-year budget, because we have told them what their funding is going to be over three years. It is £19.3 billion on average, which is the biggest settlement since the beginning of devolution.
There is a debate within the parties as to whether it would be possible to do a three-year Budget or whether it can only be a one-year one. We are seeking to understand exactly what the nature of the financial situation is at the moment, because the projected overspend has gone up and up. If you go back to last year, there was a point when we were told that we could be heading for an overspend of £800 million. In the end, it was down to £467 million, which resulted in the Government saying, “All right, we will give you a reserve claim for £400 million and you are going to have to make up the £67 million yourself to reach a balanced Budget for the year, but the reserve claim is going to have to be paid back”. The Executive then asked, “Can the payback profile be end-loaded?” The Government said yes, so £80 million in the first year, then £160 million and £160 million for years 2 and 3. Projected overspends can go up as well as down.
I hope that the parties are committed to setting a Budget, but only they can answer that question. They certainly engaged in the process in a very positive spirit and there was no debate at all about our request that we should see all the details from all the different Departments. That information has been provided. I think that we are still waiting on one.
Julie Harrison: We are still waiting on one. We had all the rest by Friday of last week.
Q28 Adam Jogee: That little follow-up perhaps addressed the question. My question was explicitly on whether you thought that there was political buy-in from all the parties. While I am grateful for the detailed nature of that response, we would be interested to know whether there would be a yes or no from you.
Hilary Benn: There is buy-in to the process that we initiated through convening the all-party talks. There was clearly buy-in to that. Whether there is buy-in to setting a Budget is a question you would have to ask the Northern Ireland Executive.
Q29 Chair: To follow up, you said that the analysis is being done now by the NIO. Why has it taken so long? Why has it not been done before?
Hilary Benn: The open book process was an attempt to do it. It was done in a limited period of time. It provided some valuable and useful information. Different people have different views about it. There is no reason why the Executive should not have done their own open book process before. There is no reason why the Executive should not have said to themselves, “We have all these pressures. What is absolutely unavoidable? What would we like to do if we had the money but we don’t? What are we going to do about this?”, rather than just saying, “Pressure, pressure, pressure. Here is a sum. How are you going to help us out?” That is part of the responsibility that comes with being in Government.
Julie Harrison: It is unusual for us to be doing that. This is work that Departments normally do with the Department of Finance, but, in the absence of a Budget, we have offered to help. To confirm—thank you to those behind me—the last one did arrive this morning, so we now have all the returns.
Q30 Robin Swann: Thank you, Secretary of State, for attending. You said that all Governments have to make choices. What if they do not, on this occasion, in this timeframe? Do you see a circumstance this year where you would have to step in and set a Budget for Northern Ireland?
Hilary Benn: I really hope that that is not going to prove the case, because, I repeat, it is the responsibility of the Executive to set a Budget. It is. They can set a budget, as they did last year, and then end up overspending, which resulted in them coming to us and asking, “Can you help us out?” Eventually, the Government agreed to give them a £400 million reserve claim. It is possible to do that, but it is their responsibility. I do not want to sit here before you today and say, “I am going to take that responsibility away from you”. It is the responsibility of the Executive and they should do their job.
Q31 Robin Swann: The thing is, “But if they don’t”. The 45%, 60% and 95% steps of spend are of last year’s spend and each Department hits those thresholds at different points of its year. If the Executive are not collectively willing to step up at that point, what action would you take?
Hilary Benn: I put the question back, and it is a very fair question to ask. Why would the Executive not be willing to collectively step up to their responsibilities? Why?
Q32 Robin Swann: They have not had to, or they have not at the moment.
Hilary Benn: Why not?
Q33 Robin Swann: You have convened talks to try to find that out. Sir Robert Chote used the phrase “TACO” in an earlier session, because the Treasury always chickens out. We are looking at the mouth of an election in Northern Ireland. The political will or the political step may not be there to agree a Budget among the political parties. What worries me from previous experience is that our public service still needs to be supported. Our public service workers still need to be paid. I am trying to ascertain whether there a point where you will step in and make that decision. This had to be done in the past.
Hilary Benn: As far as I am aware, there has never been a circumstance in which, where the Executive are in being and the Assembly is meeting, a UK Government have set a Budget for Northern Ireland. There have been circumstances, of course, when the Executive have collapsed where the Government have done that. The institutions are there, the responsibility is there with the Executive, and we are working with them to find a way through that, but it is going to have to involve setting a Budget. Otherwise, the consequences that you rightly draw attention to in asking your question, Mr Swann, become a problem.
In its latest report, I thought that the Northern Ireland Fiscal Council set out very clearly the interrelationship between all the bits of legislation and the requirements, and so on and so forth. Looking at that, one would not want to find oneself in that position.
Q34 Robin Swann: In answer to Mr Jogee, you referred to the progress of the current talks in regards to engagement. Considering that 45%, 60%, 95% timeline, have you a timeline in mind for bringing those talks to a close, where you think the parties have played out their bit?
Hilary Benn: I would very much like to be able to do this as soon as possible. We are still in the process of establishing the facts about the nature of the likely overspend for the year. It seems to me that that is an obvious and essential first step—what is the real figure?—given the experience last year where it was £800 million at one point and it ended up at £467 million.
There is a new Prime Minister about to come into post and he no doubt will have views on the subject. Our job, together with the Chief Secretary to the Treasury, is to offer advice to the new Prime Minister about the current situation. When he first speaks to the First Minister and Deputy First Minister, I suspect that this will be the first item on the agenda.
Q35 Robin Swann: You said in a previous comment that Northern Ireland is funded at need. In regard to the current talks process and the current engagements, are you considering a further funding package for Northern Ireland, as the Executive has been calling for, to support Budget agreement? If so, are you considering any conditions to put on a further Budget package?
Hilary Benn: That depends on what the work that is now being undertaken shows. We showed our willingness to provide support last year with the £400 million reserve claim. That came with some conditions, but then I look back. The £3.3 billion that was given when the Executive were restored also came with conditions, not all of which have been met, for example an infrastructure plan. We are still waiting to see an infrastructure plan. Any help that might be given would of course come with conditions, but it takes two to make this work. If conditions are placed on any assistance, there is, once again, responsibility on the Executive to live up to those and play their part.
I have mentioned the infrastructure plan, but there is also public service transformation. I pay tribute to your successor as Health Minister, because we can clearly see that beginning as a process in health. There are some extremely interesting figures that I was looking at this morning from the Nuffield Trust research report, which was back in 2022, about the level of cost of health services in Northern Ireland and how they compare to England. They are quite a lot higher. You are probably familiar with that particular report. That is No. 1.
No. 2 is whether there is going to be any revenue raising. I make the obvious point. This Government came in in 2024. We engaged, in the first Budget, in quite a big act of revenue raising by increasing national insurance, because government is about making choices. If you want to fund stuff, you have to raise the revenue. You cut, raise the revenue or borrow. Those are the three choices that Governments face. Is there going to be a plan for that? If the Executive say, “No, no, no” to all forms of revenue raising, that is going to limit your room for manoeuvre. The Northern Ireland Executive face the same choices as Governments in Scotland and Wales and the Government of the United Kingdom.
Are there efficiencies that can be found within the system? I am sure that there are. The open book report laid out, “Here is a range of things that could be done”. At no point did the open book report say, “You should do this, this and this”. It said repeatedly that this is a matter for the Northern Ireland Executive. It is their responsibility to look at the information that is there. Even if you did some of it, you would raise funds, which would help the current Budget position.
You cannot really have a continuation of those things not happening and overspending. The Northern Ireland Fiscal Council made a number of really quite important comments about this in its report. It says that the immediate issues facing public finances “reflect an unsustainable trajectory resulting from the underlying structural problems in the Budget. These structural issues are visible in the relatively high public sector pay bill”—and we know that that is an issue—“limited revenue raising and persistent overspends”. It seems to me that that is a fair reflection of the situation that we are all trying to deal with. We are trying to work together. It is, as Julie said, unusual to be playing this part, but we want to find a solution.
Julie Harrison: As part of that, the other conversation we were having is how you avoid this becoming a mathematical exercise about how every individual Department lives within its budget. What is the actual plan that will deliver better outcomes and a sustainable budget for the long term? Part of what is useful in the data is that, as we engage with Departments, you can begin to understand the intersections with the preventive work. That means that you would be seeing, in your old job, fewer people in the health system and so on. We are really keen to support the parties to have that bigger conversation too. Otherwise, it risks being, “How can you get the number down?”, which means we are back in that cycle again.
Q36 Robin Swann: Secretary of State, you went down a list of things there and said, “No, no, no”, if the Executive say no to all these steps. Do you step in at that point if they continue to say no?
Hilary Benn: The Fiscal Council has drawn attention to how the various legal obligations relate to each other. The point has been raised about the ability to spend revenues that are raised. The Northern Ireland Executive get quite a lot of money. From memory, the figure was something of the order of £3 billion that comes in. The Fiscal Council has pointed out that you get to a certain point where you do not continue to have access to that. We do not want to get to that point, but it takes two to find an answer to this. That is why we have started a process to better inform ourselves as to what the nature—I am sorry to repeat the point—of the real pressures is and what then can be done about it.
Sir Alec Shelbrooke: Thank you, Secretary of State, for your time this morning. You and I have known each other for over 21 years since we first debated in Leeds. I have always known you to be a very optimistic man in your approach to politics.
Hilary Benn: It is how I get up in the morning.
Q37 Sir Alec Shelbrooke: There seems to be a lot of optimism in your answers, which are not facing up to what is actually happening. You have said that the devolved Governments all face the same responsibilities, but it would seem they face the same rhetoric in Northern Ireland. We do not seem to have the incentive to actually make this work because ultimately Westminster comes in and says, “Here is the money”. Your answers are very much about the fact that it takes two, they have to come to the table and they have to negotiate, but it does not seem to be happening.
Sir Robert Chote just said in the last session that there has to be a message sent to make this work. I want to push you slightly on your answers. In the time you have been an MP, you are about to see your ninth Prime Minister, but you are in the Cabinet. What message can you give to the new Prime Minister about what message he could send to the Northern Ireland Executive if they just string along but do not actually do the dance? I am sure you have made these points to them constantly about the fact that they have to negotiate, but where is the evidence that they deliver on that? What is the lever that could be pulled to make them deliver on that?
Hilary Benn: Although I am naturally optimistic, I would hope that the answers I have given to the Select Committee this morning are based on realism, and that includes realism about who is responsible for what. If you come into Government, you take on responsibilities. If you are running an Administration or a Government—and that is the case for the Northern Ireland Executive—you have to make these choices and decisions.
You are absolutely right that, if you look back over history, there is a bit of a pattern where the Government do ride in. The most recent example was the £3.3 billion package to help get the institutions back up and running after the negotiations around the Windsor framework. The difficulty with that—it is a fact—is that some people may draw the conclusion, “If we just sit here, someone will come and do that again”. That is a challenge. I am not going to hide that fact from you. Your analysis in that sense is correct.
My responsibility in advising the new Prime Minister—this is all subject to what happens next Monday, but the responsibility of whoever is in this job—is to say, “This is the work we have undertaken. This is what we know about the nature of the true pressures. These are the options for doing something about it. These are the conditions that we would suggest that we put in place in return for any help, if there is going to be any help”. Then, of course, the new Prime Minister has to look at that alongside all the other pressures that there are on the public finances across all the areas of Government. It is not just about Northern Ireland. You have further funding of the defence investment plan, for example, other pressures and new things that a new Prime Minister may wish to do.
Q38 Claire Hanna: We anticipated this scenario, I think, the last time you were before us, Secretary of State, in that, without a change to either the settlement or the political culture, we would end up with a stalemate, a dramatic gathering at Hillsborough and a stalemate again. We are used to shambolic Budget processes, but you are correct to say that this is the first time there has been an Executive in place and they have not agreed a Budget. They have given responsibility to the civil service to apply a uniform cut across, which, as far as I can tell, is a bigger cut than British austerity has ever imposed.
Can I ask what engagement there is politically? Is that a full abdication of responsibility to the Stormont Departments, or are they involved in the process that you have with the political parties? I mean the individual Departments that are left holding the baby and applying that cut.
Hilary Benn: I will ask Julie to respond on that point about the role of the Departments in providing the information.
Julie Harrison: In parallel, of course, there are political conversations ongoing. Yes, Neil Gibson, as Department of Finance Perm Sec, sets a control total of 45%. That is the working reality for Departments. We are having very detailed back-and-forward with every Department and that has been very constructive. It is with civil servants, but with the full knowledge of their Ministers.
Q39 Claire Hanna: Some of the analysis that we have been looking at and some of the evidence in our last session was that, if you include all the additional packages, emergency moneys and restoration deals, that has brought the Executive up to a level of need. Is that part of the advice that you will be giving the new Prime Minister about the funding settlement for Northern Ireland? For the record, it is my party’s view that the settlement needs to be changed, but that is not an excuse for walking away and failing to set a budget. Do you have any reflections about changes to strand 1 and Stormont reform that might ensure at least the presence of an Executive and prevent some of these issues?
Hilary Benn: I would make two points in answer to that. If you look back at Northern Ireland Executive relative funding compared to need, because the Fiscal Council was asked to opine, what is the need? The Fiscal Council—I paraphrase, but I am conscious that the chair is sitting right behind me, so he will shout out if I have got it wrong—stated that it is 121% to 127%; 124% is in the middle. That is what the need is, and that is what the Executive are being funded to. If you go back to, say, 2019-20, it was funded at 138%, which is why the Fiscal Council has said that it is hard, looking at that time series of figures, to argue that there has been persistent underfunding of the Executive. There has not. They are going to be funded over the current spending review period at or just above their level of need.
The second point is that you rightly draw attention to political culture. You cannot legislate to change a political culture. Political culture has to come from within. Exactly the power-sharing institutions that we have at the moment have, on many occasions in the past, been able to agree a Budget. It is about political will.
Thirdly, as you know, because we have discussed it many times, I have said to the parties that I wish to talk about reform and hear from them about reform. I note that four of the five main parties have now come forward with their own reform proposals, so there is something stirring in the wind. The responsible task that falls upon me is to meet all the parties, which I will do, and say, “Let me try to understand what your proposals are. Might there be a measure of agreement on this, that or the other with the other parties?” and see where that takes us. None of that takes away from the political responsibility to do the basic job, which is to set a Budget.
Q40 David Smith: Good morning both. It is good to see you. Treasury policy states that overspends by devolved Governments represent “serious financial mismanagement”. Do you agree with that description of the Executive’s spending?
Hilary Benn: The Budget is clearly not being managed properly and effectively because of the persistent overspends that the Fiscal Council has drawn attention to and that we can see for ourselves. There are reasons for some of those pressures. Let us take the size of the public sector. When a pay increase is made in England, that is Barnetted across. Because Northern Ireland has more public sector workers than England, that does not cover the totality of what is required. A fair question then is what you might do about the size of the public sector in Northern Ireland compared with England. Otherwise you are going to continue to have a pressure when it comes to pay increases.
The second example would be whether you make any provision in your budget for possible/expected pay increases in the coming year. It is slightly surprising to me that there are Departments in Northern Ireland that say, “We do that” and Departments in Northern Ireland that do not do that. How can you set a budget for the year if you have not taken account of or attempted to anticipate what might be a pay increase that you are going to have to shell out during the course of the year when you are putting your budget together?
We do not, the Treasury does not and I am sure the Executive do not want to end up overspending, which is why last year we agreed, exceptionally, to a reserve claim in order to assist. The future cannot just be overspend, reserve claim, overspend, reserve claim, because that is no way to run the Executive or the system. Can we find a way out of this cycle, which history teaches us results in what we see at the moment, although it is particularly acute; I grant you that.
Q41 David Smith: That sounds like a qualified yes to my question.
Hilary Benn: I know you would not invite me to just echo the quote of the Treasury. The Treasury’s position is very clear. The Government’s position is very clear. It is set out in the words that you read out.
Q42 David Smith: You talked about pressures, and I will come back to them in a moment, or idiosyncrasies perhaps as well. In most of the conversation, we have been bogged down—well, not bogged down, but we have been looking forensically at the details of where we are at right now. Can I invite us to take one step back?
At the end of your answer to the previous question to me you mentioned Stormont reform. Is it possible that there is a structural reason, demonstrated in the fractured, siloed way in which the Executive is run, that mitigates against balanced Budgets and clear prioritisation? I think of the British Government. There is one political party and there are multiple Government Departments. I am passionate about homelessness. There is a cross-departmental strategy, but it is still very difficult to get the different Departments to throw parts of their budget into a common goal. Is it fair to say that the way that Stormont is currently set up, with siloed Departments, often under one political party, mitigates against sound financial management?
Hilary Benn: Thank you for the question, because you have given me the chance to say that being in compulsory coalition with parties with whom you are in really quite fundamental disagreement is really hard. It is really hard. If we were to contemplate for a moment a compulsory coalition where we were all told, “For the good of the country, you are going to have to be in permanent coalition with you, you and maybe some other parties too”, imagine how we would feel about that. I am not advocating it, for the avoidance of any doubt. I am just making the analogy to illustrate that it is difficult.
It is to the great credit of the political parties in Northern Ireland that the Good Friday agreement was reached and has worked some of the time, but some of the time it has not worked because the institutions have collapsed. That, above all, has served the people of Northern Ireland very badly. It is difficult, but history also teaches us, notwithstanding the nature of those tensions or the nature of power sharing, that it has been possible in the past to set Budgets. It can be done. It is about political will. That is why I make the point that the choice is there for the Executive.
As this discussion has demonstrated, there are consequences if you do not set a Budget at all. I really would not go there if I were you. You could set a Budget and then it turns out you are heading for an overspend, which is what happened last year. In the end the Government decided to step in to assist, to a considerable extent, by granting the reserve claim.
Q43 David Smith: You have talked about pressures a lot and there are these particular pressures in relation to the way Stormont is structured. In terms of legacy, just for example, there are specific idiosyncrasies within Northern Ireland because of its historic context. Is there a case that, in the way that the UK sets the block grant or the Budget allocation for Northern Ireland, it puts some of those historic, idiosyncratic, long-term issues outside, into a separate pot and agrees what they are—so £100 million, for example, just for PSNI to deal with legacy?
Hilary Benn: Since you refer to the PSNI, we do that through the additional security fund, and we increased that when we came in as the Government. I think that it had been flat for about 10 years and we increased it. The last time I was before the Select Committee, I think it was you, Mr Robinson, who asked me about the security grant that is made available in England and Wales. I remember replying that, if you take the security grant in England and Wales and divide it by the population, and you take the additional security funding for Northern Ireland and divide it by the population, it actually works out that Northern Ireland gets—I think, from memory—something like £19.61 a head. For the security grant, it is still £19, but it is slightly less than that. There is an example of the Government recognising the threat from Northern Ireland-related terrorism, and that is why the additional security funding came into being in the first place.
More generally, on legacy, as I have indicated in the estimates debate that we had recently in the House, we are looking at that. There is schedule 4, for example, of the troubles Bill and, if there is a way in which you can make it easier for the PSNI when it comes to what it needs to do in providing information, that is one thing that we are looking at.
Secondly, the legacy Act takes some costs off Northern Ireland because, previously, all the existing cases fell to the PSNI to investigate, in so far as there were leads and it was able to do so. That cost has now come to the UK Government in the form of the Legacy Commission established by the legacy Act, which, of course, is being reformed but will continue under the troubles Bill.
Gavin Robinson: Good morning, Secretary of State.
Hilary Benn: Good morning.
Q44 Gavin Robinson: It is interesting to hear you repeat some of the things that I have said to you over quite a long period of time, and I am glad that we are getting somewhere.
Hilary Benn: I hope that I get marks for consistency.
Gavin Robinson: In fairness, I just want to add a little to what you said about the police funding. You are right about how comparable the amount of money is that Northern Ireland gets alongside the CST. The problem is that that means that it is not additional. It is exactly the same as any police force in the rest of the United Kingdom gets. Although it is described as funding for additional needs associated with the terrorism, the history and the legacy of the past, it is not additional, because every other police force in the United Kingdom is getting a comparable amount of money. That is the more important point.
Secretary of State, I want to ask Julie a question first, if you do not mind. When we have had discussions previously about departmental budgets and the open book process, I think that it is fair to say that, within the system, there is a healthy degree of scepticism around some of the claims that come from the Department of Finance. Given that there have now been 10 days, or slightly more, of intensive face-to-face work with Departments, and subsequent submissions, are you surprised and do you recognise that some of the challenges for which you did not have detail before are genuine?
Hilary Benn: Could you just say the last bit again?
Gavin Robinson: It is okay. It is for Julie.
Julie Harrison: He is asking me.
Hilary Benn: I know, but I wanted to make sure that I heard the question too.
Gavin Robinson: The question, Secretary of State, in fairness, is this. Despite healthy scepticism in the past, has the engagement over the last 10 days materialised in a better appreciation and understanding of some of the financial pressures?
Julie Harrison: The short answer is yes, because it is really good to be able to talk about it. There is a debate to be had about whether a bid is or is not pressure. What we are trying to understand is what the pressures are above draft budget. The very large figure of somewhere around £1.7 billion-plus, I would argue, is not really a pressure. Those are bids. Those are the things that Departments would like to do. What has been really good is that we are now working to understand what the genuine, particularly in-year pressures are that will manifest. It has been very useful. Some of them came only on Friday and this morning, so there is still work to do.
Q45 Gavin Robinson: Thanks, Julie. Secretary of State, you mentioned earlier that it is hard to change political culture. You know, from the time when you were shadow Secretary of State for Northern Ireland, that I indicated to you my concerns around what the Treasury offered Northern Ireland in December 2023. You will know, because I have said it in your presence quite recently, that the Treasury tried to do as little as possible to get rid of a problem for as long as possible, and it was as clear as day in December 2023 that we were going to be in this position.
You have heard suggestions and claims that Government are incentivising poor behaviour, but, at this moment in time, when we mentioned pay pressure as but one example, do you recognise and understand that to do something substantial or structural around pay, as but one example, costs money? To fund a cohort of hundreds or thousands of staff for a redundancy package over a period of three years, in some Departments that are under significant pressure, one of which has 83% of its entire budget associated with staff salary costs, is an incredibly hard thing to do in one financial year.
Hilary Benn: I accept entirely that it is hard. The question is how we avoid this happening, where the Northern Ireland Executive says to the Government, “We would really like to address these things. We cannot do it this year. Can you give us some money for this year and we will try to address it next year?” If we are honest about the history, that repeats and repeats, so the question is, “How does one break out of that pattern?”
That is why I said earlier that it takes two to do this. The Treasury is, of course, inundated all the time with pressures from different Government Departments right across the United Kingdom. Things come up, some of which are very considerable indeed, so what can we do just to deal with it now?
You understand that, but, from the Treasury’s point of view—and I have been very frank with the Executive in saying that there is a credibility problem—it will ask whether, if we attach conditions, we think we are going to see change next year, the year after, and the year after that. If the Treasury does not believe that there will be change, it incentivises, “Well, let us see what we can do for this year, and then we will worry about next year next year”.
If one is going to deal with credibility, the Executive have to demonstrate that they are prepared to engage in wider public service reform. One of the good things that came out of the £3.3 billion package was the £235 million of public service transformation money, which has come out in two phases. Julie sits on the board that looks at those, and there are some really good and important projects in there.
It is right that the Government said, “We are going to ringfence some money to enable you to do that”, but how are you going to carry that forward? How are you going to address the question of revenue raising if you want more money? What are you doing to find efficiencies? I think that it is easier to have a conversation with the Treasury about that if it begins to believe that there is a willingness to engage in all of those things.
The other point that I would make is about the fiscal framework. There is the interim fiscal framework. We want to be able to get on to a full fiscal framework, because there are a number of things that were raised in the talks—and you were present—where the Executive said, “Well, what about this? What about that? What about the other?” Housing Executive borrowing power was one example.
Those are precisely the things that you would look at, but it has to be in the context of an Executive that are able, by whatever means, which may or may not include help from the Treasury, to balance their budget. Why would you give those additional powers to an Executive that are not capable of balancing their budget or, as we sit here today, even set a budget for this year, which is why we are having this session?
Gavin Robinson: You know, from our engagement already, my position on these things. You know my support for this process. You know how important I believe it to be in suggesting almost nine months ago that it was necessary.
Hilary Benn: Yes, indeed.
Gavin Robinson: You will know that, privately, during that session, I said that there needs to be a level of trust and courage among the Executive parties, and I am saying it publicly today because I believe that to be true. You have fairly outlined the difficulty around multiparty Executive discussions. I think that you have done that nicely and neatly, and it saves me from making the point, because I say fairly that we are sometimes part of the problem and sometimes part of the solution. How long do you think this process is going to take? When do you believe that there will be a conclusion following the detailed work, or even a return to the political sphere to discuss progress and next steps with us?
Hilary Benn: I want to come back to the political parties, when the process that we agreed in the talks at Hillsborough Castle have been concluded, with the answer to the question of the nature of the potential overspend. I am very reluctant to set a timetable, because, the next time I appear before you, you will tell me that I failed to meet your timetable. I am not dodging responsibility. I am just being honest and realistic.
It also depends partly on at what point the new Prime Minister turns his attention to this, alongside many other spending pressures that will, no doubt, be on his desk when he takes up office next Monday. I also said earlier that I want to get on with it, because this does not serve anybody; this continued uncertainty is not good for anybody.
Mr Kohler: Good morning, Secretary of State.
Hilary Benn: Good morning.
Q46 Mr Kohler: Can I ask a very basic question? There are two basic tasks here. One is setting a budget and the second is keeping to the budget. We got through the first one last year but not the second. We are not even at first base this year. Can you just articulate for me, first, the real penalties for not setting a budget and, secondly, the real penalties for not keeping to it?
Hilary Benn: We have touched on some of those already this morning.
Mr Kohler: What are the real penalties?
Hilary Benn: In the absence of setting a budget, it falls to the Permanent Secretary at the Department of Finance to say, “We can spend up to 45% of last year”, which comes to an end at the end of this month. My understanding is that he has already given an indication of what he will then do. Then you move on to the 95% for the rest of the year.
The Fiscal Council set out, in its most recent report, what some of the consequences are: the relationship with the law as it has been established, or the question of access to income that is raised, which is a big problem if you cannot rely on that as well. I do not wish to get to that point.
Q47 Mr Kohler: If there is an overspend on those, they are not real penalties at the end of the day, are they?
Hilary Benn: I think that I am right in saying that we have yet to see the outturn for last year, because, when we gave the £400 million, there was still £67 million, and it was left to the Executive: “You are going to have to try to work that out”. Whether they have closed their books for last year, to be honest, I am not entirely sure. Whether last year will be seen to have been delivered within budget thanks to the reserve claim or there being an overspend, that is not good and effective management of public money.
We all have an obligation, but you are right that the history in Northern Ireland, for reasons that I think we all understand, especially when collapse has occurred, is that Governments of all colours bust a gut to try to get the institutions back up and running again, because that is better for the people of Northern Ireland than there being no Government at all. Historically, that has come with a price tag. It is very expensive for Government to help the re-establishment of the institutions. That is what we learned from history.
Q48 Mr Kohler: You described earlier the £400 million reserve claim as “exceptional”. It is not exceptional. It is part of a pattern, is it not?
Hilary Benn: It was exceptional last year, but there is a longer pattern. I will grant you that, of course.
Q49 Mr Kohler: What would have been the consequence of not agreeing the reserve claim?
Hilary Benn: There would have been a huge overspend on the budget. That is the obvious point, and nobody really wanted that.
Q50 Mr Kohler: If you do not give the £400 million, you do not agree that for the Treasury, what comes next?
Hilary Benn: We, mercifully, did not face that because we took the decision that we did.
Q51 Mr Kohler: You always take that decision. Is that not the danger?
Hilary Benn: No, but it is not a precipice over which I would advise anyone to peer.
Q52 Mr Kohler: Therefore, there is no incentive to keep to the budget.
Hilary Benn: You come into government, you take on responsibilities to manage public money. Why should the Northern Ireland Executive be different?
Mr Kohler: Because they know that the UK Treasury will stump up the money.
Hilary Benn: That may be the conclusion that some people have drawn from the past. The past is the past. What I am interested in is whether there is a way, as I indicated a moment ago, of breaking out of this cycle. It takes two to do it and, if the past behaviour that we have seen carries on, it is hard to see how you are going to break out of that.
Q53 Mr Kohler: You have also not changed your behaviour, because you are incentivising that.
Hilary Benn: Suppose the Government said last year, “No, we are not giving you anything”. As I understand it, any overspend comes off the money for this year, and so it goes. That would not be very helpful either, which is why, in the end, we gave the reserve claim.
Q54 Mr Kohler: Are the Northern Ireland Executive, like the British banking system, too big to fail? Are they always going to be bailed out?
Hilary Benn: Nobody wants Northern Ireland to fail. No one wants the Executive to fail. They have weighty responsibilities. They have a job of work to do on behalf of the people of Northern Ireland. As I have already indicated, with government comes choices. Northern Ireland is no different from the rest of the United Kingdom—the other two devolved Governments, or the Government of the United Kingdom as a whole—in having to make choices.
Q55 Katrina Murray: On the subject of choices, the open book exercise presents a number of options for cost savings. How do you expect those to be taken forward by the Executive?
Hilary Benn: The way that it was reported was to say, “Here is a range of things that could be done”. The open book did not say, “These are the things that you should do”. It repeatedly said, “These are choices for the Executive, respecting the devolution settlement”. Even if you did not accept that all of the three and a bit billion was possible, you could raise quite a lot of money if you did some of it.
It is something that the Executive could have done for themselves previously, but it came out of the process. Following Mr Robinson’s conversation with me all of those months ago, part of my job is to try to assist. That is why we came to an agreement about doing the open book exercise. It sets out, if you like, a menu of choices. Whether the choices are made is a matter for the Executive. I think that Julie wanted to add something.
Julie Harrison: Maybe we are not being clear about the goal here in relation to what Mr Kohler is rightly pointing out. We could keep doing what we are doing, which always costs UK Government money. There is no plan; outcomes continue to get worse in Northern Ireland; and the bill keeps getting bigger. We can spend money and get nothing back for it, or we can engage in a process about a plan that will include raising some revenue, as well as dealing with some of the structural issues such as Housing Executive borrowing that matter to the Executive, to try to break out of this cycle. I do think that raising some revenue is part of that. In the restoration package, we did, I think, agree that the Executive would raise £113 million, and they did so.
Hilary Benn: Originally, the condition was over one year. The Executive came back and said, “Could we do it over two years?” The Government agreed to let them do it over two.
Q56 Katrina Murray: One thing that we are absolutely clear on is that, no matter what level of Government or what Department, the need to budget and to take decisions about finance, across the board, is expected. As we have said before, these are not abstract discussions. They have a real impact on people’s lives. If none of the options are taken forward by the Executive, and spending remains unsustainable, are there circumstances in which the Government would be prepared to take powers to implement fiscal reforms directly?
Hilary Benn: As I have already indicated to the Select Committee, I am not aware of any circumstances previously in which the Government have intervened to set a budget when the Executive are there and the Assembly is working. The responsibility for doing that rests not with the UK Government but with the Northern Ireland Executive. It is very important that all of us, whatever position we hold, fulfil our responsibilities and do not seek to say, “Could you sort this out for me, because I cannot?”
I have also indicated that we know from last year that a budget was set, but there was then also a heading towards an overspend, which was dealt with in the way that I have described. I hope that the Executive will do that, and that is a choice that faces them.
Q57 Diane Forsythe: Secretary of State, given that many of the Northern Ireland Executive’s fiscal challenges are influenced by the decisions taken at Westminster, do you agree that, for the effective scrutiny of the Northern Ireland budget, there should be direct engagement between our Assembly Committees, the Northern Ireland Office and Treasury?
Hilary Benn: May I ask—direct engagement in what form?
Q58 Diane Forsythe: It is my understanding that, in both Scotland and Wales, there is direct engagement through the Secretary of State’s office with the devolved nations in terms of their finances, whereas we in the Northern Ireland Assembly Finance Committee get to scrutinise the Department of Finance’s position only after its interpretation of what has been decided at Westminster, so it has already gone through the prism of Department of Finance officials, and some of the arrangements around that have already been discussed. I am just asking whether you agree that, in the Northern Ireland Assembly’s Finance Committee, we should be able to scrutinise that by engagement with yourselves in the Northern Ireland Office and Treasury directly.
Hilary Benn: There was an exchange of correspondence with the Committee between Matthew O’Toole and myself, as a result of which I invited members of the Committee to come and meet me in Erskine House. I was keen to accommodate you coming to meet me to ask me questions about what we are doing. If I take your question to be a request to repeat that, I would be very happy to do so in that way and on that basis.
Diane Forsythe: Thank you. I was there at that meeting and I appreciate that.
Hilary Benn: Yes, indeed you were.
Q59 Diane Forsythe: Would the Secretary of State commit in terms of a formal invitation to attend the Northern Ireland Assembly Finance Committee and to engage that way? I feel that it is important for full transparency for the people of Northern Ireland in the same way as Scotland and Wales have that. It is just a formal invitation to you or your officials to engage with the Assembly’s Finance Committee on a formal basis.
Hilary Benn: I would say that that has not been the case historically, but I gave very careful thought to the request that came, which resulted in the invitation to meet the Committee but in a slightly different format to the one that would be involved if I were to turn up and give evidence formally to the Assembly Committee. It was a compromise. I noted and welcomed the fact that the Committee accepted my invitation, and I make the same invitation for the same kind of meeting again. You are then free, of course, to leave that meeting, to report on whatever you think I said and to comment on the nature of the discussions that we had.
Because, historically, that has never happened, I thought that that was a reasonable compromise, and I think that it was welcomed, but I understand that it does not completely satisfy the requests that you make in asking that question today.
Diane Forsythe: No, and I would ask that you reconsider that, because, again, in Northern Ireland, we do not have an independent treasury functionality. The Department of Finance is engaged under one Minister, and we have talked about Ministers of different parties and the coalition Government. It is running the Department and operating with the civil service, but also encompasses that treasury functionality. In our Finance Committee, whenever we are getting the information, it is not coming directly from yourselves. They have already made the decisions, in effect, so it would be good for us to be able to scrutinise those things fully by being able to speak to yourselves formally and then to challenge the Department of Finance on that. I would ask that you reconsider that and continue to engage with us on Finance Committee, but thank you.
Q60 Chair: The last question is from me, Secretary of State. It has been reported that the Government have provisionally agreed to a £10 million compensation payout to families of victims abducted, tortured or murdered by the IRA unit commanded by the agent Stakeknife, who is widely thought to have been Freddie Scappaticci. Why have you still not named him formally?
Hilary Benn: Because I have been waiting for the conclusion of the mediation process to which you refer. I am very anxious to return to the House of Commons, as I had promised, to answer the question that has been put to me by Sir Iain Livingstone on behalf of Operation Kenova. There are a very small number of cases that have not yet reached agreement, or have reached agreement in principle but things have to be formalised. I absolutely assure you and cannot tell you how anxious I am to be able to go back and do that, but there is a certain relationship between the settlement of those cases and what I will then say to the House of Commons. I will do so as soon as I can, and I am sorry that it has taken so long.
Q61 Chair: The Hillsborough Bill, which was passed yesterday, imposes a duty of candour on state bodies, including the security services. Does that Bill change the context around naming Stakeknife?
Hilary Benn: The Thompson judgment, which was delivered some months ago, upheld the neither confirm nor deny principle, to which the Government attach great importance. Clearly, there has been a great deal of speculation about the identity of Stakeknife, but, because those who give their services to the state do so at great personal risk to themselves, the obligation to provide lifetime confidentiality—as well as post-lifetime confidentiality, because people have families—is one that the Government take extremely seriously indeed.
That has just been upheld by the Supreme Court in a very important judgment, and the Government maintain that. If someone came along and said, “In the light of the duty of candour, can you give us a list of the names of all of your agents?” the Government would say no, because we have that responsibility to them and to the national security of the nation.
Chair: Thank you very much.