NI's magic money tree? Budgets explained

13 October 2020 - by Anna Mercer

In these times of extreme financial challenge as more and more money is required to deal with the effects of the Coronavirus, many will be wondering where exactly the magic money tree is located, and if it can bear enough fruit to see us through to the day we can consign COVID-19 to the history books.

For Northern Ireland, as a devolved region of the UK with limited fiscal powers, the ability to generate any additional revenue by government is minimal, and so we remain very much at the mercy of our overlords in No.11. 

Starting with the Block Grant, Northern Ireland receives its allocation of money from Treasury based on a calculation known as the Barnett Consequential in the Chancellor’s Autumn Budget, which this year will take the form of the Spending Review.

The headline allocation forms the basis on which the Finance Minister then engages with other departments and Ministers to form a draft budget, before presenting to the Executive, and then bringing the proposal to the Assembly, committees and the wider public for consultation.

Depending on when the Spending Review takes place, it is anticipated that the budget process will be finalised in early 2021, following agreement from the Executive and an Assembly vote, which needs to take place before the end of this financial year, which expires in March 2021.

Locally, revenue generating power are limited to income generated through Regional Rates, which brings in around £740 million for the Executive every year.

Supplementing the budget once in place, monitoring rounds take place in June, January and October and present the opportunity to review spending plans and priorities throughout the year, with money that can’t or won’t be spent to be returned to for reallocation.

Bids are made by departments for additional funding, and this can be a way to top-up funding across public services and bodies, with January Monitoring Round often seeing those who can spend money quickly and under the threshold required for a business case granted any money left at the bottom of the purse. All will be acutely aware of the importance of spending any money rewarded given that the consequences of not doing so could see their budget ultimately reduced – and no one wants that.

Other opportunities for additional funding can come in the form of new government spending announcements in-year that prompt the Barnett Consequential into play. This year, we have seen NI secure a slice of the COVID funding from the UK Government, close to £1billion across different support schemes, but prior to this, announcements including money for resilience measures on flooding, as well as low emissions buses will see money come west to these shores. However, when the issue relates to a matter that isn’t devolved, the money isn’t hypothecated and so it is down to the Executive to determine how and where the money is spent.

A key challenge from process point of view will be the move to multi-year budgeting, a key commitment in New Decade, New Approach, set against the uncertainty facing our economy as government is challenged to respond to the continuing COVID pandemic and the UK Government  decision to adopt a cautious, annual-based approach to budgeting for the next financial year.

There are also calls to better align budgets with outcomes in the Programme for Government, which is something that the Carnegie UK Trust believe is required to fully implement this approach; with delivery of outcomes crossing departmental boundaries and a clear need for pooling of resource, it is hard to see how traditional models of funding would remain fit for purpose.

So what are the implications of the current budgetary processes on Northern Ireland’s finances? With uncertainty one of the defining features of our financial future, framing of priorities in line with those of the Executive and draft Programme for Government against the current context is essential, as is a critical understanding around the processes that determine allocations.

With all the challenges that exist (we haven’t even mentioned Brexit), opportunities can and will present such as the Shared Prosperity Fund and other funds to replace EU streams, and so it is critical that organisations and businesses are engaging now to shape and secure additional support in the turbulent months and years ahead.

To find out more about how Stratagem can help you ensure your organisation is best placed to draw down funds and support your political engagement, get in touch by email for an initial consultation.