The absence of a Northern Irish executive worsens the budget deficit
Eight months of policy vacuum and the impact of soaring inflation on energy prices and public sector wages has left a nearly £700m hole in Northern Ireland’s finances as the deadline for calling new elections looms.
Jeremy Hunt, the Chancellor of the Exchequer, warned last week against spending cuts and “terribly difficultdecisions following the government’s ‘mini’ budget, offering little hope of financial aid for an area which is already one of the poorest in the UK.
“In North Irelandreversing overspending will be painful next year with even deeper cuts likely to be needed,” warned Richard Ramsey, chief economist for Northern Ireland at Ulster Bank.
The budget hole has been exacerbated by the lack of a fully functioning executive in Belfast. Chris Heaton-Harris, Secretary of State for Northern Ireland, has pledged to call an election on October 28 if the executive is not restored by then, despite the resignation of Liz Truss as prime minister.
Ann Watt, director of Northern Irish think tank Pivotal, said fiscal discipline in the region had been hampered by the fact that ministers could not meet weekly to agree on the sharing of funds.
“If you just focus on the fact that they’re running out of money, it looks like mismanagement, when it all comes down to no executive, no budget, no collective bargaining and a very difficult set of circumstances.”
Belfast has little power to levy taxes, raising only £1 out of every £20 of its tax revenue itself. Instead, it relies on an annual £15billion “block grant” from London.
Its deficit will intensify the pressure on public services in the region. The NHS has the longest waiting lists in the UK and 27% of workers are on the public payroll.
Northern Ireland’s executive was torpedoed in February when Prime Minister Paul Givan of the pro-British Democratic Unionist Party resigned over a row over post-Brexit trade rules.
The crisis worsened after May elections were won by the nationalist Sinn Féin party. The DUP has since boycotted the executive and assembly, demanding the removal of a post-Brexit customs border in the Irish Sea. As a result, the institutions were paralyzed, no budget was adopted and the interim ministers had only limited powers.
Heaton-Harris told the Northern Ireland Affairs Committee in Westminster on Tuesday that he saw no reason to change the current rules, under which caretaker ministers would step down and a new election would be called, potentially on December 15, which officials say would cost more than £. 6.5 mins. In the meantime, officials would remain in control.
Negotiations between UK and EU to resolve the post-Brexit standoff over Northern Ireland have resumed, but a deal is not expected to satisfy the DUP before the October 28 deadline.
Northern Ireland has lived beyond its means in the past – it went over by £800,000 in 2015-16, according to the Department of Finance, and cut its budget by the same amount the following year.
But the current deficit is much larger. Conor Murphy, the region’s finance minister, said it soared to £991m in September and was only reduced by using £300m of unallocated funds that officials had hoped for use to relieve the cost of living crisis.
People in Northern Ireland have been hit hard by rising energy prices following Russia’s invasion of Ukraine. About two-thirds use fuel oil for home heating and prices have almost doubled since last year. The UK government is offering all households £400 for energy costs and an additional £100 for households dependent on fuel oil, but as there is no executive, payments which will come from London have yet to be made .
According to a Center for Economics and Business Research survey commissioned by supermarket chain Asda, people in the area have an average of £92 a week of disposable income after paying for basic necessities – half the level in London.
However, the region’s block grant is already at an all-time high and in the absence of an executive, Heaton-Harris said London will pass a budget for the region, but finances are tight and “everyone will have to cut his fabric accordingly”.
“There is no way the Treasury is giving gifts to Northern Ireland as they are taken to Britain,” said Graham Brownlow, professor of economics at Queen’s University Belfast.
“Without a shadow of a doubt, the Treasury will use [the lack of an executive] as an opportunity to apply the thumbscrews.
Yet any failure by London to provide further financial support could make restoring the executive even more tricky. “Why would you meet again to make unpopular decisions? Brownlow added.