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Paul Gosling examines the key issues facing Northern Ireland’s devolved government as it battles to re-build the province.

Gordon Brown has his financial difficulties, but they are nothing compared with the squeeze facing the Northern Ireland Executive. Assuming that there will again be an Executive after the 29 May elections were postponed, it must find the not so small matter of £14bn to invest in the public sector.

During 30 years of ‘troubles’ in Northern Ireland, the quality of public service infrastructure was not people’s first concern. What is more, any attempt to rebuild the crumbling public assets might have run up against bombing by republican paramilitaries (now largely over) and protection rackets run by loyalist paramilitaries (still continuing, it is reported).

The result of decades of public service neglect is a massive bill for rebuilding capital assets – £14bn by 2013. Some £7.5bn will come out of the Treasury’s Departmental Expenditure Limits, with £6.5bn to be raised additionally by the Northern Ireland Executive. These are massive figures set against the Executive’s annual revenue budget of £6bn.

Some £1bn of capital spending is needed for the NHS in the province, according to a report from the Northern Ireland Confederation for Health and Social Services. Another £1bn is required for roads and transport, says the Department for Regional Development. An astonishing £3bn is necessary to rebuild the water supply and sewerage system over the next two decades.

And then there is a range of other desperately needed capital spending – many schools require new buildings and larger campuses; universities are showing their age; and most of the province is not connected to mains gas.

The weakness of Northern Ireland’s private sector – it generates 40% of the province’s GDP, compared with 60% in Britain – forces the Government to take on other responsibilities, too. It is the Government which is paying for new marinas and other initiatives to promote tourism.

The rail and bus services remain publicly owned and in need of investment. The private sector infrastructure deficit includes – as in Scotland and Wales – poor coverage of broadband across the countryside.

Strategic Investment Board
It is a sign of the size of the challenge that a Strategic Investment Board has been set up to advise the Government on how it can best manage this enormous capital expenditure, while also overcoming the niggling departmental problems of under and over spending and non-compliance with Executive policy objectives.

A political necessity of the Good Friday Agreement, which produced devolution for Northern Ireland, was that each party in government should maintain its sense of identity and autonomy. This, in turn, means that ministers in charge of departments take decisions individually, without being subject to collective responsibility. (Ministers from the Democratic Unionist Party do not even attend Executive meetings, in protest at Sinn Fein’s inclusion in government.)

The SIB will advise on:

• co-ordination of capital budgets
• reform of public service delivery
• the structure for a raft of new Public Private Partnerships
• the use of former military sites gifted to the Executive by the UK Government
• the sale of surplus assets.

Those asset sales will almost certainly include the many public car parks owned by the Government. It is very likely that the Executive’s portfolio of government offices will be sold, with replacement accommodation leased, while a range of other key assets – such as Belfast Ports – could be sold off.

It was the Reinvestment and Reform Initiative (RRI) – agreed between the Executive and the UK Government – which led to the creation of the SIB and a parallel body providing policy advice to the Executive, the Public Private Investment Unit. The RRI laid the framework for a package of financial measures and reforms. In return for low cost loans to the Executive and the gifting of the Maze prison and two large army barracks from the UK Government, the Executive agreed to replace the old rates system with a modern property tax, while introducing water charges for the first time.

Not that reform had been resisted by the Executive: it was more that the details had never been settled. As in Scotland and Wales, the devolved politicians in Northern Ireland have been widely criticised for reviewing too much, while implementing too little.

Structure of Public Administration
One of the many reviews underway in Ulster is on the structure of public administration. This will inevitably conclude that the bureaucratic burden is simply too great: 26 almost powerless local authorities for a population the size of Birmingham and Glasgow combined; about
77 quangos; and regional boards for education, health and social services which lie between departments and the bodies delivering services. It is a structure which might have given Franz Kafka a sense of deju vu.

In other ways, too, there will be enormous pressure on revenue budgets to fall. Privately, and occasionally publicly, many politicians say that departments are over-staffed. The impact of IT has been much slighter than in Britain.

Fraud in activity areas such as housing benefits and agricultural subsidies is high. As Belfast-located public bodies devolve across the province to high unemployment areas, so accommodation costs are likely to be cut. And as Andy Carty, the interim chief executive of the SIB, says, if service contracts are signed without fundamentally re-engineering public service delivery then those deal costs will be unacceptably high.

Yet, alongside this the revenue budgets will be put under new pressures. The NHS in Northern Ireland has fallen behind that in England, requiring not just new hospitals, but also about 3,000 extra nurses.

And as one adviser to the Executive told us, resource accounting and budgeting has been introduced at exactly the wrong moment for them. With the costs of borrowing and depreciation included on the Executive’s accounts for the first time, revenue budgets will be squeezed by the capital spend.

The Barnett Formula
As far as the Northern Ireland Executive is concerned, what it really needs is a higher Departmental Expenditure Limit allocation from the UK Government. At present, this is provided according to the Barnett Formula – named after Joel Barnett, chief secretary to the Treasury in the 1970s Labour government.

Barnett oversaw a change in the way grant increases to Scotland, Wales and Northern Ireland were allocated. Historically, the three nations received more than their population share when the Exchequer cake was sliced.

Since 1978, all grant increases have been proportionate to population distribution. Put more simply, the relative advantage held by Scotland, Wales and Northern Ireland is gradually diminishing. The reaction of the three nations to this situation is very different. Scotland is anxious that the Barnett Formula is retained, worried that a review could lead to it losing even more. Wales is interested in a review, but only if it leads to it getting more money. Northern Ireland is determined that there should be a review and is committed to a needs-based allocation of grant, which it believes would lead to it getting much more.

Former Deputy Prime Minister Mark Durkan – the key figure in devising a new financial basis for the Executive – says that, yes, Northern Ireland spends more per capita in delivering public services. But that if its level of unemployment, poverty and population dispersal is taken into account, then it must spend more.

Talk of getting rid of the Barnett formula goes down well in much of Westminster and Whitehall. Those other devolved ministers sitting in Edinburgh, though, will have a cold sweat running down their necks just at the thought of it.

Paul Gosling is a freelance journalist specialising in finance and public sector issues.

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