This article by Mike Morrissey first appeared in Unity, the weekly publication of the Irish Communist Party.
IN February, the Northern Ireland Fiscal Council delivered it’s assessment of the three-year budget proposals prepared by the Department of Finance. The Council was established in 2021 to ‘bring greater transparency and independent scrutiny to the region’s public finances, focusing on the NI Executive’ (The Finance Minister’s proposed 2026-2027 to 28-29/29-30 Budget: an assessment). In short, it is a regional version of the Office for Budget Responsibility (OBR) and the Council’s chair, Robert Chote, previously ran the OBR and, before that, the Institute for Fiscal Studies – it’s pretty heavyweight.
It was responsible for the proposal (accepted by the British government) that Northern Ireland’s relative need required about 24% additional funding per head to deliver the same standard of services as in England (Updated estimate of the relative need for public spending in Northern Ireland, May 2023).
It should be said that the region’s finances have been complicated by time-limited additional funds linked to particular agreements (for example, to restore local government) or extra tranches, additional to Barnett, like the £400 million loan recently negotiated to help cover a departmental overshoot of £450 million. Achieving regional fiscal sustainability is thus complicated.
The current three year budget proposals (criticised by every party other than Sinn Fein) are the first in a decade to cover a three year period thus offering congruence with the UK budgetary cycle and the opportunity for proper financial planning.
Short of Money
However, the Council’s bottom-line budget assessment is bleak: in-year spending pressures and future loan recovery suggest that overspending will remain a recurrent, rather than exceptional, feature; and, there is a mismatch between Barnett-based funding calculations and the requirement for public-sector pay parity. In short, without a different funding settlement and/or a transformation in public sector services and greater local fiscal effort, the budget is likely unsustainable.
The core structural instability is the size of the public-sector workforce that accounts for about 29% all employees compared to 25% in Britain and the Republic. Accordingly, public-sector pay parity (which is only fair) imposes costs outside the scope of the Barnett formula thus putting permanent pressures on the regional budget.
While some commentators have proposed that the public sector’s employment share should be reduced to a size comparable with Britain, a reduction of 4 percentage points would affect about one in seven workers. This, in turn would impose its own costs and one could hardly see NIPSA or UNISON welcoming such a measure particularly with services like health and education under considerable stress.
Dirty Water
The idea of ‘greater fiscal effort’ has mostly focussed on water charges given that Northern Ireland is the only part of the UK where domestic uses are not charged directly. A report from the Council last June (Sustainability Report 2025: special focus – water) suggested that the existing funding arrangements for NI Water (established as a non-departmental public body in 2007) were insufficient to permit the necessary investment for clean drinking water and effective sewage treatment. NI Water estimates that it will require £3.5 billion in new investment (greater than the budget for the Department of Infrastructure).
The water issue has become particularly acute around the condition of Lough Neagh from which 40% of the region’s drinking water is drawn. The summer bloom of blue-green algae has been the most noticeable feature but around 20 million tons of untreated sewage not to mention the runoff from 1.6 million cattle and 1.8 million sheep enter Northern Ireland’s waterways each year. – ‘forty per cent of Northern Ireland are drinking water from a fetid pond filled with bacteria and animal waste’ (Rachel Salvage, Drinking from a fetid pond: superbug-creating genes found in the UK’s largest lake,-The Guardian, 14/03/2026).
The Northern Ireland Executive has resisted the idea of water charges on the reasonable grounds that people are already suffering severely from the cost of living. Yet, the absence of charges also subsidises those who can afford to pay.
One suggestion had been to start charging but with a social tariff for those with low incomes. The problem here is that means testing can miss out many vulnerable groups and disadvantages those living just above whatever low-income threshold is adopted. In short, there is no easy solution, particularly since other funding models like private companies in England and a mutual company in Wales are doing little better.
A Different Funding Settlement
The Nevin Institute’s Paul Mac Flynn and Lisa Wilson (Fiscal sustainability for Northern Ireland: the elusive quest) argue that much of the debate around Northern Ireland’s finances is misplaced pointing, for example, to the fact that real current spending only rose by 3.5% in real terms between 2010 and 2024 compared to double digit increases in the demand for some services. They also challenge the idea that the region’s ‘fiscal gap’ (the difference between taxation raised and public spending), higher than in other UK regions, creates an imperative for those in Northern Ireland to make a bigger contribution. Taxes are raised in Northern Ireland on exactly the same basis as England and Wales (the Scottish Executive has some tax-raising powers) – lower incomes, hence lower spending, contributes to lower tax gain. More, public services in Northern Ireland cost more because, as a small region, it cannot take advantage of economies of scale to the degree that larger regions do, the demography and level of social need create more service demand and the legacy of the Troubles continues to impact on policing and criminal justice.
It’s certainly true that ONS figures describe the fiscal gap per head in Northern Ireland in 2023 as £7589 compared to an average UK figure of £1894. However, other poor regions also have a significant fiscal gap – for example, the North East £6185. The latter also has almost a million more population than Northern Ireland meaning that the total fiscal gap is significantly greater. However, since the North east is simply embedded in UK taxation and spending decisions without a regional budget like Northern Ireland, the debate about overfunding simply does not arise.
Mac Flynn and Wilson contend that the formula from which Barnett is derived (prepared by the Holtham Commission in Wales) ‘identifies need, but doesn’t define how that need should be met’ (p.7). Nor does it cater for unique regional features (Troubles legacy).
The Holtham formula was recalculated for Northern Ireland so that security was also included in the calculation. The scale of agriculture in the region was also acknowledged but this was not taken up by the British government. They argue: ‘A full understanding of the drivers of higher public spending in NI is necessary to properly construct an estimate of public spending need’ and this should be a joint responsibility of the UK and NI Executive. A new fiscal architecture would thus not just recognise different regional need but different regional capabilities.
Comparable systems, they argue, do exist in Canada and Australia but acknowledge it would require a ‘substantial shift in the UK’s fiscal framework’ (p.14).
Certainly, the UK’s entire fiscal system is difficult and complicated. However a debate about fundamental change could also address the need to tax all kinds of income on the same basis and look at a more rational taxation of assets and wealth.
Within that, thinking differently about regions in general on the principle of dispersed, distributed decision making (see Gordon Brown’s Commission on the Future of the UK), might be more productive than charges of over-funding.