Ahead of the Stormont budget, should the Executive be rethinking its priorities?

With the first budget of the newly reconstituted Northern Ireland Executive expected shortly, there will be an opportunity to consider whether public resources are being directed appropriately to deal with Northern Ireland’s priorities for the decade to come.

The table above shows UK public spending per person in each UK region for various expenditure categories for the 2018-19 fiscal year, in both monetary terms and expressed as a percentage of the UK average. For example, health spending in Northern Ireland is £2,436 per person, which is 6% higher than the UK average spend of £2,291 per person. Items which can’t be allocated to a region, such as government debt interest payments, are excluded.

At £11,535 per person, public spending in Northern Ireland is the highest of any of the UK regions. The main reason for this is high spending on sickness, disability and survivor benefits, which at £1,654 per person is 89% higher than the UK average of £876. Spending is also significantly higher than the UK average in areas such as old age pensions and benefits (£295 per head higher than the UK average); policing, fire-protection, courts and prisons (£201 higher); agriculture (£176 higher) and tertiary education (£277 higher).

Whilst it remains to be seen exactly how much the Executive will have available for the next budget, some of the money from last year mightn’t be available in the next cycle. This could include money for welfare reform mitigations (approximately £40 per person in 2018/19), and the DUP confidence and supply money (“the billion pounds for the DUP”), which amounted to £112 per person and was mostly spent on health.

There are some areas where the reasons for public spending being significantly higher in Northern Ireland than other regions are not immediately obvious. For example, Northern Ireland spends £92 per person on expenditure classed as “general services”; in no other region do such expenditures exceed £18 per person. Another anomaly is “religious and other community services”, where expenditures in Northern Ireland are £26 per person; in no other region do similar expenditures exceed £2 per person.

The cost of the Assembly itself appears to be in the region of £44 per person, that being the extra amount over the UK average spent on “executive and legislative organs”, a bargain compared with the £129 per person spent in Scotland on Holyrood each year.

On the other hand, there are some areas where public expenditures in Northern Ireland are much lower than the UK average. Spending on public transport in Northern Ireland was only £149 per person for the year, which was 55% less than the UK average of £328. Northern Ireland, along with the North East of England, was one of only two regions to spend more on roads than on public transport.

Environmental protection is another area in which Northern Ireland lags regions in Great Britain. On average people in the UK spend £7.19 per year on pollution abatement and protection of biodiversity and wildlife; Northern Ireland spends around five pence per person per year in these areas.

The lack of spending on environmental safeguards and prioritization of roads over public transport is a contributing factor towards Northern Ireland greenhouse gas emissions per person being among the highest in the UK.

Spending on schools in Northern Ireland has also fallen behind typical UK spending. At £565 per person, spending on secondary schools in Northern Ireland is the second lowest of any UK region except Scotland.

A key difference between Great Britain and Northern Ireland in terms of public spending is expenditure on the water supply, which in Northern Ireland is nearly seven times higher than the UK average. This is because, uniquely in the UK, Northern Ireland doesn’t have water charges.

As a result of this, the water supply and sewerage system is severely underfunded and stretched beyond capacity. In many areas of Northern Ireland NI Water is not accepting new connections to the public sewerage network. This is both acting as a brake on economic growth and posing further risks to the environment.

Introducing water charges in Northern Ireland could raise revenues of approximately £350m per year, or £186 per person per year. This would pay for the £2 billion which will be needed to address deficiencies in the water and sewerage network, and could release £200m per year to be spent on other priorities.

One such priority could be a reduction in business rates. Relative to earnings, business rates in Northern Ireland are by far the most expensive in the UK. In Northern Ireland, revenues from non-domestic rates are virtually at the same level as revenues from corporation taxes. In England, revenues from rates are less than half (49%) of corporation tax revenues.

Reducing non-domestic rates by 25% would bring rates into line with how much they cost relative to income with Scotland, where non-domestic rates raise 76% of the sum raised from corporation tax. This would cost around £213m, and if offset by newly introduced water charges raising £56m would have a net cost of £157m, or £113 per person per year. Reducing the rates burden, in particular on small businesses, would be expected to create a significant number of jobs.

Demand for scarce public resources in Northern Ireland is likely to increase ever further over the next few years. However, the crisis in the health system, a poor record on environmental protection, creaking infrastructure and exorbitant taxes on small businesses are all serious issues which will require concerted effort by the Northern Ireland Executive if they are to be addressed.