Executive to discuss financial stability with Prime Minister

The Executive has written to Prime Minister Rishi Sunak calling for urgent discussions on long-term funding stability to deliver public services.

The letter, signed by all Executive ministers, states that the current financial package ‘does not provide the basis for the Executive to deliver sustainable public services and public finances’ and adds the additional funding from the Government’s financial package ‘will only serve to provide a short-term solution to the pressing issues we now face’.

First Minister Michelle O’Neill said:

“This morning the Prime Minister will meet Executive ministers united in our determination to get the right long-term funding package agreed.

“If we are to tackle the serious problems across public services – in our hospitals and our schools - then how we are funded needs to change and I will be strongly pressing that point at today’s meeting.

“It is critical that the Executive has the right resources to deliver effective public services for all our citizens and we will engage with the Prime Minister to achieve our shared objective.”

The deputy First Minister Emma Little-Pengelly said:

“I welcome the opportunity to meet with the Prime Minister this morning where he will hear an Executive speaking with one voice.

“We will be saying that the people of Northern Ireland deserve better public services and that we need to work together - the Executive and the Government - to deliver long term fiscal stability.

“We are ready to engage with the Government and get down to the work of putting our finances on a sound footing, however, we will also be seeking to ensure the UK Government provides sufficient funding in a package to fulfil its promises on public sector pay.” 

Full text of the letter from Executive Ministers to the Prime Minister.

Now that the Executive has been restored, we are writing to press for urgent discussions to build on and move toward implementation of the Government’s financial package, to ensure we can deliver on the shared objective of stabilising our public services and finances. This includes the need to make immediate and durable changes to our funding arrangements, deliver on public sector pay, progress a Fiscal Framework and develop a plan for fiscal sustainability.

It is vitally important that public finances are placed on a sustainable footing and that the Executive has the resources that it needs to deliver effective public services for all our citizens. It is clear that the current financial package, on its own, does not provide the basis for the Executive to deliver sustainable public services and public finances. Whilst additional funding is welcomed it will only serve to provide a short-term solution to the pressing issues which we now face.

Fair funding with a fiscal floor

The financial package states that it will provide a ‘Welsh-style needs-based factor’ that will see future Barnett consequentials increased by 24% from 2024-25. Whilst in Wales this needs-based factor serves to guarantee that Welsh funding will not fall below its assessed level of need, applied from the wrong starting point, as proposed locally, will trap Executive funding below need after the short-term funding is exhausted, potentially for decades. Scotland and Wales are both funded considerably above need, whilst this proposed approach ensures our public services will be consistently funded below need, under a ‘fiscal ceiling’[1].

Whilst we recognise that the short-term funding provided through the financial package supplements and supports our near-term position, it does not provide the long-term sustainability required. It is not tenable that the Government has identified an estimated level of relative need through the inclusion of a needs-based element in the Barnett formula, and then put in place a mechanism that keeps funding below that level in the long term.

We fell below our level of need quickly, without a fiscal floor in place, and therefore urgent action was required to rectify this situation. It is due to that urgency that the figure of 124% has been used, which was an option (rather than a recommendation) within the Fiscal Council's report on an updated estimate of the relative need for public spending. There is a wealth of evidence from the independent Fiscal Council that this should be higher, and these options remain unexplored. The fiscal floor proposed has not been subject to robust independent assessment or analysis. We do not believe it represents a fair estimate of need but it is one which can be agreed in the short term only/for the remainder of this spending review period.

Notwithstanding the points made regarding the impact that the absence of baselining has on the effectiveness of this 'fiscal floor', we ask that the UK Government and Executive enter discussions to agree a fair level of need estimate which should be in place for the start of the next spending review period. This is a safeguard which allows us to agree a temporary need level of 124% in the interim.

Public Sector Pay

The cost-of-living crisis, the disparity of public sector pay awards, continuing industrial action and the further deterioration in public services all require a robust resolution to public sector pay. There is also a clear public expectation that the financial package will fully address public sector pay pressures. However, the reality is that the current package does not meet this expectation nor provide a sustainable solution. The £584million amount included for pay in the December package falls short of the known pressures of c£690millon, which aim to broadly reach pay parity with GB, where industrial disputes are not yet fully resolved, and is for one year only.

It is hoped that flexibility will be provided to use any of the £559million not required for debt repayments towards pay pressures. However, even this may not be sufficient. The recurrent cost of these pay awards will also put significant pressure on the Executive’s finances. This means that the Executive would be forced to make further damaging cuts to public services of the order of hundreds of millions of pounds next financial year and every financial year, in order to meet growing pay pressures. 

In effect, the Executive would be required to make decisions on whether to cut services or provide fair pay. As you will be aware these issues are interdependent and given the current deterioration of public services and level of industrial action, either option will be near impossible to implement and will cause further lasting damage to citizens, which will be difficult to reverse.  We urge you to reconsider the financial proposals and recognise the need to fund a sustainable solution for public sector pay that is not at the expense of the stabilisation of public services and finances.

Fiscal Framework

We welcome the commitment to open discussions on a new Fiscal Framework. Whilst we are open to discussion on how to best design a new fiscal framework that will best deliver for our citizens, we have identified some broad themes around which this discussion could be based. While not exhaustive, these include:

• An assessment of need and a funding floor (already highlighted);
• The provision of a Fiscal Reserve;
• Increased Borrowing Powers; and
• The scale and scope of Fiscal Devolution.

Sustainability Plan

The Government has committed to writing off existing debts if the Executive publishes and implements a plan to deliver sustainable public finances and services. It is our strong view that these debts exist primarily due to the underfunding of public services. That said, we are committed to delivering sustainable public services, with a pre-requisite that the right level of funding is provided.

Officials will now commence the process of developing a sustainability plan, which will include a focus on:

• A Productivity Plan;
• Long-term (budget) Planning;
• Additional Funding (Revenue Raising and other sources); and
• A Capital Plan.

It will be important as this plan develops that the Government engages in finding resolution to long-standing issues such as:

• Victims Payments;
• Legacy;
• Windsor Framework funding;
• Holiday Pay;
• McCloud; and
• The impact of the public sector classification of bodies, such as the NI Housing Executive.

Furthermore, capital funding remains largely absent from the financial package and we would welcome separate discussions on the Government's commitment to major projects. This will allow the Executive to look at its own capital allocations. Similarly, the need to provide a significant tranche of transformation funding to enable the Executive to invest to save thereby delivering long term sustainability is of concern and needs addressed.

It is clear that the sustainability of public finances and services cannot be delivered by the Executive alone. It will only be through joint working and delivery from both your Government and the Executive that we can deliver in the long-term. A returned Executive and our officials stand ready to work closely with their counterparts on these important issues.

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