Public Expenditure:  2008 Strategic Stocktake

Ministerial Statement – in the Northern Ireland Assembly at 10:30 am on 20 January 2009.

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Photo of David McClarty David McClarty UUP 10:30, 20 January 2009

I have received notice from the Minister of Finance and Personnel that he wishes to make a statement on public expenditure with respect to the 2008 strategic stocktake.

Photo of Nigel Dodds Nigel Dodds Shadow Spokesperson (Business, Enterprise and Regulatory Reform), Without portfolio, Shadow Spokesperson (Justice), Shadow DUP Spokesperson (Without Portfolio)

I wish to make a statement regarding the outcome of the strategic stocktake of the Northern Ireland Executive’s expenditure plans for the financial years 2009-2010 and 2010-11, which the Executive considered last Thursday.

The strategic stocktake was also informed by the submission of the Committee for Finance and Personnel, and it incorporates the views of the other Assembly Committees. I am grateful for the constructive input of the Committee for Finance and Personnel throughout the strategic stocktake process, and in this statement, I will attempt to address as many of the Committee’s comments as I can.

In January 2008, after the outcome of the UK-wide comprehensive spending review of October 2007, the Assembly approved the expenditure plans for Northern Ireland Departments for 2008-09 to 2010-11. Those plans were drawn up in line with the Executive’s Programme for Government, and included provision for a range of measures to be developed. Those included extending free public transport to everyone aged 60 and over; improvements in mental-health and learning-disability services; moving 70,000 working-age benefit clients into employment by March 2011; reducing red tape by 25% in the agri-food sector by 2013; a more than 40% growth of the tourism industry by 2011; and reducing the maximum waiting time for hospital treatment to nine weeks for outpatients, and to 17 weeks for inpatients.

Those final Budget plans, which are at annex A of my statement, were agreed after the publication of draft plans in October 2007, and 10 weeks’ public consultation during which some 10,000 written responses were received, and high attendances were achieved at consultation events across Northern Ireland. In response to issues raised, additional funding was made available for mental health, children and youth services, the arts and social housing. The process began as far back as July 2005 when the Treasury announced its intention to conduct a comprehensive review of spending plans and priorities in 2007, rather than the normal biennial spending review.

One of the key features of the 2007 Budget process was the slowdown in growth in public spending at national level. That meant that the increase in the Executive’s block grant from the Treasury, under the 2007 comprehensive spending review, was significantly lower than in previous spending reviews, and the financial position has deteriorated further since then. The latest Treasury projections as set out in the 2008 pre-Budget report imply a further slowdown over the next spending review period, highlighting the difficult choices that will have to be made nationally and locally.

Following on from the 2007 Budget process — and on the basis that there was no expectation of any material additional resources becoming available for the financial years 2009-2010 and 2010-11 — the Executive agreed in March 2008 that there would be little to be gained from commissioning a comprehensive local Budget process for 2008-09. However, it was recognised that Northern Ireland Departments would have emerging financial issues of which early sight would be useful when considering the strategic approach to the 2009-2010 in-year process. Therefore, the Executive agreed to conduct a strategic stocktake of the Budget position for forward years in order to allow Departments to review progress against their three-year plans to date, and to register any easements or pressures for next year and the following year against Budget allocations. In setting firm expenditure plans in January 2008 for the financial years 2008-09 to 2010-11, the Executive fulfilled their legal obligations in that respect for each of the following three years. However, periodic reviews of expenditure plans for Northern Ireland Departments remain essential, and that is one of the reasons for this strategic stocktake.

On 2 April 2008, my officials informed the Committee for Finance and Personnel of the Executive’s intended approach, and no opposing views were put forward at that time, when it would have been appropriate to do so. It was intended originally that the review of expenditure plans would be based on an assessment of progress to date against the targets set out in the Programme for Government, as well as the implementation of efficiency-delivery plans. In light of the short period that had passed since the start of the new financial year, it was not possible to review actual performance. Instead, the focus was on ensuring that sufficient systems were in place to ensure delivery.

With regard to the Programme for Government targets, the available evidence suggests that although some good progress has been made in developing the overall delivery frameworks in respect of most public service agreements, further work is required in order to provide the necessary assurances that services are being delivered as planned. That is an area of concern for the Committee for Finance and Personnel, and I hope that it will be taken forward as soon as possible by the respective Departments.

Regarding achieving the Executive’s 3% per annum efficiency savings targets, there is concern at the delay in publishing efficiency delivery plans, and at the level of detail provided in some cases.

Therefore, further work will be required by Departments to provide sufficient assurance to the Assembly and the wider public that savings are being achieved through carefully planned measures to improve efficiency, rather than crude cuts in public services. The Assembly Committees have a key role, in that respect, to ensure that efficiency delivery plans are publicly available and to challenge Departments on the contents and subsequent delivery of their plans.

In relation to the strategic stocktake, I will first turn to the resources that are potentially available to the Executive over the next two years, beginning with the Barnett consequentials from UK Budgets, which — as Members will be aware — represents by far the largest source of funding to the Executive. In light of the slowdown in economic growth across the globe, the expectation is that there will be a net reduction in our block grant over the period 2009-2011, relative to the position when the Budget was agreed last January.

In addition to allocations from the 2008 Budget and pre-Budget reports, the Northern Ireland Executive have also been provided with the flexibility to accelerate £76·8 million worth of capital investment into 2009-2010, as announced in the pre-Budget report. However, if the Executive decide to avail themselves of that opportunity, that funding would not be available in 2010-11.

A further consideration that was highlighted by the Committee for Finance and Personnel is the capacity of Departments to deliver accelerated capital investment projects, although I hope that the apparent improved performance for this financial year will provide some assurance in that respect. However, the potentially more significant provision in the pre-Budget report was the £5 billion increase in efficiency savings for Whitehall Departments in 2010-11, which the Treasury intends to reflect in the level of funding to the Executive.

Although the Committee for Finance and Personnel has asked for further detail as to whether the Executive intend to increase the targeted level of efficiencies as a result, I am sure that the Committee — and the House — will appreciate that that decision must wait until we have greater certainty regarding the impact on the block grant for 2010-11, which is expected to be provided in the Chancellor’s Budget in the spring. In addition, I intend to challenge the Chancellor of the Exchequer to the effect that our comprehensive spending review 2007 settlement should be honoured in full and, hence, the additional efficiencies for Whitehall Departments should not impact on the Northern Ireland Executive.

However, Members will be all too aware of the current situation at Whitehall, with Conservatives proposing that further savings of around £5 billion be made in the next financial year; that is, 2009-2010. Similarly, in the Republic of Ireland, reductions in public-sector pay and staffing levels are being considered as part of plans to deliver a further €2 billion of savings for 2009. To put that in context, that would be equivalent to over £700 million in additional savings for 2009-2010 for Northern Ireland Departments, adjusting for differences in population. That sets the context in which our discussions with the Treasury will take place.

In relation to other potential sources of income, the current financial situation means that there will be further constraints on the level of access to our outstanding stock of end-year flexibility. In relation to the disposal of surplus assets, the main emphasis for Northern Ireland Departments will be on ensuring the delivery of existing plans rather than seeking additional income, a point that was recognised by the Committee for Finance and Personnel.

Therefore, the overall level of resources available to the Executive over the next two years is expected to reduce rather than increase. That being the case, my ministerial colleagues and I will need to focus our efforts on making the best uses of the available resources. In that context, the main source of funding to address emerging pressures is expected to come from the resources that were allocated in the Budget process but that are no longer required for the purpose, and over the time frame, that was initially intended.

In their strategic stocktake returns, Departments declared £29·6 million in current expenditure reduced requirements for next year and a further £21·1 million for the year after. Further details are set out in my statement, which also shows that only £1·2 million of capital expenditure reduced requirements were declared by Departments. However, the Department of the Environment (DOE) has indicated that there will also be slippage in strategic waste infrastructure projects from 2010-11 into future years.

I expect further reduced requirements to be declared as we move into the respective in-year monitoring processes, particularly in respect of capital projects as market conditions provide increased value-for-money opportunities in the public procurement of capital projects. That matter was highlighted by the Committee for Finance and Personnel.

Although the relatively low level of reduced requirements declared by Departments means that the Executive would be able to make additional allocations at this time only by imposing significant reductions on existing budgets, it is still important that the Executive be aware of the emerging pressures identified by Departments. It is important to stress at the outset that not all the costs identified by Departments are inescapable; nor, from previous experience, would they be expected to materialise to the full extent that has been suggested. The first source of funding in respect of emerging pressures should come from the Department’s resources.

That reflects the concern of the Committee for Finance and Personnel, which has suggested that Departments had provided insufficient detail in their strategic stocktake returns on how they intend to address the emerging pressures that they had identified. Departments have identified £233 million of current expenditure pressures in 2009-2010 in total, and £301·7 million in 2010-11, as detailed in my statement.

Departments will be happy to note that most Assembly Committees were broadly in agreement with the pressures that have been identified, although I urge Committees to be more challenging in respect of the prioritisation of proposals. The most significant pressures have been identified by the Department of Education (DE), the Department of Agriculture and Rural Department (DARD), and the Department for Regional Development (DRD). The Department for Regional Development is mainly pressured by the lost income from the deferral of water charges in 2009-2010. That is an additional cost over and above the non-cash costs being covered by the Treasury for 2008-09 and 2009-10.

Although the pressures identified by Departments appear to be significant in absolute terms, in relative terms the House should be aware that they are equivalent to 2·7% to 3·4% of their budget settlements for 2009-2011. That compares with the 4·8% of resources declared by Departments as surplus in reduced requirements and underspend in the 2007-08 financial year alone.

Departments have also identified £175·6 million of capital expenditure pressures in 2009-2010, and £435·4 million in 2010-11. The most significant pressures have been identified in shortfalls in capital receipts in respect of the Crossnacreevy site by DARD, and the housing programme. That reflects the concerns of the Committee for Finance and Personnel regarding the overall delivery of planned capital receipts, although I expect that the respective Departments will take all action possible in order to address any shortfalls internally as a necessary condition for support from the Executive.

In addition to departmental-specific pressures, the most significant issue facing the Executive is the equal pay claim for junior members of the Northern Ireland Civil Service. Although the Prime Minister has recently provided access to £100 million of current expenditure for either 2008-09 or 2009-2010 to help to address the spending pressures faced by the Executive, it needs to be clearly recognised that the extent to which the one-off cost exceeds this amount will represent a call on the Executive’s available resources at a time when the overall financial position is severely constrained. There may also be recurrent costs as the pay structures are revised to ensure that they comply with the requirements of equal pay legislation.

In addition, the enhanced access to current expenditure will have implications because it is comprised of additional borrowing power and early access to the block grant. There are a number of other less significant cross-departmental pressures, including the residual funding commitment associated with the integrated development fund; increased rating relief, as we implement further reforms to the rating system and absorb the impact of the economic downturn; and the consequences of previous overpayments of UK public-sector pensions.

The economic downturn is already having an impact on the demand for the broad range of public services, particularly as a result of the increase in the level of unemployment. The precise impact of that will only be known as the position develops. In recognition of the importance of the Assembly in relation to financial matters, the Committee for Finance and Personnel was invited to submit its own assessment of the strategic stocktake position so that it could be taken into consideration as part of this exercise.

The substantive return from the Committee incorporates the co-ordinated views of other Assembly Committees. I have already touched on many of the Committee’s points, but a number of additional matters were raised, including a request for further clarification on the recently announced financial package — which I hope has been addressed — and a concern about the ability of Departments to deliver the planned level of resources from the disposal of surplus assets and efficiency savings. There are concerns at the difference between the scale of emerging pressures, as identified by Departments, and the level of available resources. However, I remind Members that it is in the nature of budgetary exercises for Departments to bid for significantly more than is available.

There was a query as to why few of the pressures identified relate to the economic downturn. I suggest that that reflects the priority given to the economy in the 2008-2011 Budget process. However, it is expected that such pressures will increase as the full extent of the downturn feeds through. The Committee raised the issues of financial and project management, baseline reviews and access to the Executive’s end-year flexibility stock. I agree that a more constrained level of access to end-year flexibility stock underscores the importance of Departments minimising the level of end-year underspend; that should not, however, be at the expense of value for money.

Although the pressures identified by Departments as part of the strategic stocktake exceed the resources immediately available, they must be set against the scale of existing allocations and the level of resources that would normally be available to the Executive as part of the in-year monitoring process.

The two main issues for 2009-2010 concern the reduction in income from the deferral of water charges, and the one-off payment — and any initial consequential costs — of the Northern Ireland Civil Service equal pay claim. Those pressures will continue to impact on the overall financial position as we move into 2010-11, as will the reduction in resources available to the Executive as a result of the decision in the pre-Budget report to increase the efficiency target for Whitehall Departments by £5 billion.

The overall financial context for 2009-2010 and 2010-11 that I have described underpins the validity of the Executive’s decision in March 2008 not to undertake a full Budget exercise. Instead, the focus will be on managing the emerging financial position as part of next year’s in-year monitoring process. That approach will help us to manage the uncertainty that still surrounds some anticipated pressures next year — in particular, the final cost of the Civil Service equal pay settlement and the loss of income associated with the deferral of water charges.

I am sure that Members will have a number of questions regarding the approach that the Executive are adopting. In addition, the Committee for Finance and Personnel will table a take-note motion on the issue. That will provide an important opportunity for Executive Ministers to take into consideration the views of Members in advance of the 2009-2010 in-year monitoring rounds.

Looking forward to 2010-11, we still do not know when the next UK spending review will take place. In light of the pressures that I have detailed and the expected level of resources going into 2010-11, I am giving consideration as to the most appropriate form of process to manage the difficult funding position that we face, while maximising the delivery of public services.

Obviously, the circumstances that we currently face are significantly different to those that existed when the Budget was being finalised, or to any that could have been identified at that time. Clearly, we are still in a position of extreme volatility, with rising unemployment replacing the increased cost of living as the main cause for concern. Although I appreciate the scale of the pressures facing Departments, the current financial position means that the only way in which more resources could have been allocated to a particular service would have been to scale back other public services. There was no appetite among my ministerial colleagues for such an approach.

I anticipate that many Members will today, and in the take-note debate next week, press the case for additional resources to be allocated at this time to certain public services. I ask that, in doing so, they take into consideration the current financial position and identify which existing service they would cut. That would add real value to such a debate.

External factors have contrived to ensure that the early years of this Executive will be the most challenging. In that context, it is more important than ever that all Members of the Executive, with the support of the Assembly, work together to deliver a better future for all the people of Northern Ireland. I commend to the Assembly the strategic stocktake of the 2009-2010 and 2010-11 expenditure plans of the Northern Ireland Executive.

Photo of Mitchel McLaughlin Mitchel McLaughlin Sinn Féin 10:45, 20 January 2009

Go raibh maith agat, a LeasCheann Comhairle. I thank the Minister for his detailed statement. The breadth and scope of the report that he has delivered to the House describes the challenges that are faced by the Assembly and, in particular, the Executive in meeting the Programme for Government’s targets.

The first of two key issues that have exercised the Committee is the question of capital-assets realisation targets. The Executive’s Budget for 2008-2011 includes forecast capital receipts of £1·6 billion. What is the estimated out-turn against that target? How will the Executive deal with any deficits? What is the position with regard to the recommendations of the capital-assets realisation task force’s report that was agreed in December 2007?

The Minister has dealt with the second issue in some detail in his statement. There is a question about Departments’ bids for additional resources. When giving evidence on the stocktake to the Committee, officials from the Department of Finance and Personnel (DFP) said that questions remained about the scale of some bids that have been received from Departments and about whether those bids represent ongoing pressures.

That is a particularly crucial and relevant point to make at present. The initial stocktake position that was sent to the Committee showed a gap of approximately £1 billion between the bids that were submitted and the reduced requirements that have been identified for 2009-2011. Is the Minister concerned that Departments seem not to have met the stocktake’s terms of reference, which stated that they needed to demonstrate how bids could be met through the adjustment of existing plans and priorities? Is the Minister confident that the major pressures that have been declared by Departments — those that can be substantiated — can be met?

Photo of Nigel Dodds Nigel Dodds Shadow Spokesperson (Business, Enterprise and Regulatory Reform), Without portfolio, Shadow Spokesperson (Justice), Shadow DUP Spokesperson (Without Portfolio)

I thank the Committee Chairman for his comments, and I am grateful to the Committee for the work that it has done on that important subject.

Capital receipts are an important issue. Northern Ireland Departments have indicated, across the board, that the downturn in the property market will, of course, have a significant impact on the level of capital receipts in 2009 and in the medium term. It is hoped that at some point during the medium term, that that will turn around. I expect that, initially, all Departments that are affected will take every possible action to deal with shortfalls internally, as a necessary condition — as I said in my statement — to any future support from the Executive.

The Chairman mentioned the capital-assets realisation task force. The experience of the current financial year is that there needs to be greater certainty about the level and timing of forecast receipts before corresponding allocations are made to Departments. Therefore, it is important that Departments are incentivised to realise, where possible, assets that have been identified by the capital-assets realisation task force, and that they understand the implications of not realising those assets.

The Chairman raised the question of bids that have been submitted by Departments and made an important point about the nature of those bids. As I said in my statement, it is not surprising in such a budgeting round that Departments will submit a vast range of bids, not all of which will be inescapable. My Department must consider carefully the nature of those bids. As I indicated to the Assembly, the scale of bids that have been set out and brought forward by Departments are within approximately 3% of budget allocations. When one considers previous experience of underspend, in-year monitoring, reduced requirements, and so on, that is in the range of what is manageable.

Obviously, my Department is engaged in that exercise to take a long-term view of the situation in the next year or two.

However, things are volatile, and that is the purpose and benefit of having an in-year monitoring process that allows us to be flexible in allocating resources throughout the years, as reduced requirements come through. We can also hope to meet, and to help with, other emerging pressures and priorities.

Photo of David McClarty David McClarty UUP 11:00, 20 January 2009

A considerable number of Members wish to ask questions on the Minister’s statement. I would, therefore, ask that Members should only ask questions in their contributions rather than make statements.

Photo of David McClarty David McClarty UUP

No; a point of order can be made after the questions to the Minister.

Photo of Simon Hamilton Simon Hamilton DUP

I will question the Minister on two areas of real concern to the Committee for Finance and Personnel. The Minster will be aware — from his Department and other Departments — of the difficulty of meeting some of the efficiency targets. The Minister also mentioned the possibility that the Chancellor’s Budget in the spring will impose additional efficiency targets on UK Departments. Has his Department quantified how that might impact on Northern Ireland? Can he confirm that the Executive intend to continue with the administration savings in Northern Ireland of 5% in real terms?

Given the economic situation, it would be intolerable to have the historically high levels of underpsend, particularly with end-year flexibility stocks being increasingly eaten into by the Treasury. Can the Minister provide an outline of how confident he is that the historical trends of high underpsend will not be repeated as we move into increasingly difficult times?

Photo of Nigel Dodds Nigel Dodds Shadow Spokesperson (Business, Enterprise and Regulatory Reform), Without portfolio, Shadow Spokesperson (Justice), Shadow DUP Spokesperson (Without Portfolio)

I thank the Deputy Chairperson for his questions. As part of the 2008-2011 Budget, a 3% per annum efficiency savings target was agreed by the Executive and endorsed by the House. The pre-Budget report indicated that the efficiency savings for Whitehall Departments would increase by £5 billion in 2010-11. That would have implications for the level of funding available to the Executive, but we must wait for the Chancellor’s Budget in the spring to get the details.

Along with my colleagues, I intend to challenge any reduction in our block grant. That is not something that we should simply accept, although we are conscious of the context in which we are operating whereby it is not only the Government that are indicating that there will be increased efficiencies, but the Opposition are indicating that there will be even greater efficiency cuts for 2010-11 and, indeed, efficiencies for 2009-2010. Therefore, the negotiations and discussions will be difficult.

Mr Hamilton pointed out the importance of ensuring that Departments have the minimum underspend possible. Due to the difficulties of gaining access to end-year flexibility, any underpsend would be returned to Treasury and lost to Northern Ireland in the immediate future. It is imperative, therefore, to keep underpsend to a minimum. The Committee for Finance and Personnel has raised that point and examined it seriously. Indeed, I am sure that every Assembly Committee is monitoring that situation carefully.

Photo of Roy Beggs Roy Beggs UUP

Much has changed economically since 2008. The Minister acknowledged some of the difficulties, such as end-year flexibility constraints, fewer resources from the sale of unused assets, and capital pressures of some £611 million. Can the Minister advise whether that figure of £611 million includes the gap that is left from the termination of the 2010 process? Given that there have been such dramatic changes in the economic situations that govern the Executive, does he intend to resume the normal annual budgetary process? Will he enable greater accountability and scrutiny by allowing that process to be resumed?

Photo of Nigel Dodds Nigel Dodds Shadow Spokesperson (Business, Enterprise and Regulatory Reform), Without portfolio, Shadow Spokesperson (Justice), Shadow DUP Spokesperson (Without Portfolio)

I thank the Member for his question. However, I have not imposed anything: the Executive, which includes Ministers from the Member’s own party, and the Assembly agreed to the process. The Member is right to point out that the economic situation — including the property market and the banking system — and the context in which we operate have changed dramatically.

Given what I have said in my statement and given the economic realities, any proposed changes to the Budget will entail Ministers giving up money so that it can be reallocated elsewhere. The Executive will consider that approach if Mr Beggs or any Member who advocates that approach can persuade a Minister of their own party, or any other Minister, to support it. However, I do not know of any Minister in the Executive who supports that idea. In fact, Ministers are entirely resistant to any suggestion of changes to their budgets. The Member, and others who take that view, should raise the matter more generally. It is a matter for other Ministers, not just me.

The Workplace 2010 issue affected capital receipts in this financial year, but it will not impact on the next two years. That will assist us. As a result of the decision to suspend the Workplace 2010 process, the £175 million receipt that was forecast for this year did not materialise. That added to the financial pressure on the Executive. However, it will not be a factor next year, when capital expenditure is forecast to increase by 6% across all Departments. Furthermore, this year’s expenditure on capital investment is 40% higher than in 2006-07. That boosts our economy and the construction industry.

Photo of Declan O'Loan Declan O'Loan Social Democratic and Labour Party

I thank the Minister for his statement, although I am disappointed that it contained less detail than a routine monitoring round statement.

How can the Minister describe his statement as being strategic? Members are aware of the changes to the budgetary situation since last year, such as the collapse in asset sales, the change of plans on water charges, the equal pay issue and the absolute need for the Executive to respond to the massive economic downturn.

Photo of David McClarty David McClarty UUP

Order. As I pointed out, Members must ask questions of the Minister. There are 20 Members —

Photo of David McClarty David McClarty UUP

Order. Twenty Members want to ask questions. If Members at the beginning of the list use too much time, Members near the end of the list will not have an opportunity to ask questions. Therefore, you must ask a question.

Photo of Declan O'Loan Declan O'Loan Social Democratic and Labour Party

Members need an opportunity to discuss major budgetary issues properly in the House. Where else can we do so?

The Minister referred to a reduced block grant —

Photo of David McClarty David McClarty UUP

Order. You must ask a question, or I will move to the next Member.

Photo of Declan O'Loan Declan O'Loan Social Democratic and Labour Party

Why was a full budget statement not provided to the Assembly? In light of the Minister’s letter of 9 January to the Minister for Social Development, in which he was genuinely responsive to the decline in house and land sales and the consequent effect on the housing budget and the house-construction industry — and I welcome his responsiveness to that matter — why did he not take any action on that matter and outline how he will strategically supply an adequate social-housing budget for the next year?

Photo of Nigel Dodds Nigel Dodds Shadow Spokesperson (Business, Enterprise and Regulatory Reform), Without portfolio, Shadow Spokesperson (Justice), Shadow DUP Spokesperson (Without Portfolio)

I am grateful for the Member’s question — when he eventually asked it. The point is that the Executive decision not to conduct a formal Budget exercise — which was agreed by the Executive unanimously — was taken because all of the available resources had been allocated for the three years. As I have indicated to the Assembly, it is unlikely that any additional material resources will become available; if anything, there will be pressures on the current position.

The Member mentioned the social-housing budget, and I thank him for his comments about the work carried out by the Minister for Social Development and me in relation to the recent housing position. However, the current financial position means that the only way in which a specific allocation can now be given to any Department — whether it is the Department for Regional Development, the Department for Social Development (DSD), or the Department of Education — is by scaling back other public services. Given the finite Budget available, if the Member is saying that he wants to prioritise social housing — as we all do — he must say how he intends to fund that.

We never hear the Member tell us how and where he intends to get the money from, and I would love to hear him tell us that and come forward and add real value to the debate.

We will work with DSD, and all the other Departments that face pressures, to ensure that they take internal decisions about reallocations — and I am glad that, eventually, DSD did take measures in that regard, and my Department assisted in allowing it to do that. Then, the Executive would consider the range of issues that arise, the pressures identified and the resources available, and make a strategic decision. Generally speaking, the Executive makes those decisions unanimously.

Members must realise and face up to the fact that if allocations to one Department are to be increased, there must be reduced spending in another Department.

Photo of Stephen Farry Stephen Farry Alliance

I thank the Minister for his statement. Will he confirm to the House that he is declaring a funding gap of £450 million over the next two years, and that, rather than being determined by external circumstances, more than half of it is self-inflicted, resulting from the decision to defer water charges for two years? That decision was not planned for in the Programme for Government, or in the Budget that was originally set and agreed by the House. Does the Minister share my frustration that, unlike all other Governments in the world, we are not taking the opportunity to re-examine underlying Budget allocations and refocus our efforts on tackling the economic downturn?

Photo of Nigel Dodds Nigel Dodds Shadow Spokesperson (Business, Enterprise and Regulatory Reform), Without portfolio, Shadow Spokesperson (Justice), Shadow DUP Spokesperson (Without Portfolio)

I do not accept what the honourable Member says. He is advocating that water charges be imposed at a time of economic hardship — if he does not agree that the decision to defer water charges was correct, the corollary is that the charges should have been introduced. That is the simple logic of what he says. Recently, he disagreed with the decision to freeze the regional rate. We also hear other proposals from that quarter, from time to time, about tax-raising powers.

I was delighted to hear the Member yesterday welcome the announcement I made about the impact on district ratepayers, but he is now back to his usual form of advocating that water charges should have been introduced. I fundamentally disagree with that. It would have been a major imposition of hardship on hard-pressed householders at the current time. Deferring those charges was the right decision.

As regards bids, it is entirely normal for Departments, when asked to identify pressures and easements, to identify a significant level of bids and very few reduced requirements. That has been the case over the past number of years, and it is all the more certain to happen when one is looking forward two years. There is nothing surprising in what the Member has said, but it must be borne in mind that the £450 million he mentioned is well within the limits of what was declared as underspend in the financial year 2007-08, and it is entirely manageable through the in-year monitoring process.

Photo of Peter Weir Peter Weir DUP 11:15, 20 January 2009

I thank the Minister for his statement. What level of reduced requirements does the Minister project will be surrendered by Departments over the next two years?

Photo of Nigel Dodds Nigel Dodds Shadow Spokesperson (Business, Enterprise and Regulatory Reform), Without portfolio, Shadow Spokesperson (Justice), Shadow DUP Spokesperson (Without Portfolio)

Reduced requirements form a major element of our flexibility and our ability to deal with spending pressures that emerge during the year. As I have just said, it is extremely difficult to predict and measure those pressures with certainty before the start of each financial year — the picture will become much clearer during those years.

However, if recent years are taken as a reasonable guide to future behaviour, then between £150 million and £220 million in current expenditure-reduced requirements, and between £110 million and £260 million of capital investment, have been declared over the last three years. Those figures put the earlier comments about a funding gap into perspective. In relation to in-year reduced requirements and underspends that have been identified by Departments — not all of which are inescapable or will turn out to be genuine pressures — recent history and performance shows that we will be able to manage the situation carefully and prudently as we move forward.

Photo of Jennifer McCann Jennifer McCann Sinn Féin

Go raibh maith agat, a LeasCheann Comhairle. In his statement and in some of the comments that he made, the Minister said that it was important that Departments minimise their levels of underspend. Will he take any pre-emptive measures to ensure that there is no risk of money going back to the Treasury?

Photo of Nigel Dodds Nigel Dodds Shadow Spokesperson (Business, Enterprise and Regulatory Reform), Without portfolio, Shadow Spokesperson (Justice), Shadow DUP Spokesperson (Without Portfolio)

The in-year monitoring process is designed to ensure that money that is not needed in particular areas is reallocated to areas in which it can be spent and create value for money. We are all determined to ensure that as little money as possible ends up underspent at the end of the year, as that money would go back to the Treasury. It is a priority for my Department and the Executive, and it should be a priority for every Minister and Department.

I heard a suggestion that we should have a contingency fund in case there is a black hole in the Budget. The danger of taking that approach is that unspent money could be sitting in a fund as we approach the end of a financial year. That money would be very difficult to spend as Departments would not have been able to use it during the year, and a lot of it could end up returning to the Treasury.

The best approach is the one that we have adopted, which is to use the in-year monitoring process. That approach has been tried and tested over many years. As we reach the end of a financial year, we very carefully monitor the situation to ensure that money that will not be spent is declared as early as possible so that it can be reallocated to areas in which it can be spent. I think that Members will agree that that is the message that I have consistently spelt out publicly, in the Assembly, in the Executive and to Ministers.

Photo of Adrian McQuillan Adrian McQuillan DUP

I thank the Minister for his statement. Despite what others say, I think that it was a very good statement. I know that the Minister touched on the matter during his statement, but what is the current position on the issue of equal pay in the Civil Service?

Photo of Nigel Dodds Nigel Dodds Shadow Spokesperson (Business, Enterprise and Regulatory Reform), Without portfolio, Shadow Spokesperson (Justice), Shadow DUP Spokesperson (Without Portfolio)

Equal pay for junior members of the Civil Service is probably one of the most significant issues facing the Executive, as a whole, in addition to Department-specific pressures. Negotiations are continuing with the Northern Ireland Public Service Alliance with a view to reaching a negotiated settlement on the equal pay issue as soon as possible.

There are complexities associated with attempting to achieve a negotiated resolution, so it may take some time. The legal issues, the complexity of the work and the sensitivity of negotiations make it difficult to provide specific details about the timescale for such a resolution. Nevertheless, we are working on it; negotiations continue, and any settlement in relation to the one-off payment that is significantly in excess of the £100 million flexibility that was negotiated with the Prime Minister in order to meet general spending pressures will have an impact on the Executive’s spending plans.

Photo of Basil McCrea Basil McCrea UUP

The Minister’s statement lacks clarity. I am not sure whether he is telling Members that there is a problem or whether there is not a problem. It appears that we will not be able to balance the books, and that we have made commitments that we will not be able to honour. There is a £700 million shortfall —

Photo of David McClarty David McClarty UUP

Order. Questions, Mr McCrea, questions.

Photo of Basil McCrea Basil McCrea UUP

Will the Minister confirm that the pressures on current and capital expenditure over the next two years amount to £700 million, and that there are potential easements of only £60 million? In addition, given that the Minister said that he would give consideration to the most appropriate way in which to discuss the matter, what is his current thinking about that? Furthermore, it is a myth that his Executive colleagues are working together, so how does he intend to bring them together, and, although I have great confidence in the Minister, how does he intend to bring the Assembly together to deal with this difficult and serious matter?

Photo of Nigel Dodds Nigel Dodds Shadow Spokesperson (Business, Enterprise and Regulatory Reform), Without portfolio, Shadow Spokesperson (Justice), Shadow DUP Spokesperson (Without Portfolio)

I appreciate the Member’s confidence in me, and I heard what he said about making commitments that we cannot honour and about balancing the books. They are important points, and I am sure that he made them with all sincerity.

We are setting out a strategic stocktake for the next two years, and it should come as no great surprise to Members that when Departments are asked to put on the table the pressures that they envisage, as part of a budgetary process they will put a considerable amount on the table. As I said, not all those pressures are inescapable and, when we get down to it, not all will be to the scale or timescale that will require every penny piece to be met.

The reduced requirements envisaged now are not at the level that they will reach in two years, and the Member should bear in mind that, as I said in my statement, the pressure on Departments will be equivalent to 2·7% to 3·4% of departmental budgets, and settlements will be spread over the three-year Budget period. Moreover, 4·8% of resources were declared as surplus by Departments in 2007-08.

That demonstrates the situation; I am pointing out the range of issues and giving an overview, and it is important that the Committees, the Assembly and Members are aware of those matters in order to manage them. Furthermore, there may be demands from Whitehall for greater efficiencies. Therefore, I intend to continue to come to the Assembly to outline the changing situation as openly and as transparently as possible.

Photo of Dolores Kelly Dolores Kelly Social Democratic and Labour Party

I thank the Minister for his statement. Does he agree that he has painted a depressing picture of the financial situation for not only this year but for the next two years? Furthermore, will he acknowledge that the imposition of water charges is implicit in his statement, and has been stated by his party? When, exactly, did the Assembly agree to water charges, and when will it be given the opportunity to vote on the imposition of water charges?

Photo of Nigel Dodds Nigel Dodds Shadow Spokesperson (Business, Enterprise and Regulatory Reform), Without portfolio, Shadow Spokesperson (Justice), Shadow DUP Spokesperson (Without Portfolio)

The Member is right to point out the fact that direct rule Ministers decided to go ahead with water charges: the Assembly did not make that decision — I thought that that was obvious to everyone. I remember that the SDLP played a prominent role when the issue first emerged as a possibility in the earlier Assembly. In fact, it was described as the Durkan tax — something that the SDLP should remember before its Members talk about the Assembly’s role in the matter.

The Executive have taken action to relieve the burden on households. I ask the honourable Member, given her comments and those of the Alliance Member earlier, and I ask all the other Members who want to reduce, or increase, expenditure and create a greater liability for the Executive in one area, to suggest other areas in which expenditure can be cut to allow that to be done.

It is childish, irresponsible and nonsense to continually come forward with spending plans in respect of the finite Budget that is allocated to us through the block grant and say that more money is required but not say from where it can be taken. However, I look forward very soon, I understand, to proposals in that regard from that quarter as to the cuts that are going to be made in order to pay for a range of expenditure in other areas. That will allow us to get down to a serious and real debate about the issues.

The global economic situation is difficult; and Northern Ireland is not alone in that regard. The United States, British and European Governments are taking unprecedented actions and interventions because of the global credit crisis and the financial and economic situation. To pretend that Northern Ireland can be insulated from that is to engage in a fantasy and nonsense approach to politics.

The Executive are making strategic decisions that are within their power to help our industries, businesses and households. For instance, the freezing of manufacturing rates, business rates, and regional rates for households, the introduction of a relief for pensioners, and fuel credits will benefit many people, but they would not have happened under direct rule. The Executive, therefore, are taking measures to try to help people at this difficult time.

We wish that we could go further, but — as a regional devolved Administration — we are where we are with regard to the financial situation. We are not a sovereign Government, but, as Members know, even those Governments, which have borrowing and tax-raising powers, among others, are finding the going tough.

Photo of Leslie Cree Leslie Cree UUP

The Minister referred to the legacy costs of the equal pay claim and expanded on that. Is he concerned that the settlement of that pay claim will wipe out the efficiency savings of many Departments?

Photo of Nigel Dodds Nigel Dodds Shadow Spokesperson (Business, Enterprise and Regulatory Reform), Without portfolio, Shadow Spokesperson (Justice), Shadow DUP Spokesperson (Without Portfolio)

As I indicated, the equal pay settlement is an issue that faces the whole Executive; it is an addition to departmental-specific pressures. Progress has been made in that we have negotiated with the Prime Minister and the Treasury access to £100 million that will meet general spending pressures — one of which is the equal pay claim. The settlement of the pay claim will not wipe out all of the efficiency savings, because their value is of greater contribution to the Budget than the identified pressure of the equal pay claim.

However, it is worth putting on record that any settlement above £100 million will mean that there will be extra pressure on the Executive. One must remember that the equal pay claim will not be settled by a one-off payment: there will be knock-on costs to the Budget for each subsequent year.

The Member is right to identify that as a major issue for the Executive over the next year or so. However, had we not managed, a few months ago, to negotiate with the Prime Minister and the Chancellor a substantial package that has provided significant spending resources that we would not otherwise have had, the situation would be far worse, far bleaker, far gloomier and far more difficult.

Photo of Alex Attwood Alex Attwood Social Democratic and Labour Party 11:30, 20 January 2009

No one will have missed the fact that, when it comes to repeating the inaccurate assertions about what happened in relation to water rates, the Minister now chooses to borrow and adopt the language of his partners in Government, Sinn Féin.

I refer the Minister to the last page of his statement, in which he states that he is:

“currently giving consideration to the most appropriate form of process to manage the difficult funding position that we face”.

Furthermore, in that statement, the Minister concedes that the Budget for 2009-2011 will be lower than the amount that was anticipated when the Budget was approved. As Mr O’Loan outlined, he also conceded to the Minister for Social Development that her failure to secure extra money for her budget has had a materially disproportionate effect on the construction industry. Given those circumstances, does he now accept the SDLP proposal that it is time to revise the priorities that were set out in the Programme for Government and the Budget, and to invest further expenditure in social housing, retraining and upskilling?

If he does not accept that proposal, is it not the case that the Minster of Finance and Personnel will be portrayed — accurately, and as the Budget stocktake confirms — as making it up as he goes along, rather than getting to grips with the crisis that the North now faces?

Photo of Nigel Dodds Nigel Dodds Shadow Spokesperson (Business, Enterprise and Regulatory Reform), Without portfolio, Shadow Spokesperson (Justice), Shadow DUP Spokesperson (Without Portfolio)

The Member’s words contained much rhetoric but little substance. He did not offer any suggestion of how any shortfall, particularly in departmental budgets, could be made up by making cuts elsewhere. He is, therefore, adopting a simplistic and childish, rather than a mature, approach. He does not identify where the cuts should be made. His policy is one of cutting expenditure to fund a priority elsewhere.

The three-year Budget sets out clear plans for expenditure on several priorities, including social housing, fuel poverty, and so forth. The Department reacted to the capital shortfall identified in the in-year monitoring by allocating £20 million this year alone to social housing. The Department has recently demonstrated flexibility on that matter and will continue to do so.

However, although social housing is important to the construction industry, it is not its sole contributor. This year alone, slightly more than £1·5 billion of public money will fund capital investment projects for roads, schools, hospitals, housing, and so forth, across Northern Ireland. It is not simply a matter of investing solely in housing to help the construction industry. That is important, but, as we speak, 40% more investment than in 2006-07 is being made in all those other areas, too.

Therefore, I am not making it up as I go along. The money is delivering capital infrastructure to improve the future for the people of Northern Ireland. As well as helping the construction industry now, it will deliver better hospitals, schools, roads and housing. That is not an airy-fairy notion of what might happen in the future; that 40% higher expenditure is being delivered to those areas now. That amount is set to increase by 6% next year, and to increase over the next 10 years. That is not a case of a Minister making it up as he goes along; it is good planning and investing for the future, which is something that I thought the party opposite, and indeed its Executive Minister, supported.

Photo of Anna Lo Anna Lo Alliance

In response to the economic downturn, other parts of the UK are investing heavily in major building projects, which is something that our construction industry is crying out for. However, a big question mark hangs over whether DSD has enough funding to complete its set target of building 1,500 new homes.

Does the Minister agree that there is a need for DFP to be more flexible to assist DSD in meeting its top priority?

Photo of Nigel Dodds Nigel Dodds Shadow Spokesperson (Business, Enterprise and Regulatory Reform), Without portfolio, Shadow Spokesperson (Justice), Shadow DUP Spokesperson (Without Portfolio)

The Member will have noted the Minister for Social Development’s recent statement acknowledging and thanking DFP for its flexibility in being prepared to see £10 million reallocated. I was glad to see DSD take a proactive approach to that, and to the £20 million allocated to that Department in this in-year monitoring process.

There is ongoing investment in capital projects in the construction industry this year, and I am confident that the five-year target for social housing will be met. Seven major projects, worth £265 million, are under construction this year for health, including the Royal Victoria Hospital, the Ulster Hospital, the Downe Hospital, projects at Portadown and Altnagelvin, and a regional adolescent child psychiatric unit.

Some £420 million is being spent this financial year on major road projects; £127 million is being spent by DRD on the Belfast sewers project, and 10 waste-water projects worth almost £90 million are under construction; £83 million is being spent by the Department for Employment and Learning on four further education projects; £200 million is being spent by the Department of Education on 14 major projects right across the Province; the Department of Culture, Arts and Leisure (DCAL) has two major projects, worth £54 million, under construction; and DSD has urban construction under way worth £22 million. That is just some of the ongoing investment.

I have indicated already that a further £400 million will be allocated for major infrastructure going to market between the monitoring round and the end of the financial year; £115 million of that is being released out of the framework legal difficulties and going by normal procurement methods, so that that can be brought to market without any legal impairment.

All that investment shows that a considerable amount is going into the construction industry and building for the future of Northern Ireland — not just in housing, but right across the board. Every Department, including DSD, DRD and Education, could say that they could do more. However, considerably more is being achieved than was achieved under direct rule. The good thing is that that investment programme will continue year after year after year over the next 10 years as a result of good planning and good systems having been put in place.

Photo of Mary Bradley Mary Bradley Social Democratic and Labour Party

What allocations is the North to receive as part of the Barnett consequentials in Government spending over the past year?

Photo of Nigel Dodds Nigel Dodds Shadow Spokesperson (Business, Enterprise and Regulatory Reform), Without portfolio, Shadow Spokesperson (Justice), Shadow DUP Spokesperson (Without Portfolio)

As I said in my statement, the main thing that has come out of the Barnett consequentials and what Whitehall has proposed has been the flexibility to bring forward capital investment worth around £9 million from next year into this year. There is also the flexibility to bring forward capital investment worth over £75 million from 2010-11 into the next financial year, and we must decide whether we wish to do that.

I have already highlighted the issue of Whitehall efficiencies. We have taken that up with the Chancellor already, as I do not believe that it is fair to introduce the cut in the block grant for 2010-11 to Northern Ireland. However, as I have said, the context in which that discussion will happen will be difficult. Although the Government are indicating that that is how they will proceed, the Opposition at Westminster are indicating that they will go much further on spending cuts and efficiencies for 2010-11 and, indeed, would bring them in this April. That puts us in a difficult situation, but we will do our best to ease the burden on Northern Ireland.

Photo of Trevor Lunn Trevor Lunn Alliance

Several times today, the Minister has insisted that Members should not ask for expenditure without identifying other expenditure that could be cut to cover their request. Given that, does he accept that he broke his own golden rule by taking the decision to defer water charges without having the resources to do so? Does he further accept that he took that decision at a time when the economic pressures that are now having such an effect on the overall economic situation were already quite evident?

Photo of Nigel Dodds Nigel Dodds Shadow Spokesperson (Business, Enterprise and Regulatory Reform), Without portfolio, Shadow Spokesperson (Justice), Shadow DUP Spokesperson (Without Portfolio)

I do not accept that at all, because the Executive took that decision. The Member seems to ascribe a tremendous omnipotence to me, but, unfortunately, I do not hold such a position in the Executive or in the Assembly. The message from the Member’s party is very clear: its members are against the deferral of water charges. Their argument and logic are very clear. The fact that the Alliance Party is continuing to labour the point about the deferral of water charges at a time of economic hardship and difficulty will not be missed by the wider electorate.

Photo of John Dallat John Dallat Social Democratic and Labour Party

I thank the Minister for his statement. Given that the Executive funds, particularly the children’s fund, are being depleted year by year, what measures are in place to ensure that the most vulnerable groups and individuals are protected — [Interruption.] — I am sorry, Mr Deputy Speaker, but I think that I have the Floor. My question is serious; it is not intended to be embarrassing, and Mr Peter Robinson should not get excited about it.

What measures are in place to protect the most vulnerable groups and individuals in society when short-term crises arise?

Photo of Nigel Dodds Nigel Dodds Shadow Spokesperson (Business, Enterprise and Regulatory Reform), Without portfolio, Shadow Spokesperson (Justice), Shadow DUP Spokesperson (Without Portfolio)

Later today, the Member will have an opportunity to take part in the debate on, and perhaps vote on, the Financial Assistance Bill, which deals with that very issue. The Bill is about ensuring that finance can be delivered speedily, if necessary, to people who are experiencing the difficulties that he has mentioned. No doubt, he will make a contribution to that debate.

The general issue that the Member raises is important. He rightly points to the need to ensure that resources help, and are allocated to help, vulnerable people. That is why one of the major themes in the Programme for Government is the importance of dealing with poverty and those in need. It is also why the Budget allocated resources to the Departments — the Department for Social Development, the Department of Health, Social Services and Public Safety, the Department for Employment and Learning and the Department of Education. Indeed, as this is a cross-cutting issue, the Executive regularly discuss it in their Executive meetings. We must ensure that the budgets for each of the Departments that have a role to play in the matter deliver the outcomes necessary to help people in difficult times, and it is the role of Assembly Committees to monitor departmental spending plans and delivery on those issues.

Photo of Brian Wilson Brian Wilson Green

I want to ask the Minister about the decision in the 2007 Budget to end Reconnect grants. That, alongside the amendment to the building regulations, has significantly reduced demand for micro-energy systems. That, in turn, has had a disastrous impact on the sustainable energy sector and has resulted in a large number of skilled workers being made redundant. Given the increasing problems of unemployment and the small sum that would be involved, can the Minister find the resources to restore the Reconnect grants or to introduce a similar scheme to support micro-energy systems?

Photo of Nigel Dodds Nigel Dodds Shadow Spokesperson (Business, Enterprise and Regulatory Reform), Without portfolio, Shadow Spokesperson (Justice), Shadow DUP Spokesperson (Without Portfolio)

I hear what the Member says, and I will, obviously, consider any bids that individual Departments submit. It is not a matter for me to decide on today, nor is it for me to give any commitment to any particular policy or initiative; it is for Departments to produce proposals for spending plans.

The Member will be aware that the big energy efficiency challenge facing Northern Ireland involves the wider issue of how electricity and energy are generated. The contribution of microgeneration schemes is important. Nevertheless, when we consider the impact that that has on energy efficiency, it is clear that it is dwarfed by the issue of whether electricity should be generated from marine sources or by wind, and so on. There is a genuine and big debate as to whether the resources about which the Member talked would be better used on macrogeneration rather than microgeneration.

That is a debate that will continue. I note what the Member said. However, ultimately, that is a matter for the appropriate Department to bring forward.

Photo of Carmel Hanna Carmel Hanna Social Democratic and Labour Party 11:45, 20 January 2009

Will the Minister state whether any further savings will be put back into front line services, given that, yesterday, a DUP motion asked for savings to be targeted on front line services, many of which have been cut to the bone by efficiency savings in the Budget?

Photo of Nigel Dodds Nigel Dodds Shadow Spokesperson (Business, Enterprise and Regulatory Reform), Without portfolio, Shadow Spokesperson (Justice), Shadow DUP Spokesperson (Without Portfolio)

The point about efficiency savings is that they are designed to release money by delivering services in a better, more effective and leaner way. The money that is released can be invested in front line services. As I said in my statement, it is important that Committees and the entire House monitor very carefully what is done through efficiency programmes in order to ensure that they meet their intended aims, rather than result in cuts to services.

Efficiency savings are about doing things more effectively and ensuring better value for money, not cutting back front line services. All Members agree that that is the right approach. It is up to individual Departments and Ministers to come forward with their own plans and proposals, which they must justify and promote, and which the House will then examine very carefully.

Photo of David McClarty David McClarty UUP

That concludes questions to the Minister of Finance and Personnel on his statement.