Northern Ireland on track for £769mn budget overspend

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Northern Ireland’s executive faces an overspend of £769mn this year as it battles to improve the region’s struggling public services but expects little cheer from Rachel Reeves’ Budget on Wednesday.

The Stormont executive, which relies almost entirely on UK funding that it argues is significantly less than it needs, is under pressure to balance its books in order to avoid having to repay £559mn it borrowed from the UK Treasury after overspending last year. Repayment if the books are not balanced is a condition of a fresh funding deal struck with London.

But as the UK chancellor tries to fill a £40bn funding gap, ministers in Northern Ireland expect little Budget largesse on Wednesday as talks between Belfast and London continue on a longer-term funding formula as part of the UK government’s multiyear spending review next spring.

“The irony is that the overspend is the result of underfunding . . . That’s an injustice and we will continue to challenge that,” said Conor Murphy, economy minister in the power-sharing executive.

“They could wipe out the overspend in a stroke if they would actually bring us to a position of fairness,” he told the Financial Times. “The dialogue will go on. I have to say, there’s not a huge amount of encouragement from the approach to date.”

Labour’s victory in the general election in July was initially welcomed in Northern Ireland, which has the longest health service waiting lists in the UK and severe funding pressures in policing, education, childcare and other services.

But the UK government last month put on hold investment of £162mn for two so-called “city deals” aimed at boosting economic growth in parts of Northern Ireland and scrapped a revamp of a Belfast sports stadium to host matches for the Euro 2028 soccer tournament. Such decisions “don’t fill you with confidence that things will be much different”, Murphy said.

Hamstrung by political instability and inefficient spending, Northern Ireland has long struggled to stick to its budget.

As part of a deal to restore Stormont this year, London provided £3.3bn in funding for the region, including recognition that its funding formula needed to be updated.

Caoimhe Archibald, Stormont’s finance minister, said that uplift had resulted in £60mn in extra cash so far this year.

The UK government pays an annual block grant to Northern Ireland, worth some £15mn, and Archibald said the region could expect £500mn this year under a mechanism to compensate for government spending increases in England. But that will still leave Stormont with £269mn to make up.

Last week Archibald told a conference of the Northern Ireland Fiscal Council, an independent watchdog, that she was gathering evidence to present to the spring review that a more generous formula is still needed.

Murphy said overspending was “inevitable” as things stood, adding: “We aren’t that big. A small level of investment goes a long way.

Ann Watt, director of think-tank Pivotal, noted “quite a significant change in approach” by the Stormont finance ministry, “a big push for efficiency and public service reform and a strong message going out to departments about keeping within their budgets”.

But Jodie Carson, professor of strategic policy at Ulster University, said the “real game-changer” would be achieving more efficiency “to enable Northern Ireland to get on to a different financial trajectory”.

Murphy said Northern Ireland’s economy was “fairly buoyant” and that exports were rising. A post-Brexit trade deal raised hopes that Northern Ireland’s unique dual EU and UK access would spur foreign investment.

But Kieran Donoghue, head of Invest NI, the region’s economic development agency, admitted this month there had “not yet” been any sign of such investment.

Murphy, who is championing employment reforms and a focus on spreading investment across Northern Ireland, said securing multinational backers was not the only answer.

“I would much rather grow 100 companies with 100 jobs each that are indigenous, that will stay, that have their roots in this community than necessarily go out and attract 10,000 jobs from somewhere else, which might move on to another part of the world in five years’ time,” he said.