Report on the Executive’s Draft Budget 2015-2016

Report-on-the-Executives-Draft-Budget-2015-16.pdf (12.95 mb)

Key Conclusions and Recommendations

1. The Committee recognises that, despite the best endeavours of DFP to gain Executive agreement earlier on the Draft Budget 2015-16, circumstances have resulted in a truncated budgetary process with considerably less scope than normal for input by the Assembly and wider public. Due to the resultant time pressures and absence of detailed information on some key issues, the Committee has been unable to prepare the type of coordinated report made in respect of previous Executive draft budgets. Previous reports have contained detailed analysis, findings and recommendations based on comprehensive evidence on strategic, cross-cutting and departmental specific issues. Instead, this informal report on the Draft Budget 2015-16 outlines the issues raised by the Committee and related recommendations, based on the more limited evidence and information available within the time constraints, and appends the responses from other Assembly committees arising from their scrutiny at a departmental level (Appendix 1). (Paragraph 7) 

2. It is recognised that the lack of clarity at this stage around some aspects of the budget reductions and allocations may, in part, be a result of the truncated nature of the 2015-16 budget process, including the fact that Assembly committees were not afforded the opportunity to scrutinise the departmental bids and proposed allocations and any supporting evidence prior to the Executive agreeing the Draft Budget for public consultation. Nonetheless, the Committee believes that the explanation of the proposed changes to the non ring-fenced Resource budgets of departments could have been presented more clearly in the Draft Budget documentation, thereby facilitating Assembly scrutiny and enhancing the public consultation. Greater transparency around the basis for allocations would enable the Assembly to determine, for example, whether a consistent approach was taken across departments and whether the funding of particular ‘central strategic pressures’ warrant the resultant reduction in departmental resource budgets. The Committee believes that the final Budget document should therefore provide further information and clarity in this regard. (Paragraph 14) 

3. Given the Executive’s stated priority of ‘rebalancing the economy’ and the importance of the availability of third-level talent in attracting FDI, the Committee believes that, in terms of the 2014 Autumn Statement Barnett Consequentials or any other additional resources identified by DFP before Budget 2015-16 is finalised, the first call on these should be to address the risk of reductions in local University and FE education and training places, particularly in terms of the qualifications and skills which drive the knowledge economy. Moreover, the Committee would recommend that, in finalising the Budget document, DFP gives consideration to more clearly setting out the wider economic impact of the specific departmental reductions and related measures such as workforce restructuring. (Paragraph 22) 

4. Given its concerns around the £133 million provision in the Draft Budget for increased employer contribution costs for public sector pensions, particularly that the risk of this pressure materialising was not highlighted earlier, the Committee seeks further assurance from DFP both on the robustness of the estimated cost of the annual increase from 2015-16 and on how any risk of such a sudden and significant impact on departmental budgets recurring in future will be mitigated. (Paragraph 29) 

5. In view of the scale of budgetary pressures in 2015-16 and beyond and given that DFP's role has changed from ‘one of challenge to one of pure co-ordination’, the Committee sees an urgent need for the Executive to provide for an effective external advisory and challenge function in respect of budgetary savings and efficiencies. If it is not possible/appropriate to confer this function on an existing body, the Committee would propose that an external ‘panel of experts’ or commission is established, which has buy-in from all Ministers. The focus would be on assisting in ensuring that savings are maximised while priority frontline services are protected.  Having the expertise and access to the necessary information and undertaking its work on an ex-ante basis, such a body should report directly to the Executive in offering an independent critique of planned savings and efficiencies and in terms of ongoing implementation, both at a departmental specific and cross-departmental level. This would provide added assurance and may also serve to boost public confidence in the Executive’s budget plans for 2015-16 and beyond. (Paragraph 46) 

6. Given that it is imperative to protect priority frontline services over the coming years, members are concerned that half of all departments are recording increases in administration expenditure and, while plausible explanations may have been offered in some instances, the Committee would call for this area of expenditure to be carefully monitored and regularly reported on by DFP at a cross-departmental level to enable rigorous challenge by the respective Assembly statutory committees. Furthermore, the Committee recommends that the final Budget document spells out how administration costs are going to be managed and reduced going forward. (Paragraph 51) 

7. The Committee would highlight previous difficulties in forecasting asset realisation and the need for the Executive to ensure that, in repaying the £100m to the UK Reserve from disposals, it will be important to also achieve best value for money in the sale of public assets. (Paragraph 57)

8. In terms of the potential to maximise asset realisation, the Committee would remind DFP of the findings from its Inquiry into Flexible Working in the Public Sector in Northern Ireland which highlighted case studies from both the public and private sectors demonstrating how, in addition to achieving cumulative savings in office accommodation costs per annum, a strategic approach to flexible location working would boost capital receipts from property sales. (Paragraph 58) 

9. The Committee recognises that staff costs account for a large proportion of many departments’ expenditure and accepts the point made in the Draft Budget document that ‘the deteriorating Resource DEL position will necessitate proactive measures to reduce the size of the public sector pay bill’. That said, in noting the alarming figures for potential redundancies being forecast by some departments and public bodies in recent weeks, the Committee would be concerned as to how redundancies on the scales being suggested, if they were to materialise, could be managed to avoid adverse impacts on priority public services. As such, the Committee believes that a credible restructuring plan should be agreed corporately and published by the Executive as soon as possible, including details of how risks to service delivery are to be managed. This would also enable more informed scrutiny and oversight of departmental spending plans by the Assembly statutory committees. (Paragraph 64) 

10. In expressing concern at the length of time it will take to conclude the OECD Review of Public Governance (i.e. November 2015), the Committee would encourage DFP and the Executive to begin applying lessons and addressing issues as they emerge during the progress of the Review. (Paragraph 66) 

11. While the Committee has not, as yet, been provided with detail on the staff-generated ideas or on how the Department will determine which of the ideas are viable, members believe that this type of bottom-up approach is vitally important in identifying potential savings, reforms and service improvements in the public sector, which may otherwise be less apparent to officials at a senior level and who may be more detached from frontline service delivery. The Committee would therefore encourage DFP to promote the use of this approach across all departments. (Paragraph 69) 

12. While welcoming the provision in the Draft Budget for a Change Fund, the Committee would encourage DFP to apply clear criteria for evaluation as well as a timetable for the assessment of projects receiving funding and for a report on the lessons to be applied in any potential expansion of the Fund beyond 2015-16. In terms of a wider preventative spending strategy, while it strongly encourages an increased focus in this direction, the Committee is mindful of the challenges which this presents. In that regard, the Committee would call on DFP to give greater priority to the scheduling of an Innovation Lab on Preventative Spend with a view to charting a way forward on this important issue (i.e. the Preventative Spend Lab is currently listed only as ‘potential’ in the Lab Portfolio). (Paragraph 79) 

13. In recognising that the pressure on public finances will continue to increase over coming years, with the resultant risk to frontline services, the Committee calls on DFP and the wider Executive to prepare and publish a consultation paper on the options across all departments for raising additional revenue through charges and further devolved taxes and duties. This should set out all the applicable considerations on each option – such as the projected revenue/costs/benefits/risks/impacts (including in terms of the economy, consumers and the most vulnerable) – necessary to ensure a fully informed debate on how best to help meet the further budgetary challenges. (Paragraph 89) 

14. Subject to receiving clarification on the queries it has raised, the Committee broadly welcomes the proposed Northern Ireland Investment Fund, especially given that this may offer an effective mechanism for addressing some of the barriers identified by the Committee in relation to maximising the potential for utilising EIB and FTC as sources of capital finance in Northern Ireland. In terms of FTC, the Committee recommends that the final Budget document includes an agreed approach to promoting awareness amongst departments and within the private sector in order to increase the uptake of opportunities for utilising this important source of capital finance. (Paragraph 96) 

15. The Committee recognises that, arising from the legacy of the Troubles, the Executive has inherited burdens on public expenditure which are distinctive and additional to those faced by other regions. While the impact of decades of conflict and division on society and the economy of Northern Ireland has been immeasurable and not fully accounted for during the peace and political processes to date, it has left a range of deep-rooted problems, the resolution of which will be protracted and require, amongst other things, enhanced public spending on particular aspects of health, welfare, education, justice and economic regeneration.  Given the scale of this challenge in a time of austerity, the Committee is fully supportive of the efforts of the local parties to secure external support, including from the UK and Irish governments, in the form of a ‘Peace Investment Fund’.  (Paragraph 106) 

16. Given the need for greater oversight and closer scrutiny of public expenditure, coupled with the recurrence of difficulties experienced by Assembly committees in terms of insufficient time and information for meaningful scrutiny of the Draft Budget 2015-16, the Committee recommends that the proposed MoU on the Budget Process is agreed between the Assembly and the Executive as a matter of urgency. In so doing, the Committee concurs with the Finance Minister that the draft MoU needs to reflect the lessons learned from the 2015-16 process. (Paragraph 114) 

17. The Committee believes that the limitations to the in-year monitoring process are all the more pertinent in the current public expenditure climate and considers that a formal budget review mechanism should operate on an annual basis, looking ahead at the subsequent financial year, as a complement to multi-year planning. In light of the unprecedented budgetary challenges facing the Executive over the coming years and while recognising the importance of continuing to plan strategically on a multi-year basis, the Committee would therefore reiterate the recommendation of its predecessor which called for ‘the establishment of a regularised annual budgetary review mechanism, set to a pre-determined timetable, which it considers will aid transparency and better enable the Executive to adapt its plans to deal with changing circumstances and unforeseen pressures’. (Paragraph 116) 

18. In terms of the proposed budgetary allocations between departments, the Committee for Finance and Personnel recommends that, in finalising the draft Budget 2015-16, the Finance Minister and the wider Executive take on board the conclusions and recommendations contained in the separate submissions from each of the Assembly committees, which have been included in Appendix 1 to this Report. The Committee expects that the Finance Minister will take responsibility for ensuring that this Report is therefore brought to the Executive's attention before the draft Budget 2015-16 is finalised and brought forward for Assembly approval. Members would also expect that the Finance Minister will outline the Executive's response to the Report when presenting the revised draft Budget 2015-16 to the Assembly. (Paragraph 118) 

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