Written Ministerial Statement
The content of this written ministerial statement is as received at the time from the Minister. It has not been subject to the official reporting (Hansard) process.
Department of Finance and Personnel- 2013-14 Provisional Outturn/2014-15 June Monitoring Round
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Published on Thursday 31 July 2014.
Mr Hamilton (The Minister of Finance and Personnel): The purpose of this written statement is to inform the Assembly of the outcome of the Executive’s deliberations on Provisional Outturn for the 2013-14 financial year and the June 2014-15 in-year position. I am doing this by written statement due to the Assembly currently being in recess.
Before moving into the detail of these two issues, it is critical to put on record that I remain gravely concerned about the current financial environment.
Normally, June Monitoring Rounds are benign events whereby the Finance Minister announces how much has been carried over from the previous financial year and, added to the reduced requirements received, the Executive make a number of allocations.
That is not the case this year. Unfortunately this Monitoring Round signals the radical change in the public expenditure environment that I have been warning about for some time. Whilst this pressure on public finances is due to a range of factors, the situation is not assisted by the ideological intransigence displayed by some parties that is going to have serious consequences for every single person within Northern Ireland.
I have, for many months now, been registering my concerns about the need to address welfare reform locally, move forward with the legislation and thereby avoid increasing financial penalties. Instead, dogma and political opportunism have prevailed and this will undoubtedly impact on public services here over the rest of this financial year and beyond.
Today I find myself having to announce immediate in-year budget cuts for all departments, excluding health and education. These cuts will see spend in departments like Regional Development, Justice, and Enterprise, Trade and Investment immediately decreasing by 2.1 per cent. That is only the start with further cuts to be processed in the forthcoming October Monitoring Round. This means less money to create jobs, police our streets and create safer roads.
The local economy is now showing growth and recovery and I am very keen that we as an Executive do everything we can to support our private sector in expanding, competing globally and creating jobs. The fact that the public expenditure position has needlessly been put in jeopardy is all the more frustrating as it inhibits the Executive’s ability to support growth in the local economy.
I will expand on the in-year position and our economy later but will first set out the outturn position for last year.
2013-14 Provisional Outturn
The Provisional Outturn outcome is critically important for the Executive and this Assembly. Not only does it provide a strong indication of departmental budget management performance during the last financial year, it also determines the amount of resources that the Executive can plan to carry forward through the Devolved Administration Budget Exchange Scheme.
This scheme allows the Executive to carry forward end of year underspends up to certain limits. For 2013-14 these limits amount to £51.1 million in terms of non-ringfenced Resource DEL and £12.5 million in respect of Capital DEL. Both these limits exclude the Department of Justice (DOJ), which is subject to separate end of year arrangements. Members should note that any underspends recorded above these amounts would be lost to the Executive.
Before detailing the Budget Exchange carry forward, it is necessary to highlight the individual departmental position. As usual the Executive’s focus was on the non-ringfenced Resource DEL, which will be referred to as Resource DEL for simplicity hereafter. The non-cash ringfenced Resource DEL element is handled separately since this is strictly controlled by HM Treasury and cannot be used for any other purpose.
Departmental Outcome
The departments registered total underspends of £29.7 million in terms of Resource DEL and £34.8 million in respect Capital DEL. This is detailed in the tables attached to this Statement.
In terms of Resource expenditure, DHSSPS exceeded its Control Total by £13.1 million. This was, in my view, due to poor budget management within the department. The DHSSPS had more than three years since the Budget for 2014-15 was set to ensure it could live within its budget and in that context it was hugely disappointing that it then registered such as significant overspend. Fortunately underspend across other departments was sufficient to ensure that the Executive remained within its HM Treasury Control Total.
In terms of Capital underspends, DHSSPS reported an underspend of £10.2 million, which was due to slippage on Banbridge and Ballymena Health and Care Centre projects and extension to the shelf-life of some vaccines. Again, the budget management displayed by DHSSPS was extremely disappointing.
It should also be noted that the DETI Capital underspend includes £5.7 million relating to the Super Connected Cities scheme and can be carried forward into 2014-15 outside of the Budget Exchange Scheme.
Budget Exchange Scheme
The Budget Exchange Scheme carry forward is determined at the Northern Ireland Block level and excludes a number of elements, including the UK wide Super Connected Cities funding and the Department of Justice. Adjusting for these items reduced the total underspend to £19.4 million in terms of Resource DEL and £14.7 million in respect of Capital DEL. This corresponds to just 0.2 per cent and 1.4 per cent for Resource DEL and Capital DEL respectively.
It is also necessary to adjust for a number of ‘Centre’ items, which on the Capital side included a downward adjustment of £4.1 million to our RRI borrowing. This means that the Executive can now plan to carry forward £10.9 million of Capital DEL into 2014-15.
On the Resource side there were four such ‘Centre’ adjustments. The Regional Rate Provisional Outturn outcome was £0.7 million higher than forecast at January monitoring. There was also a £24.8 million overcommitment following the January Monitoring Round. The Executive also paid out £0.1 million less in RRI interest payments than forecast. Finally, the Executive set aside £15.0 million in January Monitoring to meet the estimated Welfare Reform penalty. However this adjustment was actioned by HM Treasury in the 2014-15 year and as a consequence this funding was carried forward from 2013-14.The impact of all of these issues is that the Executive can now plan to carry forward £10.4 million of Resource DEL into 2014-15.
Department of Justice
As already indicated, DOJ has separate End of Year Flexibility arrangements covering this Spending Review period. Under these arrangements DOJ can carry forward an unlimited amount of resources from one year to the next. However, any funding carried forward must first be used to address additional security pressures, although with certain exceptions applying in each particular year. The amounts to be carried forward will be agreed with HM Treasury ahead of the UK Supplementary Estimates later in the year. Members will note that this is the final year of the separate arrangement for DOJ.
Provisional Outturn Conclusion
Despite some poor budget management in one particular department, it is crucial to note that no money was surrendered to HM Treasury.
2014-15 JUNE MONITORING
I will now turn to the 2014 in year position, which was influenced by a range of issues and all of these will be covered next.
‘Centre’ Items
The starting point for this monitoring round is the overcommitment position, which resulted from the Capital Reallocation exercise agreed by the Executive last year. This led to a starting overcommitment of £76.7 million on the Resource side and £51.6 million on the Capital side.
There were a number of ‘Centre’ items, which along with the starting overcommitment and the Reduced Requirements surrendered by departments, impacted on the overall financial position in this monitoring round. These ‘Centre’ items are detailed next.
The Chancellor’s 2013 Autumn Statement and 2014 UK Budget had implications for our budget position in this financial year. The combined impact was an increase of £53.2 million on Resource DEL and £15.0 million on Capital Investment.
As already highlighted the Executive can now plan to carry forward £10.4 million Resource DEL and £10.9 million Capital DEL from 2013-14 under the Budget Exchange Scheme. However, as part of the 2014-15 Capital reallocation exercise undertaken last year, the Executive included an assumption that £10.0 million of Capital DEL would be carried forward from 2013-14 under the Budget Exchange Scheme. As a consequence only £0.9 million Capital DEL could be made available for reallocation in this monitoring round.
The Executive previously agreed that in 2014-15 the savings of £5.2 million arising from changes to the Education Maintenance Allowance scheme should be returned to the ‘Centre’ to offset the £4.6 million pressure relating to Student fees. The residual balance of £0.6 million Resource DEL was available for reallocation.
The Executive previously set aside £5.0 million in 2014-15 to meet the cost associated with the devolution from Westminster of powers enabling the Northern Ireland Assembly to set the rate of Air Passenger Duty on long-haul flights. HM Treasury has now advised that the actual cost to Northern Ireland in this year will be £2.1 million. As a consequence £2.9 million Resource DEL was released for reallocation in this monitoring round.
There was also an additional £9.5 million Resource funding available due to lower RRI interest payment liabilities than anticipated when the Executive’s four year Budget was first agreed. This was primarily due to ongoing low interest rates charged by the National Loans Fund and the fact that the Executive borrowed some £45 million less in 2012-13 than originally planned as part of the flexibility negotiated in respect of the A5 road scheme.
HM Treasury has also now commenced the process of reducing the Executive’s Resource DEL budget as a consequence of not implementing welfare reform. The Chief Secretary to the Treasury has imposed reductions to the Executive’s Resource DEL of £13.0 million in 2013-14 and £87.0 million in 2014-15. The £13.0 million penalty has already been removed from the Executive’s 2014-15 Resource DEL Control Total. Of course, the Resource DEL carried forward from 2013-14 under the Budget Exchange Scheme is inclusive of the £15.0 million set aside by the Executive for this purpose, which offsets the budgetary impact in 2014-15.
The latest Regional Rate forecast suggests that income in this financial year is now projected to be £5.0 million below the level included in the budget position, which then created a £5.0 million Resource DEL pressure.
There were also a number of smaller ‘centre’ pressures, including £0.4 million for statutory salaries, £0.2 million for the Coastal Communities Fund and £0.3 million for the Carrier Bag Levy.
In total, taking into account all of these items resulted in an overcommitment of £19.0 million in terms of Resource expenditure and £35.7 million on Capital investment. This was before departmental reduced requirements were factored in.
Reduced Requirements
Departments declared Reduced Requirements in this monitoring round of £5.3 million resource expenditure and £224.0 million capital investment. Full details are provided in the tables accompanying this Statement. The Executive previously anticipated £132.8 million of capital reduced requirements in the review of 2014-15 capital budgets carried out last year, leaving £91.2 million available for reallocation in this round.
Internal Reallocations
It is good practice that departments seek to manage any emerging pressures within their existing allocations before bringing forward bids for additional allocations. The public expenditure control framework stipulates that internal departmental movements across Spending Areas in excess of the de minimis threshold require the Executive’s approval. Details of the internal reallocations approved in this round are detailed in the tables accompanying this statement.
Reclassifications
Departments may also, for a number of reasons, seek to reclassify expenditure from Resource to Capital or vice versa. All such reclassifications need Executive approval and these are also shown in the tables accompanying this Statement.
Departments may also, subject to DFP approval, seek to move budget between the ringfenced and non-ringfenced Resource DEL categories. The impact of these moves is shown in the table detailing the ringfenced Resource DEL position.
Welfare Reform
I have, for some considerable time now, been alerting the Assembly to the dire financial consequences of inaction and delay on addressing welfare reform roll-out. As mentioned earlier, the first penalty instalment for 2013-14 has already been processed by HM Treasury.
The Chief Secretary to the Treasury, in his 31 March 2014 letter to me, indicated that the penalty for this financial year would be £87.0 million rising to £114.0 million next year. The longer we delay in implementing welfare reform, the greater will be the damage that we impose on public services here. I will shortly detail the enormous pressures confronting our key public services. Yet, in spite of these, some in the Executive continue to countenance inaction that wastes £87.0 million. Indeed the damage related to non-delivery of welfare reform will increase dramatically in the coming months. I am at a loss to justify to the public the possible loss of 1,400 social security related posts in Belfast and Londonderry or the need to pay what will undoubtedly be exorbitant amounts for bespoke IT systems.
If there is no agreement on welfare reform the entire £87.0 million penalty will need to be addressed in this financial year. There is absolutely no doubt about this and it will have serious implications for public services here. The Executive’s agreed approach to addressing this issue will be set out towards the end of this Statement.
Resources Available
All the above adjustments impacted on the total amount of resources available to the Executive in this monitoring round.
Setting aside the £87.0 million welfare reform penalty for now, the Executive had £51.6 million of Capital DEL available to allocate but a Resource DEL overcommitment of £10.4 million. Of course, with no agreement on welfare reform this would increase to £97.4 million.
Bids for Additional Resources
Departments submitted bids totalling £344.0 million in respect of Resource expenditure and £236.3 million in terms of Capital expenditure. The individual bids are also included in the detailed tables attached to this Statement.
Delivering Social Change/Social Investment Fund/Childcare Strategy
The Executive, as part of Budget 2011-15, set aside £11.0 million Resource and £15.0 million Capital in respect of the Social Investment Fund in this financial year. The Executive has also agreed that Delivering Social Change projects should be funded from this centrally held fund. In addition, the Executive also set aside £3.0 million Resource for this year to fund Childcare Strategy initiatives.
A number of allocations under the Delivering Social Change banner have been processed in this monitoring round. This includes £1.4 million Resource to DHSSPS, £5 million Resource to DE, £0.7 million Resource to DSD, £0.8 million Resource to DEL and £1.2 million Resource to OFMDFM.
There were also a number of allocations under the Social Investment Fund processed in this round. This included £1.9 million Resource and £1.5 million Capital to OFMDFM; and £0.5 million capital to DSD.
Furthermore an allocation of £1.5 million Resource to OFMDFM from the Childcare Fund has been processed in this round. It was also agreed that £0.15 million Capital from the Social Investment Fund should be transferred to OFMDFM for the purpose of the Childcare Strategy.
Since this is funding accessed from existing central funds set aside by the Executive for this purpose, these transactions were handled as technical transfers rather than allocations. These transfers mean that there is now £12.9 million Capital DEL remaining in the Social Investment Fund for 2014-15, with all Resource DEL relating to the Social Investment Fund now allocated. A total of £1.5 million Resource DEL relating to the Childcare Strategy remains unallocated.
Ringfenced Financial Transactions Capital Funding
The Executive started this financial year with £31.3 million of ring-fenced Financial Transactions Capital. In the 2014 January Monitoring Round, the Executive agreed to provide the University of Ulster with £10.0 million in 2014-15 for its Greater Belfast Development scheme, supplementing the £25.0 million provided in 2013-14.
The Chancellor’s 2013 Autumn Statement and 2014 March Budget resulted in additional 2014-15 Barnett consequentials relating to Financial Transactions Capital totalling £3.5 million. The Executive also carried forward £5.9 million from 2013-14. As a consequence, the Executive now has £30.6 million of Financial Transactions Capital available for allocation in 2014-15.
The Executive agreed an allocation to DETI of £0.4 million this year and a further £2.1 million next year for the Northern Ireland Science Park. Following these allocations, the Executive exited the June Monitoring Round with £30.2 million of ring-fenced Financial Transactions Capital unallocated in the 2014-15 year. Departments are progressing a range of proposals, which should hopefully facilitate further allocations in the October Monitoring Round.
Resource Expenditure Position
I will now return to the significant challenges facing the Executive’s Resource expenditure position.
The Departments submitted £344.0 million of bids, which included a number of items totalling £30.4 million that the Executive had previously committed to fund in this year. The Executive agreed to honour those commitments and details of these are also shown in the tables.
Meeting these Executive commitments increased the Resource DEL overcommitment at the ‘Centre’ to £40.8 million, again excluding the welfare reform penalty.
2014-15 Resource Baseline Reductions and Allocations
The Executive agreed that it was necessary to agree an immediate percentage reduction to departmental budgets in 2014-15. The Executive carefully considered the basis upon which the percentage reduction should be applied to departmental budgets and there were calls to respond to the pressures within the key public services of health and education.
The Executive remains extremely concerned by the deteriorating financial position of the health sector in Northern Ireland. Having incurred a Resource DEL overspend of £13.1 million last year, DHSSPS has now registered Resource pressures of £160.0 million in this financial year. While it was not part of my initial recommendation, some within the Executive also sought protection for DE albeit without offering any justification. This was not and is not my preferred approach. However, in order to obtain Executive agreement on the overall June Monitoring position, it was agreed that DE as well as DHSSPS will be protected from any 2014-15 baseline reductions, along with NI Audit Office and the NI Assembly Ombudsman and Complaints Commissioner. The decision to protect DE in addition to DHSSPS will have significant implications for other departments.
Whilst the Northern Ireland Assembly has not been exempted from the reductions at this stage, the Executive recognises that it needs sufficient funding to perform its functions effectively. Given the Assembly Commission’s independence, the Executive therefore agreed to review its decision not to exempt the Assembly Commission from the reductions as part of the October Monitoring Round and will adjust the Assembly budget at that time as necessary.
The Executive also agreed to set aside an additional £20.0 million at the ‘Centre’ to support pressures in DHSSPS. Access to the £20.0 million will be subject to DHSSPS demonstrating that it is taking the necessary actions to address the residual pressures it faces in this year to ensure that it remains within its Budgetary Control Total.
In addition, the Executive agreed a number of allocations in line with its priorities totalling £17.1 million and details of these allocations are set out in the tables accompanying the Statement.
The outworking of this protection for some departments and the additional allocations meant a greater percentage baseline reduction for other departments. The level of reduction required now to afford protection and meet the bids agreed by the Executive was 2.1 per cent for all other departments. The impact of this on departmental Resource baselines is also shown in the tables attached to this Statement.
Welfare Reform Penalty
The Executive has agreed to further Resource DEL reductions in the October Monitoring Round to cover the welfare reform penalties. If there is no agreement on Welfare Reform this would amount to the full £87 million penalty, which would be a further 2.3 per cent reduction for those departments not protected. Any reduced requirements declared in the October Monitoring Round by individual departments will be used to reduce the level of any adjustments applied to that department in the October round.
My personal preference would have been to apply the additional £87 cut now, instead of waiting until the October Monitoring round. With departments also conveying their concerns that their budgets are under severe pressure, I am also increasingly worried that the NI Executive’s overall block position runs the risk of being breached. A decision to adjust departmental budgets by the full amount now would have given departments the certainty about how much their control totals were being reduced and would have permitted far better planning around savings. However, it was not possible to obtain political agreement to that approach. Whilst prudent planning now was not possible and a further reduction to departmental budgets in October is far from ideal, non-agreement to the June Monitoring Round would have been a disastrous outcome. The mature and sensible way forward was therefore to seek to reach an agreement that would at least allow us to move forward and to action what are critically important public expenditure adjustments.
There is no doubt that this immediate 2.1 per cent reduction, along with further reductions in October, will have a serious detrimental impact on individual departments. I have expressed very clearly to all Ministers the need to now ruthlessly enforce the immediate 2.1 per cent reduction. I have also set out the critical need to plan carefully for a further 2.3 per cent reduction in October.
Capital Allocations
In terms of Capital Investment, the Executive agreed allocations totalling £90.2 million. This is a significant reallocation of resources, which will inject capital into key Executive priority areas.
The capital allocations included £23.0 million to DFP for delivery of the Executive’s Asset Management Strategy. The Strategy outlined the significant potential to deliver savings in the provision of office accommodation for the public sector through tackling fragmentation in the office estate through the imposition of property controls. SIB’s Asset Management Unit, along with DFP Properties Division, has been working to identify a range of options with the potential to deliver recurrent savings to the resource budget as a consequence of an upfront capital investment. Given the significant Capital funding available in 2014-15, the Executive believes that is now well placed to provide support to initiatives aligned to its Asset Management Strategy in this year. Importantly, this investment would deliver future resource savings in an environment of increasing resource budget constraint.
There was also £26.3 million allocated to DRD, which will allow the department to take forward additional roads structural maintenance, coastal defence works and street lighting renewal, amongst other capital works.
Another significant beneficiary is DSD who have been allocated £23.5 million for expansion of the Co-Ownership programme and completion of a number of Urban Regeneration and Community Planning projects ahead of transfer of responsibility to local councils.
These significant capital allocations are not only good news for our construction industry but should also support in excess of 200 first time buyers looking to get on to the property ladder.
Full details of all the capital allocations are detailed in the tables accompanying this Statement.
June Monitoring Outcome
Setting aside the welfare reform issue, the Executive’s decisions in this Monitoring Round resulted in a zero overcommitment in terms of Resource DEL. However, the welfare reform penalty must be addressed in this financial year. If there is no agreement on welfare reform the effective overcommitment would be £87.0 million, which would translate into a further 2.3 per cent baseline reduction for all the departments not protected from the cuts. Ministers affected must now plan to deliver these additional cuts in October.
I have also made it clear to all Ministers that they must adhere to their Budget control totals. I do not want a repeat of any department overspending against its budget at the end of this financial year. This will require difficult decisions but these must be made. The blame for this negative impact on public services can be laid firmly at the parties that continue to oppose welfare reform.
On the Capital side, the Executive left June Monitoring with an overcommitment of £38.6 million, a position that is manageable at this stage of the year. This allowed some £90.2 million of capital allocations to the departments, which will provide a significant boost for the local economy.
Whilst the public expenditure environment is extremely difficult, I am pleased with the ongoing recovery in the local economy. Our private sector continues to expand and this was reflected in the latest Ulster Bank PMI Index. This indicated that business activity here rose sharply and actually outstripped the UK average in June. This was also the thirteenth consecutive increase in new business being reported by local companies.
Our construction sector should also start to benefit from improvement in property prices. The Northern Ireland Residential Property Price Index rose 3% between Q4 2013 and Q1 2014. The recent sale of NAMA’s Northern Ireland portfolio to US investment firm Cerberus should hopefully lead to increased activity in the local commercial property sector.
Our labour market also continues to improve with the number of people seeking unemployment benefit having fallen for eighteen months in a row, with a reduction almost 5,000 claimants over the last 6 months alone.
All of these indicators have been reflected in a number of job announcements over recent months. In the last month alone, my colleague Arlene Foster has been able to announce over 800 new jobs for Northern Ireland. An expansion at Moy Park will create 628 new jobs across three sites in Dungannon, Craigavon and Ballymena. Other developments include 80 new jobs in Belfast created by Financial Transparency Utility Ltd, 40 new jobs at HeartSine Technologies in Belfast and 50 new jobs at CDE Global in Cookstown.
In conclusion, in light of the many positive developments for our local economy, it is deeply disappointing that I have to deliver such a bleak assessment of our public expenditure position. The reductions of £77.9 million to departmental budgets now are harsh but necessary. They are to assist in paying for over £30 million of commitments already agreed by the Executive as well as a much needed allocation of £20.0 million to DHSSPS. The reductions that Departments face in October – and must begin to plan for now – will be every bit as harsh but they are completely avoidable. They are harsh because the impact they will have upon public service in Northern Ireland will be devastating because of the inability of some parties within the Executive to show the leadership required in welfare reform. Those parties are solely responsible for the damaging impact that welfare reform penalty related reductions in October will have on vulnerable people and on the economy. That damaging impact could be avoided by progressing with welfare reform. I have for some time warned that inaction on welfare reform would have dire consequences for our public services and today is the start of those consequences being felt.
I have no doubt that the months ahead will be extremely challenging as the impact of budget reductions across our public services is felt on the ground. It is gravely concerning that the public expenditure position looks set to deteriorate further as the penalties for inaction on welfare reform continue to escalate. I would urge those opposed to welfare reform to carefully consider the impact their inaction will have for those most in need of our public services and urgently reconsider their position.
I commend this statement to the Assembly.
[See PDF for tables]
