Committee concludes that we need action on our funding arrangements

Session: 2014/2015

Date: 23 June 2015

Reference: F&P 04/14/15

The Assembly Committee for Finance and Personnel has called on the Department of Finance and Personnel (DFP) and the Executive to look at the best way to adequately fund the devolved institutions as the current system comes under scrutiny.

The Committee's recommendations come as it debated its Review of the Operation of the Barnett Formula in the Assembly today, following a lengthy and thorough examination of the system. The decision to review the system arose as discussions about the constitutional arrangements of devolved governments, and how each is funded, have come to the fore.

Chairperson of the Committee, Daithí McKay said: "My Committee has been looking at the operation of Barnett Formula, which determines the majority of funding available to the Executive through the Block Grant. Discussions about how the Formula could change and the way it currently operates have become more urgent with the ongoing debate on wider fiscal devolution. We need to ensure that we are able to deliver the services and infrastructure that our citizens require; we cannot just assume that everything will continue as it has in the past. We also needed to ensure that we do not end up being underfunded, should the current arrangements continue.

"The expert evidence that we have received suggests that the status quo may no longer be appropriate or even desirable – we must begin to proactively look at better ways of ensuring the allocation of public monies to our Executive. It is therefore important that we examine other funding formulas that might lead to a better and fairer outcome. This would include, for example, a 'needs based' rather than population based allocation, but this will require the Department and Executive to carry out research into the merits of different funding mechanisms.

"We also strongly believe that it is important that we work with the other devolved Governments to present jointly agreed proposals to the Westminster Government for initial improvements to the way the Barnett Formula operates."

The Report also highlights a number of concerns over the current operation of the Barnett Formula including the lack of transparency in respect of the Treasury's decisions on when devolved governments should receive extra monies because of spending being carried out in England, known as 'Barnett consequentials'. More equitable decision-making and dispute resolution arrangements are also needed.

Mr McKay concluded: "It has been frustrating for all of us when the Treasury does not clearly explain the basis for funding allocations to devolved governments. As we look at the possibility of increasing our tax powers, it is imperative that we know what effect that will have on our Block Grant and how any reductions will be calculated."

"We know that the funding arrangements for devolution are likely to change in the future. If we are to have an influence on the way it is reshaped, if we are to ensure that our local interests are best served, the Department and the wider Executive must act now and develop a well thought out position on funding arrangements."

ENDS

Notes to Editors

The Report on the Review of the Operation of the Barnett Formula can be found on the Assembly website here.

Some of the recommendations contained in the Report are:

• that DFP examines in more detail the extent of convergence to date and the future trajectory to fully assess the risk of Northern Ireland being significantly underfunded in future;

• that DFP and the wider Executive establishes how a needs-based assessment mechanism would best be designed to take account of the Northern Ireland context and that the chosen methodology is piloted using current data – by way of pre-emptive measures in the event that either the UK Government decides to dispense with or alter the Barnett formula or that the formula no longer meets Northern Ireland's spending needs in future;

• that DFP brings forward proposals on how the Committee and wider Assembly will be afforded the opportunity to undertake effective scrutiny of planned adjustments to the Northern Ireland block grant arising from the devolution of corporation tax and in terms of any further fiscal devolution.

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