Committee for Finance and Personnel Report (2007-2011 Mandate)

Report on the Executive's Draft Budget 2011 - 15 Volume 1

Report-on-Draft-Executive-Budget-Vol-1.pdf (4.01 mb)

Session 2010/2011

Third Report

Committee for Finance and Personnel

Report on the Executive's Draft Budget 2011-15

Volume 1

Together with the Minutes of Proceedings of the Committee 
Relating to the Report and the Minutes of Evidence

Ordered by The Committee for Finance and Personnel to be printed 16 February 2011
Committee for Finance and Personnel

Report: NIA 44/09/10R

Membership and Powers

Powers

The Committee for Finance and Personnel is a Statutory Departmental Committee established in accordance with paragraphs 8 and 9 of the Belfast Agreement, Section 29 of the Northern Ireland Act 1998 and under Assembly Standing Order 48. The Committee has a scrutiny, policy development and consultation role with respect to the Department of Finance and Personnel and has a role in the initiation of legislation.

The Committee has the power to;

• consider and advise on Departmental budgets and annual plans in the context of the overall budget allocation;
• approve relevant secondary legislation and take the Committee Stage of primary legislation;
• call for persons and papers;
• initiate inquiries and make reports; and
• consider and advise on matters brought to the Committee by the Minister of Finance and Personnel.

Membership

The Committee has eleven members, including a Chairperson and Deputy Chairperson, with a quorum of five members. The membership of the Committee during the current mandate has been as follows:

• Mr Daithí McKay (Chairperson)1
• Mr David McNarry (Deputy Chairperson)2
• Dr Stephen Farry
• Mr Paul Frew3
• Mr Paul Girvan4
• Mr Simon Hamilton
• Ms Jennifer McCann
• Mr Mitchel McLaughlin
• Mr Adrian McQuillan
• Mr Declan O'Loan
• Ms Dawn Purvis

1. Mr Daithí McKay replaced Ms Jennifer McCann as Chairperson on 19 January 2011, having replaced Mr Fra McCann on the Committee on 13 September 2010. Ms McCann replaced Mr Mitchel McLaughlin as Chairperson on 9 September 2009.

2. Mr David McNarry was appointed Deputy Chairperson on 12 April 2010 having replaced Mr Roy Beggs on the Committee on 29 September 2008.

3. Mr Paul Frew joined the Committee on 13 September 2010; Mr Ian Paisley Jr left the Committee on 21 June 2010 having replaced Mr Mervyn Storey on 30 June 2008.

4. Mr Paul Girvan replaced Mr Jonathan Craig on 13 September 2010; Mr Jonathan Craig had been appointed as a member of the Committee on 13 April 2010. Mr Peter Weir left the Committee on 12 April 2010. Mr Peter Weir had replaced Mr Simon Hamilton as Deputy Chairperson on 4 July 2009. Mr Simon Hamilton replaced Mr Mervyn Storey as Deputy Chairperson on 10 June 2008.

Table of Contents

List of Abbreviations and Acronyms used in the Report

Volume One

Executive Summary

Key Conclusions and Recommendations

Introduction

Background

The Committee's Approach

Part 1 – Strategic and Cross-Cutting Issues

Global Context

Budget Process and Presentation

Strategic Concerns

• Basis for Proposed Allocations
• Absence of Programme for Government
• Determining "Frontline"
• Defining "Inescapable" Expenditure
• End Year Flexibility and Access to the Reserve
• £18bn Capital Investment Programme
• Reinvestment and Reform Initiative
• Presbyterian Mutual Society
• Transfer from Current Expenditure to Capital Investment
• Inflation
• Proposed Assembly and Audit Office Allocations
• Budget Review Mechanism

Budgetary Savings

• Savings Delivery Plans
• Public Sector Pay

Longer-term Efficiencies

• Sick Absence
• Accommodation Efficiencies
• Shared Services
• Public Procurement
• Workforce Restructuring
• Outsourcing
• Performance and Efficiency Delivery Unit

Revenue Raising Options

• Rates
• Water Charges
• Port of Belfast
• Plastic Bag Levy
• Text Tax/Mobile Phone Masts
• MOT Charges and Tolling
• Medical Charges
• Car Parking Charges
• Other Charges

Capital Asset Realisation

Alternative Sources of Finance

Impact of AME cuts

Preventative Spending

Economic Levers

• Rebalancing the Economy
• Corporation Tax
• Prompt Payment of Government Invoices
• Banking Issues
• National Assets Management Agency
• Industrial Derating
• Green New Deal
• Independent/External Economic Advice

Part 2 – Committee Responses to Departmental Positions

Executive Departments

• Agriculture and Rural Development
• Culture, Arts and Leisure
• Education
• Employment and Learning
• Enterprise, Trade and Investment
• Environment
• Finance and Personnel
• Health, Social Services and Public Safety
• Justice
• Office of the First Minister and deputy First Minister
• Regional Development
• Social Development

Independent Bodies

• NI Audit Office
• NI Assembly

Appendix 1

Minutes of Proceedings (Extracts)

Appendix 2

Minutes of Evidence

Appendix 3

Ministerial Statement and Assembly Debate

List of Abbreviations and Acronyms used in the Report

ACNI Arts Council Northern Ireland

A&E Accident and Emergency

ALB Arm's Length Body

AME Annually Managed Expenditure

AMU Assets Management Unit

ASB Aggregated Schools Budget

BBA British Bankers' Association

CART Capital Assets Realisation Taskforce

CBI Confederation of British Industry Northern Ireland

CDO Collateralised Debt Obligations

CEF Construction Employers Federation

CFG Central Finance Group

CFP Committee for Finance and Personnel

CIF Construction Industry Forum

CSR Comprehensive Spending Review

DARD Department of Agriculture and Rural Development

DCAL Department of Culture, Arts and Leisure

DE Department of Education

DEL Departmental Expenditure Limits

DEL Department for Employment and Learning

DETI Department of Enterprise, Trade and Investment

DFP Department of Finance and Personnel

DHSSPS Department of Health, Social Services and Public Safety

DLA Disability Living Allowance

DoE Department of the Environment

DoJ Department of Justice

DRD Department for Regional Development

DSD Department for Social Development

DWP Department of Work and Pensions

EDP Efficiency Delivery Plan

EIB European Investment Bank

E&LB Education and Library Board

EQIA Equality Impact Assessments

ERINI Economic Research Institute of Northern Ireland

ESRI Economic and Social Research Institute

ESS Enterprise Shared Services

ETI Enterprise, Trade and Investment

EU European Union

EYF End of Year Flexibility

FDI Foreign Direct Investment

FSB Federation of Small Businesses

FSME Free School Meal Entitlement

FTE Full time equivalent

GB Great Britain

GP General Practitioner

GDP Gross Domestic Product

GVA Gross Value Added

HE Higher Education

HLIA High Level Impact Assessment

HM Her Majesty's

HMT Her Majesty's Treasury

HR Human Resources

ICT Information Communication Technology

ICTU Irish Congress of Trade Unions

IFS Institute for Fiscal Studies

IMF International Monetary Fund

IoD Institute of Directors

ISNI Investment Strategy for Northern Ireland

LPS Land and Property Services

JESSICA Joint European Support for Sustainable Investment in City Area

MAC Metropolitan Arts Centre

MLA Member of the Legislative Assembly

NAMA National Assets Management Agency

NGO Non-Governmental Organisation

NI Northern Ireland

NIAO Northern Ireland Audit Office

NICMA Northern Ireland Childminding Association

NICS Northern Ireland Civil Service

NICVA Northern Ireland Council for Voluntary Action

NIFHA Northern Ireland Federation of Housing Associations

NIHE Northern Ireland Housing Executive

NILGA Northern Ireland Local Government Association

NIMFG Northern Ireland Manufacturing Focus Group

NIPSA Northern Ireland Public Service Alliance

NITA Northern Ireland Theatre Association

NIW Northern Ireland Water

OCA Office Cost Allowance

OFMDFM Office of the First Minister and deputy First Minister

PAC Public Accounts Committee

PEDU Performance and Efficiency Delivery Unit

PfG Programme for Government

PFI Private Finance Initiative

PMS Presbyterian Mutual Society

PPP Public Private Partnerships

PRONI Public Record Office of Northern Ireland

PSA Public Service Agreement

PSE UK Poverty and Social Exclusion in the UK Project

PSNI Police Service of Northern Ireland

PSO Public Service Obligations

PwC PricewaterhouseCoopers

QUB Queen's University, Belfast

RoI Republic of Ireland

RRI Reinvestment and Reform Initiative

SCS Senior Civil Service

SEN Special Educational Needs

SHDP Social Housing Development Programme

SIB Strategic Investment Board

SME Small and Medium-sized Enterprises

SOU Special Olympics Ulster

SROI Social Return on Investment

SSRB Senior Salaries Review Body

STAR Skills, Training and Reinvestment

UK United Kingdom

USA United States of America

Executive Summary

The Northern Ireland Executive's draft Budget 2011-15 is distinctive in that it establishes the spending plans for government departments for the next four years, within a wider fiscal and economic context which is unparalleled in recent years. The Executive has been faced with the unenviable challenge of having to develop its budget, not only against the backdrop of an international financial crisis affecting public finances and economies across the globe, but, more particularly, on the foundation of swingeing public spending cuts arising from the UK Spending Review, announced in October 2010, which apply to the local Block Grant without any assessment of relative need. This challenge has been made all the more difficult because of the disproportionate impact of the cuts on Northern Ireland due to fundamental weaknesses in the local economy, including, for example, greater reliance on the public sector, higher rates of economic inactivity, relatively low income levels and high rates of poverty, and a legacy of capital underinvestment.

In facing up to the challenge, the Executive has indicated an intention to remain focused on the strategic priorities of growing the economy and protecting the most disadvantaged in society, whilst balancing its budget through a mix of savings, efficiencies, asset realisation, borrowing and revenue-raising measures. The success or otherwise of this approach will depend on the application and outworking of these measures across the twelve executive departments and other public bodies, combined with the ramifications for the private and third sectors. This provides the locus, therefore, for this formal response to the Executive's draft Budget 2011-15.

In presenting this Report, the Committee for Finance and Personnel is fulfilling its unique role in co-ordinating the views of all the relevant Assembly committees on the Executive's budgetary proposals. To inform the Report findings and recommendations, the Committee has canvassed the views of each scrutiny committee in addition to receiving written and oral evidence from a wide range of leading economists, academics and representatives from the business and voluntary sectors and the trade unions. In addition, in order to provide all Assembly Members with an opportunity for input, the Committee led a "take note" debate on the draft Budget in the Assembly on 31 January 2011.

While working to an extremely tight timeframe, the Committee has sought to establish a sound evidence base upon which to make a critical but constructive response to the draft Budget 2011-15, which will inform the Minister of Finance and Personnel and the wider Executive in preparing a final draft Budget. The Report contains some forty-five key conclusions and recommendations, in addition to numerous supplementary observations and proposals, both at a strategic and a departmental level. These include: criticisms of the budget process and presentation; concerns around particular savings and spending proposals; suggestions for improving financial management practices, transparency and the longer-term efficiency of public spending going forward; propositions on levers for supporting wider economic development; and recommendations for new measures and additional considerations to be factored into the revised draft Budget. The Committee looks forward to hearing the Executive's response to the Report when the Finance Minster presents the revised draft Budget 2011-15 for debate and approval by the Assembly in March 2011.

Key Conclusions and Recommendations

Global Context

1. The Committee believes that the NI Executive's draft Budget 2011-15 should not be considered in isolation from the wider international financial crisis which has unfolded in recent years and the negative impact which this is having for public expenditure and economies at the national and regional level around the world. (Paragraph 12)

2. In the view of the Committee, it is important that there is a clear recognition of the disproportionate consequences for NI of the Westminster Government's approach to tackling the budget deficit. In particular, as a result of the use of the Barnett formula to consequentially determine NI's allocation, based on spending decisions for England, the Executive's Departmental Expenditure Limit (DEL) budget has been subject to a £4bn reduction in real terms over four years, without any account being taken of relative need in NI. Additionally, due to the Westminster Government's plans to make cuts to Annually Managed Expenditure (AME), it is predicted that a further £500m will be withdrawn from the NI economy. As outlined later in the report, members have noted that, because of the relatively high rate of "families with children", higher rates of economic inactivity, greater reliance on the public sector and higher rates of disability compared to GB, these cuts to AME are also likely to have a disproportionate impact in NI. (Paragraph 19)

3. The Committee is mindful that the Executive has been faced with the unenviable challenge of managing the cuts as determined by the UK Spending Review. However, members welcome that the draft Budget 2011-15 document, published on 15 December 2010, in addition to indicating each department's budget allocation for the next four years, suggests a determination on the part of the Executive to minimise the impact of the budgetary cuts by finding new sources of revenue, with the strategic aim of protecting "the more vulnerable in society" and giving priority "to promoting the growth of a dynamic, innovative economy". (Paragraph 21)

Budget Process and Presentation

4. Given that departments had ample opportunity to prepare spending and savings plans, and to examine additional revenue-raising options, since June 2010, the Committee considers that the Executive should have been in a position to agree and publish the draft Budget 2011-15 sooner, following the UK Spending Review announcement on 20 October 2010. (Paragraph 24)

5. The Committee is extremely disappointed to note the repeated failure of a majority of departments to engage properly with their Assembly committees and the wider public on budget proposals. This is particularly unacceptable given that this Budget will determine spending allocations for key public services at a time of exceptional financial constraint and for the whole of the next Assembly mandate. In this regard, the Committee would point out that, in fulfilling their advice and scrutiny functions, the Assembly statutory committees assist in overseeing the effective and efficient delivery of the Executive's strategic priorities. (Paragraph 30)

6. In terms of ensuring transparency, and given the assurances provided by the Department of Finance and Personnel (DFP), the Committee expects that the revised draft Budget 2011-15, to be debated and voted upon in the Assembly in March, will set out the individual departmental expenditure proposals, disaggregated to unit of service level. Moreover, to avoid a recurrence of the delays in the publication of individual departmental budgetary plans and the associated impact that this has for proper consultation, the Committee calls on DFP to ensure that the full departmental-level information is included within the Executive's draft budget documents in all future budget processes. (Paragraph 32)

Strategic Concerns

7. The Committee is dismayed that, in terms of transparency, the draft Budget 2011-2015 document fails to explain clearly the rationale and guiding principles behind the proposed departmental allocations, how these have been applied consistently, and the projected implications of the budgetary reductions at a strategic level. Also, on the basis of the information available, members have found no evidence of a proper zero-based review of resource baselines to assess the true cost-benefit of programmes and how they contribute to strategic priorities. The Committee considers that this would represent a missed opportunity to find new ways of optimising resource allocations across the public sector. (Paragraph 41)

8. The Committee believes that the draft Budget 2011-2015 should have been accompanied with a draft Programme for Government 2011-15 and an updated Investment Strategy, as this would have allowed the Executive to demonstrate clearly how strategic policy priorities are driving financial allocations as opposed to financial considerations driving policy direction. While it has been stated that the "draft Budget has been drafted in a manner that ensures consistency with the emerging draft Programme for Government", the Committee awaits evidence of how the proposed budget allocations align with the Executive's strategic priorities over the next four years. (Paragraph 47)

9. The Committee believes that the proposed abolition of the programme of administrative cost controls and the delegation of responsibility in this area from DFP centrally to individual departments would reduce the level of transparency and safeguards available for protecting expenditure on frontline services. As such, the Committee suggests that, if the proposed new approach is taken, each Assembly statutory committee should place a focus on departmental administration expenditure during the budget period. (Paragraph 54)

10. The Committee recommends that DFP seeks Executive agreement on a standard definition of "inescapable" expenditure to be applied consistently and substantiated across departmental spending plans. The Committee further calls on DFP centrally to ensure that expenditure classified as "inescapable" by departments is objectively assessed in terms of its value for money, alignment with strategic objectives and effectiveness in producing outcomes. The Committee advises that each statutory committee also monitors this area of departmental spending carefully. (Paragraph 58)

11. The Committee welcomes the joint declaration of 2 February 2011 by the NI Executive, the Scottish Government and the Welsh Assembly which, among other things, called for the Westminster Government to reverse its decision to write off the accumulated End Year Flexibility (EYF) stocks. Moreover, the Committee believes that any decision to remove the EYF facility should only have been taken in the context of an agreed replacement scheme and members concur with the view that decisions, such as this, which fundamentally affect the financial management of the devolved Administrations should only be taken collectively by the parties involved and not unilaterally by Her Majesty's Treasury (HMT). (Paragraph 62)

12. In light of the ending of the EYF scheme for the devolved Administrations and the lack of certainty around any suitable replacement scheme, the Committee calls on DFP to examine the scope for the Executive to devise its own system for ensuring that departments and other public bodies, which demonstrate sound financial forecasting and monitoring in-year, have the flexibility to make prudent decisions for carrying over end-year monies without being penalised. (Paragraph 66)

13. Members are concerned that, similar to its unilateral decision to end the EYF scheme, the Westminster Government could renege on the amount of over £4bn in capital funding which remains to be paid in the final two years of the Investment Strategy up to 2017, in line with previous government commitments. The Committee would encourage the Executive to continue to press for a renewed commitment from the Westminster Government in this regard. (Paragraph 70)

14. The Committee notes the increasing cost of Reinvestment and Reform Initiative (RRI) repayments with concern. However, in view of the severe cuts to the capital budget, the Committee accepts that it will be necessary to make full use of the funding available to the Executive via RRI through the course of the Budget period. (Paragraph 72)

15. The Committee believes that it is incumbent on the Executive to ensure that the use of public money to assist the Presbyterian Mutual Society (PMS) will see a just and fair resolution for all, particularly smaller savers, with whom the Committee has much sympathy. However, to ensure transparency around the proposed plans, the Committee calls for clarity on the following points: how smaller savers could be prioritised within the scheme; projected principal and interest repayments on the £175 million loan; whether consideration should be given to charging interest on the £25 million contributions from HMT and the Executive, which would provide a return on the use of public money; the level of risk to the Executive; the size of the contribution by the Presbyterian Church; and the estimated administrator fees over the course of the working out period. Members also request that full details of the scheme, the administrator's business plan and the due diligence/risk assessment completed on that plan are made available as a matter of urgency, to enable the Assembly to make an informed decision on this issue. (Paragraph 75)

16. Given both the disproportionate impact of the recession on the local construction industry and the relatively high regional multiplier from capital expenditure in this area, the Committee cautiously supports the Executive's proposal to transfer money from current expenditure to capital investment within the budget period, bearing in mind the potential impact that this may have on other spending areas. Members also note that, as individual departments seek to reverse this trend, the impact of this approach may ultimately be limited. Consequently, members are keen to see evidence that the additional capital investment is targeted and prioritised strategically to ensure that best value for money is achieved. (Paragraph 84)

17. The Committee has concerns that a higher than anticipated rate of inflation will have an adverse impact on the real allocations of departments and on the spending power of consumers in the economy.[1] Members are therefore disappointed that the draft Budget fails to outline a cross-departmental strategy to control inflation and would call for this to be addressed in the revised draft Budget. (Paragraph 90)

18. The Committee wishes to reiterate the serious concerns that have been raised already regarding the basis for the excessive cuts which the draft Budget proposes in the resource allocations for the NI Assembly and NI Audit Office (NIAO) and the potential for this to impair the effectiveness of both of these independent scrutiny bodies. Given that lean times require stronger not weaker scrutiny, the Committee expects to see this issue resolved in the final draft Budget. (Paragraph 98)

19. In view of the limitations to the in-year monitoring process, the Committee reiterates its call 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 101)

Budgetary Savings

20. The Committee considers that the process in respect of the planning and delivery of departmental savings plans must be further developed and refined, and that clarification is needed on a number of issues, including: when it is expected the plans will be finalised; how will they be monitored; what assessment has been made to ensure there will be no net cost to the Executive in the longer term; and what contingency plans are in place should the anticipated savings not be realised. (Paragraph 107)

21. Mindful of the plans to impose pay restraint for some NI Civil Service (NICS) grades, as contained in the draft Budget, members would urge the Finance Minister to conclude his deliberations on the review of Senior Civil Service pay arrangements, having regard to the Committee's previously expressed views, and, as part of the current budget process, to set out proposed new arrangements which are "fit for purpose", cost-effective and tailored to local economic conditions. (Paragraph 112)

Longer-term Efficiencies

22. Given DFP's role in ensuring "public expenditure is managed effectively to deliver best value for the people of Northern Ireland" , the Committee calls on the Department to fulfil a role in the central monitoring and strategic coordination of budgetary savings and efficiency gains; in particular to ensure that the savings by one department do not result in a cost or adverse impact for another and that the present focus on short-term budgetary savings does not result in departments losing sight of the need to improve efficiency and effectiveness in service delivery in the medium to long term. (Paragraph 119)

23. Given the progress that has been made to date in reducing sick absence levels in NICS towards the existing overall target of 9.5 days, the Committee recommends that the Finance Minister and his Executive colleagues continue to work actively towards further reducing the existing rate of NICS absenteeism and that there is no relaxation of targets in this regard. (Paragraph 123)

24. The Committee commends the work that has been done to date to identify £2m per annum savings over the next three years through better management of the government estate. However, members remain concerned both that the reduced maintenance budget will hinder NICS from adequately addressing accommodation classed as "poor" or "very poor" and that the maintenance costs may increase in the medium to long term. (Paragraph 127)

25. The Committee is disappointed at the continued delay in the implementation of the NICS Homeworking policy and is concerned that this might be further delayed due to cost implications related to making the necessary changes to the HR Connect system. Given the potential for efficiency gains from carefully managed homeworking/remote working schemes, the Committee calls on the Finance Minister and the Executive to expedite the implementation of this new policy. (Paragraph 134)

26. The Committee recommends that, going forward, DFP establishes clear baselines for the future realisation of efficiency savings and benefits from Shared Services, so that there can be transparency around what is being achieved. The Committee also considers that DFP and the wider Executive should explore the potential to maximise savings to the wider public sector by rolling-out Shared Services beyond departments to other public bodies. (Paragraph 141)

27. The Committee reiterates its call for targets to be set for achieving further efficiencies from public procurement, to include a monetary value and baseline for such savings, with an associated implementation plan. The Committee intends to pursue this matter with the Procurement Board before the end of the Assembly mandate. (Paragraph 143)

28. While commending the work that is being undertaken within DFP in terms of reassessing its complement of senior officials, the Committee calls on the Executive to undertake a strategic review of the senior staff complements across all departments and arm's-length bodies, which should be independent and informed by benchmarking data from other jurisdictions, with the aim of ensuring that management structures across the public sector are streamlined and efficient in the context of the upcoming budget. (Paragraph 147)

29. Whilst acknowledging that some stakeholders consider that there are savings to be made through greater outsourcing of public service delivery to the voluntary and private sectors, the Committee is of the view that, though this option deserves careful consideration, all decisions on outsourcing need to be taken on a case-by-case basis and informed by robust business cases. (Paragraph 152)

30. In reiterating its previous call for DFP to put forward options to the Executive for ensuring that the Performance and Efficiency Delivery Unit functions are exercised effectively across all departments, the Committee believes that the final Budget proposals should include both an indicative work programme for the Unit and provision for enhancing its capability to undertake larger-scale reviews, with the aim of supporting tangible improvements in public service efficiency and effectiveness during the Budget period. (Paragraph 156)

Revenue Raising Options

31. The Committee is mindful that cuts in public services are regressive and will have the biggest impact on the least well off, who rely the most on these services.[2] As such, the Committee welcomes the proposal in the draft Budget to identify alternative means of raising additional revenue, which will help to reduce the impact of the UK Spending Review on public services in NI. (Paragraph 160)

32. The Committee recommends that the rating system should be kept under review, including: in terms of non-domestic rates, to explore the options for applying differential rates or surcharges on specified sectors to raise additional revenue or incentivise desired behaviour; and, for the domestic sector, to ensure that the burden of any future rate increases is shared equitably and based on ability to pay, which is especially pertinent in the context of the current downturn in the economy. (Paragraph 166)

33. Whilst recognising that further investigation is required into the proposed additional rating of mobile phone masts, including the legal considerations, the likely impact on the NI telecommunications market and the groups in the population who are the most likely to be affected[3], the Committee encourages the Executive in exploring such novel approaches to raising new revenue to support public service delivery. (Paragraph 178)

34. The Committee calls on the Executive ministers to ensure that their departments expedite attempts to identify and investigate all the possible options for raising further revenue. The Committee further recommends that this investigation includes a full and proper consultation with the respective Assembly committees and the wider public. (Paragraph 186)

Capital Asset Realisation

35. While accepting the constraints on providing commercially sensitive data, the Committee is disappointed at the dearth of information on the capital asset realisation proposals contained in the draft Budget, as this hinders informed debate and scrutiny at a strategic level. Aside from the identification of surplus assets, the Committee calls for increased focus on more efficient use of existing public assets. In this regard, while it has been pressing for a central database of all public sector assets for some considerable time, the Committee welcomes news of the Asset Management Unit's pilot project and calls for the lessons and outputs from this to be implemented across all departments and arm's-length-bodies without further delay. (Paragraph 198)

Alternative Sources of Finance

36. The Committee calls on DFP and the wider Executive to explore fully the various approaches to finding alternative sources for financing debt and capital investment, as identified by the stakeholders who provided evidence for this Report. These include, for example: utilising the borrowing capabilities of local government to engage in capital investment; further investigation of European funds; the potential to leverage the assets of the NI Housing Executive; and alternatives/reforms to Public Private Partnerships/Private Finance Initiatives for incorporating private financing in public sector projects. (Paragraph 208)

Preventative Spending

37. The Committee considers that there is a strong argument that current public spending patterns are inefficient over medium-to-long-term timeframes. Whilst acknowledging that there are indisputable barriers to a "preventative spending" approach, members believe that, with strong leadership and steadfast vision, such barriers can be overcome. As such, the Committee recommends that the Executive signals its intention in the final draft Budget 2011-15 to establish a cross-departmental taskforce which will:

• evaluate existing preventative spending initiatives across the public and voluntary sectors in NI, including their budgetary positions;
• develop proposals for strategic preventative spending programmes, that are informed by international lessons, and which could be introduced during the period covered by the Budget; and
• identify possible means of financing the proposed programmes as necessary (including, for example, through the additional revenue-raising measures being considered, social impact bonds, additional efficiency gains from relevant departmental budgets, development of pooled budgets, prioritisation in monitoring round allocations, etc). (Paragraph 234)

Economic Levers

38. Like most commentators, the Committee recognises that a competitive rate of corporation tax, on its own, would not provide the "silver bullet" for the local economy and members would support the Executive in taking a multi-faceted approach to economic growth and, in particular, to increasing opportunities for Foreign Direct Investment (FDI). However, the Committee encourages the ongoing collaborative efforts to verify the costs and address the barriers associated with introducing a competitive rate of corporation tax in NI, which would undoubtedly provide an important tool for incentivising FDI investment. Moreover, the Committee believes that the Finance Minister and his Executive colleagues should do all within their power to avail of the present opportunity to finally resolve this issue; especially given:

• the apparent receptiveness on the part of the new Westminster Government on the matter, in terms of its proposals to rebalance the economy;
• the fact that the devolution of the power could, in itself, act as an incentive to potential FDI companies; and
• that a phased approach could be taken to the Executive's subsequent exercise of the power and to incurring the associated costs, which would not necessarily take place during the upcoming budget period. (Paragraph 252)

39. The Committee recommends that, whilst departments and their arm's-length bodies should continue to strive to meet the 10-day prompt payment target, particular focus should be placed on achieving payment within the 30-day statutory payment period. In terms of meeting the statutory payment period, the Committee seeks further assurance that the risk of potential unforeseen costs of late payments is being minimised. Members continue to be concerned that the benefits of any success by public bodies in meeting prompt payment targets is not filtering down to local small and medium enterprises, particularly those in the construction industry, placed further down the public procurement supply chain. In this regard, the Committee welcomes the introduction of the Fair Payment Charter and recommends that DFP evaluates the scheme on a six-monthly basis to establish its effectiveness and identify any areas for improvement, and to report the outcome of this evaluation to the Committee. (Paragraph 261)

40. The Committee recognises that a restoration of bank lending to sensible levels is a necessary pre-requisite for economic recovery. Members support the Finance Minister and his Executive colleagues in encouraging the take-up of Government sponsored finance schemes. The Committee also welcomes the continued engagement by the Finance Minister and his officials with the British Bankers' Association (BBA), the Institute of Directors and local banking representatives on the implementation of the BBA Taskforce recommendations. The Committee recommends that the Department continues to actively monitor the relationship between the local banking sector and small businesses and welcomes the agreement that BBA will report quarterly on local lending figures. Members also support the Minister in engaging with the Whitehall Minister for Business, Industry and Skills on the development of a transparent appeals process. In addition, the Committee will be identifying these banking issues in its legacy report for the successor committee to pursue in the next mandate. (Paragraph 271)

41. The Committee welcomes the establishment of the National Assets Management Agency NI Advisory Committee and supports the Finance Minister in his ongoing engagement with his Irish Government counterpart on this issue. Members caution against a "fire sale" by NAMA of its assets in NI and seek assurance that the Finance Minister will do all in his power to prevent this from happening. (Paragraph 274)

42. The Committee considers that there is a case for reinvesting the savings gained by manufacturing businesses through industrial derating, as far as would be permissible within EU State Aid rules. As such, the Committee renews its request that DFP undertakes further detailed work in relation to the proposed "STAR scheme", in conjunction with the Department for Employment and Learning and the Department of Enterprise, Trade and Investment as appropriate. Members would wish to see any potential outcome from this type of scheme begun to be realised in the period covered by the draft Budget. (Paragraph 278)

43. In view of the benefits to the economy, the potential for boosting employment and the longer-term benefits in respect of improved housing stock and energy conservation, members welcome the Executive's agreement "in principle" to engage in the Green New Deal initiative. The Committee considers, however, that details of how funding will be increased throughout the Budget period must be set out as soon as possible. (Paragraph 285)

44. The Committee is disappointed at the seemingly ad hoc arrangements for engagement between economists in the public sector and those in the private and academic sectors in NI. Members are keen that measures are put in place to counteract a silo mentality towards budgetary/economic issues and policy making, and to ensure a healthy exchange between politicians, civil servants, academics and private sector parties. As such, the Committee calls on the Finance Minister to work with his Executive colleagues to bring forward options on establishing a formal mechanism for facilitating engagement between local economists, that would harness the talents of the various sectors, and which could also offer a central source of independent/external economic advice to the Executive. (Paragraph 289)

Committee Responses to Departmental Positions

45. In terms of the proposed budgetary allocations between departments, the Committee for Finance and Personnel recommends that, in finalising the draft Budget 2011-15, 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 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 2011-15 is finalised and considered by the Assembly. Members would also expect that the Finance Minister will outline the Executive's response to the Report when presenting the revised draft Budget 2011-15 to the Assembly. (Paragraph 292)

Introduction

Background

1. The NI Executive's draft Budget 2011-15 has been developed in the context of the UK-wide 2010 Spending Review, which was announced by the Chancellor of the Exchequer on 20 October 2010. This determined the allocation of Departmental Expenditure Limits (DEL) to Whitehall departments and, through the Barnett formula, to each of the devolved administrations. As part of the Westminster Government's plans to reduce the budget deficit, the Spending Review included a raft of spending cuts by 2014-15. As a result, while in cash terms current expenditure will increase marginally, in real terms NI was faced with cuts of 8% in current expenditure and some 40% in capital investment by 2014-15.

2. The Executive's draft Budget was announced by the Minister of Finance and Personnel on 15 December 2010. Setting out the proposed allocations for Executive departments and non-ministerial departments, the draft Budget document states that it "continues to prioritise the economy, provides a degree of protection to the health service and seeks to assist the most disadvantaged in our society".[4] The Minister's announcement launched the consultation on the draft Budget. In line with previous practice, the Committee for Finance and Personnel (CFP)has assumed the role of co-ordinating the Assembly's response to the consultation.

3. The Committee's role in co-ordinating budget scrutiny by the Assembly has resulted in a number of co-ordinated reports on behalf of Assembly statutory committees over the course of this mandate. These include the Report on the Executive's Draft Budget 2008-11, the Submission to the Executive's Strategic Stocktake of the Budget Position for 2009/10 and 2010/11, and the Report on the Review of the 2010-11 Spending Plans for NI Departments.[5] The co-ordination and cross-cutting role of the Committee also includes scrutiny of quarterly monitoring rounds, Budget Bills and Estimates, as well as a range of strategic public finance issues, including efficiency savings and public procurement. In addition, the Committee is engaged in a three-stage Inquiry into the Role of the NI Assembly in Scrutinising the Executive's Budget and Expenditure. The Committee has, therefore, drawn on its previous extensive scrutiny of budgets and financial matters in preparing this Report.

The Committee's Approach

4. In anticipation of the 2010 UK Spending Review announcement and the Executive's draft Budget, the Committee agreed, in early October 2010, to adopt a pro-active approach to exploring strategic and cross-cutting public finance issues. The Committee identified a number of key issues for consideration, including:

• Methods to safeguard long-term goals and priorities, whilst managing immediate budget cuts;
• Potential areas for achieving longer-term efficiency savings;
• Possibilities for capital assets realisation;
• Potential areas for new or increased revenue generation;
• Alternative sources of debt/capital finance; and
• Other strategic issues, such as preventative spending and the equality impact of budgetary cuts.

5. In this respect, a wide range of witnesses, including representatives of the business and voluntary sectors, economists, academics and trade unions, were invited to give evidence to the Committee. The following gave oral evidence to the Committee:

• Construction Employers' Federation (CEF);
• Professor David Heald, University of Aberdeen;
• Confederation of British Industry NI (CBI);
• NI Council for Voluntary Action (NICVA);
• Irish Congress of Trade Unions (ICTU);
• Neil Gibson, Oxford Economics;
• Mike Smyth, University of Ulster;
• Dr Esmond Birnie, PricewaterhouseCoopers;
• Dr Graham Brownlow, Queen's University, Belfast (QUB)
• Colm McCarthy, University College, Dublin;
• Victor Hewitt, Economic Research Institute of NI (ERINI); and
• John Simpson, Economist.

The Official Reports (Hansard) of the evidence sessions are provided at Appendix 2.

6. A number of those witnesses listed above also provided written submissions, which are provided at Appendix 6. Additional written submissions were received from the following:

• Action for Children NI;
• Professor Alan Barrett, Economic and Social Research Institute, Dublin;
• Lord Skidelsky and Felix Martin, Economists;
• NICMA – The Childminding Association; and
• Poverty and Social Exclusion in the UK Project, QUB.

7. In addition to the regular quarterly monitoring round briefings, the Committee also held a series of evidence sessions with senior DFP officials during which a range of strategic and cross-cutting issues were discussed, including: the implications of the 2010 UK Spending Review for NI; public sector efficiencies; shared services across the NICS, including HR Connect, Account NI and NI Direct; industrial derating; and the PMS assistance package.

8. In contrast to previous occasions, the Committee was not formally requested by the Finance Minister to co-ordinate the Assembly's response to the draft Budget 2011-15. Members considered, however, that without the Committee's co-ordinated report, there would be a lack of scrutiny at a strategic level and the Assembly's response could be somewhat disjointed. It was therefore agreed that, despite the tight consultation timeframe, the Committee should follow convention and publish a co-ordinated report on the draft Budget 2011-15 on behalf of all Assembly statutory committees. The full submission from each statutory committee is provided at Part 2 of the Report; these responses are drawn on as appropriate throughout the strategic and cross-cutting issues examined by the Committee.

9. The proposed draft Budget allocations for the NI Audit Office (NIAO) and the NI Assembly gave rise to some concern for members, in that the ability of both bodies to carry out their vital roles in scrutinising the work of departments and holding the Executive to account could be compromised, given the scale of the proposed budgetary cuts. The Committee therefore invited written submissions from both the Audit Committee and the Assembly Commission, which are provided at Part 2 of this report. A representative of the Assembly Commission also gave oral evidence to the Committee on 26 January 2011. The Hansard of the evidence session is provided at Appendix 2.

10. To further inform its report, the Committee led a "take note" debate on 31 January 2011, which gave all Members, both as representatives of Assembly committees and as individuals, an opportunity to debate the proposals set out in the draft Budget. A number of key themes and concerns were raised, which are examined in more detail later in this Report, including:

• the consultation on the draft Budget, delays in the publication of a number of departmental plans and the level of detail included therein;
• the apparent lack of a strategic approach to the draft Budget, and concern that it has been developed in the absence of a new Programme for Government (PfG) or Investment Strategy;
• the reliability of the additional funding that has already been built into the draft Budget, and the delivery of additional revenue within the budget period;
• capital assets disposal;
• the need for a budget review mechanism; and
• the scale of the proposed cuts to the budgets of the NI Assembly Commission and its independent scrutineer, the NIAO.

Additional points were also raised in terms of departmental allocations and department-specific spending proposals, such as: funding for the health service; student fees and third level education; and the education budget.

11. Finally, in terms of evidence gathering, the Committee received a high-level briefing from the Minister of Finance and Personnel and a senior departmental official at its meeting on 9 February 2011. During this session, a wide range of strategic and cross-cutting issues were discussed in detail, including many of those raised during the "take note" debate. In addition, members took the opportunity to raise the following:

• the potential impact of changes to inflation;
• transfer of funding from current expenditure to capital investment;
• concern as to whether the economy is a priority within the draft Budget, and related issues such as job creation and corporation tax;
• possible recourse to HMT's decision to remove the EYF scheme; and
• the need for flexibility to review the Budget within the four-year period.

The Hansard of the Ministerial briefing is provided at Appendix 2

Part 1 – Strategic and Cross-Cutting Issues

Global Context

12. The Committee believes that the NI Executive's draft Budget 2011-15 should not be considered in isolation from the wider international financial crisis which has unfolded in recent years and the negative impact which this is having for public expenditure and economies at the national and regional level around the world.

13. In terms of the global context, members are mindful that, at the start of the century, financial de-regulation coupled with bullish speculation unlocked the access to credit to millions of US households, many of whom belonged to what were known as the "sub-prime" category. Problematically however, these sub-prime households could ill-afford to maintain the monthly mortgage payments and began to default. This caused growth in US real estate market to come to an abrupt halt at the beginning of 2006.[6] As a result of the globalisation of the financial services, banks and investors across the world had indirectly provided credit for these households with Collateralised Debt Obligations (CDO). Sub-prime and prime mortgages were bundled and re-bundled in these CDOs in an attempt to distribute the risk of defaults across the system, but in doing so made it almost impossible to assess their degree of "toxic debt."

14. As banks began to record significant losses as a consequence of these events, governments intervened through the bail out and nationalisation of banks, with the view that the collapse of a large bank could spell disaster in the real economy. Nevertheless, the extent of the exposure of each institution remained unknown and this shattered the market's confidence to engage in lending. What began as a contraction in inter-bank lending soon led to a contraction in bank lending to business and therein triggered a recession.

15. As a consequence of the banking crisis, governments across the world were faced with the cost of the bail outs and a reduction in tax revenue as the result of the recession. Countries within the Eurozone fared particularly badly: a lack of control over their own currency meant that central banks had no control over interest rates or measures such as quantitative easing. The small size of the economies of Greece and the Republic of Ireland (RoI), coupled with the foreign ownership of much of their government debt, meant that both were forced into accepting an International Monetary Fund (IMF) bailout. In the USA, the victory of the Democrats in the 2008 presidential election resulted in the adoption of a package of expansionary fiscal measures, designed to stimulate economic growth, but which added to the overall level of government debt.

16. The City of London's position as a global financial centre also meant that the UK was particularly exposed to the crisis. In response to the downturn and the large government deficit that had emerged as a result, the Labour government began initiating public spending cuts in 2009. However, following the election of the Coalition Government in 2010, a much larger and more controversial fiscal retrenchment was initiated.

17. The Committee is mindful that, in December 2009, the then Shadow Chancellor George Osborne made claims that failure to tackle the fiscal deficit would result in a "Greek-style crisis" and this firmly established the narrative for the new Westminster administration.[7] Nevertheless, this was not a view shared by all and some academics and economists disagreed with George Osborne's assessment, including Emeritus Professor, Lord Skidelsky, who has provided a written submission to the Committee. Opponents, such as Lord Skidelsky, accused the new Westminster Government of a politically driven deficit reduction policy, which would be detrimental to an economic recovery.[8] The Committee is conscious that it remains to be seen if the unexpected and worrying contraction in the UK economy's GDP by -0.5% in the last quarter of 2010 is the beginning of a second recession.[9]

18. The UK Spending Review document, published on 20 October 2010, revealed the plans of the new Westminster Government to significantly reduce government spending in order to tackle the deficit and, in so doing, also detailed the reduction in the NI budget to £10789.2m by 2014-15. In the immediate days following, there was significant confusion as HMT claimed that this figure amounted to a 6.9% real-terms reduction over 4 years while DFP claimed it amounted to an 8.1% real-terms reduction.[10]

19. In the view of the Committee, it is important that there is a clear recognition of the disproportionate consequences for NI of the Westminster Government's approach to tackling the budget deficit. In particular, as a result of the use of the Barnett formula to consequentially determine NI's allocation, based on spending decisions for England, the Executive's DEL budget has been subject to a £4bn reduction in real terms over four years, without any account being taken of relative need in NI. Additionally, due to the Westminster Government's plans to make cuts to Annually Managed Expenditure (AME), it is predicted that a further £500 million will be withdrawn from the NI economy. As outlined later in the report, members have noted that, because of the relatively high rate of "families with children", higher rates of economic inactivity, greater reliance on the public sector and higher rates of disability compared to GB, these cuts to AME are also likely to have a disproportionate impact in NI.

20. Members noted the conclusion of Victor Hewitt, in his written evidence to the Committee, in which he outlined how detrimental the impacts of the impending cuts are likely to be by stating that "the engine of growth upon which we have relied for decades has gone into reverse in the middle of a recession. No one should underestimate the impact of this change." The Committee is also aware that conditions in the labour market are forecast to remain challenging due to the depressed economic climate. PricewaterhouseCoopers estimate that NI will lose 5.2% of public and private sector jobs, the largest such decrease of any region in the UK.[11]

21. The Committee is mindful that the Executive has been faced with the unenviable challenge of managing the cuts as determined by the UK Spending Review. However, members welcome that the draft Budget 2011-15 document, published on 15 December 2010, in addition to indicating each department's budget allocation for the next four years, suggests a determination on the part of the Executive to minimise the impact of the budgetary cuts by finding new sources of revenue, with the strategic aim of protecting "the more vulnerable in society" and giving priority "to promoting the growth of a dynamic, innovative economy".

Budget Process and Presentation

22. The Committee is mindful of the level of disquiet from Members, committees, stakeholders and the general public about the delay by the Executive in agreeing and publishing the draft Budget 2011-15. At the outset, it has to be acknowledged that the lateness of the Westminster Government's Spending Review contributed significantly to this delay, given that it was not announced until 20 October 2010, by which time the draft budget proposals from the Executive would normally have been announced already. Furthermore, it is also recognised that the system of government in NI is more complex than in other places, requiring more intensive political negotiation which can require additional time.

23. Nevertheless, the Committee would point out that, in expectation of a real-terms reduction in public expenditure, Executive departments were initially tasked with developing both spending proposals and savings plans for the period from 2011-12 to 2014-15 as far back as June 2010. DFP officials advised the Committee on 30 June 2010 that "the working assumption is that they [departments] should plan on the basis of 5% cut to current expenditure". In addition, the Executive agreed on 6 July 2010 to establish a Budget Review Group to "oversee the development of our response to the very significant budgetary issues we face".[12]

24. Following the publication of the UK Spending Review, DFP officials told the Committee, on 3 November 2010, that "the spending review outcome was almost exactly as the Department of Finance and Personnel had been forecasting for the past five or six months". Given that departments had ample opportunity to prepare spending and savings plans, and to examine additional revenue-raising options, since June 2010, the Committee considers that the Executive should have been in a position to agree and publish the draft Budget 2011-15 sooner, following the UK Spending Review announcement on 20 October 2010. The draft budgets for both Wales and Scotland were published on 17 November 2010, four weeks after the Spending Review was announced[13]; however, the draft Scottish budget was for one year, while the draft Welsh budget was a three-year plan[14]. The Committee accepts that the Executive has succeeded in bringing forward a 4-year budget, which allows for longer-term strategic planning across the public, private and voluntary sectors in NI.

25. The Committee notes that the delay in bringing forward the draft Budget 2011-15, and the statutory requirement to have the final Budget proposals laid in the Assembly before the start of the 2011-12 financial year, meant that the consultation on the draft Budget was initially restricted to eight weeks. Assembly research has shown that good practice suggests formal consultation should take place over a 12-week period, and that eight weeks is the absolute minimum. Furthermore, the consultation period spanned the Christmas and New Year holiday period, which restricted the time available to Assembly committees to scrutinise the budget proposals for their respective departments. Similar issues are likely to have been faced by the wider public.

26. The difficulties faced by Assembly committees and the wider public in responding to the consultation within a short timeframe have been exacerbated by the lack of detailed information available. During evidence sessions with DFP officials, members raised a number of concerns with regard to the level of detail included in the draft Budget document itself. As discussed later in this Report, no information is provided with regard to the rationale and methodology underpinning the departmental allocations; full details of the additional revenue that has been factored into the budget is not provided; and, while the document states that the "draft Budget has been drafted in a manner that ensures consistency with the emerging draft Programme for Government", no evidence of a draft PfG is available to confirm that this is indeed the case. Additionally, detailed spending plans for departments below the departmental allocations were not included in the draft Budget document.

27. The Executive adopted a "twin track" approach to the consultation on the draft Budget, whereby DFP has undertaken a consultation on the strategic aspects of the Budget proposals, while responsibility was delegated to the individual ministers for substantiating the high-level allocations by subsequently publishing and consulting upon spending and savings plans for their respective departments. In response to an Assembly Question, the Minister of Finance and Personnel stated that:

"A very clear directive was also given when the Budget was announced on 15 December that details of departments' budgets should be published on their respective websites within a week of the Budget announcement".[15]

28. However, Assembly Research noted that, by 6 January 2011, only four departments had published their plans, and that the longer the delay in publishing the plans then the less likely it was that the consultation would comply with good practice guidelines. The Committee has previously noted judicial review decisions regarding proper consultation. One judgement, in particular, outlined the four requirements of consultation:

"to be proper, consultation must be undertaken at a time when proposals are still at a formative stage; it must include sufficient reasons for particular proposals to allow those consulted to give intelligent consideration and an intelligent response; adequate time taken must be given for this purpose; and the product of consultation must be conscientiously taken into account when the ultimate decision is taken".

29. In their responses to this Committee, seven out of the other eleven Assembly statutory committees, in addition to the Chairperson' Liaison Group, have reported some degree of dissatisfaction with the timescale for the consultation, or have been critical of the lack of information contained in the departmental spending and savings plans, which has prohibited effective scrutiny of the budget proposals. Indeed, four of those committees have indicated that they could provide "interim" responses only to this co-ordinated Report, and that more detailed scrutiny will be undertaken in respect of their departments' plans when more information becomes available[16].

30. The Committee is mindful that, in its Report on the Review of 2010-11 Spending Plans for NI Departments[17], it was strongly critical of the failure of the majority of departments to engage properly with their respective committees on their spending proposals on that occasion. As such, the Committee is extremely disappointed to note the repeated failure of a majority of departments to engage properly with their Assembly committees and the wider public on budget proposals. This is particularly unacceptable given that this Budget will determine spending allocations for key public services at a time of exceptional financial constraint and for the whole of the next Assembly mandate. In this regard, the Committee would point out that, in fulfilling their advice and scrutiny functions, the Assembly statutory committees assist in overseeing the effective and efficient delivery of the Executive's strategic priorities.

31. The Committee notes that the approach taken in respect of consultation on the draft Budget 2011-15 differs markedly to that undertaken on the draft Budget 2008-11, when disaggregated expenditure proposals for individual departments were included in the draft Budget documentation. The Committee considers that the "twin track" approach to the consultation process, both on this occasion and previously in respect of the Review of 2010-11 Spending Plans for NI Departments, has contributed significantly to the difficulties encountered by Assembly committees, stakeholders and the wider public. During the evidence session with DFP officials on 2 February, members sought to determine the level of detail that will be included in the final budget proposals to be considered by the Assembly, and whether departmental plans will be included or again published separately. The departmental officials advised that "DFP's working assumption is that the final Budget document that is brought to the Assembly will include that disaggregated information under spending area and unit of business".

32. In terms of ensuring transparency, and given the assurances provided by the Department, the Committee expects that the revised draft Budget 2011-15, to be debated and voted upon in the Assembly in March, will set out the individual departmental expenditure proposals, disaggregated to unit of service level. Moreover, to avoid a recurrence of the delays in the publication of individual departmental budgetary plans and the associated impact that this has for proper consultation, the Committee calls on DFP to ensure that the full departmental-level information is included within the Executive's draft budget documents in all future budget processes.

Strategic Concerns

Basis for proposed allocations

33. The draft Budget 2011-15 sets out the allocations for Executive departments and other public bodies as show in Tables 1 and 2 below:

Table 1: Current Expenditure (£m)

1 Totals may not add due to roundings

Table 2: Capital Investment (Net of Receipts)1 (£m)

1 Figures for Gross Capital investment and Capital receipts are set out in Annex B to the Draft Budget document.

2 Totals may not add due to roundings

34. The Committee notes that these figures were not presented in real terms, whereas the headline information from DFP on the budgetary cuts immediately following the Spending Review was presented in real terms. Whilst mindful that such real-terms figures vary with changes in projected inflation, the Committee, nonetheless, found it helpful in its deliberations to examine the allocations across departments in real terms, as presented in Tables 3 and 4 below from Assembly research:

Table 3: Draft allocations to Executive departments for current expenditure, in real terms (10/11 prices) (£m)

Source: Assembly Research calculations based on Draft Budget 2011-15

Table 4: Draft allocations to Executive departments for capital expenditure, in real terms (10/11 prices), net of capital receipts (£m)

Source: Assembly Research calculations based on Draft Budget 2011-15

35. Arising from their examination of the departmental allocations proposed in the draft Budget document, members have expressed concern about the lack of transparency around the process for determining the proposals and about the lack of detail to explain both the basis behind the proposed allocations for current and capital expenditure over each of the four years and the projected implications of the cuts strategically; for example, in terms of the estimated quantum of job losses in the public, private and voluntary sectors. This makes it extremely difficult for the Assembly and the wider public to properly scrutinise the budgetary priorities at a strategic level.

36. In its Report on the Review of 2010-11 Spending Plans for NI Departments the Committee concluded that the consultation document should have "included supporting information to explain the rationale behind the targeted percentage savings for each department, as this would have added transparency to the process". The Committee is disappointed that this concern has not been taken on board as regards the draft Budget 2011-2015 and that no rationale has been presented to explain why one department may have a greater reduction than another.

37. When questioned on the methodology behind the proposed allocations during an evidence session on 12 January 2010, DFP officials advised that the starting point in the allocation process was the envelope of available funds, followed by the requirement to protect the Health budget. The departmental officials also advised that the Finance Minister considered "inescapable" pressures on departments and that resources were then allocated accordingly. Subsequently, during an evidence session on 2 February, DFP officials observed that "the information provided by other Departments provides virtually no insight into the demand pressures that force them to construct the bids that went to the Executive". The Committee believes that this points to a weakness in the process for gathering information from departments and calls on DFP to review this going forward, to ensure the elicitation of more insightful information on departments' bids in future budget processes. During the same evidence session, the departmental officials agreed to provide a breakdown of the "inescapable" pressures relating to the capital budget and the Committee looks forward to receiving that information in due course.

38. It is apparent to the Committee that the methodology behind the proposed allocations also fails to take account of the conclusions of its Preliminary Inquiry into Public Sector Efficiencies[18], which recommended a "thorough going reassessment of spending programmes to identify those which have achieved or are no longer fulfilling their intended purpose and which are lowest priority and therefore offer scope for allocative savings". Such an approach was also advocated by witnesses who gave evidence to the Committee prior to the publication of the draft Budget. Victor Hewitt recommended a "proper zero based review of all programmes to assess their true value against the cost or providing them". He went on to explain that "this is both a technical and political exercise, but a thorough and dispassionate analysis must come first before it is finally shaped by political judgement... politicians will make the final decisions, but they need to have unbiased information to help them do so". Similarly, Neil Gibson cautioned against an "ad-hoc" approach to the budget process. He suggested that the upcoming budgetary challenges should be seen as an opportunity for reform.

39. The Committee also received evidence from Colm McCarthy on his experience of identifying public sector budgetary savings in RoI, as part of this work with An Bord Snip Nua. It was notable that during that process no areas of spending were "red-lined". Indeed, Colm McCarthy cautioned against ring-fencing areas of expenditure like health, stating "politicians always regret red-lining and end up trying to wriggle out of it". Victor Hewitt later echoed these sentiments saying "drawing a red line on a huge budget programme will paint you into a corner when anything goes wrong over the next four years". In particular, the potential consequences of inflationary pressures on those ring-fenced areas was discussed, and the fact that inflation on health expenditure can often be higher than other areas.

40. In his evidence, John Simpson highlighted the work of the Campbell Commission in Scotland which has been established by First Minister, Alex Salmond, to examine how, against a background of unprecedented budgetary pressures, public services there can be delivered to secure positive outcomes for citizens. The Commission is due to report at the end of June 2011[19]. Members also noted that the Finance Minister was holding bi-lateral discussions with Ministerial colleagues on the expected implications of the Spending Review as far back as August 2010, and believe that this would have been an ideal time for departments to undertake a more radical review their existing budget baselines and priorities.

41. The Committee is dismayed that, in terms of transparency, the draft Budget 2011-2015 document fails to explain clearly the rationale and guiding principles behind the proposed departmental allocations, how these have been applied consistently, and the projected implications of the budgetary reductions at a strategic level. Also, on the basis of the information available, members have found no evidence of a proper zero-based review of resource baselines to assess the true cost-benefit of programmes and how they contribute to strategic priorities. The Committee considers that this would represent a missed opportunity to find new ways of optimising resource allocations across the public sector.

42. Whilst noting the arguments for protecting expenditure in particular spending areas, the Committee is also aware of the pressures that can then result in other areas. It therefore expects that the Executive will remain sensitive to this when allocating expenditure during monitoring rounds, especially if further funding becomes available during the budgetary period.

Absence of Programme for Government

43. The apparent lack of a formal and consistently applied rationale informing the decisions on budget allocations is compounded by the need for a Programme for Government (PfG) and Public Service Agreements (PSAs) aligning with the forthcoming budgetary period. The Committee considers that this is a serious shortcoming within the current budgetary process; a point which was emphasised by Members during the Committee's "take note" debate on 31 January 2011. During the debate one Member suggested that "the policy should inform the finance rather than the finance informing the policy", while another remarked "I do not know what the Budget is about. Is it just about getting through the next four years, or does the Assembly have any strategic vision?".

44. During an evidence session on 12 January, a DFP official also highlighted a further difficulty caused by the absence of a new PfG; when responding to a query around when members would have sight of the strategic level equality impact assessment on the draft Budget, the departmental official replied:

"The critical issue is that we do not have the equality impact assessments from Departments, nor do we have the Programme for Government, which is supposed to set the framework for the construction of strategic priorities and areas of impact assessment".

45. The current PfG, due to expire at the end of March 2011, states that the Executive's overarching priority is "Growing the Economy". However, during evidence sessions, members heard concerns from witnesses that this was not subsequently borne out in the decisions taken by the Executive. Victor Hewitt went so far as to say:

"The stated priority of the administration is the economy. That is a bit of fiction. The real priority will come to be seen as maintaining health, because that is what people on the doorstep want... it would be useful to have clarity on what exactly the true priorities are to get a sense of what give you the best value for money".

46. These sentiments were echoed by John Simpson, who observed that "the Northern Ireland Executive have chosen to protect social, not economic issues, and they are allowed to do so." Alongside this, members note that an updated Investment Strategy to complement the draft Budget 2011-2015 has also not yet been published.

47. The Committee believes that the draft Budget 2011-2015 should have been accompanied with a draft PfG 2011-15 and an updated Investment Strategy, as this would have allowed the Executive to demonstrate clearly how strategic policy priorities are driving financial allocations as opposed to financial considerations driving policy direction. While it has been stated that the "draft Budget has been drafted in a manner that ensures consistency with the emerging draft Programme for Government" , the Committee awaits evidence of how the proposed budget allocations align with the Executive's strategic priorities over the next four years.

Determining "Frontline"

48. There is a general consensus that, when faced with budget cuts, frontline public services ought to be prioritised. Indeed, protecting frontline services was cited as one of the Executive's priorities by the Minister of Finance and Personnel.[20]

49. Nevertheless, a number of other statutory committees have indicated that, if the draft Budget's allocations are adhered to, their departments intend to cut what they would define as frontline services. For example, the Committee for Culture, Arts and Leisure has expressed concern that the Department of Culture, Arts and Leisure (DCAL) intends to close 10 libraries and make significant cuts to both Sport NI and the Arts Council for Northern Ireland. The Environment Committee has also expressed concerns that programmes linked to the Department of the Environment's (DOE) work to avoid European infraction proceedings are under threat. The Committee accepts that this is particularly worrying because, not only are such programmes a frontline service for the entire community in terms of safeguarding the environment, but, as is clear from recent cases, their absence could lead to the Executive facing fines that are higher than initial cost of the service provision. In addition, it was revealed in the Department for Employment and Learning's spending plans (which were provided to CFP by the Committee for Employment and Learning) that the budget allocations will severely restrict that Department's implementation of its proposed skills strategy, and that the Further Education sector will struggle to sustain the same level of capacity. Members are also mindful that other statutory committees, such as Justice and Agriculture & Rural Development have expressed frustration that there has been insufficient information provided to them by their departments to enable them to assess the extent the allocations proposed will impact frontline services.

50. The Committee recognises that the exact definition of what constitutes a frontline service has been open to debate. This was highlighted during an evidence session with DFP officials on 3 October 2010 when members were told that "there is no definition" of "frontline". The ambiguity in defining frontline was further highlighted in an Assembly research paper entitled, Resource DEL: administrative cost controls, which cited a departmental official's advice that:

"Some people say that medical secretaries, for example, are not front line. However, without the medical secretaries, how do we get the appointment letters out? How do we make sure that case notes get out to the right out-patient clinic, and so on?"

51. The Assembly research paper attempts to make a more precise definition of frontline based on HMT's operation of administration cost controls. Due to the use of administration cost controls, Resource DEL is further sub-divided into programme and administrative expenditure. Subsequently it must therefore be the case that any expenditure drawn from the administration budget cannot be counted as frontline.[21]

52. It has been highlighted that the draft Budget 2011-15 sets out the Executive's plans to abolish the programme of administrative cost controls. During evidence, DFP officials outlined the reasoning behind this decision by stating that:

"We feel that it has gone as far as it can. We have borne down on administrative costs, and the feedback that our Minister is getting from other Ministers is that it is taking up more ministerial and officials' time than any benefit gained merited."

53. Concern has been expressed within the Committee that if administrative cost controls are abolished, there will be no central mechanism to ensure frontline services are protected. Other concerns have highlighted that a false economy could emerge if administration continued to be hollowed out of public services. To illustrate this point, a DFP official pointed to the work of the Public Accounts Committee (PAC), which has highlighted cases where insufficient administrative safeguards have resulted in a lower level of accountability on millions of pounds of public money.

54. As alluded to already, the Committee is concerned that neither the draft Budget nor individual departmental spending and savings plans provide sufficient detail regarding the assessment used to prioritise programme spending. Moreover, the Committee believes that the proposed abolition of the programme of administrative cost controls and the delegation of responsibility in this area from DFP centrally to individual departments would reduce the level of transparency and safeguards available for protecting expenditure on frontline services. As such, the Committee suggests that, if the proposed new approach is taken, each Assembly statutory committee should place a focus on departmental administration expenditure during the budget period.

Defining "Inescapable" Expenditure

55. In the brief narrative on the "Allocation of Resources" in the draft Budget document, it states that "all existing programmes have been closely examined to ensure that they produce the desired outcomes and represent value for money". Also, the Committee has been informed that departments have reported a wide range of "inescapable" spending commitments in their spending plans, including, for example, depreciation costs, contractual wages and rent.

56. As outlined elsewhere in this Report, the Committee has expressed particular interest in interrogating the classification of depreciation as an inescapable cost and has questioned DFP officials about the possibility of lowering the costs associated with depreciation in DFP. The Department subsequently advised that there is a standard approach to account for asset lives, revaluation and indexation across the NICS, and that business areas could not circumvent the calculations of depreciations to try and make the figures something different. However, during evidence from Neil Gibson, it was revealed that steps had been taken in RoI to examine lines of expenditure to identify alternative ways to account for things differently. Indeed, members concur with the view of Neil Gibson that all expenditure should be critiqued and that one of the challenges today is to learn how to "work the system differently". The Committee would continue to query whether there may be a method whereby the standard NICS depreciation accounting approach could be altered in order to lower depreciation costs in the upcoming budget period.

57. The Committee is anxious that there is no across-the-board definition of "inescapable" expenditure and that this leaves the concept open to interpretation by departments. The Committee is particularly concerned about this issue because it was highlighted to members in a CBI report that some departments have budgeted for inescapable expenditure in their spending plans but have failed to provide any further details of what these pressures are. Members were informed by DFP officials that budget allocations were decided after inescapable expenditure had been accounted for. For this reason, members strongly believe that the detail of this expenditure ought to be provided in order to facilitate adequate budget scrutiny and ensure transparency.[22]

58. The Committee recommends that DFP seeks Executive agreement on a standard definition of "inescapable" expenditure to be applied consistently and substantiated across departmental spending plans. The Committee further calls on DFP centrally to ensure that expenditure classified as "inescapable" by departments is objectively assessed in terms of its value for money, alignment with strategic objectives and effectiveness in producing outcomes. The Committee advises that each statutory committee also monitors this area of departmental spending carefully.

End Year Flexibility and Access to the Reserve

59. While highlighting the limitations of the in-year monitoring process as a system for reviewing budgetary allocations going forward, the Committee, nonetheless, believes that the monitoring rounds will take on greater significance in terms of minimising underspend in light of the Westminster Government's unilateral decision in the Spending Review to remove the EYF system, which had enabled Whitehall departments and the Devolved Administrations to carry forward unspent resources for use in future years. In his evidence to the Committee, Professor David Heald contended that the scheme encouraged "sensible spending", cushioned pressures and prevented the waste of money by departments spending unnecessarily at year end. Victor Hewitt noted that, in multi-year budgets, such "smoothing mechanisms" are necessary to carry money forward from one period to another.

60. The 2007 Comprehensive Spending Review (CSR) had enabled the Executive to draw down EYF of £190m current expenditure and £250m capital investment over the CSR period, as shown at Table 5 below.

Table 5: Access to End Year Flexibility 2008-11 (£m)

61. As a result of the 2010 Spending Review decision to end EYF from the end of the 2010/11 financial year, however, the Executive has lost £316m of stock, which had accumulated since 2007/08.[23] While DFP has advised that a replacement scheme from 2011/12 is expected to be brought forward by HMT at the time of the UK Budget, it is not yet known how the new scheme will operate. Though the Executive was already limited in the amount of EYF that could be drawn down annually, members noted Victor Hewitt's view that "whatever replaces EYF will be a good deal tougher".

62. The decision to end EYF and the lack of information on the scheme's replacement has given rise to a great deal of concern. In his evidence to the Committee, Professor David Heald was critical of the ability of HMT to "unilaterally take decisions on issues that fundamentally affect the financial management of the devolved Administrations". In this regard, the Committee welcomes the joint declaration of 2 February 2011 by the NI Executive, the Scottish Government and the Welsh Assembly which, among other things, called for the Westminster Government to reverse its decision to write off the accumulated EYF stocks. Moreover, the Committee believes that any decision to remove the EYF facility should only have been taken in the context of an agreed replacement scheme and members concur with the view that decisions, such as this, which fundamentally affect the financial management of the devolved Administrations should only be taken collectively by the parties involved and not unilaterally by HMT.

63. Specific concerns were also raised by members with regard to the loss of EYF stocks at individual departmental level, particularly in respect of the Education and Justice departments. As regards the Department of Education, arrangements had been in place which enabled schools and Education and Library Boards to have automatic access to any surpluses they accumulated. The Committee notes the commitment from the Finance and Education Ministers that schools will continue to have this automatic access to their surplus stocks. The Committee for Education has welcomed this guarantee and advised that "they would wish to see precisely what these arrangements will be". During the "take note" debate on 31 January 2011, the Finance Minister advised that [to facilitate this] the Assembly will operate its own scheme akin to end-year flexibility, which "should be almost self-financing…In years when there is a difference, of course, additional money will have to be found".

64. In discussions with DFP officials, members sought clarification on the position with regard to EYF for the Department of Justice (DoJ), and also in respect of that Department's access to the Reserve. The DFP officials confirmed that DoJ would be able to carry forward any of the current and capital expenditure that it had planned to draw down in 2010/11 but did not spend; additionally, the planned capital EYF draw down for 2011/12 would be honoured. The Committee notes that, in its submission to this Report, the Committee for Justice has welcomed DoJ's guaranteed access to underspends generated in 2010-11 and throughout the Budget period. In respect of DoJ's access to the Reserve, DFP advised that it was expected that access will be permitted for exceptional security pressures as envisaged by the Hillsborough Agreement. The Committee for Justice notes that a bid of £200m to fund exceptional security pressures has been with HMT "for some time", and states that it "believes the implications to the Department's budget if the bid was to be unsuccessful or only partially successful are such that it will not be possible to agree the Department of Justice budget until confirmation regarding the granting of the bid is received".

65. The Committee also notes that, in its submission to this Report, the Committee for Enterprise, Trade and Investment (CETI) called for a mechanism which would provide EYF for Invest NI's budget, similar to that agreed for the Department of Education. CETI points out that the Report on the Independent Review of Economic Policy recommended that Invest NI should have more autonomy to manage its budgets, including EYF, and that this report was endorsed by the Assembly and the Executive.

66. In light of the ending of the EYF scheme for the devolved Administrations and the lack of certainty around any suitable replacement scheme, the Committee calls on DFP to examine the scope for the Executive to devise its own system for ensuring that departments and other public bodies, which demonstrate sound financial forecasting and monitoring in-year, have the flexibility to make prudent decisions for carrying over end-year monies without being penalised.

£18bn Capital Investment Programme

67. During the Committee's first evidence session with DFP officials on the implications of the Spending Review 2011-15, members sought clarification on the consequences for the £18bn capital investment programme, which was a package introduced by HMT in 2002 as a vehicle to provide the funds necessary to improve and develop the existing infrastructure in NI. The DFP officials advised that, by the end of March 2011, some £9bn will have been spent on capital investment. They further told the Committee that, following the Spending Review settlement and taking into account other factors like capital receipts from departments, over the next four years the Executive is due to spend a further £4.57bn, taking the total capital investment programme spend to £13.6bn up to March 2015. This would leave a further £4.4bn to be made available during the final two years of the Investment Strategy up to 2017. However, the DFP officials noted that "on the presumption that that will even out at more than £2bn a year, it would require some heroic assumptions about what we may get in capital in the next spending review".

68. Of particular concern to the Committee is the question of whether, as a consequence of the Spending Review and the settlement for the Department of Justice, this £18bn capital investment commitment has been breached. DFP officials advised that it was impossible to say definitively if there has been a breach of this commitment as the Investment Strategy extends for two years beyond the Spending Review period. They also informed the Committee that HMT has set a capital DEL of less than £1bn for the next four years and, as such, it would be a difficult jump for the Executive to commit to spending over £2bn per year in the final years of the Investment Strategy.

69. In follow-up information to the Committee, DFP highlighted the statement from the Chancellor of the Exchequer on 8 May 2007, which confirmed an "£18bn long term investment strategy from 2005 to 2017". Table 6 below provides a breakdown of the £9.1bn planned capital investment to the end of 2010-11 and forecasts for 2011-12 to 2014-15 based on the recent Spending Review outcome for information.

70. The Committee sought further confirmation from DFP on whether a commitment is being sought from the Westminster Government in respect of the remaining amount of over £4bn capital investment in the two years following the Spending Review. In response, the Department confirmed that the matter was being raised by the First Minister and deputy First Minister in correspondence with the Prime Minister. Members are concerned that, similar to its unilateral decision to end the EYF scheme, the Westminster Government could renege on the amount of over £4bn in capital funding which remains to be paid in the final two years of the Investment Strategy up to 2017, in line with previous government commitments. The Committee would encourage the Executive to continue to press for a renewed commitment from the Westminster Government in this regard.

Table 6: Gross Capital Investment - Outturn and Forecast

Reinvestment and Reform Initiative (RRI)

71. Members are aware that the full £200m available to the Executive per annum under RRI has been factored into the draft Budget 2011-15. It is noted that, in previous years, the full amount of borrowing available through this facility has not been drawn down, as shown in Table 7 below[24].

Table 7: Draw down of RRI borrowing 2003/04 to 2009/10

72. In his evidence to the Committee, Mike Smyth suggested that the rationale for the RRI initiative is now stronger than it was, and as such "the Executive should seek to increase that ability to borrow". It is worth noting, however, that the Spending Review increased the cost of RRI borrowing from the Public Works Loans Board (PWLB), from 0.5% above the rate at which HMT borrows to 1% above that rate. As pointed out by Assembly research, the cost of RRI borrowing has risen at a time when the Executive plans to make more use of it. As a result, "RRI repayments are to rise from £44.9m in 2011/12 to £63.4m in 2014/15 in cash terms – an increase over the budget period of 41.2%". The Committee notes the increasing cost of RRI repayments with concern. However, in view of the severe cuts to the capital budget, the Committee accepts that it will be necessary to make full use of the funding available to the Executive via RRI through the course of the Budget period.

Presbyterian Mutual Society

73. Additionally, members note that a further £175m[25] will be borrowed under RRI in 2011-12 as part of an assistance package for PMS savers which will be supplemented by equal contributions to a mutual access fund of £25m by both HMT and the Executive[26], and a minimum of £1m from the Presbyterian Church.

74. In evidence to the Committee, DFP officials advised that the broad outline of the scheme provides for a loan of £175m to be made to the PMS Administrator (subject to EU State Aid approval), which will be used to pay creditors of the PMS. The Administrator will be responsible for the repayment of the principal loan and interest; as such, the additional drawdown of £175m from RRI in 2011-12 should be at no cost to the NI block grant. The funding provided for the mutual access fund will be used to enable smaller savers to get early access to their funds. It is anticipated that there will be a 10-year "working out period" in which the £175m loan will be repaid in full, and that the assets will have recovered sufficiently to also enable the £25m contributions from HMT and the Executive both to be repaid.

75. The Committee believes that it is incumbent on the Executive to ensure that the use of public money to assist PMS will see a just and fair resolution for all, particularly smaller savers, with whom the Committee has much sympathy. However, to ensure transparency around the proposed plans, the Committee calls for clarity on the following points: how smaller savers could be prioritised within the scheme; projected principal and interest repayments on the £175 million loan; whether consideration should be given to charging interest on the £25 million contributions from HMT and the Executive, which would provide a return on the use of public money; the level of risk to the Executive; the size of the contribution by the Presbyterian Church; and the estimated administrator fees over the course of the working out period. Members also request that full details of the scheme, the administrator's business plan and the due diligence/risk assessment completed on that plan are made available as a matter of urgency, to enable the Assembly to make an informed decision on this issue.

Transfer from Current Expenditure to Capital Investment

76. The Committee was aware at an early stage of the concerns relating to anticipated cuts to the Executive's capital budget. This was highlighted in the evidence received from the Construction Employers' Federation (CEF) in October 2010, which pointed out that, over the previous thirty months, 21,000 jobs had been lost in the construction sector, with the industry itself contracting by 25%. Despite this, CEF told the Committee that, for every £1 invested in construction, a further £2.84 is generated in economic activity. Highlighting that a number of key projects which had been considered as "ready to go" were now shelved, CEF recommended that the Executive should consider switching current expenditure to capital investment to help kickstart the construction industry. CEF also suggested that such an approach would have both economic and social benefits, not least through opportunities for employment and training through apprenticeships. This potential has already been recognised by the Committee following its inquiry into public procurement.

77. In his evidence, Professor David Heald also advocated switching current to capital expenditure when he stated that:

"It is very important to protect capital expenditure as much as possible. Obviously one does not want bad capital projects – the quality of capital projects is important – but Northern Ireland is heavily dependent on the public sector and the construction sector. My understanding is that the construction sector is quite localised, so the regional multipliers in Northern Ireland will be quite high from capital spending. Therefore, one ought to think about the question of whether room can be found to move money from resource to capital."

78. The Committee also heard from Colm McCarthy that a significant squeeze on capital expenditure by the Irish Government in the late 1980s had been "a mistake in retrospect". Members discussed how such an approach could lead to short-termism, but Colm McCarthy also advised against being over-ambitious with respect to capital projects and the need to ensure that they are not "overspecified".

79. Other economists presenting evidence to the Committee urged caution over transferring money from resource to capital. For example, Victor Hewitt said:

"Be cautious on transfer – there are no free lunches in economics. You may transfer money from current to capital to preserve construction jobs, for example. However, you should not fool yourselves that removing current expenditure to help the construction industry will not have job implications."

80. He also reminded the Committee that some construction is specialised and may require importing labour from outside NI, if the skills are not available here.

81. On a related issue, John Simpson apprised the Committee of the work of Scottish Futures Trust[27], established by the Scottish Government in a bid to avoid the unlimited expansion of Public Private Partnerships (PPP), given the commitments subsequently placed on future generations. He suggested that the Strategic Investment Board (SIB) might have a role in this regard. However, as will be discussed later in the Report, the Committee has had difficulty in extracting information from SIB on the current Investment Strategy, and indeed on projected capital receipts during the forthcoming Budget period.

82. The Committee notes the intention of the Executive, as outlined in paragraph 3.49 of the draft Budget document, to "transfer resources from current expenditure into capital investment" to "help counteract the impact in the reduction in the capital DEL". Members understand that this transfer arises from a straight switch from current to capital expenditure, and also from current expenditure released through "invest to save" initiatives being redirected into capital expenditure as illustrated in the Table below.[28]

Table 8: Extract from Table One: Reconciliation of Planned Spend to HM Treasury Control Totals – Current Expenditure (£ million)

83. The Committee explored this further with departmental officials during an evidence session on 2 February 2011, and also when questioning the Minister on 9 February 2011. Members learnt that, in looking at the pressures which exist in respect of the budgets of individual departments for 2011-12, some Ministers have been considering the possibility of switching from capital back to current. The Education Minister, for example, has identified £41m that she wishes to move from capital to current. DFP officials advised the Committee that HMT controls, as established in the draft Budget document, cannot be exceeded and that, if there is to be a switch back from capital to current, this too cannot exceed the existing calculations. In real terms this means that in year one, as £38.5m has been allocated to switch from current to capital, this amount cannot be exceeded should Ministers wish to reverse this decision. Members were also advised that the Health Minister has been given discretion to switch between his current and capital budgets during the four-year period, without recourse to the Executive. Members note the submission from the Committee for Health, Social Services and Public Safety which, while acknowledging this option, emphasised that it is more important for the Department to continue to look for efficiencies in order to maximise its draft Budget.

84. Given both the disproportionate impact of the recession on the local construction industry and the relatively high regional multiplier from capital expenditure in this area, the Committee cautiously supports the Executive's proposal to transfer money from current expenditure to capital investment within the budget period, bearing in mind the potential impact that this may have on other spending areas. Members also note that, as individual departments seek to reverse this trend, the impact of this approach may ultimately be limited. Consequently, members are keen to see evidence that the additional capital investment is targeted and prioritised strategically to ensure that best value for money is achieved.

Inflation

85. In his evidence to the Committee, Victor Hewitt advised that "a little bit of inflation when a country is hugely in debt is no bad thing." He also explained that the Westminster Government would pay less interest on its debt and possibly even less debt overall if inflation were sufficiently high. Nonetheless, the Committee is aware that, whilst this may prove positive for central government, a higher rate of inflation will lead to a smaller budget in real terms for NI.

86. The Committee noted the comments by Neil Gibson who stated that "if inflation can be kept at 1% rather than 3% the challenge of the cuts ahead will be much more modest." He pointed out to the Committee that wages make up a significant portion of the public sector's expense and that, in NI, a 1% increase would equate to approximately £40m. It was also the view of Neil Gibson that there is scope to lower overall inflation by cutting the amount paid by the public sector in procurement. Moreover, he challenged the wage bill for unskilled workers in the public service and argued that, compared to the private sector, the public sector paid up to 50% more for unskilled workers. Nonetheless, Neil Gibson cautioned that some elements, such as the rising cost of food and the cost of drugs in the Health Service, are beyond the control of the Executive.

87. The Committee is conscious that NI's four-year budget package has been determined based on current prices. Members were informed by the Minister that a GDP deflator built into the budget position for the 2011-12 year was 1.9% when the draft Budget was agreed by the Executive, but that the GDP deflator has since increased to 2.5%.

88. The Committee is conscious that the draft Budget outlines the Executive plans to protect the Health budget based on an inflation rate of 1.9% over the four-year period. Nonetheless, it has not been made clear if the Health budget will still be protected in real terms in the actual budget, when higher GDP deflators are used and if inflation exceeds the anticipated rate over the four years. Members assume that, if the decision is made to protect Health in real terms and inflation does exceed the anticipated rate, that additional funding for the Health budget will be required.

89. The Committee notes that no account has been made for inflation in the draft Budget allocation of the Social Investment Fund. In addition, members note that the draft Budget sets out the Executive's plan to increase the non-domestic regional rate by up to 2.7% per year, with the claim that this means no real-terms increase in the rates over the four year budget. The Committee is therefore alert to the fact that the draft Budget sets out two different inflation assumptions: 1.9% and 2.7%.

90. The Committee has concerns that a higher than anticipated rate of inflation will have an adverse impact on the real allocations of departments and on the spending power of consumers in the economy.[29] Members are therefore disappointed that the draft Budget fails to outline a cross-departmental strategy to control inflation and would call for this to be addressed in the revised draft Budget.

Proposed Assembly and Audit Office Allocations

91. The Executive's draft Budget document proposes year-on-year cuts of 5% in cash terms to current expenditure allocations for both the NI Assembly Commission and the NIAO. Assembly research has shown that this represents real-terms cuts of 26.3% and 25.7% for the Assembly and NIAO respectively, which is considerably higher than the cuts being proposed to any Executive department and also higher than the comparable institutions in Scotland and Wales. Evidence presented to the Committee by the Assembly Commission and Audit Committee indicated that this posed a real threat to the future effectiveness of the Assembly and its independent scrutineer, the NIAO. Such concern, in terms of the impact on NIAO, was also highlighted in correspondence received from the PAC.

92. The Committee is agreed that, given the challenges surrounding the forthcoming budgetary period, all public bodies should endeavour to maximise efficiencies and that the Assembly, as an institution, should be no exception. That said, the Committee is clear that the Assembly Commission is not wishing to shirk its responsibilities. Indeed, on 8 November 2010, a Private Members' Motion was passed by the Assembly calling on the Commission "to reduce its running costs in line with the level of reduction faced by Executive Departments" and the Commission has, in fact, successfully identified savings at a level above the average for Executive departments. In its evidence to the Committee, however, the Assembly Commission referred to the budget process guidance which was agreed by the Executive and issued to all departments by DFP in June 2010. This stated that:

"In line with previous arrangements, the NI Assembly and the NI Audit Office will be provided with the level of funding required by each organisation (both current expenditure and capital investment) in order to carry out their respective functions, as agreed by the Assembly Commission and the Public Accounts Committee (sic) respectively." [30]

93. Members were concerned to find, however, that these well-established arrangements do not appear to have been followed in determining the proposed allocations for both of the independent bodies concerned and that, in the case of the Assembly Commission, the draft budget allocation also appears at odds with the expressed will of the House, as agreed on 8 November 2010. The Committee consequently wrote to the Minister to highlight the importance of ensuring that the capacity of the Assembly to fulfil its functions is not adversely affected as a result of the final budget allocation.

94. The Speaker subsequently wrote to the Committee on 8 February 2011 confirming that a revised Budget position had been agreed by the Assembly Commission on 7 February 2011 and that this was communicated to the Finance Minister. The Speaker advised members that "the revised budget anticipates the savings expected from the planned efficiency reviews to give a real cut of 17% over the CSR period". A reply from DFP to the Assembly Commission was awaited.

95. In its submission to the Report, the Audit Committee recognised the significant reduction in the levels of funding available from within the NI Block Grant and indicated the importance of demonstrating that "the NIAO is willing and ready to bear its fair share of the savings that must be made." However, the Audit Committee has also advised that, although the draft Budget document contains an allocation for NIAO, "further to Section 66 of the Northern Ireland Act 1998, it is for the Audit Committee (in place of the Department of Finance and Personnel) to agree the estimates of the NIAO and lay those estimates before the Assembly". Given the distinctive legislative position outlined, members question whether it is appropriate that the Executive's draft Budget 2011-15 should set out a proposed budget for NIAO that has not been agreed by the Audit Committee.

96. Coincidentally, members also note that, during his evidence session on 3 November 2010, Professor David Heald advised that "the protection of audit and the protection of the budget of the Northern Ireland Audit Office are very important, because scrutiny and value for money audit should attract more attention during periods of financial difficulty". This point was reflected during the Committee's "take note" debate on 31 January 2011, when it was pointed out that there is a strong argument that lean times require stronger not weaker scrutiny and that it would be false economy otherwise.

97. It was with some alarm, therefore, that the Committee considered the response from DFP which, when questioned about how any additional pressures faced by the Assembly and NIAO might be dealt with, advised that "the in-year monitoring process would always provide a mechanism to ensure the bodies had access to whatever funding was necessary. No bids previously made have been left uncovered". Leaving aside the practical reality that no guarantees can be provided, given the diminishing level of reduced requirements being declared by departments during the in-year monitoring process, the Committee fears that DFP has lost sight of the need to maintain the operational independence of both the Assembly and NIAO. Going forward, the Committee, as part of its ongoing budget scrutiny inquiry, intends to examine the future arrangements for setting the Assembly's budget, in the context of international best practice in ensuring the independence of the legislature.

98. The Committee wishes to reiterate the serious concerns that have been raised already regarding the basis for the excessive cuts which the draft Budget proposes in the resource allocations for the Assembly and NIAO and the potential for this to impair the effectiveness of both of these independent scrutiny bodies. Given that lean times require stronger not weaker scrutiny, the Committee expects to see this issue resolved in the final draft Budget.

Budget Review Mechanism

99. In its Second Report on the Inquiry into the Role of the NI Assembly in Scrutinising the Executive's Budget and Expenditure[31], the Committee considered Assembly research which found that good practice indicated that a regularised annual process is adhered to in respect of setting budgets. In noting that it was expected the Budget 2010 process would set the spending departmental spending plans for four years from 2011-15, the Committee recommended that:

"A regularised annual budgetary review process is established...with a pre-determined timetable, to enable the Executive and Assembly to make interim reappraisals of departmental allocations against progress in delivering PfG priorities and savings".

100. In response to this recommendation, DFP advised that such a mechanism already exists in the form of in-year monitoring, undertaken on a quarterly basis to a pre-determined timetable; this position has been reiterated by the Minister, and also by departmental officials in both oral evidence and in written correspondence to the Committee.

101. The Committee accepts that in-year monitoring is a valuable process, which has allowed for the reallocation of substantial amounts of money during the Budget 2008-11 period. Members are mindful, however, that it was necessary for the Executive to undertake a review of the 2010-11 departmental spending plans, which was essentially a "mini budget", as the range of emerging spending pressures could not be managed effectively through the in-year process. This highlights the fact that the diminishing level of reduced requirements being declared in-year, means that the monitoring round process is now a less effective mechanism for dealing with new or unforeseen pressures. Furthermore, the monitoring round system is, by definition, concerned with in-year allocations, lacks the capacity to plan for future years and does not provide a transparent assessment of progress against strategic priorities. In view of the limitations to the in-year monitoring process, the Committee reiterates its call 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.

Budgetary Savings

Savings Delivery Plans

102. The Committee was aware that guidance on the development of savings delivery plans was issued by DFP to all Executive departments in June 2010, together with indicative figures for the level of savings that they might be required to achieve. The guidance set out classifications for a range of activities that could be adopted or expanded in order to deliver savings, including: procurement, corporate services, administration/policy, funding and regulation; and maximising revenue. It noted that the scale of the savings required might mean that options other than the reduction in administration and improvements in efficiency would need to be considered, and stated that "the overriding principle is that savings should be cash releasing and not result in a diminution in the provision of priority frontline public services".

103. Some of the oral evidence received by the Committee in respect of savings delivery plans and the related guidance appears to be contradictory. The guidance emphasised that individual departments will retain ownership of the planning and delivery of savings, "subject to the normal engagement on public expenditure matters with DFP officials", and that "the underpinning evidence [for each savings measure] should be subject to rigorous scrutiny within the department and by DFP, supported by expert analysis where possible".

104. The Committee heard on 30 June 2010 that departments had been initially asked to complete the savings delivery plans by the end of July. In their evidence to the Committee on 6 October, however, DFP officials advised that no plans had been produced and the guidance was that they should be produced and published within two weeks of the publication of the draft Budget. Members were also subsequently told on 3 November that "Departments were not asked to submit their savings delivery plans to DFP but to publish them alongside the draft Budget. Therefore, we have not been expecting to see those savings delivery plans yet". While the Committee accepts that DFP is not responsible for the planning and delivery of savings for the other Executive departments, it would question the ability of DFP to effectively exercise its challenge function without sight of the developing plans. The Committee considers that the involvement of DFP in scrutinising the plans "as part of the process of moving from draft to final Budget"[32] comes too late in this process.

105. The guidance indicated an expectation that departmental savings plans would be published "at the same time as, or shortly after (at most two weeks) the draft Budget document is published for consultation". This is reiterated in the draft Budget document, which states that "as part of the consultation process departments will now publish draft Savings Delivery Plans that include details of departmental savings measures and their anticipated impact". The Committee notes that the draft Budget document goes on to say that "the scale of the savings required is such that it may not be possible to achieve it solely through reductions in bureaucracy and improvements in efficiency. Therefore, all departments must undertake a thorough assessment of core functions". The Committee considers that such an assessment of core functions should have been an integral part of the development of savings plans for departments, and would have reservations about the integrity of any plans developed to date should this not have been the case.

106. Concerns have been raised by some Assembly committees with regard to the savings delivery plans for their respective departments. The Committee for Education noted that some of its members considered that much more information was needed in respect of both how the savings would be achieved, and the impact that they will have. Similarly, the Justice Committee expressed its wish for detailed impact assessments for each proposed savings measure. CETI noted its concern that "the Department's four-year spending and savings proposals exist in the absence of a strategy for economic development or an investment strategy". The Committee for Agriculture and Rural Development considered that a number of "aspirational savings" are included in that Department's plans. It contends that if estimated savings are not delivered then other measures may have to be considered, which could potentially have a greater impact on the delivery of frontline services. A similar issue has been raised by this Committee in respect of DFP's plans to allocate £5m in 2013-14 and 2014-15 to Land and Property Services from savings that the Department expects to deliver in those years.

107. The Committee considers that the process in respect of the planning and delivery of departmental savings plans must be further developed and refined, and that clarification is needed on a number of issues, including: when it is expected the plans will be finalised; how will they be monitored; what assessment has been made to ensure there will be no net cost to the Executive in the longer term; and what contingency plans are in place should the anticipated savings not be realised.

Public Sector Pay

108. The issue of public sector pay was raised by a number of witnesses, in both oral and written evidence to the Committee. Dr Brownlow notes that more than half the UK government final consumption expenditure is accounted for by public sector pay; this is likely to be higher in NI, given that the public sector is proportionately larger than other regions. Neil Gibson told the Committee that pay for some unskilled administrative officers in the public sector can be up to 50% more than what some businesses in the private professional services sector pay graduate staff. An opposing view was offered by representatives from the ICTU, who questioned the reported level of reductions in private sector wages and told the Committee that "we have produced a booklet…that demonstrates that pay increases for civil servants since 2003 have fallen drastically behind the retail price index inflation measure and our colleagues in the Health Service and local government". Similarly, NIPSA would not be in favour of volunteering a wage freeze or cut, and asserts that civil servants must be treated fairly in comparison to other public servants.

109. In terms of pay restraint, CBI estimated that £340m per annum by 2014-15 could be saved by measures such as freezing the pay bill, reducing overtime and increasing employee pension contributions, while John Simpson estimated that the imposition of the same pay regime as the Westminster Government will realise 40% of the cuts needed. Others noted that there was a clear trade off between freezing public sector pay and cutting jobs, while Professor Heald stated that "the more you can contain pay costs, the less real service provision will have to be cut."

110. The Committee is aware that the pay of civil servants in NI is made up of two elements: an inflation uplift and step progression on a defined pay scale. The Executive proposes to mirror the pay regime set by the Westminster Government for the NICS; that is, a pay freeze for all staff earning over £21,000, with a small increase of £250 for those below that level. The Committee understands that the £21,000 threshold was set by the Westminster Government as a wider reflection of the average earnings in the UK. DFP has advised that, "locally, the pay freeze will apply immediately to any public sector workforces that have not yet agreed a 2010-11 pay award, unless there is a legally enforceable agreement in place". It should be noted that the scale progression element will be met where there are existing pre-contractual entitlements, and it is estimated that this will result in an increase of 2% to the pay bill.

111. The pay arrangements for the Senior Civil Service (SCS) have been examined in detail by this Committee, which pressed for the independent review subsequently undertaken by the Senior Salaries Review Body (SSRB). The Committee understands that the Finance Minister is still considering the SSRB report and recommendations, which was completed in July 2010. While welcoming a number of the recommendations, in its response to the SSRB Report, which was provided to the Finance Minister in October 2010[33], the Committee also raised a number of concerns, including:

• the lack of clear advice or methodology for aligning SCS pay to the local labour market or economic circumstances moving forward;
• proposed increases in pay for those above the maximum of the pay scale in line with the percentage revalorisation of that pay scale;
• the introduction of non-consolidated bonuses of up to 5% of salary for 25% of the best performers at the top or above the top of the pay scales; and
• the need to ensure that pay on promotion policies do not give rise to equality or equal pay issues.

112. The Committee was particularly concerned that, despite the difficulty in establishing suitable public-private sector wage comparisons and also the conclusion that there was no evidence of problems with recruitment or retention, the proposed pay scales included in the SSRB Report were likely to result in incremental pay increases for a range of senior civil servants. Mindful of the plans to impose pay restraint for some NICS grades, as contained in the draft Budget, members would urge the Finance Minister to conclude his deliberations on the review of SCS pay arrangements, having regard to the Committee's previously expressed views, and, as part of the current budget process, to set out proposed new arrangements which are "fit for purpose", cost-effective and tailored to local economic conditions.

Longer-term Efficiencies

113. The Committee is mindful that the NICS has been working hard to achieve cumulative efficiencies of between 2% to 3% over the past six years. It also concurs with Neil Gibson who told the Committee that the "low hanging fruit has already been picked so this will only get harder". This reflects the views of ICTU who told the Committee that:

"we are certainly prepared to consider where efficiency savings could be made in the public sector, although that process has been ongoing for the past few years anyway. Given that we have already taken out £700 million it will be difficult to find those efficiency savings".

However, although the Committee recognises that the task ahead regarding efficiency savings is now more difficult, it also notes that Victor Hewitt reflected the views of a number of stakeholders when he told members that: "before turning to exotic revenue-raising measures, you really should check whether you are using the money that you have to the best possible advantage."

114. It was in anticipation of the expected future budgetary constraints that the Committee completed its Preliminary Inquiry into Public Sector Efficiencies in June 2010. The key themes emerging from the inquiry findings remain pertinent for the consideration of the draft Budget 2011-15. Indeed this is acknowledged by DFP in its guidance to departments on savings delivery plans, issued in June 2010, which advises that:

"departments should have due regard to the recommendations set out in the report recently published by the Committee for Finance and Personnel on the Preliminary Inquiry into Public Sector Efficiency".

115. One of the key recommendations from the Committee was that the Executive should set out clearly the essential services and strategic policies which should be prioritised. The Committee specifically stated that:

"This should include identifying those which have achieved or are no longer fulfilling their intended purpose and those which are the lowest priority and therefore offer scope for allocative savings".

It is not clear that such an approach has been adopted by the Executive on this occasion, as has been highlighted earlier in terms of the Committee's disquiet at the lack of publicly available rationale for the budget allocations between departments.

116. The Committee's report on Public Sector Efficiencies also recommended that the Executive take a co-ordinated approach to efficiency savings to ensure that the plans of one department do not have an adverse impact on another. Again it is not clear to members that there has been collaboration with respect to considering how the actions of one department might adversely impact on another, nor indeed any attempt to tackle common issues by presenting spending proposals across departments.

117. DFP's guidance also recommended that departmental savings delivery plans include "a short review of the department's performance in achieving efficiency savings in the current Budget 2008-2011 period". A cursory reading of departmental savings plans demonstrates that, in the majority of cases, this advice has not been taken on board.

118. The Committee notes a further statement in the guidance that "the scale of the savings required is such that it may not be possible to achieve it solely through reductions in bureaucracy and improvements in efficiency"; and the cautionary tone from the CBI which advised that the "scale of the problem is such that efficiency savings alone will not bridge the funding gap". However, the Committee is of the view that the need to make significant budgetary savings should not distract departments from their task to ensure that government is run as efficiently and effectively as possible. As Neil Gibson explained, "we must keep our foot to the efficiency pedal". Members were therefore dismayed to hear from a DFP official during an evidence session on 6 October 2010 that, in the forthcoming budgetary period, the Department will not be monitoring efficiency delivery but rather collating information on savings delivery plans.

119. Given DFP's role in ensuring "public expenditure is managed effectively to deliver best value for the people of Northern Ireland", the Committee calls on the Department to fulfil a role in the central monitoring and strategic coordination of budgetary savings and efficiency gains; in particular to ensure that the savings by one department do not result in a cost or adverse impact for another and that the present focus on short-term budgetary savings does not result in departments losing sight of the need to improve efficiency and effectiveness in service delivery in the medium to long term.

Sick Absence

120. Throughout this mandate the Committee has actively monitored rates of sickness absence across the NICS, receiving and scrutinising bi-annual reports from DFP. Members have noted the latest report that shows the level of absenteeism has reduced from 15.5 days in 2003-04 to 11 days in 2009-10 – a reduction of 29% over the period. DFP's own assessment is that "good progress" has been made across departments, and this was recognised in the evidence from Neil Gibson, who observed that sickness rates had come down "significantly" and that this represented a "genuine saving". In a written response to questions from the Committee, DFP advised that the NICS figure is lower than that of local councils for the same period (12.39 days) and the NI Housing Executive (13.6 days). Departmental officials have advised that the focus on reducing sickness absence for the next period up to March 2015 will centre on the frequency and duration of long-term sickness absence cases, where a relatively small proportion of staff account for the vast majority of working days lost.

121. While the Committee acknowledges the progress that has been made to date, it is disappointed that the level of sickness absence has remained static for the previous two years, and falls short of the PfG target of 9.5 days. The Committee also heard from CBI that more effective management of absenteeism could result in annual savings of £45m per annum. In response to this claim DFP officials have confirmed that "many of the examples of good practice cited by CBI are already in place within the NICS and have been for many years". They also observed that:

"while reducing sickness absence will improve efficiency and productivity across the service, it will not necessarily create direct cash releasing savings. Therefore any claim that reducing sickness absence levels will automatically generate cash savings needs to be treated with caution".

122. In response to questioning by the Committee, DFP officials advised that the direct paybill equivalent cost of absence in the NICS for 2009-10 was £22.9m, down from £26.1m in 2003-04. The Committee welcomes this direct saving but expresses its concern that the 9.5 days target is not being carried forward to the forthcoming budget period. An evidence session with DFP officials on the Department's proposed business plan and targets for 2011-12 revealed a new target to achieve overall NICS sickness absence of 10 days by March 2012.

123. Given the progress that has been made to date in reducing sick absence levels in NICS towards the existing overall target of 9.5 days, the Committee recommends that the Finance Minister and his Executive colleagues continue to work actively towards further reducing the existing rate of NICS absenteeism and that there is no relaxation of targets in this regard.

Accommodation Efficiencies

124. Like sickness absence, the Committee has closely monitored the Executive's accommodation strategy throughout this mandate, and in particular the implementation of Workplace 2010 principles. Members were therefore interested to hear ideas from CBI on how better management of the government estate had the potential to generate further efficiency savings. The suggestions included increasing opportunities for sharing across the public sector, reducing the number of offices required and consequently reducing general overheads, maintenance and energy costs. During their evidence session, Neil Gibson and Mike Smyth questioned how the Department calculated depreciation costs and what scope there might be to reduce charges for rent and rates.

125. In response to questioning from the Committee, DFP officials identified a number of steps that have been taken to reduce the costs associated with renting accommodation, including seeking to accommodate staff at a higher density in order to reduce the amount of accommodation required; and initiating negotiations with landlords to re-gear leases. It is expected that savings of £2m per annum will be achieved over the next three years and the Committee welcomes this development. In response to questions about DFP's Business Plan for 2011-12, departmental officials have advised that these savings will be realised due to vacating space relating to leases which are set to expire.

126. Regarding depreciation, departmental officials have advised that professional revaluations of owned land and buildings are undertaken every five years, with an interim valuation performed in the third year of every five year cycle. The Committee has also been told that the most recent professional revaluation of owned buildings within the NICS Estate was completed in November 2010.

127. In March 2010 the Committee was told that up to 30% of existing NICS accommodation is in "poor" or "very poor" condition with substantial investment required or a replacement building sought within the next five years. Noting that, in the DFP spending and savings plans for 2011-2015, there is a bias towards increased capital spend in the latter years of this budget cycle, the Committee wrote to the Department in January 2011 to ask if this target remains viable. In response, the Department stated that the limited amount of capital available to Properties Division over the Budget period means that it will not be possible to deal with all of the estate's "poor" and "very poor" accommodation during this period. However, there was also a commitment that Properties Division will continue to prioritise resources to ensure that all Health and Safety and statutory duties associated with maintaining buildings is undertaken. The Committee commends the work that has been done to date to identify £2m per annum savings over the next three years through better management of the government estate. However, members remain concerned both that the reduced maintenance budget will hinder NICS from adequately addressing accommodation classed as "poor" or "very poor" and that the maintenance costs may increase in the medium to long term.

128. In its follow-up submission to the Committee on the draft Budget, CBI has expressed its surprise that there is little reference to better management of the government estate, "despite a number of departments recognising the need to downsize". CBI also expresses concern that there are no plans for sharing offices between departments.

129. Departmental officials also advised that the Committee that Properties Division has been working with the SIB to explore alternative funding mechanisms and specific projects that could be implemented without the need for conventional capital costs. However, they cautioned that some of these options, like sale and leaseback for example, carry cost consequences in the medium to long term.

130. The Committee welcomes the assurance that the NICS remains committed to the implementation of Workplace NI principles and the commitment in DFP's Business Plan 2011-2015 to increase the number of workstations in modern space efficient accommodation by 400 by March 2012. However, members continue to be concerned that the budgetary constraints might delay the roll-out of this initiative which should lead to better and more efficient work practices.

131. Members have noted the view expressed by Neil Gibson that the proposals for the relocation of public sector jobs should be revisited as a way to stimulate the economies of local towns. In this regard, when considering the responses from the other statutory committees, members also noted a proposal from the Minister for Agriculture and Rural Development to relocate her Department's headquarters outside of Belfast. Whilst the Committee for Agriculture and Rural Development does not disagree with the principle of dispersing civil service offices outside of Greater Belfast, it expressed concern about the timing and the costs of the proposed relocation of DARD's headquarters.

132. In terms of progressing the recommendations from the Review of Policy on Location of Public Sector Jobs, led by Professor Sir George Bain, DFP has advised that, while individual departments that wish to consider this option can put a business case to DFP, the Finance Minister has cited a cost of £40m, which he considers to be prohibitive in the current economic environment.

133. Also arising from the Bain Review, the Committee has pursued the issue the development of an NICS wide homeworking, or remote working policy, aimed at realising further efficiencies from accommodation expenditure. In its Report on the Preliminary Inquiry into Public Sector Efficiencies, the Committee called on DFP to establish this policy promptly, including in terms of implementation targets. While an NICS Homeworking Policy has subsequently been developed, in recent evidence, the Committee was advised that, although the policy has now been agreed by Central Trade Union Side, it is currently the subject of a scoping and costing exercise prior to implementation on the HRConnect system. The Committee has been told that, as yet, no targets have been set and no staff have taken up this way of working.

134. The Committee is disappointed at the continued delay in the implementation of the NICS Homeworking policy and is concerned that this might be further delayed due to cost implications related to making the necessary changes to the HR Connect system. Given the potential for efficiency gains from carefully managed homeworking/remote working schemes, the Committee calls on the Finance Minister and the Executive to expedite the implementation of this new policy.

Shared Services

135. Through its Preliminary Inquiry into Public Sector Efficiencies the Committee pointed to "shared services as offering significant potential for realising true efficiencies in the medium to long term". In January 2010, the Committee heard oral evidence from officials tasked with the implementation of shared services through the Enterprise Shared Services (ESS) Organisation. They advised the Committee that the initial focus was on the effectiveness of the Shared Services and that efficiencies would be considered further down the line.

136. Members agreed to probe further into each Shared Service later in the year and subsequently held evidence sessions with the responsible officials in October 2010 on:

• IT Assist (including Network NI & Records NI);
• HRConnect (including the Centre for Applied Learning (CAL); and
• Account NI (including a focus on the prompt payment of invoices).

137. The Committee has noted that a lack of baseline information has made it difficult to measure the benefits realised through this initiative. This was also noted by the CBI which, in a report submitted to the Committee, observed that it was difficult to make an accurate assessment on the savings that have been achieved in this area. However, CBI, in its Time for Action report, suggested that despite this lack of information there remained potential for increasing the use of shared services as a way to reduce duplication of services and to cut costs. In a follow-up submission following the publication of the draft Budget 2011-15, CBI has expressed its disappointment that this matter is not given as much prominence as it had expected.

138. In follow-up information, the Department has advised that savings have accrued in each of the shared service areas. These include: the ratio of HR staff to employees improved from a baseline of 32 employees per HR staff member to 64 employees per HR staff member; a reduction in the unit cost of ICT provision per person from £1572 to £1200 through ITAssist; and a reduction in the cost per megabyte per year from £396 to £218 through Network NI. Matters relating to AccountNI and issues regarding prompt payment of government invoices are discussed elsewhere in this report.

139. In a written response to the Committee in November 2010, DFP advised that a capital cost of £4.5m remained due to be paid on completion of the remaining programme deliverables in relation to HRConnect, and that no further costs had been identified. However, the Committee notes in DFP's own spending/savings plan proposals, published less than two months later, that £21.5m capital has been allocated to ESS in anticipation of expected policy and legislative changes over the budget period. A response clarifying the nature of this extra expenditure is still awaited from DFP.

140. The Committee considers that there is merit in rolling out the shared services model to local councils and departmental arm's-length bodies (ALB) as a means of realising savings across the public sector. While DFP has advised that there are a number of factors which need to be taken into consideration, including individual governance arrangements, contractual frameworks and accounting regimes, the Committee is of the view that such concerns should not be prohibitive to a full and formal investigation into the feasibility of extending these services.

141. The Committee recommends that, going forward, DFP establishes clear baselines for the future realisation of efficiency savings and benefits from Shared Services, so that there can be transparency around what is being achieved. The Committee also considers that DFP and the wider Executive should explore the potential to maximise savings to the wider public sector by rolling-out Shared Services beyond departments to other public bodies.

Public Procurement

142. In February 2010 the Committee reported on its extensive inquiry into public procurement in NI. Whilst the main focus of the Inquiry was on how to improve access to procurement opportunities for local small and medium-sized enterprises (SMEs), the Committee also briefly considered the scope for realising efficiency gains in this area. Key to the Committee's recommendations on this matter was the need for a "more strategic co-ordination of the public procurement landscape... not only between central and local government but also in terms of arm's-length bodies". Co-ordination at a strategic level would also, in the view of the Committee, "avoid counterproductive localised efficiencies being pursued which have an adverse effect on the efficiency of the wider public sector and/or detrimental to the local economy". The Committee elaborated on this further in its report on public sector efficiencies, highlighting the scope for better e-procurement processes and collaborative purchasing between the different levels of government.

143. The Committee reiterates its call for targets to be set for achieving further efficiencies from public procurement, to include a monetary value and baselines for such savings, with an associated implementation plan. The Committee intends to pursue this matter with the Procurement Board before the end of the Assembly mandate.

Workforce Restructuring

144. The Committee heard from CBI that further savings could be achieved through workforce restructuring. CBI advocates streamlining government and governance including reducing the number of government departments; cutting what it perceives to be "excessive management layers", whilst developing leadership; and achieving cultural change through performance management.

145. The matter of senior civil servants' pay and bonuses is discussed elsewhere in this report but it is, nevertheless, not amiss to again reiterate the Committee's view that there is an imperative to streamline the higher grades across the NICS. Evidence was received supporting this review when the Committee was preparing its response to the SSRB review of SCS pay arrangements. In particular, John Simpson suggested that the Committee might want to consider "whether some of the organisations can fully justify the number and proportion of their senior staff that hold SCS appointments." In making this point, the Committee acknowledges the work that is being undertaken within DFP in terms of reassessing its complement of senior officials.

146. Members note that CBI's points regarding leadership and cultural change reflect views expressed by the Committee in its report on its Preliminary Inquiry into Public Sector Efficiencies when it recommended that "a culture of efficient delivery is embedded into the routine responsibilities of public sector managers". In its response to the Committee's report, DFP advised that "leadership and management skills, with a particular emphasis on financial management, have been identified as priority areas in both the Senior Civil Service Development Strategy 2008-11 and the NICS Corporate Learning and Development Strategy 2010-2013". This work is being taken forward by the Centre for Applied Learning within the ESS.

147. The Committee considers that the wider NICS should continue to realise the opportunities for reorganisation that exist in the forthcoming budgetary period and welcomes the work that is being done through the Centre for Applied Learning to increase leadership and management skills across the NICS. While commending the work that is being undertaken within DFP in terms of reassessing its complement of senior officials, the Committee calls on the Executive to undertake a strategic review of the senior staff complements across all departments and arm's-length bodies, which should be independent and informed by benchmarking data from other jurisdictions, with the aim of ensuring that management structures across the public sector are streamlined and efficient in the context of the upcoming budget.

Outsourcing

148. The Committee has heard arguments for and against increased outsourcing of public services. In the view of CBI, NI lags behind other regions in this respect, citing opportunities ranging from custody services, utility asset management, debt collection, printing and document design to health and social care. It is the opinion of CBI that the Executive should take a more positive and aggressive approach to outsourcing. John Simpson also considered that the Executive should test outsourcing with rate collection through Land and Property Services (LPS). This view was endorsed in CBI's submission on the draft Budget 2011-15 when it stated that an opportunity had been missed by various departments to consider outsourcing, specifically citing outsourced debt recovery of rates as one example.

149. During his evidence session, Neil Gibson pointed out that there tends not to be proper costing of the delivery of services by the public sector, and it is therefore difficult to assess their proper cost. He said:

"I have noticed, for example, that some Departments are not asking private-sector providers to carry out appraisals but do them in-house. That is absolutely fine if it is genuinely cost-effective. Yet, we find that, in some cases, Departments do not record the time that they spend on activities and cannot say how much an appraisal costs. Are we sure that savings are being made by not asking for those tasks to be done by private-sector providers".

150. Witnesses representing the voluntary sector expressed concern that departments would be less inclined to outsource service delivery to the third sector during a period focusing on budgetary savings, as the focus would instead be on saving posts internally.

151. During oral evidence, representatives from the Trade Unions told the Committee that "we do not see outsourcing – which is privatisation really – as something that we can support". The representatives went on to say that they view outsourcing as a "race to the bottom", and that transferring work away from the public sector to the voluntary or private sectors will result in driving down terms and conditions of employment. They told members that, even if functions are transferred to the private or voluntary sectors, the public purse still has to pay for these activities.

152. Whilst acknowledging that some stakeholders consider that there are savings to be made through greater outsourcing of public service delivery to the voluntary and private sectors, the Committee is of the view that, though this option deserves careful consideration, all decisions on outsourcing need to be taken on a case-by-case basis and informed by robust business cases.

Performance and Efficiency Delivery Unit

153. In its Report on the Executive's Draft Budget 2008-11 the Committee welcomed the establishment of the Performance and Efficiency Delivery Unit (PEDU). At that time it was envisaged that PEDU would re-examine the scope for generating cash efficiencies and improving delivery and performance within departments and across the public sector.

154. Throughout the mandate the Committee has closely monitored the work of PEDU and how it has been utilised by other departments. Overall, the Committee has been disappointed at the low level of uptake of the services provided by PEDU, with only LPS within DFP and Planning Service within DoE availing of the opportunity to date. Indeed, the potential value which PEDU can add to the provision of existing services was recognised by representatives from the voluntary and community sector, who during an evidence session, called on PEDU to evaluate the services provided by the sector to ensure that they were being delivered in the most efficient and effective way possible.

155. The Committee understands that, following the June 2010 Monitoring Round, two other departments have engaged with PEDU, with a view to using the Unit to identify appropriate efficiency savings and more effective ways of working. However, again members are disappointed that the process of agreeing Terms of Reference appears to be lengthy and work that had the potential to influence the decisions and proposals of this budget process has not been realised. In this respect, members note the comments of the Health Committee, which stated in its submission on the spending and savings plans for DHSSPS that:

"The Committee was of the view that there was a lack of information presented by the Department in terms of potential efficiencies. In particular, little reference was made to the forthcoming PEDU review of the Department and what efficiencies it could be expected to yield. Indeed the Committee had expected PEDU to have completed its report before the draft Budget was published and were disappointed to learn that little progress has been made in terms of the exercise".

156. The Committee further expresses its frustration that the role of PEDU does not feature in the draft Budget document, given its potential to provide departments with the evidence base they need to identify not only areas where further efficiencies can be realised but also how they might improve the effectiveness of the public services being delivered. In reiterating its previous call for DFP to put forward options to the Executive for ensuring that PEDU functions are exercised effectively across all departments, the Committee believes that the final Budget proposals should include both an indicative work programme for the Unit and provision for enhancing its capability to undertake larger-scale reviews, with the aim of supporting tangible improvements in public service efficiency and effectiveness during the Budget period.

Revenue Raising Options

157. Paragraph 3.32 of the draft Budget document refers to the Executive's plan to raise additional revenue. The paragraph states that the Executive has factored in initial work into the preparation of the draft Budget position and that Ministers have been tasked with evaluating additional sources of revenue over the next number of weeks. However, the Committee is unclear exactly how much additional revenue the Executive hopes to raise. During an evidence session on 2 February 2011, DFP officials stated that ministers had identified a further £750m of revenue raising options that had not been factored into the draft Budget. On 9 February 2011, the Minister indicated to the Committee that the Executive's Budget Review Group was exploring the scope of an additional £800m in revenue raising options.

158. As outlined by Assembly research, the draft Budget document provides no further details about these additional revenue options, except for the introduction of a plastic bag levy. In the absence of this detail, the following sections of this Report explore the range of views of the economists who were invited to brief the Committee and of the other Assembly committees, in order to inform the Executive's assessment of the options.

159. The Committee recognises that scope exists for greater efficiency in the delivery of public services in NI and, as stated previously, the first priority should be to maximise the impact from existing resources. That said, members have also recognised that revenue-raising measures take on even greater significance in this time of exceptional budgetary constraint. The Committee is also aware of the wider macroeconomic concerns expressed by ICTU and others, who outlined that cuts in spending will withdraw demand from the economy, constraining the economic recovery in the absence of a private sector recovery. In their paper to the Committee, Professor Robert Skidelsky and Felix Martin also made the point that the planned fiscal retrenchment will hinder the economic recovery in the UK. In addition, the Committee notes the concerns raised in the evidence from Victor Hewitt, who stated that it will be, "barely possible" to make up the loss in the public sector with the current structure of the private sector in NI.[34]

160. In his evidence, Dr Esmond Birnie explained that cuts in government spending as a result of the Spending Review will have proportionally a larger negative impact on NI because of the proportion of economic activity reliant on the public sector and the higher number of people who claim benefits. The Committee also acknowledges the view of John Simpson who questioned the extent to which revenue had been maximised to enable the pattern of expenditure to match the PfG. The Committee is mindful that cuts in public services are regressive and will have the biggest impact on the least well off, who rely the most on these services.[35] As such, the Committee welcomes the proposal in the draft Budget to identify alternative means of raising additional revenue, which will help to reduce the impact of the UK Spending Review on public services in NI.

161. The Committee notes that the draft Budget outlines the Executive's plan to assess revenue raising options based on, "the merit of being deliverable." This was reiterated during evidence from DFP officials when it was stated that, if additional sources of revenue proved "genuinely deliverable", then they ought to be factored into the budget position. Yet, the Committee believes that judging the merit of additional revenue raising options based on the sole criteria of "being deliverable" is inadequate. The Committee is concerned that this remit does not address the efficiency and equality impacts that result from an increase in taxation or charges.[36] Indeed, the Committee acknowledges that Dr Graham Brownlow, in his written submission, described tax varying powers as a, "fruitful way to rethink how equity and efficiency can be reconciled in NI." Members also note from the submission by Professor Alan Barratt, that the same core principles were identified by the Commission on Taxation in RoI and have been influential in designing taxation policy. Given the importance of these principles, the Committee recommends that the Executive undertakes equity and efficiency assessments of any new revenue raising measure being proposed, which should be published to facilitate scrutiny by the Assembly.

Rates

162. The draft Budget sets out the Executive's plans to begin to initiate increases in domestic rates in line with inflation, and to maintain annual inflation-proofed increases in business rates up to 2.7% per year. This increase is likely to equate to no real increase in government revenue over the four-year period but an extra £146m in revenue when measured in current prices.

163. The Committee is mindful of the views of the local economists and others who provided evidence on this issue. Mike Smyth highlighted that domestic rates in NI are by far the lowest in the UK and argued that, faced with a choice between raising revenue and public service cuts, rates should not remain frozen. In his evidence, Victor Hewitt advised that a 1% increase in non-domestic rates would raise £3m per annum and that a 1% increase in domestic rates would raise an extra £2.8m per annum. According to the CBI, however, up to £350m per year could be raised if rates were increased to a similar level as exists in Scotland. The Committee notes the CBI's proposal to increase rates by 3% in real terms and to use this additional £18m per annum to finance the "shortfalls" in the budgets of Invest NI and DEL. In his evidence, John Simpson, was also of the opinion that freezing the regional rate in real terms was too modest a proposal and recommended that rates should rise in real terms by a "modest" 2%. Whilst ICTU also echoed the view that both domestic and non-domestic rates should rise, the Committee noted the caution by Peter Bunting that raising rates would reduce the disposable incomes of families which will have a detrimental impact on the service sector across the country.

164. In its Report on the Executive's Draft Budget 2008-11, the Committee welcomed the Executive's proposal not to increase domestic rates and members appreciate that any above inflation increase in rates will increase the tax burden on households and on business. Reflecting this, the Committee also acknowledges Mike Smyth's view that additional property taxes are, "at best proportionate and at worst regressive." During his evidence, Neil Gibson also asserted that the current structure of rates was, "regressive," and questioned the justification of a rates cap. ICTU similarly advocated the removal of the rates cap. However, when the Committee discussed the removal of the rates cap previously, in September 2008, members expressed concern that if it were to be removed it could have a detrimental impact on individuals, such a pensioners, who are asset rich and income poor.[37]

165. In his evidence, John Simpson pointed to the Scottish proposal to place higher rates on large out-of-town retail outlets.[38] The Committee also notes Neil Gibson's view that a more aggressive, structured and progressive property tax could raise additional revenue whilst having a low impact on spending power in the economy. Neil Gibson also highlighted how rates could be used more effectively to incentivise good behaviour. The example of Scandinavia was cited, where the property tax system is designed to ensure that it was more costly for owners to leave buildings vacant and in poor states of repair as opposed to opening them up for use by the community. In addition, Neil Gibson suggested that rates could be structured to create incentives in order to further the objectives of the Green New Deal. The Committee accepts the principles behind these suggestions and made similar recommendations to DFP in its Report on the Response to the 2007 Executive Review of the Domestic Rating System.[39] Moreover, the Committee has supported the Department's plans to foster similar incentives by collecting rates on vacant domestic properties by October 2011.

166. The Committee recommends that the rating system should be kept under review, including: in terms of non-domestic rates, to explore the options for applying differential rates or surcharges on specified sectors to raise additional revenue or incentivise desired behaviour; and, for the domestic sector, to ensure that the burden of any future rate increases is shared equitably and based on ability to pay, which is especially pertinent in the context of the current downturn in the economy.

Water Charges

167. The draft Budget sets out the Executive's plans to continue to defer the introduction of domestic water charges. The Committee heard evidence from a range of witnesses including, Victor Hewitt, John Simpson, Mike Smyth and Dr Graham Brownlow who all proposed that water charges be introduced as a means to raise additional revenue. In its evidence, CBI advised that up to £200m could be raise in additional revenue through the introduction of domestic water and sewage charges. This figure was repeated by Victor Hewitt, who reminded the Committee that, because of the privatisation of water in England, there are no consequential resources allocated to NI through the Barnett formula. The Committee also notes the view of John Simpson that, "there was a serious need to balance Northern Ireland's public finances so that the costs of water do not take away from other public services" and that a separate NI Water trading company should be established in order to allow it to borrow from the financial markets in order to make investments.

168. The Committee also notes that, in its evidence, ICTU opposed the introduction of water charges, arguing that people already paid for water through their rates; and that any additional charge for water would be unfair and would fail to recognise this reality. Additionally, ICTU further cautioned the Committee that such a policy could result in lower disposable household income and have a negative impact on small businesses.

169. The Committee notes the submission from the Committee for Regional Development which highlighted that, as a result of the budget allocations and the decision not to introduce water charges, water and sewage services will not be funded to the levels identified in PC10[40]. The Committee for Regional Development outlined that the decrease in investment in NI Water will impact on the levels of service and compliance currently provided by the company and that there will be no room for service performance improvements or development over the coming years. It also expressed concern regarding the impact that the lower levels of funding will have on NI Water's ability to deliver the planned investment infrastructure under PC10.

170. There is no consensus in the Committee for Finance and Personnel on the issue of water charging. Some members disagreed with the principle and expressed the view that individuals were already paying for their water, while others agreed with the concept and argued that water charges could be introduced as a progressive form of taxation. In any event, the Committee is mindful that this issue does not fall directly within the remit of DFP and did not, therefore, reach a collective decision on the matter.

Port of Belfast

171. In a question following the Minister's draft Budget statement, members were informed that the Executive aims to acquire additional revenue over the next four years from the Port of Belfast. The Minister outlined to the Assembly that the Executive hopes to obtain £30m from the Port near the end of the four-year budget period and that £5m has already been allocated from the Port towards the extension of the Paint Hall. The Committee was subsequently informed by the Finance Minster that the Minister for Regional Development had asserted that it would be possible to obtain £125m from the Port of Belfast but that this would require a change in legislation and that these figures, therefore, could not be factored into the draft Budget as they were not a guaranteed source of income. The Finance Minister also informed the Committee that the Executive hoped to obtain additional income by drawing on the Port of Belfast when the Executive incurs Port related expenditure, including in respect of the local infrastructure and investment in NI Screen.

172. The Committee notes that, in its evidence, ICTU argued that the Port of Belfast should be given full commercial powers in order to generate income and profit, which could then be at the disposal of the Executive. It is also noted from the submission by the Committee for Regional Development that there is no consensus on the issue of raising revenue from the Port. That Committee was informed that the Federation of Small Businesses (FSB) had concerns regarding the additional costs of importing and exporting that are likely to result, while CBI and Quality Products Association for NI both welcomed the proposals.

Plastic Bag Levy

173. The Committee notes the decision to introduce a levy on the sale of single use plastic bags, which, it is expected, will raise approximately £4m in revenue per year and will have outcomes which will bestow wider benefits for the environment. Members are mindful, however, that the Executive's plan to raise £4m will depend on the impact the charge will have on changing behaviour.

174. The Committee also notes that CBI has raised "serious reservations" regarding the plastic bag levy and has outlined that, if DoE fails to raise the anticipated revenue, a number of environmental programmes are likely to suffer. CBI sees the charge of 15p per bag as excessive, given that retailers sell bags for life for less than 10p. It has also asserted that there needs to be a clear and well planned implementation, with a good understanding of the issues which this charge will give rise to. Furthermore, CBI is unclear as to the type of bags that will be covered in this legislation, has concerns that the burden of the new levy will fall disproportionately on low income households, and believes that it is unlikely that the levy could be introduced before April 2012.

175. In its submission, the Environment Committee also expressed concerns regarding the plastic bag levy, particularly due to the absence of any procedures for the collection of the levy and with regard to the "crude estimation" of the anticipated amount the levy is likely to raise. The Environment Committee is particularly anxious regarding the revenue generation potential of the levy because DoE has already earmarked a number of programmes to be funded from this revenue. Moreover, the Environment Committee is concerned that the loss of some of these programmes would increase the risk of infraction proceedings and ultimately costly EU fines.

176. While supporting the principle behind the proposed plastic bag levy, the Committee for Finance and Personnel seeks assurance that the Executive will take into account the issues raised by the Environment Committee and other stakeholders, including CBI, and that the necessary legislation for the levy will be expedited to help ensure that the initial £4m allocated in the draft Budget is realised.

Text Tax/Mobile Phone Masts

177. The Committee was interested to note the novel proposal from Mike Smyth for the introduction of a tax on text messages, which he contended had the potential to raise approximately £24m per year in NI, if a 1p tax were to be levied on each message. The principle behind this proposal also received the endorsement of both Dr Graham Brownlow and ICTU. Whilst Mike Smyth believed that such a "text tax" would be within the power of the Assembly, "based on an interpretation of the Northern Ireland Act", in his evidence, Victor Hewitt considered that this form of direct tax would probably exceed the powers of the Executive. The Committee notes Victor Hewitt's alternative suggestion of super-rating mobile phone masts, which he considered an "attractive option", given the size of the tax base. Indeed, the Committee was informed by the Finance Minister on 9 February 2011 that the Executive is currently exploring the proposal of super-rating mobile phone masts. In this regard, the Committee would advise that the Executive notes Victor Hewitt's caution that the telecoms companies may try to pass the cost of any tax onto consumers and examines how this might be addressed.

178. Whilst recognising that further investigation is required into the proposed additional rating of mobile phone masts, including the legal considerations, the likely impact on the NI telecommunications market and the groups in the population who are the most likely to be affected[41], the Committee encourages the Executive in exploring such novel approaches to raising new revenue to support public service delivery.

MOT Charges and Tolling

179. In its evidence, CBI called for an increase in the charge for MOT tests, which it estimates could raise an additional £10 - £15m per year. The charges, according to CBI, could be related to the size of a vehicle's engine and would therefore create an incentive for people to downsize their vehicles which would be beneficial for the environment. Mike Smyth advised that, in order to raise CBI's anticipated figure, the current charge of £40 would be increased to £60 and £100. The Committee is mindful, however, that additional charges for MOT tests would be regressive – as was acknowledged in the evidence from Victor Hewitt – and could lead to social exclusion of the most vulnerable.

180. The Committee notes CBI's suggestion to utilise congestion charging and tolling as another means to raise revenue. CBI suggested that the fundamental idea behind congestion charging would be to change behaviour, with the charge targeted at car transport rather than at freight in order to maintain economic competitiveness and limited to some of the main roads into Belfast. CBI also pointed out that the cost of designing congestion charges and tolls are significantly less than ten years ago. Whilst the Committee is aware that CBI's proposal involves reinvesting the additional revenue obtained from the additional charges into developing a more sustainable transport infrastructure, it believes that the options for charging road users require thorough assessment of impact. Members acknowledge the evidence from Professor Barrett on toll charging in RoI, including his caution that overly high charges can discourage use, which reduces the value to the economy of the initial investment. Moreover, the Committee has concerns that introduction of additional charges associated with road transport could damage small businesses and negatively affect economic activity.

Medical Charges

181. In its evidence, CBI also proposed that charges for medical services such as Accident and Emergency (A&E) services and out-of-hours General Practitioner (GP) services be introduced. Similar proposals were made by John Simpson and Mike Smyth, with the latter pointing to the fact that it was normal for patients in EU countries to make a small contribution towards the cost of a GP or A&E visit. In this regard, a €45 and €50 fee for a visit to the GP is currently charged in RoI and France respectively. In the view of Mike Smith, it was also time for a "rethink" on the policy of free medical prescriptions, pointing out that the original costs were estimated at £12-£13m per year but the actual costs had exceeded £20m. Mike Smyth also advised that demand had increased as a consequence of making prescriptions free. It can therefore be assumed that this has increased pressure on the DHSSPS budget as the provision of prescriptions is inescapable, with the implication being that the reintroduction of the charge might manage the demand. Further, the Committee notes from the evidence from Professor Barrett that a prescription charge had been recently introduced in RoI, with the objective of this charge being to curtail the demand for drugs rather than to raise a significant amount of revenue.

Car Parking Charges

182. The Committee notes the suggestion by Mike Smyth and John Simpson to introduce charges for the use of public sector car parks. In his evidence, Mike Smyth made the case that, across the UK charging for the use of workplace car parks was the norm rather than the exception, and that, because NI was more "car centric" than GB, this would be an appropriate charge. The Committee acknowledges that the proposed charge on public sector car parks has the potential to raise an extra £10 - £15m per annum, according to Mike Smyth's estimates.

183. Members note that introducing NICS staff car parking charges was listed in DFP's draft spending plans as a "high pain" savings option. DFP officials clarified to the Committee, on 10 November 2010, that car park charges only had the potential to raise £0.5m per year and stated that such charges were likely to be progressive and based on an individual's grade within the organisation. Nonetheless, some members expressed concern that the introduction of such charges would be unfair to civil service staff who were also being asked to take a pay freeze. The Committee notes that NICS car parking charges have not subsequently been introduced as part of the Executive's draft Budget package and do not feature in DFP's final spending plans.

184. In its submission, the Committee for Regional Development pointed out that DRD plans to introduce town centre parking charges in a number of new locations. It was noted that FSB has raised concerns that such charges would negatively impact on DSD town centre regeneration plans. The Regional Development Committee also notes that the Northern Ireland Local Government Association (NILGA) asserted that such plans would put people off shopping in town centres and encourage the use of out-of-town shopping outlets where parking is free.

Other Charges

185. A variety of other potential revenue raising options were discussed during the Committee's evidence gathering. In his evidence, Victor Hewitt presented suggestions to end senior citizen's free travel and introduce charges for museums and libraries, though it was recognised that the gains from such charges would be limited. For its part, CBI proposed charges for freedom of information requests and for accessing planning applications, in addition to increases in NI Housing Executive rents alongside a programme of thermal efficiency improvements. ICTU suggested that a Community Interest Levy be imposed on major planning applications and also suggested that outdoor public assets, such as forests and lakes, could be leased to private companies who would be interested in using the resources to undertake outdoor activities such as paintballing and orienteering.[42]

186. To conclude, the Committee calls on the Executive Ministers to ensure that their departments expedite attempts to identify and investigate all the possible options for raising further revenue. The Committee further recommends that this investigation includes a full and proper consultation with the respective Assembly committees and the wider public.

Capital Asset Realisation

187. The draft Budget sets out the Executive's plans to raise approximately £547m from capital receipts over the four-year budget period, based on the market valuation of these assets at today's prices. The Committee is conscious that the specific detail of some of the planned asset sales is confidential but remains disappointed that the draft Budget fails to provide any noteworthy information on these proposals. The Committee is of the opinion that such information is necessary in order to facilitate an adequate scrutiny process.

188. Members are mindful that, in its effort to off-set the negative consequences locally of the UK Spending Review, the Executive is faced with the challenge of finding additional revenue from capital assets during a depression in the property market. Indeed, the Committee was informed of the scale of the depression in the market in a submission by the Methodist Church, which detailed that property values have decreased 40% from their peak value. Members note the fears that some stakeholders have around raising any revenue from capital asset sales during this time, as was highlighted in the evidence from John Simpson who stated, "I do not suggest that we sell now when the market is down."

189. The Committee notes that the Executive hopes to raise £100m over the four-year budget period from asset sales through the Central Assets Management Unit (AMU). As shown in Table 9 below, the Executive hopes to raise the majority of this revenue in the latter years of the Budget period:

Table 9

190. Whilst the Committee has reservations about selling assets when the market is depressed, it is sympathetic to the Executive's attempts to secure additional revenue and welcomes the prudent decision to realise the majority of this £100m towards the end of the four-year budget period.

191. Members did, however, express disappointment that they were unable to adequately scrutinise the case for the sale of these assets within the wider budgetary context due to the lack of detail provided in the draft Budget document. DFP officials subsequently advised the Committee that it is the responsibility of OFMDFM to provide further details as some of the planned asset sales are commercially confidential. Members hope that, as the Committee for OFMDFM investigates this area, further details will become available.

192. The draft Budget also proposes that departments be given the responsibility for selling approximately £447m of assets during the next four years, significantly more than the £100m under the auspice of the AMU. The Committee is once again disappointed that these assets have not been identified in the draft Budget document, making it difficult for adequate budget scrutiny at a strategic level to take place.

193. The Committee notes that £397m of the £447m planned revenue that the Executive will secure from capital receipts will come from the £4.1bn worth of assets held by DSD. In a response to the CBI's Time for Action Report, the Committee for Social Development requested an update on revenue generating activities and capital assets realisation from DSD. The Department provided further details to the Committee for Social Development as to the viability of its programme of capital assets realisation. In particular, DSD identified the Newtownlands holdings as surplus to requirements and is investigating potential to sell surplus land. DSD also explained that SIB is currently assessing the potential to sell some of the Department's excess commercial units. In addition, DSD provided justification behind the decision not to relinquish control of the NIHE Head Office.

194. Members note the call by John Simpson for OFMDFM to make available for assessment the unpublished report on capital assets realisation conducted by Ed Vernon. The Committee is aware, however, that SIB is incorporating the recommendations from Ed Vernon's work in its projects to improve assets management. Members were informed by the Finance Minister on 9 February 2011, that there is currently no comprehensive list for all the assets held by NICS. The Committee, therefore, welcomes the news that AMU constructed a pilot database with DFP and DARD to store this information, and that this pilot project included drafting a departmental asset management strategy and identifying more specific opportunities to improve the efficiency of asset utilisation and realisation. Members are also pleased to note that the Executive has made the development of a region-wide corporate management strategy, individual departmental asset management plans and the use of e-PIMS asset management database mandatory across the public sector. The Committee is convinced that there are considerable opportunities to deliver asset management efficiencies over the medium-to-long-term and looks forward to the savings that will result following the future incorporation of all departments into this project.

195. The Committee also acknowledges the recommendation from John Simpson that the Executive ought to move beyond AMU and establish a more effective strategic investment body which could be based on the Scottish Futures Trust. Members were advised that the Scottish Futures Trust offers an alternative to PPP/PFI in terms of incorporating private financing in public sector projects, and that the organisation reportedly saved £111m in its first year of operation. The Committee, therefore, recommends that the Executive examines this model, including the potential for a similar approach in NI.

196. In their evidence to the Committee, Neil Gibson, John Simpson and Mike Smyth identified the opportunities to further increase the value harvested from existing business assets. More specifically, CBI questioned the need to build a new train maintenance facility rather than making more prolonged and better use of the existing facility. Members agree with the principle of "sweating assets", but the Committee cannot comment further as no details on this approach have been incorporated into the draft Budget.

197. The Committee also notes the suggestion from Mike Smyth that the Workplace 2010 initiative could be revisited. Although, members recognise that the market for the sale of capital assets remains depressed, DFP officials pointed out, during evidence on 26 January 2011, that it can be possible to end lease contracts and make real resource savings by consolidating the workforce into more space-efficient accommodation. The Committee believes that the Executive should continue to investigate the prospect for achieving savings from this approach.

198. Members recognise that the Executive's drive to realise receipts from surplus capital assets is aimed at helping to off-set the negative impact on public services in NI from the UK Spending Review. That said, while accepting the constraints on providing commercially sensitive data, the Committee is disappointed at the dearth of information on the capital asset realisation proposals contained in the draft Budget, as this hinders informed debate and scrutiny at a strategic level. Aside from the identification of surplus assets, the Committee calls for increased focus on more efficient use of existing public assets. In this regard, while it has been pressing for a central database of all public sector assets for some considerable time, the Committee welcomes news of AMU's pilot project and calls for the lessons and outputs from this to be implemented across all departments and arm's-length bodies without further delay.

Alternative Sources of Finance

199. During its evidence gathering, the Committee heard a range suggestions for alternative sources of finance for debt and capital projects. The Committee is aware that demand is deficient in the NI economy and believes that sourcing alternative finance of debt and capital investment could help to rectify this problem. Nevertheless, the Committee is aware that any finance obtained from additional borrowing will incur an interest charge, which will need to be repaid eventually.

200. In his evidence, Mike Smyth identified the potential to make use of the borrowing capabilities of local government to engage in capital investment. He informed the Committee that local government was not subject to the same borrowing constraints imposed on the NI government by HMT and suggested that there was the potential to develop an agreed strategy based on regional need. It was also suggested that the district councils could borrow to engage in capital spending from the European Investment Bank (EIB). In his proposal, the EIB would provide 50% of the finance with the remainder provided by departments or from the private sector. The Committee was interested in this proposal and recommend that DFP further investigate its viability.

201. In evidence from DFP officials on 2 February 2011, members were advised that DFP continues to investigate alternative sources of European funding. The Committee is conscious that this suggestion arose in the evidence from both John Simpson and CBI. Members are aware that there is a range of European funding sources that could be explored, including the European Regional Development Fund and the European Social Fund; but note, in particular, John Simpson's suggestion to attempt to draw on the European JESSICA (Joint European Support for Sustainable Investment in City Area) funding. The Committee encourages DFP to continue to examine such opportunities rigorously, particularly given the difficult economic downturn.

202. As alluded to earlier, members are conscious that the construction industry is likely to face a difficult challenge in the period ahead, particularly due to cuts in public sector capital expenditure. For this reason, the Committee welcomes the submission from CEF, which has identified a range of ways to reform PPPs in order to address the problems with the operation of such schemes, that have resulted in PPPs being a less attractive option than they otherwise could be. The Committee acknowledges the CEF proposal for a revenue finance model for NI, in addition to the suggestions from CBI which include improving value for money in PPPs, issuing local authority bonds to fund specific projects and making greater use of franchising and mutualisation, and asks that the Department gives these submissions due consideration.

203. The Committee is also conscious that Terence Brannigan from CBI, Brian Campfield from NIPSA and Mike Smyth all identified the potential to leverage the assets of the NIHE in order to re-engineer financing of the organisation. It was pointed out however that any leveraging would require that the organisation registered as a social landlord in order to enable it to borrow privately and subsequently invest in the housing stock. Mike Smyth considered that such a change would not require legislation and asserted that the opportunity was particularly appealing given that NIHE's historic debt profile had decreased significantly in recent years. Brian Campfield claimed to the Committee that the implications of such a policy would allow NIHE "not only to meet social housing need but to provide much-needed employment in the construction industry." The Committee also notes Mike Smyth's claim that, without fiscal powers being devolved, leveraging these assets is one of the most effective ways of "creating space" in the NI budget. Although the Committee accepts the principles behind this proposal, members have expressed concern that any borrowing by NIHE could result in higher charges levied on occupants of social houses who are some of the least well off in society.

204. The Committee notes the DSD response to the CBI proposals regarding NIHE, provided through the Committee for Social Development, which noted that CBI has failed to quantify what it regards as modest rent increases for NIHE and acknowledges that such rents have historically increased at the rate of inflation on an annual basis. In addition, it has been noted that DSD has also advised that it is conducting research into rent setting policies with the potential to undertake a process of rent realignment. In its submission, the Committee for Social Development highlighted that DSD has only provided details of its plan to increase rents by 3.75% in 2011-12.

205. It was further outlined in this response by DSD that a review has been initiated into the appropriateness of the existing structure of NIHE and that a report is due to be published in March 2011. DSD explained, however, that NIHE currently has £750m of loans outstanding from the Consolidated Fund and that any future change to the structure of the organisation will have to take account of this debt. The Department also outlined that it has considered the importance of maximising the level of public spending into the most disadvantaged areas, levering additional resources from private investment and developing a community finance infrastructure when examining alternative funding sources. DSD detailed that it is working to explore the feasibility of mechanisms that exploit community financing options, European financing options, tax based financing options and joint venture financing options; and has already secured significant funding through bonds with the European Investment Bank and the Housing Finance Corporation.

206. The Committee notes the ICTU recommendation that the Executive ought to "catch-up" with the Calman and Holtham reviews in Scotland and Wales and develop an ability to employ greater fiscal and borrowing powers. Members also note the ICTU's proposal to introduce Tax Increment Financing which could give councils the power to borrow against a business rate income.

207. The Committee notes the paper from the economists Lord Robert Skidelsky and Felix Martin which sets out proposals to obtain additional finance for business activity through the establishment of a National Investment Bank. This detailed how that the Bank would be capable of obtaining finance from the capital markets at a competitive rate under a government guarantee, and would then be tasked with lending to fund socially desirable and longer-term projects. The Committee also notes that NICVA has also proposed the establishment of a similar investment bank capable of leveraging European finance. While the Committee is interested in these proposals, it recognises that, under the NI Act 1998, financial services, including banking, is a reserved matter.

208. The Committee calls on DFP and the wider Executive to explore fully the various approaches to finding alternative sources for financing debt and capital investment, as identified by the stakeholders who provided evidence for this Report. These include, for example: utilising the borrowing capabilities of local government to engage in capital investment; further investigation of European funds; the potential to leverage the assets of NIHE; and alternatives/reforms to PPP/PFI for incorporating private financing in public sector projects.

Impact of AME cuts

209. In addition to the DEL funding via the Barnett formula, NI also receives funding through Annually Managed Expenditure (AME). This relates to spending that is demand-led, the largest single element of which is welfare expenditure. The Westminster Government announced a programme of welfare reform[43] which it anticipates will remove £18 billion from the welfare budget; it is estimated that NI's share of this will equate to £500m.

210. In examining this issue, Assembly research noted that the Institute for Fiscal Studies (IFS) has found that, in considering all the measures to be introduced between 2010-11 and 2014-15, NI is expected to undergo the most significant losses of all UK regions, after London. In considering the reasons for this, the Assembly research notes that the levels of economic activity in NI are particularly high, and that "much of the reform in respect of unemployment benefits appears to presume the availability of surplus employment"; however, this cannot be considered to be a safe assumption in the current economic climate. In the first instance, the NI economy is skewed towards the public sector, which will be significantly affected by the cuts to DEL. Members note that, unlike other regions in the UK, the economy in NI is not considered to be "in recovery", and it is unlikely that the relatively small private sector will be able to either provide sufficient employment opportunities for those who are currently economically inactive or compensate for public sector cuts and/or job losses.

211. As alluded to earlier in the Report, the Committee notes from the Assembly research that there are a number of other reasons why the reforms will have a particularly regressive effect for NI, including:

• the relatively high proportion of households with children;
• a lack of developed infrastructure for childcare, which is recognised as an impediment to work;
• the high rate of reliance on Disability Living Allowance.

212. In evidence to the Committee on 3 November 2010, DFP officials advised that the Executive had received a Barnett consequential to implement and deliver the welfare reform agenda, in terms of both current and capital expenditure. However, all the savings that will result from these reforms will be in respect of AME and of direct benefit to HMT. The Committee understands that discussions had been taking place with HMT as to whether any of the savings realised could be transferred to DEL for use by the NI Executive. At the time of this Report, there were no further developments in this regard.

213. A range of views were expressed by witnesses on the welfare reform agenda during oral evidence to the Committee. John Simpson told members that, while the cuts may be uncomfortable, it was his belief that parity on social security spending should be maintained. Professor David Heald considered that more demands are likely to be made on public services at a time when public expenditure will be more constrained. NICVA also anticipates that the reforms will "lead to major problems and further work for the advice sector". Mike Smyth noted that the welfare system in the UK is passive, and pointed to Scandinavian countries which operate active labour market policies of placing people in work, training or education, which have a positive impact on long-term unemployment. Neil Gibson stated that the cuts to AME and DEL present a significant challenge to NI; however, it offers opportunities and "we can use that [AME cuts] and the squeeze on public-sector money to help Northern Ireland to re-orientate its priorities towards a private sector-led economy". Dr Esmond Birnie told the Committee that welfare reform is one of the areas in which the public is "up for more radical, courageous choices than we might expect", when appraised of constraints facing the Government.

214. The Committee notes that the draft Budget proposes a Social Protection Fund, which it understands is aimed at addressing some of the negative outcomes for those worst hit by the welfare reforms. The proposals only include an allocation of £20m for the first year of the Budget period; funding from 2012-13 to 2014-15 will "come from the additional revenue streams identified by Ministers coming into operation and delivering new resources for deployment". In its submission, the Committee for OFMDFM has noted that details on the scheme are still under consideration by Ministers. The Committee for Social Development stated that it required further information "on the application by the Department to the Social Protection Fund for support for a scheme to help home owners facing repossession proceedings".

Preventative Spending

215. During its scrutiny of the draft Budget, the Committee heard evidence on the theme of Preventative Spending in which can be understood as:

"a clinical, social, behavioural, educational, environmental, fiscal or legislative intervention or broad partnership programme designed to reduce the risk of mental and physical illness, disability or premature death and/or to promote long-term physical, social, emotional and psychological well being."

216. The Committee is concerned that many of the proposed budgetary cuts are likely to have an adverse impact on preventative spending. An Assembly research paper, for example, detailed to the Committee that the Westminster Government's planned cuts in the AME budget will lead to the removal of the Sure Start maternity grant for a second child as well as the abolition of the Help in Pregnancy grant. The abolition of these schemes will reduce government expenditure targeted at the early years' age group and research suggests that the most vital intervention ought to occur during this time.

217. In their submissions to the Report, a number of other committees have expressed dissatisfaction regarding proposed departmental cuts to services that are, in effect, programmes of preventative spending. The Committee notes the Committee for Employment and Learning has raised concern over the damaging long-term impact that would result in ending the Adult Apprenticeship and Education Maintenance Allowance schemes. The Committee also notes the concerns of the Committee for Culture, Arts and Leisure who highlighted that the 12.6% real terms cut in Sport NI's budget will severely hamper the Sport Matters programme. It has been noted that such cuts are likely to negatively impact on participation rates in sport which will result in worse levels of fitness. There is also an awareness that fitness levels are directly correlated with costly diseases such as obesity and diabetes and is conscious that cuts in sport may cost society more in the long run. The Committee for Culture, Arts and Leisure also expressed anxiety that, as a result of budget cuts, an additional ten libraries are projected to close over the next four years and raised concerns that this would negatively impact on the poorest in society. On this point, there is a concern that libraries are an undervalued asset in society as the benefits of good literacy rates in society are widespread and accrued over the long run. The Environment Committee also expressed concern regarding the reduction on funding for road safety, despite the apparent success of this programme. Related to this theme of preventative spending, the Justice Committee has cautioned other departments that, unless a holistic and cross-departmental early intervention strategy is implemented, the knock-on effect will be an increase in the levels of offending and increased costs to the justice system.

218. CFP nonetheless welcomes the Executive's decision to establish a £20m per year Social Investment Fund and a £20m Social Protection Fund. As no further details have yet been released to the public regarding the nature of these funds, the Committee is unclear as to whether either programme will fully incorporate preventative spending schemes. The Committee does note, however, that the Committee for Social Development has revealed that DSD anticipates using the Social Protection Fund in order to support homeowners facing repossession. Members are aware that the Committee for Social Development has also called for more information from the Department regarding the details of the Social Protection Fund DSD scheme. Members also note that the Executive has not, as yet, set aside any additional funding for the Social Protection Fund after year one of the budget period.

219. In a detailed Assembly research paper on preventative spending (Appendix 7), the Committee was informed that the current reactive model of public service delivery prioritises cost-ineffective treatment over often cost-effective prevention. The Committee notes that the research detailed in this paper presents an evident link between a poor upbringing and some of the most costly negative social problems.

220. The Committee is anxious that the statistics detailed in the evidence indicate that NI compares relatively poorly to other European locations, particularly in terms of social mobility and child wellbeing. Members noted the following example from the Assembly research paper that highlights this point: "Daughters of teenage parents are three times more likely to become teenage mothers, and 65% of sons with a convicted father go on to offend themselves." Members also noted a wide range of statistics which outlined the resulting demand-led cost of current policy choices. One such cost was outlined in a briefing paper presented to the Committee from Action for Children, who highlighted that estimates indicate that a single serial offender costs society over £1.1m to £1.9m over their lifetime.

221. From the research findings, the Committee also notes that forecasts estimate that the cost of social problems will continue to increase. Moreover, it is likely that any such costs will be further exacerbated due to the impact of the economic downturn.

222. The Committee is mindful that preventative spending is an investment in human capital, and human capital is unquestionably a key factor that determines Foreign Direct Investment (FDI) in today's global economy. In particular, there is strong evidence demonstrating that expenditure in the pre-school years delivered the highest rate of return on human capital investment. On this point, members note, for example, that in an early intervention programme delivered by Oxfam, up to £19 was saved for every £1 spent. The Committee also acknowledges the endorsement of early intervention programmes in the evidence from the economists Dr Esmond Birnie and Dr Graham Brownlow, with the latter explaining that such programmes are both equitable and efficient. For these reasons, concern was raised in the Committee about statistics which suggested that the Sure Start programme in NI was inadequately funded. The Committee notes that the figures detailed in the submission from the Northern Ireland Childminders Association (NICMA) show that only £80 per child was spent each year on children through the Sure Start programme in NI, compared to an average of £600 per child each year in England. The Committee was also made aware, that the delivery of effective children's services was reliant on the quality of staff. The Committee was therefore concerned to learn from the research that recruiting high quality staff was a general problem across the UK due to the absence of the study of social pedagogy in third level institutions.

223. Arising from the research, the Committee examined a wide range of preventative spending case studies and believes that many of these demonstrate that there is real potential to make significant savings with effective preventative spending. Indeed, the Committee is conscious of the compelling results from a joint university study in Australia, (which was cited as being the largest and most rigorous evaluation ever undertaken) which provided analysis on the cost-effectiveness of 150 different health prevention strategies. The Committee also notes that the Health Committee believes that the 1.6% of the health budget that is currently allocated to the public health agenda is insufficient.

224. The Committee acknowledges the analysis of CBI which calculated that if re-offending rates were reduced by 10%, £40m could be saved per annum. In a research paper presented to the Committee from the Economic and Social Research Institute (ESRI) in Dublin, the Committee was informed that the Irish Government had adopted an early intervention strategy for those most at risk of becoming long-term unemployed. This paper outlined that previously people who were on the unemployment register would have been referred to the Public Employment Service only once they had been unemployed for a period of time and, whilst this seemed like a good idea, referring those most at risk of falling into long-term unemployment at the earliest opportunity was even more effective. In a submission from the Citizens Advice Bureau, the Committee was also informed that, for every £1 spent on services to promote benefit take-up, £8.50 was recovered in entitled benefits (which also act as a fiscal stimulus into the local economy because benefits are a component of AME).

225. The Committee notes from the Assembly research paper that there is a much greater incorporation of preventative spending into public service delivery in other countries such as Scandinavia and the Netherlands. Moreover, the Committee is aware that a number of schemes are currently being trialled and appraised by various local authorities across Britain. Members believe, therefore, that there is scope to use existing evidence and learn from international best practice.

226. The Committee is anxious to ensure that resources are allocated in the most cost-effective fashion, particularly during a time of economic hardship. Members are also mindful that, as a result of proposed budget allocations, voluntary organisations such as Home Start (an organisation that provides family support services) could collapse; and that a costly increase in demand for social services and a requirement to place more children into care – at a cost of £2,500 per person – would result.[44] For these reasons the Committee believes that the Executive needs to be careful not to make "penny wise, pound foolish" budget allocations. The Committee agrees that similar questions to those identified by NICVA, in its submission to the Committee, need to be addressed before decisions are made to cut services.

227. From its examination of this subject, the Committee is aware that, as a result of disjointed government, departments do not engage sufficiently in preventative spending, and that this is partly because preventative spending by one department often leads to savings in another. With respect to this point, the Committee also recognises that it is difficult to attribute specific outcomes to an individual department's preventative spending programmes. These problems of "silo" budgeting were also raised during the evidence sessions with Dr Esmond Birnie and with CBI. Dr Birnie asserted that a holistic cross-departmental approach to governance was necessary and that, in terms of the budget, he believed that it was necessary to calculate collectively how much across departments was directed at tackling specific outcomes.

228. The Committee notes from the Assembly research paper that some organisations expressed discontent that the government's central macroeconomic aim was to achieve economic growth often at the expense of other more accurate measures of prosperity. The Committee is conscious that the powers which have been devolved to NI give the government the ability to promote positive social outcomes but limit the government's ability to directly stimulate economic growth.[45] The Committee therefore recommends that the Executive evaluates the value of targeting other or alternative macroeconomic measures of prosperity alongside GDP growth.

229. The Committee believes it necessary to adequately measure and record social outcomes if alternative measures of prosperity are to be employed. In addition, to overall prosperity, the Committee believes it necessary to take greater account of the impact of departmental budget allocations and spending plans on desired outcomes. The Committee notes, however, that many organisations regarded the current tools used for measuring social outcomes as deficient. This was explained by the organisation WAVE who stated that, "policy evaluation tools restrict investment decisions being considered beyond their financial return and this means public services are led more by cost efficiencies, not by public benefit." The Committee therefore recommends that the Executive considers proposals, as outlined in the recent Assembly research paper on preventative spending, for the development of new indicators, more use of the Social Return on Investment (SROI) indicator and to measure outcomes with a greater use of longitudinal research. The Committee made a similar recommendation in its Report on the Inquiry into Public Procurement in Northern Ireland, when it called on DFP to put in place a suitable model for systematically measuring, evaluating and incorporating wider social value considerations within economic appraisals and business cases.

230. Also in a previous report, the Committee recommends that the Executive establishes a much more transparent system of measuring relationships between resource inputs and outcomes.[46] According to the Centre for Social Justice, outcomes ought to be treated differently to outputs.[47] Outcomes, they state, are the change in society that are determined by outputs which the government has operational control over. The Committee notes the analysis of Dr Graham Brownlow who recognised this issue and warned that public services ought to be careful not to chase "output" targets (such as education attainment, for example) and subsequently fail to adequately deliver an adequate holistic service. The Centre for Social Justice, however, asserts that measuring outcomes enable the government to determine where public spending delivers results and where it does not and therefore ensure that society does not continue to pay for ineffective and inefficient programmes. Moreover, the Centre for Social Justice contends that there is too great a focus on achieving efficiencies through spending cuts rather than through greater effectiveness.

231. The Committee believes that the delivery of public services must become more effective if efficiencies are to be realised. For this reason, the Committee is very concerned that there is little evidence of plans in the draft Budget to do, "more with less." Indeed, the Committee is aware from the Assembly research that Action for Children found a weak relationship between how much a country spends and the resulting social outcomes. In his evidence, Dr Brownlow also highlighted that there were many public sector outputs (such as educational attainment, for example) that were divorced from resource inputs. A number of costless preventative spending suggestions were also noted by Committee.

232. In its evidence to the Committee, Barnados called for a much greater "Systems Thinking" approach in the public sector in order to improve its effectiveness. This and previous evidence to the Committee suggests that, with the same resources, there will always be scope for the Executive to engage in greater preventative intervention. Members also note that many organisations have also reported experiencing problems due to bureaucracy and information sharing problems when delivering programmes of preventative spending; an issue that was also raised in the evidence from Advice NI and from NICVA. Other witnesses identified the need for the Executive to collectively decide on plans to facilitate the development of more effective public services.

233. Also from the Assembly research, the Committee notes some possible means of financing preventative spending. Members were particularly interested in potentials created by the use of social impact bonds, which are a method of obtaining upfront private sector money in order to finance long term preventative spending programmes. The bonds subsequently then pay a return to investors based on social return of the initial investment. The Committee considers that the potential use of social impact bonds merits further investigation by DFP.

234. The Committee considers that there is a strong argument that current public spending patterns are inefficient over medium-to-long-term timeframes. Whilst acknowledging that there are indisputable barriers to a "preventative spending" approach, members believe that, with strong leadership and steadfast vision, such barriers can be overcome. As such, the Committee recommends that the Executive signals its intention in the final draft Budget 2011-15 to establish a cross-departmental taskforce which will:

• evaluate existing preventative spending initiatives across the public and voluntary sectors in NI, including their budgetary positions;
• develop proposals for strategic preventative spending programmes, that are informed by international lessons, and which could be introduced during the period covered by the Budget; and
• identify possible means of financing the proposed programmes as necessary (including, for example, through the additional revenue-raising measures being considered, social impact bonds, additional efficiency gains from relevant departmental budgets, development of pooled budgets, prioritisation in monitoring round allocations).

235. From the Assembly research, the Committee notes that much of the evidence considered and resultant recommendations arising from the recent inquiry into preventative spending by the Scottish Parliament's Finance Committee are also applicable to NI. As such, the Committee suggests that the proposed cross-departmental taskforce also takes account of the work of the Scottish Parliament's Finance Committee into preventative spending, the recommendations from which highlight, for example, the need to:

• develop a clear definition of what counts as "Preventative Spending;"
• assess how to embed the concept of preventative spending much more widely within the public sector; and
• investigate how the mutual relationship between central government and local councils could be improved in terms of early intervention strategies.

Economic Levers

Rebalancing the Economy

236. The Committee is aware that the Executive's plans to employ a range of economic levers as part of a new Economic Strategy for NI. The Committee welcomes the publication of the consultation document by DETI on the Priorities for Sustainable Growth and Prosperity and looks forward to the publication of the Westminster Government's forthcoming report on rebalancing the NI economy.

237. It is widely understood that the NI economy is overly reliant on the public sector. This was highlighted in an Executive sub-committee presentation which detailed that:

• Public expenditure in NI accounts for 63% of output compared to 39% in GB;
• Public sector output in NI accounts for 26% of total output compared to 18% in GB; and
• Public sector jobs account for 36% of all jobs compared to 28% in GB.

As a result of such a large public sector, GVA per capita in NI has historically remained depressed at approximately 80% of the UK average. In this regard, the Committee notes the view of Victor Hewitt who asserted that the low cost economic model upon which NI has traditionally relied is increasingly becoming unfit for purpose. This point was reflected in the recent DETI consultation paper, which outlined the need to rebalance the economy towards higher value added private sector activity.

238. The Committee welcomes the Executive's plan to utilise a number of levers to promote broad based export-led economic activity. Members note the view of Victor Hewitt who stressed that there was a need to promote job growth using the tools available to Invest NI. More recently, a coalition of local businesses released a job creation manifesto which outlined the private sector's aspiration going forward to generate 94,000 new jobs. However, the Committee has also noted that concerns have been raised by both CBI and CETI that cuts to Invest NI's budget will seriously constrain its ability to harness new business activity and support otherwise worthwhile business projects. In its submission, the Committee for Employment and Learning asserted that reductions in that Department's budget will have, "a disproportionately negative impact on our economy's performance and capacity than reductions made to the budgets of the majority of other Departments." With respect to this, CBI has also questioned the wisdom of the proposed abolition of the over-25 apprenticeship programme and the proposed cuts to innovation and research (including PhDs).

239. During the course of the evidence gathering for this Report, the Committee considered are range of specific issues relevant to the drive to rebalance the local economy. Given the linkage of these issues to the wider budgetary considerations, the Committee has taken the opportunity to record its deliberations on these matters in the following sections.

Corporation Tax

240. The case for a reduced rate of corporation tax in NI has been on the mind of the Committee since the start of this mandate. In its submission to the Varney Review in July 2007, the Committee concluded both that "the case has already been well made and that compelling empirical evidence exists as to how a lower corporation tax would increase FDI and improve productivity in NI" and that "the issue now is whether the political will exists within the UK Government to recognise the unique circumstances in NI and acknowledge that its 'one size fits all' approach for the UK is inappropriate for the NI economy". However, the Varney Review of Tax Policy in NI (2007) subsequently concluded that "a clear and unambiguous case for a 12.5% rate of corporation tax cannot be made".

241. The Committee revisited the matter again in March 2010, following the publication of the NI Economic Reform Group report on The Case for a Reduced Rate of Corporation Tax in Northern Ireland. Representatives of the Group briefed the Committee, highlighting the recent Azores Judgement of the European Court of Justice, which allows member states to establish internal regional tax rates provided certain conditions are met, as removing one of the obstacles currently standing in the way of a reduced rate for NI.

242. The Economic Reform Group has advocated a number of potential benefits which would accrue from a reduction in the rate of corporation tax, including increased employment that would lead to increased revenues from income tax and national insurance contributions, alongside a reduction in the number of long-term unemployed. Following this representation, the Chairperson, on behalf of the Committee, wrote to the Minister of Finance and Personnel, proposing that the Executive, or an appropriate Executive sub-group, should meet urgently with the Economic Reform Group to discuss the proposals contained in its report. In his response, the Minister advised of his very real concerns about the reduction in the NI Block Grant which would be incurred to compensate for any loss in corporation tax revenue; and the potential any request for regional tax varying powers could trigger a comprehensive review of funding mechanisms for devolved administrations. He also advised that, as Finance Minister, he did not see merit in engaging further at that point in time.

243. Given the cross-cutting nature of the matter, the Committee also tabled the following joint motion with CETI: "that this Assembly notes the report from the Northern Ireland Economic Reform Group on the case for a reduced rate of corporation tax in NI". Debated in plenary in May 2010, there was unanimous support by those MLAs present. The debate was timely, as shortly afterwards the new Westminster Government launched its Programme for Government with a commitment to "producing a government paper examining potential mechanisms for changing the corporation tax rate in Northern Ireland".

244. Many of the witnesses appearing before the Committee, as it has gathered evidence to inform its views on the draft Budget, have addressed the matter of corporation tax. This has ranged from those who are overtly enthusiastic about the potential to reduce the rate to those who urge a more cautious approach.

245. During its evidence, CBI told the Committee that:

"instead of becoming a low-cost economy...we have to become an income-driven economy. There is no doubt that varying the rate of corporation tax can enable us to do that... There is no doubt in the mind of the Business Alliance that varying the rate of corporation tax is the single most important lever that we could put into the hands of government here to create real growth in real jobs to create real wealth for all the people in NI. You can argue about whether it is a silver bullet but I have no doubt whatsoever that varying the corporation tax rate is the single most significant tool that can be used to create growth".

The need to move away from promoting NI as a low-cost economy was echoed by Victor Hewitt, a long-standing advocate of a lower rate of corporation tax. He told the Committee that, rather than focusing on NI as a low-cost place to do business, the emphasis should shift to promoting NI as a business centre.

246. Those approaching the issue more cautiously, like John Simpson, acknowledged that reducing the rate of corporation tax was only a "game changer" if combined with other measures to help strengthen the economy. Dr Esmond Birnie similarly advised the Committee that the position of PwC is that:

"we do not believe that a reduction in the headline rate would be a panacea or silver bullet that would simply resolve everything overnight and result in the kind of performance in respect of Foreign Direct Investment that the Irish Republic enjoyed for many years".

247. However, a paper submitted to the Committee by PwC in January 2011 entitled Corporation Tax: Game Changer or Game Over?[48] suggested that the Executive should consider "whether the power of fiscal flexibility itself would be of greater value in rebalancing the economy than a simple cut in Corporation Tax where the likely benefit is unproven".

248. Members are aware that the NI Affairs Committee at Westminster is currently undertaking its own Inquiry into a Reduced Rate of Corporation Tax for NI and await the outcome with interest. The Committee also notes that the Executive has now received a copy of the Westminster Government's draft paper on rebalancing the NI economy, which includes a consideration of the process by which the rate of corporation tax can be reduced locally and the potential implications.

249. Recent correspondence from the Minister (dated 8 February 2011) highlights his continued reticence in pursuing a reduced rate of corporation tax, suggesting that the "estimated costs are very high and perhaps prohibitive". The Committee commends the Minister for continuing to engage with this issue despite his reservations and agrees with his assessment that "this is one of the most important decisions we will have to take... it involves extending our devolved powers, it is fundamental for the economy and the potential impact on the block is enormous".

250. The potential cost of corporation tax has been emphasised to the Committee in a written submission from the Northern Ireland Research Team , Poverty and Social Exclusion in the UK Project (PSE UK), based at QUB. It argues that: "even if the EU hurdles can be overcome, a Corporation Tax rate of 12.5 per cent for N Ireland would appear to be a poor use of £280million per annum. In the short-term jobs would be lost and there is no certainty of job creation". PSE UK goes on to reiterate the point made by PwC that, should tax varying powers be devolved to NI, "better strategic use can be made of such a resource in growing the type of private sector activity which will be of long term benefit to N Ireland".

251. Regarding the potential costs, members were interested in hearing the comments made by the Minister during oral evidence on 9 February 2011. He explained that there was still work to be done in clarifying the potential costs to the block grant, and also emphasised the need to work collaboratively with the EU on what could be offset against those costs within the remit of the Azores judgement, the focus being on reducing to the absolute minimum the bill to NI. He also advised members that, even allowing for the devolution of the necessary powers to NI within the next year, it is unlikely that the initial costs of introducing a lower rate of corporation tax would begin to be incurred in the 2011-15 budget period, as FDI companies plan their investments on a minimum two-year horizon. Additionally, the Minister pointed out that, in the meantime, the devolution of the power could, in itself, act as an incentive to potential FDI companies.

252. Like most commentators, the Committee recognises that a competitive rate of corporation tax, on its own, would not provide the "silver bullet" for the local economy and members would support the Executive in taking a multi-faceted approach to economic growth and, in particular, to increasing opportunities for Foreign Direct Investment. However, the Committee encourages the ongoing collaborative efforts to verify the costs and address the barriers associated with introducing a competitive rate of corporation tax in NI, which would undoubtedly provide an important tool for incentivising FDI investment. Moreover, the Committee believes that the Finance Minister and his Executive colleagues should do all within their power to avail of the present opportunity to finally resolve this issue; especially given:

• the apparent receptiveness on the part of the new Westminster Government on the matter, in terms of its proposals to rebalance the economy;
• the fact that the devolution of the power could, in itself, act as an incentive to potential FDI companies; and
• that a phased approach could be taken to the Executive's subsequent exercise of the power and to incurring the associated costs, which would not necessarily take place during the upcoming budget period.

Prompt Payment of Government Invoices

253. The Committee has long been concerned about the opportunities available for local SMEs to do business with central and local government, as was evidenced by its recent inquiry into public procurement. Members therefore welcomed the introduction, in November 2008, of the 10-day payment target for government invoices, announced by then Finance Minister, Nigel Dodds; an initiative mirrored on developments in GB and designed to help local businesses through difficult times.

254. Correspondence from a member of the public drew the Committee's attention to the fact that Scottish Government departments have been outperforming the NICS on meeting the 10-day payment target. The Committee also noted that the Whitehall Department of Business, Innovation and Skills had introduced a 5-day prompt payment target.

255. The Committee has sought regular updates from DFP on the performance of government departments in meeting the 10-day prompt payment target for invoices paid through Account NI, the shared service introduced to improve financial management across the NICS. During questioning of departmental officials, members have learnt that extra investment has contributed to a significant improvement in the performance of departments in meeting the 10-day payment target (up from 57% to 82% since the last financial year). However, the Committee is concerned that this investment is not sustainable in the long-term given other budgetary pressures.

256. Through regular monitoring members have noted that it has been difficult for many departments to meet the 10-day payment target, and that it is particularly challenging for those departments operating mostly through ALBs. This is evident in the answer to a recent Assembly Question, when the Minister of Culture, Arts and Leisure indicated that the Ulster-Scots Agency has a target time of 30 days for the processing of invoices from suppliers relating to the payment of goods and services[49]. It echoes the comments of CEF which told the Committee:

"The Finance Minister requested that final bills be paid within 10 days. However, we have heard that is not happening across the board. Of course, as with all these things, it tends to get a bit muddy and a bit grey when it comes to the arm's-length bodies".

257. The Committee's attention was also drawn to the Late Payment of Commercial Debts (Interest) Act 1998 and the Late Payment of Commercial Debts Regulations 2002, which stipulates the 30-day statutory payment period, and outlines the implications of failing to meet this target. Correspondence with DFP brought to light the fact that, out of ten departments that had responded to a request for information, seven had paid late interest charges during the previous three years. However, during that time, the number of late interest payment charges had decreased: 2007-08 – 94; 2008-09 – 73; and 2009-10 – 64. DFP advised that the total late payment charges incurred by the departments during that time was approximately £67k and that the majority of these late payment charges related to ALBs.

258. During evidence from DFP officials on 20 October 2010, members were informed that Account NI operating systems had originally been designed to meet the statutory 30-day target for supplier payment terms, and that it would not be economically viable to invest in Account NI to the extent that would allow the 10-day target to be met. Departmental officials also advised members that the ability to meet the 10-day target was to some extent reliant on the input of individual departments. Consequently, it has been indicated that the Department would be in favour of reverting back to the 30-day payment target. Such a scenario was discussed by DFP officials when they gave evidence to the Committee on the Department's own draft spending and savings plans on 26 January 2011. They advised that moving away from the 10-day prompt payment target was one of the actions considered when developing the Department's proposals.

259. The Committee is also aware of situations where main contractors are not passing on the benefits of prompt payment to their subcontractors. CETI wrote to the Committee to advise that "although contractors working on Department for Social Development contracts are paid within 10 days there is evidence that many contractors are not paying sub-contractors properly".

260. The Committee Stage of the Construction Contracts Bill provided members with the opportunity to question DFP officials on measures that are in place to ensure prompt payment of subcontractors. Members received assurances from DFP in this regard and welcomed measures that are being introduced with the Construction Industry Forum (CIF), through a revised code of practice for government construction clients and their supply chains, which includes a fair payment charter. The Committee hopes to have an opportunity to examine this matter further before the end of the mandate and will, in any event, wish to recommend that its successor committee continues to monitor this closely.

261. The Committee recommends that, whilst departments and their ALBs should continue to strive to meet the 10-day prompt payment target, particular focus should be placed on achieving payment within the 30-day statutory payment period. In terms of meeting the statutory payment period, the Committee seeks further assurance that the risk of potential unforeseen costs of late payments is being minimised. Members continue to be concerned that the benefits of any success by public bodies in meeting prompt payment targets is not filtering down to local SMEs, particularly those in the construction industry, placed further down the public procurement supply chain. In this regard, the Committee welcomes the introduction of the Fair Payment Charter and recommends that DFP evaluates the scheme on a six-monthly basis to establish its effectiveness and identify any areas for improvement, and to report the outcome of this evaluation to the Committee.

Banking Issues

262. Throughout the mandate the Committee has been concerned about the impact of the economic downturn on local businesses and consumers, particularly regarding the activities of the local banking sector. Whilst mindful that the regulation of banking and financial services is a reserved matter, members wanted to raise issues highlighted to them by the local business community with the banking sector. In 2009, the Committee held four separate evidence sessions with local banks and mortgage lenders to highlight the difficulties being faced by local businesses in accessing credit and lending facilities; and by local consumers, particularly in relation to the housing market.

263. Members also heard from the Institute of Directors (IoD) which surveyed NI businesses on accessing finance from local banks. The IoD began its bank lending survey in April 2009 after it became apparent that there was no empirical evidence to back up anecdotal reports on how the economic downturn was affecting local businesses and to identify the issues that needed to be addressed.

264. The IoD repeated its survey on two more occasions, in September 2009 and March 2010, highlighting the difficulties small businesses were facing in accessing short-term liquidity. Repeatedly, the IoD found that, over the period in question, there was an increase in the number of business requests for finance being declined across all products, with extensions to existing facilities and requests for new facilities showing the highest rates of decline. Further frustrations identified centred on the length of time taken to get a decision; increased levels of bureaucracy; and a lack of local decision making. Also, 40% of respondents reported an increase in charges, while 27% had been asked to provide personal guarantees. Whilst recognising that the IoD survey had a relatively small sample size and there is a possibility of bias, in that businesses may have been more likely to respond if they had been declined credit, the Committee believes that the results reflect much of the anecdotal evidence relayed to members by their constituents.

265. The issue was highlighted again by the leaders of the four main churches in NI (Catholic Church, Church of Ireland, Methodist Church and Presbyterian Church) when, in June 2010, they issued a statement calling on local banks to adopt a more sympathetic and positive approach when dealing with businesses. Following consideration of the church leaders' statement, members agreed, at their meeting on 8 September 2010, to make a proposal to CETI to hold a concurrent meeting on banking issues.

266. The meeting of the two committees, which took place on 22 September 2010, included evidence sessions with the Church leaders; local banking representatives and there was also an opportunity to receive an update from the IoD on the outcome of its local business surveys. The Church leaders drew members' attention to a key change in local banking practice when they explained that:

"Unfortunately the culture of banking is that big decisions tend to be pushed further up the line to committees that nobody knows or meets. Banks have ceased to be part of the communities and small, provincial towns in which they function".

These evidence sessions also highlighted the slow up take of government supported financial assistance initiatives and that local business owners were increasingly being asked to put up personal guarantees against loans.

267. The two committees invited the British Bankers' Association (BBA) to give evidence at a further concurrent meeting, which took place on 17 November 2010. Members questioned BBA on the outcome of its recent Business Taskforce and how its proposals might be implemented in NI. Subsequent correspondence from the Finance Minister has confirmed that both he and BBA are actively pursuing a way forward. An agreement has also been reached with BBA to ensure that it will now provide NI specific lending data on SMEs and that this will be reported on a quarterly basis. The Executive also co-ordinates the Cross-Sector Advisory Forum's Banking Sub-Group, which has been established to ensure that the local banking sector meets the needs of businesses and consumers here.

268. In November 2010, the Archbishop of Armagh, the Most Reverend Alan Harper, wrote to CFP and to CETI to update members on the outcome of its ten-month consultation with businessmen, business organisations, trade unions and individual parishioners. The conclusions of the group included:

• supporting the creation of a Credit Review Office, similar in nature to that which exists in RoI. (Its objective is to determine if the Allied Irish Bank and Bank of Ireland in particular are achieving the objectives set for each of them to make €3bn of new lending over the next two years);
• within NI, such a Credit Review Office might report to the Assembly and have the legal power to select and examine lending cases from any bank operating here, with a view to reporting on whether declined borrowers can demonstrate that their business is viable as a going concern and has cash generation capability to service its debts; and
• new lending must work on the principle of sustaining and, further, achieving a new uplift in lending into the local SME private business sector. This would assist government in achieving its targets for private sector growth.

269. The Archbishop advised the Committee that, at the time of his correspondence, the group was still waiting to hear from three of the banks about the issues it had raised with them. He went to say that the group will continue to monitor and collate evidence and make that further information available to members.

270. The Committee subsequently wrote to DFP inviting views on these recommendations and the response from DETI on the same matter, which had been copied to CETI. DFP advised that, as banking regulation is a reserved matter, the Assembly does not have the power to call the banks to account in the manner suggested (i.e. through a Credit Review Office). However, it did note that one of the BBA Taskforce recommendations is to establish a transparent appeals process and DFP officials have discussed this with colleagues in HMT and the Whitehall Department of Business, Innovation and Skills. The Committee notes DFP's understanding that the need for such a process is recognised by all.

271. The Committee recognises that a restoration of bank lending to sensible levels is a necessary pre-requisite for economic recovery. Members support the Finance Minister and his Executive colleagues in encouraging the take-up of Government sponsored finance schemes. The Committee also welcomes the continued engagement by the Finance Minister and his officials with BBA, IoD and local banking representatives on the implementation of the BBA Taskforce recommendations. The Committee recommends that the Department continues to actively monitor the relationship between the local banking sector and small businesses and welcomes the agreement that BBA will report quarterly on local lending figures. Members also support the Minister in engaging with the Whitehall Minister for Business, Industry and Skills on the development of a transparent appeals process. In addition, the Committee will be identifying these banking issues in its legacy report for the successor committee to pursue in the next mandate.

National Assets Management Agency

272. Since its proposed creation, the Committee has kept a watching brief on developments relating to the National Assets Management Agency (NAMA) in RoI, particularly with regard to the potential implications for the NI economy given the quantum of NI assets held by the agency. In October 2009, the Chairperson wrote to the Finance Minister seeking assurance that there would be a NI representative on the NAMA Board. The Committee was therefore pleased to note the creation of a NAMA Northern Ireland Advisory Committee.

273. During an evidence session with DFP officials on 2 February 2011, members sought assurance that there will not be a "fire sale" of assets and also that there would be consultation before any action is taken. Arising from this evidence session, the Committee awaits a response from DFP on the level of engagement between the Minister and his RoI counterpart on this issue and on the likely timescales for the disposal of NI assets by NAMA.

274. The Committee welcomes the establishment of the NAMA NI Advisory Committee and supports the Finance Minister in his ongoing engagement with his Irish Government counterpart on this issue. Members caution against a "fire sale" by NAMA of its assets in NI and seek assurance that the Finance Minister will do all in his power to prevent this from happening.

Industrial Derating

275. The Committee examined the issue of industrial derating within the wider context of the draft Budget 2008-11. At that time, the Committee considered "that the policy is an outdated and blunt instrument in terms of promoting economic development and sustainability in the longer term". However, in recognising that any substantial modifications to the scheme would run the risk of contravening EU State Aid rules, the Committee supported the retention of manufacturing rates at 30% liability at that time. In doing so, however, it requested that consideration be given to whether modifications could be made to encourage activity that would lead to higher productivity (e.g. research and development, export marketing) or to the establishment of a concordat between industry and government as suggested in the Economic Research Institute of Northern Ireland's (ERINI) Review of Industrial Derating Policy[50].

276. As part of its evidence gathering in advance of the publication of the draft Budget 2011-15, the Committee first considered the Finance Minister's proposal to maintain industrial rates at 30% liability throughout the four-year budget period on 6 October 2010, with a subsequent evidence session being held on 3 November 2010. The Committee heard that the Minister was keen to retain the measure as he believed that, to do otherwise in the current economic climate, could have an adverse effect on the manufacturing sector.

277. The Committee maintains the view that this is a blunt instrument that does not encourage change in the sector, and is disappointed that a feasible alternative has not yet been brought forward despite the time that has passed since the Assembly agreed to extend the measure within the 2008-11 Budget. Members note that some work was undertaken by the Northern Ireland Manufacturing Focus Group (NIMFG), together with the trade union Amicus, on a proposed levy for Skills, Training and Reinvestment (STAR), whereby a proportion of the savings to manufacturing businesses through holding rates liability at 30% would be reinvested in skills, training and research for the sector, although this was abandoned in 2007.

278. While accepting that there is no capacity within existing legislation to place an onus on businesses to provide a return on industrial derating, nonetheless, the Committee considers that there is a case for reinvesting the savings gained by manufacturing businesses through industrial derating, as far as would be permissible within EU State Aid rules. As such, the Committee renews its request that DFP undertakes further detailed work in relation to the proposed "STAR scheme", in conjunction with DEL and DETI as appropriate. Members would wish to see any potential outcome from this type of scheme begun to be realised in the period covered by the draft Budget.

279. The Committee does not consider that industrial derating is the most effective measure for providing support to the manufacturing sector. Nonetheless, it agrees with the Minister that to remove the measure in the current economic climate may have a destabilising effect on the sector, and for that reason supports the proposal to maintain liability at 30%. However, the Committee would also recommend that DFP does not wait until the end of the four-year budget period to consider an alternative to industrial derating, and indeed that the cap at 30% should also be evaluated and amended as appropriate within this period.

Green New Deal

280. The Green New Deal Group is comprised of members from the private, voluntary, public, trade union and charity sectors. Members note that the Green New Deal Housing Fund Business Plan Summary (Nov 2010) states that

"The proposal is a simple one: investing in an ambitious programme to cut consumption of fossil fuels can create thousands of new jobs; help secure our energy supply; and build a competitive low-carbon economy".[51]

It proposes that, of £253m required for investment in 100,000 homes, £72m will be sought from Government in terms of grant support for householders, and the remaining £181m will be leveraged in from the private sector.

281. The Green New Deal was viewed favourably by a number of witnesses as a stimulus for the economy. Mike Smyth told the Committee that "research shows that the most effective way of creating and maintaining employment at present is retro-fitting houses". CEF pointed out that there are in excess of 13,000 workers on the unemployment list , a "massive supply of skilled and unskilled people who are ready to go". Funding could be redirected quickly by the Construction Industry Training Board to train people as necessary, were the Green New Deal to be taken forward. As well as dealing with unemployment in the construction sector, Dr Birnie pointed out that it will improve the capital housing stock and help reduce fuel poverty and, as such, is should therefore be given serious consideration despite the challenge to be faced in finding the upfront costs. Similarly, Neil Gibson considered the scheme a good idea, but, as alluded to earlier, he went on to suggest that the tax system could also be used more aggressively to incentivise behaviour; for example, less rates would be payable as the energy efficiency of a house improved.

282. The Committee is aware that, on 5 October 2010, the Assembly agreed the following motion after a plenary debate on this issue:

That this Assembly notes the benefits that can be achieved through implementing the green new deal in Northern Ireland; supports the need for improved energy efficiency to reduce fuel use and meet European Union and United Kingdom carbon emission targets; believes there is a real opportunity to create 30,000 sustainable green collar jobs; and calls on the Executive to implement a cross-departmental strategy to ensure that the potential benefits of the green economy are realised for Northern Ireland.[52]

283. In the draft Budget 2011-15, the NI Executive states that it considers that "Green New Deal is an ambitious investment programme which will leverage in significant amounts of private sector funding to deliver energy efficiency measures creating several thousand jobs over a three year period", and as such has agreed to engage "in principle". In response to questions on the draft Budget on 15 December, the Minister advised that DFP is considering a business case outlining how funding will be used, potential jobs that will be created, estimated savings and private sector investment, and advised that "for every pound that we spend…about £2 or £3 will come in from the private sector. So, it is good value from that point of view".

284. It is proposed that £4m is allocated to the programme per annum, which will be supplemented by revenue generated over the budget period. In their overview of the draft Budget, NICVA stated that "it is worth stressing that the sums of money being committed from the Executive (£4m annually) are very small indeed".[53] The Minister confirmed that it is expected £72m of public money will be used during the longer term.

285. During evidence to the Committee, DFP officials clarified that the Executive was not expected to provide its complete investment upfront, and that the initiative will be phased in over several years. The £4m allocated is to "establish the floor in order to take the initiative forward". In view of the benefits to the economy, the potential for boosting employment and the longer-term benefits in respect of improved housing stock and energy conservation, members welcome the Executive's agreement "in principle" to engage in the Green New Deal initiative. The Committee considers, however, that details of how funding will be increased throughout the Budget period must be set out as soon as possible.

Independent/External Economic Advice

286. In his oral evidence to the Committee, Dr Brownlow noted that a culture of engagement between economists in the public sector and those in the private and academic sectors, which is apparent in other jurisdictions, does not exist in NI. Similar concerns about the lack of a mechanism to give or receive advice were also raised by a number of other economists in their evidence.

287. In response to concerns raised, DFP conceded that there is no formal NICS mechanism or forum for engaging with independent or external economists. DFP contends, however, that departmental officials liaise with external economists in a number of ways, such as participation in the Invest NI Economic Forum, meetings with members of the NI Economic Reform Group, the establishment of an Economic Advisory Group by the ETI Minister, which included two independent economists, and engagement at various conferences. The Department also sounded a note of caution that many external economists are employed by consultancy firms or banks, and therefore cannot be considered to be fully independent. Additionally, costs associated with obtaining economic advice from such sources could be significant.

288. Both Dr Brownlow and John Simpson expressed their disappointment with DFP's response to the issues that had been raised regarding such engagement. Dr Brownlow reiterated his concern that no formal mechanism exists with academic economists at either of NI's universities. John Simpson noted that, despite his personal efforts, he has not had access to the various consultative functions mentioned by DFP. Members are also mindful of the recent decision to withdraw OFMDFM funding for ERINI, which will result in the Executive having no publicly funded central source of independent economic advice, similar to that which exists in other jurisdictions (e.g. Economic and Social Research Institute in Dublin).

289. The Committee is disappointed at the seemingly ad hoc arrangements for engagement between economists in the public sector and those in the private and academic sectors in NI. Members are keen that measures are put in place to counteract a silo mentality towards budgetary/economic issues and policy making, and to ensure a healthy exchange between politicians, civil servants, academics and private sector parties. As such, the Committee calls on the Finance Minister to work with his Executive colleagues to bring forward options on establishing a formal mechanism for facilitating engagement between local economists, that would harness the talents of the various sectors, and which could also offer a central source of independent/external economic advice to the Executive.

Part 2 – Committee Responses to Departmental Positions

290. Though not specifically requested by DFP in this instance, CFP has, despite the exceedingly tight timeframe available, followed the convention of co-ordinating the views of the other relevant Assembly committees on the proposed budget allocations for their respective departments. As alluded to earlier, seven of the other eleven statutory committees have reported some level of dissatisfaction with the time or information available to fulfil their scrutiny functions in this regard. Arising from this, four have indicated that their submissions should be regarded as interim and that they intend to continue to examine information as it is made available by their departments.

291. Submissions have also been received from the Audit Committee and from the Assembly Commission in respect of the allocations being proposed in the Executive's draft Budget 2011-15 for the NIAO and the NI Assembly respectively.

292. In terms of the proposed budgetary allocations between departments, the Committee for Finance and Personnel recommends that, in finalising the draft Budget 2010-11, 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 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 2011-15 is finalised and considered by the Assembly. Members would also expect that the Finance Minister will outline the Executive's response to the Report when presenting the revised draft Budget 2011-15 to the Assembly.

Executive Departments

Agriculture and Rural Development

293. The Committee for Agriculture and Rural Development (the Committee) welcomes the opportunity to provide its comments to CFP in respect of its inquiry into the Budget Scrutiny process.

294. The Committee again noted the insufficient time available to it to undertake detailed scrutiny of the proposed budget, resulting in an inappropriate level of consultation with industry stakeholders. This has been an ongoing difficulty throughout this mandate and is an area the Committee would wish to see improvement on in the next mandate.

295. The Committee is disappointed that the savings will result in the loss of 80 posts within the Department and has received guarantees that this saving will be achieved without the need for redundancies. However, the Committee has requested additional information on the specific areas that these posts will be lost to ensure that frontline services are not depleted.

296. The Committee is disappointed at the absence of detail in the proposed plan. The Committee is concerned at the number of aspirational savings identified, such as reliance on the reduction of levels of animal diseases, particularly given the Department has not achieved its targets in respect of these areas within the current CSR. The Committee would be concerned, therefore, that other (as yet undeclared) savings would have to be brought into effect if the proposed reductions in animal diseases are not realised. This could, potentially, have a more serious impact on the delivery of frontline services to the industry and rural communities.

297. Whilst the Committee does not disagree with the principle of dispersing civil service offices outside of Greater Belfast, the Committee is concerned at the timing and the cost of the proposed relocation of the Department's headquarters. The Committee agreed that it was not appropriate given the fiscal constraints facing the economy and noted that the overall capital cost of the relocation was estimated to be £26m which was to be split across the next two CSR periods. The Department has not been able to provide an economic appraisal indicating how this figure has been arrived at and what other ancillary costs are expected, such as the relocation costs of up to 1,000 officials.

298. The Committee believed that this was not the time to be testing "the viability of placing a departmental HQ at a location outside the Greater Belfast area", as indicated in the Minister's statement.

299. The Committee also sought assurances that the national contributions to the Northern Ireland Rural Development Programme, co-funded with the European Union, would be protected. The Committee has previously expressed grave concerns at the lack of progress of this programme, in particular with regards to Axis 3, and believes that it is imperative that these funds continue to be made available and dispersed within the rural community.

300. The Committee welcomes the Department's commitment towards the Countryside Management Scheme as this is an important and well-supported programme, but is disappointed that the Department will fall short of their PfG target of land covered by agri-environment agreements.

301. The Committee would again thank CFP for the opportunity to provide comments in respect of the budget and its processes.

Culture, Arts and Leisure

Background

302. The Committee for Culture, Arts and Leisure (the Committee) considered draft spending and saving proposals in September and October 2010. The Committee was briefed by DCAL officials on 2 September 2010 on a planning scenario, in which savings were broadly speaking, allocated across the Department and its arm's-length bodies (ALBs) on a pro rata basis. The Committee also took evidence from a number of ALBs and the Northern Ireland Council for Voluntary Action (NICVA) seeking views on how DCAL's planning scenario would impact on the strategic priorities and work of their respective ALBs. The following ALBs provided written and oral evidence:

• Arts Council for Northern Ireland (ACNI)
• Sport NI
• National Museums for Ireland
• Museums Council for Ireland
• Libraries NI

303. The Committee subsequently wrote to all of DCAL's ALBs seeking their views on the draft Budget 2011-15: Spending and Saving Proposals within the Department of Culture, Arts and Leisure. The submissions, from all nine ALBs were considered on 13 January 2011. The Committee was also briefed by DCAL officials on 13 January 2011.

304. The Savings Plans were subsequently published on the DCAL website on Friday 14 January 2011 and considered by members at the Committee meeting on 20 January 2011.

305. The Committee also took evidence on 20 January 2011 from the Northern Ireland Theatre Association (NITA) with regard to the impact of the proposed cuts to their members and from ICTU Northern Ireland Office in respect of the proposed cuts to the arts budget.

Summary of Key Findings

306. The Committee notes that the draft Budget provides DCAL with current expenditure baselines of £112.5m/£113m/£110m/£103m. However this includes Invest to Save of £1m/£7m/£5m in years 1, 2 and 3, which will be transferred to capital in due course. Therefore the real savings that DCAL state they must make are £1.8m/£7.1m/£8.3m/£10.3m.

307. The current expenditure baseline falls by 9% by 2014-15 and in real terms, i.e. taking account of anticipated levels of inflation, by almost 18%.

308. The Committee notes that the proposed allocations for capital investment over the four years amounts to a capital allocation of £141.72m but that this represents a small proportion of the Executive's overall capital budget. DCAL officials informed the Committee that major projects with capital commitments such as the 50 metre pool and the Metropolitan Arts Centre (MAC) are scheduled to be completed. The project of developing regional stadiums has been granted capital security and work can now proceed. Certain library projects already underway will be completed including the roll out of the electronic libraries for Northern Ireland operating system (ELFNI) and the refurbishment of four mobile libraries.

309. The Committee was informed that restrictions on the capital budget will mean that the 2012 Elite Facilities Programme (with the exception of the 50m pool) will not go ahead. The refurbishment of Belfast Central Library with the NI regional library will also not be completed and museum projects in Omagh and Cultra will not go ahead.

310. DCAL officials informed the Committee that the draft budget proposes a new allocation for current spend which includes an additional £24m towards the Department's bids. DCAL states that this additional allocation has made it possible to provide some measure of protection for payroll heavy ALBs such as libraries and museums. It is also a part contribution to some of DCAL's bids including the World Policy and Fire Games.

311. DCAL explained that allocations have been informed first by the Minister's priorities, secondly, the extent to which programmes could be reduced and ramped up again in the future and thirdly, the existence of what DCAL regard as inescapable pressures around pay and costs.

312. The following sections will analyse the impact of the proposed cuts on DCAL and its ALBs. This analysis is based on written and oral evidence received by the Committee.

DCAL

313. DCAL accounts for 20% of the DCAL expenditure. The remaining 80% is allocated to its ALBs. DCAL anticipates losing 6.6% of its budget over the four years. This is in addition to 5% cuts year-on-year in administration (over the current CSR). The reduction to current expenditure over the four years is 4.19% or 9.92% in real terms.

314. The Department has stated that it has experienced a reduction in the number of staff over the past three years and a further reduction is expected through natural wastage or through redeployment to the NICS.

315. The Savings plan for the Department states that it will accrue savings of £3.72m from its saving measures. It will seek to minimise the impact on the services to the public by focusing its efficiencies on administrative areas and protecting frontline services delivered by the Public Record Office of NI and Fisheries (294 full time equivalent (FTE) of which more than half are in PRONI and Fisheries). The Department has embarked on an organisational review to align its priorities and identify opportunities to achieve further efficiencies.

Sport

316. The budget for Sport NI will be reduced by approximately 7% which equates to 12.64% in real terms. The draft resource requirement over the four years represents 28% of the resource requirement for implementing the Northern Ireland Strategy for Sport and Physical Recreation 2009-19 (hereafter Sport Matters). The draft SNI capital budget is £133m (including £110, for three stadiums). As previously noted, there is insufficient capital to meet the other major facilities bid for five of the six elite facilities to go ahead. Funding for the 50 metre pool will be met from the proposed capital budget.

317. DCAL has proposed that lottery funding will assist Sport NI in a number of projects due to the expected increase in the Lottery funds. Those funds allocated to London 2012 will be redirected following 2012.

ARTS and the Creative Sector

318. ACNI will lose 7.7% over the four years of the Budget from their baseline. This equates to 13.43% in real terms. ACNI argue that this is a 30% reduction of the DCAL baseline and is therefore disproportionate.

319. DCAL has stated that Lottery funding will provide some relief over the four years. However it is understood that the overall drop will lead to a reduction in the number of funded programmes despite this potential source of funding.

320. ACNI has predicted that cuts will inevitably hit frontline services which will result in job losses (circa 100 jobs), closure of organisations and a reduction in performances, among other things. ACNI is concerned that DCAL is relying on lottery funds to compensate for the reductions. It points out that it is a breach of lottery directions to substitute lottery funds for core running costs of organisations. Comparatively ACNI states that it is being asked to take a disproportionate cut in funding when compared to other regions such as Scotland and RoI.

321. In terms of capital, ACNI states that despite the slight increase in year 1 for the Lyric and the MAC, there are insufficient resources to fund this level of capital investment.

322. NI Screen will lose approximately 9.4% from its baseline by 2014-15 which equates to 15.08% in real terms. This will impact on whole activities, particularly with regard to outreach programmes. The reductions will also impact negatively on the international reputation of the local film industry.

Libraries

323. Libraries NI will lose 2.46% from its baseline across the four years or 9.92% in real terms. Libraries NI have stated it will have to find savings of £13.61m over the 4 year period (this takes account of inflationary pressures).

324. Libraries NI has indicated that the cuts will inevitably lead to the closure of around 10 libraries over the four year period (subject to a strategic review), a 15% to 20% reduction in opening times and the purchase of book stock will be greatly affected.

325. The savings plan estimates that there will be no compulsory redundancies as a result of closures as staff will be transferred to busier libraries. It also states that the EQIA is likely to identify impacts in respect of some libraries, e.g. usage by elderly and disabled people; a greater impact on areas of high levels of social deprivation and rural isolation. It will impact on good relations as a result of removing the some libraries as neutral venues in the community. It is hoped that a mitigating measure will be the provision of mobile libraries.

Museums

326. National Museums Northern Ireland has stated that the reduction in funding will have a major impact on staffing levels of around 25% (from 310 FTE to 234) and opening hours. It will also impact negatively in its ability to operate as a strategic partner in tourism and learning in NI. The low level of capital allocation will mean that the Council will not be able to proceed with much needed investment programmes at the Ulster American Folk Park and the Ulster Folk and Transport Museum.

327. Northern Ireland Museums Council's current expenditure baseline will reduce by 5.18% or 10.91% in real terms. The proposals for meeting these reductions include: a reduction in staff hours; a reduction in the amount of grant assistance to be provided to museums; the abolition of proactive programmes and developing income generating schemes. It lists a number of Section 75 groups that will be impacted negatively on the grounds of age, race and persons with or without a disability. The reductions will also impact on individuals or groups or areas suffering from social disadvantage. Finally reduction on grants to local museums will have a direct adverse impact in these areas. The Council intends to use its reserves to mitigate against the budget cuts.

North/South Bodies

328. The budget of N/S Bodies requires agreement with the Department of Community, Equality and Gaeltacht Affairs. The Department's proposal will reflect a drop of 15% over the four years. In 2014-15 it will be down by around 9% from 2011.

Armagh Observatory and Armagh Planetarium

329. The Department has spared these organisations from any major cuts due to their size. However both organisations have informed the Committee, that even relatively small cuts will impact on the maintenance of equipment which is critical to the operations of both organisations. It will also impact on education programmes.

330. The following section details the Committee's consideration of the draft Budget based on the evidence detailed above.

Committee Response to the key issues raised in relation to the Draft DCAL Budget 2011-15

331. The Committee is of the view that that public spending on culture, arts and leisure equates to the underspend of other government departments. Any savings from cuts to this area will make a negligible difference to the overall NI budget but will have a disproportionate effect on creative industries, job creation, sports, culture and tourism.

Draft Capital allocations

332. The Committee has serious concerns about the proposed reduction to the capital budget and would urge for a greater degree of innovation and creative thinking in the delivery of capital projects by the Executive.

333. The Committee notes that the department has secured £142m of capital over the four years and acknowledges that this represents a small proportion of the Executive's overall capital budget. However, the Committee welcomes the capital commitments to major capital projects such as MAC and the roll out of the electronic libraries for Northern Ireland operating system (ELFNI).

334. However, the Committee calls for assurances that the revenue consequences of capital bids have been fully considered and that capital bids are sustainable.

Frontline Services

335. The Committee notes the impact the proposed savings will have on jobs within DCAL and its sponsored bodies. The Committee urges that full consideration is given to protecting frontline jobs that have the potential to create further employment in the culture, arts and leisure sector. This should take account of potential savings that could be made in management and administrative functions within DCAL and its ALBs.

336. The Committee notes that 20% of the DCAL budget is attributed to DCAL departmental administration and covers the cost of administering ALBs. The Committee notes that departmental administration of the Arts business area (7.01%) and Sports (11.61%) is relatively higher than other business areas within DCAL. Given that SportNI and ACNI are facing higher cuts than other business areas, the Committee would request that the current expenditure allocations are revisited to ensure a fair and equitable allocation across all business areas.

The ARTS and the Creative Sector

337. The Committee had previously expressed concern over the impact of budget cuts on the creative industries sector. The Committee welcomes the draft allocation to the Arts of a further investment of £4m in creative industries.

338. However, overall, the Committee regards the cuts to the Arts as disproportionate and a retrograde step to the local economy. Any proposed cuts should be fair and proportionate to the cut in the overall block grant to NI.

339. Investment in arts and cultural activities can stimulate economic growth. The Committee is concerned that the level of cuts proposed for the arts will diminish the contribution that the creative industries can make to the economy and the impact this will have on community arts projects. For example, Audiences NI reported that despite the recession, the number of households attending an arts event rose by 7% in 2009 which generated £16m.

340. The Committee is also concerned that substantial cuts to the arts sector will result in it becoming a "no go" area for new talent. Some critiques have referred to a "tipping point" in funding reductions, beyond which irreparable and long-term damage will be done to the culture and arts infrastructure.

341. The Committee concurs with the view expressed by ICTU that the Arts and Creative Industry is a high tech, highly skilled industry with added value that generates £582m annually to the NI economy. It also employs some 33,000 people. Furthermore the benefits of investment in the arts are felt across society, with 56% of ACNI's main grant programmes being made within the most deprived areas of NI.

342. The Committee notes with concern that NI still has the lowest arts spend per capita in UK, when compared to other parts of the UK and faces a larger proportion of cuts to its budget.

343. The Committee is of the view that public funding is essential to the survival of the arts; the pool of businesses here that could provide sponsorship is small and private investment is in decline. The Committee concurs with the view expressed by NITA that "cuts in public spending will undoubtedly hamper the possibility for Arts sponsorship".

344. The Committee notes that DCAL intends to use Lottery funding to provide some relief over the four years in the arts and sport. The Committee is concerned that the Lottery should not be used as a substitution, given that HMT rules prohibit the use of Lottery funds for core funding of organisations. The Committee notes that these concerns are shared by ACNI and NITA.

345. The Committee notes that ACNI and government have invested heavily in providing a dedicated arts facility within 20 miles of every person in NI. The Committee concurs with the view expressed by ICTU that these facilities enhance the cultural tourism offering and act as powerful symbols of regeneration of our towns and cities. To capitalise on this investment, adequate funding should be made available for running and programming costs.

346. The Committee is concerned that NI Screen will lose approximately 9.4% from its current expenditure baseline by 2014. This equates to 15.8% in real terms and represents a disproportionate cut to a relatively small budget of just over £1m per annum. The Committee is concerned that the proposed cuts will result in the cessation of funding for whole activities which will impact considerably on third party organisations. NI Screen has indicated that a number of small organisations and projects will cease which will potentially result in job losses. Furthermore the complete loss of the UK Film Council funding in 2010-11 (£200k) means that the overall cuts will be very severely front loaded. The planned reductions, effecting regional/outreach work, are likely to have a negative impact on reaching rural communities.

347. The Committee is also extremely concerned at the long term damage the cuts will have on the international reputation of the local film industry which was beginning to flourish and bring substantial spin-off opportunities to local businesses involved in set production and the wider film industry. In view of this the Committee calls for serious consideration to revising the proposed reductions to NI Screen's current expenditure baseline.

Libraries

348. The Committee acknowledges that the public library service, through its emphasis on reading and literacy, learning, information, heritage and culture, contributes not only to specific DCAL PSA targets, but to the wider PfG, including Education, Health and Social Inclusion.

349. The Committee acknowledges that Libraries NI has already delivered significant efficiencies since its establishment on 1 April 2009 (£600k in year 1 and £1.8m this year). The Committee also notes that the size of the budget cuts currently being projected will result in significant reductions in frontline services and potentially necessitate the closure of viable and well-used libraries. The Committee is extremely concerned that it will make it more difficult to provide an equitable service across NI, particularly in rural areas.

350. The Committee notes that libraries are recognised as neutral venues and play a key role in promoting equality, diversity, social inclusion and a shared future. Furthermore they are often targeted at sections of the community who are socially disadvantaged. The Committee urges that Phase 2 and Phase 3 of the Strategic Review of Libraries is regarded within this context and that resources and services are prioritised, within this review, to enable libraries to continue to support this important role. It is also critical that sufficient resources are in place to effectively carry out this review in a fair and equitable manner.

Museums

351. The Committee continues to acknowledge the important role museums play in terms of promoting cultural tourism, supporting tolerance and social inclusion. The Committee is of the view that museums should be afforded some protection to mitigate against the effect that deep cuts will have on our cultural heritage.

352. Cultural tourism is growing at a faster rate than any other tourism sector. For example, in 2009 39% of tourists attended a cultural event. The Committee therefore urges the Minister and the Executive to take a more joined-up approach to supporting and resourcing cultural tourism.

Participation in physical activity and sport

353. The Committee welcomes the draft Sport NI capital budget of £133m which will enable important projects such as the 50 metre pool and regional stadium development to progress. This is good news for Sport and the Committee acknowledges the long term benefits this will bring to the development of sport in this region.

354. The Committee expressed its support for DCAL's bid to support the World, Police and Fire Games, the largest of its kind in the world. This major event represents an enormous opportunity in terms of boosting the local economy and promoting NI on the world stage. The Committee therefore welcomes the proposed allocation in support of this bid.

355. The Committee took evidence from Sport NI (September 2010) on how the proposed cuts would affect its ability to deliver key projects and programmes on the ground. The Committee expressed concerned that if the cuts to Sport NI's budget were realised, opportunities for young people and adults to participate in sport and physical activity would be lessened. The Committee continues to be concerned that the proposed reduction to the Sport NI budget will negatively impact on people living in socially deprived areas in terms of their ability to pursue sport and physical activity, which is key to improving health and well being.

356. The Committee is concerned that Sport NI's ability to implement the Northern Ireland Strategy and Recreation 2009-19 (Sport Matters) will be severely hampered by the shortfall of £81m to implement the strategy. The Committee welcomes efforts by DCAL and Sport NI to develop mechanisms to secure and buy in the commitment of key partners and stakeholders in an attempt to address this funding shortfall.

357. In relation to the Special Olympics Ulster (SOU), the Committee welcomes and supports the Minister's efforts to resolve the funding issues of SOU.

EQIA

358. The Committee calls for a full EQIA to be undertaken on the DCAL draft Budget for 2011-15. Through the savings plans DCAL's ALBs have referred to the potential negative impact the cuts will have on Section 75 groups For example, it is anticipated that closures in the museum and libraries sector will impact on the elderly and disabled people and will impact negatively on people living in areas of high levels of social deprivation and rural isolation. In the case of libraries, it is understood that the loss of libraries will also impact on good relations as libraries are regarded as neutral venues in the community.

Education

359. The Committee for Education has provided an interim response on its scrutiny of the Department of Education (DE) Draft Budget 2011-15: Draft Allocation and Savings Proposals, published on 13 January 2011.[54]

Pre Draft DE Budget Publication Scrutiny

360. The Chairperson of the Committee for Education (the Committee) wrote to the Minister of Education on 8 July 2010 highlighting the Committee's need for timely and detailed information on the future Education Budget in the context of Budget 2010 as follows:

"The Committee, at its meeting of 30 June, stressed the importance of Department of Education copy papers to DFP over summer recess and responses to future requests for information on the Education Budget (in the context of Budget 2010) arriving with the Committee in good time so they can be given the Committee's full consideration. I would also emphasise that it is essential for the Committee to receive full and detailed information on the impact of your options for savings/cuts".

361. The Committee requested copies from DE of information on its savings proposals to be provided to DFP by 26 August 2010 and other detailed information through its letters on 1 and 7 July 2010 for its Committee meetings of 1 and 8 September 2010, which were dedicated sessions for scrutiny of DE draft Budget proposals. The Committee subsequently received briefing papers from DE on 25 August 2010 and 7 September 2010 on Budget 2010 – Spending proposals. The Chairperson of the Committee wrote to the Minister of Education on 2 September 2010 listing key issues raised by the Committee at its meeting of 1 September 2010 with senior departmental officials on the DE initial Spending Proposals. These included:

Resource Spending Proposals:

• Teachers pay and non teaching pay bill in the context of the Government's pay freeze and national pay agreements;
• Up-front redundancy costs to deliver savings;
• Cost of the extension of Free School Meals Eligibility criteria; and
• Public Private Partnership resource costs;

Capital Spending Proposals

• The approach to and relative merits of costs of different procurement options for funding major and minor works for schools – including the balance between major and minor works funding; and
• The Review of Middletown Centre for Autism building costs.

362. The Committee continued its scrutiny of DE initial Spending Proposals at meetings on 13 October 2010 with the Association of School and College Leaders and the National Association of Head Teachers, on 17 November 2010 with representatives of Education and Library Boards (E&LB) Chief Executives, and on 1 and 8 December 2010 with senior departmental officials (examining ICT/C2K and School Transport policy in the Budget context). Departmental officials also provided briefing papers on 19 October 2010 on non-permanent teaching and non-teaching staff and actual retirees/leavers, and on 24 November 2010 provided an analysis of the Resources and Capital Spending Proposals for the Budget 2010 period.

363. Following the Executive's draft Budget publication on 15 December 2010, the Committee Chairperson wrote to the Minister of Education on 17 December 2010 stressing the Committee's need for timely and detailed information on the Minister's forthcoming draft DE budget 2011-15 as follows:

"With the Executive's agreed Draft Budget allocations now announced and with the public consultation on this closing on 9 February 2011, it is imperative that the Committee receives your revised Spending Proposals written to the Executive's Draft Budget education allocations as soon as possible please. You will appreciate that your Spending Proposals need to be at a detailed level to allow the Committee to properly scrutinise proposed allocations and formulate views to be put to you. It is important that the Committee receives the Saving Delivery Plan associated with your revised Spending Proposals. We also need clarity on your priorities reflected in your revised Spending Proposals and what the implications are of year-on-year reduced expenditure allocation proposals (where appropriate) – again at a sufficiently detailed level".

364. The Committee met on 1 December 2010 to continue its scrutiny of the forthcoming draft DE Budget and questioned senior departmental officials on whether or not the Department was undertaking options/scenario planning on draft Spending and Saving proposals, particularly to protect frontline school services. Some members expressed grave concerns that the senior official responded that:

"Our Department like any other Department works under the direction and control of the Minister…' '..beyond the high level figures at block level that are available I have no figures on which to commission any work nor do I have any authority to commission any work on scenarios…"

365. The Committee received a further DE briefing paper on Education Workforce issues on 11 January 2011, which included a breakdown of the 15,635 education service non-permanent staff.

Post Draft DE Budget Publication Scrutiny

366. The Minister of Education's Draft Budget 2011 -15: Draft Allocations and Savings Proposals were published on the evening of the 13 January 2011 and the Minister wrote to the Committee on 14 January 2011 saying that she was "keen to meet and engage with the Committee at the earliest opportunity to hear your view on my proposals".

367. The Minister attended the Committee's meeting on 18 January 2011 and the Committee continued its scrutiny of the DE Draft Budget with senior departmental officials at meetings on 25 and 26 January 2011, dedicated exclusively to scrutiny of the draft Budget. Following the meeting with the Minister of Education, the Committee agreed to formally request from the Department as a matter of urgency, a range of information through questions in seven specific areas (noted below).

368. The Committee raised a number of key issues with the Minister and these were set out in a list attached to the Committee's letter to the Department dated 19 January 2011, in the following terms:

(1) The Draft Resource Allocation section – paragraph 3.2 to 3.5 of pages 6-8

Paragraph 3.3 refers to "inescapable cost pressures associated with pay increases, price inflation, meeting statutory and contractual commitments and addressing demographic impacts". Table 2 refers to these "inescapable pressures" which are the key components of the resource spending "shortfall" or "gap" building to £303m in 2014-15. The Committee requests a detailed breakdown of these "inescapable pressures" for each year of the four years of this Budget period and the basis/rationale or underlying assumptions for each element of this.

(2) The Executive's Invest to Save Fund – paragraph 3.6, page 8

Paragraph 3.6, refers to £10m available from the Executive's Invest to Save Fund for Education for each of the years 2011-12 and 2012-13 to pay for severance/redundancies and "The Department will be seeking further provision for redundancies from the balance of the Executive's Invest to Save Fund". The Committee requests the Department's forecast estimates/planning assumptions at this stage of the savings generated from reducing posts over each of the four years of this Budget period. The Committee needs to understand the "shortfall" or "gap" in spending requirements set out in Table 2, as this "shortfall" determines the all-important savings proposals totals for each of the four years set out in Table 4.

(3) End Year Flexibility – paragraph 3.7 & 3.8, page 8

The Committee's position on EYF is that schools should not lose the £56m. However, the Committee requests what the likely pattern of draw down of this money would have been over the four year budget period – from previous annual draw downs – and what is the distribution of this money between primary, post-primary and the various school sectors. The Committee wishes to understand the problem this presents for schools and requests information on the options to mitigate the impact of loss being considered by the Department eg. phasing out options. The Committee would also ask for assurance that all schools affected by this EYF issue should be treated fairly under measures taken to mitigate the impact of the loss.

(4) Draft Capital Allocation – paragraphs 3.9 to 3.12, pages 8-10

Paragraph 3.12 refers to "44% and 35% of the draft Budget allocations in 2011-12 and 2012-13 is required to meet financial commitments (or inescapable pressures)". The Committee asks does this mean existing contractual commitments and whether the remaining percentage is for some "moderate" investment in minor works and maintenance particularly to meet statutory requirements. The Committee requests clarity on this, as the Minister is proposing to reclassify £41m in 2011-12 from capital to resource; this would leave £86.4m capital resource in 2011-12, and with £56m committed, this reduces to £30m. The Committee asks what risk does this present in terms of planned and unplanned statutory work which could arise in schools in 2011-12.

(5) Extension of Free School Meal Entitlement – paragraph 5.2, page 14

Section 5 provides the Minister's more specific priorities for protection in the Budget period, which includes the extension of eligibility of Free School Meals Entitlement (FSME) and the reference to "an additional £1million in 2011-12". However, resource spending proposals given to the Committee in September 2010 gave an extension of FSME requirement of £21.8m in 2011-12 with some £31m costs per annum for the other 3 years of this Budget period. The Committee requests specific clarification on this – to include the specific spending proposals for the extension of FSME over the four year Budget period.

(6) Proposed Savings – Table 4, page 16

The Committee needs a lot more information on the impact of the proposed savings in this table and requests in particular:

• What will be the impact of £5m per annum out of the "Home to School" budget?
• Can more effective procurement make these substantial savings in "ICT in Schools" and what is the impact of these savings?
• What will be the re-organisation and impact of the very substantial savings in "Professional Support for Schools"?
• How are savings going to be achieved in ALBs – in particular, the £15m in 2011-12 - and what will be the impact?

(7) Aggregated Schools Budget (ASB) – paragraph 5.24, page 22

The Committee has major concerns with these saving proposals on the "Aggregated Schools Budget" and the associated paragraph 5.24 commentary. This proposed saving amounts to £26.5m in Year 1 rising to £180m in Year 4, and in percentage terms this represents 18.5%, 45%, 49% and 58% of the total savings proposed by the Minister. The Minister has stressed in her recent letters to the Committee, etc that her key priority is "to protect front line services (schools) as far as possible". While noting the Minister's assessment that the Department of Education requires access to the additional "possible revenue sources" [£800m] identified in the Executive's draft Budget, some members of the Committee asked how does this sit with these substantial direct Schools' Budget Savings proposals? The final year proposed cut is nearly one-fifth of the Schools' Budget. Finally, paragraph 5.24 refers to putting "in place plans across the Education Sector to reshape the school provision through rationalisation and restructuring...'" This Committee requests what are the specific plans, including details of planned actions and timescales.

369. The Committee Chairperson emphasised that it was vital that the Department's Draft Spending Plans, based on the draft DE budget document are provided to the Committee as soon as possible – the Committee wrote to the Department to this effect on 20 January 2011.

370. The Committee received a response from DE on the evening of 24 January 2011 addressing the above information requests and questions and this (together with other key DE Budget 2010 papers and the Hansard record of the Minister's session before Committee on 18 January 2011) formed the focus of the Committee's discussion with senior departmental officials at the Committee's meetings of the 25 and 26 January 2011 (this response and other key DE papers and the Hansard record have been placed on the Committee's website).

371. The key points and concerns raised by the Committee, or some members of the Committee, during these discussions are set out below.

The Absence of Draft DE Spending Proposals

372. The DE response stated that Department's Draft Budget document highlights the "main spending proposals", but when the Chairperson asked senior officials to identify these, they referred members to the Minister's additional spending proposals which are included in the Department's Draft Budget proposals:

• extension to FSME of £1 m in 2011-12:
• £3 m in 2011-12 for the Early Years (0-6) Strategy.

373. Some members concluded that it was essential to receive a breakdown of the Minister's Draft Spending Proposals for the £1.9 bn draft Education Budget now and could not accept the Department's view that "to provide something at this stage could, in fact, be misleading for Committee Members". Also, some members questioned the wisdom of not setting out draft Spending Proposal Plans on the grounds that the "Minister is determined to increase the amount of funding available for education" and said that a "further £800 million is yet to be allocated". These members, while they would very much welcome additional money for education, pointed out that the Executive's draft Budget referred to "other possible revenue sources" and "If any...have merit..., they will be factored into the final Budget allocations". Other members stressed the need for the Executive to work together to secure additional funding for departments.

Invest to Save

374. The Committee received no information from DE on forecast estimates or planning assumptions at this stage of savings generated by reducing posts over the four years of the Budget period. Although some £25m is available in 2010-11 for a Voluntary Severance Programme, no definitive take-up figures or savings generated estimate was given – there was a suggestion that a £10m take-up might represent 200 post reductions. Some members were very concerned about the lack of information in this area as staff costs account for 80% of the education budget. The DE papers cited this as "clearly a critical area of work" and some members questioned the wisdom of not considering targeting potential savings from the 11,200 non-teaching non-permanent staff and the natural wastage from retirees and leavers, bearing in mind the total education service workforce is some 60,000 staff. Again, no information was available from DE officials on any consideration of this. Officials indicated that only when areas for savings had been confirmed could the potential for savings through reductions in non-permanent staff be assessed. The current Voluntary Severance Programme is focussed on "central management and administration and also professional development and support services". Some members saw the need to consider this area as a matter of urgency as clearly extensive job cuts would be necessary to deliver the magnitude of the savings proposed by the Minister in Table 4 of her Draft Budget, and in particular, with the proximity of the significant proposed savings commencing 1 April 2011.

Other

375. Members welcomed the protection of frontline services and jobs, particularly in Year 1 of the Draft DE Budget and called for additional funds from the possible additional £800m for Years 2-4.

End Year Flexibility

376. The Committee welcomed the Finance and Education Ministers' guarantee on 21 January 2011 to put in place arrangements to ensure that schools have access to the £56.7m surplus which they have accumulated, and both past and future savings will be honoured. Members agreed that they would wish to see precisely what these arrangements will be and that schools receive the necessary communication on this as soon as possible. Members also expressed concern at the number and level of school deficits (some 200 schools and £10.7m total deficit), particularly with the draft DE Budget proposal to significantly reduce the Aggregated Schools Budget.

Draft Capital Allocation

377. The Committee expressed concern at the overall level of the proposed capital available to DE for allocations over the four years budget period, particularly with the substantial maintenance backlog (estimated at £300m) and minor works backlog (estimated at £100m). Some members questioned and had concerns with the Minister's proposal to reclassify £41m in 2011-12 from capital to resource, for example, this would reduce the uncommitted element in 2011-12 to £30m and run the risk of not meeting statutory and Health and Safety requirements, while again other members agreed with the reasoning of the Minister in proposing the move to protect jobs and frontline services. Also, at an earlier meeting, some members questioned DE officials about whether more active consideration should be given to moving school capital projects forward by way of PPP or similar mechanisms.

Extension of FSME

378. Some Committee members questioned and expressed concern with the DE initial Spending Proposals on the extension of FSME which was estimated in total to cost £21.8m in 2011-12 and some £31m per annum for the other three years of the Budget period. The Committee requested clarification on this and received, in the 24 January 2011 DE paper, significantly reduced spending proposals of £4m/ £4.6m/ £4.7m/£4.8 m for the Budget period, based on a significantly reduced estimate of 10,000 additional take-up and the figures include £0.4m extension of primary school uniform grant. The Committee noted no additional funding has been identified to address the "knock-on" increase on the Aggregated Schools Budget through the Age Weighted Pupil Unit (AWPU). However, some members remained concerned that this extension of FSME has not been taken forward by the other parts of the UK and should demand exceed the 10,000 forecast, costs would increase – questioning if this extension is affordable in the context of the draft DE Budget allocations and whether the extension to Key Stage 2 pupils in September 2011 should be cancelled - while other members welcomed the extension of free school meals as a valuable asset to low income families.

Proposed Savings Areas

379. On the proposed savings listed in Table 4 of the Draft DE Budget, some members had serious concerns that a lot more information is needed on the means to achieve such savings and the impact of these savings – particularly the substantial savings proposals and the impact, directly or indirectly, on frontline services in schools. For example, there is very little information on how substantial savings in ALBs (£60m over the four years) and Professional Support for schools (£105m over the four years) will be delivered, particularly as significant savings are proposed for 2011-12 with no evidence of plans, consultations, or timescales. Some members pointed to the difficulty in identifying implications of the Budget due to the complicated nature of the education structure with numerous ALBs and over 1200 schools managing budget lines.

380. Some members questioned and had concerns with the level of spending remaining for Special Educational Needs (SEN) capacity building, as the SEN and Inclusions Strategy is not finalised, while others agreed that such a budget line should remain open. Some members questioned whether the proposed savings in Teacher Substitution Costs are achievable; and whether the savings proposed on Primary Principal Transfer Interviews can be taken forward as consultation on this proposal has not commenced.

ASB Proposed Savings

381. The Committee has major concerns with the ASB savings proposal and the means of achieving these very substantial savings – as very briefly outlined in paragraph 5.24 of the Draft DE Budget document. These proposed savings represent 18.5%, 45%, 49%, and 58% of the total savings proposed by the Minister – rising to £180m in Year 4, nearly one-fifth of the total ASB. The Committee remains very concerned with the level of these direct Schools' Budget Savings Proposals and some members questioned how this sits with the Minister's key priority in her Draft Budget of protecting front line services (schools) as far as possible. As for putting "in place plans across the Education Sector to reshape the schools provisions through rationalisation and restructuring" (paragraph 5.24) to deliver these substantial savings, the Committee was informed that "there are no detailed plans or timescales in place for this work' and with the 'complexity of the issues involved ... it will take some time to deliver results". With the lack of consideration of planning assumptions, estimates or any information on potential job savings through severance/redundancy across the education workforce at this stage, a number of Committee members remained very concerned with these ASB proposed cuts. Some members pointed to Years 2-4 of the ASB as an area which needs support from the potential additional revenue sources [£800m] identified in the Executive's draft Budget.

Employment and Learning

382. The Committee for Employment and Learning (the Committee) has provided an interim view on the Department of Employment and Learning's (DEL) budget proposals. Members feel that a lack of detail in the proposals at present prevents them from giving a full assessment. Further briefings have been scheduled and members expect to receive more detail on DEL's budget in due course. However, the Committee felt it was important that members make some comment to assist CFP in preparing a co-ordinated response to the budget proposals.

383. At its meeting on 19 January 2011 the Committee for Employment and Learning agreed to write to CFP to convey members' view of the budget proposals brought forward by DEL for 2011-15.

384. The Committee was briefed by the Minister on the proposals at its meeting on 12 January and members reflected on the details provided over the week that followed. The Committee would like to record its thanks to the Minister, Danny Kennedy, for coming to the Committee to present the budget paper and for remaining to answer questions. While DEL is not facing reductions on the scale of some other departments, it is still important to analyse the potential impact that any cuts will have on the areas within the DEL remit.

385. There are a few general comments that the Committee would like to make about the budget process and the way that the DEL budget paper is presented. It would seem that there has been very little co-ordination between the departments as to how the budget process would be handled and how departments would present their budgets. A lack of specific detail as to how budget cuts will be applied is common to all the budgets that have been published. This makes it almost impossible for any meaningful public consultation to be undertaken or any detailed scrutiny by the committees. The DEL budget paper for example, (see Appendix 4), indicates generally the total cut applied to each of the Department's main divisions over the next four years, but does not outline how the cuts will be applied within the divisions and, ultimately, how they will impact on DEL programmes and services. Only through questioning the Minister has the Committee gained any sense of how cuts might be applied within departmental divisions. The general public does not have the opportunity to do this, so members have to conclude that the "public consultation" on the budget paper will not allow the public to comment on cuts as they are not told exactly how these will be applied. The paper is also written in a fairly impenetrable way that the average layman would find difficult to understand.

386. In respect of the budget paper itself, a significant focus of the Minister's briefing to the Committee on the paper centred on pages 9, 10 and 11. The Minister highlighted the fact that earlier last year the Finance Minister had asked departments to calculate reductions in expenditure of 5% year on year over the next budget cycle. Following this instruction DEL had produced a set of budgets based on these reductions. A key message from the Minister was the difference between these projected reductions and the budget reductions he now faces. These are highlighted and contrasted at the top of page 10 of the DEL budget paper. The Minister's difficulty is the gap between the reductions he was asked to calculate and the reductions he now finds he has to make which amount to £40m in 2011-12, £31m in 2012-13 and £13m in 2013-14. There is a reconciliation of plus £3m in the gap for 2014-15.

387. These deficits above what the Department had planned for are cause for serious concern. DEL is a Department which has some of the key drivers for our economy within its remit, such as Further and Higher Education, skills development and welfare to work programmes. Our ability to emerge from this economic slump and to benefit from any upswing will be contingent on having the capacity to win jobs and investment and to rapidly expand our own indigenous industry. DEL has a number of statutory commitments in terms of its spending, not least student support, which accounts for a significant proportion of the Department's budget. If the deficit highlighted above is not reconciled it can be seen that DEL will see more of its resources swallowed up in statutory spends such as student support while spending on programmes that expand skills within our economy and get people back to work will suffer. To this end the Committee would strongly advocate that DEL is considered first when the Finance Minister is making additional allocations from the contingency fund that he will hold at the centre. Quite simply, reductions from the DEL budget will have a disproportionately negative impact on our economy's performance and capacity than reductions made to the budgets of the majority of other departments.

388. The Minister shared with the Committee that the additional reductions he will have to make beyond what the Department expected (highlighted above) could mean the end of the tremendously successful adult apprenticeships; could spell the end of the Education Maintenance Allowance which is designed to incentivise our young people to stay in education or training; devastation of investment into research and innovation; an end to bringing the unemployed onto work schemes before it becomes mandatory; and a number of other consequences that will damage our economy. The Minister has already signalled that the reduction in his budget will make a rise in student tuition fees "inevitable". The size of that rise will be directly influenced by how well the Minister can fund the deficit highlighted above. Understandably, the Committee is reluctant to see the devastation of our Higher Education (HE) sector which this budget could presage. Again, the Committee would appeal that DEL's HE commitments are prioritised when the Finance Minister allocates contingency funds.

389. The Committee feels some level of relief that the cuts to the Further Education budget have been minimised. This sector has received considerable investment over the last number of years and the colleges have begun to reposition themselves as centres of excellence with cutting-edge courses which have an increasingly positive impact on our economy.

390. In common with all Members, this Committee has a clear understanding of the seriousness of these budget cuts; however, the Committee would commend the Minister for the businesslike way he is dealing with them and the work that his Department has undertaken to ameliorate any lasting impact on our economy. The Committee has little time for theatrical chest-beating when there is work to be done.

Enterprise, Trade and Investment

391. At the Committee meeting on 13 January 2011, members of the Enterprise Trade and Investment Committee (the Committee) considered DETI's spending and savings proposals and draft budget 2011-15.

392. As members of CFP will be aware, the Executive considers the Economy to be the top priority in the PfG. CETI believes that the proposed reduction in capital investment in DETI of 63.9% is cause for considerable concern. Invest NI consumes approximately 65% of the DETI budget and will, therefore, be greatly affected. The Department is confident that Invest NI will meet and exceed many of its PSA targets under the current PfG. However, Invest NI has a large number of future commitments which will have to be met prior to funding being provided for new business activity. This will reduce significantly, the level of new business that Invest NI can support in future years. The Committee is very concerned that this will have a long-term negative impact on our economic recovery and future jobs prospects.

393. Officials outlined Invest NI's role in following up on inward investment conferences. The Committee understands that a case can be made for further funding for future high quality investment. However, there is no guarantee that such funding would be forthcoming and members understand that, without additional funding, high quality inward investment opportunities may not be realised. The Committee is also concerned that a number of worthwhile projects further down the Department's priority list may not proceed. The Committee has always been very supportive of the social economy and is concerned that the additional support needed to drive the sector forward may not be available.

394. Committee members expressed some concern that the Department's four-year spending and savings proposals exist in the absence of a strategy for economic development or an investment strategy. It was felt that these strategies should be an integral part of any proposals.

395. On a positive note, the Committee welcomes the Department's commitment to completing the Tourism Signature Projects which will provide a much-needed boost to the tourism sector. The Committee is also reassured that the Department is already making a case for further EU state-aid beyond December 2013.

396. The Committee welcomes news that the Minister for Enterprise, Trade and Investment intends to prepare a case to improve on the proposed allocation. The Committee has written to the Minister fully supporting her in this. It is also felt that the proposed allocations for DETI in the budget further increase the need to provide the Executive with powers to vary corporation tax in order to stimulate the economy.

397. At the meeting of 27 January 2011, CETI received an oral briefing from Invest NI (Stephen Kingon, Chairperson and Alastair Hamilton, CEO). CETI believes that the proposed reduction in capital investment in DETI of 63.9% will have a very significant detrimental impact on the ability of Invest Northern Ireland to meet future requirements.

398. The oral briefing from Invest NI officials reinforced this concern. There was unanimous agreement within the Committee that is it absolutely essential that the Executive find a mechanism to provide EYF in Invest NI's budget. This is to meet Invest NI's requirement for £5m and £10m in years one and two respectively to meet its short-term operational costs for business support. This is not for Invest NI's own administration costs, but directly for support for business. You will be aware that the Report on the Independent Review of Economic Policy recommended that Invest NI be given greater autonomy in managing its budgets, including EYF. This report was endorsed by the Executive and the Assembly. The Committee is aware that DE and DFP have recently agreed a mechanism to allow EYF in its budget and believes a similar mechanism should be found for Invest NI.

399. The Committee considers the only alternative to providing Invest NI with EYF is to allocate an additional £5m to Invest NI in the first year and £10m in the second year of the budget to meet its requirements. Members stressed the importance of addressing Invest NI's situation without delay.

Environment

400. At its meeting on 13 January 2011 the Committee for the Environment (the Committee) discussed the draft budget outcome for the Department of the Environment (DoE) 2011-15. The Committee acknowledged the severe financial constraints faced by the Department and the need to make cost-savings. The Committee had serious concerns on several issues.

401. The Department anticipates a reduction of 150 staff. This is in addition to a previous reduction of 150 staff which departmental officials had indicated would be achieved by redeployment or secondment to other jobs in the wider public sector, early retirement schemes and routine retirement and resignations. However, it is evident that it will not be possible to achieve such a large reduction in staff numbers by these means. The Committee is therefore very concerned that the likely number of job losses in the Department will be considerably higher than 150.

402. The Committee accepts that any monies raised by the proposed levy on single-use plastic bags should be used by the Department for their Environmental Programmes. However, the absence of any procedures for the collection for the levy and the crude estimation of the anticipated amount of revenue this levy is likely to raise are of great concern to the Committee.

403. The Department has earmarked Environmental Programmes that are to be funded by the revenue generated by the levy but no other funds have been identified to continue supporting these Programmes in the event the revenue generated is less than expected.

404. The Environmental Programmes are linked to the Department's work to ensure that NI does not incur costs related to potential Infraction Proceedings for failing to adhere to existing European legislation. The Committee is concerned that the budgetary restraints, coupled with less than expected revenue from the plastic bag levy may increase the risk of Infraction Proceedings in the future which could ultimately result in huge fines.

405. The Committee noted the reduction in Road Safety Grants, Advertising and Research and were concerned that level of grants would be reduced to local road safety initiatives and noted that, despite the apparent success of a series of road accident advertising, this would also be reduced.

406. The Committee also has concerns about the impact of the funding on non-governmental organisations (NGOs) but the Department is unable to provide a breakdown of this funding until the overall amount for the Built and Natural Heritage Programmes have been agreed following the Executive's revised budget outcome. The Committee sees this as an important aspect of the Department's spend. Not only do several NGOs deliver government responsibilities in relation to habitat restoration and protection, they also enable the drawing down of significant levels of funding inaccessible to the Department. The Committee is therefore concerned that cuts to the NGO budget could result in greater losses to NI environmental resources than the Department's budget figures indicate.

Finance and Personnel

Introduction

407. CFP has been involved in an ongoing process of engagement with senior departmental officials as DFP developed it spending proposals and savings plans for 2011-15 in advance of the draft Budget announcement. In this regard, the Committee took oral evidence on 30 June, 8 September and 10 November 2010, with written responses also being provided to follow up issues. Following the draft Budget announcement on 15 December, the Committee received the DFP Spending and Savings Proposals 2011-15 consultation document on 23 December, and took evidence on this and on the Department's draft Business Plan 2011-12 on 26 January 2011. The Committee has endeavoured, despite the absence of a PfG and related PSAs, to scrutinise the DFP plans in line with the Departmental business targets for 2011-12.

408. In its role in coordinating the Assembly committees' responses to the draft Budget 2011-15, the Committee is aware of the level of dissatisfaction with regard to difficulties encountered by a number of other committees which have hampered their ability to effectively scrutinise the plans for their respective departments. The Committee wishes to commend DFP for the level of engagement by the responsible departmental officials with the Committee, the timely publication of plans for consultation following the draft Budget announcement and the level of detail provided therein. The Committee notes that the Department has also engaged with Trade Union Side during the development of the plans, and that engagement is ongoing in the consultation period. In commending DFP in this regard, the Committee has, nonetheless, sought to determine the extent to which the Department's approach to engaging on its spending and savings plans aligns with good practice consultation. DFP officials have advised that the Department's comprehensive draft spending and savings proposals have been made publicly available. Engagement with key stakeholders has continued, and the officials affirmed that the Department is keen to consider all consultation responses it receives.

409. Members also sought a response from the Department on whether it intends to publish the results of the equality screening work which underpins the high-level impact assessments, as previously recommended by the Committee. The Department subsequently advised that a summary of the equality screening of its proposals had been published on the departmental website.

410. The draft Budget 2011-15 allocations for DFP are set out in Table 10 below.

Table 10: DFP Draft Budget 2011-15 Allocations (£ m)

Table 11 below shows DFP's budget allocations in real terms[55].

Table 11: DFP Draft Budget 2011-15 Allocations in real terms (£ m)

411. Assembly research calculated that the real-term cuts to DFP's current expenditure budget between 2010-11 to 2014-15 amounts to 10.5%. This compares to an average real-terms reduction across Executive departments of 12%. Members have questioned the methodology used to determine the proposed DFP allocation over the four-year period, and have sought justification for the Department incurring a below-average real-terms cut to its budget. The Committee notes that the DFP underspend in current expenditure in recent years has been higher than the average across departments[56]. In addition, the Department has not sought additional resources for emerging and unforeseen pressures in recent monitoring rounds, but instead has been able to manage these by reallocating resources internally. In view of this, members have questioned whether DFP may have been in a better position to withstand a slightly higher cut to its budget than other departments, particularly those with primary responsibility for frontline services.

412. That said, from its considerable experience of examining underspend across all departments, the Committee is mindful that a full assessment of the reasons for the Department's previous year-end underspends would be necessary to establish the extent to which there is excess in DFP's existing baseline allocation. As such, the Committee calls on DFP's Central Finance Group to critically review the Department's pattern of underspend in current expenditure over recent years to establish why this was higher than the average across departments and, in particular, to determine the extent to which it was a result of, for example: over estimating or bad prior-year forecasting in particular business areas; poor in-year monitoring; unforeseen or extenuating circumstances; or more efficient delivery. This assessment should also examine whether the Department's in-year reduced requirements were declared early enough by the respective business areas in the monitoring round process to allow redistribution to other departments. The Committee believes that this review will assist both in helping to inform final decisions around the DFP budget allocation for 2011-15 and in terms of improving financial management within the Department and minimising future underspending in light of the ending of the EYF facility.

Spending Proposals – Current Expenditure

413. In cash terms, DFP's current expenditure will increase by £7.6m in 2011-12, primarily to enable the Department to deliver Census 2011 and to provide additional funding to LPS. The Committee accepts that it is essential adequate funding is in place to deliver Census 2011 and welcomes this allocation.

414. Whilst welcoming the additional £5m additional funding for LPS, the Committee still has some concerns with regard to the Agency's baseline. A raft of rating reforms were introduced after the Budget 2008-11 had established the baseline for LPS, which necessitated bids of £5m in the in-year monitoring process in each of those Budget years. The importance of LPS in collecting over £980m per annum in rates revenue cannot be underestimated, and the Committee was fully supportive of these bids. A chief concern for the Committee was the need to ensure that an appropriate baseline would be set for the Agency for the new Budget period. The Committee notes that the additional £5m required for LPS will be provided through the "Invest to Save" initiative for 2011-12 and 2012-13 only; in the subsequent two years the Department proposes to allocate £5m from savings it expects to deliver in those two years. The Committee is not assured that the allocation of funding via the "Invest to Save" initiative and through the realisation of what are, at present, aspirational savings, is the most appropriate way to provide LPS with the additional funding required to establish a firm baseline.

415. The Committee noted that the targets for collection of net collectable rates and for the collection of rate arrears have not yet been established for LPS in the draft Business Plan 2011-12. In clarifying why this is the case, the Department advised that LPS is likely to be challenged to increase its performance in 2011-12; "the quantum of increase will be dependent on the outturn of this year for both collection and debt. The targets will be set during March 2011".

416. The Committee is disappointed to note that, in order to meet "inescapable" pressures over recent years, the Department has found it necessary to reduce its maintenance budget in respect of the NICS office estate, and that "this has contributed to the deterioration of the estate". The Committee considers that any further reductions in the maintenance of the estate could, at a later stage, necessitate repairs that will be more costly than any preventative work that might have been undertaken. The Committee also considers it essential that the estate is maintained, at the very least, to the standards required by Health and Safety. The Committee understands that DARD is currently considering vacating Dundonald House, which is one of the buildings that DFP had earmarked as a priority for maintenance work. The Committee recognises that the Department will need to remain flexible in order to tie in with the plans of other departments. Nonetheless, the Committee welcomes the £2m per annum proposed allocation for the NICS office estate, and strongly recommends that maintenance requirements are addressed as necessary and that this essential funding is not diverted to other spending areas within this Budget period.

417. The draft Budget provides for £2.8m per annum to be provided to NI Direct under the "Invest to Save" initiative. The Committee notes that "the department will review the extent to which NI Direct will meet the requirements of the 'Invest to Save' initiative during the consultation period". In evidence to the Committee, DFP officials advised that the initial funding for NI Direct was £4.8m, and the £2.8m therefore represents a reduced allocation. The officials also confirmed their confidence that this "Invest to Save" allocation will deliver value to the citizen. The Committee notes from the draft Business Plan 2011-12 that NI Direct aims to handle 5 million calls by 31 March 2011, an increase of half a million from the 2010-11 target.

Spending Proposals – Capital Expenditure

418. Assembly research calculations show that, in terms of capital investment, DFP is one of only four departments for which the proposed capital allocation will rise over the four year period, with a real terms increase of 69.1%. Other departments will see their capital investment allocations cut by up to 96.2% in real terms.

419. The Committee notes that DFP's proposed Capital Investment spend for 2011-12, 2012-13 and 2013-14 will enable the Department to maintain existing services in respect of ESS (HR Connect, Records NI and Systems Maintenance), Accommodation Services, LPS and ICT Line of Business. The Department has stated that these allocations represent the absolute minimum required to meet contractual commitments, and "clearly limit the extent to which the department can make significant improvements to the government office estate", and no capital allocations have been proposed for those years to enhance the estate.

420. In respect of 2014-15, the draft Budget proposes a significant increase to capital funding for DFP, which will allow the Department to undertake major investment in the estate. During the evidence session on 26 January 2011, DFP officials confirmed that the profile of capital expenditure is not within the Department's control, but rather has been allocated in this way by the Executive. The departmental officials also confirmed that the Department would be in a position to undertake the planning and procurement to proceed with necessary work, should the capital allocation be moved forward to year 3 of the Budget period. The Committee understands that the Executive is, to a degree, constrained by existing commitments in respect of capital expenditure. While mindful of these constraints, the Committee calls for some of the capital allocation for DFP to be brought forward to year three of the Budget period if possible, both to allow for major investment in the estate at the earliest opportunity and to contribute to efforts to revitalise the local construction sector.

421. The delivery of longer-term efficiencies through the provision of shared services is considered in Part 1 of this Report. The Department proposes to allocate capital investment of £21.5m to ESS over the budget period, which would maintain the infrastructure and enable that services were responsive to customers' needs, "particularly given the level of change which is likely to be required as a result of policy and legislative changes over the period". In response to the Committee's request for more information on likely changes over the period, the Department stated that "over the Budget period, changes in policy and legislation can be expected to emerge, for example, changes to the VAT regime, national insurance contributions and potentially to HR terms and conditions. The allocations will enable ESS to respond to such changes".

422. In terms of previous underspend by DFP in capital expenditure, the Committee notes that, in the provisional outturn for 2009-10, this was reported at 3.2% as compared to an average across departments of 0.5%. In its Report on the Executive's Draft Budget 2008-11, however, the Committee accepted that underspend in capital expenditure can fluctuate due to unforeseen delays in capital projects and matters outside the control of departments. That said, in terms of DFP's above average capital underspend last year, the Committee would reiterated its previous call for "steps to be taken to ensure the effective planning and management of capital projects, with a view to minimising delays and resultant underspend in this area". The Committee notes that the Department expressed its disappointment regarding the level of underspend in 2009-10, and stated that a number of measures were being implemented during 2010-11 to support more robust financial forecasting and management.

Savings Proposals – Current expenditure

423. The Department has stated that it will be necessary to make resource savings of £5.3m in 2011-12, £8.9m in 2012-13, £11.3m in 2013-14 and £12.6m in 2014-15 to ensure the delivery of the essential services it provides to the public and across the NICS. It points out that these savings succeed significant reductions to the Department's budget over recent years, as it has been required to make resource-releasing savings each year from 2004-2011; in addition, no allocations were made to address the cost of inflation from 2005-11.

424. The Department proposes to deliver the savings required in the following main areas:

• Reducing procurement costs;
• Maximising revenue;
• Reducing the cost of delivering NICS shared/corporate services;
• Staff reductions in administration and policy areas; and
• Reducing funding to arm's-length and independent bodies.

425. During discussions with departmental officials, members sought to determine the guiding principles used in identifying the specific areas for delivering budgetary savings. The DFP officials explained that options identified were considered in terms of their severity and potential impact on services, and a "long list" of prioritised savings options was developed accordingly. It is not clear, however, how the options were initially identified for inclusion on the "long list".

426. Of the opening gross expenditure baseline, DFP asserts that 37% is "inescapable" or contractually committed in the short-to-medium term. In discussions with DFP officials, members sought assurances that expenditure regarded as "inescapable", such as contractual obligations and recurring costs, are quality-assured to determine that they are indeed "inescapable". The departmental officials confirmed that senior DFP officials have a responsibility, as well as a challenge function, in this respect and stated that they were "taking a hard look at things that one might think are inescapable". An example was cited whereby negotiations on a medium-to-long term contract that had been considered inescapable have resulted in savings of £600,000 over a four year period. The Committee believes that all expenditure that is considered "inescapable" should be reviewed in terms of strategic priorities and to determine value for money.

427. The Committee notes that the Department has assessed contracts across a range of services and considers that procurement savings may be achieved by renewing or renegotiating contracts. It is also anticipated that £2.3m will be saved through lease consolidation by the final year of the Budget period. The Committee would emphasise the need for the Department to adopt the MEAT (most economically advantageous tender) approach to procuring contracts in the areas identified for savings, rather than opting simply for the low-cost option as a matter of course.

428. The Savings Plan includes planned additional receipts from provision of expert services, such as legal advice and internal business consultancy. During the evidence session on 26 January 2011, the Committee sought assurances that this would not simply result in a transfer of costs to the wider NICS, and therefore not represent a true saving to the Executive. The departmental officials advised that internal rates for professional services provided by DFP, such as business consultancy or legal services, are less expensive than external rates. The Committee accepts that these services can offer value for money to other departments and represent a true saving to the Executive, while at the same time generating additional revenue for DFP. The Committee would stress that this needs to be monitored carefully to ensure that this remains the case.

429. DFP anticipates that its staff complement of 3,313 posts will be reduced by 91 posts over the four year period. Staff turnover in the Department over such a period would normally be in the region of 500, and it is expected that these posts will be managed through natural wastage and that compulsory redundancies will not be required. During the oral evidence from DFP officials, members probed this issue and sought assurances that the reduction in posts will not impact, either directly or indirectly, on service delivery. The departmental officials advised that the posts to be reduced are directly related to the savings measures, but accepted that those who leave through natural wastage will not necessarily be in the posts that need to be reduced. The Department will therefore engage in redeployment to ensure that impact on service delivery is minimised. The DFP officials also advised that the Department has reduced its SCS numbers by approximately 10% since March 2009; a small number of additional posts have also been identified by which additional savings may be realised.

Health, Social Services and Public Safety

Introduction

430. At its meeting on 27 January 2011 the Committee for Health, Social Services and Public Safety (the Committee) agreed to forward an interim response on the draft Budget to the Finance and Personnel Committee. It was agreed that this response would form the basis of the Chair's remarks during the take-note debate on the draft Budget on 31 January 2011.

431. The Committee's decision to issue an interim response on the draft Budget was informed by the fact that it has received limited information from the Department to date. The Department published its consultation on the draft Budget on its website on 13 January 2011, only two weeks before the deadline for committee returns to the Finance and Personnel Committee.

432. Furthermore, the information which the Department has published on its website and which it briefed the Committee on, does not contain a detailed breakdown of either proposed expenditure or savings delivery plans. This is despite the fact that the draft Budget document states that Ministers have been asked to provide this information as part of the public consultation exercise (page 30 of draft Budget).

433. The Committee took oral evidence from the Department on the draft Budget on 13 and 20 January. Further information was requested from the Department following both these meetings. However, that information was not received until 27 January during the course of the Committee meeting.

434. Given the lack of the information supplied by the Department and its delay in providing responses to issues raised by the Committee, the Committee agreed to issue an interim response on the draft Budget.

435. The Committee was disappointed by the lack of detailed information provided by the Department on the draft Budget and by the lateness of the information which was received. The Committee is of the view that the Department's approach was not helpful in terms of affording it the opportunity to carry out a detailed and thorough scrutiny of the draft Budget, one of the key functions of all statutory committees of the Assembly.

436. The Committee will issue a final response on the draft Budget before the closing date for the public consultation exercise on 16 February 2011.

Key issues

437. At its meeting on 27 January 2011 the Committee agreed to highlight a number of key issues of concern in relation to the draft Budget for the DHSSPS:

Overview

438. The Committee acknowledges that health and social care have historically been underfunded in NI. Spending on health and social care should be maximised where possible, however funding needs to be matched to identified priorities.

439. The Committee is of the view that spending on health should not be at the expense of social care and public safety – all three are vital areas of work of the DHSSPS. The Committee recognises that there are many successful community sector initiatives.

440. The Committee is of the view that there needs to be urgent clarification on whether the Executive intends for the continuation of the guarantee of first call on available in-year money up to the limit of £20m each year to DHSSPS.

441. The Committee has noted the Department's concern that the proposed revenue allocation for year one of the draft Budget will present it with considerable difficulties.

442. The Committee is of the view that spending on the public health agenda needs to be increased – at present only 1.6% of the health budget goes to this area.

443. The Committee discussed the issue of the funding allocated to DHSSPS as compared to the allocations made to health in England. The Committee received a briefing paper from Assembly Research Service which indicated that if the same percentage changes that were allocated to health in England were applied to the DHSSPS baseline, it would be in line to receive an additional £458m revenue over the four year budget period, but would lose £137m on the capital side. However, the total net increase would be £320m over the four years, or £80m per year.

Potential for efficiency savings

444. The Committee noted a request from the Department for more flexibility to move money from capital to revenue. While this may be an option that requires further consideration, the Committee would emphasise that it is more important for the Department to continue to look for efficiencies in order to maximise its draft Budget.

445. The Committee is of the view that the Department should explore making efficiencies in the following areas:

• Purchasing of drugs;
• Prescribing of drugs;
• Senior salaries within the Department;
• Appointment reminder systems;
• Overuse of agency staff;
• Innovations and improvements in the use of IT;
• Clinical Excellence awards for consultants (£11m per year); and
• Bonuses to skilled tradespeople.

446. The Committee was of the view that there was a lack of information presented by the Department in terms of potential efficiencies. In particular, little reference was made to the forthcoming PEDU review of the Department and what efficiencies it could be expected to yield. Indeed the Committee had expected PEDU to have completed its report before the draft Budget was published and were disappointed to learn that little progress has been made in terms of the exercise.

Commentary on the Department's bids

447. In its evidence to the Committee the Department stated that it required substantial sums of money for pay increments – some £78m in year four. The Department stated that pay issues were agreed at a national level in GB and that it was contractually obligated in this matter. The Committee has concerns about this position and particularly the notion that a devolved Assembly has no power to negotiate locally if it is matter of a choice to be made between potential redundancies and finding funding for pay increments.

448. The Committee had queries regarding the bids put forward by the Department in terms of funding to meet demographic changes. The Department emphasised that NI has an ageing population and that this will put significant strain on health and social care services because older people cost it nine times what people of average age cost.

449. However, the evidence received by the Committee from two expert witnesses queried the Department's position on this matter. Professor O'Neill pointed out that it was not clear whether the Department's figures took into account the potential savings associated with "healthier ageing". Professor Normand suggested that the Department's analysis overstates the direct effects of ageing. His view was that the dominant effect in terms of need, particularly for acute care, is determined by proximity to death. Professor Normand pointed out that in NI over the next five years the number of deaths is predicted to fall. Therefore, he stated that it is reasonable to project that the effect of ageing over the next five years on the demand for acute services over this period is likely to be small.

450. The Department advised the Committee that the current draft Budget proposals could result in 4,000 job losses. The Committee sought information from the Department on the function, location, and grade of these jobs. However, the Department did not provide this information and there was a lack of clarity in relation to whether the Department was proposing natural wastage or redundancies. The Committee would not wish to see redundancies being made.

451. The Committee supports the necessary capital and revenue funding being allocated by the DHSSPS for the satellite radiotherapy centre at Altnagelvin and for the Fire and Rescue Service training centre at Desertcreat.

Summary of evidence gathering

452. The Committee took evidence on the draft Budget from the following:

• Departmental officials (21 October 2010);
• Minister and departmental officials (13 January 2011);
• Professor Ciaran O'Neill, NUI Galway (18 January 2011); and
• Professor Charles Normand, Trinity College Dublin (18 January 2011).

453. The Committee also considered 4 briefing papers prepared by Assembly Research:

• Historic Health and Social Care Expenditure: Comparative Analysis (presented to the Committee on 13 January 2011);
• The DHSSPS Budget – where does the money go? (presented to the Committee on 20 January 2011);
• The DHSSPS Budget 2011-2015 Consultation (presented to the Committee on 20 January 2011); and
• DHSSPS budget allocations: impact of applying uplifts in line with Health in England (considered by Committee on 27 January 2011)

Justice

454. The Committee for Justice (the Committee) will continue to scrutinise the draft Budget proposals over the coming weeks.

Introduction

455. The Committee receives regular briefings on the Department of Justice (DoJ) budget and the position in relation to the monitoring rounds.

456. In relation to the Budget 2010 process the Committee was first briefed by departmental officials on 2 September 2010 when it considered detailed information on the Department's inescapable pressures for the 2011-15 period and savings scenarios based on a 5% year on year reduction to its baselines.

457. Following the national Spending Review published on 20 October 2010 by the UK Coalition Government the Committee received further evidence on 4 November on the likely impact of the Chancellor's announcement on the DoJ budget. During this briefing the Committee focused in particular on whether the DoJ budget would continue to be ring-fenced and the likely implications of that, the position in relation to EYF and continued access to the HMT Reserve for additional security funding.

458. The Minister of Finance announced the NI Executive's draft Budget 2011-15 on 15 December 2010 which provided the overall proposed DoJ resource expenditure and capital investment allocations for the four year budget period. Following this DoJ provided information on the Minister's priorities, the overall baseline reduction, draft budget allocations and proposed pressures to be funded and officials attended a committee meeting on 11 January to outline the key issues and answer questions. On 21 January the Committee received information on the savings delivery plans and equality impact assessments and officials returned to the Committee on 25 January to answer further questions.

459. When considering the DoJ's budget position the Committee has given particular emphasis to the likely implications of any proposed budget reductions on frontline services and the ability to deliver these services.

Ring-Fencing of the Department of Justice Budget

460. One of the key issues that needed to be resolved in relation to the DoJ budget for the 2011-15 period was whether it would continue to be ring-fenced or not. The Executive's draft Budget proposes that the DoJ budget will remain ring-fenced for that budget period.

461. The Committee wishes to dispel any misconceptions that the result of ring-fencing the DoJ budget for this period is that the budget is protected and will not face any reductions. The outcome of the proposal to continue to ring-fence the budget is that it will receive the direct Barnett consequentials arising from changes in the level of funding of the Home Office and Ministry of Justice as a result of the UK spending review settlement for Whitehall departments. The result of this is that DoJ faces an overall reduction in its cash baseline of £82m or 7.2% by 2014-15. Taking into account the effect of inflation the real term impact is significantly greater.

462. The Committee notes that ring-fencing the Department's budget results in it having a slightly worse resource baseline than the average NI settlement but does give it flexibility to move funding between spending areas and provides end-year flexibility (discussed below) which, as far as the Committee is aware, is not available to any other department in NI or the UK. The Committee is therefore of the view that ring-fencing is the most appropriate position to take in relation to DoJ's budget for the 2011-15 period.

End Year Flexibility

463. The Committee welcomes the fact that, as part of the ring-fencing of the budget, DoJ has guaranteed access to underspends generated both this year and throughout the Budget 2010 period. This will provide important flexibility for the Department, particularly in relation to this year where there are underspends in relation to both capital funding – for the planned Desertcreat Training College – and revenue – for the part-time Police Reserve gratuity and the full-time Police Reserve severance scheme. The Committee views the retention of end-year flexibility for DoJ as a distinct advantage.

Access to the Reserve

464. One of the key issues in relation to the DoJ budget is continued access to HMT's Reserve to fund exceptional security pressures faced by the Police Service of Northern Ireland (PSNI). The Chief Constable has indicated a requirement of approximately £250m over the four year period. In the draft budget the Executive has allocated an additional £45m to DoJ which it intends to contribute to meeting the security funding pressures facing the PSNI. A bid for £200m has been with HMT for some time and the Department is waiting on confirmation that the bid has been successful.

465. The Committee is extremely concerned about the implications for the DoJ budget if the bid is not met in full. In response to questions from members, officials indicated that there was no contingency plan in place if the bid was unsuccessful and admitted that taking out £200m from the rest of the Department's budget would result in it being in severe difficulties. The Committee believes that the implications to the Department's budget if the bid was to be unsuccessful or only partially successful are such that it will not be possible to agree the DoJ budget until confirmation regarding the granting of the bid is received. The Committee calls for a decision to be made as a matter of urgency. Given the time constraints in relation to having an agreed budget in place it is imperative that confirmation is received from HMT as soon as possible that this security funding bid will be met in full from the Reserve.

Resource Departmental Expenditure Limit

466. The Committee welcomes the Executive's decision to allocate an additional £45m to the DoJ budget.

Key priorities of the Minister of Justice

467. Turning to the key funding priorities the Committee notes that the Minister of Justice has identified the following:

• Protecting frontline policing;
• Protecting other frontline areas across the Department, with the aim of protecting outcomes for the public; and
• Protecting the voluntary and community sectors as far as possible.

In scrutinising the draft budget allocations the Committee notes that the figures provided do indicate funding has been skewed towards the priorities of policing and security e.g. the PSNI has the lowest percentage baseline reduction of all areas and the Directorate that provides back office support in the Department will be expected to deliver the biggest savings.

468. However on the information available to date the Committee is unable to properly and accurately assess the likely implications of the funding reductions on the delivery of front line services, either in relation to front line policing or other front line services. The Committee notes with concern that in nearly all of the draft savings plans provided by the Department there are references to achieving savings by suppression of posts, redeployment in headcount, workforce modernisation, absorbing vacancies, natural wastage, reductions in office equipment, reductions in training costs, reviews of the frequency of research work etc. The Committee wishes to see detailed impact assessments from each area of the Department of the implications of the proposed savings measures. Until these are available the Committee is not in a position to make an accurate judgement of the draft budget.

Funding of the Police Ombudsman's Office and the Probation Board

469. The Committee is concerned that two bodies have indicated that there may need to be redundancies to achieve the savings they are being asked to deliver – the Police Ombudsman's Office which has indicated 17 redundancies in the final 2 years of the budget and the Probation Board which has indicated the loss of 60 whole time equivalent employees by 2014-15 through natural wastage and redundancy. The Committee is not at all clear why these two organisations appear to being hit harder than other areas of the Department.

470. Whilst the Committee notes the assurances provided by departmental officials during the evidence session on 25 January 2011 that discussions are on-going with both bodies to ensure that the required savings can be made without the need for redundancies the Committee is very concerned about the likely impact on the ability of both organisations to deliver their services. The Committee calls on the Minister of Justice to give further consideration to this matter urgently with a view to ensuring that, in delivering savings, neither of these organisations are prevented from delivering the current level of service.

Legal Aid Funding

471. The Committee expressed particular concerns about the budget figure of £75m allocated to the Legal Services Commission for 2014-15 in the Department's draft budget proposals. The Committee understood that a budget of £79m for legal aid had been negotiated as part of the Hillsborough Agreement and that the proposals to reform the Legal Aid system, on which the Department has undertaken protracted discussions with the Bar Council and the Law Society to reach agreement on the way forward, are based on achieving a reduction in costs to that level. The Committee accepts that some of the £4m difference does reflect efficiencies to be achieved in the Legal Services Commission administration. However the Committee is very perturbed that the budget for legal aid now appears to be less than that which was negotiated and calls on the Minister of Justice to clarify the position urgently.

Voluntary and community sector funding

472. The Committee welcomes the commitment by the Minister of Justice to protect the voluntary and community sectors as far as possible but, due to the lack of information available, has reservations about the level of protection that is actually being afforded. Officials outlined that as a result of the prioritisation the voluntary and community sectors will face a reduction of 1.5% per annum which is less than the reduction for the Department as a whole. However the Committee has no information on which it can assess the impact this 1.5% reduction will have. Again the Committee wishes to see detailed impact assessments of the likely implications of this proposed reduction.

Funding for the NI Prison Service

473. The Committee notes that the Prison Service cash baseline will reduce by £18m by 2014-15. This is to be achieved through an invest to save programme (for which £13m is being provided in 2011-12) and a strategic efficiency and effectiveness programme. The Committee is concerned about the ability to deliver the savings required within the timescale and whether the provision of £13m is a realistic amount to achieve the possible range of reforms that may be required. The Committee wishes to see details of the proposed efficiency and effectiveness programme as soon as possible.

Use of Consultants

474. The Committee welcomes the commitment from DoJ to reduce the expenditure on consultancy to as close to zero as possible and notes that any expenditure in this area over £10,000 will require the approval of the Minister of Justice. The Committee raised concerns about the department's expenditure in relation to legal advice and recommends that the Department closely monitors proposed expenditure in this area to ensure costs are kept to a minimum.

Spending proposals not being funded

475. The Committee wishes to see details of the specific spending proposals totalling £5m that are not being funded in the draft budget proposals.

Capital Budget

476. The Committee welcomes the Executive's decision to allocate an additional £57m capital funding to the DoJ budget, £30m of which is for the Desertcreat Training College.

Capital Funding Priorities

477. The Committee is very pleased that, with the Executive's decision to allocate £30m to DoJ to fund the Fire and Rescue aspect of the Desertcreat Training College, this major scheme can now go ahead. The Committee is however very concerned about reports in the media that the Minister for Health, Social Services and Public Safety has indicated that he may not have the recurrent funding available for the running of the Fire and Rescue part of the college. The Committee calls for the Minister of Health, Social Services and Public Safety to urgently clarify the position and urges him to confirm that the recurrent funding will be available for the Fire and Rescue Service so that Desertcreat Training College can operate on a fully functional basis.

478. The Committee is disappointed that the capital budget is not sufficient to enable DoJ to complete both the redevelopment of Magilligan prison and the provision of a new women prisoner facility during this budget period. The Committee does however support the Department's decision to allocate £54m for the redevelopment of the prison estate. This will allow both projects to commence and the Committee wishes to be kept fully informed of progress in relation to these projects and the options for taking them forward.

Cross-cutting issues

479. The Committee wishes to highlight that DoJ has made no provision in its budget proposals for any requirements that may arise from the implementation of the Bamford review findings. The Committee has been advised by departmental officials that the principle on which they are working is that the lead Department, in this case DHSSPS, will make bids for any changes that is proposed as a result of new legislation.

480. During Committee visits to HM Prison Maghaberry and the Youth Offenders Centre and through policy briefings members are aware that the factors that contribute to offending and reoffending include homelessness; lack of educational attainment; unemployment; mental health issues; alcohol and substance misuse; and being a victim of sexual abuse or domestic violence. The Committee wishes to highlight the absolute necessity for other Departments to recognise the need for a holistic approach and the implementation of early intervention policies in these areas. A lack of investment will undoubtedly have a knock-on effect on levels of offending and subsequent increased costs to the justice system. The Committee calls on the Minister of Justice to raise these issues with the Executive and for the Executive to factor in these issues when looking at the overall draft budget for NI.

481. The Committee welcomes the fact that DoJ is participating in the Budget review group's review of all ALBs and quangos.

Draft Programme for Government

482. The Committee notes that work is on-going in relation to the preparation of the draft PfG. There is a range of reviews either progressing or being planned in relation to Youth Justice, Community Sentencing, Reducing Offending and Prison Reform. Decisions made in relation to the budget allocations dictate what the priorities will be over the next four years. The Committee notes that there appears to be no priority given to diversionary policies, which the Minister has indicated he wishes to take forward, in this draft budget and questions how much flexibility there will be to implement new policies over this period of time.

Timescale for consultation

483. The Committee for Justice considers that the very tight timescale for statutory committees to consider the draft budget proposals has impacted on their ability to properly scrutinise and reach informed decisions. This is extremely unfortunate, particularly as the very difficult budgetary position being faced would have warranted detailed consideration of the likely impact decisions will have on the delivery of services.

Conclusion

484. The Committee for Justice will continue its scrutiny of the draft DoJ budget over the coming weeks and will be seeking urgent clarification of the issues raised.

Office of the First Minister and deputy First Minister

485. At its meeting of 26 January 2011, the Committee for the Office of the First Minister and deputy First Minister (the Committee) agreed to forward this response to CFP for inclusion in the co-ordinated report in response to the Executive's draft Budget.

486. The Committee was briefed by the First Minister and deputy First Minister on the Department's draft Budget 2011-15 proposals at its meeting of 19 January 2011. During the briefing Ministers provided further information in relation to the proposals. Ministers also gave an overview of some of the savings proposals and advised the Committee that it will receive the detailed savings plans very shortly, which are not yet available.

487. Members of the Committee discussed a number of issues with the First Minister and deputy First Minister. Discussions included the timetable for the Victims and Survivors Service and the Programme for Cohesion, Sharing and Integration.

488. Members also discussed with Ministers the strategic value of the Department's capital projects and the importance of maintaining momentum in relation to the regeneration of these sites, in order to attract investment and provide jobs for the local areas.

489. Ministers also provided further information in relation to the staffing levels in the Office of the First Minister and deputy First Minister and advised that staffing levels have been reduced from 460 staff (in 2004) to 350 staff. Ministers also advised that they hope to reduce the level to 305 staff in 2015.

490. Ministers provided further information in relation to the Social Investment Fund and the Social Protection Fund, which the Executive will be taking forward. Members were assured that these funds would be directed towards the most vulnerable and that Ministers were still considering areas and possible themes to direct the funds.

491. Members also had a discussion with Ministers concerning European funding and the possibility of introducing targets for drawing down funding from the European Union. There were also discussions in relation to a possible Peace IV package. Ministers advised that the Barroso Taskforce was due to return to NI in the next few weeks.

492. Ministers advised of the success in attracting inward investment to NI from the United States, and in particular the success of the Titanic area in attracting companies such as HBO. They also highlighted the benefits to the local economy of such investment.

493. There was also a discussion on what revenue raising ideas are being explored, Ministers advised that they have been considering many suggestions and will continue to identify areas where additional revenue could be raised.

Regional Development

494. The size of the cuts facing the Department for Regional Development (DRD) are significant, and will have a severe impact on the most vulnerable in society, economic competitiveness, and the sustainability of transport in NI.

495. The scale of the cuts in DRD's capital budget, with reduced levels of investment in road schemes, roads structural maintenance, public transport initiatives and water and sewerage services will place additional pressures on businesses in NI, and will make growing the economy more difficult. Congestion and poor road maintenance lead to longer and less reliable journey times, and increase the costs of doing business in NI. The quality of all our infrastructure - public transport and water and sewerage services included - are a key factor in determining the attractiveness of NI as an investment location for foreign direct investment.

The scale of the reduction in DRD's budget

496. Although recognising the severity of the settlement in the 2010 Spending Review, the Committee for Regional Development (the Committee) was disappointed to note the allocations to the Department's total budget over the four year budget period. Whilst there is a slight increase, from £938.6m in 2011-12, to £1.012 bn in 2014-15, Members noted that, when compared with total planned expenditure in the previous budget period, the total draft Budget allocations were a 6.3% reduction in real terms.[57]

497. The reductions in the Spending Review settlement are particularly stark when you look at the impact of reductions in DRD's Draft Budget, as identified by the Department in its consultation document and evidence to the Committee.

498. There are no allocations to commence construction on major roads schemes such as the A6 Randalstown to Castledawson scheme; the A2 Greenisland scheme; the York Street Flyover; the Sydenham bypass widening scheme; and other schemes along the A6. With the exception of the A5 and A8, the A32 Cherrymount Link is the only other scheme to complete in the budget period.

499. There will be significant reductions in other capital improvement programmes such as walking and cycling, traffic calming, collision remedial (although Roads Service is adamant that safety will be prioritised); traffic management measures; local safety improvements; and bridge strengthening.

500. Funding will not be available in years two and three of the budget period to meet the agreed levels of investment in water and sewerage services as set out in the PC10 final determination.

501. Funding is confirmed for the planning phase only on rapid transit, and to plan to invest in electric vehicle charging infrastructure (despite DRD/DOE making a successful OLEV bid), the Belfast on the move city centre traffic management initiative, and for other bus priority measures.

502. From an historic high of £92m in year one, structural maintenance funding falls sharply in years two and three of the budget period, and over the budget period is some £200m below the circa. £112m per annum recommended in the Snaith Report. The Department states that this level of investment, coupled with reductions in roads maintenance activities is predicted to lead to the network being less resilient to extreme events such as freeze/thaw cycles and flooding.

503. Turning to current expenditure budget, the Department is required to fund cumulative current expenditure reductions of £163m over the four year budget period. The Department stated that it is the only department facing a year on year reduction. In evidence, officials indicated that roads PPPs, provision for public liabilities and public service obligations (PSOs) were the only areas not cut as part of its savings plans.

The balance of expenditures and savings between roads and public transport

504. The balance of expenditures over the budget period, between expenditure on roads and on transport, starting with 2011-2012 is 66:34; 79:21; 87:13 and 80:20. With the exception of the year one allocations which are unusual, these ratios fall short of the 65:35 identified in the 2002 Regional Development Strategy (RDS).

505. Of the 14 savings measures identified, two are to be achieved through procurement; two through increased revenue raising; one by lowering priorities; three through changes in administration or policy approach; and six through cuts in funding. The Committee will continue its work on analysing the incidence of planned savings during the remaining consultation period.

Ringfencing in the budget

506. The Committee noted the figures provided by the Department in its papers of 12 January 2011, which illustrate how much of the planned current and capital allocations in DRD which are ringfenced.

507. On the one hand, the Committee recognises the importance of ringfencing as a tool to ensure that funding for high priority projects is used only for those purposes. For example, significant amounts of the structural maintenance capital allocations (£107.8m of the £177.7m) are ringfenced for this purpose. Overall, members were concerned to note that, on average, 48% of capital investment in public transport and 83% of investment in roads over the budget period were ringfenced. Smaller amounts, 17% and 11% respectively were the proportions of current expenditure ringfenced over the same period.

508. This concern arises because once ringfenced, such allocations can only be used for the specified purposes. Should the Department be unable to spend all or part of a ringfenced allocation, permission must be sought from DFP to use that money for other purposes.

509. For example, the capital funding for the A5/A8 is ringfenced 100%. This project is dependent on a contribution of £400m from the RoI Government to progress. Construction, envisaged to begin for both schemes in 2012, is also subject to the successful outcome of public inquiries. Because the allocation is ringfenced, if the project was for any reason unable to proceed, the Department would require approval from DFP for the reallocation of this funding to other priority roads projects.

510. The Department, in its briefing to the Committee on 12 January 2011, stated that whilst Roads Service has a significant allocation, around £790m (or 70% of it) is tied up in these two major road schemes (A5 and A8). The Department acknowledges the RoI's contribution to this project, however it highlighted that the 40% reduction in the Spending Review settlement, and the scale of these schemes means that there are no allocations to commence construction on other major road schemes.

511. Roads Service has, traditionally, been skilled in managing its funding allocations to achieve optimal outcomes for the Department. By managing the development of a range of priority schemes that are at different stages of the design, consultation/inquiry and construction process, Roads Service has in the past used its allocations flexibly to progress a range of roads schemes. Ringfencing such a significant amount of the Department's total budget for two schemes might hinder Road Service's ability to best manage work in its specialist area. The Committee hopes to continue to explore this issue and the Department's options with DRD over the course of the consultation on the draft Budget. The Committee is strongly of the view that if the A5 or A8 schemes, for whatever reasons, are unable to proceed then the ringfenced funding should be available to the Department for other priority road projects.

Failure to fund water and sewerage services to the levels identified in PC10

512. The Committee received a written submission from the Northern Ireland Authority for Utility Regulation, which highlighted the Regulator's views on the level and profiling of capital investment expenditures over the period of PC 10 (the three-year price control period from 2010-2013), as this is reflected in the draft Budget allocations. Table 12 below illustrates this point.

Table 12: Investment Expenditure

Source: Letter from NIAUR, 26 January 2011 and DALO 489 12 January 2011.

513. The Committee notes that in year one of the draft Budget (year two of the PC10 period) there is an indicative capital investment allocation some 7.5% in excess of the level recommended in the agreed PC10 determination, however this is followed by an allocation which is £50m (26%) lower than the level agreed in PC10. Members recognise the constraints facing Northern Ireland Water, particularly in the current economic climate, however they were concerned about the impact this may have on Northern Ireland Water's ability to deliver the investment in infrastructure which was agreed as necessary during the PC10 process.

514. Looking at the profile of capital expenditure for water and sewerage services in the draft Budget, it begins at a level, has a significant dip in years two and three, and increases again in year four. This "u-shape" profile is the opposite of what might be expected for relatively large scale infrastructure investment programmes carried out over a number of years. In profile, such projects tend to have lower expenditures in the early years, with an expenditure peak at the mid-point and slightly beyond (an "inverted u-shape").

515. Briefing from the Utility Regulator identifies the potential implications of the draft Budget profile for capital expenditure in Northern Ireland Water (NIW) as:

• Deferment of compliance waste water treatment projects as NIW would not be able to commit to them in this coming year in the absence of the necessary resources being available in future years to take them forward;
• Diversion of expenditure away from Ministerial social and environmental priorities to the networks where expenditure levels are arguably more flexible, although such ramping up followed by a decline is not desirable and will be less efficient as framework contractors may be reluctant to engage additional resources (equipment and labour) only to lose them in the following year;
• Asset performance information is particularly lacking for networks and hence when the asset base is significant (26,500km of water mains and 14,500km of sewers), targeting of expenditure to ensure delivery of benefits is not easily facilitated. This is particularly the case if the drive is to spend the money, rather than achieve pre-defined outputs;
• The price control "contract" which holds the company to deliver, as per PC10, will need to be revisited using the mechanisms as laid out in the recently agreed memoranda of understanding between the parties. The Regulator will have to consider the arguments which may be legitimate and will undoubtedly be put forward by the company for non-delivery of efficiency targets and other cuts;
• There will be a need to revisit the compliance and service performance targets set in the PC10 determination.[58]

516. Members wish to highlight the factors driving the need for capital investment in NIW (Table 13).

Table 13: Drivers of Capital Investment in Northern Ireland Water

Source: Letter from NIAUR, 26 January 2011

517. The Committee understands that work is ongoing to identify and investigate options for re-profiling the capital investment programme, however members are concerned. As can be seen above, the majority of capital investment, almost 74%, is driven by the need to maintain current levels of service and performance and to meet compliance standards. A reduction of 26% in the level of capital investment in year 2, with a further reduction in year 3 of the draft Budget period, cannot but have an impact on the levels of service and compliance currently provided by NIW. There could be little or no room for service or performance improvements or development over the coming years.

518. Again, the Committee hopes to explore this issue with the Department during the consultation period and beyond.

Engagement with stakeholders on the impact of the Department's spending and savings delivery plans

519. The Committee held a stakeholder engagement event on Wednesday 26 January 2011 on the impact of the Department's spending and savings delivery plans. Whilst the Committee has not had a chance to consider the feedback received during this event in detail, the paragraphs at Appendix 4 are not exhaustive but they provide a flavour of the contributions made during the event. These are organised under the headings of social, economic and environmental impacts, however the Committee is keenly aware that these are interlinked and cross-cutting categories. The Committee plans to publish the Official Report of this event on the Assembly's web pages at the earliest opportunity. This will provide a more detailed and nuanced picture of the feedback received on the impact of the draft Budget, which we hope will contribute to the debate as the budget process moves forward.

520. The Committee heard from the Department and stakeholders that the proposed cuts will have a negative impact on all the Section 75 groups and will directly impact the most vulnerable in society, people with disabilities and older people, rural communities, and those without access to a car.

521. The evidence received stated that this draft Budget will roll back the progress made in recent years on accessible and sustainable transport, discouraging the use of public transport as an option for those with a choice, lead to social exclusion for those without alternative transport services or access to a car and, potentially, increase transport related emissions.

522. The Committee will continue to consider the evidence received, analyse the proposed allocations and savings plans, and looks forward to working with the Department to secure the best possible budget outcome for regional development in NI.

Social Development

523. The Committee for Social Development (the Committee) considered the Department for Social Development's (DSD) Draft Budget 2011-15 consultation document.

524. In the absence of detailed information relating to capital and revenue allocations, the Committee generally welcomed the allocation of funding in the draft Budget to:

• the Warm Homes Scheme / Fuel Poverty;
• Supporting People projects;
• Voluntary and Community Sector projects including the Neighbourhood Renewal Strategy; Areas at Risk and Small Pockets of Deprivation; and
• Co-ownership Housing; Private Sector Grants and Disabled Adaptations.

525. The Committee particularly sought additional information on:

• the impact of Housing Executive rent levels on possible redundancies within Northern Ireland Housing Executive (NIHE);
• Housing Executive maintenance and Decent Homes programmes;
• the Social Housing Development Programme (SHDP);
• the number and timing of new Bamford units;
• the impact of reduced allocations on Urban Regeneration and Public Realm schemes;
• the Jobs and Benefits Office programme;
• the impact of proposed Department of Work and Pensions (DWP) reforms to Child Maintenance and Welfare; and
• a proposed application to the Social Protection Fund for support for homeowners facing repossession proceedings.

526. Some members of the Committee expressed significant concerns in respect of the potential reduction in the number of new social houses to be built under the SHDP. Members sought further information on the strategic use of Departmental land to support the SHDP. Some members also expressed concerns in respect of the viability of a proposed reduction in the Housing Association Grant as a mechanism for increasing new social house building.

527. The Committee agreed that it would in principle support the Department's application for Invest to Save funding to upgrade NIHE tenures so as to reduce the effect of future adverse winter weather events.

528. In the absence of sufficient detail on a number of key issues, the Committee agreed that it could not undertake further scrutiny or make additional comment on the DSD Draft Budget 2011-15.

Introduction

529. In September 2010, the Department, as part of the Spending Review process, submitted bids for capital programmes and increases to revenue programmes for the period 2011-2015.

530. On 15 December 2010, a draft budget document setting out the NI Executive's overall proposed spending plans for the four year period from April 2011 to March 2015 was issued for consultation. The consultation was due to close on 16 February 2011. A final Budget was expected to be published later in February 2011.

531. In addition to the above, DFP asked all departments to publish expenditure and savings delivery plans including the impact on frontline services and to produce equality impact assessments as appropriate. DSD's consultation on its expenditure and savings delivery plans ran concurrently with the DFP consultation.

532. The draft Budget figures (£m) for DSD were as shown in Table 14:

Table 14: Proposed Budget Allocations for DSD (£m)

533. The DFP Minister also indicated that the Executive was to establish

"a £20 million Social Protection Fund to assist those in severe hardship as a result of the economic downturn. This Fund, with an initial allocation of £20 million 2011-12 will then draw upon the additional new revenue streams that Ministers are to take forward."

534. The DFP Minister further indicated that the Executive "has proposed the establishment of a fund of £20 million per annum which will be administered by OFMDFM" to tackle the problem of disadvantage within Northern Ireland "in those interface communities where the problems are many and complex".

535. CFP asked statutory committees to review their departments' draft budgets and respond before 16 February 2011.

536. The Committee for Social Development's review of the DSD Draft Budget 2011-2015 is summarised below.

537. In preparation for its review of the Department's draft budget proposals, the Committee undertook a call for evidence with the voluntary and community sector which was facilitated by NICVA on 25 November 2010. A report on the call for evidence event is available from the Social Development Committee webpage.

538. The Committee also sought written evidence from a wide range of stakeholders including: Northern Ireland Federation of Housing Associations (NIFHA); NICVA; Mencap; Housing Rights Service; NIPSA; Citizens Advice Bureau; Advice NI and Law Centre (NI). Copies of these written submissions are available from the Social Development Committee webpage.

539. The Committee received a Ministerial briefing on the budget at its meeting of 13 January 2011 and a further Departmental briefing at its meeting of 10 February 2011. The relevant minutes of proceedings are is available from the Social Development Committee webpage. Relevant Departmental submissions are also available from the Social Development Committee webpage.

Budget Context- Welfare Reform

540. The Committee took evidence from IFS so as to establish the context for the draft budget. The IFS indicated that tax and benefit changes introduced by the Westminster Government would impact disproportionately on the poorest income quintile (lowest 20% of the population by income) in NI.

541. Members of the poorest income quintile in NI have an average income (after tax and including benefits) of around £10,000 pa. The average cash loss to members of this group is estimated as £360 pa (in 2012) rising to £691 pa (in 2014).

542. The Committee also noted Assembly Research information designed to characterise the poorest income quintile in NI. The briefing note showed that 350,000 individuals including working age adults, children and pensioners are in this category and that they are in receipt of a range of benefits.

543. Relevant papers are available from the Social Development Committee webpage.

Consideration of the DSD Draft Budget 2011-2015

544. The Committee agreed that the draft budget document and Departmental responses did not fully address members' queries or concerns. The results of the Committee's consideration of the draft budget are set out below.

Pay and Posts

545. The Department's draft Budget 2011-2015 document referred to revenue bids that were made in September 2010 in respect of pay increases and price inflation. The Department advised that it expected that there would be no requirement for voluntary or compulsory redundancies in any business area during the budget period. The Committee was advised that reductions in posts will be achieved through natural wastage. The draft budget also appeared to indicate that pay progression will apply to all staff - with those staff earning less than £21,000 also receiving a £250 payment for at least the next 2 years.

546. In respect of the information provided, the Committee agreed that it generally endorsed the Department's apparent approach to the management of pay and employment within DSD in the budget period.

Housing and Social Housing Development Programme

547. The Committee welcomed the apparent commitment in the draft budget to continue to support 500 first-time buyers per year to secure their homes through co-ownership and for support for 200 Disabled Adaptations per year (as recommended by Occupational Therapists). The Committee also noted the capital allocation which is apparently designed to cover most of the costs of the estimated 2,600 pa mandatory private sector grants.

548. It is understood that the draft budget allocation to the SHDP will provide for 4000 new social homes in the budget period. The Department advised that this figure does not include those new social homes that may be started as a consequence of additional funding from the Housing Associations.

549. The Department advised that the Minister does not accept that Housing Associations can provide an additional £80m during the budget period for the SHDP.

550. In correspondence from NIFHA, it was claimed that around £31m can be provided by Housing Associations – through £14m of "in kind" expertise plus £15m by Housing Associations developing new housing with smaller grants from the Department plus £2m in efficiencies and grant savings by "non-developing" Housing Associations. NIFHA also claimed that the above could be partially funded by rent increases equalling RPI plus 0.5% for every year of the budget period and by changes to legislation to allow Housing Associations to build and sell private housing. NIFHA also advised that its members' reserves are committed and their reduction could impair Housing Associations' ability to borrow.

551. The Committee agreed that it generally welcomed many of the capital allocations in the budget designed to meet housing pressures through Disabled Adaptations and Co-Ownership.

552. Some members expressed significant concerns in respect of the potential reduction in the number of new social houses to be built under the SHDP. Members sought further information on the strategic use of Departmental land to support the SHDP. Some members expressed concerns in respect of the viability of a proposed reduction in the Housing Association Grant as a mechanism for increasing new social house building.

553. The Committee sought clarity in respect of how the SHDP was to be funded by additional contributions from the Housing Associations. In the absence of further detail on the funding of the SHDP, the Committee agreed that it could not necessarily endorse the Department's approach in respect of the SHDP.

Northern Ireland Housing Executive and related programmes

554. It is understood that NIHE rents for period 2011-12 are to increase by 3.75%. The Department, in its evidence to the Committee, could not clarify the amount of NIHE rent increases for the rest of the budget period and therefore could not also confirm the level of redundancies that may be required in NIHE (if any).

555. The Department indicated that savings would be made in NIHE through the curtailment of maintenance in-line with the findings of the Saville's report; staff reductions in administration and policy areas; a curtailment of travel & subsistence; training; IT, advertising and survey costs.

556. The Department could not confirm the number of NIHE homes which are to be brought up to the Decent Homes standard in the budget period. The Department advised that it has submitted an "Invest to Save" bid of £12m to upgrade the insulation etc. of a large number of NIHE properties.

557. The Department confirmed in evidence to the Committee that funding for the Warm Homes scheme in private housing is to be maintained at £12m pa. A further £8.5m pa from the Decent Homes budget is to be used to provide anti-fuel poverty measures in NIHE tenures.

558. The Department also indicated that funding for Supporting People providers is to continue at £64m pa though there is to be no increase for inflation for providers. The Department could not indicate the number of new build units to be provided to meet the recommendations of the Bamford Review – this is expected to be some way short of the 1168 units for which the Department bid in September.

559. The Committee agreed that it welcomed continuing support for the Warm Homes Scheme and Supporting People providers. The Committee also indicated its support in principle for the Department's Invest to Save bid to upgrade NIHE homes.

560. The Committee also agreed that, in the absence of clarity on NIHE rents and possible redundancies at the Housing Executive, it could not necessarily endorse the Department's general approach to the funding of the Housing Executive and related programmes.

Voluntary and Community Sector

561. The Department advised in evidence to the Committee that funding for the Neighbourhood Renewal Strategy; Areas at Risk and Small Pockets of Deprivation projects will continue at present or higher levels, though options to improve efficiency of delivery were being considered. The Department also advised that funding is to continue at current levels for the Housing Rights Service and Supporting Communities NI.

562. In evidence to the Committee, it was indicated that further consideration is to be given by the Department to the reduction of costs by voluntary groups through, for example, the sharing of services.

563. The Committee agreed that it generally endorsed the Department's apparent support for the voluntary and community sector and urged the Department to clarify the detail of its funding decisions at the earliest opportunity. Members also supported, in principle, the voluntary sector's call for the optimization of audit requirements so as to ensure transparency and accountability whilst minimizing unnecessary bureaucracy and costs.

Urban Regeneration and Public Realm

564. The Committee welcomed capital allocations to public realm schemes but noted with concern the Department's advice that there may be an adverse impact on Physical Development projects in: Belfast's middle core; eleven areas in Londonderry, Limavady and Strabane and phases 2/3 of Belfast Streets Ahead.

565. The Department could not advise in detail on the impact of a somewhat reduced capital allocation on the vesting of houses in declared Urban Regeneration Areas, e.g. Parkside; Glandore; Lawnbrook; Woodvale Avenue; the Village and Upper New Lodge.

566. The Department indicated that in respect of the Ilex and City of Culture projects, it had received a lower capital allocation than was requested and that, therefore, its focus would be on the delivery of priority projects.

567. In respect of the Royal Exchange, the Department recognised that the reduced capital allocation for this project must be addressed in advance of the firming-up of the relevant delivery timescale.

568. The Committee generally welcomed the allocation of funding to urban regeneration schemes. The Committee agreed that in the absence of detail relating to key urban regeneration projects, it could not necessarily endorse the Department's approach to the funding of these projects.

Other

569. The Committee noted the capital and revenue allocations to support Welfare Reform including additional resources for the Appeals Service and Medical Support Services. The Committee agreed that many aspects of the proposed reforms are unclear and sought further information as to the relevant allocation of supporting funding.

570. The Committee noted the absence of detail in the budget document in respect of the Jobs and Benefits Office programme. The Committee considered that this important programme has had a positive impact on employment rates in deprived areas. The Committee sought further information as to how the Department is to work with other bodies to enhance the delivery of jobs and benefits services.

571. The Committee also noted proposed DWP reforms to arrangements for Child Maintenance. The Committee expressed some concerns in respect of these proposed reforms and agreed that, when possible, the Department should brief members on the relevant outworkings of the DWP reforms.

572. The Committee also agreed that it required further information on the application by the Department to the Social Protection Fund for support for a scheme to help home owners facing repossession proceedings.

Independent Bodies

NI Audit Office

573. The Audit Committee has taken the opportunity to comment on the proposed spending reductions for the NIAO as set out in the Executive's draft Budget 2011 -15.

574. Although the funding for the NIAO comes from within the NI Executive's DEL and although there was a figure included in the Executive's draft Budget for reductions to the budget of the NIAO, further to section 66 of the Northern Ireland Act 1998, it is for the Audit Committee (in place of DFP) to agree the estimates of the NIAO and to lay those estimates before the Assembly.

575. The Audit Committee recognises the significant reduction in the levels of funding available from within the NI Executive's DEL over the budget period. The Audit Committee thinks that it is important, therefore, that the NIAO should make a significant contribution to reducing its own expenditure over this period. This is important not only in terms of reducing costs to the public purse, but also in terms of demonstrating that the NIAO is willing and ready to bear its fair share of the savings that must be made.

576. The Audit Committee met on 9 December 2010 and received a presentation from the Comptroller and Auditor General on the issue of efficiency savings that could be made by the NIAO over the budget period. This presentation set out how the NIAO intended to build on efficiencies already made this year by, inter alia, reducing significantly its outsourcing requirements, by reducing recruitment and by implementing a two year pay freeze. Further detail is set out in the summary document produced by the NIAO provided at Appendix 4.

577. The Committee considered carefully the proposed savings that the Comptroller and Auditor General outlined. The Committee also gave consideration to the overall reduction to the NI Executive's DEL and to the planned reductions to the budgets of other audit bodies in the UK. Having considered all of this, the Audit Committee agreed that it would expect to see the NIAO reduce its budget requirement by at least 10% in cash terms by 2014-15. This 10% reduction is from a baseline of £9.0m in 2010-11 (in terms of the NIAO's net resource requirement).

578. The Committee advised the NIAO that it should therefore proceed to prepare a corporate plan for 2011-12 onwards based on this financial forecast. This plan will in turn inform the Audit Committee's consideration of the NIAO's estimates for 2011-12. The estimates for 2011-12 will be agreed shortly by the Audit Committee, after having first consulted PAC and DFP.

579. The Comptroller and Auditor General has advised that the proposed savings represent the maximum reduction that could be made by the NIAO whilst still maintaining the same quality and extent of service to the Assembly that has been offered in recent years. It is important in the current climate for the maximum level of practicable savings to be made. However, to be clear, the Audit Committee is committed to ensuring that the NIAO has the resources necessary in order to ensure that it can provide effective support to the NI Assembly in its task of holding NI departments, executive agencies and other public bodies to account for their use of public money. This role is even more important in the current financial climate. The Audit Committee would therefore not agree a reduction in the funding for the NIAO that would prevent it from carrying out this crucial role.

580. Further to the meeting of 9 December, the Audit Committee wrote to DFP so that it could be aware of the position. However, before this correspondence was received by DFP, the draft budget was published. The Chairperson of the Committee has since met with the Finance Minister and informed him of the Audit Committee's position.

NI Assembly

Background

581. The NI Assembly Commission (the "Commission") is the corporate body of the NI Assembly. It has responsibility under section 40(4) of the Northern Ireland Act 1998 to "provide the Assembly, or ensure that the Assembly is provided, with the property, staff and services required for the Assembly's purposes". The Commission's budget covers the salaries and allowances for Members of the Legislative Assembly including Ministers and other Assembly Office-holders, the salaries cost for the Assembly Secretariat (the Commission's administrative arm) and general administration costs including non-cash costs.

582. Following the Chancellor of the Exchequer's statement on 24 May 2010, and in anticipation of the outcome of the UK-wide Spending Review, the Commission sought to identify cost savings and efficiencies in anticipation of a reduced allocation to the NI Block for the financial years from 2011-12 to 2014-15. Following the Chancellor's statement on 20 October 2010, the Commission noted that the headline impact on the NI Block from the Spending Review for DEL Resources had been variously reported (by HMT) as a 6.9% reduction in real terms or (by DFP) as a 8% reduction in real terms over the four-year Spending Review period. In cash terms, the Spending Review resulted in a modest increase of approximately 2% from £9.3bn in the baseline year of 2010-11 to £9.5bn in 2014-15 (as per HMT). The real reduction in DEL Capital is reported as -40% (from £1.2bn in 2010-11 to £0.80bn in 2014-15). It should be noted that all figures expressed in real terms in this paper are calculated using the assumptions for inflation over the Spending Review period that were used by HMT in the Spending Review.

583. The Commission's spending review exercise was contemporaneous with the exercise carried out by Executive departments in response to a note issued on 17 June 2010 by the Central Expenditure Division of DFP to Finance Directors in Executive departments. That note was subsequently forwarded to the Commission on 26 June 2010 following a request from the Commission to DFP for a copy. Guidance appended to the note titled "NI Executive Budget 2010 Guidance for Departments" observed (at paragraph 1.18) that "In line with previous arrangements, the NI Assembly and the NI Audit Office will be provided with the level of funding required by each organisation (both current expenditure and capital investment) in order to carry out their respective functions, as agreed by the Assembly Commission and the Public Accounts Committee (sic) respectively".

584. Although not part of the Executive's Budget 2010 process, the Commission continued to develop and refine its proposals for cost savings. It was indicated to DFP in late August 2010 that the Commission was clear in its intention to seek to identify cost savings on the 2010-11 baseline for each year of the four-year budget period. The impact on the operation of the Assembly through making savings had still to be assessed at that time and would be taken forward following the Assembly's summer recess. The Speaker (as Chair of the Assembly Commission) wrote to the Minister of Finance and Personnel on 15 November 2010 to advise the Minister that the Commission has asked officials to bring forward savings proposals of 13% in real terms for DEL Resources. The Speaker subsequently wrote to the Minister on 9 December 2010 to apprise him of the Commission's budget deliberations and to confirm that a real cut of 13.3% had been agreed.

Key Issues

585. As part of its spending review exercise, all business areas within the Assembly Secretariat were asked to provide options for costs savings on the 2010-11 baseline level for the next four years. When these submissions were received, a cross-Directorate project team was established to analyse the data and to collate the savings options. The exercise included an assessment of the impact of the range of savings options on the delivery of services to the Assembly and its Members. Secretariat staff were primarily asked to look at Secretariat Staff Payroll, Secretariat Admin Costs, payments to political parties under the Financial Assistance for Political Parties Scheme 2007, non-cash costs and Capital expenditure; as it was recognised that the remaining budget items such as Members' Admin Costs, Members' Payroll and Office Cost Allowance (OCA) were likely to be decided by a proposed Independent Financial Review Panel (subject to the Assembly passing the required legislation).

586. Considerable work was undertaken in order to identify areas where savings might be made and, importantly, to assess the impact of any savings options on the delivery of services to the Assembly and its Members. The administrative costs of operating the Assembly Secretariat were closely analysed as part of this exercise, with a particular focus on seeking to find savings from within administrative budgets before consideration was given to savings that might include staff numbers. However, it was recognised that due to the structure of the budgets within some business areas, it might only be possible to achieve savings by considering staff resources. Where business areas could only achieve savings by altering their staff complement, the analysis of any impact on service delivery of such alterations was especially important.

587. At meetings on 2 November 2010, 23 November 2010 and 7 December 2010, the Commission considered the implications of the Spending Review outcome, the impact on the NI Block and its desire to move beyond the level of real reduction (either 6.9% or 8%) that occurred across the NI Block as a whole. The Commission agreed a Resources budget for the Spending Review period (shown at Annex A – see Appendix 4) that delivered a real cut of 13.3% over the Spending Review period which equates to a cash cut of 4.9% or £2.37m.

588. It is noted that a real reduction of 13.3% or cash reduction of 4.9% compares favourably with external comparators. For example;

(1) The savings exceed the overall real reduction in the NI Block Grant of 8% (DFP figure);

(2) The savings exceed the expressed will of the House through the Private Member's Motion passed by the Assembly on 8 November 2010 calling on the Commission "to reduce its running costs in line with the level of reduction faced by Executive Departments";

(3) The cash savings of 4.9% exceed the overall position for the NI Block which shows a modest cash increase; and

(4) The savings exceed the cuts agreed by the Scottish Parliament and the National Assembly for Wales (12% real cuts).

589. The figures at Annex A (see Appendix 4) are based on a series of assumptions. One of the most pressing assumptions relates to the proposed formation of an Independent Financial Review Panel to consider the financial support available to Members (both salaries and allowances) during 2011-12. The Commission noted that these costs will be set by the Panel and, as such, will be outside the control of the Commission or, indeed, the Assembly.

590. The costs at Annex A have been constructed based on the following additional broad assumptions;

Members' Costs

a. Members' administrative costs will be higher in 2011-12 due to the payment of Winding Up Allowance and Resettlement Allowance following the May 2011 election. These costs will occur in advance of the first salaries or allowances Determination issued by the Panel and it seems unlikely that the Panel would take retrospective action for either of these costs. Therefore, an estimate of £1.0m has been assumed for Winding Up Allowance and Resettlement Allowance only for the 2011-12 financial year. The amounts for future years reflect the 2010-11 budget figure.

b. The rate of OCA has been frozen at 2010-11 levels over the four-year period as this is an area where the views of the Panel are uncertain. The Panel's view on the absolute rate of OCA and whether it should be up-rated each year cannot be known, so a flat line approach has been assumed. Any changes to the rate of OCA (upwards or downwards) would require corrective action as in each of the four years.

c. As with OCA, the level of Members' and Officeholders' salaries has been assumed to remain at existing levels over the Spending Review period. It is expected that the Panel will provide a new Determination in respect of salaries during 2011-12 but the Panel's views cannot be known. The evidence from recent SSRB exercises has shown that Members' salaries do not compare favourably with those in the other devolved legislatures. However, it is unclear how the current economic circumstances will have an impact on any recommendations that might come from the Panel during 2011-12. As with OCA, changes to the rate of Members' salaries (upwards or downwards) would require corrective action as in each of the four years.

Party Allowance

d. Payments to political parties under the Financial Assistance for Political Parties Scheme 2007 have been frozen at 2010-11 levels. This Scheme includes an annual uprating provision, so an amendment to the Scheme would be required following consultation with parties.

Secretariat Costs

e. Secretariat Costs includes staff payroll and general administrative costs. The estimates for staff payroll have been constructed in line with the Commission's understanding of wider public sector pay policy, i.e. the inclusion of annual salary increments with a modest additional sum of £250 for staff who earn less than £21,000 per annum for the first two years of the Spending Review period. Staffing costs have been constructed based on a planned reduction in staff numbers over the four-year period. It is assumed that the number of Full Time Equivalents (FTE) will fall by 30 FTE posts from the present staff complement of 440 FTE to 410 FTE by 2014-15. It is anticipated that the figure of 410 FTE can be attained through natural wastage.

f. The Committee will be aware that the Assembly Commission employs the staff of the Assembly Secretariat. Secretariat staff are not employed by NICS. Therefore, the terms and conditions of service for the Commission's employees are not wholly analogous to those in place in the NICS (in much the same way that staff employed in, for example, the health, education or local government sectors do not have the same terms and conditions of employment as the NICS). The Commission has made progress on a long-outstanding review of pay and grading within the Secretariat and it is hoped that this review will be finalised before the commencement of the Spending Review period. Certain assumptions about the implementation of the review have been made including the Commission's desire to have a pay structure which does not include an Assembly specific allowance.

g. The Commission has also indicated its desire to undertake a thorough programme of efficiency reviews which are expected to deliver further administrative and staffing savings. However, given the uncertainty associated with such reviews, the Commission has not included an estimate of any further savings that can be delivered. Any savings delivered by this programme of reviews will, of course, reduce the Assembly's requirements over the period.

h. It is assumed that the administrative costs of providing a wide range of services to Members and other users of Parliament Buildings will fall by 30.1% in real terms over the four years. These figures were generated by the recently completed savings exercise across the Assembly Secretariat. The impact of this level of real savings will be felt across a range of services and business areas. For example, it is anticipated that paper-based outputs for use by the Assembly's committees will result in administrative savings and sustainable development benefits and reductions in catering services are anticipated.

i. It is also anticipated that new administrative expenditure pressures will emerge. For example, the running costs of the proposed Independent Financial Review Panel and the Northern Ireland Assembly Commissioner for Standards will be contained within the Commission's reduced budgetary requirements. Similarly, the costs attributed to the additional work undertaken at the Assembly following the devolution of Policing and Justice have been contained with the proposed Resource budget reduction over the four year period.

Non-Cash Costs

j. These costs have been profiled to reflect a level of capital expenditure that should not have an undue impact on depreciation charges over the four-year period.

Capital Expenditure

591. As part of the Commission's spending review deliberations, a schedule of potential capital expenditure proposals was compiled for the next four years. The cost of repairs and alterations to the roof of Parliament Buildings (which, at present, includes modest accommodation proposals) makes up just over 52% of the entire capital expenditure requirement of £11.5m across all years. Table 15 summarises the expected capital requirements for the next four years.

Table 15: Assembly Commission Capital Expenditure Proposals over the Spending Review Period

592. Other significant proposals for capital expenditure include costs in 2011-12 for the introduction of software to produce, format, amend and publish Bills, further investment in the equipment and systems needed to produce Hansard and investment in the Assembly's website. In addition, further investment in the Assembly's IT infrastructure is required to maintain present operating capacity.

593. The Commission is very mindful of the pressures on the Block in respect of capital expenditure. As part of its planning process, it assigned indicative priorities (1 = high, 2 = medium, 3 = low) for each capital expenditure proposal. It is acknowledged that these priorities may change over the four-year planning period but they represent a reasonable estimate of the capital expenditure requirement over the Spending Review period. However, the Commission will re-consider these relative priorities in light of the emerging consultation exercise for the draft Budget 2011-15 as it relates to capital expenditure.

Next Steps

594. The draft Budget 2011-15 presented by the Minister of Finance and Personnel to the Assembly on 15 December 2001 included a 25.7% real cut (equating to a cash cut of 18.5%) to the Commission's Resources (DEL) budget over the Spending Review period. The Resources (DEL) and Capital budgets established by the Assembly Commission for the Spending Review period are shown in Table 16 below together with the figures included in the draft Budget 2011-15.

Table 16: Draft Budget 2011-15 Resources (DEL) and Capital Figures for the Assembly Commission

595. The Commission fully recognises the constraints on public sector finance over the next four years. The Commission is also mindful of its legal responsibilities to the Members of the Assembly and to the Assembly as a whole. The Commission will continue to engage with internal and external stakeholders to seek to establish a budget for the Commission for the Spending Review period that allows the Assembly to carry out its legislative and Executive scrutiny functions and to facilitate engagement between the Assembly and its electorate in an effective and responsible manner.

596. The draft Budget implies a cash reduction of £8.96m by 2014-15 on the Commission's baseline budget for 2010-11. This level of reduction is £6.59m greater than the figures in the Commission's budget. A reduction of this magnitude would have a detrimental impact on the ability of the Commission to fulfil its statutory duties in support of Members and the Assembly (both in Plenary and in Committee).

Future Consideration of the Assembly Commission's Budget

597. The Commission is of the view that the process to set the budget of the Assembly requires further consideration. It is acknowledged that the Budget Act for each year authorises the use of resources to NI Executive departments and to other entities such as the Assembly Commission and the NIAO so the Assembly, in Plenary, has the final say on all financial allocations. However, the present arrangements for funding the activities of the Assembly via the Commission's budget are, in practice, indistinguishable from an Executive department funded from the NI Block.

598. It is interesting that both the Scottish Parliament and the National Assembly for Wales have instituted separate arrangements to establish the budget for the legislature. The legislatures in Scotland and Wales are particularly relevant (as opposed to Westminster or Dublin) as they are both devolved legislatures whose funding is derived from the UK Exchequer via a Block Grant. In both cases, the Parliament or Assembly has a direct role in considering, approving and reviewing the budgets for their respective corporate bodies with the respective Finance Committees having distinct roles. In Wales, for example, the process for setting the Assembly's budget is covered in Standing Orders. It is the Commission's intention to give further consideration to these alternative funding approval and financial monitoring arrangements.

Conclusion

599. The Committee is invited to consider the Assembly Commission's approach to establishing a budget for the Spending Review period that meets the Commission's wish to exceed the level of savings (both real and cash) across the NI Block as a whole and that complies with the will of the House. In addition, the Committee is asked to recognise the statutory responsibilities placed on the Commission under the Northern Ireland Act 1998 in support of the Assembly and its Members in its legislative and Executive scrutiny roles.

600. The Committee may also wish to consider and, if appropriate, include relevant commentary on the means by which the Commission's budget is set in its third report on its Inquiry into the Role of the NI Assembly in scrutinising the Executive's Budget and Expenditure.

[1] On the 26 January 2011, the governor of the Bank of England predicted that inflation would rise towards 5% in the coming months: See - http://uk.reuters.com/article/idUKLNE70P00J20110126

[2] See http://www.ifs.org.uk/publications/5245

[3] For example, deaf people can rely heavily on text messaging.

[4] Minister of Finance and Personnel's Foreword, Draft Budget 2011-15: 
http://www.northernireland.gov.uk/website_-_draft_budget.pdf

[5] Reports published by the Committee can be found at 
http://archive.niassembly.gov.uk/finance/2007mandate/finreports_07.htm

[6] http://money.cnn.com/2006/05/15/real_estate/NAR_firstQ2005_home_prices/index.htm

[7] See: http://www.guardian.co.uk/business/2009/dec/21/osborne-warns-greek-style-crisis

[8] See: http://www.skidelskyr.com/site/article/austerity-v-stimulus

[9] A recession is understood as two quarters of negative GDP growth.

[10] In a paper submitted by Victor Hewitt, the Committee was informed that the reason for this variance was because HMT had subtracted student loans, depreciation and £128m worth of cuts that had previously been administered by the Executive in the 2010-11 financial year from it's baseline.

[11] Public sector job losses are likely to have a strongly negative impact the labour market in the private sector due to the strength of the regional economic multiplier. Prospects in the private sector are also likely to be negatively impacted by the collapse in the economy of RoI, Northern Ireland's largest export market. http://www.bbc.co.uk/news/business-11530811

[12] AQO 76/11

[13] Both the Scottish and Welsh Budgets have since been finalised.

[14] The Welsh Assembly passed a final budget motion for 2011/12 which included indicative allocations for 2012/13 and 2013/14. The final budget vote has approved resources only for 2011/12 and not beyond.

[15] AQW 3375/11

[16] A final version of the Committee for Education's response was received on 15 February, which the Finance and Personnel Committee has not had the opportunity to consider in finalising this Report. This updated version has therefore been attached in the Appendices to this Report.

[17] http://archive.niassembly.gov.uk/finance/2007mandate/reports/Report_41_09_10R.html

[18] http://archive.niassembly.gov.uk/finance/2007mandate/reports/Report_19_08_09R.htm

[19] http://www.scotland.gov.uk/News/Releases/2010/11/19124547

[20] http://archive.niassembly.gov.uk/record/reports2010/101215.htm#a4

[21] An extract from HMT's guidance in the Assembly research paper provides further details and states that administration budgets include the provision of policy advice, business support services, back-office administration of benefits, advice on and administration of grant programmes, technical or scientific support, and the work of the Government's Regional Offices

[22] http://archive.niassembly.gov.uk/record/committees2010/FinancePersonnel/110202_StrategicIssues.pdf

[23] HMT has agreed that, as an exception for 2010-11, the Executive may carry forward any underspends declared in advance of the Treasury Spring Supplementary Estimates. The Executive has used this flexibility to carry forward £23 million in capital resources, and this has been factored into the capital resources available in the draft Budget 2011-15.

[24] Assembly Research Paper, Draft Budget 2011-15 (see Appendix 6)

[25] The Committee understands that this amount will score as AME and not DEL and notes that it has not been included in the draft Budget tables of figures, though it was referred to in the UK Spending Review document.

[26] The £25 million from HMT is in addition to the block grant, and can only be used for this purpose. The £25 million from the Executive is from the 2011-12 block grant (source: DFP correspondence, Appendix 5)

[27] www.scottishfuturestrust.org.uk

[28] As outlined in Table 1 and Table 2 of the draft Budget document, pp 51-52.

[29] On 26 January 2011, the governor of the Bank of England predicted that inflation would rise towards 5% in the coming months: See - http://uk.reuters.com/article/idUKLNE70P00J20110126

[30] See paragraph 1.18, NI Executive Budget 2010 – Guidance for Departments, Appendix 5.

[31] http://archive.niassembly.gov.uk/finance/2007mandate/reports/Report_66_09_10R.html

[32] Official Report, Preliminary Inquiry into Public Sector Efficiencies: Response to Inquiry Report, 6 October 2010 (Appendix 2)

[33] See http://archive.niassembly.gov.uk/finance/2007mandate/cs_pay_review/fp_committee_response.htm

[34] Economic theory shows that following a reduction in government spending, consumption, investment and/or net exports must now grow in order to replace the portion of GDP previously reliant on government spending. Although increasing tax revenue to maintain government spending has the effect of reducing both consumption and investment, due to a positive marginal propensity to save, these reduce by less than the total amount of additional revenue raised. For this reason, a reduction in government spending is akin to a fiscal contraction.

[35] See http://www.ifs.org.uk/publications/5245

[36]A tax is efficient when it does not distort economic behaviour and vertically equitable when it is based on an ability to pay.

[37] See: http://archive.niassembly.gov.uk/record/committees2008/FinancePersonnel/240908_rates.htm

[38] Scotland hopes to raise £30m from the "supermarket tax" and to use the funding to support town centre development. See: http://business.scotsman.com/tax/Supermarket-tax-will-give-Holyrood.6650224.jp and

http://www.scotland.gov.uk/Publications/2010/11/17091127/0

The Commission for Integrated Transport published a report in 2006 which argued that the out-of-town retail model threatened social inclusion and accessibility for the wider community. Their report also found that the out-of-town retail outlets distorted the market because high street stores were unable to compete. Furthermore, the report argued that the increase in car use as a result of the development of out-of-town retail outlets was unsustainable. See: http://cfit.independent.gov.uk/pubs/2006/stc/index.htm

[39] See: http://archive.niassembly.gov.uk/finance/2007mandate/reports/report06_07_08r.htm

[40] PC10 is the regulatory price control determination, produced by the Utility Regulator and accepted by NI Water, for the three year period 2010-13. It sets the overall price limits and revenue allowed to NI Water, sets out high level investment priorities as well as operating costs and efficiencies for it to achieve over the period 2010-13.

[41] For example, deaf people can rely heavily on text messaging.

[42] Official Report (Hansard) Spending Review and Budget 2011-15, 10 November 2010, http://archive.niassembly.gov.uk/record/committees2010/FinancePersonnel/101110SpendingReviewandBudget2011-15.pdf

[43] Key elements of the proposed reforms to welfare are set out in the Assembly Research paper, Economic Impacts of Cuts in Annually Managed Expenditure (Appendix 6)

[44] Figure provided by Seamus McAleavey, NICVA, during oral evidence - £2,500 a week to put a child in care.

[45] The Westminster Government has retained control of the power to set interest rates or change the levels of taxation and overall government spending. Together these are considered the most important macroeconomic determinants of economic growth.

[46]Second Report on the Inquiry into the Role of the Northern Ireland Assembly in Scrutinising the Executive's Budget and Expenditure: http://archive.niassembly.gov.uk/finance/2007mandate/reports/Report_66_09_10R.html

[47] http://www.centreforsocialjustice.org.uk/client/downloads/CSJOutcomeBasedGovernment_final2_WEB.pdf

[48] www.pwc.co.uk/ni/publications/ni-government-futures-corporation-tax.html

[49] AQO 931/11

[50] http://www.erini.ac.uk/Publications/PDF/Review_of_Industrial_Derating_Oct_2007.pdf

[51] http://www.greennewdealni.org/

[52] http://archive.niassembly.gov.uk/record/reports2010/101005.htm

[53] http://www.nicva.org/sites/default/files/FINAL_REPORT_NI_DRAFT_BUDGET_9FEB11.pdf

[54] The final response from the Committee for Education, received on 15 February 2011, is included at Appendix 4.

[55] See Assembly Research paper, Draft Budget 2011-15, Appendix 6

[56] DFP underspend in current expenditure over recent years: 3.4% in 2009-10 compared to 0.7% across departments; 0.9% in 2008-09 compared to 0.5% across departments; 3.1% in 2007-08 compared to 2.1% across departments; 10.6% in 2006-07 compared to 2% across departments; 8% in 2005-06 compared to 1.9% across departments; and 9% in 2004-05 compared to 1.6% across departments.

[57] Assembly Research and Library Service Briefing Note, 17 January 2011 Draft Budget 2010: DRD Spending Proposals

[58] Letter from NIAUR, 26 January 2011.

Appendix 1

Minutes of Proceedings

Wednesday, 2 June 2010
Room 30, Parliament Buildings

Present: Ms Jennifer McCann MLA (Chairperson)
Mr Jonathan Craig
Dr Stephen Farry MLA
Mr Simon Hamilton MLA
Mr Fra McCann MLA
Mr Mitchel McLaughlin MLA
Mr Adrian McQuillan
Mr Declan O'Loan

In Attendance: Mr Shane McAteer (Assembly Clerk) 
Miss Karen Jardine (Assistant Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mr David McKee (Clerical Supervisor) 
Mr Dominic O'Farrell (Clerical Officer)

Apologies: Mr David McNarry (Deputy Chairperson)
Ms Dawn Purvis MLA

10.07 am The meeting commenced in open session.

5. Budget (No. 3) Bill 2010 – Main Estimates 2010/11 (DFP Evidence Session)

Agreed: that the Committee will write to the Minister of Finance and Personnel to seek assurances regarding improved consultation and transparency in respect of future budget processes. The Committee will request an urgent response to help inform its decisions with regard to accelerated passage and support for the suspension of Standing Orders.

10. Correspondence

The Committee considered the following correspondence:

• DFP: Forthcoming Budget Process 2010-11.

[EXTRACT]

Wednesday, 9 June 2010
Room 30, Parliament Buildings

Present: Ms Jennifer McCann MLA (Chairperson)
Mr David McNarry (Deputy Chairperson)
Dr Stephen Farry MLA
Mr Simon Hamilton MLA
Mr Fra McCann MLA
Mr Mitchel McLaughlin MLA
Mr Declan O'Loan MLA
Ms Dawn Purvis MLA

In Attendance: Mr Shane McAteer (Assembly Clerk) 
Miss Karen Jardine (Assistant Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mr David McKee (Clerical Supervisor) 
Mr Dominic O'Farrell (Clerical Officer)

Apologies: Mr Jonathan Craig

10.10 am The meeting commenced in open session.

4. Budget (No.3) Bill – Consideration of request for accelerated passage and suspension of standing orders

The Committee received advice from Mr Damien Martin, Clerk Assistant, NI Assembly on the procedural considerations around the DFP proposal to seek a suspension of standing orders to dispense with both the Further Consideration Stage and the 10 day minimum requirement for the Budget (No.3) Bill to complete all Assembly stages.

Agreed: to release the briefing paper prepared by the Clerk Assistant to the DFP officials in the public gallery.

10.27am Ms Purvis joined the meeting.

Members also considered correspondence from the Minister of Finance and Personnel responding to the Committee's request for assurances in terms of addressing the need for improved transparency and consultation by departments with their respective Assembly committees as part of the future budget process.

The following DFP officials were invited to give evidence to the Committee: Mr Michael Brennan, Head of Central Expenditure Division, Central Finance Group; and Ms Agnes Lennon, Central Expenditure Division, Central Finance Group. The evidence session was recorded by Hansard.

Question put and agreed to: that the Committee for Finance and Personnel is satisfied that there has been appropriate consultation with it on the public expenditure proposals contained in the Budget (No.3) Bill 2010 and is content to grant accelerated passage to the Bill in accordance with Standing Order 42(2).

Question put: that the Committee for Finance and Personnel agrees to support the Department of Finance and Personnel in seeking the suspension of standing orders to dispense with both the Further Consideration Stage of the Budget (No.3) Bill and the 10 day minimum requirement for the Bill to complete all Assembly stages.

The Committee divided: Ayes 6; Noes 1; Abstentions 0.

AYES

Dr Farry, Mr Hamilton, Mr McCann, Mr McLaughlin, Mr McNarry, Ms Purvis

NOES

Mr O'Loan

ABSTENTIONS

None

Question accordingly agreed to.

Members considered a draft letter to the Speaker confirming its decision to support the request for accelerated passage and the suspension of the relevant standing orders.

Agreed: that the draft letter be amended to further contextualise the Committee's support for the request for accelerated passage and its support for the suspension of the relevant standing orders; including an indication that the support for suspending the said standing orders should not be regarded as setting a precedent for applying such measures in respect of future Budget Bills.

Agreed: to copy the relevant extract of the Minister's letter on the future budget process and the "early draft timetable for Budget 2010 process" to the other statutory committees for information and planning purposes.

Agreed: to request a copy of the DFP guidance in respect of Budget 2010 and the Savings Delivery Plans that was due to be issued to departments in early June.

Agreed: to invite DFP officials to brief the Committee at its meeting of 30 June 2010 on the Department's progress in preparing its return for the Budget 2010 process.

[EXTRACT]

Wednesday, 23 June 2010
Room 30, Parliament Buildings

Present: Ms Jennifer McCann MLA (Chairperson)
Mr David McNarry MLA (Deputy Chairperson)
Mr Jonathan Craig MLA
Dr Stephen Farry MLA
Mr Simon Hamilton MLA
Mr Declan O'Loan MLA
Mr Fra McCann MLA

In Attendance: Mr Shane McAteer (Assembly Clerk) 
Miss Karen Jardine (Assistant Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mr Christopher McNickle (Clerical Officer)
Mr Dominic O'Farrell (Clerical Officer)

Apologies: Mr Mitchel McLaughlin MLA
Mr Adrian McQuillan MLA
Ms Dawn Purvis MLA

10.31am The meeting commenced in open session.

5. DFP's Role in Review of Economic Policy

Members received a briefing on DFP's Role in the Review of Economic Policy from the following DFP officials: Mr Bill Pauley, Head of Strategic Policy Division, Central Finance Group; Mr Peter Jakobsen, Strategic Policy Division, Central Finance Group.

11.20am Dr Farry returned to the meeting.

11.22am Mr Hamilton left the meeting.

11.30am Mr Hamilton returned to the meeting.

11.30am Mr McCann left the meeting.

11.32am Mr Craig left the meeting.

Agreed: to forward the DFP briefing paper to the Committee for Enterprise, Trade and Investment for information.

[EXTRACT]

Wednesday, 30 June 2010
Room 135, Parliament Buildings

Present: Ms Jennifer McCann MLA (Chairperson)
Mr Jonathan Craig MLA
Dr Stephen Farry MLA
Mr Simon Hamilton MLA
Mr Fra McCann MLA
Mr Mitchel McLaughlin MLA
Mr Adrian McQuillan MLA
Mr Declan O'Loan MLA
Ms Dawn Purvis MLA

In Attendance: Mr Shane McAteer (Assembly Clerk) 
Miss Karen Jardine (Assistant Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Miss Leanne Johnston (Clerical Supervisor) 
Mr Dominic O'Farrell (Clerical Officer)

Apologies: Mr David McNarry MLA (Deputy Chairperson)

10.04am The meeting commenced at in open session.

6. Budget Issues (DFP Evidence Session)

The Committee took evidence from the following DFP officials: Michael Brennan, Head of Central Expenditure Division, Central Finance Group (CFG); Joanne McBurney, Central Expenditure Division, CFG; and Deborah McNeilly, Finance Director, Corporate Services Group. The evidence session was recorded by Hansard.

A range of issues were discussed, including: the implications for Northern Ireland of the UK Emergency Budget; Provisional Outturn figures for 2009-10; the Budget 2010 process and Savings Delivery Plans; and the draft DFP position for Budget 2010.

11.44am Mr McQuillan returned to the meeting.

11.44am Mr Hamilton left the meeting.

11.44am Ms Purvis left the meeting.

11.50am Mr McCann returned to the meeting.

Agreed: that the Committee will forward any additional issues not covered during the evidence session to DFP for written response.

[EXTRACT]

Wednesday, 8 September 2010
Room 30, Parliament Buildings

Present: Ms Jennifer McCann MLA (Chairperson)
Mr David McNarry MLA (Deputy Chairperson)
Dr Stephen Farry MLA
Mr Simon Hamilton MLA
Mr Mitchel McLaughlin MLA
Mr Adrian McQuillan MLA
Mr Declan O'Loan MLA
Ms Dawn Purvis MLA

In Attendance: Mr Shane McAteer (Assembly Clerk) 
Miss Karen Jardine (Assistant Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mr David McKee (Clerical Supervisor) 
Mr Dominic O'Farrell (Clerical Officer)

Apologies: Mr Fra McCann MLA

10.05am The meeting commenced in open session.

3. Matters Arising

Budgetary Issues arising from the session on 30 June 2010

Members noted a response from DFP on matters arising from the Budgetary Issues evidence session on 30 June 2010.

Review of 2008 - 11 Budget Process: Action Plan

The Committee considered the DFP Action Plan, following the Review of the 2008-11 Budget Process, which was agreed by the Executive in July. Members noted that the Action Plan did not take account of the recommendations in the Committee's co-ordinated response to the DFP Review as set out in the Committee's Second Report on the Budget Scrutiny Inquiry.

Agreed: to defer further consideration of the DFP Action Plan until next week's meeting and, in the meantime, to seek clarification from DFP on whether the Executive was made aware of the recommendations of the Committee's Second Report on the Budget Scrutiny Inquiry when the Action Plan was agreed by the Executive in July.

5. DFP Spending and Savings Plans 2011-15 (DFP Evidence Session)

The Committee held an evidence session with the following DFP officials: Ms Deborah McNeilly, Finance Director, Finance Division, Corporate Services Group; and Adrian Doherty, Finance Director, Corporate Services Group, on the Spending and Savings Plans 2011-15. The evidence session was recorded by Hansard.

12.06pm Dr Farry returned to the meeting.

12.18pm Mr McLaughlin left the meeting.

12.22pm Mr McLaughlin returned to the meeting.

12.35pm Ms Purvis left the meeting.

Agreed: that the Departmental officials will provide further information as requested by members, including a copy of the DFP Savings Delivery Plan by early October; and that the Committee will forward any additional issues not covered during the evidence session to DFP for written response.

9. Committee Work Programme

Members considered a draft of the Committee work programme for the autumn session and an outline of Departmental-Committee Business provided by DFP.

Members also noted a request from the Northern Ireland Council for Voluntary Action (NICVA) to brief the Committee on the 'Government's current round of Comprehensive Spending Review 2011-2015'.

Agreed: to invite NICVA to submit a written submission to the Committee ahead of a proposed oral evidence session which could take place after the Spending Review announcement due on 20 October.

[EXTRACT]

Wednesday, 15 September 2010
Room 30, Parliament Buildings

Present: Ms Jennifer McCann MLA (Chairperson)
Mr David McNarry MLA (Deputy Chairperson)
Dr Stephen Farry MLA
Mr Paul Frew MLA
Mr Paul Girvan MLA
Mr Simon Hamilton MLA
Mr Daithí McKay MLA
Mr Mitchel McLaughlin MLA
Mr Adrian McQuillan MLA
Mr Declan O'Loan MLA
Ms Dawn Purvis MLA

In Attendance: Mr Shane McAteer (Assembly Clerk) 
Miss Karen Jardine (Assistant Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mr David McKee (Clerical Supervisor) 
Mr Dominic O'Farrell (Clerical Officer)

10.05am The meeting commenced in open session.

2. Draft Minutes of Proceedings of 8 September 2010

Agreed: that the evidence session on the Budget Process Action Plan and the Department's response to the Committee's Second Budget Scrutiny Inquiry Report will be held in closed session, as the Committee's Report will remain embargoed until the start of the debate in plenary on Monday 20 September. The evidence session will be recorded by Hansard, and the Official Report published on the website after the plenary debate has taken place.

8. Budget Process Action Plan and DFP Response to the Committee's Second Budget Scrutiny Inquiry Report

The Committee took evidence from Michael Brennan, Head of Central Expenditure Division, Central Finance Group, DFP. The evidence session was recorded by Hansard.

12.10pm Mr Frew returned to the meeting.

Agreed: to copy the Executive's Budget Process Action Plan and related correspondence together with the DFP response to the Committee's Second Budget Scrutiny Inquiry Report to other statutory committees, in advance of the debate on the Report in plenary on Monday 20 September.

Agreed: to publish the DFP response to the Committee's Second Budget Scrutiny Inquiry Report on the Committee's website after the plenary debate.

12. Correspondence

The Committee considered the following correspondence:

• Committee for Education: Budget 2010;
• Action for Children Northern Ireland: NI Government Department Spending Review 2010/11:

[EXTRACT]

Wednesday, 29 September 2010
Room 30, Parliament Buildings

Present: Ms Jennifer McCann MLA (Chairperson)
Mr David McNarry MLA (Deputy Chairperson)
Dr Stephen Farry MLA
Mr Paul Frew MLA
Mr Paul Girvan MLA
Mr Simon Hamilton MLA
Mr Adrian McQuillan MLA
Mr Declan O'Loan MLA

In Attendance: Mr Shane McAteer (Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mr David McKee (Clerical Supervisor) 
Mr Dominic O'Farrell (Clerical Officer)
Mr Gareth Brown (Bursary Student)

Apologies: Mr Mitchel McLaughlin MLA
Ms Dawn Purvis MLA

10.03am The meeting commenced in open session.

9. Correspondence

The Committee considered the following correspondence:

• DFP: Follow up to session on DFP Spending and Savings Plan 2011 – 15;
• DFP News Release: Wilson Meets Chief Secretary to the Treasury;
• DFP: Response to Committee Report on its Preliminary Inquiry into Public Sector Efficiencies:

10. Committee Work Programme

Members considered a draft of the Committee work programme.

Agreed: to take evidence from the Strategic Investment Board regarding its role in the Investment Strategy.

Agreed: to postpone the Ministerial Briefing to a date when further progress has been made on the development of the Draft Budget. In the meantime, the Committee will proactively explore issues of relevance in this regard.

[EXTRACT]

Wednesday, 6 October 2010
Room 30, Parliament Buildings

Present: Ms Jennifer McCann MLA (Chairperson)
Mr David McNarry MLA (Deputy Chairperson)
Dr Stephen Farry MLA
Mr Paul Frew MLA
Mr Simon Hamilton MLA
Mr Daithi McKay MLA
Mr Mitchel McLaughlin MLA
Mr Declan O'Loan MLA
Ms Dawn Purvis MLA

In Attendance: Mr Shane McAteer (Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Miss Karen Jardine (Assistant As
Mr David McKee (Clerical Supervisor) 
Mr Dominic O'Farrell (Clerical Officer)
Mr Gareth Brown (Bursary Student)

Apologies: Mr Paul Girvan MLA

10.04am The meeting commenced in open session.

3. Matters Arising

Budget 2010 Process

Members discussed ways in which they could begin to proactively explore issues relating Budget 2010.

Agreed: to invite evidence from a number of economists/specialists on strategic and cross-cutting public finance issues, which will inform the Committee's deliberations. Further consideration will be given to the individuals to be invited, the areas of focus and the possibility of commissioning separate research and briefing on these areas.

4. Construction Industry and Public Sector Expenditure: Construction Employers Federation – Evidence Session

The Committee held took evidence from the following witnesses from the Construction Employers Federation (CEF): Mr Ciarán Fox, Federation Manager; and Mr Nigel Lucas, Federation Manager. The evidence session was recorded by Hansard.

10.34am Ms Purvis joined the meeting.

10.44am Dr Farry joined the meeting.

10.52am Mr McNarry left the meeting.

11.00am Mr McNarry returned to the meeting

11.15am Ms Purvis left the meeting.

11.22am Mr Frew left the meeting.

Agreed: that CEF will provide the Committee with further information on a number of issues raised during the session.

Agreed: that the Chair and Deputy Chair will seek an urgent, informal meeting with the Minister of Finance and Personnel to discuss issues regarding the Aggregates Levy.

11.27am Ms Purvis returned to the meeting.

5. Industrial Derating: DFP Evidence Session

The Committee took evidence from the following DFP officials: Mrs Veronica Holland, Rating Policy Division; Mr Andrew McAvoy, Rating Policy Division; and Ms Tracey Ayre, Rating Policy Division. The evidence session was recorded by Hansard.

11.43am Mr Frew returned to the meeting.

Agreed: that the Committee will defer its decision on whether to support the DFP proposal to extend the industrial derating scheme, until it receives the follow up information requested from the Departmental officials during the evidence session.

12.00pm Mr McNarry left the meeting.

6. Preliminary Inquiry into Public Sector Efficiencies: Departmental Response to Inquiry Report – DFP Evidence Session

The Committee took evidence from the following DFP officials: Mr Richard Pengelly, Public Spending Director; and Mr Shane Murphy, Performance and Efficiency Delivery Unit. The evidence session was recorded by Hansard.

12.02pm Mr Hamilton left the meeting.

12.20pm Mr McKay left the meeting.

12.22pm Mr Frew left the meeting.

12.30pm Mr Frew returned to the meeting.

12.32pm Mr McKay returned to the meeting.

12.34pm Mr McLaughlin left the meeting.

12.46pm Mr McLaughlin returned to the meeting.

Agreed: that the DFP officials will provide further information to the Committee as requested, including confirmation of which of the Committee's recommendations the Minister has accepted.

Agreed: that any issues not covered during the evidence session will be forwarded to DFP with a request for a written response.

Agreed: that the forthcoming session with the Strategic Investment Board (SIB) will include consideration of the work of SIB in relation to the Capital Assets Realisation Taskforce.

9. Correspondence

The Committee considered the following correspondence:

• Confederation of British Industry (CBI): Delivering Public Services in a Time of Austerity;

Agreed: to invite representatives from CBI to brief the Committee on its report.

• DFP: Letter from Minister to Chair regarding the Executive's End Year Flexibility Stock;
• Department of Education: Education Minister's reply to Committee for Education regarding Budget 2010:

[EXTRACT]

Wednesday, 13 October 2010
Colby House, Stranmillis Court, Belfast

Present: Ms Jennifer McCann MLA (Chairperson)
Dr Stephen Farry MLA
Mr Paul Frew MLA
Mr Simon Hamilton MLA
Mr Daithí McKay MLA
Mr Mitchel McLaughlin MLA
Mr Declan O'Loan MLA
Ms Dawn Purvis MLA

In Attendance: Mr Shane McAteer (Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
iss Karen Jardine (Assistant Assembly Clerk)
Mr David McKee (Clerical Supervisor) 
Mr Dominic O'Farrell (Clerical Officer)
Mr Gareth Brown (Bursary Student)

Apologies: Mr David McNarry MLA (Deputy Chairperson)
Mr Paul Girvan MLA
Mr Adrian McQuillan MLA

11.09am The meeting commenced in open session.

3. Matters Arising

Departmental Response to the Report on the Preliminary Inquiry into Public Sector Efficiencies

Agreed: to publish the Department of Finance and Personnel's (DFP) response to the Inquiry Report on the Committee's website.

Budget 2010 Process

The Committee considered a Secretariat briefing paper regarding possible areas for examination and expert witnesses in respect of the forthcoming Spending Review and Budget 2010.

Agreed: to invite those listed to give evidence to the Committee. Members will notify the Clerk of any additional potential witnesses.

4. Land and Property Services Update – Departmental Briefing

The Committee received a briefing from the following DFP officials: Stephen Peover, Permanent Secretary, DFP; John Wilkinson, Chief Executive, Land and Property Services (LPS); Iain Greenway, Director of Operations, LPS.

11.29am Dr Farry joined the meeting.

Agreed: that the Departmental officials will provide further information as requested by the Committee during the evidence session.

Agreed: that any issues not covered during the evidence session will be forwarded to DFP for written response.

The Chairperson thanked the officials and LPS staff for the interesting and informative tour that preceded the Committee's meeting.

11.53am Mr Hamilton left the meeting.

12.10pm Ms Purvis left the meeting.

5. Enterprise Shared Services: IT Assist; Network NI; and Records NI – DFP Evidence Session

The Committee took evidence from the following witnesses: Paul Wickens, Chief Executive, Enterprise Shared Services; Barry Lowry, Director IT Services, Enterprise Shared Services.

12.24pm Mr Frew left the meeting.

12.26pm Mr Frew returned to the meeting.

12.27pm Mr O'Loan left the meeting.

Agreed: that any issues not covered during the evidence session will be forwarded to DFP with a request for a written response.

The Committee agreed to move to Agenda item 8. Agenda items 6 and 7 will be considered at the Committee's next meeting on 20 October.

7. Correspondence

The Committee considered the following correspondence:

• DFP: Access to End Year Flexibility Stock.

[EXTRACT]

Wednesday, 20 October 2010
Parliament Buildings, Stormont

Present: Ms Jennifer McCann MLA (Chairperson)
Mr David McNarry MLA (Deputy Chairperson)
Dr Stephen Farry MLA
Mr Paul Frew MLA
Mr Paul Girvan MLA
Mr Simon Hamilton MLA
Mr Daithí McKay MLA
Mr Mitchel McLaughlin MLA
Mr Adrian McQuillan MLA
Mr Declan O'Loan MLA
Ms Dawn Purvis MLA

In Attendance: Mr Shane McAteer (Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mr David McKee (Clerical Supervisor) 
Mr Dominic O'Farrell (Clerical Officer)
Mr Gareth Brown (Bursary Student)

10.05am The meeting commenced in open session.

2. Draft Minutes of Proceedings of 13 October 2010

Agreed: that a paper from the Northern Ireland Public Service Alliance (NIPSA) on issues regarding HR Connect can be provided to Department of Finance and Personnel (DFP) officials in advance of the evidence session at Agenda item 6.

3. Matters Arising

Budget 2010

Agreed: to invite a number of additional witnesses to give evidence on strategic public finance issues.

6. Enterprise Shared Services: HRConnect and Centre for Applied Learning - DFP Evidence Session

The Committee took evidence from the following DFP officials: Paul Wickens, Chief Executive, Enterprise Shared Services (ESS); Patricia Corbett, HR Service Management Director, ESS. The evidence session was recorded by Hansard.

10.49am Mr McNarry left the meeting.

10.55am Mr McNarry returned to the meeting.

Agreed: that the Departmental officials will provide further information as requested by the Committee during the evidence session.

11.25am Mr McNarry left the meeting.

7. Account NI and Performance of NICS in payment of suppliers – DFP Evidence Session

The Committee took evidence from the following DFP officials: Paul Wickens, Chief Executive, ESS; Fiona Hamill, Treasury Officer of Accounts; John Crosby, Chief Executive of Account NI. The evidence session was recorded by Hansard.

11.47am Mr McQuillan left the meeting.

11.55am Mr McLaughlin left the meeting.

11.59am Mr McLaughlin returned to the meeting.

Agreed: that the Departmental officials will provide further information as requested by the Committee during the evidence session.

Agreed: that any issues not covered during the evidence session will be forwarded to DFP for written response.

10. Correspondence

The Committee considered the following correspondence:

• DFP: Draft Spending and Savings Plans Follow-up Response.

[EXTRACT]

Wednesday, 3 November 2010
Senate Chamber, Parliament Buildings

Present: Ms Jennifer McCann MLA (Chairperson)
Mr David McNarry MLA (Deputy Chairperson)
Dr Stephen Farry MLA
Mr Paul Frew MLA
Mr Paul Girvan MLA
Mr Simon Hamilton MLA
Mr Daithí McKay MLA
Mr Mitchel McLaughlin MLA
Mr Declan O'Loan MLA
Ms Dawn Purvis MLA

In Attendance: Mr Shane McAteer (Assembly Clerk)
Miss Karen Jardine (Assistant Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mr David McKee (Clerical Supervisor) 
Mr Dominic O'Farrell (Clerical Officer)

10.10am The meeting commenced in open session.

1. Apologies

There were no apologies.

Agreed: to release the Department of Finance and Personnel (DFP) briefing paper relating to agenda item 4 to Professor David Heald in advance of his evidence session at agenda item 5.

3. Matters Arising

HR Connect

Members noted that the Northern Ireland Public Service Alliance (NIPSA) had requested a copy of the DFP paper relating to the previous evidence session on HRConnect and any associated follow –up information.

Agreed: to provide NIPSA with the DFP paper and any associated follow-up information, as requested.

4. Implications of the Spending Review 2011 – 2015

The Committee took evidence from the following DFP officials: Mr Michael Brennan, Head of Central Expenditure Division, and Ms Joanne McBurney, Central Expenditure Division. The evidence session was recorded by Hansard.

10.14am Mr McKay joined the meeting.

10.46am Mr McNarry left the meeting.

10.47am Mr McNarry returned the meeting.

10.48am Dr Farry left the meeting.

Agreed: that the DFP officials will provide further information as requested by members during the evidence session.

Agreed: that the Committee will, through the Minister of Finance and Personnel, write to the Executive, seeking assurance that all Assembly statutory committees are provided with sufficient time to fully scrutinise the draft Budget; and also requesting a copy of the Executive's latest draft Budget timetable.

Agreed: that the paper provided by DFP for this evidence session will be copied to the other relevant Assembly committees for information.

5. Spending Review & Budget 2010

The Committee took evidence from Professor David Heald, University of Aberdeen. The evidence session was recorded by Hansard.

11.00am Mr McNarry left the meeting.

11.00am Mr Frew left the meeting.

11.09am Mr McNarry returned to the meeting.

11.15am Mr McLaughlin left the meeting.

11.17am Mr McKay left the meeting.

11.26am Mr McLaughlin returned to the meeting.

11.28am Ms Purvis left the meeting.

The Committee agreed to take agenda item 8 next.

6. Correspondence

The Committee considered the following correspondence:

• DFP: Follow-up to Public Sector Efficiency Session;
• DFP: Land and Property Services Response to Issues;
• Community Relations Council: Response to the draft Programme for Cohesion, Sharing and Integration;
• Advice NI: People on welfare benefits bear brunt of Osborne Spending Review;
• DFP: Response to follow up questions on IT Assist, Records NI & Network NI;

8. Delivering Public Services in a time of Austerity: Evidence from Confederation of British Industry

The Committee took evidence from the following witnesses Mr Nigel Smyth, Director, CBI; Mr Terence Brannigan, Chairman, CBI; and Mr Richard Moore, CBI. The evidence session was recorded by Hansard.

11.41am Ms Purvis returned to the meeting.

11.41am Mr McNarry returned to the meeting.

11.41am Dr Farry left the meeting.

11.45am Mr Hamilton returned to the meeting.

11.49am Dr Farry returned to the meeting.

11.50am Mr Girvan left the meeting.

11.56am Mr Girvan returned to the meeting.

12.03pm Mr Girvan left the meeting.

12.05pm Mr Girvan returned to the meeting.

12.25pm Mr McKay returned to the meeting.

12.25pm Mr McNarry left the meeting.

12.26pm Mr McNarry returned to the meeting.

12.37pm Mr O'Loan joined the meeting.

12.41pm Mr McLauglin left the meeting.

12.50pm Mr McKay left the meeting.

Agreed: to ask DFP to cost the proposals for alternative revenue sources detailed in the CBI document.

Members noted an update from DFP on Workplace NI.

Agreed: to request an update on the progress of the Capital Assets Realisation Taskforce from the Strategic Investment Board, through COFMDFM.

Agreed: to invite Professor David Bell, Budget Adviser to the Scottish Finance Committee and Professor Alan Barrettt, Economic and Social Research Institute to give evidence on the Spending Review and Budget 2010.

Agreed: that the Committee will consider the options for further engaging with stakeholders on matters relating to the Spending Review and Budget 2010.

1.00pm The Chairperson suspended the meeting.

1.27pm The Chairperson resumed the meeting.

The Committee agreed to take agenda item 7 next.

9. Industrial Derating – DFP Evidence Session

Members took evidence from the following DFP officials Mr Brian McClure, Head of Rating Policy Division; and Ms Veronica Holland, Rating Policy Division. The evidence session was recorded by Hansard.

1.28pm Mr O'Loan returned to the meeting.

1.28pm Mr Girvan left the meeting.

1.29pm Mr McNarry joined the meeting.

1.30pm Dr Farry joined the meeting.

1.48pm Mr McNarry left the meeting.

1.54pm Mr Girvan returned to the meeting.

1.55pm Dr Farry left the meeting.

Agreed: in principle that the proposal to retain the industrial derating provision is included in the draft Budget consultation document; that the Committee will consider its final position in light of the consultation outcome; and to recommend that DFP further explores the Skills Training and Research scheme, and for that proposal to also be included in the draft Budget document.

[EXTRACT]

Wednesday, 10 November 2010
Room 30, Parliament Buildings

Present: Ms Jennifer McCann MLA (Chairperson)
Mr David McNarry MLA (Deputy Chairperson)
Dr Stephen Farry MLA
Mr Paul Frew MLA
Mr Paul Girvan MLA
Mr Simon Hamilton MLA
Mr Daithí McKay MLA
Mr Mitchel McLaughlin MLA
Mr Adrian McQuillan
Mr Declan O'Loan MLA
Ms Dawn Purvis MLA

In Attendance: Mr Shane McAteer (Assembly Clerk)
Miss Karen Jardine (Assistant Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mr David McKee (Clerical Supervisor) 
Mr Dominic O'Farrell (Clerical Officer)
Mr Gareth Brown (Bursary Student)

10.07am The meeting commenced in open session.

3. Matters Arising

10.09am Ms Purvis joined the meeting.

DFP: Follow up to query on £18 billion long term investment strategy

Members noted correspondence from DFP relating to a query raised during last week's evidence session.

Agreed: to request confirmation that DFP is pursuing the anomalies between the Department's and the Westminster Government's calculations the £18bn capital investment commitment; to establish if a commitment is being sought from the Westminster Government in respect of the remaining £4bn in the two years following the spending review period; and to seek clarification regarding the inclusion and treatment of the Reinvestment and Reform Initiative funding within the calculations.

Agreed: to copy the DFP correspondence and follow up Committee correspondence to the Committee for the Office of the First Minister and Deputy First Minister (COFMDFM) for information.

10.11am Mr Frew joined the meeting.

Engaging with Stakeholders on Spending Review and Budget 2011-15

The Committee considered a Secretariat paper outlining options for stakeholder engagement on the Spending Review and Budget 2011-15, which included the Research briefing note, Budget Simulators and Participatory Budgeting.

10.15am Mr McKay joined the meeting.

10.20am Mr McQuillan joined the meeting.

Agreed: to seek clarification from DFP on what provision it has made for consulting with stakeholders and the wider public on the Executive's Draft Budget, including at a sector level, and to request a report on the outcome of this consultation. The Department will also be asked for its view on the potential for using online "budget simulators" in the public consultation on the Draft Budget.

Agreed: to establish whether the Business Alliance, the NI Council for Voluntary Action (NICVA) and the Irish Congress of Trade Unions (ICTU) are planning stakeholder/engagement events on the Draft Budget.

4. DFP Preparations for Budget 2011-15

The Committee took evidence from the following DFP officials: David Orr, Corporate Services Director, Corporate Services Group; Deborah McNeilly, Finance Director, Corporate Services Group; and Brigitte Worth, Finance Branch, Corporate Services Group.

10.30am Mr McKay left the meeting.

10.46am Mr Frew left the meeting.

10.55am Mr McQuillan left the meeting.

10.57am Mr Frew returned to the meeting.

10.59am Mr McQuillan returned to the meeting.

11.09am Mr McNarry left the meeting.

11.20am Mr McLaughlin left the meeting.

11.20am Dr Farry left the meeting.

11.21am Mr McNarry returned to the meeting.

11.25am Mr O'Loan left the meeting.

11.26am Mr McLaughlin returned to the meeting.

11.28am Mr O'Loan returned to the meeting.

11.31am Mr Girvan left the meeting.

Agreed: that the Departmental officials will provide further information as requested by the Committee during the evidence session.

5. DFP Implementation of the NI Audit Office Efficiencies Checklist

In view of time constraints, the Committee agreed not to take oral evidence on the implementation of the NI Audit Office's Efficiencies Checklist in DFP. The Committee will instead forward a list of issues to the Department for written response.

11.32am Mr Hamilton joined the meeting.

6. Spending Review & Budget 2011-15 – Evidence from NI Council for Voluntary Action

Members took evidence from the following witnesses: Seamus McAleavey, NICVA; Bob Stronge, Advice NI; Margaret Kelly, Barnardos.

11.34am Mr Girvan returned to the meeting.

11.38am Dr Farry returned to the meeting.

11.51am Mr McQuillan left the meeting.

11.56am Mr Frew left the meeting.

12.10pm Mr McQuillan returned to the meeting.

12.15pm Ms Purvis left the meeting.

12.16pm Mr Frew returned to the meeting.

12.20pm Ms Purvis returned to the meeting.

12.26pm Mr McNarry left the meeting.

12.27pm Mr McNarry returned to the meeting.

12.27pm Ms Purvis left the meeting.

12.29pm Mr Girvan left the meeting.

Agreed: the witnesses will provide a paper in follow up to the evidence session, to include information both on the longer-term preventative spending measures being taken forward by the voluntary sector and on specific public services and policies that could be delivered more efficiently by the voluntary sector.

7. Spending Review & Budget 2011-15 – Evidence from Irish Congress of Trade Unions (ICTU)

Members took evidence from the following witnesses: Peter Bunting, Assistant General Secretary, ICTU NI; Avril Hall-Callaghan, Chair, ICTU NI Committee; Pamela Dooley, Unison; Brian Campfield, General Secretary, Northern Ireland Public Service Alliance.

12.34pm Mr Girvan returned to the meeting.

1.05pm Mr O'Loan left the meeting.

1.14pm Mr Frew left the meeting.

1.20pm Mr Hamilton left the meeting.

1.23pm Mr Hamilton returned to the meeting.

Agreed: the witnesses will provide a paper in follow up to the evidence session, detailing proposals in respect of savings and revenue raising options.

9. Correspondence

The Committee agreed to consider the correspondence requiring decisions at its next meeting on 17 November. The following items of correspondence were noted:

• DFP: Account NI and prompt payment of invoices follow up
• DFP: HR Connect follow up

10. Committee Work Programme

Barnados NI: Request to Brief Committee

Members considered correspondence from Barnados NI requesting the opportunity to brief members on protecting vulnerable children in a time of public spending austerity.

Agreed: to request a written submission in the first instance.

[EXTRACT]

Wednesday, 17 November 2010
Room 30, Parliament Buildings

Present: Ms Jennifer McCann MLA (Chairperson)
Mr David McNarry MLA (Deputy Chairperson)
Dr Stephen Farry MLA
Mr Paul Frew MLA
Mr Paul Girvan MLA
Mr Simon Hamilton MLA
Mr Mitchel McLaughlin MLA
Mr Declan O'Loan MLA
Ms Dawn Purvis MLA

In Attendance: Mr Shane McAteer (Assembly Clerk)
Miss Karen Jardine (Assistant Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mr David McKee (Clerical Supervisor) 
Mr Dominic O'Farrell (Clerical Officer)
Mr Gareth Brown (Bursary Student)

Apologies: Mr Adrian McQuillan MLA

10.08am The meeting commenced in open session.

3. Matters Arising

DFP: Budget 2010 Process & BBC Report

Members considered correspondence from the Minister of Finance and Personnel in relation to the Budget 2010 timetable and an issue arising from a recent BBC news report.

10.15am Mr Girvan joined the meeting.

10.23am Dr Farry left the meeting.

10.24am Dr Farry returned to the meeting.

Agreed: to copy the Minister's response on the Budget 2010 timetable to other statutory committees for information.

Agreed: to reply to the Ministerial correspondence advising that the Committee encourages the Finance Minister in his efforts to secure Executive agreement on a draft Budget which seeks to safeguard key frontline services and policy priorities, including growing the economy, and which is subject to appropriate consultation. The reply to the Minister will also be copied to the other statutory committees for information.

Stakeholder Engagement

Members discussed a further proposal for engaging with stakeholders on the Spending Review and Budget 2011-2015. This could involve an informal stakeholder event in conjunction with other statutory committees whereby representative groups would have the opportunity to speak individually with the committees of their choice, specifically on issues relating to the anticipated Draft Budget. The information collected would help inform the subsequent committee responses to the Draft Budget.

10.26am Mr Frew joined the meeting.

Agreed: to write to other statutory committees, advising them of this proposal and inviting them to participate.

4. Spending Review and Budget 2011-2015

The Committee noted that it may need to address the issue of cuts to Annually Managed Expenditure (AME) on a strategic level on its Report on the Draft Budget.

Agreed: to commission Assembly Research to provide a paper on the impact of AME cuts on the economy at a local level.

The Committee took evidence from the following witnesses: Neil Gibson, Oxford Economics and Mike Smyth, University of Ulster. The evidence session was recorded by Hansard.

11.25am Ms Purvis left the meeting.

11.27am Mr McNarry left the meeting.

11.29am Ms Purvis returned to the meeting.

11.35am Mr McNarry returned to the meeting.

11.55am Mr McLaughlin left the meeting.

12.00pm Mr McLauglin returned to the meeting.

12.03pm Mr Hamilton left the meeting.

12.07pm Dr Farry left the meeting.

12.15pm Mr McNarry left the meeting.

Agreed: that the witnesses will provide the Committee with a copy of the papers presented today.

Agreed: that DFP officials will be invited to give evidence to the Committee on the issue of accommodation efficiencies to help inform the Committee's Report on the Draft Budget.

6. DFP Progress against PSA and Departmental Targets – Written Briefing

The Assistant Clerk briefed the Committee on a written submission from DFP on its progress against PSA and Departmental Targets.

Agreed: to invite selected DFP officials to provide oral evidence on issues arising on 1 December 2010; and to request further information as agreed by the Committee.

9. Correspondence

The following items of correspondence were noted:

• Mitchel McLaughlin MLA: Comprehensive Spending Review Query;

Agreed: to copy the correspondence to DFP for a response on the issues raised.

• DFP: Response to CBI report "Time for Action";

Agreed: to raise the revenue-raising issues with the other relevant statutory committees; and to ask DFP for further information on the revenue raising proposal identified within its remit.

Agreed: to ask CBI to provide an update on its engagement following the publication of its report.

• Advice NI News Release: "Universal benefit being paid for by savage cuts to the social security system":

[EXTRACT]

Wednesday, 24 November 2010
Room 30, Parliament Buildings

Present: Ms Jennifer McCann MLA (Chairperson)
Mr David McNarry MLA (Deputy Chairperson)
Dr Stephen Farry MLA
Mr Paul Frew MLA
Mr Paul Girvan MLA
Mr Simon Hamilton MLA
Mr Daithí McKay MLA
Mr Mitchel McLaughlin MLA
Mr Adrian McQuillan MLA
Mr Declan O'Loan MLA
Ms Dawn Purvis MLA

In Attendance: Mr Shane McAteer (Assembly Clerk)
Miss Karen Jardine (Assistant Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mr Jim Nulty (Clerical Supervisor) 
Mr Dominic O'Farrell (Clerical Officer)
Mr Gareth Brown (Bursary Student)

Apologies:

10.07am The meeting commenced in open session.

3. Matters Arising

Mike Smyth: Follow up to evidence session on 17 November 2010

The Committee noted papers provided by Mike Smyth, University of Ulster, in follow up to the evidence session on 17 November.

4. Spending Review and Budget 2011-2015

The Committee took evidence from the following witnesses: Dr Esmond Birnie, Pricewaterhouse Coopers, and Dr Graham Brownlow, Queen's University Belfast. The evidence session was recorded by Hansard.

10.13am Ms Purvis joined the meeting.

10.20am Mr Girvan joined the meeting.

10.21am Mr McQuillan joined the meeting.

10.47am Mr Hamilton left the meeting.

10.54am Mr Frew left the meeting.

11.00am Mr McLaughlin joined the meeting.

11.10am Dr Farry left the meeting.

11.14am Mr McNarry left the meeting.

11.20am Mr Hamilton returned to the meeting.

11.21am Dr Farry returned to the meeting.

The Committee noted a response from DFP regarding the UK Government's Paper on Rebalancing the NI Economy. The Committee also noted the uncorrected transcript of oral evidence to the NI Affairs Committee on Corporation Tax on 10 November.

Agreed: to request details on what interaction Departmental economists have with local private sector and academic economists; and clarification on the transparency of economic data that is available via Departmental websites.

5. Spending Review and Budget 2011-15

The Committee took evidence from Colm McCarthy, University College Dublin on potential lessons from the experience of the Republic of Ireland in terms of the work of An Bord Snip Nua and the current debt crisis.

11.27am Mr Girvan left the meeting.

11.29am Mr Girvan returned to the meeting.

11.52am Mr Frew returned to the meeting.

12.04pm Mr McKay left the meeting.

12.09pm Ms Purvis left the meeting.

12.10pm Mr McKay returned to the meeting.

12.18pm Mr Girvan left the meeting.

10. Committee Work Programme

Northern Ireland Association for Mental Health (NIAMH): Request to Brief Committee

Agreed: to advise NIAMH of the Committee's remit regarding budgets and financial scrutiny, and to request a written submission in the first instance.

11. Any Other Business

Presbyterian Mutual Society Rescue Scheme

Agreed: to write to DFP requesting details of the scheme, including the related budgetary implications and departmental responsibilities.

Dormant Accounts Scheme

Agreed: to seek an update on the current position regarding the Dormant Accounts scheme.

[EXTRACT]

Wednesday, 1 December 2010
Room 30, Parliament Buildings

Present: Mr David McNarry MLA (Deputy Chairperson)
Dr Stephen Farry MLA
Mr Paul Frew MLA
Mr Paul Girvan MLA
Mr Simon Hamilton MLA
Mr Daithí McKay MLA
Mr Adrian McQuillan MLA
Mr Declan O'Loan MLA
Ms Dawn Purvis MLA

In Attendance: Mr Shane McAteer (Assembly Clerk)
Miss Karen Jardine (Assistant Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mr Jim Nulty (Clerical Supervisor) 
Mr Dominic O'Farrell (Clerical Officer)

Apologies: Ms Jennifer McCann MLA (Chairperson)
Mr Mitchel McLaughlin MLA

10.07am The meeting commenced in open session.

4. Spending Review and Budget 2011-2015

The Committee took evidence from the following witnesses: Mr Victor Hewitt, Director, Economic Research Institute of NI; and Mr John Simpson, Economist.

10.20am Mr McQuillan joined the meeting.

10.32am Ms Purvis joined the meeting.

10.40am Dr Farry left the meeting.

10.41am Dr Farry returned to the meeting.

10.58am Mr McKay joined the meeting.

10.59am Mr Girvan left the meeting.

Agreed: that, as part of its response to the Draft Budget, the Committee will consider how the Assembly and Executive could best utilise independent economic expertise.

Agreed: that the witnesses will provide further information to the Committee as necessary.

11.28am Mr Frew left the meeting.

6. Correspondence

The following items of correspondence were noted:

• DFP: Stakeholder Engagement;
• DFP: £18bn Long-Term Investment Strategy;
• DFP: Preparations for Budget 2011-2015;
• DFP: Press release "Analysis of Sickness Absence in the Northern Ireland Departments 2009/2010";
• DFP: Press release "Wilson Concerned about Sickness Absence in Civil Service";

7. Committee Work Programme

DFP – Corporate HR Evidence Session

The Committee considered correspondence from DFP regarding the evidence session scheduled for next week on strategic Human Resource issues, including Northern Ireland Civil Service (NICS) Sickness Absence.

Agreed: that the evidence session be rescheduled at the earliest opportunity and that DFP officials be asked to also update the Committee on the recently reported shortfall in NICS pensions.

[EXTRACT]

Wednesday, 8 December 2010
Room 30, Parliament Buildings

Present: Ms Jennifer McCann MLA (Chairperson)
Mr David McNarry MLA (Deputy Chairperson)
Dr Stephen Farry MLA
Mr Paul Frew MLA
Mr Paul Girvan MLA
Mr Daithí McKay MLA
Mr Mitchel McLaughlin MLA
Mr Declan O'Loan MLA

In Attendance: Mr Shane McAteer (Assembly Clerk)
Miss Karen Jardine (Assistant Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mr Jim Nulty (Clerical Supervisor) 
Mr Dominic O'Farrell (Clerical Officer)
Mr Gareth Brown (Bursary Student)
Mr Colin Pidgeon (Assembly Research)

Apologies: Mr Simon Hamilton MLA
Mr Adrian McQuillan MLA
Ms Dawn Purvis MLA

10.22am The meeting commenced in open session.

7. Correspondence

The following items of correspondence were noted:

• DFP: Budget and Spending Review.
• DFP: Response to CBI Report "Time for Action".
• DFP: NIAO Checklist Follow-up.
• DFP: Accommodation Efficiencies.
• DFP: Dormant Accounts Query.

[EXTRACT]

Wednesday, 15 December 2010
Room 30, Parliament Buildings

Present: Ms Jennifer McCann MLA (Chairperson)
Mr David McNarry MLA (Deputy Chairperson)
Dr Stephen Farry MLA
Mr Paul Frew MLA
Mr Paul Girvan MLA
Mr Adrian McQuillan MLA
Mr Declan O'Loan MLA
Ms Dawn Purvis MLA

In Attendance: Mr Shane McAteer (Assembly Clerk)
Miss Karen Jardine (Assistant Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mr Jim Nulty (Clerical Supervisor) 
Mr Dominic O'Farrell (Clerical Officer)

Apologies: Mr Mitchel McLaughlin MLA
Mr Simon Hamilton MLA

10.11am The meeting commenced in open session.

3. Matters Arising

Draft Budget

Members noted that the Minister of Finance and Personnel was expected to make a statement on the Draft Budget during today's plenary session.

Agreed: that the Secretariat will issue a commissioning note to the other statutory committees once a formal announcement on the Draft Budget has been made, allowing them as much time as possible to scrutinise their departments' budget proposals, while taking into consideration the stages that this Committee must undertake in preparing a co-ordinated report on the Draft Budget by the Executive's deadline.

Agreed: that the draft motion for the "take note" debate on the draft Budget is laid in the Business Office noting that the requested date may be subject to change, depending on the consultation period for the Draft Budget.

10.13am Dr Farry joined the meeting.

Agreed: that the Finance Minister is invited to brief the Committee soon after recess on the Draft Budget, and again, before the end of the budgetary process.

Agreed: to invite the economists, who have given evidence to the Committee on the outcome of the Spending Review 2010 and Budget 2011-15, to provide a written update on any relevant issues once the Draft Budget is published.

Resource DEL: Administrative Cost Controls

Members noted an Assembly Research paper on Resource DEL: Administrative Cost Controls which had been presented at last week's meeting.

Agreed: to request DFP to provide the breakdown data on administrative and programme expenditure referred to in the research paper.

Agreed: to copy the research paper to the other statutory committees suggesting that they may wish to request the same type of information from their departments as part of their budget scrutiny.

5. DFP Progress on PSA & Business Targets: DFP Evidence Session

Members held an evidence session with the following DFP officials: Mr David Orr, Corporate Services Director, Corporate Services Group and Dr Norman Caven, Chief Executive and Registrar General, Northern Ireland Statistics and Research Agency (NISRA).

Members noted correspondence from the Department explaining that Mr Richard Pengally, Public Spending Director, Central Finance Group was unable to attend today's evidence session due to other work commitments.

10.20am Mr Girvan joined the meeting.

10.27am Dr Farry left the meeting.

Agreed: that any issues outstanding from the evidence session will be followed up in writing.

Members agreed to take agenda item 8 next.

6. Correspondence

The following items of correspondence were noted:

• DFP: Industrial Derating – Recycling of Manufacturing Rates Revenue

Agreed: to write encouraging DFP to undertake further exploration of the issue, in particular the proposal for a manufacturing skills levy, and liaise with the Department for Employment and Learning and the Department of Enterprise, Trade and Investment.

Agreed: to copy the DFP correspondence to the Committee for Employment and Learning and the Committee for Enterprise, Trade and Investment for information.

Agreed: that Secretariat staff will give consideration to the most appropriate approach for examining the issues surrounding State Aid and report back to the Committee.

• Stakeholder Engagement:
• Committee for Agriculture and Rural Development;
• Committee for Regional Development;
• COFMDFM;
• Committee for Culture, Arts and Leisure;
• Committee for Health, Social Services and Public Safety; and
• Committee for Social Development.
• DFP: Presbyterian Mutual Society Assistance Package;

Agreed: to copy the correspondence to the Committee for Enterprise, Trade and Investment for information

• DFP: Liaison with Economists;

Agreed: to forward the correspondence to the economists that raised this issue, offering them an opportunity to respond.

[Extract]

Wednesday, 12 January 2011
Senate Chamber, Parliament Buildings

Present: Ms Jennifer McCann MLA (Chairperson)
Mr David McNarry MLA (Deputy Chairperson)
Dr Stephen Farry MLA
Mr Paul Frew MLA
Mr Daithi McKay MLA
Mr Declan O'Loan MLA
Ms Dawn Purvis MLA
Mr Mitchel McLaughlin MLA
Mr Simon Hamilton MLA

In Attendance: Mr Shane McAteer (Assembly Clerk)
Miss Karen Jardine (Assistant Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mr Jim Nulty (Clerical Supervisor) 
Mr Dominic O'Farrell (Clerical Officer)
Mr Gareth Brown (Bursary Student)
Mr Colin Pidgeon (Assembly Research)

10.07am The meeting commenced in open session.

3. Matters Arising

Presbyterian Mutual Society

Agreed: to request an oral evidence session on the Presbyterian Mutual Society rescue plan, in view of the financial aspects that have been included in the Draft Budget 2011-15.

4. Draft Budget 2011-15 – Assembly Research Briefing

The Committee received a briefing from Assembly Research on the Draft Budget 2011-15 briefing note.

10.39am Mr Hamilton left the meeting.

Members noted that the Minister of Finance and Personnel quoted incorrect figures to the House when comparing the proposed budget for the Department of Health, Social Services and Public Safety to its counterparts in the other devolved administrations.

Agreed: to draw this matter to the attention of the Speaker, noting that the Committee expects that the necessary steps for the Minister to correct this error will be expedited.

11.00am Mr Hamilton returned to the meeting.

Agreed: to forward the Research briefing note to DFP for comment and specific response to six of the key points highlighted in the paper. Given its cross-cutting nature, the paper will also be forward to the other Assembly statutory committees, the Assembly Commission and the Assembly Audit Committee for information.

Members noted that the Executive's Draft Budget 2011-15 imposed spending reductions on the NI Assembly itself and on the NI Audit Office which are in excess of the reductions faced by Executive departments and comparable bodies in Scotland and Wales. Concerns were raised around the basis for these proposed spending reductions and the implications for both of the bodies, which provide constitutional/statutory checks and balances to the Executive.

Agreed: to seek the views of the Assembly Commission and the Assembly Audit Committee on the draft budgets of the NI Assembly and the NI Audit Office respectively. This evidence will be incorporated in the Committee's co-ordinated report on the Draft Budget 2011-15.

11.03am Mr McNarry left the meeting.

5. Draft Budget 2011-15: Strategic Issues - Evidence Session

Members held an evidence session with the following DFP officials: Michael Brennan, Head of Central Expenditure Division, Central Finance Group (CFG); Joanne McBurney, Central Expenditure Division, CFG; and Jeff McGuinness, CFG.

11.13am Mr Frew left the meeting.

11.21am Mr McNarry returned to the meeting.

11.21am Mr Frew returned to the meeting.

11.47am Mr O'Loan left the meeting.

11.47am Mr McLaughlin left the meeting.

11.51am Mr McLaughlin returned to the meeting.

11.51am Mr O'Loan returned to the meeting.

Agreed: the DFP officials will provide further information to the Committee as requested during the evidence session.

The Committee noted correspondence from the Irish Congress of Trade Unions (NI Committee) regarding the Draft Budget 2011-15 consultation.

The Committee noted correspondence from the Minister advising that he would not be available to brief the Committee on either 12 January or 19 January as requested, or any Wednesday thereafter.

Agreed: to request clarification from the Minister on the reasons why he is unable to attend any of the Committee's normal weekly Wednesday meetings to discuss important issues.

The Committee noted concerns raised in correspondence from the Committee for Regional Development with regard to the timetable for scrutinising the Draft Budget 2011-15. The Committee also discussed a Secretariat paper outlining options for timetabling the scrutiny of the Draft Budget.

12.15pm Mr Frew left the meeting.

12.24pm Mr Frew returned to the meeting.

Agreed: to move the deadline for returns from the other Assembly committees to 27 January to offer more time for each committee to scrutinise the draft budget of its department. Submissions received after this date and before the closing date of the Executive's consultation will be appended to the Committee's coordinated report on the Draft Budget.

Agreed: that the preferred dates for the "take note" debate on the Draft Budget are Monday 31 January or Tuesday 1 February, subject to the Business Committee's agreement.

Agreed: the Committee will endeavour to complete the co-ordinated report by the closing date of the Executive's consultation, while recognising that an additional week may be needed to finalise the report.

Agreed: to record Mr McNarry's dissent in respect of the Committee's decisions on how to proceed with the timetabling for scrutiny of the Draft Budget 2011-15.

Agreed: to respond to the Committee for Regional Development outlining the decisions taken by the Committee.

12.54pm Mr McNarry left the meeting

8. Corporate HR issues including NICS Absenteeism, Equal Pay and Pensions

The Committee took evidence from the following DFP officials: Derek Baker, Director of Personnel for the NICS and Mark Bailey, Pay and Grading Review Team.

2.43pm Mr O'Loan left the meeting.

3.05pm Ms Purvis left the meeting.

Agreed: to forward issues regarding absenteeism to DFP for written response, and to request an update with regard to the Senior Civil Service pay review.

9. Correspondence

The following items of correspondence were noted:

• DFP: End of Year Flexibility.

Agreed: to forward the correspondence to the Committee for Justice.

• DFP: Departmental Spending and Savings Proposals.
• DFP: Efficiency Delivery Plan 2008 – 11.
• DFP: Follow up to PSA and Business Targets Session.
• Committee for Education: Stakeholder Engagement
• Robert Skidelsky and Felix Martin: NYRB Essay Plan for a National Investment Bank

[Extract]

Wednesday, 19 January 2011
Senate Chamber, Parliament Buildings

Present: Ms Jennifer McCann MLA (Chairperson)
Mr David McNarry MLA (Deputy Chairperson)
Dr Stephen Farry MLA
Mr Paul Frew MLA
Mr Paul Girvan MLA
Mr Simon Hamilton MLA
Mr Daithi McKay MLA
Mr Mitchel McLaughlin MLA
Mr Declan O'Loan MLA
Ms Dawn Purvis MLA

In Attendance: Mr Shane McAteer (Assembly Clerk)
Miss Karen Jardine (Assistant Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mr Jim Nulty (Clerical Supervisor) 
Mr Dominic O'Farrell (Clerical Officer)
Mr Gareth Brown (Bursary Student)

10.18am The meeting commenced in open session.

3. Matters Arising

Draft Budget 2011-2015

Agreed: to request that the Business Committee considers allocating three hours to the "take note" debate on the Draft Budget 2011-2015, scheduled for Monday 31 January 2011.

Agreed: to keep open the possibility of tabling a motion to debate the Committee's co-ordinated report on the Draft Budget. The Committee will reconsider this option following receipt of responses from the other statutory committees and taking account of the themes emerging from the Committee's report.

Agreed: to invite the Minister to brief the Committee on the Draft Budget at one of its scheduled Wednesday meetings which is mutually convenient.

4. Update on the Presbyterian Mutual Society (PMS) Rescue Plan

The Committee held an evidence session with Mr Bill Pauley, Head of Strategic Policy Division, Central Finance Group, DFP. The evidence session was recorded by Hansard.

10.30am Mr Hamilton left the meeting.

10.34am Mr Hamilton returned to the meeting.

10.55am Mr McNarry joined the meeting.

11.20am Mr Frew left the meeting.

11.22am Ms Purvis left the meeting.

11.27am Mr Girvan left the meeting.

11.35am Mr Frew returned to the meeting.

11.42am Ms Purvis returned to the meeting.

11.42am Mr McKay joined the meeting.

11.46am Dr Farry joined the meeting.

Agreed: that the DFP official will provide further information as requested by the Committee.

Agreed: to provide the Committee for Enterprise, Trade and Investment (CETI) with a copy of the DFP briefing paper on the PMS Rescue Plan and to request that CETI shares information that it receives from the Department of Enterprise, Trade and Investment (DETI) on this matter.

6. Preventative Spending – Assembly Research Briefing

Members received a briefing from QUB Bursary Student, Gareth Brown, on preventative spending.

12.15pm Mr McNarry returned to the meeting.

12.16pm Mr O'Loan returned to the meeting.

12.17pm Mr O'Loan left the meeting.

12.20pm Mr O'Loan returned to the meeting.

Agreed: to copy the research paper to the other statutory committees, suggesting that they may wish to take the issues raised into account in their separate considerations of the Draft Budget 2011-2015 as appropriate; and to include the research paper in the evidence base for the Committee's co-ordinated report on the Draft Budget 2011-2015.

12.25pm The meeting was suspended.

12.47pm The meeting resumed with Ms McCann, Dr Farry, Mr Frew, Mr Hamilton and Mr O'Loan present.

11. Correspondence

The following items of correspondence were noted:

• Derry City Council: Comprehensive Spending Review;

Agreed: to forward the correspondence to DFP; and to advise Derry City Council accordingly.

• DFP: Monitoring of Departmental Efficiency Delivery Plans;

Agreed: to copy the correspondence to the other statutory committees for information.

• DFP: Savings Options;
• CETI: Skills, Training and Reinvestment;
• Northern Ireland Office Press Statement: End Year Funding;
• Public Accounts Committee: NI Audit Office Efficiency Savings;

Agreed: to forward the correspondence to the DFP Minister highlighting the operational independence of the NI Audit Office, as detailed in the research paper presented at last week's meeting; and to include the correspondence in the background papers for the Committee's report on the Draft Budget 2011-2015.

12. Committee Work Programme

Members considered a secretariat paper relating to the planned evidence session with DFP officials on Government Accommodation Efficiencies on 26 January 2011.

Agreed: that, given the Committee's heavy workload, the issues identified will be forwarded to DFP for a written response in lieu of the scheduled evidence session.

[EXTRACT]

Wednesday, 26 January 2011
Room 30, Parliament Buildings

Present: Mr Daithí McKay MLA (Chairperson)
Mr David McNarry MLA (Deputy Chairperson)
Dr Stephen Farry MLA
Mr Paul Frew MLA
Mr Paul Girvan MLA
Mr Simon Hamilton MLA
Mr Mitchel McLaughlin MLA
Mr Adrian McQuillan MLA
Mr Declan O'Loan MLA

In Attendance: Mr Shane McAteer (Assembly Clerk)
Miss Karen Jardine (Assistant Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mr Jim Nulty (Clerical Supervisor) 
Mr Dominic O'Farrell (Clerical Officer)
Mr Gareth Brown (Bursary Student)

Apologies: Ms Jennifer McCann MLA
Ms Dawn Purvis MLA

10.10am The meeting commenced in open session.

3. Matters Arising

Take Note Debate on Executive's Draft Budget 2011-15

Members noted that the Business Committee has allowed up to three hours for the Committee's "take note" debate on the Draft Budget 2011-15 on Monday 31 January 2011.

10.11am Mr McQuillan joined the meeting.

4. Departmental Draft Budget 2011-15 and Business Plan 2011-12: DFP Evidence Session

The Committee held an evidence session with the following DFP officials: David Orr, Corporate Services Director, Corporate Services Group (CSG); Deborah McNeilly, Finance Director, CSG; Colm Doran, Head of Business Planning and Corporate Governance, CSG; and Brigitte Worth, Finance Division, CSG. The evidence session was recorded by Hansard.

10.14am Mr McNarry joined the meeting.

10.17am Mr Frew joined the meeting.

10.29am Dr Farry left the meeting.

10.47am Mr McNarry left the meeting.

10.53am Mr McNarry returned to the meeting.

10.54am Dr Farry returned to the meeting.

Agreed: that the DFP officials will provide further information to the Committee as requested during the evidence session. The Committee will also forward additional issues not covered during the evidence session to DFP for written response.

5. Draft Budget 2011-15 – NI Assembly Commission Evidence Session

The Committee took evidence from Trevor Reaney, Clerk to the NI Assembly/Director General, on the Draft Budget 2011-15 allocation for the NI Assembly. The evidence session was recorded by Hansard.

11.26am Mr Hamilton left the meeting.

11.47am Mr Girvan left the meeting.

12.00pm Dr Farry left the meeting.

Agreed: to write to the Minister of Finance and Personnel to register the Committee's serious concern at the implications of the proposed allocation in the Executive's Draft Budget 2011-15 for the effective functioning of the Assembly. The Committee's concerns will also be reflected in both the Chairperson's contribution to the "take note" debate on Monday 31 January and the Committee's forthcoming co-ordinated report on the Executive's Draft Budget 2011-15.

Agreed: that, as part of its Third Budget Scrutiny Inquiry Report, the Committee will examine the arrangements for setting future Assembly budgets, in the context of good practice elsewhere in terms of ensuring the independence of the legislature.

12.12pm Mr McNarry left the meeting.

7. Annually Managed Expenditure- Assembly Research Briefing

Members received a briefing from Assembly Research on the economic implications of the cuts to Annually Managed Expenditure.

12.16pm Dr Farry returned to the meeting.

12.22pm Mr McNarry returned to the meeting.

Agreed: that the Researcher will provide additional information to the Committee as requested.

Agreed: to copy the paper to the Department for Social Development via the Committee for Social Development.

8. Draft Budget 2011-2015: Consideration of Responses

The Committee noted the responses received to date from other Assembly statutory committees and stakeholders regarding the Executive's Draft Budget 2011-2015. The Committee also noted two responses regarding DFP's liaison with economists.

10. Correspondence

The following items of correspondence were noted:

• Construction Employers Federation: Alternative Finance Report.

12.55pm Dr Farry left the meeting.

• DFP: Administrative Cost Controls.
• Committee for Social Development: Response to CBI report "Time for Action".
• DFP: Draft Budget Strategic Issues Follow-up.
• CETI: Consultation on the NI Executive's Economic Strategy – Priorities for Sustainable Growth.

Agreed: to respond to CETI stating that, given current work commitments, the Committee is not in a position to give a considered reply to the consultation but would like to receive a copy of the analysis of responses received by DETI.

11. Committee Work Programme

Members considered a draft of the Committee work programme and noted that it will be necessary to hold a longer meeting on 2 February 2011 in the Senate Chamber.

The Committee noted that the Minister will attend the meeting on 9 February to discuss the Draft Budget 2011-15.

Agreed: to invite the Minister to also attend a further Committee meeting, possibly on 9 March, to discuss the Committee's co-ordinated report on the Draft Budget 2011-15, in advance of the Executive finalising the Draft Budget.

Members noted that the issue of a reduced rate of Corporation Tax was raised with the Minister of Enterprise, Trade and Investment (ETI) during Question Time on Monday 17 January 2011. The ETI Minister indicated that a draft version of the UK Government's consultation paper on rebalancing the economy was received by the Executive on 16 December 2010.

Agreed: to request an update from the Minister of Finance and Personnel on his ongoing involvement in the discussion about reducing the rate of Corporation Tax; and to ask if the Minister will share the paper on rebalancing the economy with the Committee, to help inform the Committee's co-ordinated report on the Draft Budget 2011-15.

[EXTRACT]

Wednesday, 2 February 2011
Room 30, Parliament Buildings

Present: Mr Daithí McKay MLA (Chairperson)
Dr Stephen Farry MLA
Mr Paul Frew MLA
Mr Paul Girvan MLA
Mr Mitchel McLaughlin MLA
Mr Declan O'Loan MLA
Ms Dawn Purvis MLA

In Attendance: Mr Shane McAteer (Assembly Clerk)
Miss Karen Jardine (Assistant Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mr Jim Nulty (Clerical Supervisor) 
Mr Dominic O'Farrell (Clerical Officer)
Mr Gareth Brown (Bursary Student)

Apologies: Ms Jennifer McCann MLA
Mr David McNarry MLA (Deputy Chairperson)
Mr Adrian McQuillan MLA

10.14am The meeting commenced in open session.

3. Matters Arising

DFP: Response to Budget Research Paper

The Committee noted a reply from DFP regarding the Assembly research paper on the draft Budget 2011-15.

Agreed: to commission a paper from Assembly Research which could examine the Scottish and Welsh models with regards to the independence in which these legislatures set their budget, and any other legislatures as appropriate, to inform the Committee's Inquiry Report.

8. Correspondence

The following items of correspondence were noted:

• DFP: Banking Issues Response;

Agreed: to copy the response to the Churches group and the Committee for Enterprise, Trade and Investment; and to include the correspondence in the evidence base for the Committee's co-ordinated report on the draft Budget 2011-2015.

• DFP: Accommodation Efficiencies;
• PMS Savers Lobby Group NI & ROI: Presbyterian Mutual Society in Administration since 17 November 2008.

Agreed: to include the correspondence in the evidence base for the Committee's co-ordinated report on the draft Budget 2011-2015.

10. Draft Budget 2011-2015: Strategic issues – DFP Evidence Session

The Committee took evidence from the following DFP officials: Mr Michael Brennan, Head of Central Expenditure Division, Central Finance Group (CFG) and Mr Jeff McGuinness, Central Expenditure Division, CFG.

12.39pm Dr Farry left the meeting.

12.45pm Ms Purvis left the meeting.

12.49pm Ms Purvis returned to the meeting.

Agreed: that the officials will provide further information as requested by the Committee.

12. Draft Budget 2011-2015 – Consideration of initial working draft report

The Committee considered a proposed structure for the Committees report on Draft Budget 2011-2015; and a draft Committee response to the DFP draft spending and savings plans for 2011-2015.

1.08pm Mr O'Loan left the meeting.

Agreed: that the secretariat will take account of members' comments in preparing a draft of the report for consideration next week.

[Extract]

Wednesday, 9 February 2011
Senate Chamber, Parliament Buildings

Present: Mr Daithí McKay MLA (Chairperson)
Mr David McNarry MLA (Deputy Chairperson)
Dr Stephen Farry MLA
Mr Paul Frew MLA
Mr Paul Girvan MLA
Mr Simon Hamilton MLA
Mr Mitchel McLaughlin MLA
Mr Declan O'Loan MLA
Ms Dawn Purvis MLA

In Attendance: Mr Shane McAteer (Assembly Clerk)
Miss Karen Jardine (Assistant Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mr Jim Nulty (Clerical Supervisor) 
Mr Dominic O'Farrell (Clerical Officer)
Mr Gareth Brown (Bursary Student)

Apologies: Ms Jennifer McCann MLA
Mr Adrian McQuillan MLA

10.10am The meeting commenced in open session.

3. Matters Arising

Composite Request

The Committee noted the composite request for information from the Department of Finance and Personnel (DFP) which provided an update on any matters arising not covered elsewhere on the agenda.

Agreed: that, in line with convention, the working draft of the Committee's Report on the Executive's Draft Budget 2011-15 will be considered in closed session.

10:11am The meeting moved into closed session.

4. Executive's Draft Budget 2011-15 – Consideration of Working Draft Report

The Committee considered the first working draft of its Report on the Executive's Draft Budget 2011-15.

10.14am Mr Hamilton joined the meeting.

Agreed: members will forward any comments or suggested amendments to the draft report to the Committee secretariat by 12.00pm on Friday 11 February 2010.

10.17am Mr Frew joined the meeting.

5. Executive's Draft Budget 2011-15 – Ministerial Briefing

The Committee took evidence from the Minister of Finance and Personnel and Michael Brennan, Head of Central Expenditure Division, Central Finance Group (CFG), DFP on the Executive's Draft Budget 2011-15.

11.50am Ms Purvis left the meeting.

11.53am Ms Purvis returned to the meeting.

12.17pm Mr McNarry left the meeting.

12.20pm Mr Frew left the meeting.

12.24pm Mr O'Loan left the meeting.

12.31pm Mr McNarry returned to the meeting.

12.31pm The Chairperson left the meeting.

12.31pm The Deputy Chairperson took the Chair.

12.40pm Ms Purvis left the meeting.

Agreed: that the DFP officials will provide any further information that may be requested by the Committee.

12.41pm Mr Hamilton left the meeting.

12.42pm The Chairperson returned to the meeting and took the Chair.

8. Correspondence

The following items of correspondence were noted:

• DFP: Presbyterian Mutual Society (PMS) Response;

Agreed: to request details of the Administrator's risk assessment and business plan from the Department of Enterprise, Trade and Investment via the Committee for Enterprise, Trade and Investment (CETI). The Committee will also request further clarification on the details of a schedule for repayments for PMS savers.

Agreed: to request clarification from DFP on the status of HM Treasury's £25 million contribution to the mutual access fund.

• DFP: Response to Committee on December Monitoring;
• DFP: Industrial Derating – Recycling of Manufacturing Rates Revenue;

The Committee also noted that the following routine correspondence had been emailed to members prior to the meeting:

• Response from the Minister of Finance and Personnel regarding the creation of a Credit Review Office in Northern Ireland; and

[Extract]

Wednesday, 16 February 2011
Room 29, Parliament Buildings (Unapproved)

Present: Mr Daithí McKay MLA (Chairperson)
Dr Stephen Farry MLA
Mr Paul Frew MLA
Mr Simon Hamilton MLA
Mr Mitchel McLaughlin MLA
Mr Declan O'Loan MLA
Ms Dawn Purvis MLA

In Attendance: Mr Shane McAteer (Assembly Clerk)
Miss Karen Jardine (Assistant Assembly Clerk)
Mrs Kathy O'Hanlon (Assistant Assembly Clerk)
Mr Jim Nulty (Clerical Supervisor) 
Mr Dominic O'Farrell (Clerical Officer)
Mr Gareth Brown (Bursary Student)

Apologies: Ms Jennifer McCann MLA
Mr Adrian McQuillan MLA

10.50am The meeting commenced in open session.

11.08am Dr Farry left the meeting.

11.08am The Committee moved into closed session.

5. Executive's Draft Budget 2011-15 – Consideration of Working Draft Report

The Committee undertook paragraph-by-paragraph consideration of its draft Report on the Draft Budget 2011-15.

Agreed: that paragraphs 1 – 11 stand part of the Report;

Agreed: that paragraph 12 stands part of the Report;

Agreed: that paragraphs 13-18, as amended, stand part of the Report;

Agreed: that paragraphs 19 stands part of the Report;

Agreed: that paragraphs 20-21 stand part of the Report;

Agreed: that paragraphs 22-24 stand part of the Report;

Agreed: that paragraphs 25-30 stand part of the Report;

Agreed: that paragraphs 31-32, as amended, stand part of the Report;

Agreed: that paragraphs 35-41 stand part of the Report;

Agreed: that paragraphs 42-47 stand part of the Report;

Agreed: that paragraphs 48-54 stand part of the Report;

Agreed: that paragraphs 55-58 stand part of the Report;

Agreed: that paragraphs 59-62 stand part of the Report;

Agreed: that paragraphs 63-66 stand part of the Report;

Agreed: that paragraphs 67-70 stand part of the Report;

Agreed: that paragraphs 71-72 stand part of the Report;

Agreed: that paragraphs 73-75 stand part of the Report;

Agreed: that paragraphs 76-84 stand part of the Report;

Agreed: that paragraphs 85-90 stand part of the Report;

Agreed: that paragraphs 91-98 stand part of the Report;

Agreed: that paragraphs 99-101 stand part of the Report;

Agreed: that paragraphs 102-107 stand part of the Report;

Agreed: that paragraphs 108-112 stand part of the Report;

Agreed: that paragraphs 113-119 stand part of the Report;

Agreed: that paragraphs 120-123 stand part of the Report;

Agreed: that paragraphs 124-127 stand part of the Report;

Agreed: that paragraphs 128-134 stand part of the Report;

Agreed: that paragraphs 135-141 stand part of the Report;

Agreed: that paragraphs 142-143 stand part of the Report;

Agreed: that paragraphs 144-147 stand part of the Report;

Agreed: that paragraphs 148-152 stand part of the Report;

Agreed: that paragraphs 153-156 stand part of the Report;

Agreed: that paragraphs 157-160 stand part of the Report;

Agreed: that paragraphs 161-166 stand part of the Report;

Agreed: that paragraphs 167-178 stand part of the Report;

Agreed: that paragraphs 179-186 stand part of the Report;

Agreed: that paragraphs 187-198 stand part of the Report;

Agreed: that paragraphs 199-208 stand part of the Report;

Agreed: that paragraphs 209-234 stand part of the Report;

Agreed: that paragraphs 235-252 stand part of the Report;

Agreed: that paragraphs 253-261, as amended, stand part of the Report;

Agreed: that paragraphs 262-271 stand part of the Report;

Agreed: that paragraphs 272-274 stand part of the Report;

Agreed: that paragraphs 275-278 stand part of the Report;

Agreed: that paragraphs 279-285 stand part of the Report;

Agreed: that paragraphs 286-289 stand part of the Report;

Agreed: that paragraphs 290-292 stand part of the Report;

Agreed: that paragraphs 293-406 stand part of the Report;

Agreed: that paragraphs 407-429 stand part of the Report;

Agreed: that paragraphs 430-600 stand part of the Report;

Agreed: that the draft Executive Summary stands part of the Report;

Agreed: that the Appendices stand part of the Report;

Agreed: that the extract of the unapproved Minutes of Proceedings of today's meeting is checked by the Chairperson and included in Appendix 1;

Agreed: that the Report, as amended, be the Third Report of the Committee for Finance and Personnel to the Assembly for session 2010/11;

Agreed: that the Committee's Report on the Draft Budget 2011-15 be printed.

Members were advised that the report will be issued to all MLAs once published.

Agreed: that a copy of the Report be submitted to all relevant Assembly Committees, to the chairpersons' Liaison Group and to those that provided written and oral evidence.

11.33am The Committee moved into open session.

[Extract]

Appendix 2

Minutes of Evidence

30 June 2010

Members present for all or part of the proceedings:

Ms Jennifer McCann (Chairperson)
Mr Simon Hamilton
Mr Fra McCann
Mr Mitchel McLaughlin
Mr Adrian McQuillan
Mr Declan O'Loan
Ms Dawn Purvis

Witnesses:

1. The Chairperson (Ms J McCann): I welcome Michael Brennan, Joanne McBurney and Deborah McNeilly. If you make a few opening remarks, we will then go into questions. I am conscious that members are floating back and forward and that we might lose the quorum.

2. Mr Michael Brennan (Department of Finance and Personnel): I will begin by making a few opening comments on the provisional out-turn, the UK Budget of 22 June and the Northern Ireland 2010 Budget position. I will be very brief.

3. In relation to provisional out-turn, the underspend position performance this year was actually quite good. For the Northern Ireland Departments, the underspend was 0·7% on the current side and 0·5% on the capital side. The current performance for 2009-2010 was slightly worse than in 2008-09, when it was scored at 0·5%. There was considerable variation between Departments. For example, on the current side, the two extremes were 0·1% underspend for the Department of Health, Social Services and Public Safety (DHSSPS) and 3·4% for the Department of Finance and Personnel (DFP). On the capital side, the Department for Regional Development (DRD) was right on the mark at 0%, whereas the Office of the First Minister and deputy First Minister (OFMDFM) had an underspend of 9·1%.

4. There were three departmental overspends: OFMDFM overspent by £1·1 million on its admin control; the Department of Agriculture and Rural Development (DARD) overspent by £1·2 million on non-cash areas; and DHSSPS had two overspends, 0·5% on capital and £25·9 million on near cash. That is a quick summary of the provisional out-turn.

5. I will move on to the UK Budget that was announced on 22 June. The Chancellor's announcement will result in a fall in public sector net borrowing from 10·1% of GDP in 2010-11 to 1·1% in 2015-16. The Budget made clear that the vast majority of reductions will be made through public spending cuts — 77% will be made through spending cuts and 23% through tax increases, the most obvious of which is the increase in VAT by 2·5%.

6. The Chancellor also confirmed that the spending review announcement, which we are all awaiting, will be made on 20 October. The 22 June Budget also contained revised forecasts for public expenditure and showed that, on the current expenditure side, the departmental expenditure limit will fall by 0·4% in cash terms, and the capital departmental expenditure limit will fall by 6·9% in cash terms. That shows a considerable tightening over the previous Labour Government's March Budget position. For example, the new coalition Government will take an extra £15·5 billion out on the current expenditure side and an extra £1·6 billion on the capital side. However, there is a stated commitment to protect Health, Education and the Ministry of Defence.

7. The 22 June Budget also confirmed that the £6·2 billion cuts will be baseline cuts. Therefore, the Northern Ireland percentage, £127 million, to be addressed in 2010-11, will be a baseline cut going into the spending review.

8. To prepare for Northern Ireland's 2010 Budget, on 10 June we sent a paper to the Executive for consideration. Our aim is to have a draft Budget paper available for consultation by early September. In the interim, there is a lot of work to be done, as the Committee will appreciate. Our Minister has initiated a pre-consultation exercise on the Budget process with all key stakeholder groups. That will run over the next few weeks, and we will meet individually with all the key stakeholders, set out our forecasts for the Budget period and invite them to put forward their ideas on how the Budget process should progress and on what its key priorities should be. Those meetings will take place over the next two or three weeks.

9. We have also written to Departments to ask them to produce savings delivery plans, in which Departments must set out how they will deliver savings on the basis of our forecasts for current and capital expenditure over the next four-year period. We have asked them to complete that by the end of July. In recent days, we have issued Departments with revised baseline positions that they should use to plan for their budget positions. The working assumption is that they should plan on the basis of a 5% cut to current expenditure, and their returns must set out how they will meet that cut.

10. The capital position is of grave concern. As we know, it is very tight in 2010-11. However, the revised UK Budget showed a considerable tightening on the capital departmental expenditure limit position in 2011-12. Therefore, the capital resources that will be available to the Executive in 2011-12 will be tighter than we thought previously.

11. Ms Purvis: I want to explore a couple of aspects of the Budget process with you. It is my understanding that Departments are now preparing their bids and linkages to public service agreements (PSAs) for the next Budget process. Have Assembly Committees been informed of that? Do Committees have a role in that? Does anyone else have a role in the Departments' preparation of bids?

12. Mr Brennan: In our guidance to Departments, we made it clear that our Minister's strong expectation is that they will engage with their respective Committees at the earliest opportunity. There will be a departmental finance directors' meeting on Friday morning, and one of the first issues that we have to press to the departmental finance directors is that there is a strong imperative for early engagement with Committees.

13. We in DFP are starting bilateral discussions with all the key stakeholders, including the trade unions, the business organisations and the Northern Ireland Council for Voluntary Action. However, it is in the interests of individual Departments, which know who the key stakeholders are within their departmental boundaries, to initiate a parallel consultation exercise from now forward.

14. Ms Purvis: The outcome of the spending review will be in October.

15. Mr Brennan: It will be on 20 October.

16. Ms Purvis: And the Barnett consequentials will not be available to us until slightly after that?

17. Mr Brennan: No. When the spending review is announced, we will get a spreadsheet from the Treasury that sets out our Barnett consequentials on the allocations to Whitehall Departments.

18. Ms Purvis: What impact will the outcome have on the draft Budget that you are preparing to publish in September and on the process?

19. Mr Brennan: We are constructing a draft Budget position based on our expectations and forecasts for current and capital. The forecast for current and capital that we produced in March turned out to be very accurate, based on the Office for Budget Responsibility report and as set out in the revised Treasury Budget documents on 22 June. We have given Departments what we think is a very realistic funding envelope to work within in shaping their bids, and that will be the basis for the September draft Budget. On 20 October, we will have the definitive funding envelope that has been set by the Treasury, and, obviously, we will then make revisions. My expectation at this point is that we are pretty close to the mark in terms of what will be available to us.

20. Ms Purvis: OK. According to the Budget timetable, the Minister will revise the proposals in early December. How long do you envisage the public consultation running for?

21. Mr Brennan: It will run from September until the beginning of December.

22. Ms Purvis: We are looking at the Budget inquiry and your recommendations. How will the consultation be considered? Will it be considered by departmental officials as well as Committees? How do you envisage it working? One of the Department's recommendations was for Assembly Committees to conduct the consultation. How do you envisage this happening in the absence of an agreed method? How do you envisage the consultation being conducted?

23. Mr Brennan: The onus is on individual Departments to engage directly with the relevant Committees to find out what the priorities are as regards Budget bids. That should feed directly into how each Minister shapes their Budget bid. That will then be relayed directly to the Finance Minister through the ministerial bilateral processes.

24. DFP will run a public consultation exercise. We will hold what are effectively roadshow events around Northern Ireland in which we set out how we envisage the Budget going forward. However, in many ways, the more important aspect of shaping Budgets is Departments taking the feedback from individual Committees in terms of what is important. The reason why I think that that is more important is that, when we get Executive sign-off on the final Budget stage, hopefully, every single Committee in the Assembly will have bought in and felt as though it participated in shaping that final Budget stage.

25. Ms Purvis: Judging by past experience, particularly around the revised spending plans at the beginning of the year, the biggest complaint from Committees was the lack of information coming forward from Departments. I assume that the Minister is going to impress upon other Ministers that there is a need for early and appropriate information going to Committees?

26. Mr Brennan: That was a key theme in the paper that the Minister presented to the Executive on 10 June. He stressed that to his Executive colleagues.

27. Mr O'Loan: Am I right in thinking that the £128 billion that we have lost for this year has still not been allocated? There was talk of deferring some of that into next year, but I must say that that prospect say does not appeal to me, given that the pressures are going to be even greater for next year. Where are we in relation to allocating the pain of that £128 billion?

28. Mr Brennan: The £128 million pressure that emerged from the —

29. Mr O'Loan: Sorry, I said £128 billion; £128 million is big enough.

30. Mr Brennan: Things are bad, but they are not that bad. [Laughter.]

31. We now have clarity from the Treasury on the £128 million pressure that emerged from the UK's £6·2 billion cut. The breakdown is £89 million current and £38 million capital. When our Minister presented his June monitoring paper to the Executive last week, one of the key issues was how to address that £128 million pressure. In his papers, the Minister pointed out the downside of deferring the issue to 2011-12. All that it is doing is building up the pain at the start of 2011-12. The Minister sought to address as much of that pressure as possible in the 2010-11 monitoring rounds. The Executive did not reach a definitive position in the June monitoring round, but our Minister put a paper to the Executive in the June monitoring round recommending addressing a lot, if not all, of the £128 million pressure through this year's in-year monitoring process.

32. Mr O'Loan: When we hear the Education Minister talking about the money that is available for schools and pleading for support and more money out of the monitoring round, it is pie in the sky, is it not, if £38 million is being taken out of the capital rather than any attempt being made to find it by cutting various programmes in Departments. There is no prospect of any extra money coming out of monitoring rounds if £128 million is missing, and we already have a projected overspend for the year.

33. Mr Brennan: Not for this year.

34. Mr O'Loan: Has that been removed?

35. Mr Brennan: That has gone. There was an overcommitment at the start of the year, but we took that out in the revised 2010-11 plan. As I said earlier, the capital position in 2010-11 is very bad, and the worry that we have now is that based on the 22 June UK Budget position, capital in 2011-12 for the UK is constrained at a much greater rate than we thought. Therefore, our latest assessment is that there is a shortfall of about £500 million in the 2011-12 capital from the ISNI 2 position. Therefore, capital is bad in 2010-11, but it gets worse in 2011-12.

36. Mr O'Loan: I come now to the provisional out-turn and the underspend, which you said was 0·7% on the revenue side and 0·5% on the capital side. Can you put millions to those percentages?

37. Mr Brennan: On the current side, it is £65 million, and, on the capital side, it is £8 million.

38. Mr O'Loan: Those are very substantial sums that we are losing. Over the years, there has been considerable improvement in the way that this has been handled, but, nonetheless, those are considerable sums. Even in percentages, they are crawling up towards 1%. We should not be satisfied with that. Can you play one Department off against another in relation to that? If there is an overspend in one area, can you monitor that through the year and recognise that that could be protected by an underspend somewhere else?

39. Mr Brennan: Every month, we monitor departmental performance against forecast. The figures that I gave you were on departmental performance, but we actually manage the overall block level as well. The Northern Ireland block level showed that the current underspend was lower — it was £61 million and on the current side it was £5·5 million. That was managing across Departments to get an overall block position.

40. Mr O'Loan: I thought that the previous figures were the overall block position.

41. Ms Joanne McBurney (Department of Finance and Personnel): That is the departmental position.

42. Mr Brennan: That is departmental.

43. Ms McBurney: It does not take account of any residual overcommitment, rates income or anything like that. If you look at the overall block position, you will see that it was slightly lower.

44. Mr O'Loan: There were bad underspend figures from DFP, which is not a very good example to set for other Departments. That means that there was money that should have been offered up in the final monitoring round. I remember that, in the February monitoring round, on the capital side, money was sloshing around that pretty much no Department could take up. There needs to be tighter management. However, I will get back to my point about DFP. I know that the global figures in DFP are not huge. Nonetheless, when the percentages are bad, it is not good.

45. Ms Deborah McNeilly (Department of Finance and Personnel): I appreciate that. In recent years, the Department has made improvements, but it has slipped back, with 2009-2010 proving particularly disappointing. My main concern is on the revenue side. We have had some significant issues with our non-cash this year, which accounted for just under half of the overall underspend. It is difficult to forecast non-cash and, in a couple of instances, there has been human error. I stress that that was not because a casual approach is taken to the monitoring of budgets. Budgets are monitored on a monthly basis at the departmental board and staff attend workshops and training to help them manage those budgets. However, overall, the position for DFP is very disappointing in the context of actions that we have taken and from which we still have not realised the gains that I would like to have seen. Obviously, we have more to do in those business areas in which we clearly fell below.

46. Mr O'Loan: What about the 2010 Budget process and the outlook for the next four years. Can I assume that we are going to be working on a four-year plan?

47. Mr Brennan: Yes. Normally, spending reviews are for three years. However, the 22 June position takes it out an extra year. We are expecting an announcement, on 20 October, that will have four-year data.

48. Mr O'Loan: What about Northern Ireland?

49. Mr Brennan: We are engaging with Departments.

50. Mr O'Loan: Across four years.

51. Mr Brennan: Yes.

52. Mr O'Loan: I had been wondering how on earth you were going to do any work ahead of 20 October. However, you talked about asking Departments to provide a savings delivery plan based on forecasts. Therefore, the initial work will be based on forecasts.

53. Mr Brennan: Yes.

54. Mr O'Loan: Can you share those forecasts with us or give us any indication, even in global terms, as to how much you are anticipating will be taken out of the departmental expenditure limit over the next four years? Can you come back to us with the detail of what you are saying to the Departments about forecasts?

55. Mr Brennan: As I have mentioned in previous Committee sessions, forecasts were constructed after the March Budget on the basis of flat cash growth on the current side — in other words, a real-terms 2·7% cut per annum over each of the four years — and, on the capital side, a 9% cut per annum. We reviewed those forecasts after the 22 June position and still think that they are accurate. Therefore, those are the forecasts that we are holding to.

56. Mr O'Loan: Can you quantify that?

57. Mr Brennan: In monetary terms, we will be looking, for example, to reduce the current Northern Ireland departmental expenditure limit by around £420 million.

58. Ms McBurney: In flat cash, it will be reduced by £168 million.

59. Mr Brennan: There are a number of other adjustments and pressures that bring it up to around £420 million.

60. Mr O'Loan: When?

61. Mr Brennan: In 2011-12.

62. Mr O'Loan: So you expect the revenue side of our departmental spending in 2011-12 to be £420 million less than current spending?

63. Mr Brennan: That is the parameter within which we have asked Departments to plan.

64. Mr O'Loan: What about the capital cut of 9%?

65. Mr Brennan: On the capital side, as you will appreciate, there are a number of underlying assumptions. However, there is a shortfall in capital of around £500 million.

66. Mr O'Loan: OK. Am I right to present that in respect of our total investment on the capital side last year, which was about £1·6 million? I am not sure what the intended capital spend is for this year. Do you have that figure, even in rough terms?

67. Ms McBurney: It was planned that the gross capital spend would be about £2 billion, but it will be slightly less than that because that did not take account of the shortfall in receipts from Crossnacreevy. We will not know the true figure until after the outcome of the first monitoring round, when Departments have had an opportunity to adjust their budgets.

68. Mr O'Loan: We are talking about a £500 million drop.

69. Mr Brennan: In 2011-12, based on a range of assumptions and what we expect in relation to receipt generation and things like that —

70. Mr O'Loan: That is a massive drop; it is something like a quarter or a third of capital spend. As you said, capital is a grave concern. You said that we have freedom to distribute our Barnett consequentials. For absolute clarity, do current and capital come to us as two separate amounts? Do we have the freedom to mix those?

71. Mr Brennan: We have freedom to move from resource into capital.

72. Ms McBurney: But we cannot move any money out of capital into current. It can only go one way.

73. Mr O'Loan: OK. In some ways, there could be a tendency to make savings based on capital. That is perhaps what the Westminster Government are doing, but we need to be very clear that the implications of that are every bit as serious as the implications for cutting revenue. If revenue is cut, one thinks immediately about cutting programmes and losing jobs. However, if capital programmes are cut, there will be immediate consequences for employment, particularly in the construction sector. The implications of that statement are huge. We all need to be very fearful of what is coming up.

74. Mr McLaughlin: The Department's pre-consultation briefing paper says that, effectively, there has been a 14·4% real-terms reduction, mainly as a result of inflation. No additional budgetary cover is provided for pay or price increases during that time. Has any impact from the recent equal pay settlement been factored into that figure? What is the anticipated impact on the Department's baseline going forward into the next Budget period?

75. Ms McNeilly: From a departmental perspective, equal pay has not been factored into that 14·4%; it was just taking the average of the 2·4% RPI. It would be higher if the two pay awards, including the equal pay settlement, were factored in. In the current year and going forward, the recurrent costs of equal pay for the Department are somewhere in the region of £3 million. That is an increased pressure for us, and we are trying to manage it along with the rest of the inflationary pressures that we face.

76. Mr McLaughlin: I understand why it was not taken into consideration once the settlement figure and the initial hit were factored in. Are you indicating that, going forward, it will still not be reflected in the baseline projections?

77. Ms McNeilly: We will probably reflect it as a pressure or a cost in the paper that we put to the Minister when we develop further our Budget 2010 expenditure proposals. In the current climate, I am not sure that we will get any funding for that pressure.

78. Mr McLaughlin: Assuming that there will be no change to the quantum of the settlement that is on the table, I should have thought that it would be possible, going into the new Budget period, to specify that as a recurring cost.

79. Ms McNeilly: Yes. We have done some preliminary work to identify the impact of pay and prices, having had no inflation and adding in the equal pay settlement. We have to approach the Minister to see whether he will support that in respect of the departmental position in Budget proposals. Certainly, however, we will highlight those costs and pressures to him in our paper.

80. Mr McLaughlin: Does that indicate any degree of uncertainty or flexibility over the quantum? There are a number of issues swirling around, and MLAs are getting lobbied all the time. Do you regard that as an issue on which you can move forward with some certainty or one that is subject to further variation?

81. Ms McNeilly: Based on our information for the equal pay award and the recurrent implications for the EO2, AO and AA grades and the actions and the work that have already been completed, our figure is around £3 million a year for additional costs. Therefore, there is a relative degree of certainty around that. I do not have a figure for any wider review of equal pay issues.

82. Mr McLaughlin: The Committee is more than aware of the difficulties that were faced by Land and Property Services (LPS) during 2008-2011, with the whole setup and a raft of rating reform measures that were introduced after the baseline for the agency had been put in place. Can you tell us what steps the Department is taking to put firm baselines in place for its various agencies and business areas to prevent similar difficulties?

83. Ms McNeilly: As part of the development of our expenditure proposals we will be highlighting that again in our formal submission to the Minister and to colleagues in central finance group, and it will be part of the negotiations as they go through the consultation exercises on the Budget when we look at the whole Northern Ireland block position. We will be highlighting that; it is one of the key issues for the Department in trying to get a firm baseline for LPS. The new rating policy on empty homes, which is to go live next year, is estimated to cost another £0·5 million. That will be something else that we will have to reflect on in looking at the exact requirement for LPS going forward, and it will be a key issue for us to highlight in our paper to the Minister.

84. Mr McLaughlin: Paragraph 7·10 of the briefing paper introduces an interesting scenario, which is the suggested possible cessation of "low priority services" that may be required to deliver further savings for the Department. Can you outline which of the Department's services are considered low priority?

85. Ms McNeilly: I would have difficulty with that. The departmental board had a workshop on 15 June. The board members had already been commissioned to look at the services that they were providing and identify areas where they could improve and areas where we could stop delivering, and there is not a lot. There are the statutory requirements, such a providing a statutory registry service; a range of other statutory duties, including rate collection and the reliefs, and the other requirements such as census; and the service delivery and Programme for Government. We have so many services now that we are delivering for other Departments. We cannot suddenly press a button and tell Departments that they are not getting their accounts serviced. It is very difficult for us to identify any large low-priority services that would deliver significant financial savings, but we are engaged in doing so. We had the first go at it on 15 June. The board has to come back to us, because it was challenged to go away and look again to see what else could be done. We would welcome any views from Committee members to help us out.

86. Mr McLaughlin: I would have been surprised if you had given me a direct answer to that. I am taking a fairly sympathetic view, because I do not think that we will get though this by keeping our heads in the sand. All Departments will have to identify various categories of service and expenditure, the whole issue of inescapables and what exactly that means, and commitments. Projects on the ground are explainable, as are contract obligations, salaries, etc. However, we need to be prepared to look at the inescapables, the range of commitments and the prioritisation of services. There are very serious challenges in managing the existing budget lines and limited options for creating additional revenues.

87. Ms McNeilly: With regard to the figures that were mentioned earlier, a 5% savings reduction would be around £10 million per annum for DFP. We would be hitting against an opening baseline of £182 million, and probably hitting somewhere near £40 million by the time we get to the fourth year.

88. Mr McLaughlin: At one level it is nearly philosophical. However, MLAs are suffering from a lack of information on the range of inescapables and commitments, the prioritisation and the ability to engage in discussions, but also the ability to take a collective approach. This could either be a battleground between the MLAs taking different perspectives, or people working together to try to come up with the best solutions to maintain the level of services and improve it if possible. There is a key issue there. In a sense, the guidance is for the Department itself, but I would argue strongly that it goes across every Department, and we should attempt to produce those definitions and allow people to assume ownership and responsibility for managing them.

89. The Chairperson: Thank you very much. We have no more questions. Is it OK if we write to you if any other issues come up?

90. Mr Brennan: Yes.

8 September 2010

Members present for all or part of the proceedings:

Ms Jennifer McCann (Chairperson)
Mr David McNarry (Deputy Chairperson)
Dr Stephen Farry
Mr Simon Hamilton
Mr Mitchel McLaughlin
Mr Declan O'Loan
Ms Dawn Purvis

Witnesses:

91. The Chairperson (Ms J McCann): I welcome Deborah McNeilly, finance director, and Adrian Doherty, from the finance division of the corporate services group. We are running a bit late today. I invite you to make a few opening remarks, after which I will open up the meeting for questions.

92. Ms Deborah McNeilly (Department of Finance and Personnel): I will make some comments on our Budget 2010 position and give a brief summary of the information that is set out in the paper that was forwarded to the Committee.

93. As you know, the Executive will not know the exact amount of funding that is available until the national spending review announcement in late October. In the interim, Departments have been asked to start planning. Departments have been required to formulate spending proposals and come up with indicative saving options. The paper that we provided sets out our current expenditure proposals for both resource and capital, as well as our direction of travel as regards the indicative saving options.

94. To inform the planning process, we have been asked to identify saving options that range from £7·8 million in 2011-12, rising to £28·2 million in the fourth year. That represents a significant challenge for the Department, given the nature of the services that we provide. We do not have many programmes; our only programme is EU expenditure, and there is not a significant amount of funding in that, because it is tailing off. The lion's share of our costs comes in providing services, largely to other Departments. Those include accommodation; shared services, such as ICT and accounting; legal services; and procurement. Reductions in those areas will inevitably have consequences or implications for other Departments. It is important that we seek to minimise those, and we have been trying to do that to meet customer need.

95. Equally, we have front line services, which are confined to Land and Property Services (LPS) and the General Register Office services in the Northern Ireland Statistics and Research Agency.

96. Our approach to savings has been to ask all our business areas to identify savings, which are then ranked according to priority. The front line services may have come up with savings, but we will have to take cognisance of any resulting difficulties, to minimise the front line impact. We are very conscious of that.

97. You will have seen in the paper the difficulties that we will face, given the historical reductions in the Budget, which amount to more than £30 million since Budget 2004, six years of no inflation and the nature of our expenditure, with some £90 million already contractually committed. The challenge facing the Department of Finance and Personnel (DFP) is significant, as I expect it is for all Departments.

98. Our resource expenditure proposals focus largely on the areas that were identified at in-year monitoring rounds, such as the census, accommodation and Land and Property Services. Our capital expenditure proposals focus on maintaining and enhancing service delivery levels.

99. By taking the approach that we have, we have challenged all business areas. We take a rigorous approach to prioritisation across the Department, and we continue to engage with our business areas as we go through the iterations of the process.

100. Mr McNarry: Thank you; you are very welcome to the Committee . We have been told that addition funding of £5·5 million per annum is required to maintain the ability of Land and Property Services to deliver on its current business obligations. We have been told that because LPS is now dealing with record levels of non-payment, which translates into increasing volumes of court cases and enforcement action and has resulted in a reduction in income streams. As a result, the Department says that it has had to rely heavily on in-year monitoring rounds to make up the shortfall in the agency's core budget. Amid the talk of efficiencies and management frailties in other Departments, what are the current outstanding arrears debts?

101. Ms McNeilly: The most recent figure that I have seen is that it was being confirmed at £136 million.

102. Mr McNarry: Yes, I thought that it was around that figure. Would it not be good management and productive to think more about reducing that debt, or am I being told that £5·5 million per annum is needed to reduce that debt but not being told by how much, because of the lamentable performance in bringing in arrears? Is it the case that the significant reduction of those arrears would bring in significant revenue? Has that been considered? You may tell me that it has been considered as it is obvious. However, I do not see any great steps being taken to buck that trend. If a business had £136 million of debt, it could not survive. If half of that figure could be brought in, that could go a long way to helping the situation facing all of the Executive's Departments.

103. Deborah, I know that you are presenting the report, but, not speaking for anyone else, I am very reluctant to support any calls for an extra £5·5 million when I see no great steps being taken to reduce £136 million of arrears. I find that to be a very difficult situation.

104. The bid for £5·5 million for LPS in the June monitoring round, which comprised £5 million to cover the shortfall in the agency's baseline and £500,000 in transitional rates relief, was not successful.

105. Ms McNeilly: I was looking at the Budget 2010 paper, which shows that the Department bid for £5·5 million. In the June monitoring round, £5 million was allocated to Land and Property Services on the basis that it would raise £10 million of additional rate income. The allocation for the transitional rates relief was not made, and it is in our September monitoring submission.

106. Mr McNarry: According to the information that I have, the September return includes only a bid of £600,000 for transitional rates. Why is that the case and why has it not been necessary to bid for the additional baseline funding on this occasion?

107. Ms McNeilly: At June monitoring we identified the pressure for £5·6 million, £5 million of which was for the baseline and £600,000 of which was for LPS for the current year. The outcome of the June monitoring round was that LPS got an allocation of £5 million. The bid was met on the basis that LPS would bring in an extra £10 million this year. The £600,000 for which we bid at June monitoring for the current year was not met at that time, and we are resubmitting that bid in September.

108. In Budget 2010, we are trying to secure £5·5 million per annum to address the underlying shortfall that has been in the LPS baseline.

109. Mr McNarry: Are you making one bid of £5·5 million, rather than one for £5 million and another for £0·5 million? Are you simply saying that that, as is stated in the paper, is necessary for Land and Property Services to deliver its current business obligations? I find it very difficult to understand how LPS can deliver at all. Is it the case that instead of separating the bids, as you have done previously, you are now asking for £5·5 million in total, and you are telling us how you are going to use it? In other words, having been knocked back on the bid for £0·5 million, you are now grouping your bids together in one big lump sum?

110. Ms McNeilly: No. For the Budget 2010 period, the transitional rates relief no longer applies. It was a two-year scheme. The £5·5 million is the revised or updated profile for the underlying shortfall in LPS's baseline. Therefore, there would be nothing required for transitional rates relief, the obligation for which runs out during the current financial year.

111. Mr McNarry: Let us stick with the issue. Additional funding of £5·5 million per annum is required. That is a statement of fact made by the Department. It says that it needs £5·5 million. On what basis does it ask for that, other than that this is a failed agency, which is failing to do its work? Is it purely on that basis that the Department wants to prop it up? I know that you cannot speak for the agency, and it is unfair of me to ask you to. I am just asking for a technical answer.

112. Ms McNeilly: The baseline, which has been available to the agency over the past three years and has been rolled forward to the next four years, was set as part of Budget 2007. It did not take account of all the rating reforms. There were some 43 rating reforms. Therefore, LPS has had to implement administration arrangements for those. It has also had to make other payments, court costs have increased and so on. In the proposals, the Department is trying to get the baseline onto an even keel in respect of where it should be in order to provide the services in accordance with the current service delivery model.

113. Mr McNarry: Have you been presented with a case that says that LPS is — let us say — £136 million in arrears and that, by next year, it will not have those arrears?

114. Ms McNeilly: The agency is in the process of preparing a business case to address the debt. That is one of its key priorities.

115. Mr McNarry: How many business cases has the agency given you?

116. Ms McNeilly: On the issue of debt reduction, I have seen only one recently. There is one on the go at the moment —

117. Mr McNarry: Prior to the one that is on the go at the moment, no business case has been put to the Department?

118. Ms McNeilly: It has bid as part of monitoring rounds, but the business case is a key piece of work — one that has been brought to our attention and that I am aware of — that the agency is currently taking forward in a specific way to see how best to redeploy resources into rate recovery. At the moment, LPS is redeploying staff from other areas into the recovery of rate arrears. That has already started. On top of that, it is preparing a business case, which may mean that it will want funds over and above the figure in the paper if the business case is approved by the permanent secretary.

119. Mr McNarry: I understand.

120. It is clear what the £5·5 million per annum is to be used for. Will you equate for me what the return will be against spending that £5·5 million per annum?

121. Ms McNeilly: Spending that £5·5 million per annum supports the realisation of the rates income. Last year, £961 million was brought in. This year, that figure has increased to between £970 million and £980 million. That is the agency's target for this year. Even taking a flat line, the funding will support the delivery of a sum of £970 million to £980 million.

122. Mr McNarry: So, what will an investment of £5·5 million bring in?

123. Ms McNeilly: It will bring in the current target for the current year. If the agency gets a reasonable baseline, it will bring in somewhere in the region of £970 million to £980 million.

124. Mr McNarry: I cannot figure that out. I am lost on how it would bring —

125. Ms McNeilly: With the establishment of a proper baseline for Land and Property Services and recognition that there has been a shortfall in the baseline for the agency, the rate collection target for this year is £970 million to £980 million. That is my understanding.

126. Mr McNarry: I realise that. However, the extra £5·5 million will not bring that in alone; it is an addition to the money that has already been spent. For my £5·5 million — I do not want to seem like one of those dragons in the den who is going to invest his or her own money, because I would not be putting a penny into this —

127. Mr Hamilton: I'm out. [Laughter.]

128. Mr McNarry: There is £136 million outstanding. What will be the return on my £5·5 million against that over the course of the year?

129. Ms McNeilly: In the absence of more information from the agency, all I can say is that, without the £5·5 million, LPS would not bring in £970 million to £980 million. Therefore, without the £5·5 million, it would not be able to meet its target for the current year. The £5·5 million is just to keep the business running; to improve the return, more investment would probably be needed.

130. Mr McNarry: You are doing a very good job at trying to explain somebody else's woes, and it is not fair to press you. Simon said that he was out, and I cannot buy into the case or the argument for the investment; I see no evidence that sets out how we attack the £136 million outstanding. Turned on its head, the argument could be that, unless LPS gets £5·5 million, the £136 million of arrears will increase.

131. Ms McNeilly: That is true.

132. Mr McNarry: I want to know what LPS is doing now. What has it done? You told us that it has not presented a business case until now.

133. Ms McNeilly: It is very specific.

134. Mr McNarry: Nevertheless, we have been financing the arrears. That is clear. Thank you.

135. Ms Purvis: The Department had to produce a savings delivery plan by the end of August. How did you produce that plan, and did you produce it on time?

136. Ms McNeilly: We had to key some savings onto our detailed financial database. The timetable is that we are due to produce the actual savings delivery plan — the date templates, measures and so on — towards the end of September, for publication alongside the draft Budget in October.

137. With regard to the approach that we have taken to savings, we asked all our business areas to identify savings of 6% each year on a cumulative basis to generate a long list of options. That long list of options was reviewed by our departmental board at a full-day session in June. Since then, the business areas have been reviewing and refining those options. We have been working to prioritise them in terms of their impact — low, medium, etc — and we still have a long list of options.

138. The permanent secretary has arranged bilateral meetings to take place over the next fortnight with all of his directors and chief executives to challenge and to refine the options again by probing their deliverability on savings. That will inform the detail of the efficiency delivery plan, which we have to produce in near final draft towards the end of this month. That plan will be subject to review, scrutiny and the Committee's views. The intention is to publish it in line with the timetable; within two weeks of the Executive's draft Budget being published at the end of October.

139. Ms Purvis: When can the Committee have sight of that, or when will you brief the Committee on the delivery plan?

140. Ms McNeilly: I need to look at the detail and work back, but we can probably brief the Committee on the savings delivery plan in early October.

141. Ms Purvis: Paragraph 8 outlines the work that has been undertaken to date to achieve savings, including reductions in external consultancy expenditure, air fares, mileage, hospitality, etc. Is there potential for further savings in all the areas listed?

142. Ms McNeilly: Expenditure on external consultancy dropped dramatically. If a business area wants to engage in external consultancy, it is subject to review by the permanent secretary and senior directors. We already have a target in place in the current year for another 5% reduction in areas such as air fares and mileage costs, and we want to drive those costs down as we go forward. It is the same for hospitality. We have halved hospitality costs over the past two years and will try to drive it down further. The departmental board has a range of general economies in place at the minute whereby people are not allowed to go on external training without senior management approval. We will continue to drive down on that, and it is a key component.

143. Ms Purvis: Your staff costs comprise 43% of your overall budget, and you say that staff reductions are inevitable. What does that mean in practice? Given that other Departments are probably under pressure to reduce their own staff costs, what are the opportunities for the redeployment of staff?

144. Ms McNeilly: Given the nature of the service provided by the Department and the fact that there is not one big button that will realise a large amount of savings, a lot of the savings will arise from reductions in posts. Business areas have been doing post-by-post reviews to determine where they can make reductions. At an average employer cost of £30,000 per person, we are talking about 30 people per £1 million to try to manage reductions. However, we do not know what quantity of savings we will have to deliver, and we do not know if any of our bids will be met. Therefore, we are working in a lot of uncertainty at the minute. On the wider position, we have highlighted the fact that the key risk for us, like any Department, will be the impact on all other Departments and the ability to absorb staff numbers. Our colleagues in corporate HR are looking at the potential for absorbing staff numbers, but the ability to do that will diminish, and it is a significant risk.

145. Ms Purvis: At the minute, are you simply looking to not recruit into vacancies and to review posts? Some posts are crucial, and, therefore, you will have to recruit into them. Are you looking at natural wastage from other parts of the Department?

146. Ms McNeilly: Yes. Recent figures that I saw indicated that natural wastage usually runs at about 100 posts a year. However, it may not keep up at those levels, and, given that people can work on, retirement levels may not keep up either. At the minute, there is a freeze on recruitment to the general service grades up to grade 7, and specific posts have recently been subject to review. The permanent secretary asked for all those to be seen, because, as a Department, the last thing that we want to do is to bring people in now who we cannot afford and, therefore, worsen the problem. That is a key area. Increased controls have been placed on temporary promotions, and numbers of agency staff have been reduced. It is an ongoing process, and the departmental board is very alert to the fact that it should not recruit people now and be faced with a bigger problem later. Equally, it is aware of the need to look at whether business-critical posts can be filled, and if they can be filled from surpluses in other Departments, that will be the initial way forward.

147. Ms Purvis: Do you envisage voluntary or compulsory redundancies?

148. Ms McNeilly: I cannot comment on that at this stage. Our corporate HR people are looking at that issue at the Northern Ireland block level, but I know that Departments are having difficulty providing any quantification for them at this stage, whether on overall numbers or on complement and grade structure. However, we are looking at that issue at the minute.

149. Mr Hamilton: Paragraph 15 talks about some of the categories where savings are being considered. I want to ask about two of them. The first is maximising revenue. When the Committee has taken evidence previously, it has considered the fact that increasing the amount of money that comes in is not technically a saving or efficiency. Aside from that point, what is suggested in that short paragraph all seems very acceptable. It talks about widening the customer base and, basically, selling more services. If there was to be an upswing in the property market, it would increase the work that LPS does. That would bring in revenue, which is great. It might sell a few more maps or whatever. That is acceptable. However, in the current climate, none of that is certain. Therefore, to factor that in as a definitive saving or additional revenue is quite uncertain.

150. I presume that, apart from the "nice" stuff that is listed in that paragraph, consideration has also been given to increasing fees for some of those services, so that if the quantum of services that are being sold does not increase, the revenue that is taken does. In some cases, such as solicitors carrying out searches for conveyancing as required, that money is pretty much a guaranteed business stream. Is that also being considered, aside from the hope — the hope rather than the expectation — that you will be able to sell more services?

151. Ms McNeilly: Yes, it is. However —

152. Mr Hamilton: In what areas are fees being looked at?

153. Ms McNeilly: Work is ongoing to review how all the Department's business areas calculate fees and to determine where there are inconsistencies in how they calculate overheads and so on. We want to ensure that they at least operate on the same basis. That has been looked at, and it will inform some of the fee setting.

154. The key thing for us is that, if we reduce expenditure in an area and it becomes more efficient, we must reduce our fees because we cannot recover more than our full cost. It is a matter of ensuring that fees are taut enough to recover full cost. We cannot go above that to bring in more revenue to use for something else. That is our focus. We have already issued a high-level policy paper to our business areas that explains the principles of calculating all of that and how to do it. We are also reviewing how business areas throughout the Department calculate their overheads because there are inconsistencies. That may help to make sure that there is more consistency across the fees and, at least, to reinforce their tautness to ensure that they bring in full cost.

155. Mr Hamilton: OK. My second and final question relates to lower priority programmes. The commentary suggests that the Department, having reviewed all its programmes, finds that none of them is lower priority. I am sure that that is the case in the other 11 Departments as well. I will make a statement and ask you to confirm whether it is correct. In DFP's case, is that finding due to the Department's distinctive nature and the fact that, apart from LPS and perhaps a few other agencies, it does not really do things itself? It does things on behalf of others. It provides central services for other Departments. Is that why there is a limited amount of discretionary expenditure or number of programmes going on?

156. Ms McNeilly: That is the primary reason for us. A programme, in terms of what you would be familiar with as a programme, will be an EU one. It is what it is, if you like. As regards other small, discretionary items of spend, we have a small number of grants; for example, to the sports association. I think that we used to make grants to the holiday play scheme. Those are tiny amounts of money.

157. Reducing checking, for example, is another area currently included in that, though it is perhaps more appropriately reflected in corporate services. We are looking to see whether, in relation to those programmes, we can "increase the risk" and reduce the level of checking that goes into certain functions. At the minute, that is a high priority as regards following audit recommendations, but it is something that we are going to revisit. You are quite right about actual programmes. It is not something that we have a lot of material on.

158. Mr Hamilton: OK, that is fine.

159. Mr O'Loan: You said that you have presented no savings plan in detail but have just given directions of travel. All Departments were asked to provide a savings plan by a certain date, which has expired — was it 2 September?

160. Ms McNeilly: We were asked to key savings equivalent to our indicative savings targets onto the database, which has all the expenditure on it. We keyed those to meet the deadline of 26 August — I think that we got it in on 31 August. We keyed those at the very highest level in the Department. They are not keyed against individual lines in our database; we keyed them on at the highest level, which we were able to do, with a view to working within them further down the line. In respect of the detailed work of the savings delivery plan, the timetable requires us to have a near draft of our savings delivery plan by the end of September, with a view to publishing that draft within two weeks of the publication of the Executive's draft Budget 2010 document.

161. Mr O'Loan: So you have done all that was required of any Department?

162. Ms McNeilly: We have fed in what we were required to feed in.

163. Mr O'Loan: My next question covers similar ground to a couple of points that Simon raised. You said that the Department has no lower priority programmes. It disappoints me that you are not managing to go further on a couple of fronts, of which this is one. For example, the fact that there are three separate economic policy units in the Executive, one of which is in your Department, has been referred to a number of times in the past. Is consideration not given to rationalisation of that, for example?

164. Ms McNeilly: I will have to look at that for you.

165. Mr O'Loan: I am not inside the Department, and I do not know what areas exist there, but I think that it is too easy just to say that there are no lower priority programmes, given the stringency of the situation that we face. All Departments must look more acutely at their areas of work. Clearly, your Department is different from any other, as you have spoken about, insofar as it does not have programmes as such but, by and large, services other areas of government. However, I think that there is a greater onus on the Department than has perhaps emerged. I am disappointed that there are no major initiatives coming forward. In the past, we have had major initiatives that have done things better and saved money. We are told — I have no evidence to discount it — that Account NI and HR Connect, for example, are major programmes. It is in that kind of arena that we ought to be seeing at least the beginnings of ideas coming forward.

166. Ms McNeilly: The shared services, in particular, have been a focus for us in seeking to identify savings. We are talking about looking at whether we can streamline the processes further. Following its establishment, the Enterprise Shared Services centre is reviewing its management structure with a view to making it more streamlined across the organisation. It is also considering its processes in relation to things such as levels of checking, so we will see some savings coming through that. Our interpretation of the word "programmes" may be an issue.

167. Mr O'Loan: To what extent do you agree with me that it is not possible to carry out the enormous project of writing a four-year Budget within the current timetables at this stage, when it is an incredibly difficult, demanding and politically challenging task to face up to very substantial cuts in budget and to manage those cuts in a way that is not going to do enormous harm to the public sector but, on the contrary, protects the front line service of our public sector? We ought to be taking quite a different approach that involves the political arena and real communication with our public. Attempting to create headline figures will end up with what is essentially a salami-slicing exercise. You referred to that yourself when you said that the small number of other agencies that you have control of will be told to take proportionate cuts. That sends out the wrong message from the central Finance Department. How do you react to that thesis?

168. Ms McNeilly: The timetable for all the work that is required, whether at the departmental level or Executive preparation, is extremely challenging. At this point, however, we effectively do not have a Budget for 1 April next year to enable us to provide services. Therefore, that is a priority, and the timetable attached to it is pressured.

169. Mr O'Loan: Yes, I have no doubt that a Budget has to be created for next year, but what is being planned for is creating a four-year Budget. That is a very questionable project.

170. Mr McLaughlin: You are very welcome. Is it correct that the central finance group asked Departments, in delivering their efficiency or savings plans, to explain the impact on the standard of public service and any mitigating actions?

171. Ms McNeilly: Yes.

172. Mr McLaughlin: Was that then applied to your proposals or responses?

173. Ms McNeilly: Yes.

174. Mr McLaughlin: The Department's spending and savings proposals paper states on page 9 that there will inevitably be staff reductions, which will have an impact on the Department's capacity to develop and review policy as well as to provide advice and guidance to customers and stakeholders. Will you give the Committee examples of what you are talking about there and detail of the mitigation?

175. Ms McNeilly: The focus of the Department is two or three fold. Some policy functions, such as the central finance group, provide support to the Executive and the Minister in managing the Northern Ireland block grant. Central personnel, or corporate HR, will be increasingly required to deal with issues surrounding the management of staff. If those areas, for example, have to take significant staff reductions as part and parcel of any outcome, the work that they currently do would have to be scaled back. In that case, they would not be able to take forward as much policy work or to provide the same level of support. Those are two areas. There are other areas across the Department where there is work on developing policies in and around valuation, legal policies, and the legislative process. That work would have to be scaled back, and it may take longer for things to be done. For example, the administration to support a piece of legislation may take longer to process. Those are broad examples of the areas that we are considering.

176. Mr McLaughlin: That is of limited assistance. Are you proposing a menu of options for consideration by the Minister, with not necessarily 100% of them to be accepted, but with enough selected from the menu to meet the Department's target? Is that how you are approaching the matter?

177. Ms McNeilly: Yes, a long list of options.

178. Mr McLaughlin: And you are not only identifying those possible areas of service delivery but the equality impact, and you are indicating the mitigation measures that could be applied in those circumstances if those particular recommendations were adopted?

179. Ms McNeilly: Yes, because mitigating may mean just taking longer to do things or doing things slightly differently, or it may have to be accepted that there will be a marginal adverse impact. That information will go to the Minister as part of the detailed list.

180. Mr McLaughlin: The calculation of whether it could be reduced — presumably the bean counters will do that anyway — would not necessarily be about delivering the same range and quality of service for less money but cuts in services, and you have identified those services that you believe will have to be considered.

181. Ms McNeilly: That is what we are working towards.

182. Mr McLaughlin: Will that be on a reduced budget?

183. Ms McNeilly: Yes, but we can manage to deliver on critical needs with a reduced budget.

184. Mr McLaughlin: In my head, this is a related point. We have heard in the media that 60 staff members were redeployed to the Department from planning. How does that significant influx of staff fit into this very difficult issue?

185. Ms McNeilly: The 60 staff are on loan to DFP for two years to work in LPS and will return to their parent Departments following that period. They are assisting in a project to improve the mapping information that informs EU subsidies for farmers, and the funding for those staff members will come from the Department of Agriculture and Rural Development. Therefore, it is a nil cost to us.

186. Dr Farry: Most of the main issues have been covered, so I will not detain things for too long. You are talking about £28 million in cuts over a four year period, which roughly equates to an overall cut of some 15% or 16%. Obviously, there is a certain degree of anticipation among the central finance group regarding what is likely to happen, but has the Department been advised to carry out further contingency planning in the event that the cuts are worse than what you have been asked to plan for?

187. Ms McNeilly: Not yet.

188. Dr Farry: Has the Department planned for how it would cope if it were asked to go beyond what has so far been asked for?

189. Ms McNeilly: The Department asked the business areas to generate options for consideration on the basis of cumulative cuts of 6% per annum over the next four years, so the long list of options generated would exceed that target. However, a large proportion of the options put forward were classified as being of very high pain in relation to deliverability and there are issues with them.

190. Dr Farry: In essence, are you saying that there are certain areas in which there are inescapable ongoing commitments and there are other business areas that will have to absorb whatever level of cuts are called for, whether that is 15%, 16% or 20%?

191. Ms McNeilly: At the end of the process it may not necessarily be that each business area will have faced the same percentage cut. Although each business area has been asked to consider cutting 6% per annum cumulative as a starting point, the prioritisation aspect will then come into play. The engagement with the permanent secretary over the next fortnight will be to work through the proposed cuts with each business area to challenge and probe what could be delivered. The cuts in different business areas will be lower or higher depending on their relative prioritisation.

192. Dr Farry: Building on what Declan said earlier, the Committee appreciates that the Department has introduced a number of innovations in recent years, but what is planned by the Department over the next four years seems to be simply a continuation or consolidation of those. Four years is a considerable period. Looking back through history, some of the most important innovations in policy or business have come during periods of particular stress. Does the Department have in mind any new initiatives for this period?

193. It almost seems that there is a drawing-in of the wagons around the core areas. The debate has centred on what areas are more core than others, rather than on any notion of taking a leap of faith and doing something differently, to take away some of the cost pressures. There does not seem to be any evidence of the Department considering new innovations.

194. Ms McNeilly: Not in the area of shared services that you referred to, as that falls under the consolidation aspect. With the other services provided to the Department, we are looking at what they are doing, why they are doing it, whether they still need to do it and whether it could be done better. We are also looking at changing such things as management structures and processes. You are quite right; that is where the main focus is.

195. Innovation may involve a cost implication in some areas; for example, if Land and Property Services were to introduce an e-registration system for its registry function. I believe that those are the areas that you are referring to.

196. Dr Farry: Correct me if I am wrong, but with past innovations, has the tendency been to fund the core service and the innovation simultaneously and hope that, down the line, the innovation will pay off, reducing the cost of the core service? Can we try to make innovation work, thereby reducing the cost of the core service, rather than running the two in tandem?

197. Ms McNeilly: As I understand it, the e-registration system would require capital investment and the implementation of changes to current systems. I would not see those two courses of action working in tandem in that example. If there were other examples that the Department could develop, that would be something that it would have to consider.

198. The Chairperson: Thank you; that concludes our questions for this session. I hope that if other issues are raised we can write to you and receive a response.

15 September 2010

Members present for all or part of the proceedings:

Ms Jennifer McCann (Chairperson)
Mr David McNarry (Deputy Chairperson)
Dr Stephen Farry
Mr Paul Frew
Mr Paul Girvan
Mr Simon Hamilton
Mr Daithí McKay
Mr Mitchel McLaughlin
Mr Adrian McQuillan
Mr Declan O'Loan
Ms Dawn Purvis

Witnesses:

199. The Chairperson (Ms J McCann): This session deals with the review of the 2008-2011 Budget process action plan and the Department of Finance and Personnel's (DFP) response to the conclusions and recommendations in the Committee's second Budget scrutiny inquiry report. There is also a paper, and the executive summary and key conclusions and recommendations from the Committee's report, in member's papers. Michael, please make a few opening remarks, after which I will open the meeting for members' questions.

200. Mr Michael Brennan (Department of Finance and Personnel): As the Committee knows, the 14 recommendations in the paper went from our Minister to the Executive and were endorsed at the Executive meeting at the end of July. The general observation was that the Finance Minister warmly welcomed the recommendations. He is particularly exercised about the key question of consultation on the Budget process and will be keen to labour that point during next week's take-note debate. The Minister is particularly anxious that Assembly Committees have an opportunity to engage fully with Ministers and their Departments on the evolution of the Budget for the new spending review period.

201. The Chairperson: A very clear point was made about the clear lack of support from the Assembly Committees for some of the recommendations, particularly recommendation 12. Was any consideration given to postponing the issuing of the Minister's paper in order to update it to take account of the co-ordinated response on behalf of the Assembly's Statutory Committees, given that a date was not mentioned? I know that your report says that you did not receive that response until 2 July, at which point it was too late to include in the Executive meeting on 5 July. Was any consideration given to postponing the paper to allow the very detailed report to be factored in? Furthermore, is any provision in place to enable Ministers to table amendments to their papers when they come to the Executive table? Was that opportunity available on this occasion?

202. Mr Brennan: Our Minister's papers were issued before we received the Committee's report, and we also noted that it was embargoed to DFP. Therefore, in that position, the Minister had written to the Executive, and he held to that position. I know that our Minister wants to address that issue next week because we think that there is possibly a misunderstanding about the wording of recommendation 12, and we wonder whether it is possible that there were cross-purposes at work here.

203. The recommendation talks about having a lead role in the consultation process going forward, yet the concern of the Committee seems to be about not having the authority to act. There could be a view that acting as a conduit for the views of all the other Committees, and presenting that view on the Budget, is not, in any way, saying that the Committee needs some sort of statutory authority to do that.

204. The Chairperson: As Committees, we cannot do anything about the Budget. Therefore, what is the purpose of being involved in it?

205. Mr Brennan: If, for example, there was frustration in all the other Committees and they could not relay their views, those views could be relayed to the Finance Committee and then be presented to the Finance Minister, who could take them forward.

206. The Chairperson: The view of most Committees is that they could not act on the results of the consultation. It is very clear that there was a lack of support for that particular recommendation. I want to make that point; however, I will not labour it. If there is a process whereby a Minister's paper can be amended before it is brought to the Executive, then that may have been the option that should have been used on this occasion.

207. Mr McNarry: I want to look at recommendations 6 and 7. I understand that the Department's original recommendation proposed that it would be the Department that would take the lead role from the strategic investment board (SIB) in developing capital investment allocations in the Budget process. It now appears that that has been changed; and, on page 5 of the action plan, it states that that has been agreed by the Executive. We now find that DFP and the strategic investment board will work collaboratively in developing capital investment allocations in the Budget process. Will you tell me why that has happened and whether the recommendation has been amended?

208. Mr Brennan: In the past, there was some concern on the part of Departments that there was a disjoint between DFP's role in setting and monitoring capital budgets and the SIB's role in giving strategic direction to the allocation of capital. That is why the original recommendation had DFP taking the lead. However, operating practice over the past four or five months has changed significantly, in that DFP and SIB are working closer together than they ever did in the past on setting and monitoring the capital position and in taking positions on the allocation of capital. For example, last week, there was almost daily contact between the DFP team and the SIB team on the capital position for Budget 2010. It is much more of a close and collaborative effort than that which we had envisaged in the past.

209. Mr McNarry: Are we to take from that that although the Department indicated that it wished to take a lead role, the SIB, having previously not worked so closely with the Department, decided that it is better to work together with the Department, and that, purely on the basis of five months' operating practice, there has been a turnaround and you have rolled over?

210. Mr Brennan: What has triggered the change in operating practice is that we are heading into an environment in which capital will be much scarcer. The availability of capital is going to be significantly constrained over the next four-year period. Therefore, there needs to be a much more focused, strategic decision on how we allocate that capital. For example, DFP could not strike the capital budget on its own without having some significant input from SIB on what the strategic priorities for the allocation of capital should be.

211. Mr McNarry: That would have been the case anyhow. I am saying that, having rolled over completely, you have dramatically changed the recommendation that you would take the lead role and are now saying that you will not take the lead role. I am trying to get at why you have changed that recommendation and why you are not going to take the lead role. Is it because the Department is not competent on its own?

212. Mr Brennan: I do not think that having to take the lead role is an issue now.

213. Mr McNarry: You made it an issue.

214. Mr Brennan: That was at a time when we were worried about various Departments having the perception that there was a disjoint between the roles of DFP and SIB.

215. Mr McNarry: We do not work on perceptions: we work on facts. You came to the conclusion that DFP would take the lead role. I am trying to get at what changed your mind. Is it that you have better relationships with SIB? Was pressure put on the Department by SIB?

216. Mr Brennan: I think that the working relationship between SIB and DFP is much better than it has ever been.

217. Mr McNarry: Do we have to now hope that that is going to be the case for ever and a day?

218. Mr Brennan: Certainly, that is the working assumption that we have made.

219. Mr McNarry: On recommendation 7, we, as a Committee, had recommended that linkages on PSA targets should be extended to the reporting stage, whereby end-year delivery reports would enable performance to be tracked at departmental levels with respect to inputs, outputs and outcomes. You responded to that by saying that it could:

"perhaps be considered in the wider review of the financial process proposed by DFP."

Are you in a position to go beyond the word "perhaps"? Will you give the Committee a firm commitment that that will be examined as part of the review of the financial process? Will you be able to give us a commitment that we will be provided with an opportunity to consider the proposed terms of reference in advance of the commencement of the review? Will you bring clarification to the table as to when that work is likely to commence? What is the timescale for completion? It is fair that we ask for that commitment, rather than work with you on the basis of the word "perhaps", which could mean anything.

220. Mr Brennan: As you know, on many occasions in the past, we have kept the Committee up to date on what we would liked to have done with regard to bringing about the review of the financial process to make it a more transparent and aligned system. Our Minister has written to his Executive colleagues with the terms of reference for taking forward the review. Once the Executive have signed off on that, we will come back to the Committee as quickly as possible, not only on the terms of reference, but on how we will see those terms of reference being operationalised.

221. Mr McNarry: Will you help the Committee in any way? We are clear in what we are asking for. You have responded with the word "perhaps". It might be unfair to ask you to give a commitment, Michael, but could you take back to the Minister that the Committee would find it more satisfactory if the commitments that I had asked for on behalf of the Committee were to be judged by him as being reasonable, and ask that he, in fact, could commit to the commitments that I am asking for on behalf of the Committee. In light of when you say that that could be resolved, when might we get a response from you or the Minister?

222. Mr Brennan: The Minister is getting comments back from his Executive colleagues, and those received to date are supportive of his proposals. There is no reason why you will not get that the minute that it is signed off.

223. Mr McNarry: When you say that they are supportive of his proposal, does that mean that they are supportive of the "perhaps" scenario?

224. Mr Brennan: No, they are supportive of taking forward a process to review and simplify the financial process and make it more transparent, and align budgets, estimates and departmental accounts.

225. Mr McNarry: Can you see that what we are asking for is fairly reasonable and that an opportunity to consider the terms of reference in advance would be helpful to the process?

226. Mr Brennan: I can see where you are coming from. I understand where you are coming from, and I will relay that to the Minister.

227. Mr McNarry: May I ask that you give an opinion to us at the table today that you share our view and that it is a reasonable request?

228. Mr Brennan: Yes.

229. Mr McNarry: Thank you: that is helpful.

230. Ms Purvis: Our reading of recommendation 12, and why it has been rejected by this Committee and the other Committees, is that you wanted this Committee to take the lead role in the Executive's consultation. Part of the Executive's consultation is consulting with other and wider organisations. Is that a misunderstanding of the recommendation in that what we currently use in gathering the views of Assembly Committees, co-ordinating those views and sending them on is what you are really talking about?

231. Mr Brennan: There is no intention to try to circumvent the formal public consultation process. The Minister would like to be sure that he is getting the views of all Assembly Committees and that the Finance Committee could act as a conduit for relaying the views of all Committees to him. That was the intention.

232. Ms Purvis: That is something we do already. That leads me on to recommendation 13. One of the criticisms that constantly comes from Assembly Committees is the lack of [Inaudible.] and information — enough information to do their job — that they get from Departments prior to review. For example, [Inaudible.] understands well in advance so that they have an opportunity to scrutinise how it can review its budget and the subsequent spending plans. It seems to me that recommendation 13 is asking of the Finance and Personnel Committee something that is way beyond its scope, remit and powers, bearing in mind the inadequate information that comes from Departments to Committees and the powers and ability of this Committee to adjudicate on spending programmes.

233. Mr Brennan: The key concern is that Committees do not have access to all the budgetary information that they should have, not just on the bid information that Departments submit to DFP but on their savings delivery plans and how they intend to take forward their budget consultation process. The key issue under this recommendation is to ensure that the Committee sees everything in relation to the construction of that departmental budget development: for example, where there is a particular concern or a lack of understanding, then there is an issue about how that particular Committee engages with the Finance Committee and relays that to DFP. An information breakdown is the fundamental concern.

234. Ms Purvis: It seems to me that there is an information breakdown in the Executive in that the Minister of Finance and Personnel is not getting the information or co-operation from his Executive colleagues and, therefore, what is coming out of this is to place that responsibility on the Committees, because the Committees have already complained that they are not getting the information from their Departments and their Ministers to enable them to scrutinise the Departments' budgets and the wider Budget. It seems a bit like passing the buck to Committees, when the Executive and the Minister of Finance and Personnel should be looking more closely at Executive colleagues. I accept that Assembly Committees, including the Committee for Finance and Personnel, have a crucial role in scrutiny. However, I cannot see why we and other Committees should be expected to do the role of the Finance Minister.

235. Mr Brennan: I do not think that the intention was in any way to pass the buck or to circumvent the Executive. In previous Budgets, many Committees complained that they had been asked to take a view on the Budget but did not have all the information necessary to form that view. When DFP was issuing its Budget guidance to Departments, it made it clear that it was in those Departments' interests to make available to the Committees all financial information on the bid side and on the savings side, so that the Committees could form a view. That was the only intention in putting that into the Budget guidance. It was not about trying to obtain information on other Executive Ministers' behaviour by the back door.

236. Ms Purvis: What has changed? How is it going to work?

237. Mr Brennan: For example, if Committees ask of their various Ministers to see the information, the information is there in Departments. If the Committees cannot obtain that information, they know where the fault lies with regard to the failure to provide.

238. Ms Purvis: It is really a benign action point. If Committees have already asked for information from the Departments and the Departments have not been forthcoming, they cannot fulfil the role that is required of them. Is this not really a benign point? It is really apportioning blame as opposed to saying that this is how Committees can fulfil an active role in the process.

239. Mr Brennan: I do not think that it is a benign recommendation. It is a recommendation that should encourage greater transparency in the engagement between Ministers and Committees.

240. Ms Purvis: It has not worked to date.

241. Mr Brennan: Hopefully, it will work over the coming months.

242. Mr O'Loan: I have a number of points, all of which are to do with the overview position. I do not think that that is a good [Inaudible.] budgetary process. That leads to a lot of friction. We are in a difficult environment, which brings it own issues [Inaudible.].

243. [Inaudible.] point that Dawn made about recommendation 13 and the demand that, if a Committee is going to make any comment at all and to seek that anything else be done, it must come up with the funding arrangement for that. Our Committees, as constructed at the moment, [Inaudible.]. However, we are not there yet. The Department needs to be aware that just making that blunt statement [Inaudible.].

244. My next point of concern is around the desire that you talked about to make the Budget more clearly linked to the Programme for Government and the PSAs. In many cases, Departments share that view. I have many concerns about how we do that. The Department has responded by talking about the maze of interaction that is involved in that and what a difficult process it actually is. The first attempt of the Department to do that has been to map all the money in its spending lines to particular PSAs. The first editions have not agreed at all, and we end up adjusting that to make it consistent. Therefore, how valid it is remains in doubt. If we were to add to that with a plethora of information coming before Committees and Assembly Members, that would be so daunting that we would not be able to make anything of it. [Inaudible.]

245. Do you feel confident that all our Departments can produce a meaningful four-year Budget [Inaudible.] and will use that four-year period to get us to a different place at the end of it? I am not confident that we can do that. [Inaudible.] I think that even writing a four-year Budget is a questionable project. I would be far more content with producing a one-year Budget that gets us somewhere and then using that longer period to have meaningful engagement and strategic thinking about what [Inaudible.].

246. Mr Brennan: I take entirely your point about the unique difficulties that having a spending review announcement in October brings. Normally, Treasury spending review announcements are in July, so the fact that we have one coming on 20 October means that we have a much more compressed time period in which to construct, deliver and get approval for the Budget. Over the next couple of months, the timescale for taking forward consultation and engagement with the Executive and the Assembly is horrendous.

247. Our difficulty with the timescale is that, in effect, Departments need to have Budget allocations by January next year so that they can give sufficient notice to the various boards, trusts and arm's-length bodies to enable them to start planning. That is particularly important this time around because we are heading into a period in which resources are going to be so much more constrained than they were in previous years. It is not just a question, like it was seven, eight or nine years ago, of allocating a Budget and [Inaudible.] money in-year. This time around, we are heading into the opposite world, so we need Departments to have certainty about their Budget allocations early in the new year.

248. The new UK Government is setting a four-year Budget. Normally, spending reviews cover only three years, but this one is set at four years. I think that they want to reinforce the message that this spending review is copper fastened and will not be reopened and that they are committed to addressing the fiscal reduction plan that the Exchequer has in place. They want to reinforce the perception that the funding net will not be reopened for a long time.

249. Resources are so tight that it is difficult to make every Minister happy, so one of the benefits of being able to strike a four-year Budget is that you can start to make trade-offs; you can ask Minister A to take a little bit of pain in year A, but Minister B will get a bit of easement in year C. Therefore, over a four-year period, you can start to smooth out departmental allocations. The only thing that you have to give Ministers then is the confidence that you will not reopen that Budget. For example, if Minister A gets all the money in years 1 and 2 and is supposed to take pain in years 3 and 4, and you reopen the Budget in year 2, you will have howls of protest about breaches in faith in delivering the Budget. That is one positive aspect of adhering to a four-year Budget.

250. I can see the other point that you are making, because we are asking the Executive and the Assembly to take some fundamentally difficult decisions about Northern Ireland plc going forward, and there is a certain logic to saying that we should strike a one-year Budget and bring a much more orderly thought process to how resources are allocated through years 2, 3 and 4.

251. Mr O'Loan: [Inaudible.] I notice that a legal challenge to the British Budget has been made on equality grounds. Given that we need a very fast process, which may not allow adequate time for all that equality screening, are you concerned about that?

252. Mr Brennan: The legal challenge to Whitehall Departments is to do with the impact of the Budget on gender imbalance. Our equality screening procedures are significantly more advanced than those in Whitehall. For example, we publish high level equality impact assessments on a departmental basis. [Inaudible.] is quite unique, and we put a lot of resources into delivering that.

253. Mr O'Loan: Even in this very compressed period [Inaudible.].

254. Mr Brennan: Yes, our Budget guidance to Departments makes it mandatory to publish that.

255. The Chairperson: In recommendation 10, the Committee added that Departments should publish the results of the equality screening undertaken in respect of each spending proposal. In your response, you merely noted the recommendation. How will you oversee its implementation?

256. Mr Brennan: All we can do is to tell Departments to make sure that they undertake the work. We will not accept bids from Departments unless they say that they have undertaken high quality equality impact assessments. So, their bids will not get anywhere unless they have undertaken that work. The difficulty is that the responsibility for publishing the information resides with individual Ministers. DFP cannot force Departments to publish that information; the responsibility lies with Ministers. All we can ask them to do, as a matter of best practice, is to make their best endeavours.

257. Mr Hamilton: I have a point about recommendation 13. In echoing what colleagues have said already, I question the risks associated with it. The indication is that, for example, if this Committee backs a recommendation that Land and Property Services (LPS) gets x million more pounds to help recoup the rates arrear, we say that that [Inaudible.] should be taken from the central expenditure division, rather than saying that the bid that we are backing is strategically important for [Inaudible.] PSA targets and the Programme for Government (PFG) and that that money should not necessarily be found from DFP's internal budget. Is it not a fundamental point that we should be encouraging Committees to look not in silos but more widely? However, that creates another risk, which is that Committees could get silly. We could say that we want £5 million for LPS and that it should come from the Department of Health, Social Services and Public Safety, which should stop x, y or z because we do not think that those are important.

258. Mr Brennan: To be honest, I do not think that Committees could win at that game because they would be second-guessing Departments in terms of the resources that are available and [Inaudible.] prioritisation. However, the first part of the issue is correct: Committees could outline what they think should be done. The difficulty is going to the next step and identifying where to take money from. There is an information breakdown between Departments and various Committees. The more information that is put in the public domain, [Inaudible.] debate on prioritisation is going to be.

259. Mr Hamilton: I do not disagree with the principles behind that. In fact, I am very supportive of them. However, I worry that Departments may not give the information and that Committees then just give very basic statements [Inaudible.]. I do not think that it is strategically good to limit where savings can be made to internally within one Department.

260. Mr Brennan: The Programme for Government should give some over-arching strategic sense of where the priorities should lie. [Inaudible.] to identify individual Department's contributions to that Programme for Government. That is a critical issue. Some people argue that that is a flaw in the existing Programme for Government. Basically, every Department in the Executive could say that they are the number one priority in the existing Programme for Government. They could see what they feed into the over-arching aims of the current Programme for Government. There may be greater transparency in that regard in seeing the linkages through the PSAs.

261. The Chairperson: Michael, thank you very much for coming along. We will forward any remaining issues for a written response.

6 October 2010

Members present for all or part of the proceedings:

Ms Jennifer McCann (Chairperson)
Mr David McNarry (Deputy Chairperson)
Dr Stephen Farry
Mr Paul Frew
Mr Simon Hamilton
Mr Daithí McKay
Mr Mitchel McLaughlin
Mr Declan O'Loan
Ms Dawn Purvis

Witnesses:

263. The Chairperson (Ms J McCann): I welcome Mr Ciarán Fox and Mr Nigel Lucas, who are Construction Employers Federation managers. I invite you to make some opening remarks, and I will then open the meeting up to questions.

264. Mr Ciarán Fox (Construction Employers Federation): Thank you very much for the invitation. Our briefing paper sets out some of the key statistics in the industry, and, if you are happy for me to do so, I will touch on some of the paper's key points.

265. As everyone will be aware, the construction industry has had an extremely difficult time, particularly over the past two and a half years. The biggest impact has been on employment. In other industries, a factory may close down and there will be a big hoo-ha about the fact that hundreds of people have lost their jobs, and there will be an immediate reaction. However, the construction industry is unlike other industries in that it is made up of so many small companies that there is a drip feed of job losses. The figures are quite substantial when they are put together. Over the past two and a half years, or 30 months, 21,000 jobs have been lost from construction. That is quite a phenomenonal rate; it equates to around 700 jobs being lost a month over that period. The industry has been decimated by around 25%, and various government publications back that up.

266. I want to add to the paper some comments on where are going from this point onwards. Over the past two and a half years, we have had a very difficult time and our membership is telling us that the future looks bleak, both in the private sector and the public sector. As our paper states, 62% of companies expect a lower workload over the next 12 months. Naturally, that will have a major impact on jobs.

267. Other than telling the Committee the bad news about where the industry is, one of the key reasons that we wanted to meet you was to explain the impact and the potential impact of cuts on the building and maintenance of our infrastructure. Those impacts are both social and economic. The focus tends to be on economic impacts, but there are also some major social impacts. We often hear talk of the direct job losses of the cuts that will come to the revenue budget, but, let us be clear, there will be job losses from cuts to the capital budget. It may be one step away from the public sector, but there will be job losses, and it is very important to remember that.

268. However, when it comes to cuts to the infrastructure budget, job losses are only the start. Economically, every £1 that is invested in construction generates £2·84 in economic activity. Of course, lower investment means that that stimulus effect to the Northern Ireland economy is reduced. Figures of potential cuts of 30% have been bandied around, and that would be a major reduction to a driver of the Northern Ireland economy. It is also important to note that the vast majority of investment in construction infrastructure is reinvested locally, unlike other industries, where, quite often, the money will spread out beyond Northern Ireland.

269. We are looking at the potential impact of cuts to the infrastructure budget a bit further down the line. If we really are keen to grow our private sector, we need a solid bedrock to do that upon, and infrastructure is needed to do that. If we want to rebalance, investment is key. Major cuts would hamper or hinder efforts to rebalance our economy.

270. Perhaps most importantly, the impact will be felt on public services. Investment in the building and maintenance of schools, hospitals, road and water networks and social housing delivers tangible benefits to every citizen in Northern Ireland. That is so important. Lots of investment and expenditure through government affects people, but few areas affect people's lives in such a tangible and meaningful way. There is a very direct output from construction expenditure, and there is an improvement to the delivery of public service at the end of that, which is the overriding priority for everyone.

271. Socially, the construction industry generates great opportunities for people through employment and apprenticeships. We are close to signing off with the various government construction clients on social objectives being embedded into public procurement contracts. A requirement for apprenticeships would be embedded, and there would also be a requirement to give people who are unemployed a work placement. Those social benefits are there to be gained.

272. Before, we go to questions, I wish to raise with the Committee a couple of issues on which I will be interested to have a discussion. Three years ago, when the Budget was issued, we felt that, because the amount of information that was available to us was so limited, the process did not really enable organisations such as ours to engage fully to provide constructive criticism. To give just one example, we were given figures of net capital investment in the draft Budget, and some of those figures were negative. There was no information available to us to be able to comment or assess whether that was a good or a bad thing, because the figures were quite meaningless.

273. We would like to see each Department's planned construction spend, capital and revenue, in the next Budget, which is due in a few months. I realise that that may be a big ask, but it reflects the importance of the construction industry to the Northern Irish economy. The current position of the industry in that it is very reliant on the public sector. It is vital to our economy. This will be a four-year Budget; why not strip those elements out and let everybody see up front what the Northern Ireland Executive intends to do about investing in and maintaining our infrastructure? We could then assess that: we would not say that it was right or wrong; we would just be able to make a proper assessment.

274. Another pressing issue that has just arisen in the last few days is that of the aggregates levy. The main issue will be driven forward by the Quarry Products Association. However, we would like to add our support to that drive to ensure that the aggregates levy is dealt with in a way that does not impact negatively in Northern Ireland. There is a potential change to the levy that would significantly increase the cost of construction contracts. We have heard of one example, the swimming pool in Bangor, where an additional £70,000 of costs could be incurred because of potential changes to the levy. The Committee's support on that would be very welcome.

275. I know that the Committee is very interested in procurement, and we would be happy to have engagement around the pre-qualification process. Our members have some strong views on that. I would like to state at this stage that we have a very productive relationship with the Central Procurement Directorate. We have good engagement, and there has been some progress around procurement. There is still a long way to go but, again, we would like to engage with the Committee on that issue.

276. Finally, while accepting that there is great strain on budgets, we believe it is essential that alternative finance is given real consideration. We have examined various models of private and alternative finance and started to deconstruct them to look at associated problems. In the past, there have been some serious problems where the private sector has made bumper profits. That is not good for anybody except the people making the profits. We have started to try to address those and to put together the bones of a model that would be more socially acceptable. We have engaged with the Department of Finance and Personnel extensively on that issue, and are now in the process of putting together a working sample of how an alternative finance model may work. We are keen to share that with the Committee when it is ready. At this stage, it is really just a matter of letting the Committee know that that work is ongoing.

277. The Chairperson: Thank you very much for coming along. I think that everyone on the Committee knows people or local firms in their constituency who have suffered from the economic downturn. The 21,000 jobs that you mentioned are just in the construction industry; it does not even count the number of jobs lost as a result of the initial losses. You have put forward very good points. Hopefully, we will tease them out a bit more during the questioning.

278. Mr O'Loan: Thank you for your presentation. As the Chairperson said, we are very conscious of the effect that the recession has had, particularly on the construction industry, over the past couple of years. I will endorse a couple of points that you made; first, around clear information at the draft Budget stage. I have concerns about the accelerated timetable and whether it will allow meaningful consultation at a time and for a particular type of Budget that we really need. We need a better quality of consideration than we have ever had before.

279. You talked about having information to enable you to form an opinion. At a political level, to do our job, we also need the informed view of stakeholders, and if there is no time for the exchange of views based on hard information, none of us can do our scrutiny job effectively. I support your concerns about the aggregates levy, which the Committee should look at after taking evidence.

280. On the capital side, the indications are that there will be reductions in the order of £500 million, or 40%, unlike on the revenue side, where that order of reduction is likely to be front loaded. That is absolutely massive, especially given the degree, as has been said, to which the construction industry has been hit already. That further cut is very worrying for us all, not just those in the construction sector. Based on recent experience, what percentage of the total capital spend finds its way into the construction industry, because capital spend has a variety of purposes? What effect do you envisage the kind of cuts that have been talked about having on the construction industry?

281. To some extent, you have already addressed the final point that I was going to ask you about, which was with respect to mitigating measures. I am pleased, therefore, that you are having conversations with DFP. Indeed, I believe that your representatives met the Minister. What kind of reception have you been getting? Have the discussions been open, and is there a willingness for original thinking? In addition, will you give us more specific examples of mitigating measures?

282. Mr Fox: I will start in reverse order. The reception from the Minister and DFP officials has been positive. There is an acceptance that we have to be creative and look at alternative means of finance. Of course, the Minister, officials and, I presume, the Committee's overriding concern is that we must demonstrate value for money, and we are going to work up a detailed model of how particular projects might work. If value for money cannot be demonstrated for a project, as you will understand, it will not be a runner. A positive reception is the first thing.

283. We understand that, last year, the level of capital investment was about £1·7 billion. This year, it is expected to be £1·4 billion, so the cuts are starting to come through already and we are over the crest of the hill for capital expenditure. How much of that translates into construction work on the ground has been a bone of contention for us for a number of years, and we have never been able to get a clear picture from the Departments of exactly how much it is. Of course, our members tell us all the time that the figures do not equate with what they see coming out on the ground; they just do not add up. When we look at it departmentally, sometimes it comes down to the fact that a Department's internal costs of running a capital project and what it pays to consultants are packed into capital budgets, so that accounts for a chunk of it. In addition, there are land purchase costs, which, of course, are necessary; however, buying land it is an easy way to spend money quickly if you do not have anywhere else to spend it. Nevertheless, in the long run, it has to happen if you want to build things. To be straight, we do not know how much capital spend translates into the construction industry, because every time we have asked the question, we have never been given a good —

284. Mr O'Loan: There is also capital expenditure that does not go anywhere near the construction industry.

285. Mr Fox: Yes, of course, such as spending on IT. We have never been given a definitive list that would give us the confidence to say what proportion of the overall figure goes directly to construction.

286. Another mitigating factor that is within the power of the Executive is the ability to switch spending from revenue to capital. Our slice of the pie from London comes in two blocks: the revenue block and the capital block, and there is potential to switch some of the revenue to capital. Doing that should be given serious consideration at Executive level and within each Department, because they can also switch. Therefore, given the economic and social benefits, money may be better spent on capital.

287. Mr McLaughlin: My point is along the same lines. There may be tensions or differences of opinion about how much you can do. Switching from revenue to capital is an available but limited option, because it you cannot do it willy-nilly, and you certainly cannot substitute it for what will be removed from the projected capital spend, going back to 2007 and 2008.

288. You make a valid point about the lack of transparency around how the spend impacts. Such transparency is important so that people can see their part of the pie. As a result, as well as there being mystery around the situation, people feel that the whole question of value for money and strategic spend, and responses to the significant decline in the market, are not being reflected in the figures.

289. A global sum is banged out all the time — £1·7 billion — and it sounds brilliant, but people look around them and ask how that helps their industries or sectoral interests. As well as demanding clarity from the Government, it could help if you devised specific questions that would help you understand the situation better, even if they were trafficked through the Committee. It will be in people's interests to get down to the nitty-gritty. However, we do not want to be floundering around in a morass of statistics and figures. If people are spending money, for instance on land acquisition, as part of a capital spend project, that is legitimate.

290. Mr Fox: Absolutely.

291. Mr McLaughlin: That is just as legitimate as the direct construction costs and the cost of hiring consultancy firms to design the project and project manage it, etc. We would like to see all of those kinds of aspects of spend defined better, and why not? There is no reason to keep them mysterious. It would probably help this Committee and other Committees if they were helped to design the questions in a way that helped them to extract the relevant information. That would nurture a good and mature working interaction with industry representatives.

292. That could also help to get them into the habit of sharing information, which is important because, without it, the ball keeps being passed around in circles. That is more a philosophical point. We could work together. The scrutiny Committees have some sense of their powers and abilities, but a positive working relationship with industry generally helps everybody, because it frees up any constipation in the system around defining how the spend affects the situation.

293. Talking to the press after this meeting or reporting back to your members after your meeting with the Minister, what specific suggestion would you make? What message would you want to leave with the Committee, the Minister and your members?

294. Mr Fox: The key message is the importance of investment in infrastructure. There are lots of things around the edges that could be improved, such as the procurement processes and the level of efficiencies. However, with regard to jobs and the growth of our economy, the key is to try to maintain, as much as possible, the level of investment in the building and maintenance of our infrastructure. That is the real challenge, and it will mean pain. Undoubtedly, those are difficult decisions. We are stuck between a rock and a hard place. Cuts in revenue will mean lob losses; cuts in capital will mean job losses, but a lot more than just job losses. That is the difference.

295. Other than the standard capital investment, consideration needs to be given to other things. Northern Ireland has a massive built environment that is underperforming in energy performance. Investment in that would reap great benefits, not only in the short term, with the creation of jobs to deliver it, but improvements in energy performance would reduce dependency on fossil fuels, and that would reduce the cost of fuel bills and fuel poverty. There are benefits and win-wins. A small amount of investment by the Executive would produce great societal benefits. We need to think outside of the normal standard strands of capital expenditure.

296. The Committee will be aware of the energy efficiency homes scheme, which gives people a bit of rates relief. That scheme was devised, and we were made aware of it quite late in the day. It turns out that very few people are even aware of that scheme. On top of that, only contractors who are registered with the National Ventilation Authority are permitted to insulate homes. People in Northern Ireland have not heard of that group; it is based in GB. Contractors and our members are coming to us and saying that they are more than capable of putting insulation in people's attics, but they are not able to do it because they are not registered with that body. The scheme is a good attempt to do something, and although the bureaucracy and administration around it does not render it useless, improvements could be made, which would be of great benefit to the local economy.

297. Mr McLaughlin: Talking about a rock and a hard place, you mentioned the aggregates.

298. Mr Fox: Contracts have been signed, sealed and delivered at this stage, and the price has been given to the client. For the Government to change the levy on aggregates after those contracts have been signed and, in so doing, increase the cost significantly, would be to kick the industry when it is down. I know that there is complete support across the board. The MEPs have been involved, and they are going to take the issue to Europe. The Finance Minister is fully supportive of a need to have this pushed back so that when people enter into contracts there is, at least, clarity on what levy will be applied to the aggregates that will be used on the job. In the longer term, it needs to be sorted out so that there is not a legal cloud hanging over it.

299. Mr McLaughlin: You are obviously familiar with the briefing that the quarry producers have issued. It is a very good document, but it acknowledges that there is little likelihood of an appeal succeeding. What options does that leave us with?

300. Mr Fox: The quarry producers are leading on this issue. The only options available are the options that they are taking. They are going straight to Europe through the MEPs and pushing from every angle that they can to look for a delay, at least, in the implementation of the system. To do it retrospectively would have be absolutely crazy and have a big impact on the industry. One contract that I mentioned was for a swimming pool, and the increase in the cost was £70,000. Multiply that across all the contracts that are currently let in Northern Ireland and you will see that it would have a phenomenal impact on the industry. Everyone knows that the prices that have been submitted recently for public sector have been low, because the contractors are desperate to win the contract. To be told that they have to take another slice off would be unfair. It is not about people making a profit; it is about how much of a loss they are making.

301. Mr Nigel Lucas (Construction Employers Federation): If the scheme is to be withdrawn, it would be unacceptable to give the industry three weeks' notice. The scheme would have to have a phased withdrawal over six months at least, and, as my colleague said, it should not affect contracts that have been signed.

302. Mr McNarry: When we had the boom, and I assume we had one because people talk about a bust, prices went overboard. I understand how a business mind works, so I mean no disrespect when I say that I did not hear anything from your organisation about prices being too high, about there being too much work or that tradesmen were having to be brought in from all over Europe, and so on. What contingency did you make in event of the bubble bursting?

303. I strongly support the construction industry. I, like Simon Hamilton, represent Strangford: a constituency that depends on the skilled and unskilled labour of the people who live there. We are mindful of how that contributes to our local economy. I hear that what I would expect to pay for a piece of land now is nowhere near as high as it would have been two years ago. Among my great frustrations with the 2020 project is that prices and the competition for materials are down. Is that reflected in percentage terms in current tendering? What difference would one expect per square metre, square foot, or whatever? Projects at final costing stage are gathering dust on the shelf. They have gone through all of the process to get there. Can a case be made for having a look at what is on the shelf and comparing the price at inception with what it would be today? That might be helpful.

304. My line of thought is that you could tell us with how many contracts in the past, say 12 months, have been finalised to costing stage; how many are going forward; and how many have been knocked back. As Declan O'Loan and Mitchel McLaughlin said, the Committee needs to have a picture of that. There is no point talking about billions of pounds; we need to see where is being hit and what is being affected, including sectors other than construction. Is it affecting education? Is it affecting sport? Is it affecting industry? Exactly where are we seeing it? To expect you to have those figures is a big ask. However, what is the breakdown between the public and the private sector?

305. Finally, the Committee came to know what was going on, particularly among quarry businesses, about the state of the roads industry. Not far from here, we had a road that was not going to be built, even though everybody was ready to build it, and it was half-built or something similar. That is the height of stupidity. Forgive me for again mentioning the constituency that Simon and I represent, but we have the worst roads in Northern Ireland and they are getting worse. What representation is being made, particularly about roads? If our roads get any worse, we might as well blow them up with dynamite and start all over again in 20 years' time. No one would insure our cars to drive along roads like those that we have at present, Simon.

306. Mr Hamilton: We could use a horse and cart, David.

307. Mr McNarry: Well, we could do that. My neighbours have those things. Horses are good for the organic vegetables as well.

308. Mr Hamilton: Back to basics.

309. Mr McNarry: To put all of that in perspective, when I walk around our —

310. Mr McLaughlin: There is too much manure in this conversation.

311. Mr McNarry: When I walk around our capital town of Newtownards, and then go into the capital city, I see too many empty buildings. Those have been built at a price. I have to wonder — you must give me an answer on this — why anybody would want to build any more, particularly in Belfast. How can we ask anybody to give relief money or such effort when there are empty buildings? Have you taken account of the stock of empty factories — I hope that we do not have any of those — and empty commercial buildings? That will do for starters.

312. Mr Fox: Between us, we will do our best to respond. I believe that I we were asked around 12 questions. I will try to go through them in reverse order.

313. We fully acknowledge that there has been a great deal of development and, because of that, there will be empty buildings. Our big concern is that the private sector, the private side of the industry, will not pick up and that, therefore, the industry will, in the medium term, be ever more reliant on the public sector. On the public side, there is no doubt that there is dire need for investment. For example, many school buildings need refurbishment. New schools are needed. There is also severe need for works in the health estate. You mentioned roads. The Roads Service's reports demonstrate clearly the percentage of roads in Northern Ireland that are below standard. There is potential for future infraction proceedings if Northern Ireland Water's investment is lowered. Demand for social housing is unbelievable. Right across the board on the public side — stadiums, public realm works, and so on — there is desperate need for building. On the private side, there is a need for house building. In parts of Northern Ireland, houses will not be built for a long time because there was oversupply in those areas.

314. Mr Lucas: Another topic that you mentioned was having projects on the shelf that are fully designed and ready to go. That is absolutely true. Specifically, many of the large capital projects that the education and health sectors had planned for 2010 have not been able to start due to cutbacks and lack of money. In education, around 63 new schools were to be built under the investment strategy.

315. Mr McNarry: I appreciate all that. I have no money: therefore, it is not my money that will be invested. I am trying to get at how well a case can be made to say that now is the time to build because prices are lower.

316. Mr Fox: Evidence of that is best gathered from public sector clients. In fact, CPD would be able to give you clear information on tender prices that it has received during the latest three-year period. I can guarantee that prices have fallen dramatically. The way that the construction industry works is that everybody now meets quality standards. Therefore, effectively, on many occasions, the issue comes down to price. We are hearing of prices that are well below cost winning work. When that happens, it raises questions about the sustainability of the industry. Of course, when one price is accepted below cost, that becomes the new bar against which everything after that is judged.

317. Mr McNarry: Do you agree with me that, as Nigel Lucas said, the case could and should be made that, although things are difficult, but, because of the deterioration and the effect on jobs, certain risks should be taken today to protect ourselves coming out of our present financial trouble?

318. Mr Fox: I fully agree.

319. Mr Lucas: We very often encourage clients who get a tender price significantly below the estimate to interview the contractor to ensure that they can deliver for that lower price. Given the lack of available funding, clients are tempted to let the contract run at unrealistically low prices.

320. Mr Fox: I think the point being made is that it can be argued that now is the time to get building because prices are low and great value is to be had. A strong argument can be made that there is great value out there now. That is a fact, and investing now would be better value than doing so at a peak time when people are fully employed and the rate for a bricklayer goes back up to x number of pounds a brick.

321. Mr Frew: Silly money.

322. Mr Fox: Silly money; absolutely. However, it is a big decision to get that money in now, but that is the investment that we are calling for. On the specific issue of roads, we have met the Regional Development Minister and we meet the Roads Service regularly. Of course, they continually tell us that they would love to invest more but do not have the money to do so. Again, that comes down to the key issue of funding. Our organisation is pressing for investment across the board. It is hard to distinguish between a school, a hospital or a road that are all in desperate need. It is important to consider them all.

323. No one doubts that house prices went sky high — well beyond what was reasonable. We feel that house prices have come back down. They have fallen by 35% or 40% to return to affordable levels. The big problem now is that funding from the banks and the lending institutions is not available. The rhetoric is that mortgages have increased, but that is not the experience that we hearing on the ground from builders who tell us that there is great interest in buying their housing; however, when it gets to the stage of getting a mortgage, the requirement for a large deposit is where potential buyers fall down, particularly first-time buyers.

324. Mr McNarry: What are your members' feelings about the problems or the concerns over NAMA? We are hearing figures of between £3·5 billion and £7 billion in respect of the assets that it will hold here.

325. Mr Lucas: There are huge concerns. First, a significant number of our members who have loans that are performing well are concerned that their loans will be taken up by NAMA, because there may be a stigma associated with that. There is no need to take such loans in. The other major concern is that some of the assets taken over by NAMA will result in land being put on the market wholesale. At a time when the industry is struggling to maintain sales, and when maintaining sales means maintaining employment, putting out land at knockdown prices will devastate the market.

326. Mr McNarry: That is worrying. Thank you.

327. Mr Frew: I have two comments that come out of that interrogation by David.

328. Mr McNarry: Wait; there was no interrogation.

329. Mr Frew: I was only joking. There was certainly a boom in the housing market. The limited boom in Dublin attracted many of our workers and companies, leaving plenty of work for the rest of them up here. However, a limited number of people benefited from that. Brickies and plasterers, who have been mentioned, got extortionate money but nobody else was. The prices charged by commercial and industrial companies reflected the costs of what they paid for materials. The price of copper and equipment that builders bought from the wholesalers went through the roof. Their labour rates stayed relatively the same, so there was no real boom for the person working on the tools.

330. I agree with the point that you made about tendering and having no prices. It is important for tenders to be fully inspected, and for people not to simply raise their hands and be happy because the tender is so low. There is a number of problems with that, the first of which is standards. Secondly, many companies, out of necessity, are submitting low prices to get jobs, and are asking the companies around them to submit relatively low prices to give them a cloak of respectability. That should not happen, but I can understand why it does.

331. You have spoken about 21,000 jobs being lost in only 30 months. I totally agree with that figure: it is a fact. However, there is another story with companies going to the wall. When times were relatively good, employees could move from one job to another and from one company to another. When those companies go, the whole landscape of the construction industry will totally change. I can tell you anecdotal stories about companies that have gone into administration or have gone bust, but I know that there are so many others that are teetering on the brink. Can you give us any indication of how many companies are in that position?

332. When prices reduce, that becomes the norm. Another common practice is companies taking contracts at a loss, because it is cheaper to do that than to pay for redundancies. That may be sustainable in the short term, but it is not sustainable in the current recession, which may last anything between five and 15 years.

333. Mr McLaughlin: There could also be a double dip on the way.

334. Mr Frew: Yes. How many or what percentage of companies do you feel are in a terrible position?

335. I have a problem with the practice of prompt payments not being made throughout the industry, and I think that the Committee should also concern itself with that. We know that most clients, whether in the public sector or the private sector, pay on time, but the main contractors, again perhaps through necessity, hold on to those payments. That practice is placing a stranglehold on the majority of the construction industry, because the main contractor's sub-contractors, specialist contractors and wholesalers are not paid. That is a major problem, and companies are not going to the wall because of a lack of work, but because of cash flow problems.

336. There was a debate in the House yesterday on the green new deal and the renewable energy sector. Do not hold your breath, but how well prepared would the industry be if the Assembly were to do something to help the recovery with regards to our infrastructure, energy and power? We cannot go out and build a Hoover Dam, but if we were to do something on a small scale in the field of renewable energy, how prepared is the industry to adapt quickly to take the full benefit?

337. Mr Fox: I want to pick up on Mitchel's comment about a double dip first. From the point of view of the construction industry, it has been one long slide, and we are still on that slide at the moment. There has not been even a plateau for the industry over the past couple of years.

338. Companies tend to be very good at keeping things quiet if they are sitting on the brink —

339. Mr Frew: Yes; they hide it.

340. Mr Fox: It is essential for the survival of those businesses that people are not aware that they are in trouble, because customers would back out of contracts and others would not be keen to use them. To be honest, we would not have a strong feel for those numbers and anything that we do have would be entirely anecdotal. Like you, we have heard talk and that is all. We do not ask our members if they are in difficulties and, even if we did, they would not tell us. I cannot give you anything factual and can only give you a feel. However, a lot of companies have been in survival mode for so long that it is inevitable that people will set reduced pricing structures for two years in the hope that things will get better, but things are not getting better and prices are not increasing. Indeed, the view is that things are getting worse and it is inevitable that more companies will go bust.

341. There have been varied attempts to address the issue of prompt payments through the construction industry forum, and the most recent attempt will hopefully be the most effective one. We regularly consult CASEC, which is the representative group for special subcontractors, and we have agreed a policy with them and various clients that the subcontractors must report on the payments that they have received at every monthly meeting. Therefore, it is not the case that subcontractors are telling tales about whether or not the main contractor is paying them, because there is a standard report. It is then up to the clients to use their authority to ensure that the terms of the payment schedules are adhered to.

342. I wish to pick up on your point that public sector clients always pay on time, because that is not the industry's experience. The Finance Minister requested that final bills be paid within 10 days. However, we have heard that that is not happening across the board. Of course, as with all these things, it tends to get a bit muddy and a bit grey when it comes to the arm's-length bodies. Once a Department gives a grant to a particular group — this is way in which a lot of construction work happens — that group is then given a big set of rules about how to procure and how to pay. However, that set of rules is often set down somewhere and no payments are made. That is causing problems for the main contractors as well as for those right down the supply chain.

343. As for the green new deal, 13,000 ex-construction workers are currently on the unemployment list. In fact, there is probably more than that because there has been reclassification: people who left construction jobs over the past couple of years and got a job in a supermarket, then went back on the dole are no longer defined as construction workers. There is a massive supply of skilled and unskilled people who are ready to go. The Construction Industry Training Board has the potential to very quickly redirect grant funding towards particular training courses. The federation and other groups have systems in place that can quickly train people at managerial and technical levels. Of course, if something were agreed in the Budget to advance the green new deal, it would not happen overnight. However, we as an industry feel that there would be no difficulty in reacting to that.

344. This issue has been raised before but in a different guise. When the first investment strategy was launched, people said that it was an awful lot of money for the Northern Ireland construction industry. They questioned whether the industry was capable of meeting the challenge, and the industry consistently said that it was absolutely capable. It said: "Put the challenge down in front of us and let us see what it is. Be clear about what you expect us to deliver, and we will prepare ourselves to deliver that." Of course, the industry geared up for that, only to have the rug pulled from underneath it. The green new deal is very similar. People will react if clear goals are set for what the industry needs to achieve. The industry will react quickly.

345. Mr Lucas: I wish to pick up on Paul's point about companies on the brink. Although we cannot provide figures for the number of companies in the house building sector specifically that are in that situation, there are clearly quite a lot. When the market was rising, the banks were very keen to lend money to companies to buy land in order to create deals. However, when the markets collapsed during the credit crunch, house prices adjusted and fell by 30% or 40%. The danger now is that once house prices start to show upward movement again, some banks will be tempted to cut their losses and foreclose businesses. However, we believe that they should instead show some responsibility and try to help to nurture those companies back to full health.

346. Mr Frew: I agree.

347. The Chairperson: As you know, those issues were raised in our discussions with the banks, and we will continue to raise them.

348. Mr McLaughlin: On that point, the banks are clearly monitoring underpricing very carefully. Companies, particularly small contractors, are being summoned in front of their bank managers and are being asked to either reconfigure their facilities or, in some instances, submit a new business plan. Some viable business and those that are capable of surviving the downturn are in danger of being driven out of business. They are not on the brink because they cannot manage their way through the crisis; they are on the brink because, in some instances, banks are, effectively, closing them down.

349. Mr Lucas: Banks are pressurising businesses because they are trying to recapitalise themselves. One way in which they can do that is, as you said, by reducing clients' banking facilities and, at the same time, increasing significantly the charges that they apply to small businesses.

350. Mr McLaughlin: My supplementary questions relates to government business. I am thinking particularly about arm's-length bodies, some of which have legal autonomy. That makes it difficult, for instance, for a Minister to make interventions that could help you. Have you commented on or considered the move to measured-term contracts by many of those arm's length bodies and quangos across the board and in different Departments, and how that affects micro-business? Many contractors are facing the wall because the threshold has simply been set beyond their ability to compete or even to co-operate with each other successfully in order to compete.

351. Mr Fox: Our view has consistently been that public procurement should be about opportunities for all. We believe that that should be looked at throughout the public sector. Northern Ireland Water might say that for its business to run efficiently, it cannot put out individual contracts of £100,000 every time; it has too many contracts, too regularly and, therefore, needs to have measured-term contracts. That is fair enough if there is a good economic reason. If it is for efficiency and delivery, the industry can buy that.

352. A couple of years ago, there was a drive for major frameworks. We were on the brink of having an educational framework, which every single school would have gone through, and a massive CPD framework, which would have captured many other projects as well. I believe that it amounted to £800 million. Now, we have moved away from that. The current process is that individual schools come out one by one. Clients report that that process is, obviously, administration heavy, bureaucratic and slow in getting work out. It is probably not the most efficient way to procure. However, at present, it provides great value for money because tender prices are very low.

353. A balance must be struck: when you look at the full armoury of procurement methodologies, ensure that you use balance. Tenders for some schools could be part of a mini-framework. Tenders for others could be individual competitions. We have been keen to look at a rota system for projects in the health estate, whereby any company that is capable of, for example, doing minor works would be able to get onto that rota. It would be clear what companies had to do to get onto the rota and how often the list of companies would be refreshed. Therefore, it would not be a closed shop. Clearly, if the rota were to start today, any work that went out to tender up to a certain value would go through it. After, let us say, a year, that would be closed and the rota would reopen.

354. That would be efficient in so far as there would no requirement for constant prequalification. At present, we are working with CPD on the potential for the use of random selection as a way to try to short-circuit the process. If you imagine that — and this is happening across the board — a small, let us say, £200,000 job is advertised and 60 companies are interested, probably 50 of them are more than capable of doing the job to the exact standard that the client wants. How is the client supposed to choose five of them from which seek tenders? Under the current process, that would require a full pre-qualification document from all 60 companies. The client would then have to mark those documents and assess all of those companies. That is very bureaucratic and potentially gives larger contractors, who have great systems and people who are dedicated to writing those documents, a better opportunity or increased chance of winning.

355. We are moving towards the potential use of random selection in limited circumstances for contracts that are below £500,000, although none of that is agreed yet. Those contractors who are interested would answer a basic pre-qualification notice. From them, 10 would be randomly selected and assessed. The top five from those 10 companies would tender for the work. We believe that that would be a way of increasing opportunities for smaller companies. However, it needs to be looked at in full across the public sector. Although some clients can say, rightly, that frameworks — even larger ones — may be appropriate for them, the case is not quite so justified for others.

356. Mr McLaughlin: The issue for us is compliance with EU competition law, and to give indigenous enterprises the opportunity to compete and to ensure that there is no inbuilt disadvantage. You have described the minor works and the higher capital works. However, there is a significant market in the maintenance sector for the existing estate. Again, small contractors, some with decades of experience, are more than capable of doing the work but are not capable of meeting the thresholds in respect of those measured-term contracts. In a sense, they are being legislated out of the market, and where else have they to go but to the wall? We are losing a lot of skill and capacity. Have you submitted a presentation on that overall situation?

357. Mr Fox: No, but we would be happy to have give the Committee our overall views on the breadth of procurement. If we have raised any issues today on which you would like a more detailed follow-up paper, we would be happy to provide that. We see this as the start of a dialogue over this difficult period for the industry.

358. The Chairperson: It would certainly inform the Committee.

359. Mr McKay: Many of my issues have been covered. However, from the perspective of the Committee and the Assembly in general, we need to halt the slide before we can recover. It is disconcerting that there are still 700 job losses a month. If a company were losing that many jobs, it would be on the front page of the paper. I am thinking of the effect that Quinn Insurance had on the entire community. It is death by a thousand cuts, and it is having a big impact on rural communities. David referred to the Strangford area. The need for fewer construction workers is having a big impact in north Antrim and, probably more so, in mid-Ulster, together with all the services that have been affected, such as filling stations, etc, that no longer see the white transits lined up outside the door.

360. The banking issue has been covered already. Whatever the rationale may be for the aggressive banking practices, it is certainly having a huge impact. We have only had a general picture so far with regard to how many businesses are being pushed to the wall. Do you have any figures or any idea that would give the Committee a general impression of the scale of businesses that are being pushed to the wall on the basis of loans and overdrafts that are being called in, etc?

361. Mr Fox: We do not have the figures for the specific element of why companies being driven to the wall, and I do not think that it is available.

362. Mr Lucas: It would be difficult to be exact. People would just regard it as being commercial job losses.

363. Mr McKay: How big a factor is it with regard to the overall job losses?

364. Mr Fox: From what we can gather, a lot of the job losses are from companies that still exist. A lot of companies have the ability to almost hibernate. The ribbons of the businesses have been cut and they have been strimmed right back to their bare bones for survival: that is where a lot of companies are. Even those who are still working are working short weeks, and that is not reflected in any figures. Nevertheless, it is reflected in people's pay packets, and they know all about it. That makes it difficult to get the real hard sense of it.

365. Mr McKay: How constructive have your engagements been with the banks?

366. Mr Lucas: The banks tell us that they are open for business and ready and willing to lend, particularly in the house-building sector. However, when we talk to them, they say, first of all, that they are looking for a loan-to-value rate of around 75%. In other words, if you want to buy a house at £100,000, you have to put down a £25,000 deposit. I do not know too many young people looking for starter homes who could put down £25,000. The next thing is that, if a bank does give you a loan, the interest rate will be significantly higher than the current base rate. The base rate is 0·5%, but the interest rate for mortgages for first-time buyers is around 6·5% or 7%.

367. The third and crippling factor is that, if a young couple applies to a bank for a mortgage, instead of, as in the old days, applying the prudent three times the first income test and one or two times the second income, the banks now put couples through a stress test. Three years of bank statements are looked at so that the bank can see a couple's income, expenditure and outgoings, to determine how much is spent on loans and other commitments, such as food and going out. If the bank finds one example of a missed payment, for example, of a credit card or utilities bill, that is enough for it to turn that couple down. That is why houses are not being sold at the moment. Our members have plenty of demand from young people wanting to buy houses, but they just cannot get the mortgages.

368. Mr McKay: I spoke to somebody who had reapplied for a mortgage in the past four or five months. Everything was going fine until something came up in a credit check. However, the banks are refusing to tell that person the specific reason. It is case of going from one extreme to the other. Is that happening across the board? Are some banks better than others? A couple of weeks ago, four banks came before the Committee, and some said that they were doing more than others.

369. Mr Lucas: Over the past 18 months, we have, on three or four occasions, met all the major local banks. The scenario has been the same as that which I have just described. The banks say that they are open for business and ready and willing to lend. However, the reality is very different.

370. Mr Fox: We must remember that the majority of mortgage lending does not come from local banks in Northern Ireland. We have to ask how much influence those banks that are lending mortgages have over policy in Northern Ireland.

371. Mr Lucas: That is the biggest problem. The Northern Ireland market is perhaps less than 1% of the UK mortgage market, and the policies on bank lending are being set in London.

372. Mr McKay: Has the rate of young people coming through apprenticeships in the colleges and techs been affected? Are people deciding to go down another route? Is there a stream of young people coming out the other end of those courses with nowhere to go?

373. Mr Fox: That is a major problem for our industry and for society. We track, through our stated trade, the proportion of apprentices to employees. Over the past two or three years, that has gone from a high of around 6% to the current figure of just above 2%. That shows what is happening in the industry. Companies have shrunk their businesses, are holding on to the people who are skilled and able to do the work, and have not been able to hold on to their apprentices. Most people that I hear from would love to be able to take on apprentices, and it is with great regret that they cannot. However, when it comes to business decisions, companies have to try to survive. It is at those times that apprentices are let go.

374. As you would expect, fewer people are coming through the system. However, we are very keen to try to raise the bar for the industry. The Construction Employers Federation's role is about not just representing our members' interests, but about driving the industry in a positive direction. We have been working very closely with government construction clients to agree that any company wanting to work for a government client should be able to demonstrate that 5% of its workforce is made up of apprentices, and our aim is to try to sign off on that by around 13 October 2010. Therefore, it will not just be the companies that win government contracts that will have to meet the 5% target, but any company that is even going for a contract. If companies want to work for a Northern Ireland government construction client, they will have to demonstrate a commitment to apprenticeships through that 5% ratio, which is 1:20. That will be very healthy for the industry and good for public expenditure, as well as delivering a very positive social benefit.

375. To come back to what I said at the start, that is another example of a tangible benefit that investment in construction can deliver. The benefit is not just economic but societal.

376. The Chairperson: You made your point well about apprenticeships, given that recent reports illustrate the unacceptable numbers of young people who are unemployed and who will continue to be unemployed. Those young people perhaps left school with no academic qualifications, and learning a trade through an apprenticeship is a way for them to go back to further education and skill themselves up to create better employment opportunities. That was a very good point.

377. Mr Frew: On the electrical side of things, and the mechanical too, I imagine, you used to have to pay everyone off except your apprentices. That made it very hard for companies to survive; if they hit a bad patch, they basically had a workforce that could not do the job. I think we have to be very careful about how to proceed.

378. The Chairperson: We are talking about creating opportunities for young people in particular.

379. Mr Hamilton: The circumstances are well known; there has been an awful coincidence whereby lots of things have happened at the same time. The private house-building bubble has burst and issues around borrowing are not helping us to get out of that. On the public side of things, we are facing the reality of reductions. That is viewed by the Treasury as an easy target. The orthodoxy is that if you do not build a school — it was not there to begin with — then nobody would miss the school that was never there. People will notice the impact it will have on the construction industry right down to retail and professional services.

380. I have two questions; one is on planning. The sad reality is that some frightening figures are being bandied about regarding the level of cuts in, say, capital expenditure. Even if they are not as bad as the really bad ones, they are still bad. I do not want to invite you — or me — to be impaled by Justice Girvan, but one way of getting out of this is private investment. There are significant projects across Northern Ireland. I am not thinking of some of the big ones that are in the news headlines, but smaller ones that have been stuck for a while. What discussions have you had with the Planning Service and maybe with the Department to try to improve that situation? I know that there have been significant improvements over the last couple of years, but we need to try to continue to drive further improvement into the system.

381. I have a quick question on a complex issue. We have talked about alternative funding models; have they been a variant on the traditional alternative method of PPPs, which were on major infrastructure like roads, schools and hospitals, or have you looked at public sector housing as well? I think there is greater potential there because you would be building an asset that has a steady income stream, rather than just have something coming out of the revenue side.

382. Mr Lucas: I will address the issue of the planning system first. We have been working closely with senior officials at Planning Service headquarters over the past 18 months or more to try to improve the planning system as it stands. That was in advance of the review of public administration. We have had a number of successes in getting rid of the backlog by taking minor planning applications out of the system through the principle of delegated powers, whereby they just go through local councils on the nod. That allows the Planning Service to concentrate on the more significant planning applications.

383. However, the difficulty that we have found is that, although there is absolute commitment at headquarters level to deliver those changes to the planning system and have a change of attitude within the Planning Service, that message seems to get dissipated and dissolved before it gets to divisional level. Our members tell us that there has been very little improvement at divisional level. That has not been helped by the fact that the Planning Service has suffered a loss of staff recently, which again means that its workload is significantly more than it should have been. They were struggling to maintain output even in these difficult times with the industry slowing down. We do not see any significant improvement in the figures coming through the planning approval system. That all creates uncertainty. An efficient Planning Service is a key factor in attracting inward investment. There is also uncertainty about what is going to happen post RPA.

384. Mr Fox: Our figures show that, since 2006, our members have consistently reported that it takes an average of 18 months from planning application to planning decision. To be honest, the variation is massive. Some people say the process has improved quite a bit, others that it takes a lot longer, but the average period of 18 months has not changed. That is surprising because we hoped that the changes that Nigel Lucas described and the interaction that we have had with them, along with the general thrust for reform, would help us to see some benefits come through. However, the consensus is that there has not been any real improvement on the ground.

385. Regarding private finance, in short, we are looking at social housing as well. We use the word "alternative" because we are looking at any way, other than the traditional public money route, to bring in money. If any Committee members have any suggestions or would like to assist in that work, we would be keen to involve them.

386. Mr Hamilton: We will certainly do that.

387. The Chairperson: Before I bring in Mr McNarry, members are very interested in some of your alternative finance proposals.

388. Mr McNarry: My question was on planning and it has been dealt with adequately.

389. The Chairperson: That ends members' questions. I thank the witnesses for a very informative evidence session. A few issues were raised about which we wanted more information, such as the measured-term contracts around procurement and the alternative finance model. If the witnesses have any questions that they want to factor into other Departments' thinking, they can use this Committee to ensure that that those get through.

390. Mr McNarry: It would help to have the federation paint a picture of what it knows about projects that are in the system but will not go ahead.

391. Mr Fox: I suggest that the best people for that are the clients, because they have better information than us. Ours would be scrabbled together, whereas they would have it in front of them.

392. Mr McNarry: I understand that, but the clients do not appear here, you do. You represent the federation.

393. Mr Fox: OK. I am sure that we can get that information from the clients.

394. The Chairperson: Thanks very much. If you have anything to add, feel free. The Committee has no more questions.

395. Mr Lucas: In closing, I reiterate what Ciarán Fox said at the start of the session. We may hear of a manufacturing organisation putting two or three people on the dole in one week, but the nature of the industry is so dissipated that losses in construction far outweigh the losses of an individual manufacturer, simply because unemployment in construction is rising at the rate of six jobs here, four jobs there and a few jobs elsewhere. Collectively, over the past 18 months, we have hit nearly 30,000 unemployed. That is staggering, so anything that the Committee can do to address that issue would be very welcome. We thank you for the opportunity to be heard.

396. The Chairperson: Certainly. Thanks very much.

6 October 2010

Members present for all or part of the proceedings:

Ms Jennifer McCann (Chairperson)
Mr David McNarry (Deputy Chairperson)
Dr Stephen Farry
Mr Paul Frew
Mr Simon Hamilton
Mr Daithí McKay
Mr Mitchel McLaughlin
Mr Declan O'Loan
Ms Dawn Purvis

Witnesses:

397. The Chairperson (Ms J McCann): I welcome Veronica Holland, Andrew McAvoy and Tracey Ayre from the Department's rating policy division. I propose that, if Committee members are content, we move straight to questions.

Members indicated assent.

398. Dr Veronica Holland (Department of Finance and Personnel): I apologise for the fact that Brian is unable to make it today. He is in Brussels on work business.

399. Ms Purvis: I have some difficulty with industrial derating. It is a universal benefit to business and is not focused or targeted at any specific scheme. The briefing paper states that revising the scheme would run the risk of contravening state aid rules. Would it simply run the risk of contravening those rules or would it actually contravene them?

400. Dr Holland: Any re-targeting or refocusing of the current scheme would run a significant risk of contravening state aid rules. It is highly likely that it would be deemed to be a new state aid measure, and, on that basis, it is not possible to re-target or refocus a scheme. We appreciate the concerns that are expressed about it being, essentially, a blunt mechanism; one that would be more effective if it were more targeted and focused. However, it is not possible within those constraints to change the nature of the scheme. It is also not possible, legislatively, to make any alterations without new primary legislation, other than those on the level of support that is provided more generally. The more pertinent issue outside of the legislation is the risk of challenge by the EU.

401. Ms Purvis: It is targeted specifically at manufacturing and not at other businesses.

402. Dr Holland: It is allowed to continue by virtue of the fact that it was a pre-accession measure. It would not be possible to introduce a measure such as industrial derating today. It is allowed to continue as it was in place at a much earlier date.

403. Ms Purvis: What would happen if, for example, the Minister sought assurances from the manufacturing industry that, in return for capping the rates at 30%, those who benefit would look at investing in research and development or exports?

404. Dr Holland: Are you asking whether that would be feasible?

405. Ms Purvis: Yes.

406. Dr Holland: There are also difficulties associated with redirecting money.

407. Ms Purvis: Sorry; you misunderstand me. I am not suggesting that government should redirect the money. We are talking about growing the economy and about industrial derating as a measure for doing so. To grow the economy, we need many things, which include the need to increase exports and to invest in research and development. If the Minister got agreement to cap industrial rates at 30%, could those who benefit from that cap be asked to give the assurance that whatever they save will be invested in their own companies in research and development or in increasing exports?

408. Dr Holland: I think that the Minister would be keen to see something like that. In practice, the difficulty would be getting those companies to sign up to it, and it is probably unlikely that we could place some form of obligation on them. The Minister and the Department could indicate their keenness to see what you suggest happen, but there may be difficulties in placing any formal obligation on those companies and penalising them were they not to adhere.

409. Mr Andrew McAvoy (Department of Finance and Personnel): There is no capacity in the primary legislation that would allow us to put a legislative onus on businesses to provide a return on industrial derating.

410. Dr Holland: It would probably be a goodwill measure. A number of companies would probably commit to it, but others may not. As Andrew said, there is currently nothing that we could do legislatively to oblige them to commit.

411. Ms Purvis: I am concerned that some businesses see industrial derating as a tax rebate and put it in their back pockets.

412. Dr Holland: Yes; whereas the money that is saved should be used to improve the economy for the benefit of all.

413. Dr Farry: The policy decision that the Executive are potentially about to take is to extend the measure to 2014-15. Is that the intention?

414. Dr Holland: Yes.

415. Dr Farry: With regard to the decision-making process, is it intended that one Order will cover that entire budgetary period, or will there be annual Orders?

416. Dr Holland: The intention is for one Order to cover that entire period. I suppose that there would be nothing to stop a future Assembly from taking a decision to revoke that. At this stage, however, the intention is to bring forward one Order next year.

417. Dr Farry: You referred to Brian being in Brussels. I wonder whether he is trying to negotiate some leeway around this. Given that there is the potential for some radical changes to EU state aid rules by 2013, is there a danger that what happens with the rules will overtake our policy?

418. Dr Holland: We would be keen to ensure that any changes were taken account of and reflected in what we were doing. At the moment, the intention is that we will bring forward that one piece of legislation to cover that period. Should changes be needed at a future date as a result of Executive decisions or external factors, it would be possible to bring forward a further piece of legislation to amend that.

419. Dr Farry: Is it accepted that, in economic terms, there is a considerable deadweight to the rebate?

420. Dr Holland: That was covered in the Economic Research Institute of Northern Ireland (ERINI) report. It is the case that industrial derating is a blunt measure. ERINI indicated, and we support the fact, that if we were starting from scratch, we would not have industrial derating in place. Unfortunately, we are not starting from scratch, and the issue is what we do with the measure that we have in place and what the level of rates liability should be for that sector.

421. Dr Farry: We also need to take the opportunity cost into account. At what expense do we lock ourselves into doing this for the lifespan of the next budgetary period, bearing in mind that the same amount of resources could be used to support business in other ways with potentially greater benefit? One such example is corporation tax. We are still chasing that and are getting slightly warmer words than was the case.

422. Dr Holland: Yes; there were warmer indications this morning.

423. Dr Farry: In the event that we get the ability to lower the rate of corporation tax, we have to decide how we will fund that. Presumably, it could be argued that the money used to facilitate the lower rate of industrial rates could be used more productively to support the lower rate of corporation tax, which, taking on board Dawn's point, would cover a wider range of businesses and also target businesses that are more profitable, thereby facilitating export growth.

424. Is there a danger that we lock ourselves into something that will restrict our ability to shift resources into more productive ways of supporting business, particularly if the opportunity should arise with corporate tax?

425. Dr Holland: Again, at the moment, the intention is that, if the 30% is agreed by the Executive, it would apply for that full period. That would not, I suppose, prevent the Executive from deciding at a future date that there should be some change. At this point in time, though, the intention is that that measure would apply for the full period.

426. There are concerns about revenue foregone, and significant sums are involved. In the figure work quoted, it is the difference between the 30% and 100% that is often referred to, whereas account has to be taken of the fact that we are probably unlikely ever to be talking — certainly not in that time period — of the full £56 million being recovered from the sector. That is one important factor to be taken account of. However, we do appreciate those concerns.

427. Dr Farry: I return to the Assembly's debate about the green new deal yesterday. Is it fair to say that the biggest competitive disadvantage for manufacturing in Northern Ireland is not so much property prices as energy costs? Surely, the logic is that the state would seek to intervene to help on the energy front rather than the property front, because property is not as big a problem cost-wise as energy?

428. Dr Holland: Certainly, the ERINI report indicated that electricity and gas costs were a big factor for firms. I am not sure whether that is something to which we would give consideration as such. The ERINI report did flag that that cost was a significant issue for the manufacturing sector and something that should probably be looked at, perhaps not by DFP but by the Executive more widely.

429. Dr Farry: That highlights the concern that this decision has to be taken in the context of a wider discussion on a whole range of economic issues and not simply confined to a DFP silo.

430. Mr McLaughlin: The predominant argument in the briefing paper is that we cannot adjust this relief without risking the possibility of EU action. If we abolish it, we cannot reintroduce it. The argument is really a rationale for maintaining the status quo. You made the interesting comment that, if you were considering the whole issue today, you would not opt for this particular relief.

431. Dr Holland: That is something that ERINI flagged up. However, its view was that this is the second best position. We are not describing what we would do if we were starting from scratch; we are trying to accommodate what we have at present.

432. Mr McLaughlin: I will tell you what I am exploring. I understand what you say, and we have previously discussed the ERINI report. However, it is adversely affecting our ability to think outside the box. The Minister is not saying that he will introduce this for the upcoming Budget period and then stop it. We will get an argument for the status quo in four years' time, because people are saying that, if we do away with it, we cannot go back to it.

433. Dr Holland: There is an issue if, say, for argument's sake, liability is increased to 40% or 50%. We cannot decide at a later point to revert or to change that to provide more relief. We are not saying that, in another four years, the Minister will necessarily bring forward a similar argument for retaining the status quo. It will have to be looked at in the economic context of that time and how the manufacturing sector is doing.

434. Mr McLaughlin: There is an economic context now, and that is really what I am complaining about. My complaint is a fair criticism. We have not been given a rationale that includes the EU state aid consideration and also assesses the benefits of this relief in the current circumstances. No one has bothered to assess that, and I think that that is a glaring omission. What is the benefit of the relief? Is it based on the survivability of small companies? Is a blind eye being turned to the abuse of that relief? There are people who are effectively warehousing but are camouflaging their operations as manufacturing. We know that it is going on. Why are we not getting the full picture and an indication as to whether this relief represents a strategic benefit to economic activity? In the paper, we have only a defensive argument.

435. Dr Holland: The concern is that, given the economic circumstances of the moment and the difficulties that manufacturing is facing, any significant change in the level of liability that is imposed on the manufacturing sector will have an adverse impact on that sector in respect of the viability of firms, employment, etc.

436. Mr McLaughlin: So, the reality is that we have a manufacturing base in which significant parts or some sections are not viable unless we give them 70% rates relief?

437. Dr Holland: It is not necessarily the case that significant numbers of manufacturing companies are not viable. The issue is that, if the level of liability on some of those manufacturing companies were to significantly increase, it could potentially have an adverse impact on them and on employment, given the economic circumstances at this time.

438. Mr McLaughlin: We all understand why the lobby is vociferous. As politicians, we are not insensitive to that. However, the underlying issue with which we have to deal is that our private sector is underperforming and is uncompetitive, in many cases. We do not achieve the same productivity as other, similar regions, and yet we are providing relief rather than encouragement.

439. Dr Holland: There is a desire that, along with measures such as industrial derating, steps are taken to encourage the private sector and to boost productivity. That is not in our remit in respect of a rating measure. Unfortunately, we cannot alter the scope of this scheme.

440. Mr McLaughlin: You have responded, and I do not want to get into a debate about it, but I made a point about assessing the wider rationale for the continuation of this particular measure. Could the Committee have that rationale? I would like to see it in writing.

441. Dr Holland: That is fine.

442. Mr McNarry: Growing the economy, as far as I am concerned, is about keeping businesses in business and making them profitable, but I do not subscribe to keeping people in business when they cannot pay their way. I am concerned about the way in which the Department is handling this matter. It is not quite drip-feeding that we are getting, but we are close to being asked to give our opinion or to take decisions that lead to giving an opinion, on the hoof, with no insight into priorities coming from our Department or any other Department in the face of the current and looming reductions. I find that difficult, because, although I am sympathetic, I am being asked to pluck something out now that will go to the Executive. Our Committee will have said whatever it is going to say, but what is coming next week or the week after? We are not seeing an overall picture. I am concerned about how we are handling this matter, and it is difficult for me.

443. The briefing says:

"In not rating … £31m - £32m regional rates revenue would be foregone annually over the next four years (with 30% liability)".

It then says:

"such a figure makes a somewhat unrealistic assumption that all of our manufacturing firms can afford to pay full rates".

What does that mean?

444. Dr Holland: It is meant in the sense of moving immediately or very sharply from a 30% situation to a 100% situation. We do not want to imply that significant numbers in the manufacturing sector are dependent on rates relief for continued viability. It is more to do with the fact that were there to be a significant shift in the policy over a short time frame —

445. Mr McNarry: I am glad that you said that. I know that it is only a briefing paper, but instead of saying "all of our manufacturing firms", why do you not tell us how many businesses cannot afford to pay full rates and what the consequences of that are? That would make more sense; we could understand that. The briefing goes on:

"The collectable figure is likely to be considerably less but, to be candid, it is 'anybody's guess'".

I wish that I could say to someone in business or to a constituent that it is "anybody's guess" what is going to happen here.

446. Dr Holland: Unfortunately, we do not have figures to hand to show us, if we were to jump immediately from 30% to 100%, what the impact would be or how many companies could potentially go under as a result of that. I apologise if the briefing is somewhat misleading in that regard.

447. Mr McNarry: It is not misleading; you have explained it. It tells me that, really, we do not have a clue. If you have figures, we need them. I cannot accept something that says that it is anybody's guess what the collectable figure might be. We are not in the position of guessing at a time when the Minister is saying that he would like to proceed with this course of action. The briefing also tells us:

"The Minister intends to make reference to retaining industrial rates liability at 30%".

448. He intends to do that at tomorrow's Executive meeting. I sometimes wonder, Chairperson, what it is that we are being asked. Are we being asked to give the Minister some sort of cover?

449. Dr Holland: No. I think that the Minister is keen to take on board the Committee's views before that paper is discussed.

450. Mr McNarry: I suspect that perhaps he is keen to know them rather than to take them on board.

451. Finally, what is the debt on collection of industrial rates?

452. Dr Holland: Sorry; what do you mean by the debt on collection?

453. Mr McNarry: What are we owed? What are you not collecting?

454. Dr Holland: I am sorry; I do not have a figure available for the arrears. We will find that out for the Committee.

455. Mr McNarry: You say that you will find that out for me, but that is a bit too late. When the Minister is asking what he is asking — unless somebody can tell me that I have missed something — it is very important that I know the existing rates arrears. What are we not bringing in? What is the problem? Is it a major problem? Can you tell me that? Is it significant?

456. Dr Holland: Do you mean that you want to know how much of the 30% that is currently being paid is not being collected in revenue? Or, do you mean the sum in relation to the 70% relief?

457. Mr McNarry: I am asking how much revenue you would expect to bring in from rates.

458. Dr Holland: Do you mean if it were to be charged at 100%?

459. Mr McNarry: No, as it is now.

460. Dr Holland: As it is now, it is about £20 million to £25 million for 30% liability.

461. Mr McNarry: Are you telling me that, as it is now, we would expect to draw in £25 million?

462. Dr Holland: That would include the regional and the district rate elements. On its own, the regional rate element would be around —

463. Mr McNarry: So, the simple question is: what are we bringing in?

464. Dr Holland: Unfortunately, I do not have access to figures on what is collected from that sector, but we will find that information out and come back to the Committee with it.

465. Mr McNarry: Well, without that information, I cannot reach an opinion on this.

466. Dr Holland: I apologise. I did not appreciate that the Committee would be interested in arrears levels for the manufacturing sector.

467. The Chairperson: Will you get that information for the Committee, Veronica?

468. Dr Holland: Yes.

469. Mr O'Loan: My questions are in a similar vein to those of other members, particularly Mitchel. Is manufacturing so distinctive that it merits a 70% discount when other business does not get any? I do not think that the information is there, in strong evidential terms, to argue that case. Nobody would advise a jump from a 70% discount to a zero discount straight away. Therefore, if that is ever to be changed, it would have to be done in stages, with pauses to reflect on the consequences of change, one stage at a time.

470. ERINI argued that the discount should reduce from 70% to 50%. If we look at the figures for that, we see that the loss in regional rates of that not happening would be £9 million. However, compensation is paid to district councils — the figure quoted is £25 million. May I take it that that would apply if we went to 100%?

471. Dr Holland: That would be to 100%. The district rate element is probably in the region of £7 million to £8 million.

472. Mr O'Loan: Yes, that is the figure: two sevenths of the £25 million would be about £7 million. Therefore, the total cost in not going to the ERINI figure of a 50% discount would be £9 million plus £7 million, which is £16 million. That is what we are currently losing. If we changed to the 50% discount, that would become the gain to the Executive.

473. My immediate question then is: what would be the loss? What would be the loss to the manufacturing sector? How many jobs would we lose? Is it an extra piece of pain that firms could not take? We do not get any information at all on that side of the equation, which leaves the Committee in a difficult situation. We need more information on that, difficult as it may be to find.

474. You said that you cannot vary the scheme itself. However, if a move were to be made to reduce the discount, could you bank the proceeds and use them to assist manufacturing in a much more dedicated fashion? Is anything such as that conceivable?

475. Dr Holland: Do you mean in terms of the additional revenue that the Executive would bring in from increasing liability to, for example, 50%?

476. Mr O'Loan: Yes.

477. Dr Holland: My understanding is that that would probably give rise to similar state aid issues. Again, there would be difficulties in respect of targeting a particular sector. I consider that it would be deemed to be, in effect, a new state aid measure.

478. Mr O'Loan: You talk about the difficulties of targeting a particular sector. However, we do have an economic policy to some degree. Invest Northern Ireland has strategies that are not broad-brush but state that they will do particular things in particular sectors. What is there to prevent us saying that we have extra money, which we will use to advance certain aspects of manufacturing, whether that be R&D, training, assisting exporting or whatever?

479. Dr Holland: We would run into difficulty if specific moneys were redirected and awarded to companies as a form of blanket relief for that sector or parts of it.

480. Mr O'Loan: It may not be impossible to design a scheme in which the money is used in a way that the manufacturing sector sees as conferring some benefit on it.

481. Dr Holland: That could be looked at. However, without looking at the detail, my sense is that state aid issues and difficulties would be likely to arise.

482. Mr O'Loan: David's question on arrears is valid, but only if comparisons are made through the information that comes back. If information came back to the effect that the manufacturing sector is having a lot more difficulty paying its rates than other businesses, as exemplified by its level of arrears, that would tell us something. It would be useful to have that information.

483. Mr Hamilton: Some members have performed their well-established roles as sceptics of the policy, so it is probably time for me to step forward to play my role as cheerleader. I accept the point that others have made that, if a policy were being designed to help the sector, this would not be the starting point. However, I imagine that the consequences for the sector would be quite serious if the policy was not retained. We capped it at 30% a number of years ago on the basis of the economic climate at that time.

484. Dr Holland: The situation is worse now than it was at that point.

485. Mr Hamilton: It is arguably much more perilous now. I take the point that Mitchel and Declan made about having substantive evidence or commentary. I would be happy to see the evidence to back up the argument to retain the policy, and I share the views of others that we should seek that evidence. It is not really a question, but I want to register my view that, imperfect as the policy mechanism is, it is still required at this level at this time. The Committee would benefit from seeing commentary and evidence that backs up the perilous position that manufacturing is in. I believe that that evidence exists and can be produced, but it is not here at the minute. If that evidence is what it takes to persuade some members of the merits of retaining the policy, it is worthwhile to seek it.

486. The Chairperson: It seems to me that we need more evidence. Most Committee members have said that we need access to evidence of the benefits and the wider rationale of the policy. We need to know the level of outstanding debt or arrears and what the loss to businesses would be if the policy were removed. It would be helpful for us to have that information to enable us to have an informed opinion.

487. Dr Holland: We will get that to you as soon as we can.

488. The Chairperson: Does the current system apply to all forms of manufacturing or just the more traditional forms?

489. Dr Holland: It is directed at mines, quarries and what would be deemed as factories. Essentially, it applies anywhere where manual labour is involved in the production or alteration of particular goods.

490. The Chairperson: Does it apply to more high-tech manufacturing, such as the production of component parts of computers?

491. Dr Holland: My understanding is that it does not. The policy is focused largely on manual labour; the software side of manufacturing is not eligible for industrial derating.

492. Mr McLaughlin: It is not really an element of, say, the foreign direct investment (FDI) strategy or of trying to develop the manufacturing base of the economy. It deals with an existing component.

493. Dr Holland: It is unfortunate in a sense that the focus is on dealing with where we are, as opposed to us being able to do anything different.

494. Mr O'Loan: Several sectors were named. Given that food manufacturing is such a big part of our economy, is food processing, whether on farms or in more commercial environments, captured?

495. Mr Hamilton: It is if it is commercial.

496. Dr Holland: I am not sure, but we will check that out.

497. The Chairperson: In the information that you provide to the Committee, will you tell us what is and is not included under the policy? Thank you for coming along, and we await that information.

498. Dr Holland: We will get it to you as soon as we can.

6 October 2010

Members present for all or part of the proceedings:

Ms Jennifer McCann (Chairperson)
Dr Stephen Farry
Mr Paul Frew
Mr Daithí McKay
Mr Mitchel McLaughlin
Mr Declan O'Loan
Ms Dawn Purvis

Witnesses:

499. The Chairperson (Ms J McCann): I welcome Richard Pengelly, public spending director, and Shane Murphy from the performance and efficiency delivery unit (PEDU). Given that we received the Department's briefing paper, if members are content, we will move straight to questions.

Members indicated assent.

500. Mr O'Loan: Thank you for coming before the Committee. I shall ask you about a few general points. When a Department receives a report from a Committee, it is normal practice for it to respond to the recommendations and to say whether it accepts them or not. Remarkably, on this occasion, your commentary does not do that. It simply says repeatedly that you note our comments. I find that concerning. Do you accept any of the recommendations? If so, which ones, and what is the rationale behind doing so?

501. Mr Richard Pengelly (Department of Finance and Personnel): It is not uncommon for departmental responses to Committees to note recommendations, and that is the position that our Minister has taken. It resonates with the views that he expressed at the take-note debate.

502. Mr O'Loan: The word "accept" does not appear anywhere. In my experience, that is new, and I hope that such an evasive response does not indicate a deterioration of the relationship between the Minister and the Committee.

503. Mr Pengelly: I certainly do not think that there was any intention to undermine the relationship with the Committee, which is very good.

504. Mr O'Loan: Could the Minister come back to us to firm up some of those simple "take note" comments?

505. Mr Pengelly: I cannot commit the Minister to doing anything, although I will certainly take the point back to him. As I said, the paper reflects his take on the report.

506. Mr O'Loan: I will come back to you with a similar point later. First, I have a couple of other questions. You tell us that the requirements for Budget 2010 and the savings delivery plan guidance have superseded the efficiency delivery plan reports. Does that mean that you are no longer considering or monitoring efficiency delivery reports? What is in place to monitor savings delivery plans?

507. Mr Pengelly: That issue has to do with the cutover point. The savings delivery plans will be in place for 2011-12 as part of the new Budget period. The efficiency delivery plans will be in place up to the end of the current financial year. We will continue to monitor and report progress against the efficiency delivery plans, but the guidance for the next set of plans that are to be produced by Departments to demonstrate how they are delivering savings will be the new guidance rather than the original efficiency delivery plan guidance.

508. Mr O'Loan: We will await those with interest. We have been very clear on the need for a clear definition of valid efficiency savings, and that is not contained in the savings delivery plan. In principle, we do not dispute the validity of increasing charges for services or of creating new revenue streams, but we are concerned about regarding those as savings. The savings delivery plan refers to maximising revenue and indicates that it is treating that as an efficiency saving. We dispute that that is an efficiency saving. I go back to my first point: why do you not provide a clear definition of an efficiency saving to Departments?

509. Mr Pengelly: It is difficult to come up with a precise and pithy definition of efficiency that will address the often unique circumstances of over £10 billion of public expenditure. The new guidance to Departments on savings delivery plans tries to bring a sharper focus to the explanation and analysis that Departments require to demonstrate what they are doing and to put some framework around the different types of savings, including procurement savings and other types of spending. It tries to sharpen the edge of that.

510. Obviously, the contextual position is somewhat different going forward than it was in the 2007 spending review, in which additional efficiency savings were needed to plug the gap between the money that would come to the Executive and the total additional resources that were required to push forward improvements in public service provision. In this context, we are looking at real terms reductions in the funding that is available, so savings will, inevitably, need to go beyond pure efficiency into the allocative efficiency area and choices about the cessation of programmes. Therefore, the guidance tries to encapsulate all those points.

511. Mr O'Loan: For brevity, I will make one final comment, which goes back to my critique on how you have responded to us. I will use paragraph 7 as an example. We made a recommendation that argues against Departments operating in silos as they do their efficiency savings and said that what happens with an efficiency saving in one departmental area may have a consequence for overall Executive objectives. Our recommendation asked you to address that, and, frankly, your answer does not even address that point. That is totally unsatisfactory. It a serious point and a difficult one to address, but you do not address it all.

512. Mr Pengelly: I will take that point back to the Minister.

513. Mr McLaughlin: I endorse Declan's point, because I have also found some of the responses to be a bit disconcerting. The response states:

"The department notes the Committee's concerns about the reporting of its Efficiency Delivery Plan, and will give this matter higher priority in future, subject to the reducing administrative resources available."

That seems to mean nothing. That kind of answer does not take seriously the efforts of the Committee to advise and to scrutinise what the Department is doing. We require a clear commitment not only to take the report's recommendations seriously but to indicate that the outcome will be better shared information and the ability to share responsibility, which continues to be a shortcoming.

514. I wanted to colour my comments with that reference, but I could pick out some other answers that indicate, at best, a laissez-faire approach. For instance, I do not understand the reason for the delay and the explanation that we were given that there was a misunderstanding. Again, that does not tell me a great deal. How could the Department not understand the convention on responses and the time frame involved? How could that be the case? What misunderstanding are we talking about?

515. Mr Shane Murphy (Department of Finance and Personnel): With regard to the convention, it was not the Department's misunderstanding but mine. I did not understand the convention. The combined effect of that and the other issue described was that the response was late. I was not aware of the convention. I should have been. I certainly am now.

516. Mr Pengelly: I did not know that Shane was going to say that. It was good of him to do so. However, let us not hide the fact that, as public spending director, it is my responsibility. I am there to guide and to support Shane —

517. Mr McLaughlin: That saves me making that point, Richard.

518. I suppose that little difficulties such as that add a bit of canker to our working relationship. However, to be honest, I have generally found it to be constructive enough, and that is the way in which we should proceed. Enhanced transparency helps everybody, including stakeholders, such as the people whom we met earlier. They have difficulty accessing the kind of information that helps them to manage their lives, businesses and the jobs that they help to create and sustain.

519. I return to the report. There is debate about what is a budgetary saving and what an efficiency gain. Again, there is a need to develop better language because we simply appear to have circular discussions. The Committee addressed that matter specifically in recommendation 2 of the report. In light of the budgetary pressures that we now face, what advice does DFP give other Departments to assist them in their reassessment of priorities in a way that will translate into understandable responses for all MLAs and the people whom they represent?

520. Mr Pengelly: There are two ways to approach that. The dreaded management consultancy phrase is "top down and bottom up". In the top-down analysis, there is the parallel piece of work that colleagues in the Office of the First Minister and deputy First Minister (OFMDFM) are leading on to refresh and drive forward the Programme for Government, which will put in place the strategic prioritisation at Executive level and provide a framework for that to be cascaded down.

521. In the bottom-up analysis, there is a clear need for Departments to prioritise individual programmes. Certainly, my Minister is on record saying, on many occasions, that it is not his job to tell individual Ministers about their priorities for their own departmental portfolio. He has expressed publicly his frustration that when we get into that dialogue — for instance, when we sought, during one of the initial stages of the Budget process, identification of bids and pressures from Departments, we asked for them to be prioritised to get a sense of where strategic priorities were at departmental level — many Ministers decline to prioritise their programmes.

522. In the context of the parallel process of developing the Programme for Government, departmental priorities need to reflect and to respect the programme's strategic priorities. Therefore, it is a matter of trying to bring the strategic and the departmental dimensions together. Until we are further along in the process, there will be that bit of friction between the two. As the Programme for Government starts to crystallise in parallel to departmental portfolios, prioritisation will start to crystallise as we start to evolve the draft Budget for discussion at the Executive.

523. Mr McLaughlin: That is a fair enough point as far as it goes, because if people were to cross-reference the Programme for Government, they would expect there to be some kind of synchronisation between departmental priorities and wider strategic priorities. It appears that the process has been impacted by political dynamics apart from any logical assessment of how and why they are going to do it.

524. The thrust of the Committee's report and what we are interested in finding out is what mechanisms we can expect that would give us a better read-across. Such mechanisms may even help Ministers to get their heads straightened on the need to reflect on the priorities that they set at a departmental level and the fact that those priorities have to be synchronised with the Programme for Government measures that they agreed and signed up to. Are there any new mechanisms? In the upcoming Budget period to 2015, will we see mechanisms for evaluating the setting of the priorities and their delivery and outcomes?

525. Mr Pengelly: I am not sure that we will ever get to the point that you are pushing towards. I suspect that you recognise that we will never complete that journey. The reality is that there is no mechanism or formula that we can apply to neatly categorise every activity within a Department and across all Departments and to give that activity a priority ranking between one and 5,000 to see what nudges ahead.

526. The nature of programmes means that they are complex to evaluate. For example, any £1 spent on health can legitimately impact on priorities for the health of the population, economic issues and deprivation issues. There have been many attempts — nationally and internationally — to bring a formulaic approach to that. The reality is that it does not work. Ultimately, it comes down to a subjective discussion at the highest political level about the strategic priorities facing the Administration. The reality is that there will be more of that as opposed to a mechanistic approach.

527. For our part, we will continue to push Departments to properly articulate what value their spending delivers in both social and economic benefits and to try to quantify those benefits. However, it is in that context that hard choices about relative prioritisation need to be made as opposed to anything more formulaic than that.

528. Mr McLaughlin: I am thinking more about the fairly intense pressure that will be put on Departments and the fact that Ministers are going to have to publicly stand over their defining how they will move forward into a situation where the budgets are significantly impacted and, in some instances, reduced. That implies that there is no avoidance of specifying what the real priorities are or what outcomes we are aiming for over that Budget period. It is not formulaic, and, in my view, it should not be. However, if there is to be buy-in and endorsement, people have to be able to agree on priorities. I am talking about the reporting mechanism. Sometimes, we over-complicate matters, and I think that it has been accepted that the PSA approach is too complex for any effective evaluation because there are too many cross-cutting issues. Perhaps performance and output measurement is the way that we should go.

529. Mr Pengelly: That is where we would like to take it, but, again, there is complexity due to the cross-departmental linkages. For any specific policy priority of the Executive, not only can a number of Departments play into that objective but a larger number of individual policies and programmes within any one Department. The way in which the Executive try to give the overall strategic sense of prioritisation will shape a relative budget position initially between Departments and then at individual ministerial level.

530. At a human level, I can absolutely understand a Minister's position. We have been asked for a prioritisation of bids. If we were to look at the full scale of our programme and to prioritise it in absolute order from top to bottom, it raises the risk that someone else can dive in somewhere in the middle and say that one project is just about important, so, by default, everything that falls below it should stop. Some projects are more important when judged by one set of criteria but less important by a different set.

531. Our Minister's view is very much that, when it gets to the departmental level, it is not his position to interfere with individual ministerial views. That means that the situation keeps coming back to the two-stage approach: the strategic skewing between Departments and then within Departments for Ministers to consider.

532. Mr McLaughlin: I suspect that that is a discussion that is only now starting to strike home. I am a supporter of PEDU, and I see a role for it in identifying deliverables and that type of outcome so that we can move forward with a degree of confidence that we can meet the promise.

533. What assessment has the Department made of the current invest to save initiative? Is there an intention to roll that forward into the next Budget period and, possibly, to develop it?

534. Mr Pengelly: As regards the next Budget period, it is one of a number of strategic issues that our Minister wants to consider in detail himself and to discuss strategically around the Executive table. His view is that an invest to save fund is a good thing, particularly as we face into a tightening public expenditure position. The trade-off is that invest to save money is always front-loaded, so the costs always fall now, with the benefits later. The challenges facing Executive Ministers are here and now. However, everyone accepts the rationale for the initiative, and there is certainly a long-term gain.

535. Mr McLaughlin: Is there any retreat from the idea of invest to save under the financial pressures that you are talking about?

536. Mr Pengelly: They have not reached a definitive conclusion on it, but nobody is saying that it is beyond possibility and that they cannot afford to do it. The mood at the moment is that it is a good thing to do and that we need to work hard to find a way to do it.

537. Mr McLaughlin: Does that mean that it will be kept as an option to be deployed as and when resources can be found in in-year monitoring, for instance?

538. Mr Pengelly: My view is that, if we are going to do it, we should set aside the money at the start, because the in-year position is too tight now. The delivery of long-term savings needs a bit of preparation and planning.

539. Mr McLaughlin: It needs programmes and preparation.

540. Mr Pengelly: The decision should be to do it and to make provision to do it, or to accept that it is not going to happen.

541. The other part of your question asked about the current invest to save programme. We continue to look at that. However, there is a caveat with that. Unfortunately, the £26 million invest to save fund that exists for the current financial year was formally signed off by the Executive and the Assembly only at the start of this financial year, so we missed the opportunity for that necessary preparation and planning work. I think that many of the programme's elements will be successful. However, in a couple of cases, as Departments have tried to move forward, they have identified that they will simply be unable to do it this year. To give credit to those Departments, they are saying that they will not be able to capture the savings, so they should not spend the money. They want to defer it for another year, rather than spending the money and not getting the savings, which would be a worse position to be in. Nevertheless, there are signs that, in many cases, those savings will bear fruit for us.

542. Mr McLaughlin: It sounds as though there is not much certainty about the continuation of the initiative. You cannot give me an assurance.

543. Mr Pengelly: I could not give an assurance in any event, because the creation or otherwise of an invest to save fund is a decision for the Executive. The Executive have not yet considered a draft Budget position. The invest to save fund is high on the list of issues that we want to make sure the Executive actively consider. However, it is for the Executive, rather than me, to conclude as to how that will play out.

544. Mr McLaughlin: I asked you earlier whether the intention is to roll the initiative forward into the next spending round. Is your answer a "maybe" as opposed to a "yes"?

545. Mr Pengelly: It is an issue for the Executive. Any decisions about allocations in 2011-12 are not for my Minister to make. My Minister will bring proposals to the Executive, and it is for the Executive to conclude on those. There is a strong case. My Minister has had a round of bilateral discussions with all his ministerial colleagues. Without his seeking a definitive position, all Ministers without exception have been supportive of the concept of an invest to save fund. So, there is support for it. The rubber hits the road when they see the financial position and have to consider whether they can afford it. I think that the case has been accepted as a concept.

546. Mr McLaughlin: If the case has to be proven, it can be proven only if there is a definitive commitment to rolling it out over the next spending round and taking it forward on a programmatic basis. A stop-start approach is not going to work. We are coming at it too late to measure its effect.

547. Mr Pengelly: Our view is that, if we are looking at a four-year Budget cycle, an invest to save fund would work if the Executive set aside some provision for each year. For the money that would be spent in year 1, we would start to track the savings in year 2 and to make use of those savings in years 2, 3 and 4, because we need to create an incentive.

548. Mr McLaughlin: It could become a revolving fund.

549. Mr Pengelly: There is a strong case that the relevant Department would retain some element of the savings, as an incentive to roll them out. The argument about the balance is whether it would go back into an invest to save fund to further replenish the pot or be recycled to other areas to support ongoing core services. Again, that is a decision for the Executive.

550. Mr McLaughlin: That is probably something that we will come back to.

551. Finally, recommendation 4 is about concerns around the lack of transparency and information that is available in monitoring delivery, which has been a consistent theme of the Committee. What information will be made available to enable the Assembly and the wider public to be sure that Departments are safeguarding essential services and strategic policy priorities when delivering their savings in 2011-15? There is an understandable and legitimate demand that those savings are specified. How can the Assembly and the wider public track performance? Do you envisage any change in the information and reporting that is available?

552. Mr Pengelly: I will say a bit about the position going forward. The difficulty with looking back is that, in a Budget process, a number of things happen to result in the Executive ending up with a pot of money that they can allocate to pressures. For example, in Budget 2007, there were efficiency savings from Departments, Barnett consequentials from the national spending review, and increases in the local revenue base through the domestic and non-domestic regional rate. All those resources were pooled in a central pot, at which point the Executive made decisions about allocating them. Administratively and from a common sense point of view, it would be unworkable to track that and to say that a bit of money from here is being moved there. It goes into the pot.

553. The way in which that is managed is that, in parallel with making allocations, the Executive agreed a clear commitment that administration expenditure would reduce by 5% per annum on a cumulative basis over the period of the spending review. Therefore, no money was going into admin; in effect, money was coming out of it. When admin is taken out, everything that is left is programme spend leading to front line spend. Therefore, with the declining admin spend, the case was made that money was not going back into propping up administrative structures.

554. In respect of the extent to which the Departments are efficient, parallel to that was the Programme for Government and the monitoring work, which Shane has talked to the Committee about previously. There was continuous monitoring and challenging of Departments as regards how they were delivering on their PSA targets, which require the rolling out of the efficiency agenda. It was about trying to pull those strands together.

555. Going forward, the guidance we are putting together on savings delivery plans for Departments builds on and makes specific reference to the Committee's report. In rolling that forward, we are trying to bring greater clarity, to centralise the availability and publication of information, and to see exactly what Departments are doing. However, our Minister will not go nap on that until we get to the end of the Budget process, because a lot of the tracking arrangements going forward will be contingent on the shape of the Budget that we end up in.

556. The savings plans that have been requested from Departments will not be the final position. The reality is that some, if not many, Departments will need to make further savings beyond what we have asked for thus far, because money will not be given to them to meet pay and price inflation. Departments will have to generate those resources internally.

557. We are working on the guidance for what we will require Departments to publish, and we will watch and build on the points made in the report as we finalise the arrangements for the end of the Budget process.

558. Mr McLaughlin: I acknowledge that it is very complex. People will look at headline figures, such as the ratio between administration and programme spend, but a figure for programme spend does not tell them about the prioritisation process that resulted in that programme spend and the spend areas that were de-prioritised or dropped. Those are the kind of things that people want to know about.

559. Mr Pengelly: They will be clearly set out in the savings delivery plans.

560. Ms Purvis: I assume that you evaluated the use of efficiency delivery plans to see whether they worked.

561. Mr Pengelly: It is a classic case of the curate's egg; some were missing, some were not great, and some were good. Our Minister's position is clear that the delivery of efficiencies is an issue for Ministers. Our imposition on Departments was for them to set out how they would do it, to publish the information and for it to be challengeable. From our Minister's point of view, money was taken off Departments, so it was for Departments to account for how they did that. In a sense, the evaluation is a combination of this report and the other work that we have been doing with Departments. We even moved the savings delivery plan to another place. However, the answer to your question is that we have not carried out a full, formal evaluation of efficiency delivery plans, because they were departmental tools.

562. Ms Purvis: Are you saying that the lessons learned from the process have been put into the savings delivery plans process?

563. Mr Pengelly: Yes, with respect to a better articulation of what is required in them.

564. Ms Purvis: However, there is still an element of unaccountability. Given that Ministers have responsibility for their Departments, they can do almost whatever they want with their Budget allocations when they get them.

565. Mr Pengelly: No, and the accountability issue is what our Minister is trying to point out. Too heavy a hand from DFP would blur the accountability mechanism, because it would allow Departments to say that the efficiency plans are DFP's and not theirs and that there are points in them that DFP wants but they do not. A Minister might say that his or her responsibility lies with the portfolio, which would blur things fundamentally. Our Minister is saying that the Executive have agreed, as a strategic decision, that Departments will deliver x in the way of efficiencies. It is for individual Ministers, who are absolutely responsible for their respective departmental portfolio, to deliver those efficiencies, to explain how they are doing so and to be held accountable for that. Our Minister's intention is to keep that accountability line clear.

566. Ms Purvis: Yes, but the process is only as good as the plans that are produced. In light of the quality of the plans that are being produced, how is that process progressing?

567. Mr Pengelly: No plans have been produced thus far in the process. The guidance for Departments is that they should produce and publish savings delivery plans within two weeks of the publication of the draft Budget, so that those are available as part of the public consultation on the draft Budget process. No Department yet knows the full quantum of savings that it will need to deliver. They are all working on plans, because they know that they need to deliver some savings. However, it is too early to tell, because we have not seen any of the plans yet.

568. Ms Purvis: Are you working with Departments to prioritise where cuts will be made?

569. Mr Pengelly: It is for the Minister in each Department to prioritise where savings will fall in his or her Department. The Executive have started the process of working at block level on the relative prioritisation of resources between Departments. Although we have what we think are quite good forecasts of the likely outcome from the national spending review, we will not know for certain until 20 October, which is the point at which the Executive have indicated that they want to get into detailed dialogue on constructing a draft Budget. That will allow the review to cascade through Departments.

570. Ms Purvis: Your guidance to Departments says that the overriding principle is that savings should be cash releasing and not result in the diminution of the provision of priority front line public services. How do you ensure that?

571. Mr Pengelly: We do not ensure it, in the sense that we do not police that. That is the guidance. Our Minister sees our role as issuing guidance to Departments, which need to produce plans to demonstrate how they are complying with the guidance, and it is against those plans that Departments will be held to account.

572. Ms Purvis: Who will measure that? It will not be DFP. Is the Minister hoping that Committees will do so?

573. Mr Pengelly: The Minister will be looking to the relevant Committees and to the consultation. That is why the plans are to be produced and published virtually alongside the draft Budget. Although we are not taking ownership of the plans, DFP will be looking at them and posing some questions as part of the process of moving from draft to final Budget.

574. It is about getting the balance right between trying to be an informed critic of what is in the plans and pushing back. We will highlight issues mentioned in the report, such as when one Department's savings delivery plan would have an adverse impact on another part of the public sector. If one Department is determined to do that, that would influence our Minister's proposals to the Executive on a final Budget. Therefore, we will be looking at the plans and feeding comments back to Departments. However, our Minister will be looking to the Committees to challenge Departments on their plans as well.

575. Ms Purvis: Therefore, the prioritisation of front line services is a principle that is aspirational but depends on the commitment of individual Ministers, the level of scrutiny from Committees, and the quality of the savings delivery plans produced?

576. Mr Pengelly: The prioritisation of services will be determined at a strategic level by the Executive through the Programme for Government, which the Executive will sign off. The nature of the Programme for Government, and the level of granularity in that, will set out the big issues. It is a right and a responsibility of an individual departmental Minister to determine his or her priorities in that Department, as long as they are consistent with the Programme for Government. In many cases, it will be difficult to spot an inconsistency because of the respective level of detail. Beyond that, there is DFP's challenge role, the Committees' role, the general public and the wider Assembly. There are all those mechanisms, but that is fundamentally about holding Ministers to account. We cannot put a single organisation in place to get that right, partly because prioritisation is also a subjective view.

577. Ms Purvis: We have previously discussed evidence of efficiencies being passed on as blunt cuts to the tail end of Departments. I am concerned that the same thing will happen again, with no focussed process or unit to oversee how front line services will be protected and that the savings will be cash releasing.

578. Mr Pengelly: I absolutely accept the point. We have talked about it before, and I certainly cannot or will not attempt to push back against it. I am genuinely trying to find a way through this. If we take Department X, I do not believe that we could create a unit or function outwith Department X that could have any legitimacy in saying to the Minister of that Department:

"We do not agree with your priorities; therefore, you must change them."

579. The approach that we have is one of ensuring transparency, so that all of us collectively can pose the questions. Beyond that, there is no way that we can undermine the rights and responsibilities of a Minister with regard to prioritisation in a Department.

580. Ms Purvis: I accept and understand that.

581. Dr Farry: Richard, I take you back to the issue of definitions. You ducked Declan O'Loan's question on a definition of efficiency. Surely, that is fairly straightforward, and it basically means outputs relative to inputs.

582. Mr Pengelly: Yes. It is so straightforward that everyone knows it.

583. Dr Farry: Good. On a slightly more difficult definition, how do you define front line services?

584. Mr Pengelly: I suspect that, if we went round the population of Northern Ireland, we could find about 1·7 million different definitions for front line services. The classic example of that is the debate nationally at the moment in which the coalition Government have confirmed that front line services in health will be protected. Anecdotally, I know that the Department of Health in Whitehall is very concerned about what that means, because it could be that they define 50% of what they do as front line services, which will be protected, and the balance takes a severe hit; or it could be that 90% of what they do is front line services. There is no definition.

585. Dr Farry: Just to complicate things even further, I have a concern that, using a popular definition of front line services, we take the view that front line services are good and back office services are bad. There is a danger in that, particularly if Departments have a singular focus on front line services, because, at the same time as we are asking government to protect front line services as much as possible, we are scrutinising government more and more. If civil servants make mistakes, they are hauled before the Public Accounts Committee. I am concerned that there is not a system that encourages innovation and that that perpetuates a simplistic view of life.

586. Mr Pengelly: Absolutely. My personal view, for what it is worth — probably not very much — is that everything any civil servant does should be seen as a front line service. When I get out of bed and come to work in the morning, if I do not add something to the provision of public services in Northern Ireland, I would be as well staying in bed and saving the taxpayer some money. Front line service provision needs back office support. Unfortunately, one cannot deliver services without that element of support.

587. Dr Farry: The point is also that, if we hollow out the back office, or if Departments are overly encouraged to do so, that may become a false economy and become counterproductive.

588. Mr Pengelly: Absolutely. You mentioned the Public Accounts Committee (PAC). Hollowing out the back office certainly raises the risks in relation to accountability, value for money, governance and stewardship. The experience of the PAC suggests that, when we get that wrong, we jeopardise millions of pounds of public expenditure, because we do not spend it in the best possible way, securing value for money.

589. Dr Farry: That could even be tied into the discussion about the construction sector with which we started our meeting this morning. If government is slow in turning around economic appraisals, it has an impact on life.

590. Mr Pengelly: It would do, though when economic appraisals need to be turned around quickly as an output of DFP, I assure you that there is never a delay.

591. Dr Farry: It is always the other Departments' fault.

592. Mr Pengelly: Absolutely.

593. Dr Farry: Is invest to save still fundamentally seen as a silo approach — that it is for individual Departments to bid for moneys that are centrally available, as opposed to the old Executive programme funds that were cross-cutting?

594. Mr Pengelly: It is more a case of the former. I envisage that, if the Executive agree the establishment of an invest to save fund, we will ask Departments to submit proposals to access that fund. Obviously, that is subject to Executive consideration. For the current financial year, the Executive agreed that priority would be given to those proposals that are deliverable and offer the biggest potential return. What you are suggesting, and I agree, is that the biggest potential return undoubtedly lies in better joined-up working between Departments. If two or three Departments join together to make a proposal, the payback will be much greater for a smaller investment, and that will massively enhance —

595. Dr Farry: So, there is nothing to preclude a joint bid in the invest to save rules.

596. Mr Pengelly: Absolutely not; we would encourage joint bids.

597. Dr Farry: At the same time, there is no real incentive for Departments to do that, given the way in which the system and the rules for budgets are structured. Each Department brings forward it own budget.

598. Mr Pengelly: The only incentive would be that it would massively enhance the potential return. We know that, in the event that there is an invest to save fund, the bids for it will be a multiple of the available funds. If our criteria are about deliverability and the rate of return, the joined-up bids will have a much greater chance of success.

599. Dr Farry: Finally, I appreciate that there is a bit more emphasis on what happens beyond 20 October over a longer period of time, but we do still see some evidence of the Budget being prepared. I am seeing very little evidence of the Programme for Government being prepared. We are told that it is best practice for the Programme for Government to be prepared in conjunction with the Budget; in practice, it is even better if it is actually ahead of the Budget. Is there a danger that we will end up producing a Budget that is ahead of the Programme for Government because we have to set a legal timetable?

600. Mr Pengelly: That remains a threat. Colleagues in OFMDFM are progressing work and have been involved in substantive engagement —

601. Dr Farry: With whom?

602. Mr Pengelly: With other Departments in respect of commissioning programmes, so —

603. Dr Farry: Is that solely behind the scenes at the moment?

604. Mr Pengelly: At this stage, yes.

605. Dr Farry: No Committee has been briefed on potential Programme for Government proposals in the same way that some Committees have been briefed by some Departments on their budgets.

606. Mr Pengelly: I am not sure exactly where OFMDFM is in the process. It may be at the first pass of distilling inputs from Departments.

607. On your point about partnership, common sense suggests that, if a Budget is to be run, the strategic priorities need to be understood before allocations to Departments are thought about because they fundamentally shape that. That analysis was evident in earlier comments. The difficulty is that the Executive want a Programme for Government to be deliverable, and that is contingent on the availability of funds. Including a lot of aspirational targets for which funding is not available would leave us with an undeliverable Programme for Government. By necessity, they need to move together. However, there can be emerging strategic priorities, and going nap on the specific metrics in some of the targets can be left until the tail end. The debate about strategic priorities and a framework can precede the Budget and helpfully inform the Budget process.

608. The Chairperson: I have a question that is unrelated to this evidence session. I asked the Minister a question in the Assembly about the outcome of the September monitoring round and end-year flexibility stock. The Minister has written to me to say that there is £428·4 million in current and £72·8 in capital, but he did not answer my question. I asked what access the Executive have to that. Can you answer that?

609. Mr Pengelly: Yes, but not off the top of my head.

610. The Chairperson: Will you get me that information?

611. Mr Pengelly: It is easy to answer because the Executive's access was agreed with the Treasury as part of the last spending review, so I can get that information for you quickly.

612. The Chairperson: That is great. There are no more questions from members. Thanks to Richard and Shane for coming along.

13 October 2010

Members present for all or part of the proceedings:

Ms Jennifer McCann (Chairperson)
Dr Stephen Farry
Mr Paul Frew
Mr Simon Hamilton
Mr Daithí McKay
Mr Mitchel McLaughlin
Mr Declan O'Loan
Ms Dawn Purvis

Witnesses:

613. The Chairperson (Ms J McCann): I welcome Stephen Peover, the permanent secretary of the Department of Finance and Personnel (DFP), John Wilkinson, the chief executive of Land and Property Services (LPS), and Iain Greenway, the director of operations in LPS. On behalf of the Committee, I thank you for bringing us out here today and for taking us on a very detailed tour of the building; some of the work that is going on is very impressive.

614. Mr Stephen Peover (Department of Finance and Personnel): I thank Committee members for coming out here; it is very good to have you on site.

615. We had prepared presentations but I know that you are running behind schedule, so we are happy to move straight into questions if you want. Iain is here to deal with issues related to rate debt; that is his side of the business. We expected you to have some questions about rates, and Iain is our expert.

616. Ms Purvis: I really appreciate the tour that we were given this morning; it brought home to me the value of the service that you provide and everything that goes on in here, particularly the work that is being done with the Department of Agriculture and Rural Development (DARD) on the single farm payment.

617. I want to ask a couple of questions about the report that was published and the new service delivery model. The report refers to the service delivery model as being a critical success factor in the development and evolution of a more integrated and effective LPS. The report lists a number of dependent service delivery model actions, some of which are out of kilter and some that are unachievable. Which of those actions are out of kilter and which are unachievable?

618. Mr John Wilkinson (Department of Finance and Personnel): The service delivery model looks to draw together a number of strands of our rate collection service. It spans right across various parts of the organisation. For example, one directorate collects data and information, another is concerned with valuation and another is to do with the collection of rates. We have tried to pull that together as a single process. The service delivery model is big and it has a lot of connected parts that reach into various parts of the organisation. One of the issues that resulted in it not progressing as smoothly as we would have liked is the development of a management information system (MIS), which is mentioned elsewhere in the report. We have pockets of information across the legacy bodies. To help us to run the service delivery model effectively, one of the issues that we have looked at is how we pull together management information systems across the organisation so that, in parallel with a smooth flow of process, we have a smooth flow of information. That is one of the strands that have been held up in relation to wanting to make progress against a service delivery model. That is just one example.

619. Mr Peover: I am the chairperson of the strategic oversight group that looks after all of that. We took the attitude that the action plan as a whole was built up in consultation between John and us in the Department in the wake of the production of the performance and efficiency delivery unit (PEDU) report and the Public Accounts Committee recommendations. At the stage at which it was drawn up, it was a best estimate of what we might do and the order in which we might do it. We are very keen that it is a living document rather than an historical one and that it gets revised as we go along. Things have emerged as we have gone along and things that seemed, on the face of it, to be fairly straightforward turned out to be more complicated than we expected. We are amending deadlines and changing things in light of that, including the resources. We have had to shift resources in the organisation to deal with issues on the rates side. We have also had staff shortages. There are issues of accommodation; we have to find resources for additional accommodation or for the IT systems. We are trying to keep it as a live document and we are amending it as it goes along. We are not simply looking at it as John's initial assessment, whatever number of months ago that was —

620. Mr Wilkinson: Eighteen months.

621. Mr Peover: It is not set in stone. We are changing it as we go along and trying to make sure that we keep up the progress. We are elaborating, developing, changing and refining the actions as they are investigated and as we get some more insight into what is necessary to deliver the overall improvements in the service.

622. Mr Wilkinson: Stephen has just touched on the issue of accommodation, which was another action that was rescheduled. We put together a fairly extensive and comprehensive business case on accommodation. Again, there is a linkage in that regard in respect of restructuring the organisation to put the rating service into one big building. That is another strand that has affected the development and progress of the service delivery model.

623. Ms Purvis: You mentioned the management information system. You said that the pilot study is complete and that an MIS demonstrator is in place. What is a demonstrator?

624. Mr Wilkinson: We have carried out a pilot exercise to see whether this could be done. That is about drilling down into the IT systems of the legacy bodies to see whether we can extract data, draw it together into a separate point and make it live for, for example, directors and senior managers across the organisation. Therefore, we have mocked-up a system that has been successful. I have seen examples from the team developing it, whereby you can have an update of your progress against targets on your BlackBerry at 7.30 am. That is the demonstrator that we are using. I am very excited about it. When it is resolved, it will be fantastic for improving and driving performance. We will be able to switch resources to where they are needed rather than being somewhat reactive, as we are at the moment because we do not have real-time data. It is something that we are building. We ran a model to test it, and it works. We are now going through the procurement exercise to put it all together.

625. Ms Purvis: Can I ask Iain about the collection of rates? The target for the collection of net collectible rates for this year is 2·5% less than the target for last year. Why is there a reduction, particularly in light of the focus that has been placed on reducing the level of rates arrears?

626. Mr Peover: I will come in first on that, to give the departmental perspective. I am keen that we have targets that give staff some sense of achievement. We have been running a target of 98% for some time and have been significantly below it every year, but we have been improving every year. My view on targets is that they should be at least potentially achievable. There is no point of having a target of 98% if we are operating at 94% and know that we are not going to get to 98% this year. I would rather, as we have done this year, have a target of 95·5%, which is one-and-a-bit points above where we were last year.

627. I would like to be able to say to the staff at the end of the year that everything we have done has contributed to achieving this year's target, and that next year's target will be higher again. We are still heading for the 98% target, but I see no point in having an annual target that we always miss. We had that in other areas of activity. I am trying to give the staff a target that is stretching and challenging but is achievable so that, at the end of the year, we can say that we either achieved it or came very close to it. That is more important to me than having a target that is aspirational and is not going to be achieved.

628. Iain, do you want to say where we stand on targets?

629. Mr Iain Greenway (Department of Finance and Personnel): I can certainly reinforce the importance of the motivation of staff. The Rate Collection Agency, as it was before the merger into LPS and before the profound rating reforms, just nudged over the 98% target once or twice; it was always a very stretching target in a stable, more economically comfortable time. For GB collection authorities, 98% would be a demanding target in a stable rating policy environment, so to have a target of 98% in the economic situation that we are in and with the ongoing impact of profound rating reforms would simply have been unachievable.

630. Our performance against the target of 95·5% is on target. We are comfortably ahead of target in our profile position. A large number of public bodies have paid their rates in a very timely manner this year; much more so than ever before. We believe that there are two strands to that: the significant work that we did to clean up the data in those accounts last year and the overall public sector pressures to pay invoices in a timely manner. We are around 3·5% ahead of our profile position at the moment, but if one takes out the public bodies, we are in a good position but not one that we can be complacent in.

631. Ms Purvis: So, you are ahead in collections this year. Do you think that the earlier payments have skewed the profile?

632. Mr Greenway: The in-year, month-to-month profile is skewed. It will start to unwind now, because last year many public bodies paid in this calendar quarter, between the end of September and Christmas. Indeed, we are gently dropping back towards the profile that we had set, which was largely based on last year's profile.

633. Ms Purvis: Do you think that you will exceed your target of £980 million this year?

634. Mr Greenway: I believe that we are on course to achieve the 95·5% target for the in-year collection of bills issued this year and the target to collect £980 million.

635. Mr O'Loan: Thank you very much for this morning's presentation, which was very much as I expected. It shows what a powerful mapping tool we have and just how important it is in the governmental process. You also have a potentially lucrative source of information in the public arena. It is very important that that is used well in a business sense and that it provides the proper service to government.

636. The ongoing DARD project to reclaim the ground that it lost was exposed through EU Commission intervention. The question that I ask myself is: how did that Department get into that mess? Why did it not consult the mapping experts at a far earlier stage? It would have seemed obvious to do that. As that emerged only through external intervention, one wonders whether other sectors of government are identifying Land and Property Services as the body that they need to consult. You may want to respond to that before I move on to my next point.

637. Mr Peover: I will pick up that point first and then go back to the one that you made about the lucrative nature of the material that we have.

638. On the latter point, you are entirely right. John and his staff are doing their best to sell the benefits of that information to all Departments. They have asked all Departments to come along to departmental boards, where they will talk to them and show them a presentation on the powerful nature of the available information. Iain, John and I, along with others, are on a geographic information council that aims to proselytise the strength, power, detail and depth of the available information across a whole range of agencies. We are doing quite a lot in an advertising sense to try to sell that resource to others and make them aware of what is available. A lot of agencies are using the material, but more could. Your second point is very important, and we are seized of its importance.

639. I will make a comment on your first point that is not directly relevant but is something that I want to mention to you nonetheless. At UK-wide level, an ongoing strand of government activity is about making public sector information available to those who might use it free of charge. That is being done on the basis that we have huge amounts of non-personal information — I am not talking about people's names and addresses and so on — that is relevant to commercial organisations. Those organisations could find innovative ways of bringing information together, making new packages out of it and then selling those on. The idea is that if the information is made available free of charge, people will play with it, tinker with it, adjust it and may find a way of using it and selling it on to third parties or the public.

640. The government are keen to facilitate that on the grounds that it will encourage economic development. Although I appreciate that argument, people such as John and me, who rely quite heavily on the income that we get from selling our information to third-party organisations, are a bit concerned about what the impact may be on our services. At the moment, the taxpayer pays for it and we sell it on. Therefore, there is an income that is offset against the taxpayers' money, which supports our organisation. If the information is passed on free of charge rather than sold, there will be a net cost to the public purse and the taxpayer. It is early days, but that is worth watching. We would certainly want to bring that back to the Committee if it emerges as a real proposal.

641. Mr O'Loan: Yes; there needs to be a very clear discussion about the options in that regard.

642. I will move on to the other point about the collection of rates and arrears and debt. I will come to the Institute of Revenues Rating and Valuation (IRRV) report in a moment. Dawn asked about the current state of collection. You say that it is quite good. It is difficult for us to get a handle on the arrears issue because it keeps moving; every year you have a new swathe of receipts and collections to make. Do you feel that the arrears issue is under control? What does the long-term trend in arrears tell you?

643. Mr Peover: The long-term trend has been upwards and that is the cause of our concern. John, Iain and I talk about it on a regular basis. A key priority for LPS this year is to begin the difficult process of tackling that accumulated debt. By comparison with past years, we are doing reasonably well; it has come down from £157 million to £131million —

644. Mr Greenway: It has come down to £110 million.

645. Mr Peover: Even better. The debt figure is made up of a number of components. We are still in the current year, so we do not know how things will pan out towards the end of the year. The key priority for LPS this year is to tackle debt and to be seen to do so. It is a key reputational issue. It said that in the update to the PEDU report. In my interactions with John, in respect of our line management relationship, that is what I have said to him. It is key to the reputation of the organisation. If LPS is not seen to tackle debt efficiently, it is impossible for LPS to have a good public reputation, even though it does lots of other important things. Dealing with arrears is a key indicator of the standing of LPS with the Committee, the Assembly, stakeholders, the public and the media. It is crucial that the issue is tackled. John has done a lot of work in getting together with colleagues to shift resources around within LPS to enable us to tackle the debt issue effectively. John and Iain may want to say something about it.

646. Mr Wilkinson: To add to that, I can provide some detail. Going back to 2005 and 2006, before the 2007 reforms, the rating system was fairly stable. Debt was around £40 million or £50 million. In 2007 everything was turned upside down, with a period of profound reforms. There was also a well-publicised replacement of an obsolescent IT system that proved very difficult and did not go according to plan. We then had to deal with funding issues in LPS. To answer the question, it is only since the Public Accounts Committee hearing in September 2008 that we moved the basis of our accounting from cash to accruals. As a result of that, we have an interrogation tool that we can use across the system. That came live in February, when we finished the conversion process. It gives us a very accurate picture of the various categories of debt and shows where the debt is. The tool is called DI-Diver and is very useful.

647. As soon as we got that tool up and running, we decided that we needed an external view of the whole situation, so we called in the IRRV to have a look at where we were and what we were doing. We also wanted to see if the IRRV could use its great experience from around the world to give us the benefit of its advice and guidance. That is what we did. I will hand over to Iain who will take up the story and tell you about what we have been doing about the debt lately.

648. Mr Greenway: As John says, the rating reforms profoundly affected collection performance. We were down at 89·1% collection in 2007-08. That inevitably built up a legacy of debt, which reached £157 million on 31 March last year, which is unacceptable.

649. This year we have set about using the interrogation tool that John mentioned to tackle in a structured way the complex cases that remain. To give you a feel for those, our largest single prior-year debt at the moment turns on a complex point of law about whether or not the property is an industrial premises. If it is, no debt is outstanding; if it is not, more than £500,000 is outstanding.

650. Each case is complex and a number of them are some years old because of the IT problems and so on, which makes them more complex. We are making steady progress in working through those cases. However, we are still looking at what we need to do to become more effective. Certain strands in the IRRV report are about the need for LPS to be a little more imaginative in some of its processes. For example, should we be using different strands to deal with bills, final demands, court summonses, court decrees and enforcement? We have talked to a number of private sector tracing organisations about finding those who are known as "gone away" and have done some pilot work with them on a pro bono basis.

651. One of the interesting findings from the data was that for several score of the 2,000 "gone away" return-to-sender letters, all the data points to the person still being in the house but simply returning the rate bill to sender. We will now take those cases forward. We have been talking to private sector debt collectors about the additional skills that they have to deal with the people who simply refuse to pay, while being very careful, at all times, to separate the "cannot pays" from the "will not pays". The IRRV report sharpened our focus in a number of areas and supported our understanding of the situation and the actions that we needed to take.

652. Mr O'Loan: This year's target of 95·5% means that there will be £50 million of debt at the end of the year, and, as a result, LPS's arrears figure will immediately jump up. That is a major issue that needs to be addressed.

653. I know that we are pushed for time, so I will reduce my three questions on the IRRV report to two. The report states:

"Although there are a number of action plans in place, there is no overall written strategy in relation to collection … [and] no established written strategy for the enforcement of debt."

That is remarkable commentary, given the discussion that we have just had.

654. Mr Wilkinson: Some of the earlier parts of the report draw out the fact that the organisations went through a difficult period. That goes back to my earlier point about not having a tool that we could use to interrogate various areas of debt, because of the way in which the accounts were set up. As regards some of the other actions and backlogs, there was an element of firefighting going on with resource use and the way in which we were addressing issues. We had action plans and strategies in place. However, the report points out that now that we are getting to the point where we have cleared a lot of the backlogs, we are starting to get into a more stable position.

655. As a management board, we have moved more staff and resource in that area of the business, and that has an impact elsewhere. Therefore, some of the actions in the LPS action plan were not progressed on time because we had to switch resource into dealing with rate debt. We had to firefight and try to tackle those issues. However, we are moving out of that period now, and the report has suggested that now is the point at which we should pull together a more combined approach. That is the situation that we are in.

656. Mr O'Loan: Finally, the IRRV report and PEDU have referred to legislative issues regarding collection and enforcement. Does that mean that LPS needs stronger laws and legal powers? Will you elaborate on that?

657. Mr Wilkinson: Again, we are looking at a suite of actions to improve the situation. Some of the actions are down to the way that things have been done in the past, and some of them are down to strengthening our relationships with the enforcement of judgments office. As Iain just pointed out, we are also reviewing the variety of approaches that we have at our means. For example, we are looking at whether it would help to get some private sector debt collectors involved in enforcement. We have made contact with the enforcement of judgements office, and we are looking to address some of those issues.

658. Mr Hamilton: The IRRV report has a review of the arrears and breaks it into different sections. The most intriguing section is that regarding public bodies. Bear in mind that the report is dated May 2010, so the situation may have got better or worse. The report says that at the time of the field work on consultancy, there was some £13 million in arrears against public bodies. We could probably talk for a long time about how dreadful it is that because of that rising arrears bill, you are suffering reputational damage that is part caused by other areas of the public sector. I do not expect it now, but would it be possible for the Committee to get a breakdown of which bodies accounted for that £13 million of debt? There is something seriously wrong. In some cases, there may be valid reasons for that. However, if there is not and the bill simply has not been paid, that will contribute to your high arrears figures and make the organisation look bad, in missing its key target for the year. Is it possible to get some analysis of who owes that money?

659. Mr Greenway: I can certainly give the Committee assurance. Those figures are from the early part of March 2010. By the end of March, the figure was £4 million, and, this year, public bodies account for roughly £140 million of rates in round figures. This year, the bulk of that is paid, and the bulk of what is unpaid is being paid in instalments. Any ratepayer has the right to pay in instalments across the year.

660. I mentioned in passing that our challenges last year included the extensive cleaning up of the rating data. Many public bodies have extensive premises. NI Water is the largest single list: it has more than 500 premises, because each sewage treatment works is a separate entry in the valuation list. Significant technical issues had to be resolved between valuers and engineers about whether items were sewage treatment works or pumping stations. Pumping stations are not rateable whereas sewage treatment works are. Therefore, there was genuine engagement between public body ratepayers and LPS, particularly the valuers, to resolve liability. If one sits as an accounting officer in a public body, one should not sign off an invoice that one is unable to stand over. We have a tension between rating law, which says that a valuation list is correct until legally proved otherwise, and the management of public money, which says thou shalt not sign off an invoice without being able to stand over it. There were instances in that £13 million that fell to that. Therefore, it may be a little unfair on those bodies to bring a list forward, given that the issues have now been resolved.

661. Mr Wilkinson: The issue has now moved on, and, for me, it is another success story. Iain had to put quite a number of staff on that area of work. The handover from the old IT system to the new IT system led to a lot of cleansing of accounts, data-matching, and so on, and the various public bodies involved just wanted to be sure that they were paying the right amount of rates. We had a team that worked for 18 months or a couple of years to sort all that information out and assure people that their rate accounts were correct. That work is done, and I am pretty sure that we are moving on from that. There will still be issues and queries, but we have moved on from that. It is another success story.

662. Mr Hamilton: I appreciate that. You get a bald figure, and it does not have the same significance as when it first appears. However, it still might be useful, out of interest, to get some breakdown of that and an explanation as to why various organisations and public bodies have done that.

663. Ms Purvis: Northern Ireland Water.

664. Mr Hamilton: I have heard that. [Laughter.]

665. Mr Greenway: Northern Ireland Water is our largest single ratepayer. Its rate bill is in the order of £14 million a year.

666. The Chairperson: Iain, when you responded to Declan, you mentioned the DI-Diver tool and said that it looks at particular areas of debt. The report states that some debt was considered non-economic to collect. You mentioned the difference between people who cannot pay and people who habitually do not pay. We have talked previously about taking action against people, but how economic is it to take to court people who, for genuine reasons, cannot pay their rates? The whole judicial system is quite costly. Is there some part of that process that differentiates between the people who cannot pay and the people who habitually do not pay? Sometimes it does not make economic sense to pursue cases because the cost is just then put on to another public body.

667. Mr Greenway: Previously at the Committee, we have discussed the issue of people who cannot pay and people who will not pay and how we do our best to separate those, but, until someone contacts us, it is often difficult to ascertain the category into which a person falls. I have said at the Committee before that I do not want to take anyone to court. That clogs up the courts, takes us time and effort and causes members of the public grief and stress. Where payment is not forthcoming, there is a cost-effectiveness issue, but there is also an equity issue of the funding of the services through rates, not only from district councils but from the Executive. One of the Committee members, Stephen Farry, made those points on Radio Ulster yesterday morning.

668. We recently revised our write-off guidelines, and one of the elements is a consideration of whether it is economic to collect. That is more of a consideration when we are struggling to trace a ratepayer, and there are costs with using a tracing service and so on. We are mindful of the legal costs, but there is a duty on all of us as citizens to pay.

669. We recognise that there may be a need for extensions to bring people through difficult periods. Around £19·5 million of rates are in formal extended payment arrangements currently, and, of course, there is much more in informal arrangements where people pay whatever they can whenever they can. Such informal arrangements are enough to prevent us from taking recovery proceedings without making a formalised arrangement to take, for example, £50 on the last day of each month. We are actively working with people to the extent that we can, but, currently, our mandate is still to collect the rates that are due.

670. Mr Peover: We get quite a lot of correspondence to the Minister on those sorts of issues. In particular, small businesses are regularly in contact with the Minister about the rate debts that they have incurred and the difficulty that they have in servicing those debts in the current economic climate. We try to be sympathetic, and we will explore all options before we go down the route of taking cases to court.

671. Mr Wilkinson: It is a very difficult position.

672. The Chairperson: I appreciate that, but I wonder whether you could have looked at that issue. I know that you said that people have contacted you and that you have put a plan in place for them, but could it have been more strategic? For instance, there may be someone who has not paid for 10 years, but if someone has not paid for three or four years, that might tell you that that is because of the economic climate. I will not labour the point, but I wanted to raise that again. Some sort of process needs to be developed to differentiate between people who cannot pay and people who can pay but habitually do not. In my view, they are different.

673. Mr Greenway: That is one of the key strands in this overarching strategy, as we emerge from the firefighting. Everyone will get a bill and a final demand 40 days later, but there are then a number of routes to take. One of those is legal process, which I believe should be more for the consistently recalcitrant, but there are other routes that we should be looking at more. However, in a period of backlog and rising debt, we have had to take a fairly four-square approach.

674. Mr McLaughlin: You pretty well covered my points. I have one question that is supplementary to the earlier discussion. The IRRV report talks about collection, enforcement and management. Is identifying recalcitrant payers an end-of-year process for you, or is it in-year, especially with non-domestic clients?

675. Mr Greenway: It is an ongoing process. Court action will normally be taken in order of value of debts. Therefore, non-domestic clients will tend to come earlier in the annual cycle than domestic clients simply because of the value of the accounts.

676. Mr McLaughlin: Does your management of the debt problem give you options in relation to non-domestic clients? It would be more difficult to apply to domestic clients who pay incrementally through the year. I do not know the pattern or the statistics, but you may have that information. If you do not have that information, I would be content for you to respond in writing. When you review the benchmarks that trigger enforcement proceedings, does that happen as an end-of-year process or do your systems allow you to identify when a problem is beginning to develop and a client has started to miss monthly or quarterly instalments?

677. Mr Greenway: When a domestic or non-domestic ratepayer is set up as an instalment payer and they miss an instalment, it triggers a missed instalment letter. Hopefully, that will trigger contact with the ratepayer at that point. We do not wait until the end of the year to find that things have fallen short.

678. On the domestic side, smaller debts of less than £100 will be picked up at the end of the year in missed instalment processes. However, we try to help ratepayers to keep on top of their responsibilities, on the basis that if they do not and the issue simply drags on, it is likely that we will end up writing-off more money in bankruptcy at some point further down the line when we could have dealt with it earlier, or we could have found a way where it did not have to lead to bankruptcy. Therefore, we try to work with people.

679. Our starting point on payment arrangements is that clients should at least pay this year's rates this year, as well as some of what is owed from prior years. That is our starting point, and, over a reasonable number of years, they can bring that debt down to zero. Recently, an MLA contacted us about a leisure centre that owed more than £50,000 in rates, which talked about paying back £100 a month. That did not conform with our guidance, and it would simply have left the centre building up more debt. Furthermore, if it genuinely could not afford to pay its rates, it was unlikely to be viable as a business. Therefore, putting my hard head on, I was going to end up writing more money off. Also, neighbouring gyms that pay their rates were not having a fair, competitive field to play on. Therefore, all of those factors came in. We explained that to the MLA, who was understanding, and he went back to his constituent and said that more money needed to be forthcoming.

680. Dr Farry: I apologise for being late and missing the presentation. If any of the issues that I raise have been covered already, please cut me off. Following on from Simon's point about public sector liability, to what extent are non-devolved public bodies a factor in that regard, particularly the Ministry of Defence (MOD)? I am sure that John will recall the difficulties that we had with security services, even with letting yourselves in to value properties.

681. Mr Wilkinson: Not me personally. [Laughter.]

682. Dr Farry: My second question arises out of 'The Stephen Nolan Show'. He raised the issue of doing domestic and non-domestic revaluations. Originally, it was planned to have a non-domestic revaluation this year, but that was put off due to the instability of the market. As property prices rise and fall, the key issue is the relative ranking of properties rather than the absolute values. On the other hand, there is the possibility that some properties, depending on the part of Northern Ireland that they are in, will vary. We need to get a sense of how big an issue that is. Will you clarify your plans to have a domestic or a non-domestic revaluation? I imagine that your answer will be that, because of the instability of the market, any revaluation would be counterproductive, given the resources that it would require.

683. My final question is probably one for Stephen Peover to answer. Over the lifetime of the current Budget, there has been a bid in every monitoring round for additional resources for LPS. That probably indicates that there was a fundamental problem with the baseline to begin with. Obviously, we are going into a much more difficult financial situation in which everyone will have to cut their cloth a lot more tightly. That said, there can be a trade-off between the resourcing of LPS and the amount of money that will be brought in. Are you satisfied that we will get the balance right in future Budgets? Cutting resources to LPS may be a false economy; there will be a natural point at which we will get the maximum efficiency in collection.

684. Mr Greenway: There are significant landholdings rates due from non-devolved public bodies; the rates from the MOD are definitely the largest. The MOD account is reasonably stable. There are residual valuation issues with some of the premises, particularly those that are partially vacated or awaiting vesting into the hands of the devolved Administration. Therefore, there is continuing engagement with the MOD as a ratepayer over certain issues concerning exemptions from non-domestic vacant rating and the public body exclusion around premises awaiting vesting, for instance. There are no significant outstanding issues on those accounts that are not in active discussion.

685. Mr Wilkinson: We had plans to do a non-domestic revaluation. The revaluation was initially postponed for a year and was then cancelled. That was largely to do with the state of play in the market and the ability to deliver an accurate valuation list, which would be a sound base for the collection of tax for the funding of district councils. It was for those reasons that we postponed and then cancelled the non-domestic revaluation.

686. Going back to the points that you made about 'The Stephen Nolan Show', revaluations are, overall, a revenue-neutral exercise. The amount that someone pays in rates is based on the valuation of the property multiplied by the rate poundage. So, if we double all of the values, the multiplier is halved, and the amount is the same.

687. The 2007 revaluation in Northern Ireland was based on January 2005 values. Over that period, the market rose considerably — I have not seen market conditions like them in my 36 years as a chartered surveyor — and then started to fall. Values are probably still sitting slightly higher than they were in January 2005. Therefore, unless there are great shifts in relativity, the overall absolute position is not greatly different to what it was. As a chartered surveyor and a rating surveyor, I would say that revaluations are good for the tax base, but you have to look at public spending and so on.

688. Dr Farry: That is what I expected you to say.

689. Mr Greenway: We should add that that is the same as what the Committee member said on 'The Stephen Nolan Show', so you ought to join our valuation area. [Laughter.]

690. Dr Farry: John said it so much better though.

691. Mr Peover: On your question for me, Mr Farry, the short answer is no, I am not comfortable with the funding of LPS. Land and Property Services is a large part of DFP, with over 1,000 staff, which is a third of the Department's staff. So, it is a big element of our budget. As John said, a lot of its funding comes through income, and that is fine. As long as that continues, that helps us. However, some of the organisation is just funded out of the departmental expenditure limit.

692. When I came to DFP just over a year ago, it was apparent that John's organisation had been staggering from monitoring round to monitoring round hoping that money would be made available to cover the cost of the staff that he had in post. It was not even to do anything more; it was just to balance the books at the end of the year.

693. We have been lucky in a sense in that money did tend to come, but it tended to come at the last minute, so it was a bit of a cliffhanger. This year we have a useful device with the promise of additional money. There is a quid pro quo for that, because John has to deliver against it, but that at least provides a reasonably stable funding base for the organisation.

694. Although I am in charge of DFP, I do not know exactly what we will be like next year. We will get some indication next Wednesday when we get the Chancellor's statement. After that, the Executive will have to decide how they want to approach the Budget locally. Traditionally, DFP Ministers have not felt able to be terribly sympathetic to their own Department. We are an inward-looking Department; we do not deliver hospitals, schools or roads, and there is a priority to try to maximise the services that are delivering directly to the public.

695. The argument that we have for LPS is the one that you mentioned: we bring money in; we help that process. That is quite a powerful argument, but at the end of the day we will have to convince our own Minister, and then the Executive, that we need a stable and appropriate funding base. On the other side, LPS must operate as efficiently as it can, because we cannot afford to feather-bed an inefficient organisation.

696. John has been doing a lot of work to try to rejig our resources internally, to focus resources on debt and to pick up all the issues that are coming out of the action plans from PEDU and the Public Accounts Committee within existing resources. We have been doing our best to support him, to give him a reasonably stable financial base.

697. However, we are looking towards a very uncertain future. We will do our best. We have done a lot of scenario planning in the Department about what the outcome may be for us and how we can try to manage the Budget for the years ahead. However, we do not yet know exactly what our situation will be. We will do our best, and we recognise the importance of LPS.

698. Dr Farry: That reinforces the point that the Committee made on a number of occasions, that the distinction between front line services and back office can at times be very simplistic, and there is a danger of [Inaudible] up here.

699. Mr Peover: Thank you; it is very helpful to have you say that.

700. Mr Frew: I agree with Mr Farry on the issue of how front line services are defined. If you take away the back office support, that puts more pressure on the front line, so it can be difficult to distinguish between the back office and front line services.

701. My questions are about phantom debt. There has been a bad press about LPS and everything that it does. How much has phantom debt contributed to the total values that are being bandied about, and how do you recover from the morale-sapping effect that that has on your people?

702. My second question is about debt that it is not economical to collect. Is that purely because of the cost of the legal process, or can efficiencies be made, through your staff and the organisation's structure, to bring that economic bar down so that you can collect more rates?

703. An additional £5 million came from the June monitoring round, so £10·6 million of additional current expenditure was made available. Can you give us a breakdown of how that money was spent? Is there a direct link between the £5 million and the £10·6 million, or was that just to balance the books and keep things afloat?

704. Mr Greenway: Perhaps I could clarify from the Committee member: what specific aspect of debt are you talking about as phantom debt?

705. Mr Frew: You talk about not having enough up-to-date knowledge of what buildings are occupied and what businesses are in them. How does that skew your debt figures? Also, how do you build up intelligence on that, in order to remove that skewing of the figures?

706. Mr Greenway: I suppose, simplistically, we are always struggling to keep up. Properties go in and out of occupation on a daily basis, and properties can become no longer capable of beneficial occupation, which is the test of whether they should be rated. Therefore, we use a range of sources. We work closely with the local authorities, because there is a combined financial and system interest, and we work with utility organisations. In the past few weeks, we have set up a central investigation team to manage all the data gathering that we need to do, with local authorities being one of the central sources of that information, because they are in touch with people about waste disposal, environmental health and many other things.

707. At the moment, we are probably issuing occupied rates bills to a number of vacant premises, as the ratepayer has not informed us of that change. Coming back to Declan's earlier point, there is no legal requirement for ratepayers to tell us of a change. We rely on that being done voluntarily, or, when we have a ratepayer occupier, we continue to bill them until they tell us of a change. Therefore, we are relying on getting the first person to inform us of a change and then keeping the chain afloat.

708. The likelihood is that, at the moment, there are a number of areas in which we are overstating the debt. However, in accounting terms, until we can correct the assessment in the bill, the debt figure is the debt figure. To an accountant, bills raised less money collected equals residual debt. Therefore, as we work through all the debt, we have to go back and ascertain whether bills have been raised correctly or whether a credit or, indeed, an additional debit is due. At the moment, there is probably an overstating in the £157 million figure. However, that is no more than a general feeling.

709. When looking at the cases that are not economic to collect, it is important to distinguish between current rate accounts and closed rate accounts. We very rarely write-off debt for a current rate account. However, we would do, if, for instance, a company goes into insolvency. The economic argument for writing-off a current rate account does not enter into it, because of the equity issue, which perhaps picks up on what the Chairperson said earlier.

710. The economic argument comes into play more with a closed rate account. If a rate account is closed and if the ratepayer has left the premises — they may well have left the jurisdiction — at that point, we would start to consider the economics of continuing to collect. Our write-off guidelines say that we have to go through the process of trying to ascertain a ratepayer's whereabouts. If that does not work, and if the debt is less than £200, we write it off. If the debt is more than £200, the guidelines give additional sources, which may include private sector tracing agents or trying to determine a person's previous employer. Mathematically, that £200 figure is based on the cost of a court process plus a decree plus the likely enforcement of judgements office fee, which comes, on average, to around £180. However, for us, there is an important distinction between an active rate account and a closed rate account.

711. Mr Frew: It is very important to know that that is equitable. That makes good business sense, if people are competing along a stretch of road and one person is bad with their payments and the other is not.

712. I have another question, Chairperson, if you would indulge me. Can the Department do any background checks on a business or person to find out whether LPS is being treated as an easy touch, in that people pay their wholesalers, creditors, utility bills and staff, but leave their rates until last?

713. Mr Greenway: I have become used to being last in line when it comes to people paying money. I do not have a service to switch off, labour to withdraw or goods not to supply. I do not even have a power supply to switch off. Therefore, we have to understand that, whether it is for a business or household, ratepayers look at rates not as an easy touch — I certainly do not want to be seen as an easy touch — but as something that will not, in the short term, affect their ability to live or trade. We are, of course, always trying to understand where we may be building up debt that will eventually go bad, due to a company going bankrupt or seeking a company voluntary agreement. In days gone by, we could realistically expect 10p, 15p or 20p in the pound from companies that became bankrupt or went into liquidation. These days, we rarely see anything. The non-priority debtors are lucky to see anything. We are trying to keep a sense of that, but we know that we are likely to be at the back of the queue.

714. Mr Frew: What about my final point?

715. Mr Wilkinson: As the permanent secretary said, the £5 million has been an historical issue. You will have read in the IRRV report that the rate collection process is big and complex and it has lots of interrelated strands. At the beginning of the year, when I set off to the Land and Property Services, the business plan commitments, which I agreed with the permanent secretary, were based on the £5 million coming during the course of the year. That is unlike previous years, when we were running right through to February without knowing whether the money would be made available. I am a little more comfortable having it in the middle of the year. However, I still have to deliver.

716. I have not put the £5 million into a particular part of the business; we have used the £5 million to resource across the business. We talked about the 2005-06 period, for example, when the amount of debt was low. Historically, the Rate Collection Agency had 20 staff working on recovery. We are now approaching 150 staff in that area of the business.

717. Iain mentioned the central investigation team, and you referred to occupancy management and the phantom accounts. It takes a lot of time and effort to look into that, particularly in difficult economic circumstances. We have had to make additional resources in a number of the different teams, such as the landlords team. Therefore, a lot of the money has gone directly into the recovery and collection process.

718. I have also used it in other bits of the business. You made a point about efficiencies. At the beginning of this rate year, the communications and marketing team worked on the publicity, communications, rate booklets and rate bills. Putting resources into that was a big success, because we have been able to measure all of the contacts that we have had and better repayments have resulted from it. Furthermore, people have got their prompt payment discount; they have got it in on date, and we are not having to deal with lots of complaints on that. In fact, that work has been recognised, and the communication campaign and booklets are up for a fairly high-profile public sector award. We might win that; I do not know yet.

719. Mr Peover: Looking at it from the other side, in negative terms, if we had not had that money, John would probably have had to shed 150 staff. We have cushioned them against that saving, but only on the basis that he has to deliver more back than goes in. We are pretty confident that that will happen. That is the scale of the problem that we are talking about: £5 million is at least 150 staff, it could be more. To pick up on Mr Farry's point, to have taken those staff out of LPS would have been an own goal. We are grateful to the Executive for agreeing to the £5 million. In response, we have to deliver the money back.

720. The Chairperson: Thank you for attending this morning's Committee meeting. Are you content for us to write to you with any other issues that might arise?

721. Mr Peover: Yes.

722. Mr Wilkinson: I thank the Committee for coming here this morning. I know that your walkabout and chats with staff will have been well received.

13 October 2010

Members present for all or part of the proceedings:

Ms Jennifer McCann (Chairperson)
Dr Stephen Farry
Mr Paul Frew
Mr Daithí McKay
Mr Mitchel McLaughlin
Mr Declan O'Loan
Ms Dawn Purvis

Witnesses:

723. The Chairperson (Ms J McCann): I welcome Paul Wickens, the chief executive of enterprise shared services (ESS) and Barry Lowry the director of IT services in ESS. You are both very welcome. I invite the witnesses to make a few opening remarks, and I will then open the meeting to questions from members.

724. Mr Paul Wickens (Department of Finance and Personnel): Good morning. I have been in post for just over a year, with ESS having successfully come into operation in April. During that year, my priorities have been to improve service effectiveness and quality; maintain business as usual with no disruption to customers; continue to resolve residual implementation issues; move quickly from project to service mode; build confidence and manage expectations; centralise and restructure where appropriate; and implement new governance arrangements. My initial priority has been to allow a period of consolidation; however, I am now keen to move forward in driving significant performance improvements to ensure that our customers receive a good, value-for-money service. With that in mind, we have undertaken some work on customer experience to set a baseline to enable us to measure improvement.

725. You asked me here today to discuss IT Assist, Records NI and Network NI. The integration of Network NI and Records NI into IT Assist has now been completed. The quality of service continues to be of a very high standard, with excellent rates of customer satisfaction being reported. The benefits that we have seen include: lower costs than the GB Flex model or the local private sector; reduced costs of a broadband network; and world class software, hardware, data centres and support. As you know, Barry Lowry is my director of IT services in ESS. Both he and I are happy to answer your questions.

726. Mr McLaughlin: During the Committee's inquiry into public procurement, we heard many concerns from small business, which is a huge element in our economy. They complained that they were getting squeezed out of public procurement opportunities, specifically because the guidelines were making it more difficult for them to access those opportunities. Will you talk us through the role of IT Assist in procurement, and how it benefits or affects those small businesses?

727. Mr Wickens: We touched on that during a previous Committee inquiry session. Our challenge is to operate within EU procurement rules, and we do that. However, we also recognise that we live in a very small local economy and we are keen to involve as many local players as we can. I continue to regularly meet anyone who asks me for a meeting, as do the rest of my team. That includes many of the small suppliers, right down to those at the micro-level rather than just the small and medium-sized enterprises (SMEs). Barry and I also recently met with the chief executive of Momentum to discuss some of the consortia that it has been trying to pull together to have a bigger impact on what was going on. That session was fruitful and useful.

728. Barry can give you the detail on the number of contracts that are under management in IT Assist, but there are many tens of contracts. They tend to be for very large infrastructure projects for software, hardware, support and data centres, so it is fundamentally difficult for small organisations to break into those markets. We try to get the smaller firms to talk to some of the bigger suppliers, to join the consortia that are already in place, to see whether there are any change-control opportunities. Indeed, that is what we did with Momentum. We no longer have the luxury of the e-government fund, through which we could have set up pilot projects and tried things. We are in an age of austerity, so we cannot do that anymore. Barry, do you want to add anything?

729. Mr Barry Lowry (Department of Finance and Personnel): That was a pretty comprehensive response. Because IT Assist is about providing the corporate infrastructure of the Northern Ireland Civil Service, the products and services that we use tend to be products and services that are available worldwide. Therefore, it is companies with a worldwide presence that tend to be successful. However, there are a number of areas in which we have used products and services provided by indigenous companies. There have been two successes in the last several months of indigenous companies winning quite sizeable contracts. That is obviously a positive thing.

730. The other thing, as I said the last time, is that a lot of the large worldwide players are now setting up in Northern Ireland and creating jobs here on the back of some of the contracts that they have won. That is not directly helpful to the SMEs, but it is obviously helpful to the wider job market.

731. Mr McLaughlin: Without naming any specific organisation, I am aware of a local enterprise that has an award-winning operation involving the assembly of computer systems for the market and for internationally reputable suppliers, but finds it impossible to supply to the government here in the North of Ireland. The specifications of that company's equipment and its costings are, I am reliably told, as competitive as one would wish, but they do not have a badge. Your remarks, Barry, just triggered that memory. I think that I brought it to people's attention previously. The company in question has a badge of excellence from Intel for the package that they can put together, but cannot sell to us.

732. Mr Wickens: I encourage you to have them contact us, because, given the way that we manage information about assembly opportunities there may well be an opportunity — within the procurement rules and the contracting governance structures that we have — for us to tell them to talk to one of the consortia that lead in the space of information management. We can certainly broker that introduction, so we are quite happy to deal with that separately if you want.

733. Mr McLaughlin: It is something that I have come across in health procurement as well. The badge and the name carry with them an advantage, particularly when it comes to local suppliers. I have previously encouraged that individual to pursue the matter, but I will not go into the specifics.

734. My question for today is: are we constraining our own ability to encourage indigenous enterprise within the European guidelines because they may not offer the same assurance that a big international name would?

735. Mr Lowry: I do not think that it is an issue with the name but with the scale. IT Assist has over 18,500 customers. Even if we replace a PC every five or six years, that amounts to over 3,000 a year. Because of our drive towards sustainability, we have set standards for the power consumption and so on that those PCs should achieve. What we are really saying to the industry is that we want an organisation that can guarantee to reach all of those standards and provide us with 3,000 PCs in a year. That is very difficult for small companies to achieve; hence we tend to look at the likes of Hewlett-Packard, Dell, Acer and so on, which are very large worldwide companies with assembly units in Ireland, China and so on. That is just the nature of the business that we are in, along with other public and private sector companies of that size. By using our economies of scale, we have considerably driven down the price of each unit, and that has been a substantial saving to the public purse.

736. Mr McLaughlin: OK; I have a related question, which is perhaps more in-house. What steps are you taking, or can you take, to consolidate and harness the expertise that your project managers are gaining in the procurement and delivery of IT contracts? Do you have a specific goal for developing that capacity?

737. Mr Wickens: First, we work closely with the Central Procurement Directorate, which we rely on to provide us with procurement expertise. We have a number of ways of operating contract management across the different services that I am responsible for. Today is about IT Assist, which Barry will talk about. I would like to look at the bigger picture across all the services rather than just look at how we do things within IT Assist.

738. Mr Lowry: When we set up IT Assist, we agreed to try to be the best at every single function that we perform. We adopted a method called skills framework for the information age, which is a European method used by public and private sector companies. It breaks down into blocks the elements of work that are required to provide an IT service, such as project programme management, contract management, technical elements and so on. It sets standards that the people who work in those areas achieve. We try to encourage our staff to take accreditation in all those elements. In project programme management, for example, we have people who are PRINCE2 accredited, which is the highest standard that they can achieve. We have developed a very strong capability in contract management, which is reflected in how we manage our partners and the performance that we are getting out of our partners. As a result, we are very clear about the management information service that we are getting from them and about where we feel that they can improve. We manage those contracts pretty rigidly.

739. The Chairperson: If we have any further questions, we will write to you. Is that OK?

740. Mr Wickens: That is great.

741. The Chairperson: Thank you very much.

20 October 2010

Members present for all or part of the proceedings:

Ms Jennifer McCann (Chairperson)
Mr David McNarry (Deputy Chairperson)
Mr Paul Frew
Mr Paul Girvan
Mr Simon Hamilton
Mr Daithí McKay
Mr Mitchel McLaughlin
Mr Adrian McQuillan
Mr Declan O'Loan
Ms Dawn Purvis

Witnesses:

742. The Chairperson (Ms J McCann): I welcome Patricia Corbett, HR services director of Enterprise Shared Services, and Paul Wickens, the chief executive.

743. Mr Paul Wickens (Department of Finance and Personnel): Good morning. Since January, HR Connect's service management division and the Centre for Applied Learning (CAL) have been brought together under a single HR services director — Patricia Corbett. That has enabled some reorganisation and a focus on joined-up service delivery.

744. Since my last discussion with you, the quality of the service provided by HR Connect has continued to improve in a number of key areas. For example, payroll accuracy is consistently high, the majority of service levels are being met each month and complaints have fallen to their lowest level since the launch of the payroll service. In addition to maintaining a high level of service delivery in recent months, HR Connect has successfully delivered three retrospective pay awards, implemented the equal pay changes to pay scales and commenced payment of the associated lump sum payments. A number of programme deliverables and action plans remain to be completed, and excellent progress is being made with that work. It remains on track to be fully implemented by the final milestone date in the second half of 2011.

745. We are also making good progress in CAL, which provides training to NICS Departments and a range of non-departmental public bodies. The level of satisfaction with the quality of training delivered by CAL is consistently high. Patricia Corbett is the director of HR services; we are both happy to answer your questions.

746. The Chairperson: Is there any firm evidence that verifies the benefits of the value-for-money savings that have been achieved by each of the shared services, compared with what existed previously?

747. Mr Wickens: For HR Connect alone, or for all the shared services?

748. The Chairperson: For HR Connect.

749. Mr Wickens: I am the senior benefits owner responsible for benefits across all the shared services, including HR Connect —

750. The Chairperson: I am sorry; I meant across all the services.

751. Mr Wickens: OK. I am responsible for those benefits that are measured at the NICS level; in other words, benefits across all the services. There are also a range of benefits that are measured at departmental levels. We have substantial evidence from all the services that we are achieving the benefits on that benefits realisation plan. I have a small team that is dedicated to managing, reporting on and monitoring that plan. We also assist the Departments in their responsibilities for the work that they do in defining their benefits targets and in measuring the evidence.

752. The Chairperson: Does that include quantitative information on those benefits?

753. Mr Wickens: Yes. We did not get to discuss that last week. For example, we achieved benefits of about £15 million for IT Assist and £7 million for Network NI. There are a number of substantial quantitative benefits that have been coming out. I am happy to provide more details of those.

754. The Chairperson: Yes, that would be good. Thank you.

755. Ms Purvis: There has been some criticism of HR Connect from the trade union side, as I am sure you are aware. One of those criticisms has been about the availability of third-party access and HR Connect's failure to devise a system to facilitate it. Has that been resolved?

756. Mr Wickens: We were just handed a copy of a letter that the Committee has received from the Northern Ireland Public Service Alliance (NIPSA) on the way in to the meeting today. We have not had a chance to go through the details of that. We had a fruitful and productive meeting with senior NIPSA officials in the past couple of weeks, at which we discussed a number of issues. I also pointed out to them, and I reiterate here today, that I hold monthly escalated issues meetings with the managing director of the supplier that leads the contract for HR Connect. Third-party access is not one of the escalated issues; it is one of the more detailed issues that are managed.

757. Ms Patricia Corbett (Department of Finance and Personnel): You are absolutely right. For some time, the trade unions have been requesting third-party access, whereby they would have the ability to ring up on behalf of an employee and go through whatever security questions are required to verify that they represent that employee. To introduce that access and to safeguard all our requirements, we need to define and review processes, procedures and system access, which is on our work-off plan to deal with programme completion, which is the smaller elements that we have not completed as part of the full service roll-out.

758. The plan includes a range of items that are scheduled to be completed by the end of March 2011, and we are committed to letting NIPSA know exactly when third-party access work is to be scheduled, which will be sometime during the first week in November, after we have reviewed the detail of the plan for the last quarter of the year. Some of these things moved into the last quarter because of the major change work that we undertook over the last year to facilitate a number of pay awards and the payment of the equal pay lump sums, and, indeed, to bring the Department of Justice on to HR Connect. Substantial additional work has been absorbed; hence, other issues have moved out on the plan.

759. Ms Purvis: The ability of staff to accrue holiday entitlement while on sick leave is another issue. I understand that corporate HR was to come up with an interim solution. What is that solution, and why was it not designed into the system at the beginning?

760. Ms Corbett: It was not known about at the beginning. It is based on a European Court ruling that has an impact on annual leave entitlement for people who have had sick absence. We have been working with corporate HR, which is responsible for policy and for deciding which policies HR Connect will design delivery processes for, on an interim solution to apply that judgement. In doing so and in working with the contractor, who has brought to bear HR professional expertise and advice to guide us, we have been looking at the strategic picture and the wider implications of other judgements and rulings that may come forward. That complex piece of work has enabled us to try to future-proof any designs that we might put in to HR Connect. I admit that there has been a delay in resolving the interim arrangements to deal with annual leave accrual; however, looking at the wider picture, we feel that we can introduce a more robust solution that will future-proof other changes, and we are working closely with corporate HR on that.

761. Ms Purvis: Are there difficulties with the data available for management information?

762. Ms Corbett: Most of the management information reports on HR Connect are working very well and accurately. We are refining the data and the output from a couple of reports to ensure that they give the actual management information that clients and customers require. The data coming from them is accurate and robust. On the action plan that I referred to, there are some particular reports that we have still to fine-tune.

763. Ms Purvis: Some of the problems that have been outlined by trade union side point to a personnel service that is not personal, which seems to be the problem with the system overall. Is that accurate?

764. Ms Corbett: HR Connect provides a very good service to NICS. It provides a single point of contact where employees and line managers can get direct access by telephone to someone in the shared services organisation in order to resolve their query. They can pull information on all our HR policies and processes directly from the portal, and, to enable individuals to get what they need from the service, amazing support is available through e-learning, including user guides and help guides. There is a personal service, and there are various layers of expertise within the shared service team. If your question cannot be answered at the first point of contact, you will be referred to a specialist group in payroll, employee relations or absence management. It is also important to realise that the shared services centre team works closely with departmental HR teams, which are the decision-makers in employment issues for employees. I would say, therefore, that employees do have access to a good, personal service.

765. Mr Wickens: The self-service HR system that we have in place — HR Connect — is very much the way the rest of the world has gone in providing an IT-based system. The way HR used to be provided in terms of personal service was that each Department had a large number of retained staff. People were reliant on staff filling in forms and all the rest of it. That has now been replaced by the new system, but we are playing catch-up with the rest of the world. I used the same system in the private sector. The idea is to reduce the amount of cost in the retained side. I am sure that we will come back to that at some point.

766. Ms Corbett: Every month we take an average of 10,000 calls through HR Connect. The issues are generally resolved at first point of contact or escalated. There is a process for monitoring and tracking those calls and their resolution.

767. Ms Purvis: Can you elaborate on the reduced cost on the retained side? Obviously there has been a reduction in retained staff, so what have you saved and what benefits have you gained through that?

768. Mr Wickens: I said that I was the benefits owner for those benefits at an NICS level, but it is up to each Department to realise the savings of the retained staff. The Committee has visited this on a number of occasions. Due to early teething problems going back some way, the level of retained staff was higher than was perhaps hoped or expected. With the system now bedding in and performing well, there is a big driver to look at the reduction of that retained staff. We are working with the Departments on those reductions, and I believe that the performance and efficiency delivery unit (PEDU) has also been engaged to work with some of the Departments to review the amount of retained HR staff — and retained finance staff for Account NI, as well. I cannot give you actual numbers today, as I do not have them to hand.

769. Ms Corbett: I can elaborate on the improved ratio of HR staff to employees. When we first did the business case that ratio was approximately 32:1; in 2009-2010 it was 64:1. We are just about to undertake a piece of benchmarking work using the Saratoga — the PricewaterhouseCoopers tool — to benchmark the HR service end to end, including HR Connect and the retained HR, looking at a number of key measures. That will provide us with benchmark data against the best in class and against our comparators — GB public sector organisations. For the first time that will give us a measure against the measure that we took in 2006. It will let us see across the whole service where we have improved and, more importantly, what areas we now need to focus on and put our energies into going forward.

770. Ms Purvis: The Public Accounts Committee discussed an Audit Office report on the cost of the HR Connect contract and how it had increased from the original estimate. Have you projected further costs? How much will that have increased by the end of its life?

771. Mr Wickens: In relation to the high-level figure, we are living within the tolerances of the full business case that was put together.

772. Ms Purvis: Will you explain what "living within the tolerances" means?

773. Mr Wickens: The business case contains a figure.

774. Ms Corbett: Are you referring to the figures for the outline business case and the final business case? I think the figures were £385 million and £400 million. The reason for that was that the figure in the outline business case did not take account of the fact that the contract would be let for 15 years. The full business case was actually a net saving of £27 million on the previous figure. It is also important to say that the benefit has been achieved in relation to a reduction in current cash running costs. We are operating within the HR figure of £26·5 million that we had at 2005-06 prices. Those are our operating costs today in 2009-2010, which represents a saving of between £1·5 million and £2 million when one reflects the inflationary savings that we have made.

775. Ms Purvis: Obviously you will have to try to stick to that.

776. Ms Corbett: Absolutely. The contract value is £185 million. We have agreed costs for that, and there are rates for payslips going through and for service charges against each year built into the contract charges.

777. Mr McKay: The cost is obviously one of the primary concerns put forward by NIPSA in its paper. I understand that you have not got the detail of it yet, but can we get a full breakdown of what the projected spend will be over the 15 years and where the extra costs will come from, etc? Is that possible? I do not know if the Committee has got it before.

778. Ms Corbett: Yes.

779. Mr McKay: With regard to the efficiency concerns that have been outlined, a number of NIPSA's concerns relate to employee relations cases taking longer to conclude than they did prior to HR Connect. Have you identified that problem, and has it been resolved?

780. Ms Corbett: Yes, some problems have been identified with case management. We do not have any baseline data on how long it took or the number of those cases before HR Connect. Therefore, we are in the position of having new data. As with any new process, there have been some teething problems with bedding in the relationship management. Sensitive issues are being dealt with, and they involve employees, line managers, departmental HR in the role of the employer and the investigation carried out by HR professionals in the shared service centre.

781. There are also some process handoff issues and some recording details relating to the software. In order to resolve that, we put together a team of all the interested parties — departmental representation, corporate HR and the shared service centre team — and brought in an HR adviser to facilitate. We have concluded that work and agreed a range of actions with all parties that will improve and resolve the issues, some of which have been referred to. I wrote to NIPSA last week inviting it to join the group that will take forward the resolution of the actions that have been outlined by the case management team.

782. Mr McKay: Can you explain paragraphs 8 and 10 of your paper? Paragraph 8 states:

"overall, the majority of service levels are being met each month with 52 out of 55 are consistently achieved".

Which three are not being achieved? Paragraph 10 states:

"A number of programme deliverables and action plans remain to be completed".

Can you outline what they are, or give us written details?

783. Mr Wickens: We can talk about the details. However, the important thing is that we have got 52 out of 55, which was not the case a year ago. If you look at the measurement of those key performance indicators going back over 12 months, you will see a substantial improvement in all of them to the point where we have now got, consistently, 52 being met out of the 55. The most important is the payroll one, which is now at 99·9%. That seems like an abstract figure, but bear in mind that we do 32,000 payslips a month; that equates to about 32 inaccuracies. I know from talking to my colleagues in other shared service centres in GB that they are enviable of that figure.

784. Ms Corbett: Of the other three specific ones, one relates to the handoff of calls. We monitor the number of calls at the first point of contact, and we want to get a measure of how many are moved through to the second level that I described earlier. We do not have that measure yet, so we are working on that.

785. Another level relates to management information, which we have referred to, and one relates to a minor ICT incident earlier in the year. I have the figures from this month's report and, out of over 30,000 payslips for the last month reported, only 19 were inaccurate. That is an incredible improvement from where we were, and it shows a very settled, stabilised service. It indicates that employees are interacting well in getting the information into HR Connect and HR Connect in processing it and getting the result out.

786. Mr McKay: My main concern is the staff's opinion of the processes and that they are dealt with adequately. The figures from the surveys carried out by Millward Brown and the Civil Service staff attitude survey last autumn are extremely poor. Only 16% of staff agreed with the statement:

"Overall, I am satisfied with HR Connect".

I do not know the details of those surveys and whether staff gave specific reasons for their dissatisfaction. Have you looked at that in detail? What surveys are forthcoming, so that we can get a tighter reading on how things have progressed?

787. Mr Wickens: I am just glancing through the NIPSA letter. I believe that we provided evidence previously on some of those. However, I am happy to do that again. When I started, I said that my first year would be about improving the effectiveness of the services. We have proven that we are continuing to deliver across all the services. I am very aware of the Millward Brown and staff attitude surveys, and some specific comments have been made in those surveys.

788. I have appointed a head of customer experience in recognition that we have differing and varying levels of perception of customer experience across all the services that we provide. I want to try to get a consistency in all of those, so I have appointed a person who works directly for me to look at that whole space.

789. We have just kicked off another Northern Ireland Statistics and Research Agency (NISRA) survey to try to get a deeper level of evidence. What are the specific things that we have to do? Is that to do with the way that users access the systems? Is it to do with the way that we respond by using the systems? Is it the way in which we respond to and deal with users' queries, complaints, problems or issues? We are establishing a proper baseline. The problem was that some of the Millward Brown research and staff attitude stuff gave us more anecdotes than real, solid evidence. We are not ignoring those findings, but my key aim is to get a proper evidence base from which I can show a real and marked improvement. We have shown and will continue to see improvement. That is how we are going about it.

790. The Chairperson: OK. A formal, written response for the Committee to some of the issues in the NIPSA paper would be helpful.

791. Mr Wickens: We will happily provide that as a follow-up.

792. Mr O'Loan: We know about the historic issues around HR Connect and the Department's clawback from the contractor. You say that you signed an amendment agreement in March 2010. Can you tell us the broad substance of that agreement? Diathí McKay referred to your current level of consistency. You say that what I call the clawback from the contractor is down to 1%. I take it that the taking back of money is the final stage. Does that indicate greater significant underlying problems than the 1%? Finally, do you measure workforce satisfaction?

793. Mr Wickens: Clawing money back as service credits is there almost as, dare I call it, a weapon of last resort. We aim to get a fully performing service.

794. Mr O'Loan: That is the point that I am making.

795. Mr Wickens: Yes. We are paying a full fee for a fully delivered service. On occasions in the past year, we have withheld money. We have visited that issue on previous occasions. That has got to a point of almost nothing, in fact. We are getting to the point of not really taking any service credits from the contractor, so we believe that we now have a performing contract.

796. Ms Corbett: Essentially, the issues that surrounded that amendment agreement were caused by delays in the earlier stages of the programme. Those delays had run on for some considerable time and the contractor had submitted a number of compensation claims. The authority had challenged the contractor's interpretation of some of the contract's provisions that were designed to protect us. We had a disagreement on that. Therefore, although the Department and the authority continued to consistently and robustly defend its position against claims from the contractor, we were also determined to resolve those and move forward with the delivery of the service.

797. In seeking a satisfactory resolution, we were mindful that that contractual relationship was for 15 years, that we had delivered significant success in many of its elements, and that we did not want these issues to drag it down. In reaching agreement, we sought to build and repair the relationship with the contractor to achieve service improvements that we knew we needed to have. We also wanted to protect against a lengthy and potentially very costly legal dispute, with the potential, in the event of arbitration, of blame being apportioned to the authority.

798. The agreement has placed both parties in a much better position for moving forward in terms of relationships and behaviours. It has cemented the strategic partnership and moved us from a place of project development and resolution on many issues into collaboration and the delivery of a high-quality service. It has allowed us to capture and to seek improvements as part of that plan that I referred to earlier, and to put more effort into improving access for employees and the reputation of HR Connect. The agreement involves a number of commercially sensitive elements that I can share in writing with the Committee, if required.

799. Mr O'Loan: Did the Department have to pay extra for that agreement?

800. Ms Corbett: No; the way that it is worked through is within the tolerance of the business case.

801. Mr O'Loan: Do you measure workforce satisfaction?

802. Mr Wickens: We measure workforce satisfaction. We had the Department's survey, and we will be measuring it through the new NISRA survey that I just mentioned. It is not just about customer satisfaction; it is about the underlying reasons why customers are, or are not, satisfied.

803. Mr O'Loan: Moving on to Account NI, paragraph 14 of your submission —

804. The Chairperson: Sorry, Declan. Account NI is in the next session, so you may want to leave it. Other witnesses are coming in to talk about Account NI.

805. Mr O'Loan: OK.

806. Mr McQuillan: I wanted to ask you about value for money, but you have answered my question. HR Connect has improved vastly in the few months since you were last here. That is shown in your figures and by the fact that the amount of complaints that we get has fallen vastly. Indeed, no one has phoned me about HR Connect in the last two months at least, which is really pleasing. You receive roughly 10,000 calls a month; what is the flavour of those?

807. Ms Corbett: The calls are wide-ranging, and I can give you a breakdown of them. They can be anything from an employee ringing up to ask to have a policy interpreted; about where they might find information; for help with e-learning guides; for an explanation of their payslip; or about recruitment. It is a complete cross-section, and we do segment it. We can share it with you.

808. Mr Wickens: We have got the segmentation. I would like to reduce it, because that would potentially reduce the cost to the contractor. Some benefit may also come back to us if we can help to reduce the cost. I would like the number to come down once it has been stabilised a bit more.

809. Mr McQuillan: How do you plan to do that?

810. Mr Wickens: We know that there are areas in which we could use more e-forms rather than manual processes in which people have to intervene. We want to get to the point of being able to do that, and we have some ideas in mind.

811. Mr McLaughlin: There are two conflicting evidence trails in respect of the contemporaneous arrangements. I have no grounds at all on which to challenge the evidence that you gave about improved delivery on the service level agreements. Of course, I welcome that improvement, given the initial hiccups; I give credit where it is due. However, the persistent dissatisfaction and hostility among your customers should worry any enterprise, whether in the public sector or the private sector. It is very significant, and, in some instances, the situation is worsening.

812. I accept the dynamics of change management and the resistance to change. However, you referred to the absence of an evidential base or benchmark against which we can measure whether we are getting value for money or a better service. Are we expected to believe that there is no evidence anywhere on the management or staff side that we could compile as a robust benchmark? I support this departure in principle; we have to move forward and take account of new techniques, ICT and all of that. However, I find it incredible that anyone would take this step without ensuring that they were going to be able to demonstrate that it has a better way of doing things by taking the then current practices and using them as a benchmark for improved delivery, better value for money and so on.

813. Mr Wickens: The key thing to get a good measure of — and we have a baseline — is the number of retained staff. We referred to that earlier. At this point, we are not able to say how many were there at the start, how many are there today and how many we can take out of the system. That is why I am working with the Departments to —

814. Mr McLaughlin: You have reduced the ratio by a factor of two; fair enough. However, that does not answer my question. Reducing the numbers of retained staff does not necessarily mean that you are improving the service. That may be the case, but I want to know how you are going to prove it.

815. Mr Wickens: That is very much in reducing costs and creating value for money. On the other side, the customer —

816. Mr McLaughlin: Sorry, but reducing costs does not always mean value for money. We have found that over and over again. You could spend less money and give less service.

817. Mr Wickens: We believe that the direction of travel will provide a better service moving forward. I have already referred to the actions that we have put in place in the area of customer satisfaction.

818. Mr McLaughlin: Do you understand my question or are you avoiding it? How can we demonstrate better value for money in what we are doing now compared to what we did then if you have not taken care or established a robust and evidence-based benchmark?

819. Ms Corbett: The way that we are dealing with it through the full business case is the way that I would demonstrate it. It sets out how we deliver the service within the affordability envelope that I referred to earlier, and it includes benefit plans that refer to some of the baseline measures that were in place then. For example, there was a requirement and a benefit to have a single source of data on individuals and the organisations. When we did the original baseline, HR data on staff was held on over 52 systems across the NICS and there was no single truth. That is one example of a measure. We integrated of all of that information from the various systems to one platform and made it accessible and able to report through one source to confirm the validity and robustness of the data. There was also a benefit for an increased use of electronic data to remove some of the transactional and administrative processes. The other benefits include things like the self-service system, the electronic workflow and the opportunity to deliver HR messages across the NICS using one consistent forum and process — our HR portal.

820. We are currently in the process of mapping those benefits to report back to the supply division of the Department on how we have delivered against the business case. That will be done as part of our sign-off on the project and completion of gateway 5. That is scheduled for mid-2011, when all the project work will be finished.

821. Mr McLaughlin: Is that the next review?

822. Ms Corbett: Yes. I hope that goes some way to answering your question.

823. Mr McLaughlin: I can see that people at a departmental level will be interested in that report. However, how will you address the very low level of satisfaction among customers? Perception is everything, and the customers do not think that they are getting a better service.

824. Ms Corbett: I cannot comment on what the level of satisfaction is today. The measures you referred to were taken over a year ago and, at that time, we were not in a good place with HR Connect. There were many serious issues with people not being paid accurately and not being responded to promptly. Indeed, the number of complaints received then was in four figures in a month, while we are now down to fewer than 70 complaints in a month. The service deserved the reputation and kickback that it got, but we have moved considerably from that place.

825. I am very interested in what the new survey results will be. I do not expect them to be high, because it will take some time for the change and transformation that has been introduced and the new way of working to be imbedded, accepted and to become commonplace. Those results will allow us to understand exactly what the issues are for employees and line managers, and to take more targeted action in how we improve that experience across the piece.

826. Mr McLaughlin: The next gateway review will be in mid-2011. When will we have the outcome of that? Will it be this time next year?

827. Ms Corbett: Absolutely; before that, possibly.

828. Mr Wickens: To ensure our own accountability, I have restructured the governance in Enterprise Shared Services. We have a strategy board that is chaired by a separate permanent secretary. Seven grade 3s also sit on that board, and it acts as an advisory board to me so that I can give proper assurance to my permanent secretary. Beneath that board, the three areas of HR, finance and IT services are covered. Within HR, which is what we are talking about this morning, a programme board looks specifically at the completion plan that has still to be done.

829. Each of the Departments is represented on that board, which I chair. It is very much through that forum — through the HR directors to the individual user groups that are beneath them — that we have access to make sure that we try to do the right things in the right areas. We have a number of different groups that allow us to focus on each of the functional areas of the HR Connect system.

830. The Chairperson: It would be useful, Patricia, if some of the detail that you talked about to Mitchel was set out in a paper.

831. Ms Corbett: Certainly.

832. The Chairperson: That is the end of the session.

20 October 2010

Members present for all or part of the proceedings:

Ms Jennifer McCann (Chairperson)
Mr Paul Frew
Mr Paul Girvan
Mr Simon Hamilton
Mr Daithí McKay
Mr Mitchel McLaughlin
Mr Adrian McQuillan
Mr Declan O'Loan
Ms Dawn Purvis

Witnesses:

833. The Chairperson (Ms J McCann): I welcome Paul Wickens again; John Crosby, who is the chief executive of Account NI; and Fiona Hamill, who is the treasury officer of accounts. I invite you to make a short statement, because we will go to questions as soon as possible.

834. Mr Paul Wickens (Department of Finance and Personnel): Account NI has been in full operational mode since November 2009, with all services operating effectively. In total, £4 billion has been paid to Northern Ireland Civil Service (NICS) suppliers since Account NI went live. Performance against the 10-day prompt payment target has improved in recent months. We also routinely achieve targets for the completion of bank reconciliations and closure of ledgers. We welcome the opportunity to discuss progress in Account NI and explore the matter of prompt payment with the Committee. Members will already know Fiona Hamill from central finance group, and my director of finance service is John Crosby. We are happy to answer your questions.

835. Mr O'Loan: Paragraph 14 of your document says that:

"One of the challenges has been to get buy-in from Departments to the concepts of self service, commonality and shared ownership against a legacy of the autonomy and control offered by Departmental systems."

I do not know what self service means; you might tell me. I found that piece of information very disturbing. It is key that the Departments work with you rather than against you. It sounds like duplicate systems are operating, which would be extremely wasteful. I would have thought that, by this stage, we would have got on to a stable place, as you were saying in relation to HR Connect, with Account NI. However, Account NI and its relationship with Departments does not seem to have got to a stable place.

836. Mr Wickens: I reassure you that it has got to a stable place. We are working very closely with Departments in the same sort of governance structures that I mentioned in the previous session. Under the finance service board, we have a group of finance directors, so we work very closely with the finance directors' group. We also link to Fiona in the central finance group. Account NI is not just about us delivering a service; it is about working in partnership with the Departments and the suppliers in the system. There is a tripartite approach to those things. It is stable, which we can see from the measures that we are getting.

837. Mr John Crosby (Department of Finance and Personnel): Account NI has introduced an element of self service, for example, for staff in the input of their own travel and subsistence claims and in the raising of requisitions and purchase orders online. Those are responsibilities that staff in business areas did not have before. Previously, they were handled by the finance division. There has been quite a seismic shift in the amount of online access that staff have to the accounting system and getting familiar with the requirements of it.

838. Mr O'Loan: Paul, your answer did not seem to agree with the statement that you made in your report. I am sure that it would not be there without a very good reason. Can I just challenge you a bit more?

839. Mr Wickens: The key areas that we are focusing on with Departments do not include the day-to-day use of the system. That is extremely effective. The two areas we focus on are the 10-day prompt payment and making sure that Departments and suppliers are working with us and doing the things that they need to do, and there is also the production of better-quality management information. We have the engine working very effectively.

840. With regard to Department behaviours, we have an education process to try to bring Departments with us to make sure that they are doing the right things. If we are trying to get things done within 10 days, Departments have to live up to certain responsibilities. That is the area that we continually focus on with them.

841. Mr O'Loan: A lot of evidence suggests that the bigger problems with prompt payment are not with the central bodies or departmental structures that you are working with, but with what one might broadly call arm's-length bodies. There are current issues with health trusts, education and library boards, district councils, and so on. Some of those are very outwith you, for example, district councils, but do you have the figures and records for departmental arm's-length bodies or agencies?

842. Mr Wickens: Yes, and we can provide a breakdown. We segment the figures by each customer, or client, by the level of prompt payment. The average for prompt payment last month was up to 82%. There is a variation across Departments and other bodies, and we can provide that to you.

843. Mr O'Loan: Does that include health trusts and education and library boards?

844. Mr Wickens: No, we are nothing to do with those.

845. Mr O'Loan: Right, so you simply cannot offer us any information about those? That is a problem for us.

846. Mr Hamilton: There is a marked improvement in the performance of a lot of Departments. There is almost too much information. You could pluck out every single one of them and ask various questions about why one has improved dramatically, and why one is not showing a sign of improvement at all. However, I want to ask an overall question. The report talks about 82% on average across the board being paid within the 10 days. Are the remaining 18% capable of being paid within 10 days? Is the fact that they are not thus a failing of the relevant Department, or are they not capable of being paid, and the problem lies at the suppliers' end? Have you taken those out? Is the 18% a failure within Government to pay within 10 days, or does it include those cases where you are not getting complete information from suppliers?

847. Mr Wickens: It is all of the above.

848. Mr Crosby: What we actually measure is those that we have paid. You cannot get the period that it is taking you to pay until the payment is made. There are dependencies with the supplier, the quality of the invoice, and where it is sent. There are then dependencies with Account NI in processing the invoices at the first stage. Invoices need to go to Departments for approval, and that goes out through workflow, so there are departmental dependencies on how quickly they approve those and whether at that point they can approve them — whether they match with a purchase order or not. There are a number of approvals and procedures all the way down the line, so invoices can be held up at any point.

849. Mr Wickens: Believe me, the finance directors for each Department do jump into the details, and say: "Why has mine gone up this month?" or "Why has mine gone down?" so that we can understand that. We are focusing on two areas around that. We have quite a lot of high-volume, low-value transactions coming through, and we are trying to work on ways to advise the Departments and suppliers on how we could handle that differently.

850. For example, group billing. We get lots of individual mobile phone bills. It would be much easier for us to handle one large bill with a lot of line items. We may not get to that point, but we are certainly working with policymakers on how we could affect that and change the behaviour. We are looking at areas where we are doing too much work unnecessarily.

851. Mr Hamilton: The Department for Regional Development (DRD) pays out a huge amount, around £20 million each month, and has made dramatic improvements, now hitting 83% according to the latest figures. Other Departments have significantly less, but show no real sign of improvement. What do you do with those? With DRD spending £20 million, with so many invoices and so many contractors doing bits of work all over the place, you might expect it not to hit the higher levels, but it is now getting there. The Health Department, however, which has only £2 million to £2·5 million each month, has gone up in the past couple of months, but overall has been consistently quite low. What do you do to try to drive up its performance? If somebody spending £20 million is hitting a pretty high level, you would expect a Department with quite a low expenditure —

852. Mr Crosby: The short answer to that is that we provide Departments with this table, and that puts pressure on them to see how they are performing. Account NI provides the same level of service to all Departments; we provide the same solution. That is one of the advantages and benefits of Account NI: everyone is now on the same system. These figures prove what can be achieved.

853. The other thing we do for Departments at the lower levels is to provide them with information on invoices in the workflow, so that they can see whether their invoices are, for example, escalating from one member of staff to another, and they can manage that from within.

854. The table reflects diversity in the nature of the Departments. It is much easier in some Departments to have invoices that match purchase orders. If you are purchasing something straightforward, like a desk and four chairs, you will get an invoice that will match it, whereas in, for example, Roads Service, the purchase order may be for a load of stones — it may not equate exactly to the invoice. There is a difference in the natures of invoices that Departments receive.

855. Mr Hamilton: If the idea is to shame Departments, you might want to do it like a league table, with promotion and relegation.

856. Mr Crosby: We provide Departments with the facts. There is information underpinning this table so that they can have more detail and see exactly what has gone on. The other thing that we do is provide information on how long invoices have taken to arrive with Account NI, how long it has taken us to scan the invoices and how long it has taken us to pay them at the end. However, the amount of information that is exclusively down to Account NI is limited. We take less than two days to get invoices from scan into the workflow. We take just over one day to get them finally paid once the approvals are in place. All the other time is mixed time between the Department and Account NI.

857. In any workflow situation, it is easy to pass on to the next person if you do not do what you are supposed to do right. Sometimes there is a little bit of pushing it on to the next person, but if you do not fix it at the first point, it will take the next person longer to process. Finding out where the time is spent is not an exact science.

858. Mr Wickens: I take the point about the league table, but we are trying to work in partnership with the Departments. There is some implicit league-tabling, if you want to use that term. However, the strict measure of prompt timing is from receipt of a correctly rendered invoice. We are still working with Departments on that area to ensure that it is correctly rendered at the first point of contact. That is not always the case.

859. Ms Purvis: All the Departments, except the Department of the Environment (DOE), had a bit of a dip in July, but the percentage meeting their targets increased by September. Is there a particular reason for that pattern?

860. Mr Crosby: There is nothing specific to DOE. It is worth mentioning that DOE was one of the last Departments to come on board. There is a difference between Departments that have been running the system for up to three years and those that have been using it for less than a year.

861. The improved performance has been slightly influenced by reduced volumes that we have seen over the summer period. We are not sure why that is. With the outcome of the spending review due today, Departments have been reluctant to initiate expenditure given that uncertainty. That has certainly helped us. Sometimes, it is simply the volume that we get from each Department and the way that they come in. It is really a queuing system. If they all come in on a Monday, it takes longer to get them through than if they come in sequentially through the week.

862. Ms Purvis: We have some correspondence from Mr Ian Houston in which you talk about the additional investment in Account NI of some £900,000. What has been the return on that investment? We are still not meeting the 10-day prompt payment target. Is that sustainable?

863. Mr Crosby: The return on that investment has been that we have made the best effort possible to maximise performance at the Account NI end. The Departments' performance for 2010 was 57%, so it has gone up considerably. We have put in resources of £300,000 to £400,000 per year. Whether that is sustainable in the longer term is really a matter for the outcome of the spending review and our available budget going forward. It may well be that it is not sustainable.

864. Mr Wickens: When Account NI was first conceived, designed, built and tested, it was intended to meet the statutory obligation for 30 days, beyond which we have to pay interest to those suppliers that have not been paid within that time. The introduction of the 10-day target means that we have effectively had to implement manual workarounds to the IT system to force things through in a much shorter time. There is a question about whether it is worth spending £400,000 or £500,000 per year going forward to achieve the 10-day prompt payment target. We believe that that figure could be reduced as policy.

865. Ms Purvis: Was sufficient flexibility not built into the system at the start to allow for a change in payment turnaround?

866. Mr Wickens: It is fairly fundamental to the way that the process was designed. It was designed to allow electronic workflow. I suppose that the answer is that it was designed for 30 days. Ten days is totally different. The things you have to do to pay in 10 days are different from what you have to do to pay in 30 days.

867. Mr Crosby: It is worth making the point that the system is designed to facilitate use of purchase orders and to have all expenditure approved in advance of an order going out the door, rather than, as has traditionally been the case, at the point of invoice receipt. We are trying to capture expenditure information at the earliest possible time and accrue information so that financial records are intact. That is the important thing. The system was not designed to be a payment engine it was designed to capture quality financial management information. That will be even more important going forward.

868. Ms Purvis: You mentioned late payment. Our figures show that Departments are paying only 93% of invoices within the statutory 30-day period. We have evidence that, for example, Account NI's September figures show that 1,172 invoices were not paid within 30 days. Has that led to action by contractors? What has been the cost of late-payment interest to contractors?

869. Ms Fiona Hamill (Department of Finance and Personnel): Obviously, where contractors consider that they have not been paid on time, remedies are available to them under the Late Payment of Commercial Debts Regulations 2002. That has led to settlements, and those figures are reported in Departments' accounts. They can certainly be extracted from Departments' accounts for Committees. That is how they are reported and published.

870. Ms Purvis: The purpose of introducing the 10-day turnaround was because of the economic recession and to ensure that contractors, particularly smaller contractors, were able to survive. When you see that invoices are not even being paid within 30 days, that is cause for concern. Obviously, they may be larger contractors. I would be interested in whether they are, in fact, larger or smaller contractors because I am sure that at this time, the impact of that on some businesses is tragic.

871. Mr Wickens: This is one of the dilemmas. Achievement of the 10-day prompt payment actually works against the 30-day payment. By focusing on the 10-day payment — while it does not mean that you take your eye off the ball for the 30-day prompt payment — you actually do things differently. Fundamentally, focusing on the 10-day payment goes against good practice.

872. With regard to the breakdown of the type and size of suppliers, one challenge is that we do not have information on whether we are paying an SME or a large PLC. We actually do not seek to make a distinction. We aim to pay all. That comes across in GB as well. My colleagues also pay all suppliers. They cannot make a distinction between an SME and a PLC.

873. There is then the question about the flow-down of payment terms, because very often you find that the small fish at the end of the value chain are depending on the big suppliers getting paid. I have written to the Institute of Directors, the Confederation of British Industry and the Federation of Small Businesses to ask them what evidence there is to show how the smaller suppliers are paid by their members. I wrote to them in July and sent a reminder in September, but only the Institute of Directors has replied to say that it is working on it. I have not had a reply from the other two, so we do not know what the supply terms are.

874. In his recent report, Sir Philip Green questioned why the Government are bending over backwards to pay suppliers in a short space of time when organisations like his own are taking 45 days to do so. Between 45 and 50 days is the norm in the private sector, but we are focusing on 10 days.

875. Ms Purvis: Is there a difference in the size of firms that are pursuing late-payment interest? I imagine that it would be more beneficial to smaller firms to pursue that, but they probably do not have the means to do so.

876. Mr Wickens: We do not have that information to hand, but we can provide it.

877. Ms Hamill: We can ask the Departments to advise us on that.

878. Mr McLaughlin: I am interested in the flow-down. We have got the explanations about the change and the impact on your processing from a 30-day target to a 10-day target, but we are trying to ensure that we do not add to the difficulties of contractors. I am wondering why we are relying on things like the fair payment charter as opposed to a contractual obligation, even if it is modelled on the 30-day payment, which appears to be contractually possible. Why do we have that amount of flexibility when we know that it is causing difficulty at a local level?

879. Ms Hamill: In large construction contracts, for example, Central Procurement Directorate (CPD) has put requirements within the standard terms and conditions that major contractors pay their subcontractors within 30 days to see the flow-down. That can be done by us with the big contracts, because it was an issue. It is very difficult for us to do that in the more routine purchasing of goods and services.

880. Mr McLaughlin: What do you mean by "a large contract"? What is the threshold?

881. Ms Hamill: The big construction contracts.

882. Mr McLaughlin: Is it multi-millions, or over £1 million?

883. Ms Hamill: It is in the advice from CPD, which I will forward to the Committee. It is now a standard part of those contracts that people must sign up to a commitment to pay their subsidiary providers. In that area, a lot of the business that Account NI is covering is smaller, normal routine procurement. In those conditions, it is very hard to see how you could start to exercise terms and conditions that would force those principal suppliers to pay subcontractors, particularly where you are paying for utility services. How do you enforce a requirement on a large utility firm to pay its subcontractors? The majority of our money is going to large companies, and it is through the value chain that the money moves into the local economy. At a policy level, I do not know how we could enforce it.

884. Mr McLaughlin: If the policy is to apply this right down through the food chain and it is a contractual obligation, it can be enforced at some level. That does not necessarily imply that the Department has to follow the food chain. It does not necessarily imply that the Department has to follow that food chain. The contractors and the subcontractors would have legal protections and entitlements and could insist that the obligation was enforced and delivered at that level. If that has not been considered, is it possible to establish whether people are considering those measures?

885. We are getting a very consistent pattern of reports from those subcontractors who are experiencing difficulty. The charter of fair treatment does not seem to work or solve the problem; the complaints continue. We have to do more.

886. Ms Hamill: I will take the Committee's concern to CPD and ask for its advice.

887. Mr McLaughlin: That will be fine.

888. Declan was asking about the arm's-length bodies. It was not clear to me whether Account NI is tracking the performance of arm's-length bodies.

889. Mr Crosby: We are not. We provide and compile figures for only those organisations that are on Account NI and which pay through Account NI. That is the only role that we have; that is our remit.

890. Mr McLaughlin: I can appreciate that you might think that that is quite enough. However, a significant amount of the programme spend is delivered through quangos and arm's-length bodies — £8·9 billion in total. It appears that if we rely on the current arrangement, the profile of the application of public funding will be quite narrow. There may not be any noticeable impact for operators whose point of contact is some sort of arm's-length body that does not subscribe to what the Department does.

891. Mr Wickens: We provide services to 13% of the public sector. That 13% comprises the NICS Departments and the arm's-length bodies. In some cases, we are contractually prohibited from providing services to other organisations because of the way the procurement was done. It is impossible for us to take any responsibility or ownership for those organisations. We are seeking to continue to grow our customer base. Account NI is working actively with the Department of Justice, as a new Department, to see how it could be joining. We are bringing on the Driver and Vehicle Agency. We are seeking to bring on other organisations. We can take responsibility for those that join the club, as it were, and report back to them. Other than that, it is definitely outside the remit of Account NI as a delivery organisation.

892. Ms Hamill: In February, the Finance Minister wrote to ministerial colleagues and asked them to consider the matter and to seek assurances from their Departments, agencies and the wider public sector organisations for which they were responsible that all appropriate action was being taken. That is at the wider level.

893. Mr McLaughlin: The fact that so much of the spend is outside the remit and even the projected remit of Account NI raises fairly fundamental issues. Then, of course, we come back to the performance statistics of the Departments; some of them are so far behind counterpart organisations elsewhere. In the broad scheme of things, it seems that we may not be delivering as much support to indigenous and small and medium-sized enterprises as we think.

894. Mr Wickens: I will give you an example. I maintain a close contact with the chief executive of the regional Business Services Organisation in the Health Department. It has started the procurement of a system equivalent to Account NI. It will be taking responsibility for its prompt payment through the systems and services that it provides. I take your point, but it is definitely outside of our remit.

895. Mr McLaughlin: We might want to follow that one up.

896. Mr Frew: I support the fair payment charter or any such model. I believe that the biggest problem in the construction industry is not the lack of work, but the prompt payment of contractors. That is the major problem in the construction industry, because it is hard for a subcontractor to put pressure on a contractor to pay up. You talk about the norm. It might be the average, but anecdotal evidence suggests that the norm is that it can go on for long periods with large amounts of money at stake. If they get payment, it is a small fraction of what they should have received. There is a major problem there. I believe that it is right to take that pressure away from subcontractors, because the only real strong argument that they can use is the fact that they can lift their labour off the job. That becomes very embarrassing for everyone: the client, the contractor and the subcontractor. It is a model of best practice that the project manager focuses on that. He can ask about prompt payment at meetings. I think that that is vital. It takes the onus off the subcontractor and the people who deserve and need that money. How can we, as a body, encourage that throughout the wider construction industry, which is purely in the private sector and away from government bodies? How can we encourage that best-practice model?

897. As regards the league table that has been talked about, when we look at some of our big hitters, we see that some of them do better than others. DRD, which is probably one of the most important Departments that interacts with the construction industry, seems to have done terribly in April to June but has recovered immensely in July to September. In the first league table, it is broken into "core" and "roads", but that that is not the case in the other league table. Is that a sleight of hand? Did we unfairly ask them to do something that other Departments have not done? There is quite a difference; DRD roads was the one that showed concern. There is £11 million there in those three months that had not been paid within 10 days. Was that £11 million paid within 30 days? The Department has recovered, so I will qualify my comments. Has the fact that it has bunched the two items together skewed the figure slightly? I see that DRD core does not have a great amount of money, but has that skewed its figures to make it look better than it really is?

898. Mr Wickens: In terms of what we can do about the construction industry, you have prompted me to think that I should write to the Construction Industry Federation (CIF) as well as to the three other organisations. I am wondering why I have not had a reply in such a long period. Is there a driver impetus in any part of the private sector to take up the challenge of prompt payment? The drive is very much in the opposite direction, and I am very aware of the anecdotes about the construction industry and am quite happy to write to the CIF and ask the same question so that we can at least establish an evidence base on that.

899. Mr Crosby: At the outset of Account NI, DRD and Roads Service were to come in as separate entities. In the process of migration, they decided to come in as one and to manage the project jointly. Therefore, for different reasons, the figures are sometimes presented separately and sometimes together. There is certainly no sleight of hand to cover those up. At a departmental level, the figures for DRD as a whole are still the figures for the Department, and the Department is our customer. The figures reflect the complexity of the business that Roads Service is in, where purchasing procurement, receipt of goods and matching of invoices with purchase orders are some of the most complex, largest and significant issues that we have. DRD was one of the last Departments to come on. The figures are a reflection of embedding new systems and processes and the direction of invoices. However, as you said, the figures have come up and, in September, are sitting at 83%, which is just above the overall average. That is a very encouraging sign.

900. Mr Frew: One of our other big hitters is the Department of Agriculture and Rural Development (DARD). Can you explain its figures for me? Again, it has improved greatly; is there any reason for the figures in April to June?

901. Mr Crosby: Last year, we had funding difficulties, and Account NI's funding position on transfers from Departments was resolved only in January or February. It is only since then that we have been able to put the resources in at our end. DARD was one of the last Departments to come one, and it has one of the more complex requirements through invoice processing. It has things like agriculture colleges and quite a variety of spend; it is not just an admin Department like some of the smaller ones that came on first. It is just a reflection of the nature, extent and diversity of that Department. In fact, it is quite a small proportion of DARD's spend. Most of DARD's spend goes on the single farm payment, which is completely outside these figures.

902. Mr Frew: Mitchel commented that the fair payment charter does not seem to be working, but it has only been in place since March. Is that right?

903. Ms Hamill: In respect of construction contracts?

904. Mr Frew: Yes. The charter has only been in place since March, so it is a bit unfair to comment on it.

905. Mr Crosby: The difficulty with the charter is that it only applies to new contracts. A lot of contracts under which people, including some of your constituents, are operating have been in place for years. Therefore, influencing that piece is the bigger challenge, and there is no direct way that we can control what private firms do in terms of paying subcontractors.

906. Mr Frew: I agree.

907. Mr Crosby: We are not in that mix.

908. The Chairperson: I noted your comments to Mitchel and Declan about arm's-length bodies. Is there any sort of discussion going on where that remit could be extended to include those arm's-length bodies?

909. Mr Wickens: Yes. In fact, as recently as yesterday afternoon, my senior management team had a workshop on how we can increase the number of customers and what additional services we could potentially provide. That is at a very early stage, but we have commenced an ideas generation process in respect of that.

910. The Chairperson: We will want to monitor the progress on that, so we will be in contact with you. Thank you very much for coming along.

3 November 2010

Members present for all or part of the proceedings:

Ms Jennifer McCann (Chairperson)
Mr David McNarry (Deputy Chairperson)
Dr Stephen Farry
Mr Paul Frew
Mr Paul Girvan
Mr Simon Hamilton
Mr Daithí McKay
Mr Mitchel McLaughlin
Ms Dawn Purvis

Witnesses:

911. The Chairperson (Ms J McCann): I welcome Terence Brannigan, the chairman of the Confederation of British Industry (CBI), Nigel Smyth, the director of the CBI, and Richard Moore, who is also from the CBI. I invite the witnesses to make some opening remarks on their report, and I will then open the evidence session up to questions from Committee members.

912. Mr Terence Brannigan (Confederation of British Industry): I want to give the Committee a broad sweep, but I will try to keep my contribution reasonably succinct. We welcome the opportunity to give evidence to the Committee and thank the Committee for its invitation.

913. I will focus on our report, which is called 'Time for action: Northern Ireland — delivering public services in a time of austerity'. In the report, we considered five areas: immediate cost savings, thus "Applying the brakes on existing costs"; opportunities for efficiency savings, thus "Every pound well spent", and improving productivity and value for money; "Re-engineering public services"; "Structural reform"; and "Bridging the funding gap", by looking at alternative funding streams, alternative sources of debt and asset sales.

914. The CBI has an active public services directorate. We tried to leverage that experience and aim it at Northern Ireland by looking at it how it would apply here. We drew on best practice, benchmarked information and explored the evidence. We also looked at many local ideas and things that had been done successfully, particularly in the Civil Service, such as the shared services model. We got a great deal of information from government itself to inform the report, and we looked at the experiences of businesses through the recession.

915. Our overall aim was to protect services and service outcomes — core services in the public sector. We put together a steering group of senior members of the CBI in Northern Ireland. I chaired that steering group, and we had a number of significant meetings and gathered a significant amount of evidence. We published our report on 22 September, and, although it was offered as a solution or a series of solutions to the Budget challenges that we saw coming, it was not designed to be a definitive blueprint.

916. Public sector expenditure has doubled during the past decade, with an increase of more than 40% in real terms, while productivity has fallen during the same period. Public sector employees have increased by more than 20,000 since the 1990s to around 225,000, and, taking account of the Department of Justice, the Executive have approximately £10·2 billion in current revenue expenditure and £1·4 billion in capital expenditure.

917. That was the backcloth to the report. Therefore, the recommendations made in it had to do with applying the brakes. We are looking to save £340 million per annum by 2014-15 through freezing the pay bill, reducing overtime, increasing pension contributions, and so on. That would include things such as reducing the legal aid bill, which is significantly out of step with other parts of the UK, and reducing school transport costs, which have grown to around £80 million a year.

918. We then looked at what we termed "Every pound well spent", which is the better value-for-money aspect. That includes opening up public sector markets to competition and taking the shared services model that the Civil Service has employed very successfully and putting it across the whole of the public sector. We looked at outsourcing, which lags significantly behind the rest of the UK, at streaming our procurement structures, better management of the government estate and cutting public sector absenteeism.

919. We estimated that we could save around £570 million per annum by 2014-15 through the re-engineering of public services. That could be done through cutting costs, waste and duplication. We looked at the better use and rationalisation of the health estate. We looked at treating more people in their homes and at the better use of technology. We looked at the administration of education. We looked at the number of schools and considered the fact that 54,000 places in our education system are empty. We looked at how we could re-engineer the financing of housing in Northern Ireland and at what would be the best use of the £4·1 billion in assets in that sector. That, plus the rental income, could be used to borrow and invest in rebuilding and refurbishing our housing stock. We looked at the justice remit and at the need to re-engineer prisons, the police and, as I said, the legal aid system. We felt that an overall better use of technology would improve productivity.

920. We looked at the need for structural reform. Existing governance arrangements do not deliver efficient public services. Although some savings would be modest, such as £20 million per annum from having fewer Departments, fundamental changes could be made to help overcome the silo mentality that exists in some Departments.

921. Owing to excessive management layers, the private sector has had to significantly de-layer its management over the past four years. We are looking to do the same in the public sector. Stronger, more robust performance management arrangements should be introduced. A cultural change is necessary, with clear vision, accountability, more collective interests and more flexibility, the real focus of which would be delivery.

922. Our revenue savings were around £1·1 billion against a backcloth of the need to save around £1·6 billion. As we have seen, we were left with a funding gap of around £500 million. We looked at ways in which we could generate further revenues as an Invest to Save measure, because we recognise that some of the recommended changes would require some investment. Therefore, we would seek to raise revenues though options such as water charges and rates; asset sales and strategies, such as land and property sales, franchise models and mutualisation; and, in particular, alternative sources of debt finance. We looked specifically at the Northern Ireland Housing Executive and, as I said, at how we could leverage its assets to get private sector moneys into the public sector.

923. Those are the key areas that we looked at. Overlaying that was a sense of urgency, and we are concerned that we see some significant movement. We would like to see a Programme for Government, a strategy and a Budget delivered by the end of the year. We recognise that that is a very tough ask; nonetheless, we believe that that is important for reinvigorating confidence in the private sector and, indeed, in the public sector. That will be necessary over the coming weeks and months.

924. Mr McNarry: I congratulate you on your paper, presentation and, indeed, work. I am sure that you will not mind my saying that the paper is worthy of being a party political manifesto. People in some circles will be relieved to know that you are not a branch of the Tea Party movement or any other organisation and that you are not going into the party political business. If you were, you would scare the hell out of us and shake us up, and that would probably be your intention.

925. I share your views on the Budget, which you set out at the end of your presentation, and I welcome your use and initiation of the term "leverage". That is extremely important in what you are bringing to the table.

926. We know from we what see around this table and outside the Senate Chamber that there is growing frustration. That has been demonstrated by the gathering of a plethora of ideas and suggestions, all of which are equally important to us, from all sorts of key sources. However, nothing has been co-ordinated as yet. I do not know whose fault that is — perhaps it is ours. Nothing has been co-ordinated to bring together a workable and agreed approach for politicians such as us, key stakeholders such as you, and the other people of whom we are aware.

927. As you mentioned, there is an uncertainty about whether there will be a Budget by early next year, and the Committee discussed that earlier today. Most of us will take that matter extremely seriously. The main parties represented around this table are on the Executive, with the respectful exception of Dawn Purvis. If the Executive cannot agree a Budget by the end of this year, they will need to explain the reasons for that. If they cannot agree — this is a natural phenomenon — individual parties are unlikely to go outside the Executive box, and therein lies the problem. Sinn Féin recently presented a party paper. My party presented a paper a couple of weeks ago, and the DUP presented one this week. Others have presented papers before, and I am sure that more papers will be forthcoming.

928. My question arises from wanting to know what can be done to help — if that is the right word. Gentlemen, do you see any merit in trying to find mechanisms that may be used to take forward a co-ordinated outcome that is capable of going a long way towards satisfying the frustration that I know, you know and we all know is out there and that we have mentioned? It is unlikely that we will get total agreement; in fact, that will never happen. However, there must be a consensus from which we can start or even build on, and there must be something tangible that we can get to grips with. We must frustrate you immensely, given the way in which we go about our business, the systems that we must operate through and the bureaucracy that we must cut through. However, at the end of the day, Northern Ireland's decisions about budgets and the control and usage of our finances is dependent on the Executive.

929. I am sure that you agree that there is a challenge to be faced. However, on the basis of what you see and who you talk to, is there an ability to co-ordinate the action that you and others talk about? Many of us around the table would readily sympathise with your position, but it is unable to be worked through because of the political nuances.

930. Mr Brannigan: I will pick up on that in several parts. We have engaged with our colleagues in the other major business organisations; namely the Institute of Directors, the Northern Ireland Chamber of Commerce and Industry, small business, the Centre for Competitiveness, and so on. As a result, we have the Business Alliance, and we engaged with our colleagues to get our act together first of all, which is important. From a business perspective, we have tried to pull together a single direction and common agenda. We have done that recently by coming up with five key initiatives that we believe can be addressed.

931. Secondly, we have engaged with various parties that are represented here. We have not engaged with them all as yet, but we would welcome meeting with everyone. That dialogue has been ongoing for some time. It would be easy to be cynical. Indeed, I have to say that I was cynical at the beginning of the process. However, I have been genuinely encouraged by the dialogue that I have had with politicians here on the hill. I detect significant accord and an understanding that we are all in this together, that the issue to be addressed is serious and that, unless we work together, we will not solve the issues and give the leadership that people have the right to expect, whether that be in business or in politics. Much of my cynicism has genuinely disappeared over the past few weeks. There is an opportunity for us in business to get together with political parties and the political leadership to form a common agenda.

932. We are keen to stress, however, that dialogue has to be action-centred. It would be a waste of our time and yours to sit and engage in ongoing dialogue that has little outcome. We are not prepared to do that. We need a common agenda that is short, to the point and action-centred. It would have, say, a maximum of five points. We could take those points one at a time and agree a timescale for the outcomes of each. That would ensure that there is an agenda that is driven to create outcomes for the common good of all citizens in Northern Ireland. I genuinely believe that there is an opportunity to do that. There is only a short time in which to do it. Along with our colleagues in the other business organisations, we are keen to engage with you to drive that forward.

933. Mr McNarry: I do not want to put you on the spot. However, experience tells us that you need a catalyst —someone to do all that. Do you think that it would be prejudicial to the confederation's independence, for which you are respected, for someone from your circle to make those overtures? Do political parties need to get into a powwow and agree or agree to disagree? Do you think that, given the shared circumstances, it would not be wise for a political party to ignore an invitation from people who are as serious as it but who have a share in the same agendas? I, and, indeed, all people who have a background in business, like the term "short agendas", because those enable us to find out quickly whether we are going in the right direction.

934. I do not wish to put words in your mouth; I am just trying to say that there seems to be a problem with bringing that agenda to fruition in the sense of it being on the table for people to talk about. Will getting people around a table be part of the action?