Stormont’s budget process and its vision for Northern Ireland are out of sync
The financial processes of government are not exciting. However, they can make a big difference to statutory spending power because of the effect they have on efficient, or inefficient, use of money. These processes even indirectly shape policy.
It is very important to have strong processes - and Stormont does not.
In late June the Northern Ireland Audit Office (NIAO) published a report – The Northern Ireland budget process – looking at the methodology by which the Executive prepares and finalises its budget.
Stormont funds around £14bn of goods and services every year. Since the restoration of devolution in 2007, the total allocated is approximately £162bn.
As well as (and in response to) the main budget itself, more is distributed each year through monitoring rounds, designed to meet ongoing or unforeseen pressures. This amounted to around £2.5bn in the six years to March 2020.
The totals are humungous – unsurprisingly, it’s an entire government’s spending. This is what makes efficiency so important. Just a single percentage point wasted or saved translates to big money and potentially transformative public services.
Per the NIAO report: “When dealing with limited public funds, the budgetary process which determines how they will be allocated and controlled is a critical process for all governments, including the Northern Ireland Executive.
“With the economic and societal challenges created by the COVID-19 pandemic, never has it been more important to ensure that public money is being managed and spent well.”
And, according to this report, Stormont’s financial processes aren’t working very well.
The OECD has pinpointed ten key Principles of Budgetary Governance that signify international good practice in statutory budgeting.
NIAO’s report measured the Executive’s methods against each of these. It found that Stormont was in compliance with one principle, in partial compliance (i.e. could do better) with seven of them, and substantial work is required for compliance (i.e. failure, or something like it) with the remaining two.
That is not a tremendous outcome at first glance, and it looks even worse when it becomes clear that the sole principle on which Stormont is successful - Manage budgets within clear, credible and predictable limits for fiscal policy – is a success by default, because the Executive has very little fiscal power itself and, instead, receives a lump of cash from Westminster which it is then free to carve up.
The report covers well-known Stormont shortcomings. One partially-fulfilled principle relates to long-running sore: single-year budgets.
The Executive agreed to move back to multi-year budgets (after several single-year spending plans) as part of the rejuvenation of the Assembly following the three-year collapse.
That has yet to happen, because of the pandemic, which is an understandable excuse – but does nothing to mitigate the issue at hand.
“The short-term nature of annual budgets creates difficulties for future planning and innovation across the public sector. The absence of a medium-term dimension to financial planning and prioritisation has been the subject of significant criticism…
“While single-year budgets may sometimes be necessary, good practice suggests that the aim nonetheless should be to move to multi-year budgets as soon as possible. The New Decade New Approach agreement included a commitment to using multi-year budgets where the UK Government has provided multi-year funding.”
Single-year budgets also create huge difficulties for any third sector organisations reliant on statutory funding (of which there are many examples, whose responsibilities are of prime importance for NI as a whole). The NIAO also noted that there remains a gulf between budgetary design and planning for a Programme for Government.
Another of these part-fulfilled OECD principles is Ensure that performance, evaluation and value for money are integral to the budget process. This is important because there are not strong enough links between the reasons money is provided to departments, and what those departmental policies go on to achieve.
“Performance information is provided in the annual accounts of public bodies, however this does not link back to the funding allocations in the budget and there is currently no report linking PfG interim outcomes to the budget used each year…
“While the principle suggests that government should periodically take stock of overall expenditure and re-assess how expenditure and national priorities align, NI adopts an incremental approach to budgeting for its day-to-day expenditure. This method takes the prior year budget as its starting point, adjusting it to allow for items such as salary increments, inflation, projections for new expenditure, or fluctuations in revenue.
“This is a simple form of budgeting which has advantages, but also disadvantages. Since 2007, a number of reports on budgeting within NI have recommended that the Executive moves away from this approach to one that would provide a transparent link between inputs and outcomes. Nevertheless, the Executive has continued to use incremental budgets for resource expenditure. The DoF has advised that this approach reflects the nature of resource spending, which is largely recurrent in nature e.g. salary budgets. Zero-based budgeting is used, however, for capital expenditure.”
The two principles where substantial work is required are related to each other. Crucially, they are also related to scrutiny of the budgets themselves (which also blends into the fundamental design of policy).
These principles are:
- Ensure that budget documents and data are open, transparent and accessible
Per the NIAO: “Budget documents are available online and in a range of formats, which is in line with good practice. However, the budget document can be difficult for anyone other than a financial professional to understand, given the amount of terminology it contains…
“Expenditure allocations are made at a ‘Spending Area’ level, a broad term with millions of pounds of funding assigned to them… While the descriptions used have improved during the 13 year period under review, the high level nature of these terms makes it difficult for readers of financial statements to identity the individual policies and programmes funded, or how any income is generated.”
- Provide for an inclusive participative and realistic debate on budgetary choices
The Audit Office notes that, for several budgetary cycles, the draft budget and public consultation stages of the process were removed entirely and, while they have just been reintroduced, the “time available for stakeholder engagement on budgetary choices has steadily reduced”.
“The Assembly and its committees should have the opportunity to engage with the budget process at all stages of the budget cycle…
“In addition to allowing time for engagement, stakeholders need to have access to detailed information in order to debate budgetary choices. The Committee for Finance and Personnel highlighted in its 2008 report that there was a “general difficulty in obtaining detailed information to enable sufficient scrutiny and prioritisation.” An Assembly Research Paper in 2017 noted that three of the nine departments did not supply budget information to their respective Assembly committee prior to the 2017-18 budget announcement as required. A fourth said that it would not be able to provide any information on the budget until after the final budget had been issued…
“Engagement with the public is also an important element within the budgetary process, but only limited funding has been allocated under participative budgeting to date. This is a form of budgeting where local people decide how to allocate part of a public budget, and has been identified as good practice by a number of organisations, including the OECD and the World Bank. The DoF, however, advises that there is significant engagement with key stakeholder groups such as the Northern Ireland Council for Voluntary Action (NICVA), business organisations and unions.”
Consequences and responses
Why is all this important?
First of all, scrutiny is crucial to any process of governance. It is a necessary part of democracy. The importance of this should be obvious.
But the problems here go further. They bleed into the policymaking process and another of Stormont’s old problems: silo working.
The Executive has embraced outcomes-based working as a way of objectively measuring the success of policies while they are ongoing, and of tying those policies to actual changes in people’s lives – rather than simply counting the number of programmes and schemes government has created (and trying to figure out if they were any use long after the fact).
That is good, but the policy design model (which leads to departmental bids for support, which ultimately leads to a budget) does not appear to have caught up. There is a natural tension between what the Executive says it wants, and how it functions.
On the one hand, the government is working towards high-level aims like “we live and work sustainably – protecting the environment” and “we enjoy long, healthy, active lives” that are not so much cross-departmental concerns as they are non-departmental visions for a better society.
On the other, single departments submit bids based on a mooted departmental policy portfolio, and are then allocated cash to substantiate some or all of those policies. All this is done in a way that is extremely vague and hard for anyone – whether a member of the public, a business or civic society leader, or even the MLAs themselves - to examine until after the budget has been agreed.
Of course, departments are free to co-operate in their own policy-design. One hopes this is becoming more and more common, over time.
And all government models need to be practical. Moving to more blank-page programme design, where the walls between departments dissolve and the government as a whole arrives at a suite of costed policies that represents its holistic vision over an entire Programme for Government period, would be challenging for any parliament.
At Stormont, where ministers come from several different political parties, it is even tougher.
While the idea that the starting point for next year’s budget should just be a ctrl-c of this year’s with some of the dates changed is a pretty crude one, there will always be a degree of truth to that.
The Finance Department’s point in defence of the current process, made above, does have some merit. Indeed, a lot of the budget does go on people’s salaries, for instance. It is simply not true that every year (or multi-year period) begins with zero financial commitments.
And, of course, however the process is designed there will still be individual ministers and individual departments with their own areas of responsibility – and which each requires a financial allocation.
Nevertheless, in the age of cross-departmental working, with the aspirations that policies should avoid duplications (and other inefficiencies) and instead aim for multiplier effects and other compound benefits, the current Stormont model seems miles away from how everyone in government says they want government to work.
In the coming years we will hear a lot about how strapped for cash NI is, and this will all be more or less correct. This means that getting value from every penny is important. Improved processes are important. Stormont is out of excuses.
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