Official Report: Minutes of Evidence

The Chairperson (Dr Aiken): The Committee will now receive oral evidence from the Northern Ireland Fiscal Council on its 2022-25 draft Budget report. The session will be reported by Hansard. Can we bring in Maureen, Alan and Esmond?

The Committee Clerk: Sir Robert is on.

The Chairperson (Dr Aiken): Hi, Sir Robert. Can you hear us?

Sir Robert Chote (Northern Ireland Fiscal Council): I can, thank you, Chair.

The Chairperson (Dr Aiken): Hi, Alan. Hi, Maureen, good to see you again. Hi, Esmond. It is like meeting old friends again. It is really nice to see you in here as well. It is good to see that we have reached the point of dealing with COVID, if we ever manage to fully deal with it, to have everybody back in the Senate Chamber. Thank you very much indeed, and welcome. Sir Robert Chote is the chairperson of the council, and Maureen O'Reilly, Professor Alan Barrett and Dr Esmond Birnie are council members.

We invited you to the meeting to provide members with an oral briefing on your report, 'The NI Executive's 2022-25 Draft Budget: an assessment'. We are looking forward to the assessment. Robert, are you leading off?

Sir Robert Chote: Yes. Thank you very much indeed, Chair. Thank you very much for the invitation.

You have seen the report, so let me just give a brief bit of background to it and some highlights. This is the first of the reports that we have been mandated to produce under our terms of reference. The comprehensive guide was an appetiser, if you will, setting out some of the background. The terms of reference require us to:

In fulfilling that request, we decided, obviously, to look at the draft Budget so that our findings could inform the public consultation and your deliberations ahead of the final Budget. In this context, we interpret "balance" to mean that spending proposals in the draft Budget can be financed by a combination of external funding, which is mostly the block grant, as well as by regional rates and permitted capital borrowing. It does not mean "balance" in the sense of spending revenue entirely equally; permitted borrowing is in there as well.

The Executive essentially have two key decisions to make about how to balance the Budget. The first is to what extent they want to top up the block grant through regional rates revenue and capital borrowing to determine the total envelope that is available to allocate among Departments for spending. The second is how to balance the competing demands of the different spending Departments within that overall envelope. The answer to those two questions will get you to how the Budget has been — in inverted commas — "balanced".

As we discussed in our previous paper, the Finance Minister and the other devolved Administrations were presented with a rather larger block grant settlement than most people probably expected for this draft Budget. That reflects the relatively high-spending, high-taxing Budget and spending review that was announced by the UK Chancellor in October. To top that block grant up, the Finance Minister has proposed increasing capital borrowing to the maximum annual limit of £200 million by 2024-25 — not going there straight away, but increasing it over time — and also to freeze regional rates and extend some reliefs, rather than using those primarily as an additional source of revenue to go into the spending pot. That set of decisions around regional rates probably comes at a cost of around £175 million in aggregate over the three-year Budget period, compared with a baseline in which regional rate poundages are increased in line with inflation, and the reliefs are not extended.

Those decisions on capital borrowing and regional rates have a relatively small quantitative impact on the size of the spending envelope relative to the block grant outcome. Given the overall spending envelope implied by the block grant and those two decisions, the draft Budget proposes to increase departmental spending in aggregate, with the Department of Health being the top priority.

The bulk of the total is day-to-day resource spending such as running costs of public services, grants, administration and so on. The Department of Finance always refers to that as being the focus of the Budget. Various allocations are earmarked for Departments. Some of those were agreed with the Treasury at the time of the spending review, some require the approval of the Secretary of State and others were proposed by the Finance Minister as part of the draft Budget. The Finance Minister then asked all Executive Departments, bar Health, to contribute a 2% cut in their baseline budgets, which is worth about £118 million per year when added together. That is added to the fruits of the block grant settlement to determine their scope for allocations looking ahead. That pot finances a set of general allocations that are not earmarked and that Ministers can spend as they wish. For all Departments, bar Justice, the general allocations outweigh the 2% cut that they were asked to make. Health emerges as the biggest percentage winner from that, followed by Education.

As you know, the draft Budget and the set of allocations within it is not the agreed position of the Executive. They only agreed to put this out as a basis for consultation. That fact raises concern that it may not be possible to agree a final Budget before the end of the fiscal year and before the Assembly rises for the elections. That would not be a catastrophic, world-ending event. Mechanisms are in place to allow Departments to continue to spend into the new fiscal year, but that would clearly be undesirable and would throw away an opportunity to get more strategic and long-term policy action under way.

At the end of the report, we identify a few themes that we think are worth thinking about and discussing ahead of the draft Budget. Among them, we note that the consultation that Finance put out asks for views on things such as departmental efficiencies, other services that could be stopped and whether there is greater scope for charging. Implicitly, there are also questions about super-parity. The draft Budget does not, however, put forward specific proposals on which to consult in that area. It poses an open question, rather than saying, "What do you think of these ideas?".

Secondly, as we have noted before in talking to you and as our stakeholders have made clear throughout the time that we have been talking to them, it is important that the next Executive have a clear link between the strategic priorities in the Programme for Government that they will be required to produce and Budget allocations, so that money follows strategy.

Thirdly, we express regret that the proposals on capital allocations came ahead of the Executive's investment strategy, which might have underpinned and informed the proposals. I think that the strategy is being published today or tomorrow —

The Chairperson (Dr Aiken): It is out today.

Sir Robert Chote: If it is today, I have not had a chance to look at it. In an ideal world, horse would not have come before cart.

Fourthly, we note that there are potential pressures on spending allocations from public-sector pay demands at a time of relatively high inflation.

There is more to read in the report, but let me leave it there. Chair, I do not know whether you want to ask my colleagues who are physically manifested before you whether they have anything to add or to rebut if I have given any inaccurate summary.

The Chairperson (Dr Aiken): Thank you very much indeed, Sir Robert. Maureen, Alan, Esmond, do you want to add anything to that?

Professor Alan Barrett (Northern Ireland Fiscal Council): No. We will happily take questions and maybe make comments in the context of those questions.

The Chairperson (Dr Aiken): I will limit everybody to three questions each, because we are all very interested in this. I have one overriding impression from the report. A lot of the work that was done beforehand, by you and by the Fiscal Commission, has rightly been seen as very valuable. It has given a lot of detail and helped to shape a lot of the arguments and understandings at the moment. However, one of the big issues, which I think that you mentioned earlier, is the pressure on the Executive Budget. We know that there are considerable pressures from public-sector pay issues. We know the issues with health inflation, which have, in some respects, been ring-fenced to be dealt with, and we know that there are difficulties with other programmes. We have heard the issue of policing numbers aired very publicly, including the fact that the Chief Constable has advised that the police will not bring online the extra recruits taken on as part and parcel of trying to get back up to the Patten level of policing. Yet, we have seen that some of the levers around super-parity are not being used. We are freezing the regional rate, but we are not addressing some of the super-parity issues on water or other issues, and there has been no real discussion or recommendations on those. Is there any reason that you did not want to highlight the decision to freeze the rates when there are strong pressures on the system?

Sir Robert Chote: It is for us to identify and illustrate the choices that are being made; it is not for us to recommend what the priorities should be. Obviously, one thing that we wanted to do was to highlight where the decisions have been taken; for example, as you say, the recommendation — it is not an agreed position — to freeze the regional rates rather than to use them for additional revenue. There, we can point out that the financial consequences of that, in terms of the difference that you would make to the overall spending envelope, are relatively small. That is a general issue, given that the Executive rely very largely on the block grant, relative even to the other devolved Administrations because of their tax-raising powers. It is not for us to say whether those should be extended. That is something for the Fiscal Commission to recommend and for you and others to consider.

Our job has to be to shine a light on the choices that have been made and the quantitative significance of some of those, but it is not for us to say which Department should get more or less or whether it is more important to freeze regional rates or to put another £170 million into the spending pot. It is about clarifying and setting the scene for people to debate that, rather than our pretending that we are a shadow Executive, offering views on exactly where the money ought to go.

Dr Esmond Birnie (Northern Ireland Fiscal Council): I will add to that. You mentioned super-parity. In the guide document, we attempt, based on departmental figures, to list —

The Chairperson (Dr Aiken): That is what I was coming to.

Dr Birnie: — a total of £600 million per annum.

So, moving through to the draft Budget, in a sense, the issue here is not so much decisions that were made as decisions that were not made. You can perhaps see that, from our point of view, it is harder to comment on a passive non-decision: not applying domestic water charges and not doing something to university tuition fees, prescription charges or free public transport for people between the ages of 60 and 64 and so on. There is a bit of a sense of Conan Doyle's dog that did not bark in the night when talking about the things that did not happen, albeit that, sometimes, the things that do not happen are actually highly significant.

The Chairperson (Dr Aiken): That leads me on to my next question, and I will add to your Holmesian reference that this is a bit like 'The Sign of the Four'. Have you had the responses and information that you needed from the various Departments? We have talked about a memorandum of understanding (MOU) being developed. Has there been a common approach across the Northern Ireland Government, or do you feel that, in some ways, you are still struggling to get information?

Sir Robert Chote: We have been pleasantly surprised by the willingness of Departments to provide us with the information that we have asked for. Obviously, there is always the issue that there may be things that we did not know to ask for, but, in the requests that we have made, everybody has responded as we would have hoped, given the MOU, and in the correct spirit as well. In comparison with the experience that many other fiscal councils have with Departments, it is so far, so good. Of course, there is no guarantee that, because it has been relatively straightforward so far, we will not run into difficulties in the future, but I certainly have no complaints to make yet.

The Chairperson (Dr Aiken): OK. Thanks very much.

Finally, it is interesting that the investment strategy has come out today. Interestingly enough, it was released by the Executive Office and not by the Infrastructure Minister, but we will not go into that. The interesting point about it is that, as you quite rightly pointed out, we have the considerable difficulty of allocating the capital spend. You will have seen that, in 2021-22, we will again underspend, in terms of conventional capital, financial transactions capital (FTC) and the reinvestment and reform initiative (RRI). There also seems to be some quite interesting accounting on FTC, where FTC is being used to pay down FTC. That seems to go counter to what we are trying to do in our attempt to improve our infrastructure. Again, Fresh Start capital is substantially underspent. Do you think that the Executive have a fundamental problem with the planning and delivery of capital projects?

Sir Robert Chote: I will ask colleagues to come in on that. One thing that is important to remember is that, as will be true in a UK context, underspending is relatively normal. In the Northern Ireland context, there has always been a particular issue around FTC: FTC was, as it were, a solution that inserted a problem. It arises out of the Barnett consequentials of, frankly, decisions of the UK Government that relate mostly to the English housing market. Given the restriction that FTC can be used only to lend to the private sector to take equity stakes, it can be difficult to use. I think that the accounting that you refer to is, essentially, a way of changing the time profile of that. If that means that you are able to have a larger amount that you can use more sensibly in the future, that is not necessarily a bad thing. As referred to in our report, many capital projects proceed more slowly than hoped, partly because of things like planning and partly because of things around judicial reviews of contracts and so on. Underspend on capital is not unique and not to be unexpected, but those sorts of things indicate that there are issues there. Esmond and Maureen may have more thoughts on that.

The Chairperson (Dr Aiken): I was going to comment on the fact that it is probably the first time that Ulster University has not snaffled up another sizeable chunk of FTC but got a loan from somewhere else. Sorry, Esmond. You probably do not want to speak on that.

Dr Birnie: I would be conflicted, I suppose. I will deal with your broader question, Chair. Historically, as Sir Robert alluded to, in previous iterations or applications of the Executive's investment strategy, there has been a problem with managing spend and the amount of slippage timewise. Whether things will be better with this new strategy remains to be seen. Obviously, given that it has just been published, it is not clear at this stage whether it represents a prioritisation of projects. Up to now, we have never had a sense of the rank order of projects that we would like to be done, although there has been a vague naming of flagship projects. We have never had a rank order so that, if money becomes tight, you do the top five, top six or whatever. We have never managed to get to that point.

The Chairperson (Dr Aiken): I must admit that I have not delved into it to that degree.

Ms Maureen O'Reilly (Northern Ireland Fiscal Council): We have had conversations about that, particularly over the last number of days. It is a complicated area. Obviously, COVID has complicated it, because investments have not been taking place. We have not had an investment strategy, and we have had a unique set of circumstances in the last couple of years around any type of investment — public or private — so we need to understand how that settles. As part of the wider sustainability piece, we will, hopefully, look at the interaction between the different types of capital spend — the return on investment (ROI), the FTC, the capital departmental expenditure limit (CDEL) — to understand how all that works together and how we can maximise it, particularly, as Esmond said, because the investment strategy for Northern Ireland (ISNI) is coming along. I have not seen it, but I imagine that there will be a significant capital requirement on the back of that. How it is used will be important.

The Chairperson (Dr Aiken): You will be aware that, at the moment, the business community, particularly the construction industry, is apoplectic — that is probably the easiest description — that we are to hand back part of our capital spend because we cannot even spend our capital this year. I think that £26 million will probably have to go back. Alan, did you want to say something?

Professor Barrett: This is a broader reaction, and it addresses a range of the topics that have come up so far. Chair, you began by asking why we did not say more about allocations and stuff like that. We faced a real challenge. It was never for the Fiscal Council to say how money should be spent, but, once we started to interrogate the figures, we did not even have a road map to judge the spending against. It is partly because of the lack of the investment strategy, which is now in place. With such a strategy, we could at least ask, "Are they following what they said they wanted to do?". As Esmond and Maureen have touched on, with so much capital investment, the integration is critical. There is no point in having a housing estate if there is no sewage treatment plan and no school. It is about making sure that there is a coherence about it and a good strategy underpinning it.

Even when it comes to resource expenditure, without a well-developed Programme for Government in place, it has been terribly difficult to plot the expenditure and ask, "Precisely what sort of strategic goals are being achieved?". Of course, you are left with the residual feeling that the Budget, especially because it was not even fully agreed, is about what can be got away with. Do you know what I mean? It is about what can be agreed rather than what is optimal. Of course, there may be very good reasons, such as the structure of the Government, but a range of issues struck us as we tried to interrogate the figures. We have said that in the report, and, hopefully, it is one of the positive contributions that we can make to force greater strategic thinking, so that when we look at the figures, although we will never be in a position to say, "You should be spending more on health relative to wherever else", we will at least be able to say, "What you are doing is consistent with your overarching framework". That is a broad and general reaction to some of the themes that have come up so far.

The Chairperson (Dr Aiken): The Programme for Government has been mentioned several times. We did have a Programme for Government. Did you see any evidence of it being mapped across to particular spending priorities and Budget priorities? Did you see it being mapped across to any of the cross-cutting structures that we would need in order to achieve the, I think, 43 outcomes? I have given up on how many variations there are.

Professor Barrett: I do not want to be unfair to anyone, and I know that, collectively, we do not want to be unfair. They may have been there implicitly, but I do not remember a document coming across our desk that said, "We are spending this because — and here is the cross reference to the strategic action". At a global level, you could argue that the prioritisation of health has a strategic value, but only at a very generalised level.

The Chairperson (Dr Aiken): OK. Thanks.

Sir Robert Chote: Obviously, if you have a Budget that is not fully agreed, mapping it to a Programme for Government that is not fully agreed is a slightly odd concept. The clear priority is health first. That was stated beforehand, and that priority is there.

The Chairperson (Dr Aiken): Remember, Sir Robert, if it was meant to be easy, we would have got somebody else to do it. [Laughter.]

Mr McHugh: I will make an observation. I am not sure whether a clear answer was given to the Chair's third or fourth question. He asked the Fiscal Council whether it believed that the Executive had the ability to deliver capital projects. Many of the circumstances that could affect the delivery of capital projects were described, but no judgement was made on whether there was a fundamental problem. Notwithstanding that, tá fáilte romhaibh uilig. You are all very welcome. Is deas bualadh leat arís. It is nice to meet you again.

The Executive operate under strict fiscal rules, such as the limited borrowing capability and the inability to build up reserves and carry over funding over a number of years. Would our public finances be better served if we had more room to manoeuvre?

Sir Robert Chote: On the capital issue, as Esmond mentioned, there have been difficulties such as judicial reviews and around the planning system. So, getting the capital spend out the door to the timetable that you hoped for is not straightforward. As Maureen mentioned, COVID has come in on top of that. Hopefully, that answers the first question.

It is not for the Fiscal Council to say what the fiscal framework ought to be. The key thing to note is this: if you look at the decisions taken on capital borrowing and regional rates, you will see that the annual borrowing limit, for example, would need to increase by quite a lot to make an appreciable difference to the overall spending envelope that the Executive have to play with, simply because of the dominance of the block grant. In the particular case of capital borrowing under RRI, it is worth mentioning that there are two limits. There is a limit in statute to the total amount of debt that can be outstanding at any given moment, which was originally £2 billion, and it was raised to £3 billion. There are also annual borrowing limits, which, as with the other devolved Administrations, are agreed with the Treasury, and the maximum is £200 million. It is worth making the point that, at the moment, it is the annual limit that bites here. The Finance Minister proposes to get borrowing to £200 million by 2024-25, and that would get total borrowing to somewhere between £1·7 and £1·8 billion. That is still well short of the statutory limit of £3 billion. At the moment, the annual limit agreed with the Treasury is the more binding. The implication of that is that, if a strong enough case could be made for lifting that limit, that would be easier than changing the legislative limit, which is less binding.

Mr McHugh: Thank you. That leads to my next question. It is widely recognised that our economy is performing badly in comparison with the other regions on these islands. The poor performance is often attributed to low production, low wages, highly skilled migration, high levels of economic inactivity and low levels of investment in research and development. Last week, I made a comparison with the Republic of Ireland's education provision: it has 19 universities and colleges that offer high-level degrees; the North of Ireland has only two universities. Do the Executive have sufficient fiscal levers to turn this economy around, or will this region always be a basket case, in a sense, dependent on intervention? Is that likely to be our future?

Sir Robert Chote: There is no inevitability in these things. It is true at the UK level and for economies more broadly that making a profound change to long-term productivity performance is not straightforward. Everybody wants to do it, and everybody says that some combination of planning, financing for new businesses, education, infrastructure and skills would get you there. Those are all good things and things that you would advocate. However, why productivity growth has slowed as much as it has over the last decade or so, not just in the UK or Northern Ireland but across the industrial world, is a mystery. It is not straightforward.

One of the choices within the spending envelope is to say, "Yes, we want health to be the top priority. At the same time, there are other issues". Do you want to put more into infrastructure, education or skills? That is a trade-off to be made. It is not for us to say what the right answer is. The clear decision in the Budget is to prioritise health, partly because of the obvious reasons coming out of COVID, and that inevitably means that there is less money available for the type of spending that addresses long-term economic challenges. Maureen and Esmond might have further thoughts on that.

Ms O'Reilly: It goes back to the importance of the Programme for Government and the investment strategy. Both need strong priorities, to be funded properly and to be linked. Obviously, that also links into departmental priorities. At the moment, those things do not work together. Any organisation should work on the basis of having those things interlinked, and that is not happening.

There is a window of opportunity now because of the three-year Budget. Hopefully, we will get a Programme for Government quickly. We have the investment strategy. If those things can be linked, we could have a more targeted response. Esmond pointed out that we had a Programme for Government in which the priorities were not clear, and there were lots of different objectives. That in itself begs the question of how anything could address the issues in the Northern Ireland economy, particularly the structural issues.

Dr Birnie: Without seeming to deflect the question, this question about leverage, fiscal or otherwise, and room for manoeuvre takes us into the remit of the Fiscal Commission — Paul Johnson's commission. It produced an interim report on which taxes might be "devolvable", if there is such a word. In due course, later this year perhaps, it will produce its final report. Consultation on that is ongoing.

The Chairperson (Dr Aiken): You have sort of dodged the super-parity issue as well.

Dr Birnie: Well, I suppose that it does.

Mr McHugh: I will go to my third and final question. The perennial Brexit has had a deeply negative impact on our Budget, with roughly £100 million of EU funding lost to the Executive in this draft Budget, not to mention the economic consequences of leaving the EU. What is your assessment of how the loss of EU funding will impact on public finances in the long term?

Sir Robert Chote: As we pointed out in the guide, and as you say, direct EU funding has fallen from about £400 million a year to around £200 million a year. That is a combination of some programmes that were agreed before Brexit, for which the money is still being paid out, and the PEACE programme, which is and will be ongoing.

The major area that has been lost is the support from the common agricultural policy: the farm and fishery support. That, at the moment, is being replaced by UK funding. You can see that in the specific allocation to the Department of Agriculture. The answer to the question is this: we will not know what the long-term impact will be until we know what the UK Government are going to put in place beyond the end of this Parliament, for which time they have guaranteed to make up the lost EU money. What will the future farm support programme look like, and how will it advantage or disadvantage Northern Ireland relative to other parts of the UK? The data shows that Northern Ireland gets a large pounds-per-head-of-population amount of the CAP relative to the other parts of the UK, so there is certainly a reason to be wary and look out for the fact that, if the UK money that replaces it is spread more evenly, that could be to the disadvantage of the sector in Northern Ireland. The short answer is that you will have to wait and see what is to be put in place beyond the period of this Parliament when they are just making up the numbers.

Mr McHugh: Thanks ever so much once again for your answers.

The Chairperson (Dr Aiken): Maolíosa, I do not know whether you have a new computer or something, but your voice is much clearer. The sound quality is much better. Maybe you will let s know whether you have a new computer so that we can all order one.

Mr McHugh: My computer has been updated. There is no doubt about that. That was done by our IT department in Stormont.

Mr Allister: Maybe he should get a new background.

The Chairperson (Dr Aiken): Steady.

Sir Robert Chote: So, some capital spending is getting out, then. [Laughter.]

Mr Allister: Yes, but is it to where it is needed?

Mr K Buchanan: Thanks, all, for coming along, in person and remotely. My question relates to the table on page 38 of the report. It shows that the Health spend in 2024-25 will be 51% of the Budget. That is the Health spend in Northern Ireland in three or four years' time. How does that compare with other parts of the United Kingdom or, indeed, with other countries? That 51% might become, for example, 53% or 55%. At what point is it too much — this is a strange way of putting it — and so much that it hurts every other Department? What is your opinion on 51%? Is it the right figure? Does it need to be more? We can always put more money into Health, but at what point does it cause other Departments to suffer?

Sir Robert Chote: As we were discussing earlier, it is not for us to say what the right allocations are here. Making international comparisons is fraught with difficulty here, partly because of the different responsibilities, particularly around the health and social care combination for the Department of Health in Northern Ireland versus, if you wanted to compare it, the UK Department. Of course, you also have some devolution of that in Scotland and Wales. Making that comparison is quite difficult. It is one thing that we are prioritising because we want to make health the key theme of the sustainability report that we will put in place in the summer, working, we hope, with John Appleby and colleagues at the Nuffield Trust to put some numbers on those comparisons.

That said, we can certainly say that in the UK, including Northern Ireland, there has been a tendency that when money becomes available, health tends to be the squeakiest wheel: it is the one most likely to get greased. Both during periods of spending going up and in periods of austerity, health tends to be advantaged relative to the other areas. As you say, at some point, given the consequences for other parts of the public sector, you may need to revisit that.

At a level, it is hard to do the comparison. In terms of new money being put in, it is not a surprise to see health being prioritised. It is the case elsewhere as well as in Northern Ireland. Hopefully, we can shed a bit more light on that. Again, Alan, Maureen or Esmond might have some thoughts on that.

Professor Barrett: It is very difficult to answer your broad question of whether 51% is the right amount. One of the reasons, and we will try to get to grips with it in our next report, which will, hopefully, come out over the summer, is that, if there is higher health need in Northern Ireland than elsewhere, that is a perfectly reasonable figure. If, however, it is related to inefficiencies in the system, that is a bad reason. We need to see whether, in the next report, we can disentangle that and answer more clearly why health spending in Northern Ireland seems to be higher per capita relative to elsewhere. You kind of teed it up in your question. One of our concerns, though, is whether this growth is going to carry on and carry on.

For example, we looked very briefly at one issue that will be of concern. If health expenditure or health need grows throughout the United Kingdom in the same way, Northern Ireland will continue to get more money through the Barnett formula, as Health is also prioritised elsewhere. It seems to be the case, however, that the population of Northern Ireland will age more rapidly than that of the rest of the UK over the next 15 or 20 years. To the extent that that puts pressure on health services, you could imagine that the Barnett consequentials may not flow into Northern Ireland at the same pace, so that squeeze could get a little more intense. You would then need to start to look in a very focused way at whether inefficiencies in the system or something else is driving that spending and at whether the Health Department in Northern Ireland will take a disproportionately high share of the Budget.

We have touched on these issues. There are real costs, because, clearly, Northern Ireland requires investment in things like education and a whole range of other areas if there are those sorts of productivity issues that are talked about. That is a real concern. Hopefully, as the council, we will shed more light on that spending in a report that we will produce over the summer, but our ongoing work programme will have to grapple with those issues, which you teed up so well.

Mr K Buchanan: On that theme of health, from your work with the Department of Health and other Departments, do you think that Health is in a position to manage its money effectively? I was not going to use this word, but I will: it becomes a black hole. No matter how much money is put into Health, it is never enough. Yes, it is needed at times to get over waiting lists etc, but when you look at the amount of money that is spent on agency staff and locum doctors — it is not, with respect, that those people do not need to be paid; they do a good job — you see that, no matter how much money you put in, it will never be enough. Do you think that Health is in a position to manage that money effectively, considering that it will have 51% of the Budget?

Ms O'Reilly: Again, we are not in a position to answer that at the moment. That is part of the research that we will do to look at the balance of how the sector is staffed and whether things cost more in Northern Ireland than they cost in England, for example. That is the work that the Nuffield Trust will do on our behalf. We will be able to shed more light on your questions. It will then be up to others to judge whether those are the issues.

Mr K Buchanan: It will be good to have a friendly critical eye on that to a degree, because I think that the amount of money that is spent on those agency staff is something —.

Professor Barrett: I will add to that. I will give you one short quote about the frustrations of Finance Ministers across the Western world about health. When Charlie McCreevy was the Minister for Finance in the Republic, he once made the point that, in spite of the fact that he had increased spending by something like 50%, he could not see a 50% health improvement in the population as he walked around Grafton Street. I know that that is a simplistic and, in ways, a silly remark, but that really is such a difficulty throughout the Western world.

Mr K Buchanan: I have one final question, if I may; I think that we are allowed three today, Chair. Given what we get from the block grant from Westminster and what we contribute to Westminster, would you really call Northern Ireland a basket case? Is that the right term to use?

Sir Robert Chote: I certainly would not use the phrase "basket case" at all. If you look at the overall size of the notional Budget deficit — the differences between spending and revenue when you take the different layers of government together, as shown by the Office for National Statistics's (ONS) regular data, and as we described in the guide — you see that Northern Ireland certainly has the largest of the notional Budget deficits across the nations and across the regions of England, relatively speaking. I would not, however, translate that into saying that it is a basket case.

Mr K Buchanan: OK. Thank you very much.

Mr Allister: Maybe our system of government is a basket case.

You can be congratulated. By your reference to the absence of a capital investment strategy, I think that you shamed the Executive Office into publishing its consultation today.

You have been very diplomatic in the report with your language, as I would expect, but it is hard to escape the criticisms and observations that we are in a budgetary situation with no Programme for Government to link to — we have not had one for years — and no extant capital investment strategy, because the old one has expired. The only identified priority is Health, but it is not identified in a focused way that says where the money should actually go. You have a draft Budget that was not even agreed by the Executive. The Executive Office, which is the primary Department, did not even respond to the Department of Finance on its initial Budget assessment to say what its needs, pressures and priorities were. It is hard to sum all that up without using the word "dysfunctional", is it not?

Sir Robert Chote: It is certainly not ideal. As we said in the report, you have a set of proposals that balance the Budget in the sense that it looks at what we are supposed to check for but you do not have that set of mechanisms, decisions and choices that allow you to make the most of the block grant settlement, such as being able to put down a long-term investment strategy and a long-term strategy for health reform etc. It is not a promising start on that basis, particularly as we do not have that as an agreed position. You will all know much better than I the extent to which it will be realistic to expect much more than that, given that the election is as close on the horizon as it is. Clearly, it will be much better if the parties had been able to get to a more agreed position on more of the things that you have described as a foundation upon which the next Executive could build and have a longer-term strategic approach to.

Mr Allister: Understandably, you are being very diplomatic, but the message is pretty clear. If, when they need more funds, the Executive exercise any self-help, it is quite clear that there are facilities to raise funds but they choose not to take them because they are more attached to populism than to anything else, can you quantify in monetary terms what they could access, whether it was the right thing or the wrong thing?

Sir Robert Chote: For additional resources, the main areas are regional rates, capital borrowing, fees and charges and, within the spending overload, the broader issue of some components of super parity. On capital borrowing, there is not much scope to add much more revenue into the pot. They are going for the £200 million limit by 2024-25. They could get there slightly quicker, but it would not make a huge difference. If you look at the cost of the freezes and the extension of release for regional rates, you see that that is averaging £50 million to £60 million a year in each of the three years. That is £50 million to £60 million that you do not have to spend. It is not huge relative to the overall resource Budget. As Esmond mentioned, in the guide, we tried to gather some of the costs that the Northern Ireland Civil Service (NICS) estimated for different components of the super parity, and that gets you to around £600 million. Perennially, the largest chunk of that is domestic water charging.

The draft Budget is basically about making some decisions not to go for the additional revenue for regional rates and not making proposals on the super parity areas. There is scope to do more to raise more money, but you cannot get away from the fact that the block grant is and will remain the largest chunk of that. You would need to pull the levers that the Executive have available quite a long way and quite hard in order to have much quantitative impact on the total amounts of money that they have available to spend. Again, colleagues may wish to expand on that or to contradict it.

Mr Allister: How credible is it, in that context, to pontificate about needing more fiscal powers?

Sir Robert Chote: There are different views on that. You might want fiscal powers for different reasons. One would be to increase the overall amount of money that is available in the pot. You might want to reduce the tax burden or to use the tax powers to influence people's behaviour in different ways, so you could do more to encourage or discourage particular sorts of behaviour. There are other reasons why you might think that there are good or bad behind having greater fiscal powers than simply the total amount of money that you end up raising. I do not think that the use of the fiscal powers that Scotland, for example, has available has made a huge difference to the total amount of spending that it has. Again, colleagues may have other thoughts on that.

Mr Allister: There is some complaint in the report about the fact that the Budget presentation is on a net expenditure basis. Will you expand on that a little?

Sir Robert Chote: It is not so much a complaint as pointing out that the way in which the Department of Finance presents the numbers to show how things balance is that it illustrates spending financed by a total financing envelope that is, essentially, the block grant, capital borrowing, regional rates and a very small amount of money from the Irish Government for the A5 roads project. That is the total sum. Departments also get some revenue from charging, with tuition fees and non-domestic water charges being the most important of those charges. With the way in which the Department of Finance presents the numbers, it looks as though those things are treated not as items of revenue or sources of finance but as negative spending that gives Departments greater power to do more gross spending within the limits that they have been given.

We tried in the guide to paint a more holistic picture by having EU funding and fees and charges treated as gross rather than net. It is not straightforward. One reason for that is the way in which fees and charges are measured. Some are charges that one bit of the public sector pays to another bit of the public sector. We will try to dig the weeds out of that over the next few months, but I suspect that it is not going to be straightforward. You are right in that sense; it does not treat all sources of revenue and income in quite the same way.

Mr Allister: That results in lack of transparency in relation to the charges etc. Yes?

Sir Robert Chote: It would be more transparent if you had all those charges presented on a gross basis. I guess that one of the arguments would be that, if the charges are, essentially, to cover the costs of some of the services, until you know what those services are, you do not know what the charges will be. I am not clear that it would be impossible to estimate that. In outturn, certainly, it would be good to have that picture painted as clearly as possible.

Dr Birnie: I will come back to Mr Allister's question about fiscal powers, which has appeared several times this afternoon. As Sir Robert quite rightly says, there are at least two main reasons why the Executive might wish to take on extra powers. One is to raise revenue, which is particularly relevant to what we are talking about this afternoon on the Budget, but, importantly, tax variation could also be used on occasion to change behaviour here in Northern Ireland such as on environmental policy or whatever; indeed, the classic example is using corporation tax to shift investment.

There are arguments, which many economists, including me, find quite convincing in a theoretical sense, that say that wider fiscal powers have attractions. At the same time, I understand the argument, which is often put forward, that we do not want to rush but to walk gently forward. There is some merit in the argument — this is a personal view as an economist, as opposed to a position of the Fiscal Council, because it is really an issue not for the Fiscal Council but for the Fiscal Commission — for making better use of the powers that you already have. That could be applied to rating and, in particular, to the reliefs that are given on rating. That has not really been mentioned at all this afternoon. The sum of money there is much bigger than the revenue that is forgone by freezing rates.

For example, there is 70% derating for manufacturing and derating for various charities, sports halls, community halls, charity shops and so on. You can produce lots of good reasons on a one-by-one basis for each of those reliefs, but, when you add it all up, you find that relief for empty property and derelict sites adds up to between £100 million and £200 million per annum of revenue that has been forgone. I do not want to anticipate what the Fiscal Commission will finally conclude later this year, but you should use the powers that you have much better whilst not excluding the possibility that you might want to extend your powers, whether it be corporation tax, income tax or whatever.

Mr Allister: Of course, there is a precondition of financial sustainability from the Treasury.

Dr Birnie: Indeed, which is very important.

Mr O'Toole: It is good that you are here and that we have both the draft Budget assessment and the guide to public finances. This is a fiscal council in action, in a sense, and that is an improvement in that there is greater clarity. Hopefully, the people who are watching the briefing will find it more useful than some of our other evidence sessions. We do not always get evidence as clearly presented as that which you have given us today.

I have a couple of points. We talked about the fact that a decision has been made to prioritise Health in principle. That has been matched with, or combined with, a decision to require a 2% cut in resource spending across the board in other Departments. Is that best practice? With a fiscal tightening, in broad terms, or prioritisation of one area in particular, is it generally best practice to apply a sweeping 2% cut? Is there an argument for something that is a bit more bespoke? That question is addressed to Sir Robert first and then to any other members of the council.

Sir Robert Chote: It is certainly not unusual, in coming up to a Budget or spending allocation for governments — I mean any government, and this is certainly true of the UK Government — to go to Departments and say, "We would like you to come back with a list of decisions, projects or efficiencies that would cut some baseline measure of your spend by 2%, 4%, 6% or 8% or whatever it might be", and then to use that as food for thought in what you end up delivering. A Department typically comes back and says, "Take one penny away, and that is the end of Western civilisation as we know it". When you have been at the Treasury, you know that that is how that relationship works sometimes.

With this issue, the fact is that you have a combination of going to Departments and saying, "There is a 2% cut across the board", but, at the same time, with the other hand, you are allocating the proceeds of the block grant increase. It is a distinction rather than a difference. It is the net effect. Whether you say, "I took 2% off, and then I added a whole different set of numbers to each Department, which ends up with a different set of allocations", it is the ultimate set of allocations that matters. Certainly, the initial public discussion and presentation of the draft Budget sounded like an even-handed cut across everybody other than Health, and the money all goes to Health, whereas, it is not really that. The 2% cuts are raising only £118 million a year.

By contrast, in 2023, the general allocations, which are partly financed by that but also by the increase in the block grant, is £950-plus million. So the 2% cuts are providing a relatively small proportion of the money that is then doled out in even non-ear-marked allocations to the Departments. We have a table and chart in our submission that shows where that ends up. It is the net effects that matter. Not entirely surprisingly, Health is at the top of that table, then Education and Agriculture, with Justice towards the bottom. In a sense, the 2% is notional. It may have been the way in which Finance asked Departments to come up with potential sorts of savings. However, at the end of the day, it is the combination of a cut across the board and the allocations that show you the next decisions that were made. It is very clear that Health is the top priority, but there is no explanation in the draft Budget about why Education, Agriculture, Infrastructure, Economy and Communities are ranked in that way or what particular needs led DOF to suggest that particular set of allocations.

Mr O'Toole: Thank you. That is very helpful. I do not know if anyone else wants to come in on that, but that is a really helpful summary. Thank you for that answer, Sir Robert, because that leads neatly to my next question. One of your statements in the submission is about the relative passivity of the Department of Finance in the process, which you alluded to. I hope that I am not putting words in your mouth. It states:

That chimes with what you have just said. I should make a political judgement. In other contexts, when doing that exercise, would a Finance Department be expected to be more strategic about how it directs Departments, particularly in the absence of a Programme for Government?

Sir Robert Chote: Partly for the constitutional reasons that we went through in the guide, the UK Treasury tends to stick its fingers into other Departments' business more enthusiastically than is the case here. I am not sure that I would use the term "passivity". There are no specific proposals, but, presumably, there is a limit to how far the Department of Finance can go when there is not even Executive agreement on the allocations. In an ideal world, if you were going to raise issues as controversial as domestic water charging, for example, you would really want the Executive to consult on that, rather than have, as in this case, the Department of Finance essentially holding the basket. So it is perhaps not surprising that the Department of Finance is not pushing the envelope on some of its decisions, which might have happened if you had managed to get Executive behind a cross-party agreement, where they said, "We ought to at least discuss this, even if we do not make a firm recommendation on it".

Mr O'Toole: OK. That is really helpful; point taken. I will not press any more for statements about passivity or otherwise.

We discussed the RRI borrowing and the decision not to max out the headroom. Obviously, sovereign borrowing costs are relatively low at the moment, ergo the same for the Executive. In addition to not initially using the headroom that was given by the £200 million agreement with the Treasury in the next year, we are not going anywhere near the overall repayment. The profile for repayment costs is falling sharply, as can be seen on chart 4.9 of your initial document, 'The Public Finances in Northern Ireland: A Comprehensive Guide'. There is not a good argument for not borrowing, as it is a declining part of Executive spending, if I understand that chart. The cost of repayment is falling, so that cannot be used as a reason for not borrowing more. Is that fair?

Sir Robert Chote: It respects the fact that the chart is showing the annual repayment profile for the stock of debt as it stood at the time that those figures were drawn up.

Mr O'Toole: Absolutely.

Sir Robert Chote: It is essentially assuming that there will be no additional borrowing moving further on.

Mr O'Toole: OK. That is not including the borrowing that is set out in the draft Budget 2022-25.

Sir Robert Chote: This predates the draft Budget 2022-25. It is the earlier document. I stand to be corrected, but there may be an assumption of continued borrowing over the early years of that. I presume not, however, because the payments in the chart tail down to zero toward the end. As you say, not maxing out the credit card, the fact that you get to the £200 million only in year 3 is a reflection of the expectation of how quickly, with the best will in the world, you could increase capital spend coming out of the COVID period.

There is a separate question, which your question implies, which is this : do you think that there is a good case, given that you are so far away from the overall £3 billion ceiling, for trying to persuade the Treasury that you should raise the annual limit? I presume that it would say, "For that, you would have to persuade us that there is a pipeline of investment projects and the possibility of co-funding for some of those that would leave us happy to agree that". Arithmetically, there is clearly scope for that annual limit to be increased without, in the near term, imperilling the £3 billion limit at all. The question will therefore be whether you can persuade the Treasury that there is a pipeline of good investment projects to justify its doing that.

Mr Wells: I must say that whoever is editing and drafting your reports certainly has a degree in the use of English, because they are very clear in comparison with some of the other documents that we receive. It is extremely helpful that they are jargon-free and understandable, so pass that on to whoever your editor is.

You gave us a very interesting paper on revenue-raising powers. It has been perpetuated that the Department of Health gets the lion's share of the Northern Ireland Budget and that it is always more favourably treated, but, in the table in that previous report, you did a very helpful indexed-to-equal-100 comparison, which indicated that we spend a vast proportion — an overproportion — of our money on, for instance, agriculture and a much lower proportion on environmental protection. It has seemed to emerge, however, that, as a proportion of the Budget, we spend exactly the same amount on health in Northern Ireland as other countries in the rest of the United Kingdom do. If that is the case, from where has the myth developed that we — quite rightly — prioritise health to the detriment of other budgets? We do not.

Sir Robert Chote: That is complicated by the fact that those comparisons are not based on departmental numbers. I think that the tables that you are referring to are from an international classification of what counts as health, what counts as transport etc. Mapping that across precisely to whether the Department of Health gets the lion's share of the cake is a slightly different question.

There are smaller areas of spending, and agriculture is such a case. Given the nature of a relatively rural economy and the relative productivity of the agriculture sector in Northern Ireland versus other places, you can have quite a substantial difference in the percentage there without its making a huge dent, because the agriculture budget is a lot smaller than the health one. In many ways, there is a perception that, when money is available, or when people think that money is available, the Department of Health is always first in the queue. It can always make the case, even without COVID, that it is a difficult winter and that it needs some help. It is not unique to Northern Ireland that Health is the squeakiest wheel, so it is the first one that gets such grease as the Finance Department is willing to hand over. That is also partly to be viewed in the context of the long-term pressures. It is partly about demographics and partly about the ageing population, to which Alan referred, but there is a sense across the industrial world that the cost of providing healthcare rises relatively rapidly compared with costs elsewhere, because of new technological developments and changes of that sort. Those upward pressures on healthcare, relative to the size of the economy and relative to everything else on which the public sector spends money, are certainly not unique to Northern Ireland. Alan, Esmond or Maureen may have something to add.

Dr Birnie: There are two aspects to what Mr Wells is referring to, and they are not in contradiction, even if they might seem to be. As we talked about earlier, it is difficult to compare Northern Ireland to England on health spending per person because of how the allocation of social care is administered differently in the two jurisdictions. Insofar as it is possible to make that comparison, Northern Ireland and England are probably about the same. Over the years, there has been some controversy between the Department of Health and various academic health economists about whether health spending per head was higher in Northern Ireland or in England, but the ballpark figures are broadly the same. In both Northern Ireland and England, the Departments of Health do take the lion's share of the departmental budgets, at around half. We might argue a bit about the precise percentage, but it is around half.

As Sir Robert rightly says, across the world, health spending is increasing relatively more rapidly than public expenditure as a whole. I do not need to tell you this. As a former Health Minister, you will know it. Many people involved in health will quote 5% to 5·5% as being the increase in spending that the health service needs per annum in order to stand still. It is the percentage that McKinsey consultants use, while other consultancy studies on health around the globe have also quoted it. The challenge is therefore how you reconcile that, and that relates to some of Alan's earlier points. Public expenditure in good years may be growing at 3% or 4% overall, so the Department of Health will tend to take a higher share over time.

Mr Wells: That is very useful, but I think that one of the criticisms that is aimed at the Northern Ireland Executive is that they are dysfunctional because they have such a bias towards the Department of Health. When you look at the comparison with other jurisdictions, however, they really do not have that bias. We have not got totally out of kilter with the rest of the UK or with other economies. The health budget is sitting at 51% of the total, and remember that that is 51% of a Budget that does not include the Ministry of Defence, HMRC, the Foreign Office and so on, so it is always going to be the biggest player.

In the report on possible avenues for revenue generation, you did a very interesting analysis of the £600 million of parity-plus expenditure. In the setting of Budgets, are the Government just accepting that and giving us extra? Is it just taken as a given in the allocation from London or have the Government ever said, "Hold on. You have opportunities for raising revenue, but you are not taking them"? Are they just accepting of the £600 million and going on as if it did not exist?

Sir Robert Chote: By and large, the funding from the UK is formulaic, through the Barnett formula. There may be particular episodes around, for example, the funding of political agreements such as A Fresh Start and New Decade, New Approach (NDNA). Those are moments when the UK Government can apply pressure/make suggestions and there is money on the table at the same time. In the spending-review-by-spending-review process, most of the allocation is effectively done through the Barnett formula, so they are not patching it on that basis.

Mr Wells: Implicit in that is that the Barnett formula delivers less because of that £600 million. We are not getting Barnett consequentials plus £600 million.

Sir Robert Chote: No. Super-parity is, at one level, anything where the Executive decide to have a policy in a particular area that is more generous, and therefore more expensive, than the English equivalent. Esmond gave you a list of potential policies. There is then the specific issue of where there are elements of what is called annually managed expenditure (AME). That is money that the Executive are responsible for, and the UK Government provide the money to pay for it on top of the block grant. We are leaving aside the block grant.

In that context, if the Executive decide to make a policy more generous than that in the rest of the UK, they have to meet the cost of that additional generosity. The classic recent example of that was the discussions around welfare reform in 2014, when it took time for the Executive to agree to implement the UK reform polices that were under way there. When they did, they did so with a set of mitigations so that some people were protected from the impact of the welfare reforms, particularly the bedroom tax and the benefit cap. That is money that the Executive then have to find from elsewhere, however. It is roughly £40 million to £50 million, and it is one of the specific allocations that appears under the Department for Communities in the report on the draft Budget.

Mr Wells: You highlighted the point that our parity-plus results in our not paying a distinct water charge, which would be one of the hottest political potatoes that one could imagine if we were to go down that route. If we were to adopt the Welsh Water/Hyder model and take water off the balance sheet, as it were, have you any idea what the implications of that would be for public funding and Budgets in Northern Ireland? It may be unfair to ask that today, but perhaps it can be looked at.

Sir Robert Chote: I could not put a precise number on that. We would like to look at the issues around water. The way in which domestic water charging would loosen the Budget constraint would be through your not having to spend some of the envelope on subsidy for that purpose. I do not know whether my colleagues have any particular thoughts on the Welsh model. I do not have anything precise to say, but I do not know whether anybody else has looked at it.

The Chairperson (Dr Aiken): Esmond, you did some stuff on mutualisation of water at some stage, did you not? I do not want to put you on the spot, but I remember that you gave us a briefing on it. Perhaps it was in my previous existence on the Economy Committee.

Dr Birnie: I have a vague memory of doing something on different options when I was with PricewaterhouseCoopers (PwC), but, no, I could not answer Jim's question today. I am not even sure that data from that time would answer it.

Professor Barrett: On the water issue, I do not have the precise figure, but one of the main reasons for charging for water is its utilisation. It is not about the revenue but about the behaviour that you are trying to encourage, particularly water conservation. There is then an additional theme, and this was a huge issue in the South, as you probably know, but, in order to fund the water infrastructure adequately, it would have been preferable if we had been able to move in a water-charging direction, whereby the entity is sustaining in such a way that it can raise money off the Executive books.

There is a range of reasons for introducing water charges. Admittedly, to say that it is a political hot potato is to put it mildly. [Laughter.]

The Chairperson (Dr Aiken): Never.

Professor Barrett: As I say, though, raising revenue is not the core reason.

I will make one point about health, Chair. In response to some of the questions, we have been making the point that healthcare naturally tends to get more expensive over time relative to other things. It is important not to leave you with the impression that that means that you can then be complacent and not worry about it. It is precisely because the health system has that internal growth dynamic that you need to look at it much more closely and make sure that the efficiencies are being squeezed to the extent that they can be.

It may have been Mr O'Toole who asked about relationships among Departments. I am not going to claim that I know enough about this, but there is an interesting governance point here, which is that, when the money is being provided to the Department of Health and then on into the health system, the question is this: who is tracking the money and asking whether it has made substantial differences? I do not know enough about the governance arrangements, but that is something else at which we might have to take a look at some stage, because it is part of the overall picture with which we need to familiarise ourselves.

The Chairperson (Dr Aiken): To support the Department of Finance, we previously asked what sort of visibility did it have of the money when it left the Department. The Department of Health is a classic example, because its money gets devolved to trusts, and it is then very difficult to look at that. That is not helped by our having at least five health trusts in various forms that probably add to the overall complexity of the piece.

Do members have any other questions?

Mr Allister: Chair, may I ask one question? The Committee was interested in the unique circumstances funding.

The Chairperson (Dr Aiken): Yes.

Mr Allister: Can the Fiscal Council find any trace of the unique circumstances funding that would be of assistance?

The Chairperson (Dr Aiken): Peter, do you want to talk to that? We have something to do with that later on.

The Committee Clerk: Chair, we are going to come to that. I emailed members earlier in the week about it.

Mr Allister: Yes, you did —

The Committee Clerk: We will come to that matter.

Mr Allister: — but I was wondering whether the Fiscal Council has any light to shed on it.

Sir Robert Chote: Not that I am aware of. I need more detail on what is behind the question, but I am not aware of that.

The Chairperson (Dr Aiken): To make it easier for the other guests of the Committee, the issue is the additional funding that comes in from the NIO that is directed to Departments.

The Committee Clerk: It is not directed to Departments but to —

Mr Wells: They will not tell us.

The Committee Clerk: — purposes, some of which —

Mr Allister: Particular projects.

The Committee Clerk: — are looked after by Departments' projects.

The Chairperson (Dr Aiken): It is additional money of which the Committee does not seem to have any oversight.

Mr Allister: It arises from New Decade, New Approach, where there was a commitment made on funding for specific projects to address "unique circumstances". Whereas Departments seem to have some sort of administrative role to play, the Department of Finance is very cagey about telling us where and when and how much is involved.

Sir Robert Chote: In the table that shows the setting of the block grant, we distinguish between the various bits that were sent at the time of the spending review, which include money under the Barnett formula and some non-Barnett additions, such as the need to replace farming and fisheries funding. Two days after the spending review — relatively quickly by past standards — there came the money for city and growth deals and the money linked to past political agreements. There is still some Fresh Start and NDNA money. You can see the overall amount of money that was added a couple of days after the spending review.

Table 4.5 on page 40 of the report on the draft Budget 2022-25 shows that the political agreements funding, agreed shortly after the spending review, is £49 million, and that is all transformation spending on health. That funding cannot be the particular pot that Jim Allister is talking about. If we can dig into anything further, please do ask us.

The Chairperson (Dr Aiken): OK.

Mr O'Toole: I have a very brief question for Dr Birnie. We have had some discussion about some of your writing on the protocol. This is outwith the Fiscal Council, but your initial analysis in the 'News Letter' last August mentioned UK public expenditure of £560 million and added that figure to the £850 million that has been quoted regularly. The figure has been used by the Member of Parliament for Lagan Valley, and that is a testament to your impact. According to that analysis, the £560 million is a cost to the Northern Ireland economy. Have you brought that analysis to the Fiscal Council and suggested that it be factored into, for example, 'The public finances in Northern Ireland: a comprehensive guide'? Is it something that you are willing for the Fiscal Council to look at?

Dr Birnie: It is not directly relevant to the question of the balance of the Executive's Budget. There is a dedicated amount of money passing from the UK Government to the Northern Ireland Executive to handle Brexit plus the protocol arrangements. It is a ballpark figure of £30 million per annum. That is largely the cost of the vet checks and so on. What you are referring to, Mr O'Toole, is over two years. You therefore divide the figure by two, and it is approximately £250 million, which is UK Government spending. As an economist, I would say, "Look, there is an opportunity-cost problem here. This is funding that cannot be spent in other ways". Whether the funding would have been spent in Northern Ireland or Great Britain, I do not know. At a certain level, it does not matter: there is an opportunity cost.

Mr O'Toole: Fair enough. It would, however, also be true to say that, in order to arrive at an analytical position about either the cost of the protocol or the overall cost of Brexit, you would also have to factor in, for example, lost EU funding and, indeed, reduced EU trade.

Dr Birnie: If you were doing an overall analysis of Brexit, yes, of course. We have dealt with this offline, Mr O'Toole. I strongly recommend that you look at the Fraser of Allander Institute (FAI) modelling.

Mr O'Toole: I have.

Dr Birnie: It has done a general equilibrium mathematical forecasting model. As always, it has made assumptions and produced results.

Mr O'Toole: You are right. That is a very good piece of work.

Dr Birnie: Some of those questions —.

Mr O'Toole: I do not think that anyone would seriously say that there are no costs associated with moving goods now from Great Britain to Northern Ireland, along with a huge range of other additional costs, including lack of EU labour etc. The only point that I will make, and I am sure that you will agree, is that, in comparing the costs of the protocol, it is difficult to compare it with a no-Brexit situation, which is what a lot of the analysis does, but, anyway, I will release you from our —.

Dr Birnie: It is for another day probably.

Mr O'Toole: Indeed.

The Chairperson (Dr Aiken): I will let the two of you spar it out. Slugger O'Toole should perhaps have a thing between the two of you. That would be very enjoyable.

Mr O'Toole: He is not related to me. [Laughter.]

Mr Catney: I thank the Fiscal Council for its report. The Executive are likely to underspend their conventional capital. Does the Fiscal Council think that the Executive have a fundamental problem with planning and delivery?

I want to bring it down to a small level. If you try to start a business, the first thing that you do is go to the bank with a business plan. This business plan, as set out to us and when you read through it, does not seem to add up or work. There are all sorts of extractions, and money that you say is in the capital budget is not there. Do you think that it is fit for purpose?

Sir Robert Chote: One oddity is the fact that we have had the capital budget set before the infrastructure strategy has been put out. Hopefully, that will provide some of those links that you talk about. I have not read it, because it is only just coming out. Perhaps, even though it is putting the cart before the horse, all that looks very satisfactory. I am not a betting man. I would not say that that is necessarily going to be the case.

As we have said before, most Governments tend to underspend on capital programmes, particularly when they are trying to raise capital spending relatively quickly. The UK Government certainly found that when they were trying to start increasing spending. There have been particular issues around planning and judicial review, which seems to be a greater issue with contracts in Northern Ireland than elsewhere in the UK, that have meant that, for capital spending plans, the money has not gone out with speed or been spent on exactly the things that you had hoped or planned for it to be spent on. There is clearly work to be done on improving the capital budgeting and the management of the capital programme and on meshing that into a broader infrastructure strategy.

Mr Catney: When I first joined the Committee, Sue Gray was the top civil servant in the Department. She went back across the water, and we are waiting on her report today. We have heard how you want the health service to be transformed. Can you tell me how we can transform our Civil Service? I thought that that would be a major concern for all of us. How do we take capital and build in the opportunity to grow the economy in the way in which we want through entrepreneurship.

Sir Robert Chote: This comes down partly to where you allocate resources, which is not something for us to recommend. It is for us to shed light on where the money has gone.

The choice, perhaps not surprisingly at the moment, is that health is the highest priority, given the historical issues in Northern Ireland and the particular challenges of COVID. That means that there is less money available for education, skills, infrastructure etc than there otherwise would be, purely as a matter of arithmetic, and, as those things would contribute to economic performance, at the margin health is sucking some of the resources away from that. At the end of the day, however, it is for the Executive to decide what the appropriate balance is between the two.

The Chairperson (Dr Aiken): Matthew, did you —.

Mr O'Toole: It was very brief, and I engaged with the Clerk on it. I wanted to ask a quick question about the statutory footing of the council, but we have an update coming.

The Chairperson (Dr Aiken): We do have an update, but it might be useful to ask. Sir Robert, have you had any update on moving to a statutory footing, and were you aware of the correspondence that we received from the Minister? Is that a leading question?

Sir Robert Chote: If the correspondence included a rough timetable for how this would extend over the next couple of years into the new Assembly period, then yes. I am obviously aware that there is thinking on it and that the hope is to get some sort of draft legislation into shape as soon as is practicable, given everything that everybody else has got on, and for that to progress beyond the elections. Once there is draft legislation, or once that is being put together, we will be happy to look at it and make suggestions. I do not have any particular alarm bells ringing in the back of my head at the moment.

The Chairperson (Dr Aiken): The Committee obviously wants to get you on a legislative framework as quickly as possible, and the indications are that we will be looking to get it done by 2023 if we can.

I have one final question and, after that, a quick observation. You mentioned the Fiscal Commission's next report. What will that be about?

The Committee Clerk: Fiscal Council.

The Chairperson (Dr Aiken): Fiscal Council, sorry. Freudian slip.

Sir Robert Chote: The terms of reference in NDNA require two things. The first is the one that we have been talking about today on balancing the Budget. The second is on sustainability, in which, essentially, we are talking about the longer-term pressures and factors influencing spending and receipts. The expectation, evenly spacing the reports through the year, is that we will do that before everybody packs up for the summer and that we will focus in particular on health. As that is the largest slice of the cake, it seems a sensible place to start.

The Chairperson (Dr Aiken): So we expect to see it in the autumn, then, if we are back?

Sir Robert Chote: Hopefully finishing it before the summer break rather than afterwards.

The Chairperson (Dr Aiken): OK. I have a final point that is aimed more at politicians in Northern Ireland. In the final part of your report, on seizing the opportunities of a multi-year Budget, you say:

It might sound odd, because I am a member of one of the parties in that Executive, but I agree with you. It has not been a particularly encouraging start, but I hope that, having stumbled and fallen at the first hurdle, let us say, we know what we need to do, and we need to get on with it. For that, Robert, Alan, Maureen and Esmond, thank you very much indeed. Thank you for your hard work, and please keep at it, because it is desperately needed.