Official Report: Minutes of Evidence

The Chairperson (Mr O'Toole): Jeff McGuinness and Tony Simpson are still with us from the Department. We also have Aidan McMahon, who is director of the fiscal policy division at the Department. We invite you to make an opening statement. I normally ask for brevity, but, on this occasion, it would be helpful for you to be concise, ideally, but also to remind any people who are watching the meeting, be they members of the public or the media, how the fiscal framework discussions interact with the Budget sustainability plan and the Budget improvement plan. I am always very conscious that Committee members probably struggle to remember the various work strands that emanated from the restoration in February. We cannot assume that every member of the public or even informed commentators are aware of those. Will you run through how the fiscal framework discussion interacts with the other strands of work? Thank you, Tony.

Mr Tony Simpson (Department of Finance): OK. Thank you, Chair. You have already introduced my colleagues.

The interim fiscal framework was signed by the Finance Minister in May. It was a significant milestone, as we work towards putting our finances on a more sustainable footing. The briefing paper submitted to the Committee provides a detailed overview of the various elements of the framework. I will try to give you a flavour of those without going into too much detail. I want to give a bit of an update on the progress that we have made since signing the interim fiscal framework.

When it comes to where those pieces sit, the interim fiscal framework is the overarching framework. It primarily sets out the basis on which Northern Ireland will be funded, how we have moved on from the statement of funding policy, which set out the overall funding arrangements for the devolved Administrations in the UK, and how the changes that came about as a consequence of the restoration package will now start to be put in place. In particular, it sets out the application of the needs-based funding factor. The elements below that, about which Jeff spoke in the previous session, relate to the Budget sustainability plan and how we will work towards putting our finances on a sustainable footing with the overarching funding envelope provided for by the fiscal framework.

The fiscal framework also sets out some of the key things that we will work towards in the future. The immediate focus is on the needs-based funding factor, but it sets out that some of the key elements, as we look forward, will be the principles for proceeding with fiscal devolution and the budgetary management tools associated with that that we might need. It will set out that long-term plan.

The Chairperson (Mr O'Toole): You said "the principles" of fiscal devolution, but it is not a specific negotiation on which tax powers you might want to be devolved. It is just the principles.

Mr Simpson: Yes.

The Chairperson (Mr O'Toole): OK. I remind people that the Budget sustainability plan may have principles for the Executive to consider, but it is not about the principles for things that you want to devolve. It is about the principles for how you might consider what to devolve.

Mr Simpson: It is about how we put our finances on a sustainable footing. Jeff can correct me if I am wrong, but it is about how we might deal with revenue that is raised locally and the money that we receive directly from Treasury.

The Chairperson (Mr O'Toole): That is how we raise money, currently, including the current powers that are devolved to us under the rates order that we update every year. That has specific reliefs — we have been discussing a lot of that — but the Budget sustainability plan will not have any more detail on how we might have Scottish-style income tax-varying powers.

Mr Simpson: No, it will not. We have had the Fiscal Commission and its recommendations. The Finance Minister can make her own recommendations to the Executive. That will lead to a discussion and negotiation with the UK Government. The experiences of Scotland and Wales tell us that it takes a number of years to devolve and implement a tax.

The Chairperson (Mr O'Toole): I do not mean to jump around, but it is important to establish the principles. The Finance Minister has said, multiple times, that she is looking at this and that it is something that she is considering. My understanding is that, if she said that she was going to change a relief in the rating system — I am not saying that she is; in fact, she may not — she would recommend it to the Executive, and then present it to the Assembly, through the Budget sustainability plan. That would be theoretically correct, were that to happen. I am not saying that it will happen.

Mr Jeff McGuinness (Department of Finance): In the Budget sustainability plan, there will be potential discussions around those kinds of options, but it would be for the Minister to —.

The Chairperson (Mr O'Toole): I completely get that. I am not trying to make you commit to saying or hinting that the Minister is going to do that. From what I have heard, I am not sure that she is, but that is within the existing rating system. That is different from the Minister thinking that Northern Ireland should have new devolved tax powers. That would not be in the Budget sustainability plan, would it? It would be a separate piece, but connected in the fiscal framework stuff.

Mr McGuinness: Yes. There is a section in the Budget sustainability plan that talks about the budgetary management tools that we have, currently, between ourselves and Treasury, how they might be flexed and what might come in future.

Mr Simpson: If the Executive were to decide to devolve a particular tax, there is an approach to be taken and decisions to be made. Do you devolve that tax? Then, when you get those powers, there is a separate decision to be made: what do you do with it? Taxes can be used in multiple ways. They can be used as revenue-raising instruments, but they can also be used as policy levers.

I will give a brief update on what we have done to progress this work. We have established two new divisions in the Department: the Budget sustainability division, headed by Jeff; and the fiscal policy division, headed by Aidan. We want to move quickly to progress the various aspects of the interim fiscal framework, but we recognise that some elements of it will take time and some are more pressing than others. It is important that issues relating to funding arrangements, sustainability and need are sufficiently progressed in the near term; in parallel, engagement can begin on wider issues such as the devolution of additional fiscal powers and the budgetary management tools that may come with that.

Our immediate focus is on seeking to prioritise the work around need. Our initial focus has been on thinking about how we develop the evidence base to negotiate for a higher needs-based factor in the future. We are working to develop and build on the independent evidence that we already have on our level of relative need, following the work of the Fiscal Council, which, I know, you are hearing from later. We have been engaging with academics in the field to explore how best to approach developing that evidence base.

The Chairperson (Mr O'Toole): I will jump in and ask a couple of quick questions. Would it be better to do what the Scots and Welsh did, which is to have a Holtham commission or a Smith commission? They are a bit more genuinely independent from the UK Government, and such a commission would be more independent from the Executive and the public could see what it reports. It is almost a decision not to do that. Is that —?

Mr Simpson: No. The interim fiscal framework states that the Treasury will revisit the level of need if we can provide multiple independent, credible pieces of evidence.

The Chairperson (Mr O'Toole): The next step might be to have a Smith or Holtham style of commission. I know that they did slightly different things, but —.

Mr Simpson: We are looking at ways in which we can develop an independent evidence base. We are not simply doing a piece of analysis in the Department that we will then present to Treasury, because, on the basis of the interim fiscal framework, that would not satisfy Treasury. We need independent evidence. There are a number of ways in which you can do that, and we can discuss those. You could have a stand-alone commission like Holtham, and we are looking at different ways in which we could provide a portfolio of different pieces of evidence to suggest that our needs should be higher.

The other constraining factor for us is that the fiscal framework points to us looking at that cliff edge at the relevant spending review. That means the next spending review in spring, so, if we were to have a big Holtham-style commission and start from scratch, we would not meet that deadline. We are trying to ride the two horses of getting the evidence base in time so that it can influence the discussions that need to be had with Treasury at that multi-year spending review and its having the independence and credibility to shift the Treasury from its current position, which is 124%.

The Chairperson (Mr O'Toole): OK.

Mr Simpson: As I said, we had some discussions with academics in that field. We are engaging with Treasury officials on that and on the specific mechanics of the application of the needs-based factor and how the Treasury calculates relative funding per head. At the moment, there is not a lot of transparency around the Treasury calculations on that, so we are working with Treasury on that, and there is commitment in the fiscal framework to work towards an agreed methodology. As I said, we will, in time, look at the options for how we can enhance our financial management tools.

We have already spoken about Budget sustainability and transformation a number of times. They are elements that we need to consider, but I will not go into them again. The other point to make is that the Minister has, on a number of occasions in meetings with the Chancellor and the Chief Secretary to the Treasury, raised the importance of Northern Ireland agreeing a final fiscal framework that reflects the appropriate level of need and provides a level of funding that Northern Ireland needs to deliver the services that our citizens quite rightly demand.

I am happy to take questions, Chair. Rather than me talk at you about the approach that we are taking —

The Chairperson (Mr O'Toole): That is really helpful, Tony.

Mr Simpson: — we can tease that out.

The Chairperson (Mr O'Toole): I talked at you earlier. I think that it was an important detail to get across.

Members, as always, indicate if you wish to answer — sorry, ask — a question. Do not answer questions; we are supposed to ask them.

There are a few things that I want to start off with. I have already jumped in with a few. First, 124% is the number, and we have had a few discussions in the Committee about whether it should be 124% or 126% and what you include and do not include. Where are the discussions on that? Are you still gathering evidence on 124%, and, if so, what has the balance of evidence been about whether 124% is about right or too low? I am not sure that there will be too many people who say that it is too high. What have you heard in the evidence that has been gathered so far?

Mr Simpson: The starting point for this is the Fiscal Council report, and it presents a number of scenarios where you could justifiably suggest that need should be higher. One of the key areas —.

The Chairperson (Mr O'Toole): Higher than 124%?

Mr Simpson: Higher than 124%, and I know that you will be speaking to Sir Robert later.

There are a number of different aspects in looking at this. You talked earlier about whether we should do a new Holtham-style commission. I will use a very crude analogy on whether you should rerun that work: if you use the same recipe and the same ingredients, you will come up with the same meal. You might ask someone, "Would you like to do Holtham again and rerun that analysis?", but it is unlikely, if you are running that analysis, that it will present a different outcome from what the council has provided in that range of scenarios. The focus of our thinking is this: does the Holtham approach capture enough of the Northern Ireland-specific aspects of need?

Obviously, Holtham was focused on Wales. It looked at a number of indicators where Holtham had suggested that that perhaps accounted for, I think, 95% of difference between Welsh levels of spend and English levels of spend. It did not cover policing and justice. The Fiscal Council has produced a range of scenarios on policing and justice, but I think that the council would say that it is not an expert in that field. I think that there is a genuine argument that we can make. In the approach that the council took around the time period for the policing and justice spend, it suggests that there is what it calls "revealed preference". The council said, "Well, this is the amount of money that was allocated in that time period, so that is your revealed preference for the amount of money that, you think, you should be spending on policing and justice". However, our view is that that was in a very constrained budgetary environment and was the money that was available in the Budget for spend and that, arguably, spend could have been higher across a range of areas. One avenue in discussions that we are having is with colleagues in DOJ to say, "How can we present some independent, credible evidence to say that that is one of the scenarios presented by the council but perhaps that time period is not the most appropriate one to demonstrate the level of policing and justice need in Northern Ireland?".

The council reran the Holtham approach, but Wales is very different from Northern Ireland.

The Chairperson (Mr O'Toole): You think that the council did not take enough account of the —?

Mr Simpson: It presented a range of scenarios, and it said that, if you were to follow a revealed preference argument, that would take you to 124%. However, it presented scenarios where it could be 127%, using a different time period. We want to bring in someone with a policing and justice lens to present evidence and say, "Yes, that was one of a number of scenarios", but it would be more appropriate with an expert in that field to suggest that —.

The Chairperson (Mr O'Toole): Who would that be? That person would be someone who had done —. A retired official from the DOJ or from the NIO who did the stuff and could say — ?

Mr Simpson: We have not agreed a way forward on the who. We are working with DOJ colleagues to develop terms of reference. Those will need to be agreed in DOJ, and then we need to look at who could best do that piece of work.

The Chairperson (Mr O'Toole): Eóin is not here. His party has done a fair bit of work on the cost of division and on the number being higher, but is one of the arguments that they could make back not, "Well, hang on. One of the reasons that has you arguing for a higher needs-based factor is this thing that, effectively, you're not tackling, which is the cost of division"? That is, you are duplicating public services. [Inaudible.]

Mr Simpson: We are proposing a layered approach: looking at the core building block of Holtham, because that is a solid piece of work, and getting independent advice. We have spoken to Gerry Holtham and are taking his advice, and we are thinking about to what extent there is a gap. If it was 95% accounting for the difference between Wales and England, is there a bigger gap in Northern Ireland? We would suggest that there is, certainly around policing and justice. Cost of division is one.

The Chairperson (Mr O'Toole): They might say back, "Well, what are you doing to tackle the cost of division?".

Mr Simpson: They could well say that, but, equally, that is not something that you can change quickly. Services are configured. There are societal challenges that you cannot say that we can fix quickly. There is also the question of what the implications have been of the governance gap in Northern Ireland over a number of periods.

The Chairperson (Mr O'Toole): By governance gap do you mean there not being an Executive?

Mr Simpson: Yes, not having an Executive for a number of periods and the implications that that might have had.

The Chairperson (Mr O'Toole): Can you unpack that a little bit? What are the fiscal consequences of that?

Mr Simpson: Did the framework that we were operating within during the two most recent periods without an Executive, whereby decisions could not be made by civil servants, perhaps hamper transformation?

The Chairperson (Mr O'Toole): OK. A civil servant does not feel that they can say, "Well, I don't think that we should be having that". Just plucking an example out of the air, "We shouldn't be funding that minor injuries unit. It should probably be consolidated next to the emergency department five miles away". That kind of thing?

Mr Aidan McMahon (Department of Finance): Obviously, officials have fewer powers than Ministers. They have restricted powers and can do fewer things. Equally, it is true to say that the UK Government will not have been filling the vacuum and the void completely. Arguably, you could say that it is on both sides.

Mr Simpson: Have our public services not been able to transform in the same way that they may have in other jurisdictions? Are they more costly to run? You are quite right that the UK Government will say, "Well, now you can fix them", but it is about recognising that that —.

The Chairperson (Mr O'Toole): Do not collapse the Government. If there is a fiscal cost to division and not having a Government —.

Mr Simpson: Relative need is the relative level of funding needed to deliver comparative services. We have talked about transformation and the steps that the Executive are taking to roll out the transformation fund. That will take time to have an impact on the costs of services here.

We are saying that there are a number of factors that are not addressed by the Holtham approach. It is not to say that there are failings in the Fiscal Council's analysis, because it said explicitly that it was replicating that Holtham work and adding policing and justice, but it is to take a more nuanced view of it.

The Chairperson (Mr O'Toole): One thing that there would probably be a degree of consensus on is the handling of the city deals. It was unacceptable and chaotic. If we are having a discussion about how we get to a more optimal way of operating a devolved funding settlement for Northern Ireland, is there an argument for saying that, if Treasury is communicating something that has a material impact on public spending, it cannot do it via an email from someone — with the greatest of respect to whomever it was at the Treasury who sent the email that stated that the city deal funding was being paused — on a random Wednesday afternoon? Would that not be a legitimate thing for you guys to say back to it about getting to a better way of working? Do you see the question that I am asking? It is not just about the fiscal framework; it is about not sending emails at no notice that say that you are pausing major —.

Mr Simpson: The Finance Minister has been clear in discussions that she has had with UK Government Ministers that that is a very unwelcome development. If you look at EU replacement funding, for example, you will see that the desire is that that funding should be replaced, that decision-making should be made locally, and that there should be no delays in that regard because they have negative consequences for programmes.

The Chairperson (Mr O'Toole): It is also about credibility. If part of it is the Executive's being credible and saying, "We are taking this action in order to reduce the cost of division" or whatever, rather than collapsing our institutions, part of the trade-off surely should be that we should not get emails saying that we have to pause major projects. However, I will leave that statement; you do not really have to respond to it.

Dr Aiken: Some members of the Fiscal Council and some academics have said that, when it comes to where we are at currently, we might already be at 124%. We may even be at 126%. How can we counter that? What sort of evidence base do we have to be able to say that we are not there?

Mr Simpson: That is with the financial package in place, which, obviously, is time-limited. Once we get past the funding provided in the financial package, the expectation is that we will drop below 124%. There is agreement with Treasury that the 124% continues to apply. That applies at the moment, even with the financial package in place. It is very time-limited.

Dr Aiken: The point that I was trying to get at is that there are certain economists who say that we are probably sitting at 126% at the moment. We say that we need 124%, but they are saying, "Actually, you are a bit above 124%".

Mr McMahon: As Tony said, the interim fiscal framework says that, with the current financial package, we are above the 124% level, but that will drop off after two years, and the question will be about where we are at that point in time.

Dr Aiken: I cannot see how we get regular reports about where we sit.

Mr McMahon: Again, it is probably back to Tony's point about the relative funding methodology. We need to discuss that with Treasury. There is a commitment in the interim fiscal framework to work out exactly how Treasury works out the relative funding calculation. It does not tend to be transparent and share that. It is something that the council will have mentioned. It is something that commentators will say about Scottish and Welsh counterparts as well. We need clarity about how that is worked out and how regularly we can get that figure so that we are aware of where we sit.

Dr Aiken: I would really like clarity on the methodology by which we do that. I do not want Caoimhe to front up, as she did previously at the Treasury, and the Treasury, being the smartest kids on the block, saying, "No, you're actually at 126%, so what are you asking for more money for? You're not getting it". We need a well-worked-out evidence base that we can all talk about at the same time.

Mr McMahon: That is one of the commitments that we have with Treasury. We are discussing that with it at this point in time. We hope to be able to get clarity on that.

Dr Aiken: I echo what the Chair said: be careful about what you wish for from anybody from the Treasury.

Mr Brett: Thank you, gentlemen. I have two separate issues. I will start with the possible devolution of additional powers. Has the Minister given any indication to you, as officials, of her preference for what devolution of powers she would like to see?

Mr Simpson: No. We had an initial discussion, during which we briefed the Minister on the outcome of the Fiscal Commission. She has not taken a position on that. It is something that we want to advise her on. As we said, we are currently prioritising the work on need, because that is the most pressing work.

Mr Brett: What do you think your advice to the Minister would look like?

Mr Simpson: The advice will be framed around the Fiscal Commission's clear recommendations. It set out the candidates for fiscal devolution, including some of the smaller taxes and land-based taxes. A recommendation is that you can consider income tax suitable. The choice for the Minister and the Executive will be deciding what the appetite is for smaller taxes and big taxes. I expect that there will be a sequencing consideration in the timeline that we take particular taxes over. At this point, I cannot pre-empt what the Minister's position will be.

Mr Brett: On the independent evidence base that you are working on, you are looking at drawing up terms of reference with DOJ for somebody who is an expert on policing and justice. That is fine. What else have you done to build up that evidence base? How close are you to completing that work, given the time constraints that you referred to?

Mr Simpson: The terms of reference are yet to be finally agreed. This all needs to be agreed by Ministers.

Mr Brett: Are they with DOJ for its sign-off?

Mr Simpson: It is developing them. We are working very collaboratively with colleagues. We have been working at official level. I am not sure what level of approvals they may have got in DOJ. We have been working with it to develop terms of reference. I expect that DOJ officials will want to agree that with their Minister, and we will need to agree them with ours. We have been having separate discussions with officials in the Department of Health and in the Department of Education. In Health, we are due to meet the mental health champion. Holtham boiled it down to indicators in six areas, but perhaps not reasonably represented in that is that there is more of an issue in Northern Ireland. Colleagues in Health will point to a range of evidence that suggests that there are more significant mental health issues in Northern Ireland and that those bring greater demands on public services, be it on the health service or on the education system. We want to bring that out. Looking at the challenges in where we are with the transformation journey in Health, what does that mean in considering the costs of running the current system to deliver the same level of services that citizens have in England compared with here? Is there something there that we can tease out in evidence? There are a number of strands to this.

Mr Brett: You covered DOJ and Health. You also mentioned Education.

Mr Simpson: We have had some initial conversations with colleagues in the Department of Education. Obviously, there are more sectors in Northern Ireland. Does that have any implications for costs? It is probably fair to say that the bigger challenges and focuses for us in addressing this are with policing and Justice and Health, but, obviously, we want to give all the big-spending Departments an opportunity to bring any evidence that they think will be useful for us to present to Treasury.

Mr Brett: You get all that evidence from Departments, but it goes back to the point where, I assume, the Treasury will not rely just on the views of Northern Ireland departmental officials. I understand that we are looking for a DOJ expert from outside, and that is fine, but who else are we commissioning?

Mr Simpson: We have had discussions with Gerry Holtham, who led the Welsh work. We have not agreed with him that we will commission him to do that work. We have also spoken to the team of academics that supported Gerry Holtham. We have yet to lock down the specific terms of reference for that work, but there is an avenue where we could say that there is one piece of work that shows how there are some missing pieces from the Holtham approach in that it does not exactly fit Northern Ireland well. There is a piece around Justice, as I described. We have yet to have conversations with the mental health champion. I expect that an external evidence base of work from academics in the field will already be there, and it is about bringing that together. I assure the Committee that there is no sense in this that we are working with officials and doing our own analysis and will then present that. It will have to be brought by independents and stand up to the rigour that Treasury will give.

Mr Brett: When do you expect the whole final piece of work to be completed, with a single document to say to Treasury, "We are now getting to the spending review. When you come to the final framework, this is our case"?

Mr Simpson: We need to have that shaping up early in the next calendar year, obviously, given that the spending review is in the spring. We have had some initial conversations with Treasury. We want to engage with it and bring it with us. We want to test some of the thinking with it. Obviously, that will be a negotiation. Treasury's opening position will not be, "How much more does Northern Ireland need?" We want to test the thinking with it on some of that and work with it in as transparent a way as possible. We will speak to Treasury throughout the process.

Mr Brett: Do you expect to finish the process by January?

Mr Simpson: We want to get it done as soon as possible so that we can inform the process. We may have to lock down the terms of reference to commission people to do it. Some of it could be very short, snappy work that will not need to be done from scratch but that will draw together evidence that already exists. As I said, there will be a wealth of evidence in the mental health space.

Mr Brett: January, then?

Mr Simpson: I would love to see it done in January. We cannot go too close to the spending review, because we need to influence those decisions, so, yes, we are working as quickly as we can on it.

Mr Brett: Thank you. Good luck with that.

Miss Hargey: I would like to touch on that last conversation. It is critical, because there has been a view — it will be a battle, even with the new British Government — that people here are funded more per head than in other constituencies and that the new Government are just rolling out the same trope as the previous British Government, so there is definitely a need to demonstrate it.

On the back of that, it is important to note that it is not about just DOJ, policing and the costs of policing now. It is also about looking at social policy and the implications of previous decisions going back three, four and nearly five decades and how all those had an impact. The cost of division is one angle, but there is also division that was based on social class and how that division was designed into the system here at the start of the conflict and going into the early 1970s, given how regeneration was done with the containment policy in mind and how that impacted on neighbourhoods and communities. More scoping is definitely needed, so I would be keen for a DOJ person or somebody who will work in that field to go beyond even what they see as the normal need for policing and justice and look at that area and the impact that it had on neighbourhoods, particularly the most socially deprived.

We know, given that we have been emerging from conflict, that the other area to consider is mental health. Suicide, domestic violence and all those things are much greater here. It is not the same as Finchley, for example, so there is a job of work that needs to be done in time.

Moving to my question, in agreeing the interim fiscal framework, there was the Joint Exchequer Committee (JEC). How has engagement been going with that Committee, what is its remit and what has it been discussing? Is it a decision-making body? Is it able to make decisions? How does that work? When is it going to meet next? How regularly does it meet?

Mr Simpson: The JEC formalises the arrangements for discussions on the final fiscal framework, including the wider piece that we talked about on fiscal devolution. It will be made up of Ministers from the Executive and the UK Government. Ordinarily, we expect those to be the Finance Minister and the Chief Secretary to the Treasury (CST). The inaugural and only meeting of the JEC was convened in May to sign the interim fiscal framework. The Finance Minister and the then Chief Secretary to Treasury, Laura Trott, attended that. There is no date set for the next meeting of the JEC. That will be for the Finance Minister and the CST to agree, but as we work towards agreeing a final fiscal framework, that will be the body that will be tasked with making the decisions on both those. They are to be agreed jointly by Ministers of the Executive — the Finance Minister, primarily — and the CST.

Mr McMahon: I want to add to what Tony said. Officials will work on a level below that, so they will carry out our work. As the points are reached where Ministers need to make decisions, the next JEC meeting will be organised. It meets as needed when there are decision points and decision trees that need to be followed.

Miss Hargey: Thank you.

Miss Brogan: Thank you for your presentation. My question has already been asked, but it is great to see all the work that has been ongoing in the background to gather that evidence base and put our argument forward on why the North needs to be funded better. I appreciate the work that you are doing. Thank you for the briefing. It has been a really interesting conversation.

Mr Carroll: Thanks for the presentation. I am curious about the general conversation about just-funding sustainability. Obviously, the 124% and 126% and all that stuff have been mentioned. I am curious about the conversation, research and preparatory work. The fact is that, the last time that I checked, the money that has been withdrawn from public services by the British Government totals half a trillion pounds, so it is around about £500 billion. I imagine that the knock-on effect of that withdrawal of money from public services here is roughly tens of billions of pounds. What work has gone into asking whether the percentages are up to speed, given that you need to take into account the money that was withdrawn from public services here but that was never really reinstated? Has that played any part in conversations about just-funding percentages and sustainable funding for services here?

Mr Simpson: The focus of our work is on the level of relative need. The point was made about the level of relative funding that is needed to deliver the equivalent level of services that a citizen in England would expect. The Finance Minister has been very clear in engagements with UK Government and Treasury Ministers that the level of funding overall is lower.

The Chairperson (Mr O'Toole): It is important to say that. Sometimes people adjust the level of relative need. If your view is that the UK Government are not spending enough money on public services overall — I agree, and I am sure that others would — this approach does not address that.

Mr Simpson: Yes. The Minister has been sending that message. As I said, she has met the Chancellor and the Chief Secretary to the Treasury. The constant theme throughout discussions that she will have with Treasury Ministers is that public services need appropriate funding and the need level alone will not deliver that and that, actually, public spending across the UK as a whole needs to be increased to support public services. I think that she would probably suggest that citizens in England could well argue that they expect a higher level of service to be delivered. The Minister has absolutely been making that point.

Mr Carroll: Thanks, Tony. I appreciate the wider point, and I support that, but the point that I am making is that we cannot really talk about just-funding models at all until we address the fact that the past 14 years have seen tens of billions of pounds withdrawn, so we are always playing catch-up in many ways. We will not get anywhere near a just-funding model until that money that was taken out and more is put back in. That is just a comment. Thanks.

The Chairperson (Mr O'Toole): To be fair, I think that Tony was getting at that. That is probably where the Finance Minister is too, but your point is made and understood.

Members, if anyone else wishes to come in, do indicate. I just want to pick up on a couple of points. If this has been revealed and I missed it, apologies. We have a deadline, albeit a slightly movable one, on the old Budget sustainability plan. Is there a deadline on this, or is it iterative and will be over when it is over?

Mr Simpson: No. There is no firm deadline in the interim fiscal framework. Do you mean for the overall framework or for need?

The Chairperson (Mr O'Toole): First of all, for need. You are gathering evidence at the minute. Do you have a deadline for when you want to go back with your —?

Mr Simpson: Yes. We want to have that in place to inform the UK Government's setting of the next spending review. There is no —.

The Chairperson (Mr O'Toole): The spring one, not the —?

Mr Simpson: The spring one, yes. The UK Government have not set a deadline for us to do that. They said that they are open to considering that evidence if we can present it.

The Chairperson (Mr O'Toole): You would like to be able to present them with a robust suite of evidence by the spending review next spring that says, "These sources say that 124% is not high enough".

Mr Simpson: Yes. As I said, we are keen to keep those lines of communication open with Treasury so that we are not saying, "This is on your desk just as you are approaching the deadline for finalising the spending review". We keep those channels open.

The Chairperson (Mr O'Toole): OK. The general sense that I get is that it is not likely that we will get a clear statement of intent on new forms or new levers for fiscal devolution. Correct me if that is wrong, but I have not heard any indication that that is an imminent thing that officials are working on.

Mr Simpson: We have had those initial conversations with the Minister. We are trying to sequence the work. We have established a team, and we are working towards multiple priorities. Given conversations that we have had with the Minister, I know that it is a priority for her. We want to get advice to the Minister, and it will be for her to decide what she might take to the Executive and when.

The Chairperson (Mr O'Toole): There is a big chunky Fiscal Commission report that the previous Finance Minister commissioned. We are not going at it totally cold.

Mr Simpson: No.

The Chairperson (Mr O'Toole): There is a report already there. This is a bit of a hobby horse of mine. I believe in more fiscal devolution; I would like to see more of it for different reasons. Obviously, I have a constitutional view: I would like to see an entirely different fiscal model that involves being in a separate sovereign constitutional arrangement, but that is not your job, and it will not happen in the short term. I would like to see more fiscal devolution, but I would also like to see us stop one type of fiscal devolution that has not been a raging success, and that is the £2·5 million that we spend per year on non-existent fantasy flights.

Dr Aiken: Who knew that you were going to say that, Chair?

The Chairperson (Mr O'Toole): We joke about it, but it is true to say —.

Dr Aiken: We are not joking.

The Chairperson (Mr O'Toole): If anybody in the Department is watching the meeting and wants to correct me, I believe that the last long-haul flight to leave Northern Ireland was a Norwegian flight at some point in 2018, so that is six-plus years ago.

The Committee Clerk: Chair, there is a long-haul flight to Hurghada in Egypt. There are charter flights that qualify as long-haul flights.

The Chairperson (Mr O'Toole): There are chartered flights. I am not entirely sure that, when the Executive first sought to devolve air passenger duty (APD) back in 2012 or 2013, they had an imprecise number of chartered flights to holiday destinations per year in mind. I do not know if that is being looked at, but I suggest that that would be a constructive thing to think about, as there is a block grant adjustment of £2·5 million per year.

Mr Simpson: There is a principle about how devolution works across the devolved Administrations (DAs). You should not look at it from the perspective that we are paying for long-haul APD; the Executive took the power, and with that came the choice about whether the rates should be put up or down. However, that is a power that has now been devolved. It is not — .

The Chairperson (Mr O'Toole): If we put the rates down, we would raise a trivial sum of money, but we would save over £2million-plus per year that would not be reduced from the block grant.

Mr Simpson: No. The block grant adjustment is there. Once a tax is devolved, at the point of devolution, the Treasury will say, "We will take the amount of revenue that the tax generates off the block grant. It is up to you to decide to continue raising the tax". There is also the risk that the activity that generates the tax, that is flights, can increase or go down. It is a firm policy choice to take that; it is not a charge about which we can say, "There have been no flights, so we should not pay for it".

The Chairperson (Mr O'Toole): I know that bit, but the policy has been a ridiculous failure. That is my view, and I am happy to stand over my opinion, but it is a policy on which you spend £2·5 million a year, and you are right to say that it is a policy choice. The consequence of the policy choice is that the block grant is £2·5 million a year lower than it otherwise would be.

Mr Simpson: We are not spending the money. It is not a spend decision; it is a tax decision.

The Chairperson (Mr O'Toole): That is true, but we cannot spend what we do not have, because it has been reduced from the block grant before we get it. It is, in effect, a spending decision, because we would have an extra £2·5 million a year to spend.

Mr Simpson: If we put the rate of long-haul APD back to the UK rate, and there is no suggestion of doing that for the record —.

The Chairperson (Mr O'Toole): We do not get the £2·5 million back. I get that. The question would then be, "This policy intervention has not been the right one, so should we look to un-devolve this tax, should it be necessary". I am not saying that they will make that decision, but, in a situation where you are giving away £2·5 million a year —.

Mr Simpson: I would say that Treasury would view that as a not credible argument for the Department to make. They would say, "You devolved it". To use a really simplistic argument, this is not a bet. We talked about transformation earlier, and in the session last week, we talked about our attitude to risk. When the Executive made that decision, they did it with the full awareness that we may get more flights and generate more activity but that there is also the risk that those flights could leave. I would not expect that Treasury would entertain us in any credible way. To use a really simplistic argument, it is akin to buying a £2 lottery ticket that does not win and walking back into the newsagent and asking for your £2 back. That is not a bet; it is a risk-based decision. We have not retained those flights. I know that colleagues in the Department for the Economy will be working to do their utmost to try to improve connectivity. It will be part of the package that they will be looking at to sell it on.

The Chairperson (Mr O'Toole): I think that I have made my point on that. I do not want to test my colleagues' patience with my hobby horse, or hobby plane, any longer.

Mr Frew: It just proves our point that we should not have any —.

The Chairperson (Mr O'Toole): It proves the point that we should do more strategic fiscal devolution rather than trying to, essentially, compete with Dublin, which is a major European air hub and has US pre-clearance. It was always a fool's errand, and we put significant public money at risk.

Anyway, I am assuming that nobody else has any questions.

Dr Aiken: Maybe the Chair of the Economy Committee would have something to say about that.

The Chairperson (Mr O'Toole): I am sure that the Chair would, but we will probably debate it in a separate forum.
Will you keep us posted on the progress on finalising the interim fiscal framework? It is called the interim fiscal framework, but there is no deadline for it becoming the final framework. Will it always be the interim fiscal framework, or will it at some point become final?

Mr Simpson: We will be working towards a final fiscal framework. That is not to say that there may not be opportunities. If we take forward devolution, there could be further changes to it. It is not that it will be final and locked in stone forever. But, yes, we want to move from an interim to a final fiscal framework.

The Chairperson (Mr O'Toole): But there is no specific deadline for that?

Mr Simpson: No.

The Chairperson (Mr O'Toole): OK. Maybe we should stop calling it "interim" and say the "current fiscal framework". Would that be slightly more appropriate?

Mr McMahon: The Scottish had a fiscal framework that they revised and reviewed last year. It is now the current fiscal framework that they use, as opposed to the original.

The Chairperson (Mr O'Toole): It is just that the word "interim" indicates that we are about to get a new one. It is a bit like the public service transformation board — when does "interim" become "extant" or "continuing"?

Anyway, thank you very much. Please keep us posted.