Official Report: Minutes of Evidence

The Chairperson (Mr Brett): Good morning. How is everyone? Thank you very much for joining us so early. Colleagues will be familiar with our officials. You are all welcome. Thank you for joining us today and for the information that you have provided. I am happy to hand over to you.

Ms Johanna Park (Department for the Economy): Thank you. Apologies if I have a fit of coughing or sneezing; I am suffering from hay fever, so I apologise in advance if that happens. Thank you, Chair.

The Chairperson (Mr Brett): Thank you, Johanna.

Ms Park: I am joined by my colleagues Susan Butler and Niamh McGarvey to update members on the Department for the Economy's budget. Mark Lee, director of higher education, is also present to address specific questions that the Committee may have on higher education.

Since my last appearance, DFE has finalised its opening 2025-26 budget allocations and completed the associated equality-of-opportunity and rural impact screenings. The DFE 2025-26 non-ring-fenced resource departmental expenditure limit (DEL) budget of £813 million, including indicative June monitoring allocations, consists of £799 million of a controllable allocation, including the £15 million earmarked for skills initiatives, as the Minister has discretion on where to allocate, and £13·9 million of Executive earmarked funding: £5·1 million for the Open, £4·4 million for the graduate entry medical school, £3·8 million for PEACE PLUS match funding and £0·6 million of Construction and Procurement Delivery (CPD) fees for city deals projects. In capital, DFE received a capital DEL allocation of £205 million, inclusive of £55 million earmarked for city deals projects. DFE also received £8 million of financial transactions capital.

Detail on how that funding has been allocated across DFE business areas and partner organisations was set out in table 1 of the briefing paper that I submitted to you. That has been included on page 54 of your pack. In line with good financial management, as in previous years, DFE's opening budget allocations include a level of overcommitment for staff salaries and capital projects. The £7·5 million overcommitment on capital and the £8·3 million overcommitment on salaries are considered to be manageable and will be monitored throughout the year.

As requested, the 2024-25 provisional outturn has been included alongside the 2025-26 budget allocations in table 2 of the briefing paper that I provided, which is on page 56 of your pack. While comparing the previous year's spend with the current year's budget offers some context, circumstances, programmes, prices, demand and so on change from year to year. To try to aid comparison with provisional outturn, I have removed expenditure that would distort your analysis, including non-controllable funding, in-year transfers and technical adjustments. The detail of all adjustments was included in table 3 of my briefing paper, which is on page 57 of your pack.

All business areas and partner organisations have individually screened their allocations for equality-of-opportunity and rural impacts. As no area identified a disproportionate impact because of its budget allocation, DFE has screened out.

I will touch briefly on June monitoring. The June monitoring exercise is ongoing, but, based on the current position, it is the Department's intention to, at a minimum, submit two bids for resource DEL and one for capital. You will be aware that the Minister for the Economy has already written to the Minister of Finance requesting £9·8 million resource and £9 million capital for higher education institutions. In addition to those two bids, DFE will submit a £7·4 million resource bid to address the increasing demand for and cost of apprenticeships and Skills for Life and Work. Funding for the protocol and Windsor framework will also be allocated as part of June monitoring. DFE will receive £17·3 million resource DEL and £0·6 million capital; an increase of £2 million resource DEL in comparison with last year. In addition, Invest NI and two further education colleges were successful in their bids to the UK Shared Prosperity Fund. Whilst confirmation of that funding has been received, giving certainty to the funding, it will not be reflected in our budget position until January monitoring, in line with previous years. I will provide a further written briefing on June monitoring once completed.

Finally, you recently received the DFE 2025-26 Estimates memorandum and briefing on our 2024-25 provisional outturn. In respect of last year's outturn, the Department utilised 99·9% of its resource DEL allocation and 99·7% of its capital. As always, Susan, Niamh and I will seek to answer your questions on last year's provisional outturn, the 2025-26 budget settlement and the Main Estimates memorandum. Mark is content to address any higher education-related questions, and, if a more detailed response is required, we may ask our colleagues in the DFE business areas to write to the Committee.

The Chairperson (Mr Brett): Johanna, thank you very much indeed. You have put Mark straight into the hot seat. [Laughter.]

Mark, I will start with higher education, given the media commentary and the public comments made by the institutions. From your perspective, where does the issue of higher education funding sit at present?

Mr Mark Lee (Department for the Economy): We have some pressures at the minute that we need to meet, and we are working to do that. The Minister has been clear that she is not prepared to raise tuition fees above the usual level of inflation because of the impact that she sees on students, but she has also been very clear that she recognises the pressures in higher education and wants to continue to work with the higher education institutions to find ways to address those. When she made her statement last week, I think that she said that she had written to Executive colleagues and the Finance Minister seeking additional funding as a way to address the pressures that exist in higher education. Through the June monitoring process, we are seeking £9·8 million of resource DEL and £9 million of capital DEL to close the funding gaps that we know are there.

The Chairperson (Mr Brett): Where will the bids that have been submitted in June monitoring bring us to in comparison with last year's position on higher education? Has the Minister submitted a bid to bring the funding level back to what it was last year?

Mr Lee: Yes. Essentially, there is now a little bit of complexity within that, because the higher education budget includes student support, which is demand-led, so those figures move. Indeed, there will probably be slightly less required this year than there was last year, but, yes, the Minister is essentially trying to get to a position where we can give the universities at least flat cash, as they call it — the same allocation as last year.

The Chairperson (Mr Brett): You have probably seen the letter that was penned by Queen's University, Ulster University and the Open University. If we are only bringing it to a flat-cash position of last year, they say that the structural deficit that had been created as a result of tuition fees not rising has made the position unsustainable. If we are only going to flat-cash them, how will we find a solution, particularly to the issue of the universities making it clear that they will have to reduce student numbers?

Mr Lee: There are two elements to it. One is how we ensure that we have money this year so that the universities can continue with the provision that they have and not make difficult decisions to cut things. In the more medium term, there is a review of higher education funding, and we want to go through a more thorough process to understand what the universities need, how that benchmarks and what the models are for supporting that. We also want to look at student support. That will be another important element of higher education funding. We have been speaking to the universities about that medium-term process for engaging with them and making sure that we have a more sustainable approach to funding.

The Chairperson (Mr Brett): The closing balance last year for higher education, including student support — obviously, some of that is demand-led — was £205 million. The opening position this year is £203 million. Is that correct?

Mr Lee: Correct. It depends on what you include and do not include, but yes.

Ms Park: Yes. The £205 million that was maybe in the Committee Clerk's table does not include the £1·5 million that we got late last year, which brought it up to about £206 million. The difference between where we are now and where we are going next year is, as Mark said, that we have that structural deficit. I have been at the Committee before and have spoken about the fact that we use in-year easements and those extra bids to the Executive, so that will be part of where that shortfall is. We then have the student support element, which is demand-led and based on eligibility. The current year projections are that it will be £3·6 million less than what it is against the current year budget. That is where you then get that £2 million shortfall, which is part of the £9·8 million bid that has been made by the Minister. That is the £2 million for the shortfall this year — 2025-26 — and the £7·8 million is that structural deficit, which the Department has tried to supplement each year through additional bids, one-off funding or in-year easements.

The Chairperson (Mr Brett): That £2 million is on the teaching grant side, because you put research down as capital.

Ms Park: Research is capital, yes. That is the £2 million of the £9·8 million resource DEL bid, and the £7·8 million is the structural deficit. The £9 million is in respect of the capital, so that is for the quality-related research. That is roughly £9 million less than what they got last year.

The Chairperson (Mr Brett): Yes. Do you have a breakdown of where that £2 million shortfall is? Have you said that that is likely to be in student support or is likely to be for one institution or another?

Mr Lee: The Minister has not made a final decision yet. The higher education division budget is £2 million short. At the minute, the pressure is technically sitting on the student support side, but we can move money between those areas to meet the demand that is required. It is worth saying that there is limited room for manoeuvre on student support. A lot of it is legislative requirements. There is less room for movement there.

The Chairperson (Mr Brett): When will the Minister make that decision?

Mr Lee: Shortly. It is part of confirming the final budgets.

The Chairperson (Mr Brett): So, our higher education institutions still do not know what their final budgets are. Is that correct?

Mr Lee: They know the overall position in respect of being £2 million short, and they know about the structural deficit that we have talked about. They know what that means for their opening budgets' worst-case scenarios. It has given them enough to plan on.

The Chairperson (Mr Brett): But they do not know their final budget for this year yet.

Mr Lee: We will need to run the funding model, which will give them the precise amount, but we need student figures to confirm that. Normally, they do not get the final figures until towards the back end of the summer. A draft allocation letter goes to them. They know the headlines, and they can plan in broad terms. However, we need to run the model, calculate and make the inputs that we need to make to give them an exact figure, and that will not happen for a few weeks — not until we get the student numbers through from the Higher Education Statistics Agency.

Ms Park: They have their budget for this academic year —

The Chairperson (Mr Brett): Which runs from August to August.

Ms Park: — which ends in August. As Mark said, that is why we do not have the numbers yet, in order to run it through the funding model.

The Chairperson (Mr Brett): On the June monitoring, obviously, the Minister made her intention clear, last week, in relation to writing to colleagues about higher education support. Has there been any feedback from the Finance Minister?

Ms Park: Not that I am aware of. I have seen no correspondence back.

The Chairperson (Mr Brett): Are we aware of the overall envelope of what is to be allocated in June monitoring?

Ms Park: We are not.

The Chairperson (Mr Brett): OK. The Minister does not know how much may or may not be available, but does she remain confident that she will get the £17 million?

Ms Park: I do not know what has been discussed at Executive level. I am not aware of what will be available to be allocated.

The Chairperson (Mr Brett): You talked about funding for the Ireland/Northern Ireland protocol and Windsor framework. What is that £17·3 million used for?

Ms Park: It is used to fund the outworkings of the protocol and the Windsor framework in areas such as trading standards, consumer services, energy for the single electricity market — you have put me on the spot — and the various staff who work in the trade areas of our Department. Some goes to Invest NI for dual market access, InterTradeIreland, the Labour Relations Agency and the Consumer Council. As I said, there was an increase of £2 million. That £2 million is very much related to staff vacancies that have been filled, but it is mainly to do with the Civil Service pay uplift and National Insurance. Those have been fully covered through that funding.

The Chairperson (Mr Brett): That is earmarked funding.

Ms Park: That is earmarked funding.

The Chairperson (Mr Brett): The final question from me is on Northern Ireland Screen. Last year's closing position was £20·1 million. Is that right?

Ms Park: Yes.

The Chairperson (Mr Brett): The proposed opening budget for this year is £18·7 million. Is that right?

Ms Park: Yes.

The Chairperson (Mr Brett): Has any assessment been done of the impact of that cut?

Ms Park: Whilst NI Screen has been allocated less budget than last year, it can scope its activities and programmes. The reduction does not impact on its business plan targets, and it remains on track. It also has access to recruitment moneys from successful projects, and it is able to bid, in year, because, as I said, it can scope its programmes and activities. The 2025-26 budget is its baseline. Until this financial year, its baseline had sat at around £14 million. The opening budget, therefore, gives financial security, which is good for it to be able to plan against its business plan and future activities.

The Chairperson (Mr Brett): Thank you so much.

Ms McLaughlin: I go back to higher education. I welcome the fact that there will be no increase in student tuition fees.

However, in the letter that the five higher education institutions sent, they indicated that that may have an impact on student numbers. It is very difficult to scrutinise effectively what the student numbers are likely to be in this envelope. Have you in any way looked at the breakdown of what the budget will mean for the individual institutions?

Mr Lee: There is not an absolute direct relationship, so we will provide a budget to those institutions. As autonomous institutions, they will make their own judgements on what that means that they can do on student numbers and other investment projects, and they will then make a decision. They may be doing community projects or running a whole range of the things that they do. I hope that the way in which we seek to address the funding gap in both the short and the medium term through the bid to the Executive and the work on a higher education funding review will mean that they will not take short-term decisions to cut student numbers in any significant way. However, we work closely with them and will continue to do so.

Ms McLaughlin: When will you know what that impact is so that we can have transparency?

Mr Lee: We will not know the exact student numbers until we are into the autumn, once clearing and all those elements play out. It will take a while for the student numbers to come through. We will be clear before then if any of the institutions that we are looking at significantly reduces its intake. I do not expect that to be the case at this stage, though.

Ms McLaughlin: Can you give me a breakdown of what each institution will actually get in its budget from the higher education budget?

Mr Lee: Do you mean money or —?

Ms McLaughlin: Yes.

Mr Lee: Until we run the funding model, I cannot give you precise figures. If you want an indication, we can certainly give you the 2024-25 breakdown, which will give you the split between the different institutions until —.

Ms McLaughlin: Is that unlikely to change, percentage-wise?

Mr Lee: It is unlikely to change in any significant way; that is correct, yes.

Ms McLaughlin: OK. That is interesting. Can you confirm that there will be no increase in the maintenance grants?

Mr Lee: There is no plan to do that. The maintenance portal opened in March, I think that it was, off the back of the regulations that were set and that this Committee would have considered, so there is no increase to the maintenance grants.

Ms McLaughlin: The institutions also indicated in their letter that there are other methods of supporting students. They talked about the increase of maintenance grants as a way of doing that. Is that not in the agenda at all?

Mr Lee: It is certainly something that we would like to look at. I point to the fact that we have had significant increases in the maintenance loan in previous years. Conor Murphy announced a 40% increase and then a 20% increase in it. Ministers are certainly very aware of the financial pressures that face students and have taken steps to respond to them. The maintenance grant in particular had an interaction with the loan, so we would want to look at a range of things there, including the thresholds. We would probably need to do that as part of that higher education funding review, where we can look at the complete sweep of student support, where they interact and how it all comes together, what the thresholds are and how that affects the balance between grant and loan and all those kinds of issues.

Ms McLaughlin: Is there any sense of urgency in all that, or is it just about due process?

Mr Lee: No, the urgency is reflected in the fact that there was a 40% and then a 20% increase to the maintenance loan to make sure that students can access funding. We will continue to provide hardship funds, which, again, the previous Minister increased shortly after he came into post. We are all — that means the Minister and the civil servants — seized with the pressure that faces students, and action has been taken on the matter.

May I make one tweak to what I said previously about the allocations being broadly the same as they were last year? Obviously, there will be some ring-fenced money for the Magee numbers, for instance. That will be reflected beyond the allocation. It will probably be broadly in line with the allocations for previous years.

Ms McLaughlin: Yes. Does that mean that it is £11 million this year for Magee?

Mr Lee: It is. That includes a number of costs, so it is not just for student numbers, for instance.

Ms McLaughlin: I understand that the bid for Fort George has not been met. Can you detail any contingency plans in order to support future investment on that site?

Ms Park: I would need to get you more detail on the Fort George bid. Was it in our high-priority bids? The Department received enough funding to meet only its committed and pre-committed projects. That resulted in the cut-off immediately being applied to those. The Fort George bid of £11·1 million was further down the priority list, so it could not be met. I do not know anything about the site. I would need to ask those colleagues in the Department who are dealing with it.

Ms McLaughlin: I would be grateful if you could share that information with us.

Ms Park: Yes, of course.

Ms McLaughlin: Can you provide any update on the net zero accelerator fund?

Ms Park: I do not have any details on that. Again, policy colleagues on the energy side could provide information on it.

Ms McLaughlin: Do you know its value?

Ms Park: No, I am sorry.

Mr Honeyford: There is an increase in further education and in apprenticeships. The two are separate, but I am just trying to clarify whether the increases in further education courses and in apprenticeships are happening separately.

Ms Park: The further education budget has been increased to address pay and National Insurance pressures. The colleges then receive income from the Department to run higher-level apprenticeships, Skills for Life and Work and traineeships. That is reflected in income and an additional allocation to the colleges for their provision.

We have seen a rise in demand for apprenticeships and higher-level apprenticeships. In addition, a new contract will be awarded in 2025 for apprenticeships. That has brought increased costs, so it will then increase the amount that has to be spent on it. Whilst demand may be going up at a slightly lower level, the cost of the provision is going up because what we have to pay providers goes up. That will be additional income that the colleges will receive from us, based on their achievement rates in apprenticeship programmes.

Mr Honeyford: The reason is cost, therefore. The costs are going up, but the numbers are not. That is what I am trying to get at.

Ms Park: The numbers are also increasing. The projections are for a 3% increase in apprenticeships and an 8% increase in higher-level apprenticeships. That is based on the projections that are built into the budget. Again, that will be dependent on student numbers and things like that, but that is what has been built in at this point in time.

Mr Honeyford: That is good; so we have more at both levels of apprenticeships. I just want to clarify that the increase in the further education budget is for running costs.

Ms Park: Yes, it is for running costs and staff.

Mr Honeyford: The bit that I do not understand is this: when we take that across to higher education, how does the same format not work? Are there not the same increased costs for National Insurance contributions and all that?

Ms Park: Further education is an arm's-length body. It is a non-departmental public body of the Department. As such, because of its status, it cannot have reserves on any extra income that it generates, so it is wholly reliant on the income that it generates in year or on the budget that it gets from the Department. It does not have the ability to build reserves and to be able to use them to meet its costs. Universities do have that. They are autonomous bodies. They have control over what they spend their funding on, whereas colleges work under the auspices of the controls that you get with a non-departmental public body.

Mr Honeyford: I get that. I am not having a go. I welcome that kind of change. I understand that the Department is paying, but you are expecting universities to pay that out of their reserves. Is that what you mean?

Mr Lee: Universities get income not just from the Department: they have international students, for instance; they run businesses and enterprises; and they have long-term investments and a whole range of commercial activities. There is also the tuition fee, which has traditionally gone up in line with inflation, so that increases that side of the income.

They have a broader range of income streams, some of which are outside government, on which they can draw for additional funds to support the pay rises that they may pay to their staff.

Mr Honeyford: OK. Are you confident that this will not reduce student numbers?

Mr Lee: If we can provide the universities with a flat cash assurance, I would not expect any significant change in student numbers. However, that is a decision for the universities and one that they have not yet made.

Mr Honeyford: It is a decision for the universities, but it is one that you are forcing them to make.

Mr Lee: We aim to give them enough financial certainty that there will be no —.

Mr Honeyford: OK. That will happen in the next, what did you say — two months? Six weeks to two months?

Mr Lee: It is an ongoing conversation.

Mr Honeyford: OK. The universities mentioned to us, and this was in that letter, how they were unable to commit to the innovation bit in that city deal. Is there a risk there?

Mr Lee: If the bid to the Executive for additional funding is unsuccessful, the universities and the institutions will certainly have to make some difficult decisions that involve looking at student numbers, city deal projects and the other projects that they run. They will have to decide what is affordable within the budget that they have.

Mr Honeyford: What happens if that risk comes and they do not proceed with those projects?

Mr Lee: Our focus is on working with them really closely to see how we can ensure that those city deals, for instance, continue. We in the Department are really committed to those. We will look at how we can support the universities in finding additional revenue streams or a different way of doing a project to make sure that it happens.

Mr Honeyford: Let me go back. This is the last point that I will pick up on. Provision for the employment regulations and the levels has more than doubled. Provision for the entrepreneurship bit has doubled. Sorry, I will take the first bit first: provision for the employment regulations has doubled. Can you explain why?

Ms Park: The majority of the employment regulations element is for HMRC costs, and that is for the updates that need to be done on the HMRC system for the parental bereavement and miscarriage leave changes in the policy. HMRC's system needs to be updated in order to make those payments where there has been the deviation and to be able to capture what the impact of those payments are for the region, because we will be charged accordingly for them.

Mr Honeyford: Is the entrepreneurship, innovation and economic strategy also included?

Ms Park: That is mainly to do with the £5 million regional fund, which is included in that.

Mr Honeyford: That is useful. Thank you.

Mr Buckley: Keeping for the present with the theme of universities, are you aware of any correspondence from the universities with the Minister post her decision that she would not raise university fees in line with inflation?

Mr Lee: No, not on that issue. More broadly, I do not think that I have seen anything else.

Mr Buckley: Obviously, the universities were very clear about what the impact would be if fees did not rise in line with inflation. Has there been no communication with the universities, post the Minister's decision?

Mr Lee: I was speaking to Queen's University and Ulster University yesterday. There has been no correspondence to the Minister.

Mr Buckley: How did the Minister communicate to the universities her decision not to raise fees in line with inflation?

Mr Lee: I think that there was a phone call to them, but it was not one that I was part of.

Mr Buckley: OK. That is fair enough.

You talk in your submission about the June monitoring allocations. Is the £8 million that has been earmarked for allocation for skills inclusive of FE student support?

Ms Park: Yes. Some £4·7 million of that earmarked element for the skills and education group, which is the £8 million, was allocated to FE, and £3·3 million is against the apprenticeships, vocational education and skills line.

Mr Buckley: OK. Is there any more detail on the skills line in particular? Obviously, it is one of the more significant pieces in the June monitoring round.

Ms Park: Sorry, do you mean the individual line for apprenticeships, vocational education and skills? That is to cover apprenticeship, Skills for Life and Work, traineeships, the flexible skills fund, Assured Skills, InnovateUs — all those skills programmes.

Mr Buckley: Is the rise in departmental salaries purely to take account of the National Insurance increase?

Ms Park: It is for National Insurance, the 2024-25 uplift of 3% and what was the projected agreed uplift of 6% from August, which is now inescapable because it has been agreed.

Mr Buckley: What did you suggest that the Windsor framework and protocol cost would be?

Ms Park: It is £2 million.

Mr Buckley: Do you have a comparative figure covering the past five years since that came into effect?

Ms Park: We could get you the relative figure. Do you want it at the total level or at the Treasury level? Treasury has about five different categories.

Mr Buckley: If it could be broken down per Department, that would be perfect.

Ms Park: OK.

The Chairperson (Mr Brett): None of our colleagues who are online wants to ask a question, so I will go back to one point. I want to try to get clarity on the higher education stuff. Mark, when was the Department first aware of its ongoing pressures in relation to that sector?

Mr Lee: Do you mean the financial pressures?

The Chairperson (Mr Brett): Yes.

Mr Lee: We have been carrying a significant pressure since, I think, 2023.

Ms Park: Since 2023-24.

Mr Lee: It has been since the Budget that the Secretary of State set was announced. There has been a difficult pressure each year. I think that the Minister set some initial allocations. I cannot remember the exact timing of those, but we certainly would have had conversations with the institutions at the point when we knew what this year's budget was shaping up to be.

Ms Park: We would have had the draft Budget, which would have been around January or February.

The Chairperson (Mr Brett): I am just trying to understand why the Minister wrote to Executive colleagues only last week about the issues that universities face. She has known about those issues since taking office. Was last week's letter a result of public pressure that the Opposition put on her to rule out raising fees? Why did she write to Executive colleagues only last week to say, "Sorry, not my problem, guv. The Executive now need to take it on"?

Ms Park: It is worth noting that the Minister submitted bids in the 2024-25 financial year for the deficit. I made reference to the £1·5 million that the Department received in late February this year, which was not rolled forward into the allocation that we received for the 2025-26 financial year. The Minister —.

The Chairperson (Mr Brett): Who was the Finance Minister who made that decision?

Ms Park: For the allocation of the £1·5 million?

The Chairperson (Mr Brett): Yes. It was the current Economy Minister, so she would have been aware of the problems that were being faced and of the allocations. It looks very strange that the Committee is expected to give detail on the Estimates next week and to vote on the Second Stage of the Budget Bill, but that, as members, we cannot tell our constituents how many university places there will be or whether there will be more or fewer. The answer is that it is an ongoing conversation and that the Minister has written to her Executive colleagues. That places the Committee in a very difficult position. However, I understand that you, as officials, have worked very hard, and that you have been placed in a very difficult position.

On behalf of the Committee, I thank you very much for your work. There are probably a couple of pieces of additional information that we will try to pick up with you and about which we will write to you, if you are happy enough with that. Thank you so much for your time.

Ms Park: Thank you for your time.