Official Report: Minutes of Evidence

The Chairperson (Mr O'Toole): I am really pleased to welcome from the Fiscal Council Professor Alan Barrett and Jonathan McAdams, who is the chief of staff. We are really delighted to have you both here. Members should have a hard copy of the Fiscal Council document in their packs. It is very refreshing to get hard copies. They serve a purpose. It is 2026, and, for a variety of reasons, we should not print things for the sake of it. The Department told us that it would provide us with a finite number of spring Supplementary Estimates documents in order to help us to do our scrutiny, but it did not. The Fiscal Council, despite being a much smaller team, has been able to get us hard copies of the report, which is welcome. I do not want trees to come down unnecessarily, but a finite number of copies for members helps them to do their job, including in a session such as this. I just wanted to make that slightly pedantic point.

There is an additional document in members' packs from the Department of Health entitled 'Health and Social Care NI Reset Plan'. It is relevant to some of what we are discussing today. Thank you very much, Professor Barrett and Mr McAdams. Would you like to make an opening statement?

Professor Alan Barrett (Northern Ireland Fiscal Council): Yes, we have an opening statement. Chair and members, thanks for the invitation to speak about the Fiscal Council's assessment of the Finance Minister's proposed multi-year Budget for 2026-27, 2028-29 and for capital for 2029-2030.

Unfortunately, Sir Robert, who is our chair, Maureen O'Reilly and Dr Esmond Birnie are unable to be present today due to other commitments, but Jonathan and I are delighted to be here. You will be aware that the council's statutory role is to provide independent scrutiny of the Executive's funding and spending plans and, in particular, to assess whether the Budget, as required by law, balances.

The proposed Budget is significant. If agreed, it will be the first multi-year Budget in Northern Ireland for more than a decade. The spending review at Westminster and the restoration of devolved institutions have created the necessary conditions for a multi-year approach. That offers an opportunity for long-term planning. However, the starting point is unusually difficult. One of the clearest indications of the level of difficulty is the recurrence of overspending. The Executive overspent in 2022-23, and, in the two years that followed, overspending was avoided only because of exceptional financial support from the Treasury. In the current year — 2025-26 — Health and Education together are projected to overspend by around £450 million.

Over the past four years, a combination of the financial package for the restoration of the Executive and exceptional Treasury interventions has helped to balance the books each year. This year, there is £520 million of additional funding through the financial package and a £400 million loan from the Treasury reserve, which is repayable over the next three years. That loan has softened what would otherwise have been a very sharp fall in real-terms spending next year, especially given the withdrawal of the £520 million of restoration package support that applied in 2024-25 and 2025-26. However, reserve claim funding has not removed the cliff edge entirely.

The 2026-27 position reflects three overlapping pressures, which are core to the analysis that we are presenting: the end of the temporary support; the first year of overspend recovery; and new Executive commitments made late in 2025 that have further reduced the headroom available for allocation. As a result, 2026-27 remains the most challenging year of the Budget period.

Treasury support has been provided without conditions, although the Executive have agreed to "an open-book review" by the Treasury. The format that that review will take is yet to be seen, and the Treasury and Executive are likely to have different expectations of the outcome of that exercise. However, the requirements to be met for extra funding appear to be a relatively mild form of conditionality. In practice, the interventions operate as de facto short-term bailouts. The combined actions of the Executive and the Treasury risk normalising overspending, weakening fiscal discipline and embedding behaviours that make it harder to return to a sustainable path. In addition, repeated bailouts can dull the Executive's incentive to take difficult fiscal decisions on revenue, the size of the public-sector workforce and the sustainability of pay parity with Great Britain. Bailouts can also reduce the incentive to innovate in the delivery of public services and to achieve transformation. Our role is not to judge those choices but to highlight that the choices are there and need to be made.

The draft Budget balanced when it was brought forward by the Finance Minister, but he recognised that some level of cut would be needed to deal with the overspend and subsequent repayment. Treasury has agreed to spread the repayment of the £400 million reserve claim over the three years: £80 million in 2026-27, and £126 million in each of the following two years. Once those deductions are applied, the underlying funding position becomes materially tighter than the headline figures suggest, and the spending plans will now need to be reduced to bring them into line with the total available funding.

The draft Budget will also come under pressure depending on Ministers' decisions on future pay awards, including the extent to which they pursue pay parity with Great Britain. The interaction between pay parity, workforce scale and Barnett-based funding is a key structural driver of fiscal pressure. The Barnett formula increases funding in line with population rather than workforce size, so matching pay awards agreed in England creates a recurring gap between the cost of pay parity here and the funding available to support it, assuming that staff are initially paid the same amount. That funding pressure intensified as Northern Ireland's relative funding premium fell towards its assessed need.

Next year's pressure falls most sharply on Health and Education. Both Departments contributed most to this year's overspend, both begin 2026-27 with baselines below their current spending levels, and both must absorb part of the overspend recovery. In those starting assumptions, there is a high likelihood that overspend pressures will re-emerge in 2026-27, even before further pay awards or demand pressures are considered.

More broadly, the draft Budget largely rolls forward existing allocations. After meeting Executive commitments and earmarked items, there is very limited unallocated headroom. That results in a Budget that is largely politically neutral in its distributional choices, rather than one that reflects significant strategic reprioritisation or service transformation.

On capital, the Executive's flexibility is similarly constrained. Much of the capital Budget is pre-committed to existing projects, including major schemes such as the A5 and significant waste water investment. In real terms, the capital envelope decreases by around 7% over the Budget period. Financial transactions capital (FTC) increases, but it remains difficult to deploy effectively because of its narrow permitted uses.

The political context also shapes delivery. The draft Budget was published without Executive agreement, and Ministers from several parties have already questioned the feasibility of the proposed allocations. Whether a final Budget can be agreed in time for the start of the financial year remains uncertain. That uncertainty adds fiscal and practical risk.

Taken together, those factors underpin the council's assessment that, while the draft Budget balances ex ante, it is unlikely to unfold as presented ex post. The figures should be read as indicative rather than deliverable, given the scale of overspend recovery, the structural pressures associated with pay and the absence of new funding.

In closing, without significant service transformation, additional local revenue or a material improvement in the funding settlement, the Budget is unlikely to remain sustainable over the period, even if it can be balanced on paper at the start of the year.

With that, Jonathan and I are happy to take questions.

The Chairperson (Mr O'Toole): Thank you very much, Professor Barrett, and thank you, Jonathan, for coming. Last week, we heard evidence from a number of external bodies, one of which was Pivotal, which is a newish think tank. The director of Pivotal said that, based on some numbers that she had done — I am not trying to get you to second-guess her, or to mark homework that we do not even have in writing — she calculated that, next year, and not even at the end of the financial period, there could be a pressure of between £800 million and £1 billion. Does that number seem reasonable to you? You said that the baseline for next year, particularly for Health and Education, will start below where the out-turn will be for this year. We know about the repayments of the reserve claim. Does that £1 billion figure seem roughly plausible to you?

Professor Barrett: It seems plausible mathematically, if you were to combine where we are at the moment and anticipated pressures. My only fear about saying that that is highly likely or whatever is that, at a certain point, it could become a self-fulfilling prophecy. You could say to a group of people, "You are probably going to overspend", but one of the issues that is now coming to light is the entire environment and incentive structure that the Executive are operating in. If you do a straightforward projection, you can certainly see where that sort of figure comes from mathematically, but that is my one reservation about, in a sense, endorsing the number.

The Chairperson (Mr O'Toole): OK, so, it is mathematically possible. You do not think that it is mathematically fanciful. On the incentive structure, you talked about de facto bailouts and, effectively, the sense that we are in a cycle. In my other role here, I have, somewhat flippantly but in order to paint a picture, used the phrase "non-stop balance transfer". There is an amount that is an overspend, which some people call a black hole. I do not like that phrase. Some of it is a product of our devolved spending model or devolved funding model. Do you believe that there is a behavioural challenge with some Departments, which profile in too much spending, or is it simply that we do not have enough money to meet what are, at a political level, very reasonable pay claims?

Professor Barrett: I am going to take a little step back before we get into the details, because there is a contextual point that is important. You have before you hard copies of our report on the proposed Budget. It contains a picture that throws a huge amount of light on a difficulty. It shows the Northern Ireland spending premium, going back to 2016. There is a dash line going through the chart that shows the famous 124% uplift factor. The chart has light-shaded yellows, dark-shaded yellows, light-shaded blues and dark-shaded blues. The light-shaded colours depict the money that came through Barnett allocations, and the darker colours depict various top-ups — non-Barnett allocations. What jumps out at me is that, for a considerable period of time, the spending pressures in Northern Ireland that relate to Barnett were disguised by those top-ups that happened periodically. Again, everybody in this room understands where those top-ups came from, the nature of them and everything like that.

To draw on a parallel from Dublin, where I am based, one of the great mistakes that we made in the run-up to the great financial crisis was that we generated permanent spending on the basis of what ultimately turned out to be temporary revenue flows. One of the great challenges in Northern Ireland now is that, although spending was instigated on the basis of the additions to Barnett that were given — again, everybody understands where they came from — that funding has reduced over time. Of course, what was supposed to solve the problem was the movement from the ad hoc add-ons to the system of funding at 124% as a needs-based top-up. However, that picture shows that, for most of that period, Northern Ireland was operating at a level of funding that was substantially above that.

The Chairperson (Mr O'Toole): Above 124%.

Professor Barrett: Exactly. It would be very difficult for any organisation in the world that is used to a particular level of funding to maintain what it is doing if that funding were to drop off over time. A historical structural problem has built up. The Fiscal Council inputted quite substantially into the calculation of the figure of 124%, which was supposed to reflect need. There was an understanding that, over time, Barnett would result in a situation where funding per head would converge with funding for the rest of the UK or with England, and so the needs-based figure would be there to, in a sense, insulate Northern Ireland. The historical difficulty is that spending was based on funding that, ultimately, proved to be transitory.

Your question, Chair, was about the difficulty from here on. The likelihood is that there are two things going on. Accepting that any Administration in the world would be under pressure to deal with that drop in funding over time, it could well be the case that 124% is not a sufficient top-up to fund Northern Ireland. Maybe more funding is needed, and maybe there is poor financial management as well, with inefficiencies.

The likelihood probably lies between those two things. Again, as in life, that is normally where things end up.

The behavioural issue that we are now worried about is the idea that, in any organisation in any part of the world, if there is a feeling that your Budget constraint is not really a Budget constraint, there is a likelihood that that spending will drift. Again, if I draw on my experience in Dublin, the Dublin Government have been overspending for at least the past six, seven or eight years. Their good fortune has been that tax revenue has been sufficiently buoyant to fund that overspending. Almost every year, however, there is an initial guide on what expenditure is going to be, and, over the past five, six or seven years, expenditure has grown. That is related to the issue that, if the Budget constraint is weak, people behave accordingly. In Northern Ireland, if there is a perception that that can keep going, it reduces the incentive to ensure that —.

The Chairperson (Mr O'Toole): Is there a "boy who cried wolf" effect, where some of the commentary at the start of the financial year is, "This is going to be a really tight financial year", and it is, and then people see that money is found and pressures are dealt with? Obviously, that is better than the alternative, but, for accounting officers and, indeed, Ministers, it probably incentivises the spending's being profiled, whether as a really urgent and inescapable pressure, such as a pay claim, or perhaps as something that a Finance Minister envisages — yesterday, for instance, the Finance Minister talked about shroud-waving — being programmed in as a spending pressure that might, in another world, be interrogated a bit more seriously. I have mixed my metaphors, between the boy who cried wolf and the shroud-waving.

Professor Barrett: I will make one more point, and then Jonathan may want to come in. People normally use the phrase "the boy who cried wolf" when they are objecting to somebody's behaviour. However, were I a Minister in the Executive, and I thought that, annually, the Treasury was going to let me away with it, there is a certain point at which it is rational behaviour for me to feel that, ultimately, there will be a bailout of some sort. If you are hoping every year that something will come through, that does not lend itself to careful budgetary management. It is not a very constructive way in which to do Budget management. One of the issues that the council has discussed is that there is, perhaps, an unusual Treasury reaction. Most Treasuries around the world tend to be the tough guys when it comes to spending, and they come down very hard on that. However, there seems to be a degree of facilitation here, and that is the point at which you have to ask whether that is a partially rational response on the part of the Executive.

Esmond Birnie is not here — he talked about this yesterday when we did the launch — but he would say that the sort of overspending that we are seeing now would have been considered culturally totally unacceptable and an almost borderline resigning issue a number of years ago, be it for Ministers, permanent secretaries or whomever. However, there seems to have been a cultural drift over time; those things are not now seen to be as bad.

Do you want to chip in, Jonathan?

Jonathan McAdams (Northern Ireland Fiscal Council): Yes, I will chip in on that one. I know what you meant, Chair, when you used the phrase "the boy who cried wolf". Every Treasury, budget-holder or Department will say, "It's going to be really tight. Everybody needs to manage their spend", but, if we look at that chart, we see that, during that period, the Budget came in on budget every year. There were projected overspends or overcommitments, but that is part of normal budgeting behaviour, because things might not be spent as quickly as you would expect. During that period, the Budget came in on budget. However, there has been a qualitative shift over the past four or five years with the overspending, where the usual methods that used to get Departments back in under budget towards the end of the year are no longer functioning. We are no longer seeing that kind of behaviour and that discipline. I am not saying that they have become less disciplined; I mean that whatever they were doing in the past is now no longer cutting it. There is a little bit of crying wolf — that is normal where there are Budget overcommitments and that sort of thing — but things have changed in the past few years.

The Chairperson (Mr O'Toole): What behaviours have changed? You may not be able to say, or you may not know because the behaviours in Departments may not be entirely visible.

Mr McAdams: I do not think that behaviours in budget management have changed. As Professor Barrett and Dr Birnie said, the incentives have changed, and maybe that is changing behaviours. However, what I am getting at is that, in the past, there were tools whereby you could slow down spend in Departments, and that would allow you to come back in under budget. I do not think that those tools are strong enough for the environment where we see funding much closer to 124%. Those tools worked when there was a bigger margin, but I do not think that they are enough now. We are now seeing that those traditional or normalised behaviours are not sufficient to deal with the scale of the challenge now and in the future. Maybe what we need to see now is more transformation. That was not as necessary to come in under budget in the past, when the budget was more generous per head than it is now.

The Chairperson (Mr O'Toole): OK. Chart 3.2 is about changes in real resource departmental expenditure limit (RDEL) during Budget years. It makes the point that spending was constrained by London, whether one terms it "austerity" or "fiscal restraint". We talk a lot about the needs-based formula here, but sometimes we forget that the needs-based formula will only ever be a product of spending decisions in GB that are made by the UK Government. That is a very useful chart in showing that there was a period, certainly after 2010, when spending generally was constrained. There was constrained growth in the block grant, with the exception of the COVID years, when there was a dramatic upsurge in spending, as there was everywhere.

When the relative squeeze in real RDEL spending, which is what we see in chart 3.2, is combined with what you say in box 1 on page 34 about being much closer at the start of the year to the 124% level and struggling to get above it, and with inflation and the very rightful and understandable demand for increased pay, that is a combination of things that, understood together, creates a very particular structural problem. I do not know whether that is —.

Professor Barrett: That is a reasonable point. If the goal of the Barnett formula is, in a sense, to maintain public services at the level that exists in England, it does that. If you are implicitly making the argument that there was not enough funding in England to bring public services up to the level that was expected, you are right.

The Chairperson (Mr O'Toole): The need formula will never do that, if your view is that not enough is being spent.

Before I bring in other members, I will go back to the question about transformation. When the restoration package happened, there was a lot of discussion about two things: transformation and revenue raising. What has happened on both of those things has been underwhelming, to put it mildly. That is not to say that good work is not going on in the public-sector transformation board, but, scaled up, I understood that to be about transforming how we deliver public services and spend money. The work on transformation and revenue raising has felt relatively marginal. Is that unfair?

Professor Barrett: I am not in a position to judge on the details of transformation, but I will make a broader point. Curiously, transformation tends to happen when budgets are really tight, rather than when they are really loose. If you look at public Administrations across the world, you see that the most dramatic changes have happened when they have been under severe pressure. I am guessing that it is probably the same in a lot of public- or private-sector organisations. We talked about incentives and the facilitation of overruns. We were kind of theorising, as if to say, "Well, when budget constraint is not really severe, it takes the edge off the requirement and the ambition to do transformation".

It has also been suggested to us — I will put it out there — that transformation budgets have not always been used for genuinely transformative purposes and that, sometimes, when there are spending challenges, they can leak into —

The Chairperson (Mr O'Toole): Daily spending.

Professor Barrett: — mainstream stuff. That might or might not be true. Transformation is also difficult. Although it is a trivial thing to say, people may have great ideas, but a lot of them will not be implemented. Very often, the transformation is way more difficult to achieve. It goes back to the point that I made earlier: across the world, dramatic transformation tends to happen when people have no choice. When people talk about transformation in public services, they are, very often, talking about productivity improvements in public services and doing more with less and those sorts of things. That tends to happen when people are forced into situations.

The Chairperson (Mr O'Toole): One might mischievously say that, unfortunately, our political system does not force a disincentive for not transforming, even when transformation needs to happen.

I have one more question before I bring in the Deputy Chair. You mentioned the reinvestment and reform initiative (RRI). There is a bit of headroom in what we could still draw down from the stock of RRI. I think that I am right in saying that. That is a particular point that you note.

Mr McAdams: Yes, that is fair. The constraint that bites at the moment is not the overall limit on how much the Executive can borrow but the annual limit on how much they can draw down in any given year. That said, there is a balance there, because, obviously, the repayments are on the resource side. That is a factor that you have to think about in the Budget, because most of the constraints that Departments are facing at the moment seem to be on the resource side rather than on the capital side. Therefore, the additional RRI borrowing has to be balanced in that way.

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

Ms Forsythe: Thank you for coming. I appreciate the hard copy of the report and the independent review of the finances. Overall, given your findings, is Northern Ireland's fiscal challenge fundamentally about insufficient funding, inefficient spending or economic underperformance?

Professor Barrett: I do not think that it is about economic underperformance. Northern Ireland is unusual in the sense that if it turns itself into the most productive place in the world, in the morning, the taxes will go to the UK Government and the operation of the Barnett formula. It is different from a nation state where all the tax revenue stays. Therefore, that is not the reason for the challenge.

You are back to the other two suspects, if I can put it like that: underfunding relative to need and mismanagement. In truth, it is difficult to judge the truth of those. I go back to the needs-based assessment that the Fiscal Council worked on. We were building on work that had been done by Professor Gerry Holtham for Wales, for instance. It is perfectly reasonable to assert that, if you look at Northern Ireland's age structure, socio-economics and rural structure, you will see a range of factors that lead to the sense that the delivery of public services in Northern Ireland will cost more than what they cost in England. Estimating the additional need precisely is a very tricky thing to do, and it is an inexact science. However, there is a sense of, "We did it". A number of people looked at it, and the figure landed at 124%.

I had to step off the Fiscal Council for a number of months due to work pressures. I stepped off around the time that the 124% had become part of the fiscal structure. I stepped back, thinking that we, the Fiscal Council, had solved all of Northern Ireland's problems, that a nirvana had arrived and that that was it. When I came back on to the Fiscal Council about 10 months later, it came as a bit of a shock to find out that things were just as bad. Therefore, there is that question: maybe the 124% is not enough, and maybe there genuinely is an underfunding issue. That could well be the case.

The Fiscal Council carried out detailed work. We looked at the health system a number of years ago. Jonathan, you might remember the precise details. There was evidence of inefficiencies in the health system, relative to that in England. For example, I remember that there were findings about the speed of discharge: for fairly standard procedures, people seemed to spend longer in hospital in Northern Ireland than they did elsewhere. You can pick up indicators, but, even there, they are not definitive. It can still be the case that it will take longer, for example, to discharge patients with more-complex needs. No matter how much you interrogate such things, it is always possible to look sympathetically, if I can put it like that, at why spending might be higher and the extent to which that is the result of mismanagement.

What I am saying is that it is unclear. It is probably a bit of both. Ideally, something like the open-book exercise, or whatever it is called, should be about an external group of people interrogating those things deeply. We have no understanding of what that exercise is about, so it is hard to be convinced that it will play that sort of role. However, at this stage, it would be valuable for somebody to do that sort of deep dive, accepting that it is a complicated thing to do because, for the reasons that I have just given, it can be difficult to decide whether something is more costly in a particular jurisdiction or whether it is a question of mismanagement.

Jonathan, do you want to add anything? Apologies if I was rambling.

Mr McAdams: I may introduce an additional suspect to the mystery. The thing about the 124% is that it provides NI with enough funding, in theory, to have exactly the same services as there are in England at the same level of efficiency. However, if you have super-parity in some areas, where Northern Ireland is more generous, something has to give somewhere else in the system. At that time, the figures from the Fiscal Commission showed that it had identified around £700 million of super-parities, which means that NI must be funding that cost somewhere else. Where is that happening? In the health service waiting lists and in other places, we are seeing that there is a cost to super-parities.

One of the super-parities that we talk about in the report is pay. If you are getting paid for this and you decide to do that as well, you have to take something from somewhere else. Pay parity is another place where NI has more than 124% of the cost of public service in England. That is somewhere where we are de facto making savings somewhere else. It is not necessarily about inefficiency; we may be taking money out of public services in order to put it into pay.

Ms Forsythe: Thank you.

On page 8 of your report, you mention conventional capital DEL. You refer to the constraints of:

With approximately £200 million having been spent on the A5, there is no land in DFI ownership, and no roads have been built. Does the Fiscal Council have a view on how the Executive should approach infrastructure spending?

Professor Barrett: We have not gone into that micro level of detail, so I am reluctant to comment.

Mr McAdams: No. As you know, we had intended to publish a report on infrastructure. It morphed into our water report. However, we would like to return to that subject at some point, although probably not in the next year.

Professor Barrett: The bigger issue is the ongoing lack, as I understand it, of an investment strategy. Increasingly, across the world, there is an understanding that good public infrastructure is a really important input into private-sector productivity. That means a whole host of things: roads, waste water treatment, housing — all of the above. You can waste an awful lot of money in infrastructural investment if the bits are not joined up. It needs to be thought about in an integrated way. In a sense, our bigger concern is that you have infrastructure spending and an infrastructure budget, but it does not seem to be backed by a strategy and vision for exactly what is to be achieved. It is the macro level that we have thought about, not — apologies — the micro level that you mentioned.

Ms Forsythe: I look forward to that report coming out next.

Finally, do you see merit in pursuing benefit fraud and error and the recovery of that funding back into Northern Ireland?

Professor Barrett: It is always and everywhere a good thing to go after benefit fraud. From a Northern Ireland perspective, if there is that arrangement, it would be an even better thing for you to be entitled to hold on to some of the money if you make the effort to recover it. In my experience of looking at those sorts of things, there tends to be way less fraud than people think. I might be totally wrong on the specifics of Northern Ireland, and you are much better qualified to talk about that than I am, but I have seen a range of examples. The vast majority of people on benefits in a whole range of places are on benefits for good reason. It may be different here, but I would be amazed if it turned out to be as dramatic as people might think.

Ms Forsythe: Some cases have come through with quite intentional fraud. We have seen examples being identified and clear. We want to see the benefits system operate in such a way as to benefit those who are most in need, which is what it is designed to do. Those who set out to intentionally defraud the system are taking money that could be redistributed to people in need. Where people intentionally set out to do that, do you agree that there is merit in recouping the money?

Professor Barrett: When it comes to individual cases, that is absolutely the case. From a macro budgetary perspective, when people start to talk about the savings that could be accrued and the impact that they would have, the figures tend to disappoint. When it comes to the actual individuals, you are quite right.

The Chairperson (Mr O'Toole): I am conscious that, speaking of infrastructure, Professor Barrett needs to get a train. I do not want to —.

Professor Barrett: The great thing is that, because there are now hourly trains, I can [Inaudible.]

The Chairperson (Mr O'Toole): Yes, very good. They are very comfortable.

Dr Aiken: Thank you very much, Alan and Jonathan, for the report. I wish that we had had it yesterday, so that we could have looked at it in more detail to inform our discussions.

I have four distinct points to discuss, but I will go through the report. On page 7, you say that Treasury figures from the spending review currently project that, if we cross the threshold of 124·05%:

Is that a very clever Treasury brake that has been introduced to make sure that we do not overspend on our 124·05%?

My second question is on FTC. The Finance Minister has told us that the financial transactions capital is going to go to a particular project, which, I think, is Casement Park. It is being treated in such a way that he says we do not have to pay back the money. I have never been able to find anything that clearly says where the Treasury has agreed to that. My understanding, based on the Treasury framework, is that repayable loans or equity investment have to come from an organisation outside of central government. What are your views on FTC and where it is going?

The Chairperson (Mr O'Toole): It might be easier to take your questions in turn, as they are quite detailed, unless the witnesses are happy to take them all in one go?

Professor Barrett: We are divvying them up here anyway.

The Chairperson (Mr O'Toole): OK, go ahead, Steve. That is fine.

Dr Aiken: Put it this way: I know Alan very well, and I know Jonathan. I do not think that they will have any difficulty in divvying the questions up and giving the answers.

My other question was on the public-sector workforce. I found a figure on page 60 to be quite startling. It says that the Northern Ireland Civil Service:

Might you put a wee bit more detail to that? I know that Jonathan was particularly interested in that area.

Finally, I do not think that your four summary points on page 65 could be any clearer. They make very clear the difficult choices that are ahead of us. Well done on the report. It reads very well and adds a lot of clarity. Over to you, team.

Professor Barrett: Jonathan, do you want to kick things off?

Mr McAdams: I will kick things off with the transitional rate question. There is a little box on page 34, which goes into that in a bit more detail. It is about the switch when the additional 24% is turned off. I think that the crux of the question is about why we have the arrangement that we have. It is modelled on the fiscal framework for Wales. Wales's need was 115%, and the Treasury said, "OK, whenever you're below, you'll get the 115%, but even when you're above, we still want to give you something". Maybe it did not say it exactly like that, but in order to stop it from being quite such a rapid acceleration downwards towards the convergence of 100%, the extra 5% cushions the fall slightly. It smoothes it out a little, so is a bit like a parachute when coming back down towards need.

That is where it comes from, and it is modelled almost exactly on the Welsh fiscal framework. We did suggest other options at the time because the 5% extra — the 105% — is a third of Wales's 115% additional need, so it needs an extra 15% and it gets 5% when it is above. We suggested that maybe Northern Ireland should get a larger percentage than 5% to reflect a third of the 24%. We had other models, but that is, effectively, a copy of the Welsh fiscal framework.

Dr Aiken: Would it be right to say that it is a safeguard and a bit of a brake?

Mr McAdams: Yes. It prevents continuous upward growth in spend.

Dr Aiken: Yes, that is what I thought.

McAdams: Your second question was about FTC for Casement Park, and no repayment. I am not 100% sure on this, so I could be wrong, but I think that the FTC for Casement is additional FTC. It is non-Barnett additional FTC —

The Chairperson (Mr O'Toole): Yes, it is separate.

Mr McAdams: — so it is, if you like, not constrained by exactly the same set of rules as regular FTC. In the case of regular FTC, you are right: it can be provided only to a private company or a market entity. It has to be outside Government, so universities can qualify and have qualified for it in the past, but it is an equity stake or is repayable. However, I am not sure about the Casement arrangements and why and how they might be different.

Professor Barrett: I will take the question on Civil Service numbers. Steve, you are absolutely right, of course. On page 60, we state:

The opening sentence of the next paragraph is us being a little bit more cautious, when we state:

Dr Aiken: I understood the caution when I read that. I read the notes carefully when I looked at it. The stark thing that stood out to me was the 183%. Different policing arrangements will have something to do with it. There is a useful bar chart on the next page that helps a lot, but that figure really stood out.

Professor Barrett: It stood out for us as well. There are two things. If you take the figure as is, and let us not get into the rights and wrongs of it, mathematically it backs up the point that if Northern Ireland is going to achieve pay parity, the Barnett formula does not operate in such a way as to provide sufficient funding to match all that. It is a mathematical point before we get into the detail.

We raised the caution because we did not want to be unfair to civil servants and give the impression that two people are doing the job of one. It is probably more complicated than that, but it does suggest that there would be real value in having a deep dive into those issues. No matter what happens, that is one of the binding concerns that takes us back to the issue of the pressures. The pay issue, and the desire to match pay increases in England, all else being equal given the size of public sector relative to England, is just going to create additional squeezes.

Mr McAdams: I would like to add one reinforcement to that. There might be really good reasons for all the additions on all the bar charts. That is not a bar chart about whether it is sensible or not. The chart is about whether it is affordable or not. There could be groups above the 124% and some below that level. On average, however, Northern Ireland can afford 124% with the Barnett consequentials, and you can see that all staff groups are above that level, so that is just not affordable. There might be very good reasons for it but pay parity is not affordable unless there is an equivalent number of staff, and our number of staff, relative to that in England, is much more than 124%.

Dr Aiken: The four final summary points in the paper are clear, and they are a good horizon scan for the future. Every MLA and public servant in Northern Ireland should read those carefully.

The Chairperson (Mr O'Toole): Thanks, Steve. The Department has told the Committee that when there is political agreement on how the Casement Park project will proceed, there will be an equity stake by FTC, but we are still waiting on further political agreement and developments.

Mr Kingston: Thank you for your attendance. At a time when we are deliberating on the Fiscal Council Bill, thank you for reminding us that the Fiscal Council exists, although the Bill will formally establish it.

The Chairperson (Mr O'Toole): We do not need a reminder in this Committee.

Mr Kingston: Indeed.

The Chairperson (Mr O'Toole): We are enthusiastic customers.

Mr Kingston: We often talk about that entity, and your report is a good example of the Fiscal Council's value as an independent entity that can provide, hopefully, an unrestricted view. Many of the people who come to the Committee have other interests. Hopefully, you set aside other interests so that an honest assessment and analysis can be made. I look forward to reading your report in more detail; I only had the time to skim through it.

It is no surprise that no Executive Minister, other than the Finance Minister, has committed to the multi-year Budget. It will result in overspends, and we have become used to that. Your report states that there is a "danger of normalising" overspends. What are the key issues that need to be addressed? We can try to increase income in other ways and bring about efficiencies. You have talked about the transformation fund and said, equally, that no glaring transformation stands out. What is your key advice to the Executive if the aim is to live within budget, which it must be?

Professor Barrett: That is an interesting question, and I now feel like a politician. Can I answer the question in a slightly different way? If I had supreme power rather than just the ability to talk to the Executive, I would talk to the Treasury. The Treasury is the only authority that can alter the behaviour of overspending. If the Treasury says no, and an organisation does not have the money, bluntly, the overspending is cured. The implications of that might be quite severe, but if you do not have the money, you do not overspend. As I said in response to the Chair's statement, I have a little bit of sympathy for Executive Ministers. Why would you not overspend if the money keeps coming in?

Jonathan and I talked about this in the taxi on the way here. One of the reactions to the report came from a colleague in the Institute for Fiscal Studies in London. Basically, he proposed that the Treasury agrees an arrangement for the next three years but has a credible strategy in place to grant assistance only to a certain point. The notion of the multi-annual Budget and its value is allowed, and the Executive can at least think in a three-year time frame. If you look at where spending per head has been, and where it has come down to, any organisation would have difficulty with that. Could there be a glide path where the Treasury can facilitate convergence on a level of funding over a period of time, on the basis that there will be no more bailouts after that point? It is about getting rationality into the system, rather than a partial reaction to overspends. It is destructive to rational budgeting and the genuine articulation of priorities and a strategic approach.

I know that your question was, "What should Executive Ministers be doing?" and that I have come at it from a slightly different perspective, but that, in a sense, is the missing link. I made the point that it is hard for us to understand the Treasury's role in this. As I said, Treasury officials are normally the tough guys on spending who do not facilitate those sorts of things. Anyway, that is where we are at.

Mr Kingston: That leads me to my next question. Do you see value in the open-book review, which is currently a short-term opportunity, becoming more long-term? You made the point that Treasury might say, "Here's our opportunity to have a proper look and identify where there could be savings". The Executive are saying to Treasury, "Here's your opportunity to see for yourself what we're telling you: that we are not being funded at the right level". Whatever the outcome of that, if Treasury has confidence or can at least see the reality of the situation for itself, do you see value in that exercise being longer-term?

Professor Barrett: Yes. There would be value in that for precisely the reasons that you gave. Wherever it lands or whatever it unearths, I am guessing that you will find, if you think about the two sides of the ledger, that there probably are areas about which a Treasury official will come in and say, "You could make savings in x, y and z. Those are the inefficiencies", as well as being areas about which they say, "We understand the pressures that you are under there". I can imagine that happening, so it is an opportunity. Without having the details of it, our worry about the open-book exercise, or whatever it is called, is that it is merely an add-on to give the impression that this is not a bailout without any conditions at all. We worry that a Treasury official felt the need to say, "We've got to do something here", and that exercise was written in as a result. As far as I am aware, there was a suggestion that that exercise will be done over the next month or something.

The Chairperson (Mr O'Toole): In the next fortnight I think; no?

The Committee Clerk: They are talking about completing it by mid-March, I think, Chair, which is weeks away rather than months.

Professor Barrett: I am looking at Jonathan here. As a council member, I read the secretariat drafts and comment on them and so on. I think back to our reports on health or on water infrastructure: it is phenomenally difficult to gather the data. You guys are much more familiar with this, but think about all the money that goes to all the health trusts and about what everybody does with that money. It is a totally unrealistic notion that, in three weeks, you could get on top of the Health budget and start making suggestions about how savings could be made — and that is just one Department. It has the potential to have value, but it has to be a serious exercise.

Mr Kingston: I want to take issue with the wording in your conclusion. It does not strike me as being correct, but, perhaps, that is just because of the way that it is worded. You state that:

It was not a Budget issue that led to the Executive collapsing; it was the refusal of the EU to renegotiate the Northern Ireland protocol. It is just the way that that is worded. It was not a Budget issue that led to the collapse.

We talk about monitoring rounds and reallocations of funding, as happened this year, particularly with the A4 and A5 capital budgets. Are there situations where we are using reallocated capital funding to cover revenue shortfalls in-year?

Mr McAdams: From my knowledge from when I was in Supply division, I do not think that Departments are allowed to reclassify from resource to capital.

Mr Kingston: Some of them are quite substantial capital amounts, including for the A5, which —.

The Chairperson (Mr O'Toole): You cannot just switch —.

Mr Kingston: I know that it should not happen, but I wonder —.

The Chairperson (Mr O'Toole): That is not allowed; that is fundamental.

Mr McAdams: Treasury approval would be needed to spend that, because it would move from being under one control total — the capital control total — to being under a resource control total, and Treasury would see that. That is not allowed. I cannot quite remember, but one way that you can switch is to do it with the Department of Finance having Treasury agreement. Switching the other way — from resource to capital — is more difficult. The voluntary exit scheme (VES) is an example of an exceptional situation where it was said, "Here's how we could use capital money in a different way", but Treasury approval is required to do that.

Dr Aiken: The VES went well, didn't it?

The Chairperson (Mr O'Toole): It is now such a point of fundamental theology in Budget controls that it would be difficult. I mean, we are having an entire debate about the local growth fund.

Mr Harvey: Alan, you said that you noted inefficiencies in delivery of healthcare in Northern Ireland compared with England. You will know that the Health Minister published a health reset plan. Have you reviewed that? Do you think that it will be able to achieve deliverable efficiencies?

Professor Barrett: We have not read the plan that you mention. The work that we did on health was one of our earliest reports. Under our remit, we are supposed to do at least two things every year: one is to look at the annual budget and talk about whether it balances; the other is to look at sustainability issues. In 2022, we did a health report. At that time, we worked with the Nuffield Trust to do a reasonable interrogation. That report led to some of the findings that I mentioned. To be clear, it was not that we were looking at wholesale, horrendous inefficiencies; it was just that there was evidence of scope for efficiencies in places. I am not in a position to comment on whether things have moved on since then. What I will say, going back to that international view, is that all health systems throughout the world are under tremendous pressure, and transformation in health systems tends to be terribly difficult. Therefore, I would be amazed if there is something going on that could be changed to solve all our issues. It is a very long-term strategy. I will, again, draw on the experience of the South. In 2017, your parallel colleagues on the Committee on Health in Leinster House came up with the Sláintecare proposal on the long-term direction of health. Progress is being made, but we are talking about it the guts of 10 years later. Progress and transformation in an area such as health have to be well thought out, but it is a long-term task. I will happily take a look, at some stage, at whatever plan is there.

Mr Harvey: That is OK. Thank you.

Miss Dolan: Thank you, both, for your report and your presentation. How do you think single-year Budgets have contributed to in-year overspends and reactive decision-making?

Professor Barrett: I am looking at Jonathan to see if he has —.

McAdams: All your overheads — contracts, staff and everything else — are fixed, so it is very difficult to find in-year savings there. Typically, to find savings in a one-year Budget, you stop money going out the door: grants, public services and the stuff that is probably most impactful on the outside but is the easiest to stop in the Department. A longer-term horizon of three years gives you a bit more time to ask, "Do we have all the right people in the right place? If we were looking to make savings, is there stuff that we could do?". You could not do any revenue-raising, for example, in-year, because you need to time to consult on revenue-raisng and implement it. The one-year Budgets have been a real constraint; a longer-term horizon gives Departments a lot more options for how they might balance the books.

Professor Barrett: I was struggling to answer the question. The longer-term view allows you to take a more strategic approach. It tends to improve outcomes over that longer period. Your question was slightly different, because it was about overspends in a specific period. I am not sure how close the relationship is between overspends and the duration of Budgets. However, as a general principle, the multi-annual approach is so much better — to draw parallels, that is the case in any organisation — because it gives you the flexibility of knowing that strategic things that you might try will be possible to do.

Mr McAdams: Someone game me an example that has stuck with me. Apologies if it is not appropriate, but it is not inappropriate. I do not know whether any of you are independently wealthy, in which case you could easily do this. If you had to give me £10,000 before I left the room, that might drive you to make some decisions that would be less than the best possible decisions. However, if I said, you have to give me £10,000 in three years' time, you could start setting money aside, and you would not have to sell a kidney or whatever. This may be telling you more about my financial position than —. [Laughter.]

The Chairperson (Mr O'Toole): This may be the wrong week to ask that question of MLAs, Jonathan. Too soon [Laughter.]

Mr McAdams: The time frame forces on the organisation a set of options that are not the best options or the options that it would look at if it had three years or a different period in which to do so.

Miss Dolan: Thank you. That is a really good way of putting it: selling kidneys. Thank you.

Miss Hargey: Thanks very much for your presentation. You touched on persistent deficits and the whole issue of need and inefficiencies. We all recognise that, in parts of the system, particularly health, which you highlighted, there are inefficiencies that need to be addressed. However, inequality and how it impacts on productivity is not always brought to the fore in the same way, particularly when peoples start to look at revenue-raising and so on.

We heard evidence last week about how the Budget is set and the constraints here. It is not like-for-like with England, given the lasting impact of the legacy of conflict and the political discrimination of the past. Is that articulated as part of the needs-based formula? Do you think that that needs to be addressed again? There is huge regional disparity even in productivity. When you match productivity in the north-west to recent mortality rate figures for that area, it tells a story of inequality and poverty. Do you believe that the needs-based model needs to look at those issues in a bit more detail? It is always concerning when people are demonised in the benefit system. We need to understand, as you said, who is in receipt of benefits. We need to look at that. We have an older population, which will get older. We think we have challenges now, but those challenges will increase by 2040 when the older population replaces the younger population. That will present new challenges. Disability is another issue. The conflict has played its part. Are there other drivers? There are low-income families. I have always said that a lot of people are in the benefit system because they are in low-paid work: work does not pay and, therefore, the system is supplementing low wages.

Have you had any thoughts about that? Was the needs-based assessment too low? Where should it move to? If you were looking at reducing inefficiencies or revenue-raising, how would you mitigate some of the inequalities and disparities that are unique to here compared with England, Scotland and Wales?

Professor Barrett: Thanks for the question. I will come at it in this way, Deirdre, and you will see where I end up. I mentioned Gerry Holtham, who is a professor in one of the Welsh universities. He is probably the world's leading expert on the Barnett formula. At a recent Fiscal Council conference — we hold those annually — one of the questions that I asked Gerry was whether the Barnett formula is well-designed to address deficiencies in public infrastructure. It has always struck me that the Barnett formula is very good at funding the ongoing, day-to-day resource DEL, current expenditure or whatever. It starts at a particular point, and it keeps things in line with where things go in England. However, my point was that public capital in Northern Ireland lags behind and needs a step-change adjustment that would increase it more dramatically over time. Everybody thinks about roads and water treatment plants when public capital is mentioned, but you can think about human capital in a similar way. Some accept that, for historical reasons, there is a socio-economic difficulty in Northern Ireland and that, as you talked about, some communities have been left behind or whatever. I have always thought that a case could be made, beyond the Barnett formula, for a significant injection of funding into Northern Ireland to deal with those issues. That tends to be discussed more in respect of physical capital, but the same case can be made as regards human capital. Some one-off injections, additional to the Barnett formula, were designed, but how successful were they? You have asked a reasonable and sensible question. The Barnett formula has limitations in the context that you mentioned: everybody knows that, including the world authority, Professor Holtham. That is where a non-Barnett injection may be needed.

Mr McAdams: I will add a little bit on exactly where the line is as regards what is and what is not in the need calculation. Professor Holtham effectively pretended, mathematically, that Wales was in England and said, "If Wales was in England, here's how much money we would get, based on how much is given for this amount of sparsity, this amount of disability and this amount of young and old people. The Barnett formula is not supplying that amount to us, so we need a top-up". The 24% top-up to 124% contains some of those things for NI. You mentioned the older population and the levels of disability: those are included, because they are raw features of the place and the people. What the top-up does not take into account is history and culture. Professor Holtham recognised that when he spoke about the Welsh language: he felt that there needed to be an additional factor for the Welsh language, but, in the end, Treasury ignored that. Holtham's work has provided the argument that the funding takes account of what is here at the moment but not of how we got here. If there are additional costs based on the legacy of the past, they are not counted. The funding model counts Northern Ireland and Wales as if they were in England, and that means it ignores everything that has happened historically.

Professor Barrett: There is a really important issue to reflect on in respect of the ageing population. You could take a simple view of Northern Ireland's ageing population and say, "If the population in England ages at the same pace and in the same direction, and if the Westminster Government fund health and social care and all those sorts of things that are required, the Barnett formula should ensure that money flows into Northern Ireland to deal with that". That is the simple scenario. However, it is perfectly possible to make the argument that, for well-understood historical reasons, a group of people in Northern Ireland will age with a complex set of health and social care needs that may not exist in England to the same extent. As a result, population ageing in Northern Ireland could be a lot more expensive than in England, and the Barnett formula will simply not grapple with that problem. There is an additional complication, which I do not fully understand: the extent to which social care in Northern Ireland is provided more at a local authority level. There may be gaps, but I am not entirely sure. However, the primary issue, which anyone in the health professions will tell you about, is that, as individuals age, they bring with them all the stresses and tribulations that they have had in their life. If you have had a relatively charmed life, you can look forward to a relatively healthy older age, but, if you have had a lot of negative impacts and influences during the course of your life, you will have a different sort of ageing experience. You raised an important point. That is something for the Committee to think about, generally.

Miss Hargey: Thanks for that. That aligns with some of the evidence that we heard last week. There is a focus on the Executive and Budget management here, but, ultimately, there is not enough focus on fiscal management and policy at Westminster. Alan, if you are aware of any work looking at those areas or of any scoping work elsewhere, I would be grateful if you could provide that to the Committee or point us in the right direction. That would be really useful. Thank you.

Professor Barrett: Yes, can do.

The Chairperson (Mr O'Toole): It was extremely helpful and useful to go through those points at the end. There are no further questions from Committee members, but I will make a couple of final points. We have already made you miss the 3.00 pm train, but I promise that you will be able to get the next one [Laughter.]

I will do the Columbo: just one more thing.

A lot of what we have talked about — the bailout, the behavioural stuff and the deeper structural issues, including the long-term issues in Northern Ireland — has been really helpful in unpacking the key headlines around the proposed Executive Budget. In response, I think, to a question from the Deputy Chair, you mentioned how economic performance has no real relationship with the fiscal position in Northern Ireland. A question that has come up during the Committee's consideration of the Fiscal Council Bill is whether asking the Fiscal Council to have a nod, whether a large or a small one, to economic performance might be a useful tool in at least understanding the economic consequences or context. Do you want to say anything about that? I am not asking you to endorse or to deny it.

Professor Barrett: The first thing that occurs to me is that, even if economic performance does not have a huge impact on fiscal performance, that does not mean that it is not absolutely critical.

The Chairperson (Mr O'Toole): It does have an impact on fiscal performance in the sense that there is a fiscal impact if an economy is not performing so well and more people are in poverty, because those people will be in receipt of benefits, accessing healthcare and all of that. So, yes, but it is more —.

Professor Barrett: Yes, but it is complicated in that the benefits are paid through annually managed expenditure anyway.

The Chairperson (Mr O'Toole): Indeed.

Professor Barrett: It is complicated. Without my colleagues here, I am reluctant to take on additional work.

The Chairperson (Mr O'Toole): I am not necessarily giving you additional work. Is there an argument for saying that some analysis of the economic performance might be —?

Professor Barrett: I will turn that question round. There can be quite a direct relationship between the expenditures that are made and the economic impacts of that fiscal policy. I watched the Committee's evidence session last week, and that issue came up. It was said that it is important, even within limited budgets, to identify things that could lead to productivity improvements in Northern Ireland, be that expenditure on public infrastructure, education, higher education or whatever. There is a sense of an additional lens being applied. It is not so much how the economic output affects the fiscal situation but how the fiscal situation —.

The Chairperson (Mr O'Toole): Indeed.

Professor Barrett: It is about thinking about the components of public expenditure and the task. That links to the notion of the Programme for Government and what the Executive hope to achieve from all the expenditure. We touched on that in relation to the need for the investment strategy. That is part of it. Does that answer your question, Chair?

The Chairperson (Mr O'Toole): It does, in part. I will make one observation off the back of that. It is clear that Northern Ireland has higher public sector-employment per head. There are historical reasons for that, and there may be reasons for it that can be critiqued and unpacked, but it exists to one extent or another. It is also true to say that there would be an economic impact if a transformation reduced that or brought it more into balance. It is about trying to think about how we join up economic impacts and fiscal questions. If you sought simply to address the fiscal consequences of having relatively high public-sector employment, you may have to deal with the economic consequences of having fewer people in employment generally. I hope that there would be opportunities in the private sector, but there may not be. Those are questions that we need to ask.

Professor Barrett: Yes.

The Chairperson (Mr O'Toole): I do not have any further questions. I am really grateful to you, Professor Barrett, and, indeed, to Jonathan. We will hear lots more from you. We will be talking about you without you being here in a little while, when we discuss the Bill. Thank you, both, very much indeed for giving evidence and for the report.

Professor Barrett: Thanks for all the questions. We appreciate the discussion and engagement.

Mr McAdams: Thank you.