Official Report: Minutes of Evidence

The Chairperson (Mr Gildernew): I welcome to the meeting from the Department for Communities John Greer, who is deputy secretary of the corporate services group, and Kathy Sands and Olga Beagon, who are finance directors. John, am I right in saying that it is you who will make the opening statement?

Mr John Greer (Department for Communities): Yes.

The Chairperson (Mr Gildernew): Following that, Committee members will ask questions.

Mr Greer: Thank you for the opportunity to brief the Committee, Chair and members.

In normal circumstances, today's briefing would cover our departmental out-turn for the past financial year and the June monitoring position. In the absence of a Budget, however, there has been no June monitoring round, so I will instead briefly cover the provisional out-turn, which is positive. I will then give a brief overview of exactly where we stand in the absence of a Budget and how we are operating as a result.

The positive news is that, for our 2025-26 budget, we have £930·2 million in resource departmental expenditure limit (DEL), £272·9 million in capital DEL, £31·4 million in financial transactions capital (FTC) and £10·8 billion in annually managed expenditure (AME). We are on track to lay our accounts with the Assembly in July, and the really positive news, which is a credit to Kathy, Olga and their teams, as well as to the entire Department, is that we had a small resource DEL underspend of 0·2%, a small capital DEL underspend of 0·2%, an FTC underspend of 3·2% and an AME underspend of 3%. That is clearly within a tight tolerance range. Again, credit goes to the guys.

The current position is that a draft Executive Budget that was not agreed went out for public consultation and then came back, and it remains unagreed by the Executive. The draft Budget created significant pressures for the Department. Broadly speaking, we would have been operating with what would have been almost a flat budget. Taking inflationary pressures such as pay awards and general inflation into account, however, it would have meant a degradation of the Department's budget position.

As for where we are now, the Budget Act (Northern Ireland) 2026 provides an envelope of 45% for Departments to continue to engage in expenditure. Although that may sound like an alarming situation, that facility, because of the time that it subsequently takes to get to the Budget (No. 2) Act, is often used.

We have issued interim allocations to our internal business areas, arm's-length bodies (ALBs) and voluntary and community sector partners. Those are, of course, due to run out in the coming weeks, so, in effect, we have been doing a process of highly intensive engagement with those partners. We had an ALB forum yesterday at Belfast central library, where we met a range of chief executives and chairs to discuss where we are. At that meeting, we committed to them that they will receive their quarter 2 interim allocations next week.

I turn to the work that has been going on. We are working from a position of having 45%, as I said. If there is no agreement on the Budget, there is a facility that provides 95% funding. There is no direct trigger for when we get to that point. That decision will be taken in conjunction with the Executive and the permanent secretary for the Department of Finance, who, under statute, has the power to administer 95%. The Finance permanent secretary has already issued contingency planning envelopes, which are broadly based on 95%. The real purpose of that is to provide permanent secretaries, in their role as accounting officers, with a guide to the level to which they can feel confident about the risks of making allocations. That work is ongoing.

We have prepared an exhaustive set of options for the Minister. In fact, we are due to meet the Minister later today to discuss those in more detail. Such meetings go all the way back to December, January and so on. The purpose of today's meeting is to understand where the Minister might want to make very difficult choices, which will be largely on the basis of on the 95% envelope.

The capital position is slightly more challenging, in that statute does not allow for the retention of receipts by the Department, which equate to approximately £40 million. Is that right, Kathy?

Ms Kathy Sands (Department for Communities): They equate to £42 million.

Mr Greer: In a normal situation, we would be able to retain those receipts and redeploy that capital to other places. In the absence of a Budget, under the legislation, those receipts return to the Consolidated Fund. Obviously, in the absence of a Budget, that is a further reduction of £42 million. Of course, as the Minister referenced in the previous session, engagement is ongoing at an Executive level with the UK Government and Treasury in the hope of reaching a better Budget settlement. We remain optimistic that a settlement will be reached that will allow us to make allocations that are based not on the 95% envelope but at a higher level.

In closing, we are engaging heavily with the voluntary, community and social enterprise sector and all funded partners. I note that the Committee asked specific questions about whether we are looking to reduce or cease specific programmes and areas of work, but, because of the critical nature of the situation, we are looking at everything.

When you add in inflationary pressures, it is not actually 95%; it is significantly worse than that. I mentioned the capital position, which is worse again. Every single option is therefore being looked at. As I reflected, I believe, at a previous Committee briefing, we have operated on the principle of trying to minimise the impact on public services and programmes as much as possible.

As a Department, we are undertaking a stringent review of all expenditure — general administration expenditure, staffing, overtime and agency spend. We have already taken some decisions in those areas, given what we know at this stage, to try to reduce as much as possible the impact, if we have to operate on a 95% budget. In a very long-winded way, I am saying that we have not selected any specific area or programme. The Minister has a set of options that look at stopping things, staged reductions and so on and so forth. We will have a conversation with the Minister later today about that, but there are no easy decisions based on that 95% when it comes to all that I have mentioned on the revenue or the capital side.

Thank you. I am, of course, happy to take questions.

The Chairperson (Mr Gildernew): OK. Thank you, John. Before I get to my first couple of questions, can you talk us through the £324·3 million AME underspend? That seems very large. What is that?

Mr Greer: Typically, we submit through general forecasting what we expect to need from Treasury in the form of benefit payment. In a budget in excess of £10 billion, we aim to be within a tolerance level of about 3%, but, if we are out by even 2% or 3%, that results in a big number, such as that £300 million underspend. All those activities are demand-related, so it will be the difference between the demand and the forecast submitted to Treasury. Obviously, we do not retain any of that funding. It all goes back.

The Chairperson (Mr Gildernew): Are you saying that, at this point, your modelling is predicting a reduction in the AME budget of that amount?

Mr Greer: I will bring in Olga, who deals with that.

Ms Olga Beagon (Department for Communities): When we do our forecast, because it is plan A and our forecasts are not 100% accurate, we deliberately have a bit of a buffer.

The Chairperson (Mr Gildernew): I get that.

Ms Beagon: So, we would expect to be a couple of per cent under by the end.

The Chairperson (Mr Gildernew): Is anything different? Is that a typical AME value, or is it linked to universal credit migration? Is something different leaving it at that level?

Ms Beagon: No. Five per cent is our target [Inaudible.]

Anything over 5% would have to be explained, but anything under 5% is deemed normal. Even towards the end of year, we deliberately have a bit of a buffer so that we are not short.

The Chairperson (Mr Gildernew): There was a small underspend in resource DEL last year, but you now say that, as 2026-27 continues, the envelope falls significantly short of requirements. What has changed materially between the 2025-26 underspend position and the 2026-27 planning position that identifies it as being significantly short?

Ms Sands: There is a range of drivers, but the primary driver is salary costs. We have to build in all pay and progression requirements across the Department and all our ALBs. There are also contractual, built-in inflationary increases. Together, those lead to in the region of £40 million to £50 million of inescapable pressures for the Department.

Mr Greer: It is important to qualify that. The £2·2 million underspend will be down to anything from a programme that has demand-led underspends to the simple fact that a recruitment exercise did not deliver people. The Department has, as you know, been living with more than 2,000 vacancies for some time. We are reviewing those vacancies, so there is typically underspend on the salary line. I do not know whether we know exactly what that £2·2 million was made up of, but we can get back to you on that.

When it comes to the reality of the next year, the 95% broadly equates to £950 million. It you take out ring-fenced expenditure, you are down to £750 million. That is lower than we got in the last financial year. As Kathy mentioned, there are inflationary uplifts in anything from general administrative expenses. Pay equates to around £32 million of additional spend that is all inflationary. I must say, however, that that is an inflationary pressure from doing absolutely nothing more. That is standstill. In our budget request to the Department of Finance as part of the multi-year Budget exercise, we had more than £200 million of unmet bids. That pressure is on just what is in the draft Budget. It is not considering all the other things that we would like to do, some of which were mentioned at the last session, such as funding for the disability at work strategy.

Ms K Armstrong: This is not an easy place for you to be, and I am glad that my other half no longer works in the Department of Finance. Have you estimated when the Department for Communities will reach the limit of the authorised amount from the Vote on Account?

Mr Greer: The Treasury function is managed centrally by the Department of Finance. Kathy, Olga and the team submit regular returns to that, and it is monitored almost daily. It would be prudent of me to tell you that I do not see any risk of our running out of cash. When that position starts to loom, I hope and expect that that is when the Finance Minister will engage with his Executive colleagues to initiate the allocation of the 95%. Although that would provide a limited cash flow, it would provide cash flow for the remainder of the year.

Ms K Armstrong: It will not be the Minister of Finance who does that but the permanent secretary in the Department.

Mr Greer: My understanding is that the statute says that, in the absence of a Budget, it lies with the Minister of Finance, but —.

Ms K Armstrong: The permanent secretary does it. The 95% is not 95% of the Communities budget but 95% of the total Northern Ireland Budget, so Communities could get 100%, or it might get 80%. Have you had engagement with the Department of Finance about the inescapable pressures that you have and the amount that you need to have authorised by the permanent secretary of the Department of Finance under section 59 of the Northern Ireland Act and section 7 of the Government Resources and Accounts Act? Have you had discussions to say, "We are coming close. Get ready"?

Mr Greer: Those discussions happen almost daily. In fact, when the contingency planning envelope was originally released, we saw that a couple of things had been omitted, and we engaged with the Department of Finance. Thankfully, some of those were put back in.

Ms K Armstrong: My last question is on AME. At any given time, we do not know what the bill for AME will be, because it depends on whether more people come into the system or go out of the system. I absolutely understand the buffer. My problem is that, if that discussion with the permanent secretary in the Department of Finance says, to pick a figure out of my head, that we need £100, including our AME expectations, but something happens and the AME bill goes through the roof, that comes off the resource DEL, does it not, which then limits the restrictions? I know that it looks like there is a buffer now, but there are school-leavers coming up and different things happening, so that benefits cost could be higher. Are you building in even more of a buffer there?

Ms Beagon: DOF has our AME forecasts, and it has used those when deriving all of the contingency planning envelopes for all of the Departments. DOF is aware of that, and it has assured us that the benefits will still be approved in the normal way. The position will be monitored. We are forecasting every month, obviously, and, if that position changes, DOF will review the situation. It has certainly taken into account our forecast for AME when setting the contingency planning envelopes.

Ms K Armstrong: OK, it is just in case something happens that causes a bigger bill to hit. For instance, the winter fuel payment is not AME, but it is another cost. All of that is factored in. I am just very aware of what you are planning with your arm's-length bodies and the bodies in the community and voluntary sector. They may get their funding in quarter 2, but, if AME has gone up, because that money is taken out of the funding amount that had been projected, funding might have to come down in quarters 3 and 4.

Mr Greer: In the situation that you describe, in engagement with the Department of Finance, with any gap in AME, because AME is set at 95% with everything else, the resultant liability on DEL will be managed centrally from the block position.

Ms K Armstrong: Thank you.

Mr Bradley: I have a simple question that will probably draw a complicated answer. Thank you very much, John, for coming along with Kathy and Olga to the Committee. When there is an underspend, can that not be allocated to emergency things such as maintenance, adaptations, community programmes or even solar panels for housing? Can that underspend not be allocated in the short term to programmes in the Department?

Ms Sands: Obviously, Maurice, it will depend on where we are as to whether it is ring-fenced, earmarked or non-ring-fenced funding. If it is non-ring-fenced funding and the Minister has taken a decision, we can make some allocations and movements, but within the capacity of whether it is resource or capital; there is no movement across the two. On the figures that John quoted earlier, while we had a resource underspend of £2·2 million, £1·5 million of that was earmarked underspend, so that must go back to DOF. It is not within our control. Therefore, what was left was a minimal amount of £0·7 million. We had taken all of those proactive actions as we worked our way through the year to ensure that we landed in the best position.

Mr Bradley: When you see those figures in black and white, you have to ask questions. I am getting the answers, so thank you very much. Chair, that is as brief as I can be.

Mr Durkan: Thanks for coming along, folks. These are difficult times indeed. Obviously, we do not have a Budget, so we will not have a monitoring round, but it is safe and fair to assume that Departments are still monitoring. Is there engagement between you and other Departments to know where they are at and what, potentially, we are missing out on by not having a monitoring round?

No Department will be awash with resource cash at this stage, so not much would be surrendered if we were to have one, but major capital projects appear to have stalled or slipped, and the monitoring round would normally be an opportunity to get capital in — an opportunity of which the Department has availed itself previously — which is so important, particularly for the delivery of social housing.

Ms Sands: On an ongoing basis —.

Mr Durkan: It is an opportunity cost.

Ms Sands: As a group of finance directors, we engage across Departments on an ongoing basis to understand what each of us is doing, but each individual Department makes its own decisions. Given the time of the year, however, and the unique position that we are in, we are not aware of any easements to capital coming in. As John said, it is a pretty stressed position; that is certainly the case for our Department. We have been able to give out the needed funding only for inescapable projects, and we are overcommitted on those because there is doubt over the retention of receipts.

Mr Greer: The reality of it is that all Departments are — to use the term that Kathy used — in a stressed position. Any movement outside a monitoring round would be subject to the approval of a Department's Minister, and I think that most Ministers would be reticent to put money back on the table while there is such a shortage of money.

Mr Durkan: You mentioned that you met ALBs yesterday and informed them that they will get their quarter 2 funding in the next week. Does the same apply to the community and voluntary sector? Have its representatives been informed yet, given that you informed the ALBs yesterday?

Mr Greer: It does apply to the voluntary and community sector. The representatives of that sector have not been informed yet, but that is under way.

Mr Durkan: OK, The Minister, in his statement on the intermediate rent model the other day, said that he wants to maximise the use of financial transactions capital (FTC). In which areas, aside from that housing element, is the Department looking at maximising the opportunities of using FTC?

Ms Sands: A range of projects across the Department uses FTC. We are the primary user of FTC in the NICS. There is a raft of housing projects. There is the loan to acquire move-on accommodation, a north-west regeneration fund and the voluntary and community sector social enterprise loan scheme. A number of schemes are being actively looked at in our Department.

The Chairperson (Mr Gildernew): Briefly, Kellie, please.

Ms K Armstrong: Very briefly, you mentioned the schemes that are available under FTC. Considering the Budget situation, going forward, not everything will be fully funded. We would like to see some stuff, but paying just some money is as bad as not giving them anything at all. If there is a prioritisation list, could the Committee see it, even if in confidence? In the Committee's previous session, the Minister talked about the Committee bringing forward some solutions, if we have any. There will be a difficult time ahead if we go to the 95%. If we can help with that, it would be good to see what the prioritisation list is like. We may know how important schemes or whatever that are not as high priority are on the ground. It would be useful if that could be provided to us so that we can see and understand the decision-making.

New programmes and projects were brought forward last year that are of a lot less value than Supporting People, for example, but we all need to think together about what the outcomes will be. I am glad to hear that the community and voluntary sector will get some news, because the Northern Ireland Office left them high and dry when it changed its programmes, and we got the blame for that. I do not want us to get the blame for something on which we could communicate with them appropriately. Thank you.

The Chairperson (Mr Gildernew): Yes. I will pick up on Kellie's point. Fiscal discipline is important for the Department, as well as being important between Departments. We are in a very difficult situation. It would be useful if you could provide the Committee with a breakdown that distinguishes where you see efficiencies and where there will be service reductions, deferrals, unmet pressures and reductions in discretionary activity. We have clearly stated the importance of housing and the need to ensure that there is funding to continue that programme, and the anti-poverty strategy needs funding. The Committee would be keen to ensure that those priorities are protected. It would be useful, therefore, if we could get a breakdown of what the savings or efficiencies look like.

Mr Greer: I am happy to come back to you on that in writing, Chair.

Ms K Armstrong: Chair, given that people's jobs might be at risk, we should do that confidentially..

Mr Durkan: Where are the Department's receipts derived from?

Ms Sands: Do you mean the capital receipts?

Mr Durkan: Yes.

Ms Sands: There are the likes of house and land sales from the housing side.
Under the guidance as it stands, we do not have the power to retain the receipts, and the money must go back to the Consolidated Fund. We are hopeful that there will be progress over the summer so that we will not have to hand back the receipts.

Mr Durkan: Does the money generated from house sales come back to the Department? Generally, does it all go back into housing?

Ms Sands: Effectively, we get the spending power of the receipts to increase what we can spend on our capital programmes. For example, the housing receipts will generally be in housing. There are other receipts from funeral loans and repayable loans on the benefit side of the business, and the spending power from those goes to those schemes.

Mr Durkan: The Housing Executive does not necessarily get the money.

Ms Sands: The Housing Executive does not get to keep the money from the house and land sales. The money comes to the Department because of the critical funding position over the last number of years.

The Chairperson (Mr Gildernew): Thank you for the briefing, Olga, Kathy and John, and we look forward to seeing you again soon. Given the difficulties that we are facing, we wish you all the best.