Official Report: Minutes of Evidence

The Deputy Chairperson (Ms Forsythe): I welcome Patrick Neeson, director of supply division, and Maryann Smith, director of central expenditure division. It is great to have you here, so I will hand over to you to make some opening remarks.

Ms Maryann Smith (Department of Finance): Thank you for giving us the opportunity to speak to you about the May departmental out-turn and forecast out-turn (OFO) returns. The Committee has been provided with the May report, so I will not repeat the detail of it. As the report states, in the absence of a Budget, there are no departmental control totals against which forecast out-turn can be assessed. Therefore, Departments were asked to provide the best estimate of their expected out-turn in 2026-27 on the basis of realistic assumptions of future budget allocations. In order to assess the overall block position, the total departmental forecast out-turn was then compared against the total funding available, which was set out in the written ministerial statement on 23 June.

The report also flags the fact that, from 2026-27, the Treasury has reclassified what were known as "ring-fenced resource departmental expenditure limit (DEL) budgets" into annually managed expenditure (AME). Those are the budgets for non-cash costs of depreciation and impairments. Therefore, the report covers resource DEL, which now relates totally to non-ring-fenced resource DEL, capital DEL and financial transactions.

Dr Aiken: We have always been complaining about what was going to be done with the student loan impairment: is that now taken as AME?

Ms Smith: That is correct.

Dr Aiken: Is that off the bottom line?

Ms Smith: Yes. Whenever we now say "resource", it is purely the non-ring-fenced stuff.

In the May return, Departments' forecast out-turn shows a total resource DEL forecast pressure of £1,435·6 million, a total capital DEL pressure of £418·8 million and a forecast underspend of £16·5 million in financial transactions capital (FTC). The May return is the first out-turn forecast for 2026-27, so explanations of variances and out-turn compared with the previous month will be provided from June onwards.

We are happy to take questions.

The Deputy Chairperson (Ms Forsythe): Thank you very much, and thanks for providing that to us. We have all heard that meetings and conversations are happening tomorrow: do you have any indication or details of what those will cover or what will happen?

Ms Smith: Not really. It is political. There has been ongoing engagement between our Minister and Executive and the Secretary of State for Northern Ireland and the Treasury, culminating in political talks tomorrow, but we are not party to the detail of those talks.

The Deputy Chairperson (Ms Forsythe): You have not been asked to provide anything specific or any scenario-based analysis.

Ms Smith: No, nothing specific at the minute. Obviously, they are aware of the pressures that Departments face and so forth, but there has been nothing specific.

The Deputy Chairperson (Ms Forsythe): So they are just political talks, and, as officials, you are not involved.

Ms Smith: No.

The Deputy Chairperson (Ms Forsythe): OK. You provided a summary of the projected out-turn for 2026-27, which is helpful. We appreciate getting that, because, without an agreed Budget, you are not able to show a month-by-month comparison. We see a £1·4 billion pressure on resource and a £418 million pressure on capital: is that the best-case scenario or worst-case scenario, or is it where people are expected to be? Do you have any idea of the scale of where those figures sit?

Ms Smith: We have asked Departments to give their best estimate at this stage. Obviously, we have provided them with contingency planning envelopes (CPEs) that are not a budget and not the complete amount of funding available to assess plans etc, but those figures are supposed to be the best estimates that Departments can give at this time.

The Deputy Chairperson (Ms Forsythe): You say "best estimates": we have seen returns coming in before with monthly projected out-turn figures that included things classified as "inescapable pressures" that do not then get spent. They are not "inescapable" if you can do without them. That is really what I am trying to understand. We project in this financial year, 2026-27, a financial pressure on the Budget of £1·4 billion: is that how much it will be, or does that include estimates of inescapable pressures?

Ms Smith: At this stage, I presume that that is the Departments' best estimate of what they expect to spend in the full year. Obviously, as time goes on, they will probably get more focused and more robust projections, but that would be my understanding.

The Deputy Chairperson (Ms Forsythe): Thank you. I will bring some members in.

Dr Aiken: Thank you very much indeed. I made a declaration of interest earlier on, but I will be spending three wonderful hours tomorrow at Hillsborough Castle as we go round the table — as we go around again and again.

The key issue is the question of pressures. Previously, as the Chair pointed out, the overall pressures, when you stick them all together, are about £1·74 billion. However, we know from experience that the figure for actual pressures is considerably less than all Departments say it is and all the rest of it. Have you done any modelling yet about what that figure is likely to be?

Ms Smith: That is the figure that the Departments have given us at the minute.

Dr Aiken: But they say that every year.

Ms Smith: We have not done any particular model on it, other than that is the figure that they are telling us at the minute.

Dr Aiken: Yes. Obviously, we are in an invidious position at the moment because we are going to have talks with a Chief Secretary to the Treasury who will not be there in three weeks' time, a Secretary of State who may or may not be there in three weeks' time and a Chancellor of the Exchequer who will not necessarily be there in three weeks' time. Has there been any indication of Treasury looking at flexibility, particularly about the rolling over of the loan or any of those issues as well?

Ms Smith: The rolling over of the loan?

Dr Aiken: We previously rolled over a sum of about £450 million to £500 million. It has been done that way previously.

Ms Smith: Oh, on the Budget exchange scheme?

Dr Aiken: Yes.

Ms Smith: Sorry. Right. Yes.

Dr Aiken: Has there been any indication that Treasury is willing to look at any other flexibilities?

Ms Smith: We have always indicated that that may be something that would be brought up in the fuller fiscal framework, so that will probably be in the mix there. Obviously, we may look at that in more detail as to whether it is what we want.

Dr Aiken: I have another question. Despite maybe some of my best judgements on asking the Minister of Finance not to do it, we invited Treasury in to do an open-book exercise. It found £3·5 billion, which is being disputed. Have we done any more work on trying to see how we can get a much-reduced figure of what, Treasury thinks, would be efficiencies that it can squeeze out of the system? Is that work ongoing?

Mr Patrick Neeson (Department of Finance): The Minister and the Executive made clear their view on the open-book exercise to Treasury. That message has been given a number of times to Treasury at official level and ministerial level. The Minister believes that the report is flawed in a number of aspects. It overstates the revenues that can be raised. It overstates the efficiencies that can be achieved. They are just not reasonable or realistic. There are assumptions and analyses that, the Minister believes, are incorrect, and Treasury itself said that the analysis was done at pace. It was done at a certain level. Treasury has said that the findings are indicative, so I think the message has been well understood.

Dr Aiken: Interestingly, we had evidence last week from Sir Robert Chote. He also indicated that he was not sure of the methodology of where the Treasury came up to it. Is there any work ongoing to re-engage and get a more realistic open-book, if you get where I am coming from?

Mr Neeson: No further analysis in relation to the open book and getting to an agreed figure or anything like that, no.

Dr Aiken: Thank you very much indeed.

The Chairperson (Mr O'Toole): Thank you, Deputy Chair, for taking the Chair today. I am off-site.

Thank you, Maryann and Patrick. What expectation does the Department have that tomorrow will result in an agreed Budget?

Ms Smith: We will not be party to the political talks tomorrow. I assume that Executive members are united in wanting to agree a Budget, but they need fair funding for it.

Mr O'Toole: As you said, you, as civil servants, do not participate in political talks. Have you provided an agreed position paper or a briefing paper for Executive parties or Executive Ministers to bring to that meeting? Is there a specific ask that has been prepared by the Department of Finance that Executive representatives will bring with them?

Ms Smith: We have not prepared one. Obviously, Ministers will know the position in their Departments, given the pressures that they face. They will also be aware of the draft Budget proposals and so on. However, I have not prepared a specific ask as such.

Mr O'Toole: That is concerning — not for you, Maryann and Patrick, when it comes to your work — if the expectation is that the talks will result in a Budget. With regard to this summer, if we get to 1 August without an agreed Budget, we are in the territory where the legal position basically becomes — is it right to say that it is, in effect, less than 95% because, legally, you would not be able to spend accruing resources, such as rates revenue?

Ms Smith: You can continue to spend the accruing resources at the moment, so long as you have an expectation that a Budget will be agreed. It would be only at the end of the year, if it became apparent that a Budget was not going to be agreed, that the accruing resources would have to be paid back to the Consolidated Fund.

Mr O'Toole: Is there any guidance on how a civil servant or accounting officer is supposed to arrive at the conclusion that they cannot expect a Budget to be agreed? For example, if there is no resolution in these talks, would they be justified in saying, "Well, they're not going to agree a Budget", or would they have to wait until later in the financial year?

Ms Smith: It is for each individual accounting officer to manage the risk in line with the expectations of their role. It is a balancing act for them.

Mr O'Toole: Is it fair to say that, if it is for individual accounting officers to take decisions at risk, they will effectively be asking lots of budget-holders across their Departments, arm's-length bodies and delivery partners in the community and voluntary sector to operate at risk right now because there is no agreed Budget?

Ms Smith: I think so.

Mr Neeson: The advice to accounting officers is that they should make their own reasonable assessment of the potential for a Budget to be agreed before the end of the financial year and make reasonable assessments of the funding available. The contingency planning envelopes are provided to give them an indication of the minimum that they could expect, were the section 7 or section 59 powers to be enacted. That is the level that would result, but, over and above that, they should still make that reasonable assessment themselves when making spending decisions around the level —.

Mr O'Toole: And they have to basically make — sorry.

Mr Neeson: Go ahead. Sorry.

Mr O'Toole: Effectively they are on their own, as it were, to make that judgement.

On the expectations for individual budget-holders, I hear, as, I am sure, all MLAs and representatives do, about schemes not going ahead, apprenticeship schemes not being run and summer schemes not going ahead because people do not have budget certainty. Are you telling accounting officers, so that they can tell their budget-holders and mid-ranking officials, "Tell those people it's OK; they can proceed with their summer schemes, apprenticeship schemes and community integration schemes, because there will be a Budget", or are you just saying, "Well, we can't make you that promise. If you feel you can't go ahead, I'm afraid you'll have to discontinue the service"?

Mr Neeson: We are not telling them what to fund and what not to fund. We are telling them that their job is to assess what the Department can reasonably anticipate receiving in a Budget. The contingency planning envelope is there to guide and assist them in the meantime. It is indicative of the minimum amount that they would get under the section 7 and section 59 powers, should the DOF permanent secretary have to step in so that they would receive up to 95% of last year's Budget.

Mr O'Toole: A few weeks ago, we got Main Estimates at Westminster, but the Consolidated Fund cannot receive that money: is that right?

Ms Smith: The total available spend against which the out-turn and forecast out-turn can be looked at is for the block level. The total available funding includes what was given at Westminster from the Westminster position.

Mr O'Toole: In a sense, that is not legally relevant if you can spend only 95% of last year's Budget.

Mr Neeson: That funding cannot be spent in the absence of a Budget.

Mr O'Toole: That is the point that I am making. All of those numbers are real only if legal authorisation exists to spend the money, and it does not exist.

Mr Neeson: The 95% relates to last year's Budget, yes.

Mr O'Toole: Basically, the legal position is that we have 95% of last year's Budget and the Main Estimates are currently hypothetical numbers that we cannot operate to.

That is enough from me. Thank you, Chair. Thanks, Patrick and Maryann.

Mr Kingston: Thank you for attending today. We all hope for progress tomorrow. I wish our representatives well at the meeting, and I hope that we will receive an increased Budget for our public services.

I am always interested in comparing the role of our Finance Minister and the Department of Finance with the equivalent person and Departments in other jurisdictions. At Westminster, I imagine, the Chancellor of the Exchequer has more clout in setting departmental budgets and holding other Departments to account.

Are these figures estimates for the year?

Ms Smith: Yes.

Mr Kingston: They show a £1·4 billion overspend or underfunding. How will the Department and the Finance Minister work with the accounting officers, other Ministers and officials to live within the Budget, no matter where we end up after tomorrow? What is the Finance Minister's role in our mandatory coalition Government in ensuring that the Executive as a whole live within the Budget?

Ms Smith: There is no Budget at the moment. The individual Ministers need to manage within the funding that they are given. If the permanent secretary gives them an envelope to live within from 1 August, it is up to the individual Ministers and accounting officers to work within those parameters. Obviously, because there is no Budget in place, there is no control to forecast against, other than at the block level.

Mr Neeson: The issuing of the contingency planning envelopes is part of that function. They were provided to the accounting officers to show the minimum that they could expect to receive this year should the section 7 and section 59 powers have to be enacted, and that was to guide the accounting officers and Ministers in making spending decisions for the year ahead. That is part of what you are pointing to in terms of the Department of Finance's role.

Mr Kingston: Currently, the Departments are pointing to a significant overspend. Setting aside what might emerge from tomorrow — we hope that there will be an increase in funding from Treasury — it is just to get an understanding of what responsibility is taken by the Finance Minister and the Department to bring about a situation where Departments spend within their available budgets. I know that there is collective responsibility in the mandatory coalition arrangements, but we end up with a situation where each Department seems to be able to set its own requirements. Where is the pressure being brought to bear to reduce their spending and to find efficiencies?

Ms Smith: The Finance Minister brought his draft Budget proposals, and those have not been agreed because the Executive believe that they are not fairly funded at this stage. As I said, he then introduced the CPEs in the meantime. The Departments are working on Vote on Account. Those are the parameters within which they are working at the moment. They will have their contingency planning envelopes with the minimum of what they can expect to get, and then we will have letters written by the permanent secretary, again giving them the parameters. That is what he can do and what we as officials can do in setting parameters or guard rails in some way, but it is for individual Ministers to take the action that they need to live within what, they think, they will get in a Budget, if it is agreed.

Mr Kingston: I have one other question. If no Budget is agreed by the end of this month, as it is now, Departments will be authorised to live within 95% of their budget for last year: is that correct?

Ms Smith: They are currently working on Vote on Account, so they have 45% of last year's Budget in resource and cash. Obviously, some Departments will run out more quickly than others, so we will have to closely monitor where Departments are starting to run out. It is likely that the permanent secretary will authorise funding for an extra couple of months on the basis of the forecast out-turn so that Departments have a parameter within which to work. That is the plan.

Mr Kingston: In the scenario where they have an approved budget of 95%, the final 5% can, ultimately, be unlocked. What is the mechanism for that?

Mr Neeson: We would need an agreed Budget. The legislation says that the permanent secretary in the Department of Finance can authorise up to 95% of last year's total: that is clear. We need an agreed Executive Budget to unlock the full funding that is available.

Mr Kingston: If it got to that stage of the year — month 10, 11 or whatever — the Executive as a whole would have to agree a Budget to unlock the final 5%.

Ms Smith: To unlock the total funding available this year, not even the 5%.

Miss Dolan: Thank you, Patrick and Maryann. Obviously, it has now been proven that we are underfunded compared with Scotland and Wales. On the Minister's negotiations on trying to get us the funding that we need, have you as officials made any progress, or is that purely a political conversation?

Ms Smith: It is a really a political conversation. Those figures have been quoted, and I think that the Minister will present those. It is a political thing.

The Deputy Chairperson (Ms Forsythe): We have the table setting out this year's resource predicted out-turn showing the £1·4 billion of pressures. That is caveated with a note that it does not include everything. There is also £245 million of additional pressures on DOJ's forecast that are not included for holiday pay, McCloud and PSNI legacy civil cases. I understand that that is due to uncertainty and that those are not run-of-the-mill operational pressures in DOJ but are exceptional. In the notes to your paper, you indicate that there is an expectation that the DOJ holiday pay liability will crystallise during this financial year. There are ongoing legal cases, but you say that it ranges somewhere between £110 million and £150 million. Why would you not display that in that table and that grid?

You said that the talks tomorrow are political and that you are not necessarily servicing them, but, when the numbers and figures are sitting around and you are already showing £1·4 billion of pressures for this year, why would you not show the further £150 million, which you know about, on another line?

Ms Smith: It is noted there so that you are aware of it. Given that it is a legal case and the timing and the amount are uncertain, you cannot put it in as a forecast. That is why it is noted separately.

The Deputy Chairperson (Ms Forsythe): It is noted a couple of paragraphs later. It is not in a wee bracket underneath the table where the scale of that number is so clear; it is significant. Have you come across any other Departments that, you think, should be highlighted anywhere? Those are very high-profile, and we are all aware of them, but I was not aware that there was an expectation that that would fully crystallise in 2026-27. That puts even more pressure on to get this year's Budget settled. Is there anything else in any other Department that would put significant pressure on the Budget this year?

Ms Smith: Not where exceptional stuff is concerned. Obviously, holiday pay goes wider than just DOJ. I am not sure whether that has been included in Health's OFO.

Do you know?

Mr Neeson: It is not stated along with the £1·4 billion because, I presume, it was not reported in the forecast out-turn return from the Department of Justice.

Ms Smith: Correct.

The Deputy Chairperson (Ms Forsythe): Is it a disclosure thing, really?

Mr Neeson: It is really just to give full transparency to the pressure that is out there. We are aware of no others that are of such significance. It is fair to say that there is a risk that the holiday pay could crystallise this year. That is not definite, but it is such a significant amount, and that is why it was flagged.

Our Minister and other Ministers are aware of it, because the Justice Minister brought it to the Executive's attention. The extent of that pressure is well understood across the Executive, and, as Maryann said, it potentially impacts on other Departments.

The Deputy Chairperson (Ms Forsythe): That is grand. As long as its scale is clear and visible. You know as well as I do that, while we can all read the detail and get into the analysis and read the footnotes, some people will just lift the headline figures, and you would not want to miss the £150 million that is staring us in the face.

Finally, the Fiscal Council talked to us last week about its sustainability report: have you, as officials in the Department of Finance, taken anything forward on the back of that analysis?

Ms Smith: No.

Mr Neeson: Lots of shared detail between us and the Fiscal Council fed into that report, so we understand lots of the detail and analysis. What we in the Department found particularly useful was the analysis of the comparison with Wales and Scotland and the fact that the council supports that. Our analysis suggests that we were underfunded compared with Wales and Scotland, and the Fiscal Council's analysis suggests that that figure was at least £1 billion to £3 billion, so that was helpful. It is fair to say that we fed a lot of detail to the Fiscal Council. There is lots of data and information sharing between us and the Fiscal Council.

The Deputy Chairperson (Ms Forsythe): There is definitely a lot of good work going on in the Department of Finance that allows it to be on top of that. Tony Simpson and Aidan McMahon were in a couple of weeks ago, and they were very much into the detail of that. I feel strongly that that is where we need to be. We do not need to wait for Fiscal Council reports to put that information out to know that the Department of Finance is calculating the numbers and making the case for what we should have in Northern Ireland.

Finally, we are moving through the year and considering cash projections. Given that, I referenced the fact that Steve Aiken submitted a question for written answer on ministerial directions being given to people about moving beyond their Vote on Account. As we move forward, do you see any risks or anything else cropping up? When no Budget was agreed before, we saw that, just by the timing of spend and once you got into mid to late summer, a lot of requests were coming through for advances. Are you seeing a move towards a lot of those over the summer? Are you expecting much over the summer?

Mr Neeson: Departments move at different speeds. For example, the Utility Regulator is one body that always comes in early in the year. That is because lots of its licensed income comes much later in the year. It might come forward soon and ask for a cash advance from the Consolidated Fund. We are not there just yet with the core Departments, but I expect that we will have to start issuing some section 7 and section 59 letters towards the end of August or the start of September.

The Deputy Chairperson (Ms Forsythe): This came up earlier in the meeting, and I appreciate your agreement to provide us with some profiling of how that goes on and how it compares with last year. It is important, because, when we see, for example, an application for an advance coming into our inbox, we automatically wonder whether something has gone wrong or what the issue is, but, if that is what you always expect at that time, we can easily look at the prior year's comparators for cash flow to explain it more quickly. That takes a little bit off the alarm. I appreciate that you have agreed to provide that information.

Mr Kingston: I want to ask about financial transactions capital. It is disappointing that it seems as though we are having difficulty spending what is available. I know that that is restricted for private-sector activities, but what is the explanation for the minus figure from TEO? It is minus £6·3 million. Does that mean that some FTC has to be paid back?

Ms Smith: It indicates an underspend. Are you referring to TEO?

Mr Kingston: Yes.

Ms Smith: Let me see whether I can get the detail.

Mr Neeson: We can come back with that.

The Deputy Chairperson (Ms Forsythe): It is an underspend of £6·3 million.

Ms Smith: Yes, £6·3 million.

Mr Neeson: We can come back with the detail. We do not have it at the minute. It probably suggests —.

Mr Kingston: Is it FTC that TEO was expecting to draw down?

Ms Smith: It is an underspend. I am not sure what it relates to.

Mr Neeson: Perhaps it is FTC receipts. It could mean that TEO was expecting more receipts than it got. Obviously, FTC loans have to be repaid. It may refer to FTC loans that TEO has issued. It may just be anticipating a greater number of receipts coming back than loans going out the door. However, we can certainly check that and get back to you with the detail.

Mr Kingston: OK. Some explanation of that would be helpful. Thank you.

The Deputy Chairperson (Ms Forsythe): Does anyone else have any questions? No? OK. Thank you very much, Patrick and Maryann. We really appreciate your being here and continuing to engage with us. We will see what tomorrow brings. If anything comes forward, we will look forward to working with you again on it. Thanks for coming today.