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Department of Finance and Personnel Government Spending – An Insight 3 September 2014 Mike Brennan.

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Presentation on theme: "Department of Finance and Personnel Government Spending – An Insight 3 September 2014 Mike Brennan."— Presentation transcript:

1 Department of Finance and Personnel Government Spending – An Insight 3 September 2014 Mike Brennan

2 Outline UK Public Expenditure Environment How Northern Ireland is Funded In Year position 2014-15 Local Budget Process 2015-16 Long Term Financial Challenges for the Executive

3 UK Public Expenditure Environment £ Billion2015-162016-172017-182018-19 Resource DEL 312.5302.5292.1289.1 % change-3.2%-3.4%-1.0% Capital DEL36.738.037.239.1 % change3.5%-2.1%5.1% OBR Forecast for UK Source: OBR Economic and Fiscal Outlook – March 2014 Note: Cash Terms

4 UK Public Expenditure Environment UK Government deficit reduction strategy set to continue Prioritise Capital Investment Constrained Resource DEL Measures to control growth in AME spending - Welfare Reform - Welfare Cap - Public Sector Pension Reform

5 How Northern Ireland is Funded HMT DEL 93% Regional Rates 5% RRI Borrowing 2% Source: Budget 2011-15

6 NI Fiscal Deficit - Trend

7 Evolution of RDEL

8 Evolution of CDEL

9 Barnett Formula Changes in NI DEL funding determined through the Barnett Formula Uses population and comparability factors to determine impact for NI public expenditure decisions in England/Great Britain Protection for Health and Education in England has benefited Northern Ireland in recent years.

10 In-Year Monitoring Process In –Year Monitoring Rounds provide the Executive with an opportunity to redistribute surplus funding across departments in line with its priorities; Helps to ensure no funding is lost to Northern Ireland in the form of underspend by departments; 3 Monitoring rounds each year in June, October and January;

11 In-Year Budget Position – 2014-15 Significant Resource DEL pressures in 2014-15; In-Year reductions of 2.1% agreed in June Monitoring; Protection for Health and Education; Welfare Reform penalty of £87 million unaddressed; Further reductions needed in October Monitoring round; Impact on public services

12 Local Budget Process Key Action Date Executive Agree a Draft Budget Outline PositionSeptember 2014 Draft Budget PublishedEnd-September 2014 Ministerial Bi-Laterals and Public ConsultationSept - December 2014 Revised Proposals presented to ExecutiveMid December 2014 Revised Budget PublishedEarly-January 2015 Timetable for NI Executive Budget 2015-16

13 Budget 2015-16 Settlement Resource DEL – Real terms reduction of 1.6 % NI Resource Non Ring-fenced Resource (£m) 2014-159,691.3 2015-169,691.1 Difference-0.2

14 Budget 2015-16 Settlement Capital DEL – Increase due to Financial Transactions Capital NI Capital Conventional Capital (£m) Financial Transactions Capital (£m) Total (£m) 2014-15988.362.81,051.1 2015-16964.6127.71,092.3 Difference-23.764.941.2

15 Budget 2015-16 Challenges 1.6 % Real Terms reduction in Resource DEL Pay and pension cost pressures Welfare Reform Costs - HMT penalty £114 million Healthcare pressures Potential for significant percentage reduction to departmental Resource DEL budgets

16 Budget 2015-16 Challenges Reduced Conventional Capital funding Financial Transactions Capital increasing - Loans or equity investments to the private sector - Partially repayable to HMT - State Aid issues - Proving challenging to establish suitable schemes

17 Long Term Financial Challenges for the Executive Addressing Continued Budget Constraints –Delivery of more with less –Public Sector Reform –Asset Management Strategy Welfare Reform Financial Transactions Capital RRI Borrowing Corporation Tax?

18 NI Population Projection in the context of Public Expenditure Constraints Source: NISRA

19 Workforce Reductions….. Source: Quarterly Employment Survey

20 But less than the rest of the UK Source: Quarterly Employment Survey

21 Public Sector Reform High priority for the Finance Minister. Scope to utilise the experience of OECD. Many areas provide scope for reform: - Greater Digitalisation of services. - Asset management. - Early intervention / prevention. - International Benchmarking. - Innovative approaches to public service delivery.

22 Asset Management Strategy Objectives: 1.To reduce net cost of service delivery through efficient use of assets; and 2.To promote effective asset management processes that unlock value. Costs: Annual running cost of public sector assets – £1.2bn. Significant scope for efficiency savings: - Offices: £54m of annual lease cost liabilities expiring by 2022. - Procurement: 5% saving = £44m. - Social Housing stock: Maintenance £150m pa; stock valued at £225m. Funding: The Executive agreed £3.6m Resource DEL and £23m Capital DEL in the 2014-15 June Monitoring round to progress schemes aligned to the Asset Management Strategy.

23 Welfare Reform Contentious issue with a very substantial price tag. HMT Penalties of not progressing Welfare Reform of £87 million this year and £114 million in 2015-16, rising quickly to more than £200 million per annum. Potential loss of some 1,400 DWP jobs located in Northern Ireland. Costs associated with procuring our own IT system prohibitive – some £1.5bn. Ability to process payments to claimants will be impacted from 2016.

24 Financial Transactions Capital £000s 2012-132013-142014-152015-16 Total Funding Available11,83946,75568,625127,672 Invest NI - Agri-Food Loan Scheme10,000 NI Science Park4002,100 Dental Practices2,500 GP Premises2,500 Get Britain Building11,8397,200 Affordable Home Loans5,0007,500 Empty Homes Scheme3,7005,500 University of Ulster25,00010,000 Total Projects:11,83940,90038,4000 Residual Available05,85530,225125,572

25 Continued use of RRI Borrowing Provides for around £200 million of additional Capital expenditure by the Executive each year, Has delivered significant improvement in infrastructure; Outstanding debt around £1.6 billion; Interest cost of £54 million this year and rising; Executive to consider future levels of RRI borrowing in the context of rising interest costs and constrained Resource DEL allocations.

26 Corporation Tax UK Government to provide clarification on the devolution of Corporation Tax in the Autumn following the outcome of the Scottish referendum on independence; Any decision to devolve Corporation Tax to the Executive and subsequent reduction in the rate of Corporation Tax will cause HM Treasury to reduce the NI Executive’s Resource DEL budget; Extent of reduction not yet agreed but may well be hundreds of millions of pounds; Costs need to be weighed against potential economic benefits.

27 Questions?

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