16 June 1992

FINANCIAL ARRANGEMENTS FOR NEW INSTITUTIONS

1. The sub-Committee considered possible financial arrangements for the new political institutions. (References to "institutions" in Northern Ireland should be interpreted by reference to the other work of the sub-Committee). The following considerations emerged.

Levels of Public Expenditure

2. The sub-Committee noted that the existing financial arrangements were designed to ensure that, against a background of parity of taxation, the people of Northern Ireland received levels of public services broadly comparable with those in Great Britain. Levels of local expenditure are determined as part of the UK public expenditure annual survey and are not constrained by the revenue generating capacity of the region. The difference between expenditure and revenue is then made up by a subvention from the UK Exchequer (currently about £2.5 billion, or more than £1 in every £3 of public expenditure in NI).

3. In the view of the sub-Committee, it is important that this expenditure based (rather than a revenue based) arrangement for the determination of the quantum of spending should be preserved. Moreover, new NI political institutions should seek to preserve as far as possible the present comparability mechanism which has provided useful stability in effecting annual adjustments to the NI PE Block ("the Block") total while leaving maximum local flexibility in determining how resources should be allocated. Maintaining the integrity of the Block in this way should also mean that NI could expect to benefit from future savings in operational programmes whether through achieving greater economy or, for example, as a result of a reduction in security-related expenditure.

In view of the sub-Committee the sources of funding should remain on broadly the same basis as at present ie: attributed taxation grant-in-aid, rates, charges and EC receipts. The local administration would be free to vary the level of the regional rate. However, it would be essential that the exercise of this power should genuinely increase regional resources rather than simply offsetting other sources of funding such as the grant-in-aid. A local administration with legislative powers would be able to change the rating system and could consider raising revenue for local authority type services in other ways. It would be able to determine the level of charges for a wide range of public services (eg: parking, vehicle testing, planning applications). The local administration would also intend to give higher priority to the earning of EC receipts. In each of these cases, the intention would be that the resources should be used to fund additional local expenditure.

Role of Secretary of State

5. Under the new arrangements, the Secretary of State would retain responsibility for expenditure on particular functions and the local political institutions will assume responsibility for a range of services which might represent a large proportion of the NI Block. It was recognised that local institutions will operate within the UK public expenditure framework and the annual Public Expenditure Survey will be the main determinant of the overall level of resources.

6. In view of the UK dimension to expenditure decisions, it would be the Secretary of State's responsibility to secure resources in the Survey for the Block as a whole out of which those services within his own responsibility and those administered by local institutions would be funded through an allocation mechanism yet to be agreed.

7. It would be particularly important to ensure that a strong bid was made, as an integral element of a political settlement, to provide the new administration with extra resources to tackle the major problems which NI continues to face.

8. Under the new arrangements there would be a supporting role for the local administration, which would give the Secretary of State a detailed annual assessment of its financial requirements to inform his handling of the Survey. (This was considered at Annexes A and B to the Report of 10 June). The local administration would wish to be represented at negotiations between the Secretary of State and the Chief Secretary on the level of resources. This would be particularly important where the pressures on the Block were such that bids were being pressed over and above the normal workings of the comparability mechanism.

The Discretion of the Local Administration

9. Within its own area of responsibility the local administration would have a very wide measure of discretion (equivalent to that currently exercised by the Secretary of State) to allocate its resources in line with its view of Northern Ireland's needs. It would, however, be necessary to take account of the following:

(a) the local administration would be constrained by UK commitments to the European Community;

(b) the Treasury would, as a condition of financial support, wish to continue to be assured that the local administration used its resources with due regard for value for money. This, of course, is an interest which any local administration would share, provided that efficiency savings are retained within the Block;

(c) transfers of resources could not be made from an agreed parity such as Social Security to other areas; but additional funding for social security would not be a call on the Block.

Authority to spend and accountability

10. At present Northern Ireland operates a structure through which Parliament authorises expenditure out of the Northern Ireland Consolidated Fund. The local political institutions would provide this authority under the new arrangements for expenditure on devolved services. The mechanism for this would be through the approval of a detailed annual budget which would give Departments both the authority to spend and would set the framework within which they would have to account for the expenditure. (This was considered in Annexes A and B to the Report of 10 June).

11. The Northern Ireland Audit Office, which is independent of the Executive, would continue to examine the propriety and regularity of expenditure, and the economy, efficiency and effectiveness with which policy is carried out. It should report to a special committee (a local equivalent of the Public Account Committee) set up by the new local institutions with power to summon Accounting Officers to give evidence, and to make reports.

• Financial Arrangements for New Institutions (introduced on 1992-06-16 18:30:00 - CREATE - e898936) [This document] [view current proposal at this moment]
  • None (introduced on 1992-06-16 18:30:00 - ADOPT_PROPOSAL - e899162) [view current proposal at this moment]