New Decade, New Approach Agreement Contents

2Funding and oversight

Financial commitments

14.The Government made several financial commitments in the New Decade, New Approach deal, including funding to help the Northern Ireland Executive transform public service provision and to support the health service in Northern Ireland. The Government categorised the financial package offered as part of the deal to restore the Executive into four key elements:34

immediate support to the health service and to address budget pressures. This included a commitment to provide the Executive with additional funding for 2020/21 “to place Northern Ireland’s finances on a sustainable footing” and to bring “an end to the ongoing nurses’ pay dispute”;35
investment to transform public services. This included commitments to deliver “reform in the essential public services of health, education and justice”;36
turbocharging infrastructure delivery in Northern Ireland. The Government committed to providing the Executive with increased funding for capital infrastructure investment. The Government stated in the agreement that this funding would enable the Executive to invest in a range of projects such as: essential sewage investment (Living With Water Programme); the ‘Better Connecting Dublin and Belfast’ strategy; the A5/A6 roads; the York Street Interchange; and the Narrow Water bridge. The Government also committed capital and resource funding for the Medical School in Derry/Londonderry, subject to the Executive’s approval of the project;37
addressing Northern Ireland’s unique circumstances. The Government committed funding for “projects aimed at supporting community and reconciliation initiatives”.38 It stated that it would make funding available to support mental health in Northern Ireland, tackle paramilitarism, and tackle deprivation and increase opportunity in Northern Ireland.39 The Government also outlined that it would provide support for languages and broadcasting, and that it would make funding available for a range of other potential projects to help “build a safer, more secure society in Northern Ireland”.40

15.The Government announced a financial package of £2 billion in the week following the publication of the New Decade, New Approach agreement, £1 billion of which was described as “Barnett-based investment”.41 However, this figure was contested by parties in the Executive, who argued that the level of funding promised by the Government was insufficient to fulfil the policy measures outlined in the deal.42

16.On 15 January 2020, the Northern Ireland Office released a breakdown of the Government’s financial support for the deal.43 Minister of State, Northern Ireland Office, Robin Walker MP, confirmed the figures in the press release in oral evidence to the Committee:

If I break down the figure of the £2 billion, there was a £1 billion Barnett-based investment guarantee from the UK Government to include significant new funding to turbocharge infrastructure investment. That was guaranteed to apply in all circumstances—so not just money that might have been coming anyway, but a clear guarantee over five years that that money would come through so that the Executive could plan investment over a five-year period.

There is then around £245 million for the support of the transformation of public services, including across health, education and justice. Of that £245 million, £44 million has already been made available with the rest allocated over the next four years. There was a rapid injection of £550 million to put the Executive’s finances on a sustainable footing. That included £200 million over three years to resolve the nurses’ pay dispute, something that everyone would welcome, particularly in the context of Covid.

Alongside this, there was the offer from the UK Government of £60 million of capital and resource funding to deliver the Northern Ireland graduate-entry medical school in Derry/Londonderry, which has since been approved by the Executive and should now be able to go ahead. There was £50 million for the rollout of ultra-low emission public transport and half of that is available in the current year. Then there was £140 million to address Northern Ireland’s unique circumstances.44

17.The details of the Government’s financial package were not made clear to parties in Northern Ireland during the negotiations.4546 In response to the Government’s announcement of £2 billion funding to support the deal, Northern Ireland Finance Minister, Conor Murphy MLA, observed that the Government had “stepped back from its financial commitment”.47 He added that the funds committed by the Government were insufficient to transform public services in Northern Ireland.48 Mr Murphy pointed out that the Executive First Minister and deputy First Minister wrote to the Prime Minister in the days following the deal to express their joint belief that the Government’s financial proposals were inadequate to support the achievement of the agreement’s objectives.49

18.Witnesses to our inquiry agreed that the funding pledged by the Government was insufficient to support the delivery of commitments made in the New Decade, New Approach deal. Paul Mac Flynn, Co-Director, Nevin Economic Research Institute, told us that the “the suggestion that this [the UK Government’s financial package] will ameliorate the pressure on Northern Ireland’s public finances is misguided”.50 He added:

In the first instance, the effect of the previous 10 years of fiscal contraction and suppression have significantly impacted the ability of public services to deliver in Northern Ireland. A gradual return to their pre-2010 level, is a necessary but not sufficient measure to restore their capability. Secondly, the growth of spending in the health service means that while overall levels of public spending may have recovered, this is not the case for the vast majority of individual services. Thirdly, while departmental spending limits are set to be restored to pre-2010 levels, the same cannot be said for welfare spending. The significant cuts made to working age benefits in Northern Ireland are not set to be reversed. This matters because reduced benefit spending has increased pressures on departmental spending.51

Dr Birnie, Ulster University Business School, estimated that in January 2020 there was a funding shortfall of at least £4.5 billion for capital spending and of at least £500 million for recurrent or annual current spending.52 He said that the ‘bidding war’ between Executive departments in Northern Ireland following the restoration of devolution “implied that almost certainly the figure for total indicated funding ‘needs’ is even higher”.53 Paul Mac Flynn concurred that shortfalls in expenditure were apparent “in the infrastructural deficits across Northern Ireland, particularly in transport and energy”.54 He added that the time-limited nature of “specific funding for certain policy priorities”, such as the £200 million provided to resolve the nurses’ pay dispute and deliver pay parity over two years, would create “a public finance cliff edge where time-limited funds are committed to and on-going resource expenditure”.55

19.Dr Clare Rice, research associate, Newcastle University, observed that a lack of funding could destabilise the Executive:

Financial limitations mean that funding will need to be prioritised. How this prioritisation happens will itself present challenges within the institutions and will inevitably mean that difficult conversations will have to be had around how the available money should be used…Having gone through the hard process of producing the NDNA [New Decade, New Approach] agreement, the next stage could prove to be where the real difficulties set in if adequate financial support is not provided.56

20.Several witnesses questioned whether the Government’s financial and economic commitments were sufficient to deliver the agreement’s objective to “transform public services”.57 Ann Watt told us:

At the outset we would query the extent of the ambition in NDNA [New Decade, New Approach] to transform public services, rather than just spend more money on them. Transformation seems to be a key aim in health and social care (through a commitment to deliver the reforms set out in the Bengoa report and other recent independent reports), but otherwise it is not clear whether the measures in NDNA will in the end be mainly about increased funding rather than the transformation of public services.58 [Emphasis in original]

Paul Mac Flynn agreed with Ann Watt’s analysis, highlighting the lack of “detail on what exactly public services in Northern Ireland are to be expected to transform into”.59 Similarly, Dr Birnie identified the lack of “detail in NDNA [New Decade, New Approach] about how to do public services differently in order to achieve ‘more for less’ or ‘better for the same’.”60

21.Witnesses highlighted the need to reconsider the scale of the financial package committed by the Government because of the effect of Covid-19 on the economy and public finances in Northern Ireland. Ann Watt concluded that the “initial plans for how NDNA [New Decade, New Approach] would be funded and delivered will have to be reconsidered” due to the effect of Covid-19.61 Dr Soares commented that the delivery of sufficient funding to meet the aim of transforming public service provision “will be severely challenged by the impacts of the Covid-19 pandemic”.62 Dr Birnie highlighted the potential for Covid-19 to have “scarring effects” on the Northern Ireland economy.63

22.The Committee raised the amount of funding committed by the Government and the effects of Covid-19 on public finances with Minister Walker. The Minister stated that

the £2 billion package we put forward is the biggest deal for a Northern Ireland talks process of its kind. It adds on to the over £1 billion a month that was already due to be spent in Northern Ireland. It provides substantial resource and capital funding to get things moving forward…It is important to recognise that there have been separate Barnett consequentials as a result of Covid, in the region of £1.3 billion for Northern Ireland…We need to recognise the substantial nature of the financial package that was agreed as part of this deal and the fact that that has been able to kick-start a good deal of change.64

23.We heard that £2 billion of Government funding is insufficient to meet the objectives of the agreement. In addition, the economic effects of Covid-19 will exacerbate pressure on public finances in Northern Ireland. We also heard that the need to prioritise which commitments to enact in the agreement due to insufficient funding could destabilise the Northern Ireland Executive.

24.The Government must set out a long-term financial plan for the implementation of the agreement that is costed over the next five financial years and that acknowledges the effects of Covid-19 on public finances in Northern Ireland. The plan should be deposited in the Libraries of both Houses of Parliament before the 2020 Autumn Budget. The Government should issue quarterly updates to this plan, also to be deposited in the Libraries of both Houses of Parliament.

25.The Government must re-examine the powers to borrow funds available to the Executive and local authorities, including any conditionality placed on those powers, to mitigate ongoing pressures on public finances and to exploit the historically low cost of borrowing.

Independent Fiscal Council

26.The Government attached conditions to its financial commitments to “promote budgetary, fiscal and political stability”, one of which was the creation of an Independent Fiscal Council.65 The idea of an Independent Fiscal Council for Northern Ireland is not new.66 In the 2015 Fresh Start Agreement, for example, the then UK Government welcomed “the Executive’s plans to establish an Independent Fiscal Council for Northern Ireland”.67 However, an Independent Fiscal Council for Northern Ireland has so far failed to be delivered and therefore the Government made its funding for the deal conditional on its creation. The New Decade, New Approach agreement stated that “an independent Fiscal Council will be established in Northern Ireland by July 2020”.68 The agreement specified that the membership and terms of reference of the Independent Fiscal Council will be agreed with the Government.69

27.Sir Jonathan Stephens told us that the “fundamental purpose of the fiscal council is to provide an assessment of the sustainability of the Executive’s finances, plans and budgets going forward”.70 He added that the Council could enable the Executive “to take what at times may be difficult and unpopular decisions in order to ensure that its finances are sustainable for the future and that necessary reforms are put in place”.71

28.Several witnesses pointed out the merits of the Independent Fiscal Council maintaining its independence from both the Northern Ireland Executive and HM Treasury. Paul Mac Flynn stated:

The Council should have a secretariat to carry out work as directed by the fiscal council. An independent fiscal council must be located outside of any government department. It must not be, as is currently the case with the Northern Ireland Statistics and Research Agency, an executive agency within the Department of Finance. While collaboration between government departments and statisticians may be useful for the operations of NISRA, it would be better for the fiscal council to be a non-departmental public body sponsored by the DOF, as is the case with the OBR and HM Treasury. As the fiscal council will be expected to criticise and evaluate government policies, the relationship between the council and government needs to be more distant.72

Dr Birnie told us that the Independent Fiscal Council will need to build positive relationships with both the Northern Ireland Department of Finance and HM Treasury, but caveated that “it must be absolutely independent of both and be seen to be independent”.73 Ann Watt stated:

Key to the Fiscal Council’s success will be ensuring that: its membership is truly independent; its members have sufficient expertise; that it is able and enabled to speak truth to power; that it is trusted and valued by the Executive, Assembly and the public; and that their advice is accepted and acted upon…the Fiscal Council needs to act independently and with integrity. It will need to be realistic in its assessments about the challenges facing the Executive, and be conscious of the importance of having a positive and constructive relationship with the Executive.74

29.Minister Walker stated that the composition and function of the Independent Fiscal Council is “fundamentally for the Executive to take forward”.75 However, he noted that

Some important work has been done by the OECD as to what makes for effective independent fiscal councils that contribute to better fiscal outcomes. To work effectively, they need to be genuinely independent and have timely access to all the information required to make their assessments.76

He added that “the joint board will want to ensure that it agrees on the terms of reference for a new institution [the Independent Fiscal Council]”.7778

30.The long-term success of the Independent Fiscal Council will depend on its establishing strong working relationships with both HM Treasury and the Northern Ireland Department of Finance. It must engage positively and constructively with the UK Government and the Northern Ireland Executive, but it must always maintain its independence and integrity.

31.The Independent Fiscal Council must be independent from all government departments to ensure that it can fulfil its function to scrutinise public spending.

32.The Council will require a dedicated secretariat to carry out work as directed by Council Members. The UK Government and Northern Ireland Executive must ensure that the Council has sufficient resources and powers to fulfil its core functions.

33.Paul Mac Flynn outlined the additional powers that he thought the Independent Fiscal Council would need to be effective:

The independent fiscal council needs to be concerned with more than just simply costing government spending decisions as they arise in the budgetary process. By this I mean that an independent fiscal council needs to be able to evaluate the cost of polices that have not been chosen. In particular, the fiscal council needs to have a mandate to evaluate costings where Northern Ireland has chosen to implement a UK-wide policy and where it has chosen to diverge and develop its own set of policies.79

Paul Mac Flynn also highlighted the importance of the Independent Fiscal Council being tasked with providing distributional analyses of public spending in Northern Ireland:

An independent fiscal council also needs to be able provide distributional analysis of spending decisions in Northern Ireland, particularly with relation to income. The NI Executive has significantly limited revenue raising capability, but spending decisions have as much impact on income distribution as tax decisions. If an independent fiscal council is to be able to provide robust analysis of the Northern Ireland Executive, it must be able to evaluate the where money is spent, how and why it is spent in that way and to who’s benefit.80

34.For the Independent Fiscal Council to be truly effective, its remit must include costing not only spending decisions, but alternatives to meet the same policy aims in the most cost-effective way.

35.As part of its Terms of Reference, the Independent Fiscal Council should be given a mandate to evaluate costings where the Northern Ireland Executive has chosen to implement UK-wide policies and where it has chosen to diverge from them.

36.The Independent Fiscal Council should be tasked with providing distributional analyses of public spending in Northern Ireland to help clarify the effect of spending decisions on income distribution.

UK Government-Northern Ireland Executive Joint Board

37.Government funding provided under the agreement will be overseen by a UK Government-Northern Ireland Executive Joint Board. The agreement set out that the Joint Board will be convened by the Secretary of State for Northern Ireland and that the Board’s membership will include both the First Minister and the deputy First Minister in the Northern Ireland Executive.81 When discussing the agreement on the Floor of the House of Commons, the then Secretary of State for Northern Ireland, Julian Smith, stated that the Joint Board would “provide a clear role for the UK Government in overseeing the implementation of this financial package”.82 The New Decade, New Approach agreement stated:

The Joint Board would have as part of its Terms of Reference in particular the oversight of transformation efforts in health, education and justice where these would draw on funding under this agreement (this does not displace other normally-required approvals). As part of that oversight the Board would keep under review healthcare delivery structures in Northern Ireland, and be able to establish a separate sub-committee to consider health in particular, drawing on external expertise as appropriate. The Board would also consider the effectiveness of infrastructure delivery, including drawing on expertise from the Infrastructure and Projects Authority as appropriate.83

38.Witnesses to our inquiry welcomed the creation of the Joint Board as a necessary oversight mechanism, but some questioned whether its creation was in the ‘spirit of devolution’.84 Dr Birnie told us that the Joint Board should be beneficial, but that its creation “cuts across the spirit of devolution”.85 Ann Watt welcomed the creation of the Joint Board because it will provide external expertise in the management of public finances.86 She observed that “Northern Ireland suffers at present because of a lack of such external expert input”.87 However, she added that the creation of the Joint Board is “an unusual arrangement in a devolved administration, and some will regard it as a step backwards towards the UK government having more control over devolved matters”.88

39.Ann Watt identified uncertainty in the agreement on the powers of the Joint Board:

There is a lack of clarity in NDNA [New Decade, New Approach] on a number of aspects of the Joint Board. For example, its remit seems to be about ensuring value for money in the much-needed reforms of health and social care, but also mentions education, the justice system and infrastructure (but not other areas of public services). Its powers are unclear, particularly whether it will be advisory or decision-making. There is also no clarity on the Board’s membership. Presumably all this will be made clear in the terms of reference.89

40.We asked Minister Walker whether the Joint Board will be an advisory body or whether it will have decision-making powers. He replied:

The joint board is there to oversee. To some extent, it depends on exactly what you mean by decision-making powers. If the board reaches a decision, it is likely to then feed that decision back to the UK Government or the Executive in saying, “This needs to be got on with and this needs to be prioritised as an issue”, or, “This is a matter of concern”. It is not, however, there to direct spending decisions of the Government or the Executive. It is there to oversee the process and ensure that we are working together to deliver progress on the whole five-year package of New Decade, New Approach.

The answer to the distinction between advisory and decision-making is perhaps a little more complicated than that but it is a board that is there to oversee the process. Obviously, it allows for co-ordination at the highest level between the Secretary of State, the First Minister and the Deputy First Minister.90

41.We welcome the creation of a UK Government-Northern Ireland Executive Joint Board and the accompanying commitment that the Joint Board will be convened by the Secretary of State for Northern Ireland. We welcome this as evidence of the UK Government’s commitment to supporting the Northern Ireland Executive to implement the agreement. However, greater clarity is needed on the Joint Board’s form and function, and in particular on whether its role will be to advise and/or to decide.

42.The Secretary of State for Northern Ireland should issue a joint statement with the Executive First Minister and deputy First Minister detailing how the Joint Board will carry out its work. We recommend that

the powers of the Joint Board are clearly set out in its Terms of Reference;
the Joint Board produces an Annual Report that is deposited in the Libraries of both Houses of Parliament; and
the Secretary of State for Northern Ireland writes to the Northern Ireland Affairs Committee shortly after the Report is laid to update the Committee on the Board’s work in overseeing the implementation of the agreement. This should be followed by a one-off oral evidence session, where the Secretary of State appears before the Northern Ireland Affairs Committee to discuss implementation.