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  • Funding The Northern Ireland Assembly: Assessing The Options Professor David Heald withProfessor David Heald with A Statement by the Economic CouncilA Statement by the Economic Council

    Research Monograph 10: March 2003

    (Minor corrections April 2003)



  • The Northern Ireland Economic Council (NIEC) is an independent advisory

    body. It was set up by the Secretary of State for Northern Ireland in 1977. The

    Council has a wide remit to provide independent advice to Government on the

    development of economic policy for Northern Ireland. It carries out this role

    through four series of publications. Reports generally make specific policy

    recommendations endorsed by the Council. Occasional papers are intended to

    promote discussion on topical issues while commissioned research monographs are

    published under the author's name. Finally, Council responses to consultation

    documents are included in an advice and comment series. In addition, the Council

    publishes an Annual Report and the text of the annual Sir Charles Carter Lecture,

    which the Council sponsors in honour of its first chairman. It also holds seminars

    and conferences designed to promote debate, and their proceedings may from time

    to time be published. A list of the more recent publications is presented at the end of

    this volume.

    The Council is composed of 15 members, all of whom are appointed by Ministerial

    approval. There are five independent members, one of whom is the Chairman. Five

    members represent trade union interests and are nominated by the Northern Ireland

    Committee of the Irish Congress of Trade Unions. Five members represent

    industrial and commercial interests and are nominated jointly by the Confederation

    of British Industry for Northern Ireland and the Northern Ireland Chamber of

    Commerce and Industry. Members serve four-year terms, which may be renewed.

    A list of members is included in this publication.

    The Council has a small staff, including the Director, economists and administrative

    support staff. Council publications are normally prepared by the economists but

    outside consultants are also engaged for particular projects. All publications go

    before the Council for comment prior to publication. It is the Council which bears

    final responsibility for their publication, but not necessarily for the content or

    recommendations of commissioned research monographs.

  • Funding the Northern Ireland Assembly: Assessing the Options


    Professor David Heald Centre for Regional Public Finance, University of



    A Statement by the Economic Council

    ISBN: 1 897614 67 5

    © Northern Ireland Economic Development Office Pearl Assurance House, 1–3 Donegall Square East

    BELFAST BT1 5HB Tel: (028) 9023 2125 Fax: (028) 9033 1250

    e-mail: website:


    Members : Independents

    Professor B. Ashcroft

    P.D. Montgomery MA

    Nominated by the Northern Ireland Committee of the Irish Congress of Trade Unions

    John Corey

    T. Gillen

    M. Morrissey

    M. O’Reilly

    Nominated by the Confederation of British Industry for Northern Ireland and the Northern Ireland Chamber of Commerce and Industry

    A. Jackson FCA

    R. Johnston

    G.P. McGrath

    N.P.E. Smyth MSc, C Eng, MIMM

    Bill Tosh

    Director: Michael Brennan (Acting)

  • CONTENTS LIST OF TABLES AND FIGURES ABBREVIATIONS USED FOREWORD COUNCIL STATEMENT i RESEARCH MONOGRAPH BY PROFESSOR DAVID HEALD PREFACE 1 INTRODUCTION 1 2 UK PUBLIC EXPENDITURE POLICY 4 2.1 UK Public Expenditure Context 4 2.2 UK Public Expenditure Trends 5 2.3 The Territorial Margins 7 3 NORTHERN IRELAND PUBLIC EXPENDITURE 22 3.1 Northern Ireland Context 23 3.2 The Legacy of History 25 3.3 The Northern Ireland Funding System Before Devolution 29 3.4 The Northern Ireland Funding System Under Devolution 31 3.4.1 The Structure of Expenditure 32 3.4.2 The Operation of the Barnett Formula 33 3.4.3 The Presentation of Budgetary Plans 42 3.5 Fiscal Effort 49 3.5.1 Property Taxes 50 3.5.2 Water and Sewerage 52 3.5.3 Additional Revenue from Fees and Charges 53 3.5.4 A Northern Ireland Variable Rate of Income Tax 54 3.5.5 Conclusion on Fiscal Effort 56 Annex 3.1 Regional and District Rates in Northern Ireland 60 4 FUTURE OF THE DEVOLVED FUNDING SYSTEM 62 4.1 The Predicted Effects of the Barnett Formula 62 4.2 Controversies Surrounding the Barnett Formula 66 4.3 The Scottish Debate on Fiscal Autonomy 69 4.4 The Institutional Deficit 71 4.5 Resource Accounting and Budgeting 72

  • Contents

    5 PROPOSALS 75 5.1 Building Policy Capacity 75 5.2 The Future of the Barnett Formula 78 5.3 Expenditure Which Has No Effective Comparator 82 5.4 The Trade-Off between Expenditure and Fiscal Effort 84 5.5 Improving VFM 85 5.6 The Role and Conduct of a Future Needs Assessment 87 6 CONCLUDING COMMENTS 94 REFERENCES 96

  • LIST OF TABLES AND FIGURES Table Page 1 Indexes of Identifiable Public Expenditure per capita, 1973/74 to 2000/01

    (Northern Ireland) 14-15 2 Indexes of Identifiable Expenditure per capita, by Country, Region and

    Function, 2000/01 (UK=100) 16 3 The Territorial Component of DEL, 1998/99 to 2003/04

    (current prices, £ million) 18 4 The Territorial Component of DEL, 1998/99 to 2003/04

    (index of real terms) 19 5 The Territorial Component of AME, 1998/99 to 2003/04

    (current prices, £ million) 20 6 The Territorial Component of AME, 1998/99 to 2003/04

    (index of real terms) 21 7 The Northern Ireland Assembly Expenditure Regime (pro forma) 36 8 Comparable English Expenditure and Comparability Percentages

    (Scotland, Wales and Northern Ireland) 39 9 Comparability for Local Government (Scotland, Wales

    and Northern Ireland) 41 10 Northern Ireland Assembly Expenditure 2002/03 to 2005/06

    (current prices, £ million) 44-45 11 Northern Ireland Assembly Expenditure 2002/03 to 2005/06

    (index of real terms) 46-47 12 Modifications to the Northern Ireland Assembly Total DEL

    (£ million) 48-49 13 The Northern Ireland Entries in the National Asset Register 73-74 Figure Page 1 Functional Analysis of Total Expenditure on Services in Real Terms,

    1984/85 to 2001/02 6

  • List of Tables and Figures

    Figure Page 2 Indexes of Identifiable Expenditure, 1996/97 to 2000/01 (Northern Ireland) 10 3 Indexes of Identifiable Expenditure, 2000/01 (four countries) 11 4 Indexes of Identifiable Expenditure, 1973/74 to 2000/01 (UK=100) 12 5 Relative GDP per head, 1989 to 1999 (territories and selected regions) 23 6 Indicators of the Northern Ireland Economy, 1989 to 1999 24 7 Public Income of Northern Ireland, 1974/75 to 1999/2000 28 8 The Public Expenditure Regime for the Northern Ireland Assembly 34 9 Convergence of Block Expenditure Indexes 63 10 Relative Block Growth Rates 66 11 The Convergence Effect of the Barnett Formula 79 12 Convergence on a Needs Index 81

  • ABBREVIATIONS USED AFFF Agriculture, Fisheries, Food and Forestry

    AME Annually Managed Expenditure

    CAP Common Agricultural Policy

    CGC Commonwealth Grants Commission

    CMS Culture, Media and Sport

    CSR Comprehensive Spending Review

    DARD Department of Agriculture and Rural Development

    DE Department of Education

    DEL Departmental Expenditure Limit

    DETI Department of Enterprise, Trade and Industry

    DETR Department of the Environment, Transport and the Regions

    DFP Department of Finance and Personnel

    DHFETE Department of Higher and Further Education, Training and Employment

    DHSSPS Department of Health, Social Services and Public Safety

    DRAG Domestic Rate Aid Grant

    DRD Department for Regional Development

    DSD Department for Social Development

    EPF Executive Programme Fund

    ERDF European Regional Development Fund

    EU European Union

    EYF End-Year Flexibility

    GDP Gross Domestic Product

    GERS Government Expenditure & Revenue in Scotland

  • Abbreviations Used

    HPSS Health and Personal Social Services

    LOPS Law, Order and Protective Services

    NAO National Audit Office

    NAV Net Annual Value

    NEE Needs and Effectiveness Evaluation

    NHS National Health Service

    NIAO Northern Ireland Audit Office

    NIEC Northern Ireland Economic Council

    NIHE Northern Ireland Housing Executive

    NIO Northern Ireland Office

    OECD Organisation for Economic Cooperation and Development

    OES Other Environmental Services

    OFMDFM Office of the First Minister and Deputy First Minister

    OFWAT Office of the Water Regulator

    ONS Office for National Statistics

    PESA Public Expenditure: Statistical Analyses

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