The Northern Ireland Fiscal Council has published its assessment of the proposed draft multi-year budget for 2026-29/30. Its sobering report underlines serious concerns about the financial constraints facing the Executive and Departments next year, and the particular difficulties this will create in making public sector pay awards and avoiding future overspends.

The report sets the scene - “Northern Ireland enters this Budget period at a point of unusual opportunity and unusually high risk”, namely the chance to set a multi-year budget for the first time in a decade, but coupled with an unprecedented set of financial challenges.

1.       There will be significant pressures on Departments’ budgets in 2026-27

After recent additions including the Treasury reserve claim are taken into account, the funding available to Departments is lower in cash terms in 2026-27 than what was spent in 2025-26 (see darker bar in chart below). Many departments, including Health, Education and Economy, have a lower cash-terms funding allocation next year than they spent this year (bars to the left in chart below show funding being lower next year).

The main reasons for this are: relatively small increases in funding coming via the Barnett formula; the end of extra funding from the 2024 restoration package; and the impact of the overspend and reserve claim loan boosting spending this year but reducing it next year (with the overspend largely driven by the cost of public sector pay awards).

The report concludes from these figures that “Although the draft figures balance on paper, the Budget is unlikely to unfold as presented” due to the improbability of being able to operate within these allocations (and the current lack of political support for them). As a result, “The Budget faces a credibility challenge”.

2.       Overspending has become a recurring feature rather than an exception

The report highlights repeated overspends in recent years, which have only been resolved by injections of extra funding from the UK Govt in different forms. It also criticises the Treasury for not setting conditions around the recent reserve claim, suggesting that this is potentially discouraging the Executive from facing up to difficult decisions. The current ‘open book exercise’ with the Treasury should be an opportunity for granular analysis of spending, perhaps producing suggestions for greater efficiencies and improved decision-making, but the Council note that NI Ministers may instead see it as a chance to re-open the discussions around underfunding and need.

While the Statement of Funding Policy says that overspends represent “serious financial mismanagement”, the recurring pattern of 'bail-outs' means they risk becoming normalised, and so deter ministers from taking steps towards meaningful savings and transformation.

3.       Public sector pay is an ongoing challenge and a major theme of the report

Overspends in recent years have been largely driven by the cost of making public sector pay awards, which have not been fully incorporated into budgets at the start of the year. Repeatedly this issue has been addressed by one-off funding injections, but doing this is a short-term fix for a long-term structural issue - “These pressures have intensified in recent years and now constitute a central constraint on the sustainability of the Executive’s finances.” Moreover, making these pay awards costs more in NI because of the relatively larger size of the public sector here. The report questions the affordability of maintaining pay parity as now - “In practice, parity in pay levels and increases can only be sustained through reducing staff numbers, cutting other services, or raising additional revenue.”  The final section of the report highlights some striking data about public sector employment in Northern Ireland compared to England, the financial implications of which will be the subject of a future Fiscal Council sustainability report later this year.

4.       The Executive risks missing an opportunity to set a new strategic direction

The report points out that the “Draft Budget largely preserves the status quo in distributional terms rather than reallocating funding in line with emerging priorities or service transformation objectives.” It adds “There appears little political appetite to seize the moment” i.e. take bigger decisions that would address long-standing problems, introduce new ideas, or set a different strategic direction.

The Fiscal Council notes that while there have been some attempts to link the budget allocations to the Programme for Government (PfG), it hopes to see greater and more robust alignment in the final Budget document. A closely-connected Budget and PfG would be a significant and positive change in terms of good governance, providing greater strategic thinking and accountability. Similar arguments can be made as regards capital spending and the Investment Strategy, which remains unpublished.

On revenue raising in particular, the report adds “There is no marked increase in fiscal effort built into these plans.”  The chart below shows that in real terms less is being raised in regional rates now than pre-Covid.

5.       There’s a significant chance that a Budget will not be agreed and/or be unsustainable

The overall tight funding allocation together with the political difficulties mean that it is “Hard to be confident in the agreement and delivery of a robust three-year Budget.” Even if it was agreed, the report questions whether it could be delivered in practice - “without significant transformation, increased revenue raising, or material change to the funding available, the proposed Budget is unlikely to be sustainable.”

The report notes that two conditions are needed for a multi-year budget: a multi-year settlement from a UK Treasury Spending Review and a sitting Assembly and Executive to pass the Finance Minister’s proposals. These two conditions have not aligned often, so Northern Ireland has not had a multi-year budget since 2011-12 to 2014-15. Agreeing a budget is a fundamental aspect of government, and this particular opportunity provides a rare chance to plan ahead, think strategically, and accelerate transformation.

Read the full report here https://www.nifiscalcouncil.org/files/nifiscalcouncil/documents/2026-02/WEB%20VERSION%20-%20NIFC%20-%20Budget%20Assessment%20Final%20Doc.pdf