Tomorrow is another milestone in the long-running story of the Northern Ireland Executive not having a Budget for this year. On 1 August, at the start of the fifth month of the financial year, the Permanent Secretary at the Department of Finance (DoF) can increase the spending authorisation for NI Departments to up to 95% of last year’s budget. While there won’t be much fanfare around this, it does serve as another reminder of the irregular position of Northern Ireland's finances at present.
What’s does the 95% limit mean in practice?
Without authorisation in an agreed Budget, it falls to the most senior official in DoF to give Departments permission to continue spending so public service delivery can continue. The authorisation at the start of the financial year was for spending up to 45% of last year’s budget, which can be increased to up to 95% after 1 August. This is then the upper limit - spending this year cannot be higher than 95% of last year’s budget - so in effect it is a spending cap. Implementing this would obviously be very problematic - only being able to spend to this level would mean catastrophic cuts to departments’ spending.
Why are more alarm bells not ringing about this?
A 5% reduction in spending from last year’s initial allocation would be an extremely serious situation for NI Departments. However, no one realistically expects that the 95% limit will bite in practice. There are three scenarios that might play out. The most likely is that the UK Government offers Northern Ireland a financial deal that increases the amount of funding available this year and so makes agreeing a Budget more likely (more on this later). But even if this doesn’t happen, it’s highly unlikely that either the UK Government or the NI Executive would allow the 95% limit to come about. So the NI Executive could agree a budget even if it finds the numbers completely unacceptable, just to avoid losing some of its spending power. If this didn’t happen, for the same reason the UK Government could step in and set a Budget for Northern Ireland (as it did in 2017 and 2022 when the Executive was not in place). At the NI Affairs Committee in Westminster recently, the former Secretary of State was adamant that setting a Budget was not his role, but it remains an option of last resort if all else fails.
How have we got to here?
The UK Spending Review in July 2025 gave Northern Ireland a 3-year funding settlement, opening up the opportunity for the Executive to agree a multi-year budget. However, no agreement was reached, with the Finance Minister’s proposals being immediately rejected by other ministers. Discussions between DoF and Departments followed, but without agreement. In one sense this is not surprising given the very limited amount of funding available, which in 2026-27 represents an increase of less than 1% on last year’s spending in cash terms. Ministers understandably baulked at how they would, for example, cover pay awards of 3% or more with a budget that was barely increasing in cash terms. Collectively the NI Executive therefore went back to the UK Government asking for increased funding, most recently pointing to pressures of £1.5 billion this year. They are asking for similar treatment to Scotland and Wales, where funding is above their levels of relative need. A similar approach in NI would give the Executive £3bn or £1bn more annually respectively. Having responded with a hard line for months, the Secretary of State invited the NI parties to talks about budget setting at Hillsborough in early July, with the Chief Secretary to the Treasury also attending.
What’s the UK Government’s position?
In the early months of the year, the UK Government was taking a tough approach, saying that the NI Executive had received a record funding settlement and that it needed to agree its own plans for working within it. The Treasury’s Open Book Review was brutal in setting out policy choices that could save up to £3bn annually (but some questionable assumptions undermined the value of the whole analysis). However, the language seemed to soften around the time of the Hillsborough meetings at the start of July, with the (then) Secretary of State asking the NI parties “to meet the UK Government halfway”. A programme of work was launched requesting more information from Departments about their financial pressures, and asking the Executive to come up with plans for fiscal sustainability (i.e. how they would manage spending and revenue raising to keep within future budgets) and public services reform. The indications would suggest that these conversations are heading towards some kind of new financial deal for Northern Ireland, perhaps given extra impetus by an upcoming visit to NI by the new UK Prime Minister. We wait to see whether there will be any change of approach with the new PM’s appointment (including his commitment to increased devolution, potentially about tax revenues), along with a new Secretary of State for NI and new Treasury Ministers.
Pivotal analysis
Some points from Pivotal:
Not having a Budget for this year is a very damaging situation that needs to be resolved as soon as possible. No Budget means not getting the best from the funding available; an inability to plan for service delivery, workforce, investment and reform; not being able to start important new initiatives; and uncertainty for funded organisations. Contingency budgets for Departments that have been set by a civil servant have a lack of democratic accountability.
It looks like NI Departments are heading towards an overspend of £1 billion or more this year compared to the current funding allocation. Obviously the Executive is hoping that a new funding package might help to reduce or eliminate this. A concerning implication from repeated overstretched and overspent budgets in recent years is that the requirement on Departments to keep within their funding allocations seems to have weakened.
The 95% spending limit is real in legal terms, but no one really believes it will bite in practice given the catastrophic implications for NI Departments’ spending, public services and pay awards. It’s more likely that the NI Executive or the UK Government will step in to set a Budget (even if it’s unpalatable) to avoid the cut in funding.
Once again there is a stand-off between the NI Executive and UK Government on finances - the Executive is asking for more funding, the UK Government is maintaining its usual tough line. The NI Fiscal Council has noted recently that the ‘Treasury Always Chickens Out’ in these negotiations, and that NI politicians know that if they press hard enough they will probably get another special deal. A new financial package for Northern Ireland seems the most likely outcome, with conditions attached by the Treasury about future fiscal sustainability and public sector reform. The key will be the amounts of funding involved, whether they address longer term structural issues, and the nature of any conditions.
Any financial deal must be sustainable, enabling the Executive to manage its own budget. A ‘reset’ is needed that brings to an end the recent annual requests for more funding from the UK Government. There have been too many previous arrangements which sought to solve structural funding problems with short-term funding injections, only for the same problem to occur again in later years.
NI Executive needs to take responsibility for its own budgetary management, including fronting up to difficult and unpopular decisions about revenue raising, public service reform, super parity policies, public sector pay and the size of the public sector. In the current negotiations, the UK Government will be looking for the Executive to provide its own plans for public service transformation, budgetary management and revenue raising. The UK Government needs to follow up on conditions in any settlement, something it has often failed to do in the past.
