This week the Northern Ireland Executive’s Budget will be back in the headlines. Last Thursday the BBC reported that the Secretary of State had written again to the parties urging them to reach agreement, but that he had also instructed his officials to consider contingency plans if the impasse continues. In practice this could lead to the UK Government setting a Budget for Northern Ireland over the heads of a sitting Executive.
What you need to know
More than six months into the financial year, still no budget has been agreed by the Executive for 2026-27. The parties are unanimous in saying that the amount of funding available is insufficient to deliver public services here. They have been asking for more funding from the UK Government, most recently for Northern Ireland to be funded above its level of need to the same extent as Scotland and Wales. After repeated requests in the spring got no positive response, within the last few weeks the Secretary of State has offered a new funding package for 2026-27 and the following two years.
The Secretary of State’s latest offer totals to £1.5 billion over three years, which is an increase from £1.1 billion a few weeks ago, and also a big step up from the hard line of “no more money” maintained by the previous Secretary of State earlier in the year. So the Executive’s strategy of digging in has been successful so far, and at a different time might have been seen as a good outcome.
The £1.5 billion splits into £525m/£525m/525m over the next three years (2026-27, 2027-28 and 2028-29), made up of £450m/400m/400m for day to day spending (resource DEL) plus some ring-fenced funding for public service transformation, social housing, and tackling fraud and error in the benefits system.
The Secretary of State emphasised that this was his final offer. It seems that he has dismissed the Executive’s request for funding above its level of need.
In the absence of a budget, emergency arrangements mean that the Permanent Secretary in the Department of Finance has given Departments authority to spend up to 95% of last year’s funding (which in total would turn out to be several hundred million pounds less than the funding available if a budget were agreed this year). This is only meant to be a short-term measure, and as the year goes on it is becoming increasingly unsustainable. A crunch point is approaching when a budget will need to be set, either by the Executive, or failing that by the UK Government.
The Secretary of State can bring forward a budget for Northern Ireland in Westminster even with an Executive in place. This would be unprecedented, and undoubtedly would be opposed, but in the absence of an agreement by the Executive, it would be preferable to losing the funding that would result from continuing with the emergency 95% arrangements.
Pivotal analysis
Is the Secretary of State’s latest offer enough? - the most immediate part of the funding offer to consider is the RDEL of £450m/400m/400m, and the most time-pressing part of this is the £450m for 2026-27. This falls well short of the £1.6m total pressures that the Finance Minister says are faced this year. Even if this year’s shortfall was reduced down to, say, £900 million, it would still be twice what the UK Government is offering. It’s very hard to see how further savings of this scale could be achieved in 2026-27 when we are already more than six months into the financial year. Neither efficiency savings nor revenue raising could yield that amount in such short order. If this budget was imposed by Westminster, then another large overspend would likely ensue. There is then a further problem that the additions in the next two years are lower (£400m) in a context where pay and other costs will be rising.
What about public sector pay awards? Pay costs make up around 60% of RDEL, and pay awards are a large part of annual increases in departments’ spending (so they are a big proportion of the £1.6 billion pressures on this year’s budget). Pay awards have not been signed off for this year yet because of the lack of an agreed budget, but there is a clear expectation of maintaining pay parity with GB in many sectors. Being able to make acceptable pay awards is a key goal in the Executive’s negotiations of its funding - they are seen as essential to reward and retain staff, and to avoid industrial action. A financial deal that leaves the Executive short of the necessary funding for pay deals is unlikely to be accepted.
Short-term patch-ups don’t work for long-term problems - another unsatisfactory feature of the proposed funding package is that it once again offers a short-term injection of money in an attempt to solve longer term structural problems. The deal would boost NI’s finances in the short-term, but then the same problems would re-emerge. This is exactly what happened after the 2024 funding package when the Executive was restored; there was a funding boost in the short-term, but then the same long-term problems returned, resulting in a series of annual overspends. (For example, if you dig into the detail of the numbers, part of the reason for the financial problems in 2026-27 is the ‘cliff-edge’ created by the end of the 3-year stabilisation funding in the 2024 package.)
This is all happening far too late in the day - NI’s funding settlement has been known for at least 16 months (since the Spending Review in June 2025). The pressures coming this year have been obvious to anyone who looked into the numbers. The Executive and the UK Government should have been much quicker to address the difficulties this would create. Even looking just at the period since the Finance Minister’s proposed Budget in January 2026, far too much time has been lost when both sides should have been getting on with resolving the issues.
Can a solution be found?
Northern Ireland needs a Budget urgently, not just because public services and other organisations funded by Departments need to know their budgets for this year, but also because the 95% emergency arrangement will mean not all the funding that has been allocated for this year would actually be available. The money would run out around the middle of February, which would be catastrophic.
It may be helpful to think of this as a short-term and a longer-term problem. In the short-term, the amount being offered this year is far below what the Executive says it requires. The £1.6 billion pressures figure may be over-inflated, but while Pivotal hasn’t seen the numbers, it seems unlikely the actual overspend this year will come out below £900m-£1bn. This is well above the £450m on offer. In the six months remaining before the end of the financial year, it would be very difficult to make further savings or raise extra revenue to cover this gap. That is just not feasible in the time available.
The longer term offers more potential for savings and/or more revenue raising, and that is the only place to look for realistic solutions. The smart approach from the Executive would be to present a credible plan for how it will manage its finances in the coming years, taking on issues like efficiency savings, public service transformation, the size of the public sector, ‘super parity’ policies, increased revenue raising, and, importantly, growing the economy. These are all areas that have been highlighted for years; if the Executive can get on the front-foot with a serious plan, it might find a more positive response to a request for more support in the short-term to put that plan into action. A willingness to address some of NI’s biggest public finance challenges might unlock some more flexibility in the funding available to deal with the immediate pressures.
A credible plan for its future finances would be a bold and ambitious step from the Executive. There would be difficult and unpopular choices, which previous rescue packages have allowed to be postponed. Unfortunately, the fragility of relationships between the parties makes such a plan very unlikely; at present there would not seem to be the bandwidth for the debate and compromises needed. But if Northern Ireland is to avoid a Budget set by Westminster, such a forward-looking plan may be the only way ahead.
