Stormont’s Finances: Understanding Underfunding

Is Stormont underfunded? If so, how much of that is self-inflicted? What does underfunded, in this context, even mean?

It is difficult to understand the budgetary pressures at Stormont without understanding the local claims that Northern Ireland is underfunded by Westminster, and vice versa. However, this knowledge is useful for anyone interested in Northern Ireland. Some key points:

• Financial pressure is not the same as being underfunding – in the past decade, NI’s funding has met its assessed level of need, and sometimes been much higher, with public services struggling regardless.
• Northern Ireland’s public services are under huge strain. The financial pressures on the budget are immense. Topping up with local revenue generation is politically unpopular – even though, in some significant ways, NI tax levels are lower than elsewhere in the UK.
• Claims from Stormont about Westminster underfunding NI go back decades – to the earliest days of the modern Assembly.
• However, current budgets are perhaps the tightest in memory and there is a chance NI will slip below its level of need this year.
• Recently the First Minister and Finance Minister have repeated claims of local underfunding, but now arguing that Scotland and Wales are both funded well above their levels of need.
• According to DoF calculations, if NI were funded at the same level as Wales it would receive an extra £1bn per year – while support at Scottish levels would mean an extra £3bn. These figures are supported by the NI Fiscal Council.
• The First Minister and Finance Minister say NI should receive more money; the NIFC suggests allocations in Scotland and Wales should reduce instead.

This article will provide a broad outline of local public finances as well as claims of underfunding, and provide some details and context on the arguments being made. For more information, read on.

• Underfunded?

Throughout Spring and into early summer, the First Minister and the Finance Minister repeatedly made the point that Northern Ireland does not get enough money. Michelle O’Neill stated that the UK Government “don’t get it”, she would “unapologetically” keep asking the Treasury for more, and that:

“[For] for years we’ve been making the exact same argument. The fact is the starting point here is that we are under-funded.”

However, the point being made by Ms O’Neill and, later, John O’Dowd isn’t actually the same as previous arguments. Central to the current claims of underfunding is the idea that Northern Ireland is underfunded when compared with Scotland and Wales. According to the First Minister:

“[Relatively] speaking, when you compare the funding that Scotland achieve and what Wales achieve compared to our starting point, there’s a distinct unfairness there … If we’re funded to the same tune as Wales, we would have £1.1 billion in additional funding. If we’re funded to the same tune as they are in Scotland above their level of need, we would have £3 billion in additional funding.”

• Multi-year budgets

Broadly speaking, governments work better when they set spending plans over several years rather than just the next 12 months (or even less time than that).

Benefits of multi-year budgets can include greater certainty, longer-term planning and greater flexibility, which all allows for a more strategic approach to public services and investment.

The benefits of multi-year budgets are recognised in the Assembly. However, for over a decade, Stormont has either muddled through with single-year budgets or no agreed budget at all. The last multi-year budget was for 2011-15.

• Barnett formula

The majority of Northern Ireland’s public purse stems from the block grant, which is an amount of funding directed to the devolved institutions from Westminster. The level of funding is based on budgetary spending in England, and is calculated via the Barnett formula.

In general, if spending goes up (or down) in England it will also go up (or down) here – but not necessarily by exactly the same amounts. More details can be found in this article.

• Current pressures

Last December, with Northern Ireland set to announce its first multi-year budget in a decade, think tank Pivotal published a report analysing the challenges and opportunities this presented.

It forecast overspending in 2025-26 of around £400m – that’s 2.4% out of a total resource budget of around £17bn – plus an estimated £119m to cover the PSNI data breach. It also said that major overspending had only been avoided in the three years prior because of standalone settlements made between Belfast and London.

Pivotal’s analysis indicated that, based on the fact that the block grant was set to grow by very little in the following three years, the coming multi-year budgets would be extremely challenging (even more so if previous overspending has to be accounted for as well).

“Northern Ireland’s resource DEL [is set to rise] by just 0.3% annually in real terms over the next three years. Over the previous six years, resource DEL rose by 2.1% annually in real terms.”

Pivotal also highlighted just how much certain departments’ budgets have grown in the past eight years: Health by 68%, while Education and Infrastructure are over 60%.

However, budgets for the Departments of Justice (an increase of 28%), Communities (15%) and Economy (more or less flat) have not grown by nearly so much. And when inflation is taken into account, they are being funded at a lower level than they were in 2017-18.

The shape of government spending has changed significantly in the past decade.

• Multi-year failure

Pivotal’s paper laid out the challenges for the anticipated multi-year budget, saying that tough choices needed to be made involving clear prioritisation in public spending.

However, it also stated that this represented an “important opportunity to take a strategic look at all aspects of public spending” and that “despite the difficulties, the Executive should grasp this opportunity and avoid falling back on setting another single year budget.” The paper warned that:

“The Executive needs to break the cycle of repeated annual budget crises.”

In the end, that did not happen.

The Finance Minister tabled a draft multi-year budget that was rejected by Executive colleagues – including the Economy Minister Caoimhe Archibald, a Sinn Féin colleague of Mr O’Dowd.

The stated reasons for these objections were, overall, quite simple. Individual ministers felt the budget did not meet the bare-minimum needs of their departments.

• Historically underfunded?

In a debate regarding departmental “supply” in the Assembly just over 26 years ago, Alliance Party MLA Sean Neeson praised the fact that the “injustices of direct rule were over” and that, with control of our own affairs, we “no longer have to go cap-in-hand to Northern Ireland Office Ministers, as so often in the past”.

He raised the example of the railways – “faced with obsolete rolling stock and a track in poor condition” – which he said was down to “many years of underfunding”, adding that fixing such problems “is what this Assembly is all about”.

During the same debate, SDLP MLA Alban Maginness said:

“If we look carefully at what is being presented to us and reflect back on the way in which Government expenditure was distributed during the sustained period of direct rule, we can see an historic neglect … It is for us as a new Assembly and a new Administration to address that historic underfunding. ”

They were not the only MLAs to raise the matter of underfunding, which was an established political issue in the earliest days of the modern Assembly.

In March 2023 – with the Assembly in the early days of a four-year period of collapse – the Northern Ireland Economic Council published a paper on funding the Assembly said that the devolved institutions had actually struggled to spend their whole budget which “contrasts markedly” with “loud complaints … that they are underfunded”.

The collapse would only end in May 2007, following the St Andrew’s Agreement of the previous October. That agreement involved a settlement of extra financial support from Westminster.

• Getting more money

Asserting that something is underfunded is the same, more or less, as stating that it should get more money.

Given the nature of Stormont, when it asks for more money it is asking Westminster to provide that money. Several times it has, including:

• 2006 – the St Andrew’s Agreement included commitments to establish a financial package to support the new power-sharing government.
• 2014 – the Stormont House Agreement came with its own “financial annex” detailing extra spending power of almost £2bn. 
• 2015 – another agreement, this time called A Fresh Start, came with an additional £500m.
• 2020 – the New Decade, New Approach deal included a four-pronged financial commitment to support the health service (including addressing budgetary pressures), investment to transform public services, “turbocharging” infrastructure delivery, and “addressing Northern Ireland’s unique circumstances”. This settlement existed in parallel to investment from the Irish Government.

This is by no means an exhaustive list (if nothing else, due to the nature of budgeting, Northern Ireland frequently gets in-year extras from London via the Barnett formula). The confidence and supply deal negotiated in June 2017 between the Conservative government and the DUP provided the NI Executive with an additional £1bn over five years.

Nevertheless, it indicates that Northern Ireland has repeatedly received standalone financial packages from the UK (and elsewhere).

• Levels of need

Northern Ireland’s level of need has traditionally been assessed relative to levels of funding in England.

In 2008, the Holtham Commission was established to determine what would amount to adequate levels of funding in Wales compared with England. Its final report was published two years later and also included estimates of the relative funding levels required in Scotland and Northern Ireland, based on various factors (a detailed description can be found in Annex 4 of the report itself).

Ultimately, Holtham estimated that Northern Ireland required £121 in public spending per person for every £100 spent per capita in England in order to match its quality of public services – i.e. a needs threshold of 121%.

In May 2023, the Northern Ireland Fiscal Council (NIFC) published an updated assessment, suggesting that NI’s level of need should instead be considered at 124%.

A year ago, a fresh independent review was undertaken to assess NI’s level of need. Professor Gerard Holtham’s baseline assessment was slightly less than the Fiscal Council’s analysis, at 123%. This is complicated by recent changes to allocation of funding to agriculture and fisheries. Ringfenced support for farms and fisheries was removed in 2025-26 and replaced with standard application of the Barnett formula. If that is factored in, Holtham assesses the relative level of need at 128%.

In most current discussions, the Fiscal Council’s 124% threshold is considered the baseline, although this may change in future and be a point of negotiation.

• Has Northern Ireland been underfunded?

In May this year, the Treasury published its report Open Book Review of Northern Ireland Executive Budget, produced with cooperation from the NI departments.

The review notes that the NI Executive has agreed that agriculture funding should be excluded from relative assessments of need and that a relative need level of 124% has been considered the working benchmark – noting also that, if funding ever falls below 124% of England, extra allocations will be brought forward based on adjustments to the Barnett formula.

The review states that:

“The Executive is funded above 124% in every year of this Spending Review period (to 2028-29). This means that, for every £1 spent by the UK Government on comparable public services elsewhere in the UK, the Northern Ireland Executive gets at least £1.24 …

“[Including non-Barnett funding, the Northern Ireland Executive has been funded above 124% across the last decade and in all years of the Spending Review 2025 period.”

This assessment is laid out in the following chart which shows relative spending levels compared with England in previous years, as well as projections until the end of the Spending Review period (which runs until 2028-29).

Figure 1 – source: UK Treasury

This means that the Treasury believes that Northern Ireland has not been underfunded, according to its assessed relative level of need, in any year since 2016-17. And in many years NI has received funding far above 124% of spending in England.

It should be noted that, in some of those years, the initial Barnett allocations did not meet the 124% threshold but this was ultimately surpassed with extra support.

• Revenue raising

Northern Ireland’s departments are under immense strain. If more money is needed, then there are several ways – beyond asking Westminster for more – that this could be achieved.

However, Stormont has been historically averse to raising local taxes, such as rates, or creating new ones (water charges, prescription charges, or more).

A March 2026 briefing paper from the Assembly’s Research and Information Service (RaISe) states that:

“Northern Ireland raises only 5% of revenue locally – the lowest level in the developed world among comparable jurisdictions – with the remaining approximately 95% of the Executive Budget funded through the Block Grant received from central government.”

RaISe points out that a comprehensive review of possible revenue-raising measures was undertaken in 2023. It looked at domestic water and sewerage charges, rating system reforms, hospital parking charges, and private streets inspection fees and identified “a potential aggregate annual revenue of between £511m and £533m, if all were implemented” with water charges alone accounting for £307m.

None of these have been implemented and instead, in many ways, Northern Ireland remains a low-tax jurisdiction.

The Treasury’s open book review notes that NI delivers “more generous provision in a number of areas … without sufficient savings or revenue raising to offset these costs” and that this results in “sustained pressure on the Executive’s budget.”

Pivotal’s paper from December last year compared local household taxes to other parts of the UK:

Figure 2 – source: Pivotal

According to Pivotal:

“Lower rates and zero domestic water charges mean that household charges in NI are much less than in the rest of the UK – over £1,000 less annually than England and Wales, and almost £700 less annually than Scotland (which has a similar average income).”

• Multi-year redux

Last June, following the Chancellor’s Spending Review, Finance Minister John O’Dowd said that he had been consistent in asking for more money from the Treasury.

“As a result of negotiations with Treasury since the beginning of this mandate, my predecessor and I have delivered an additional £1.3bn for public services here. My agreement with Treasury has avoided the financial cliff edge I have warned of becoming a reality and the damage that would have caused to public services.”

He said the Executive would still remain in a tight financial position “particularly in 2026-27” but that a multi-year Budget “will enable the Executive to plan on a longer-term basis” and can “create the conditions and circumstances for transformation.” He added:

“While this Spending Review hasn’t provided the economic stimulus it could have, I will work together with my Executive colleagues to develop a budget which supports families, workers and communities.

Fast forward half a year, and the Finance Minister’s multi-year budget failed to get off the runway.

• The new argument

In April, the First Minister raised comparisons between Northern Ireland, Scotland and Wales. This argument has been repeated several times since.

During a session of oral questions in the Assembly on 27 April, Ms O’Neill said:

“Public services here have been systematically underfunded for generations, and the British Government’s austerity politics and policies have really constrained our ability to invest across all our public services. They have compounded the problems that we see in Health, Education and Infrastructure … Broadly speaking, when you directly compare us with Scotland and Wales, you see that it is just over 100% in Scotland and 115% in Wales, yet they both have been funded above their identified level of need. We are asking for the same thing, because it would make a hugely significant difference in what we could invest in our public services.”

The Finance Minister has repeated this point several times too, including during question time in the Assembly, in written answers to MLAs, and in a 3 June appearance in front of the Finance Committee.

Officials from the Department of Finance (DoF) also appeared in front of the committee on 17 June where they gave a detailed breakdown of this argument.

The point they made is that Wales is being funded at approximately eight percentage points (pp) above its level of need during the Spending Review period (up until 2028-29 inclusive) and that Scotland is being funded 20pp above its level of need.

In Northern Ireland terms, one percent of the local level of need equates to around £150m so if NI were funded at Welsh levels it would have roughly an extra £1bn per year while funding to Scottish levels would equate to around £3bn per year.

This argument has been backed up by research from the NI Fiscal Council. On 16 June, NIFC published its latest Sustainability Report, which states:

“Our analysis suggests that these estimates are reasonable. But it would not necessarily be good policy to increase NI’s funding well above need simply to match Scotland or Wales, especially from the UK Government’s perspective. One might conclude that it would be fairer and more sustainable to reduce funding in Scotland and Wales closer to need. But this would be very politically challenging for any UK Government, which helps explain why the Barnett formula and the historical funding premium that Scotland has enjoyed have persisted so long. It should also be remembered that NI was also funded well above need until relatively recently.”

So, while the Fiscal Council accepts the point raised by DoF and the First Minister, it does not agree that this should mean more funding for Northern Ireland.

NIFC also suggests that, based on the latest population projections, there is a risk NI will fall below its assessed level of need to around 123% of per capita spending compared with England, amounting to a shortfall of around £170m in 2026-27.

• What now?

Could Stormont use more money? There are many reasons to believe it could. Health transformation in line with the Bengoa report remains a priority while more work needs to be done to reduce waiting lists (such as Emergency Department times) in the near term.

The crisis in the waste water system persists, social housing new builds are falling short of targets, and the PSNI has a significant shortfall in officer numbers.

While there are plenty of important places to direct new money, it is also the case that Northern Ireland has largely been funded at – or even well above – its assessed level of need in the past and still finds itself beset by huge public service challenges. While the Fiscal Council agrees with DoF’s calculations of overfunding for Wales and Scotland, it suggests those other nations see a reduction rather than NI getting a boost.

Ultimately, the way you feel about these arguments – of underfunding and asking for more, and of meeting NI’s objective need versus ensuring we enjoy the same premium as Wales or Scotland – is all up to you.

For now, Stormont is on summer recess. Talks have taken place between the Executive parties and officials from the Northern Ireland Office and Treasury about budgeting at Stormont.

However, if and when you do read more about underfunding at Stormont, hopefully this guide will help provide an understanding of the issues at play.