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Northern Ireland’s strained public services face a fresh funding crisis despite a UK government loan to help plug a £450mn budget hole, the region’s fiscal watchdog has warned.
Overspending has now become “a recurrent feature rather than an exception” and the need to pay back the UK government’s £400mn loan over the coming three years will further squeeze public finances, the Northern Ireland Fiscal Council said in a report on Tuesday.
“The overspend this year has been largely driven by decisions to match UK government pay deals [for public sector workers],” said Sir Robert Chote, chair of the independent watchdog. The two departments with the biggest overspends are education and health.
Budgetary pressures will persist unless Northern Ireland’s Stormont executive takes politically unpalatable action to reduce jobs, ditch pay parity or introduce revenue-raising measures such as water charges, he added.
Analysts say that is unlikely: the main parties are vehemently opposed to charging households for water and have an eye on Stormont Assembly elections in May 2027.
Pivotal, a think-tank, estimates the budget hole for 2026-27 could be £900mn if Stormont spending continues at the same rate as this year.
“The cliff edge [for 2026-27] is better but it hasn’t gone away,” said Fiscal Council member Maureen O’Reilly, presenting an assessment of finance minister John O’Dowd’s draft budget spanning 2026-27 to 2029-30.
The National Health Service in Northern Ireland is buckling under the strain of the UK’s worst waiting lists © Liam McBurney/PA
While officials in London say Northern Ireland receives more per head than any other part of the UK, local politicians insist the funding is insufficient to match the region’s needs.
Northern Ireland has long failed to make ends meet, relying on repeated bailouts from the UK government — indeed, 2025-26 is the fourth year in a row that the Treasury has provided extra cash to help balance the books.
But these bailouts are themselves problematic in a region where the National Health Service is buckling under the strain of the UK’s worst waiting lists and a lack of cash to invest in water infrastructure is hampering housebuilding.
“The Treasury loan has softened what would otherwise have been a much steeper fall in real spending power next year,” Chote said. “But repeated exceptional support risks making such interventions appear routine rather than exceptional and may reduce the incentive to address the underlying causes of overspending.”
Jodie Carson, a professor at Ulster University and co-director of its strategic policy unit, went further, calling the practice a “moral hazard”.
“It’s not only an absence of incentives we have here, it’s perverse incentives,” she said.
Stormont receives most of its funding from the UK government in the form of an annual block grant, which is at record highs, and receives 24 per cent more per capita than England because it has been assessed as having higher needs due to poverty and the legacy of the Troubles.
The block grant is set to rise to £19.8bn in 2028-29 under the UK’s three-year spending review, from £18.4bn in 2025-26.
But keeping pay parity with England’s public sector workers is difficult since Northern Ireland has a comparatively large public sector workforce. Under the formula for funding Northern Ireland, funding grows in line with population rather than public sector workforce size.
“So when the UK government agrees, say, a 5 per cent increase in public sector pay in England, the block grant does not rise enough to match that in Northern Ireland,” Chote said.
Northern Ireland Finance Minister John O’Dowd’s budget appears to already be in trouble © Liam McBurney/Getty Images
In any event, O’Dowd’s budget already appears to be in trouble.
The finance minister, from nationalist party Sinn Féin, has put his proposed package out for a public consultation which runs until March 3 and it would normally be expected to be approved by the end of the month.
But the pro-UK Democratic Unionist Party, the Ulster Unionist Party and the nonaligned Alliance Party, which are Sinn Féin’s partners in the Stormont executive, have all rejected it, as has the small nationalist opposition party, the Social Democratic and Labour Party.
“It’s hard, at this stage, to be confident . . . that the executive is going to be able to get agreement on a budget,” Chote said.