Treasury loan is ‘de facto bailout’ masking budget overspending, Stormont warned

A boost from the Treasury is a “de facto bailout” that “masks deeper fiscal strain” in Stormont’s budgetary situation, a fiscal watchdog has said.

The NI Fiscal Council has published its assessment of Finance Minister John O’Dowd’s multi-year budget, and warns the Executive needs to “address the underlying causes of overspending”.

NI departments are on course to overspend their budgets again this year by almost £460 million, but the UK Treasury has agreed to provide a loan of £400 million from its reserve, to be repaid over three years.

The Fiscal Council has said this support “reduces, but does not remove, the cliff-edge reduction in real funding for public services in 2026-27”.

Its analysis claims: “The Treasury loan acts as a de facto bailout. By offering substantial assistance without any significant conditionality, the Treasury risks signalling that similar interventions are likely to be available in future years.

“This could dull the Executive’s incentive to take difficult fiscal decisions on revenue, the size of the public sector workforce and the sustainability of pay parity with Great Britain.

“Health and education will enter 2026-27 with opening budget allocations that are lower than the amounts they expect to spend this year despite these departments being responsible for this year’s overspend.”

It has further analysed that public sector pay remains the dominant structural pressure, as NI’s comparatively large public sector workforce means that when the UK Government increases spending to deliver a particular percentage pay deal in England, the block grant does not rise sufficiently to finance the same deal in NI.

The body predicts rising pay settlements, overspend recovery and restricted flexibility due to earmarked funding heighten the likelihood of renewed overspending in the next budget period.

The draft budget has not been accepted by Mr O’Dowd’s colleagues in the Executive, with DUP leader Gavin Robinson having said there is no point agreeing to a budget which “doesn’t work”, just because it lasts for three years.

The Fiscal Council has acknowledged the budget is therefore “unlikely to unfold as presented”, but it warns it is not clear there is “an alternative configuration of the available resources that would command widespread support”.

The body concludes there is a significant risk that no budget will be agreed before the new financial year.

Sir Robert Chote, chairman of the council, said the Treasury loan “has softened what would otherwise have been a much steeper fall in real spending power next year”.

He added: “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.”