NI’s budget watchdog warns pay parity may not be sustainable

Northern Ireland’s budget watchdog has warned that maintaining pay parity between Northern Ireland’s public servants and those in England may not be sustainable.

Northern Ireland’s Fiscal Council has published its assessment of the Executive’s draft budget.

It highlighted a number of risks including a funding cliff edge in 2026-2027, a £100m funding gap facing Northern Ireland Departments as a result of national insurance rises and other “exceptional pressures” such as the PSNI data breach.

It says that all of this suggests that it will be a challenge for the Executive not to overspend this year.

The report suggests a number of interventions which the Executive could use to help ease budgetary pressures, such as reviewing pay parity and increasing household contributions.

For example, the introduction of explicit domestic water charges and/or the equivalent increase in the regional rate.

Rates are a property tax which help fund public services in Northern Ireland. Bills are issued to households and businesses in Northern Ireland by Land and Property Services (LPS) at the start of the new financial year in April.

Bills are calculated using the district rate, set by councils, and the regional rate, set by Stormont.

The report said that while the Infrastructure Minister has ruled out domestic water charges, “it is difficult to see how the provision of water services can continue on the current basis, especially given Ofwat’s view that substantial real increases in water charges are now required in England and Wales.”

Another potential intervention would be moving away from pay parity.

That’s because when the UK Government spends more to finance pay deals in England, the amount Northern Ireland gets via the Barnett formula does not cover the cost of an equivalent percentage pay deal in NI because of its larger public sector.

This report says that as a result, services have to be squeezed to match English pay rises.

But it recognises such a move would “be unpopular among those affected.”

Chair of the Council Sir Robert Chote said: “We acknowledge the positive impact the UK Autumn budget has had on the Executive’s draft budget for 2025-26 but most of the additional funding meets existing pressures rather than enabling new priorities, or public service transformation.

“The question of whether NI will be funded at need in future remains an open one, but this shouldn’t distract the Executive from continuing to ensure NI’s public finances are made more sustainable,” he added.