Lessons from the Stormont House Agreement

Published: 17 February 2015
Following disagreements in the Northern Ireland Executive between the two main parties, the DUP and Sinn Fein, which threatened the continuation of the devolved institutions, extensive inter party talks took place in late 2014.These negotiations also involved the British and Irish governments with an input from the USA administration and led to the Stormont House Agreement. A large part of the agreement related to the specific Northern Ireland problems of dealing with the past, flags and parades but the remainder covered the topics of welfare reforms, new financial powers and institutional reform which are of relevance to devolution more generally. 
An impasse over the introduction of the UK government’s welfare reforms and their financial implications was the immediate cause of the political negotiations. Unlike Scotland and Wales social security is a devolved matter in Northern Ireland although traditionally had followed the principle of maintaining parity. Difficulties arose not only in the acceptance of the UK government’s welfare changes but in the practice that the Treasury funded the total cost of social security in Northern Ireland as annually managed expenditure, outside the allocations of the Barnett Formula. A degree of flexibility on welfare reform was negotiated by the DUP minister, covering fortnightly payment of benefits; split payments in a household; and the option of direct payments of housing allowances to the landlord. These three flexibilities were later to be adopted by the Smith Commission for introduction in Scotland. Action was also taken in Northern Ireland to fund the postponement of the introduction of the under-occupancy / bedroom tax. However, these changes were not sufficient to attract Sinn Fein to support a Northern Ireland version of the Westminster Welfare Reform Act. The UK government reacted by imposing financial penalties for the absence of welfare savings through reductions from the Northern Ireland block grant, estimated as £87million for 2014 and £108million for 2015.
This threatened a financial and constitutional crisis through the failure to pass a budget, only averted at least temporarily by the Stormont House Agreement. Northern Ireland would be able to diverge from the UK through drawing on part of a package of financial support. This covered capital funding, borrowing facilities, proceeds from assets sales and direct funding for bodies to deal with past. The key initiative was the flexibility to repay Treasury loans and deductions for welfare from asset sales and capital budgets for 2014 and 2015.The financial package is subject to the Welfare Bill being enacted and implemented by 2016-17. Party leaders accepted that the Executive will be responsible for the costs associated with the welfare regime when discretionary top-ups mean it differs from that in Great Britain. Northern Ireland’s crisis over social security draws attention to more general perspectives. Firstly; the difficulties with the parity model, and devolving social security but not the funding; secondly, problems likely to arise from devolving some welfare powers but not others; and, thirdly, the interpretation of the provisions of the Treasury statement of devolved funding on actions to be taken if  Northern Ireland diverges from parity. 
The debate on new financial powers has been dominated in Northern Ireland by the possible devolution of corporation tax, not of components of income tax. In the Agreement the UK government made a commitment to introduce legislation to devolve corporation tax in 2017 but only in parallel with the implementation of key measures to deliver sustainable Executive finances and progress on welfare reform. The proposal remains controversial as devolution will mean the block grant will be adjusted to reflect the corporation tax revenues foregone by the UK Government, possibly meaning a £300million reduction. Additional fiscal devolution is under consideration, including Aggregates Levy, Stamp Duty Land Tax and Landfill Tax. Also linked to additional Treasury financial support are proposals for institutional reform. This is aimed in part at cutting administrative costs by reducing civil service numbers and the number of government departments and in part at making the institutions more efficient through a number of measures. These include a new protocol on blocking mechanisms, facilitating an official opposition and streamlining Executive business. One lesson of the crisis is a need for a more formal mechanism for regular intergovernmental contact between the Executive and the Northern Ireland Office on overlapping powers, finance and the development of the devolved institutions, rather than invoking crisis management techniques.
Derek Birrell is Professor of Social Policy in the School of Criminology, Politics and Social Policy at the University of Ulster.

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