Pensions/Welfare: what is “parity”?

The Public Sector Pensions Bill is currently making its way through Stormont.

This is essentially parallel legislation with the 2013 Act which has already gone through Westminster. As it falls under welfare, it is subject to a process known as “parity”. This has led to a lot of misunderstanding (some of it, frankly, intentional).

“Parity” was a deal brought in at the time of the beginning of the Welfare system between the UK Treasury and the Government of Northern Ireland. The basic principle is that everyone in the UK should be subject to the same welfare provisions (including pensions); the deal itself is that, although welfare (including pensions, out-of-work benefits and so on) is devolved to Northern Ireland, the UK Treasury will make up any shortfall in the funding of it provided Northern Ireland enacts the same policies.

This is entirely separate from the “Barnett Formula”, which dates from the Callaghan Government. That was a formula, meant to be used on a temporary basis, whereby funding (i.e. public spending allocated to what are now devolved institutions) for Scotland, Wales and Northern Ireland would go up or down proportionately depending on how it goes up and down in England in a way devised to ensure everyone in the UK enjoys the same standard of living (on average in each country). So, for example, if health spending rises in England, it rises by the equivalent amount in Northern Ireland – however, for example, Northern Ireland could choose not to allocate this to health, but to education or transport or whatever. Likewise, if spending decreases in England, it decreases by the equivalent amount proportionately in Northern Ireland.

Because pensions fall under welfare and thus under “parity” (not “Barnett”), the deal is simple: Northern Ireland enacts the same legislation as the UK Government has and the UK Government will make up the shortfall (roughly ₤250 million per year). However, if Northern Ireland does not enact the same legislation, the UK Government will not make up the shortfall – Northern Ireland would therefore have to find extra money to pay for the pensions under the current arrangements and additionally make up the shortfall itself from existing budgets in other departments, effectively taking ₤250 million each year from health, education, transport, justice, business support and so on.

Some parties are making great play of “standing up for public sector pensions” and that is their right; however, they also have to explain to the rest of Northern Ireland where they are going to take the money from firstly to pay for the existing system (which is unaffordable under current arrangements) and secondly to cut ₤250 million from other public services delivered by Stormont. Those are the facts of the matter.

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2 thoughts on “Pensions/Welfare: what is “parity”?

  1. […] who would claim to be left-wing thought it would be a brilliant idea to breach parity and thus take over ₤1 billion out of Northern Ireland’s public services over the next […]

  2. […] The Welfare Reform Bill was due to pass Final Stage this week, and would probably have received Royal Assent mid-month. The reason for the speed was to get it implemented as soon as possible, thus avoiding the repayments (commonly but erroneously referred to as “fines” or “penalties”) due for running a different system from the rest of the UK under “parity“. […]

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