The costs of unification would make the damage by the banking and eurozone debt crises of 2008-12 look tame by comparison.
Source - Daily Telegraph - 26/07/21
Ah the dream of a united Ireland; we must never let it die. So, in essence, said Leo Varadkar, the Fine Gael leader and Irish deputy prime minister, in a blatantly cynical piece of electioneering ahead of a crucial upcoming Dublin by-election.
The timing of his remarks, on the eve of the Northern Ireland marching season and in the midst of delicate talks on how to make the Northern Ireland Protocol work, could scarcely have been more unfortunate. While everyone else is talking about sausages, there he was stoking ancient sensitivities and resentments.
Anything Sinn Fein can do, I can do better, Varadkar seemed to be saying in committing to set up a branch office in Northern Ireland so as to reach out across the divide.
A united Ireland was not just an aspiration, he insisted, but a real possibility that would likely happen within his own lifetime. The “tectonic plates are shifting”, he claimed, and his party’s mission should be “to work towards” the goal of a united Ireland.
The sentimental appeal of unification to citizens of the south is obvious enough; to many it is still considered to be part of Ireland’s historic destiny, and therefore continues to command widespread support and votes. Yet in practice, would anyone in their right mind seriously want it? Many in Britain would say that Varadkar is welcome to his united Ireland. They would gladly rid themselves of their troublesome province, long a political distraction and a huge drain on the public purse. And by the way, Leo, do have fun with the sectarian violence.
No surrender is the marching call of loyalists; they are not about to roll over and let their tummies be tickled by the former Taoiseach’s assumed puppet masters in Brussels. To them, unification is annexation. Yes obviously, times and attitudes change. More than 20 years of relative peace and calm provide ample evidence that ancient rivalries can indeed be bridged.
But to believe that Ireland’s unification is a natural extension of this process of slow burn reconciliation is naive in the extreme. Old loyalties and traditions die hard, nowhere more so than among the good folk of Ulster. Unification would only reignite old grievances and turf wars; it is very unlikely to confine them to the dustbin of history.
All this is common knowledge. Varadkar scarcely needs me to point it out to him. What is perhaps more surprising is the relative lack of debate on the economic challenges of pursuing such an outcome. Put bluntly, it would ruin the Republic, at least in the short to medium term. The costs would make the damage visited on the public finances and the economy by the banking and eurozone debt crises of 2008-12 look tame by comparison.
That’s because Northern Ireland is a hugely subsidised economy. Of all the regions of the UK, Northern Ireland’s fiscal deficit is easily the biggest, totalling £5,440 per head of population last year. Across the piste, the province spends roughly £10bn a year more than it generates in tax revenues. It is also the biggest spender at £15,910 per head of population. This is getting on for £1,000 more than Scotland, the next biggest. Spending in Northern Ireland has moreover risen more rapidly over the last 10 years than anywhere else in the UK. Not only does the region have the highest rate of spending per head; it also has some of the lowest levels of tax revenue. Just to put it all in context, even in normal times – ignoring the distortions of Covid – Northern Ireland runs a fiscal deficit of roughly a third of its total budget, a huge gap which no independent country could ever sustain.
It wasn’t always thus. Up until the 1930s, the province ran surpluses, and was a substantial net contributor to the Exchequer. But that vanished with the Great Depression and the desolation of the region’s once thriving shipbuilding yards.
Policymakers point to the province’s recent history of relative deprivation in justifying today’s very high levels of public spending. The troubles turned Northern Ireland into a pariah for business investment and activity, forcing the public sector to compensate accordingly. More than a quarter of the region’s entire workforce is employed in the public sector, compared to just half that in London. Many more are reliant on welfare to keep body and soul together. Sectarian division dictates extensive duplication in functions, processes and infrastructure, further ratcheting up the costs.
We may occasionally resent these transfers; devolution of administration and powers has certainly made them harder to defend. But for a large and relatively rich economy such as the UK, they are at least affordable. In the grand scale of UK public spending, £10bn is neither here nor there. For the Republic of Ireland, on the other hand, this would be a massive burden, the more so at a time when the country’s economic model is under growing threat from international tax reform. A globally harmonised rate of corporation tax would severely damage the country’s attractions as a corporate tax haven.
A report published a few years ago by John Fitzgerald and Edgar Morgenroth of Trinity College Dublin found that covering the subsidy would decrease living standards in the Republic by between 5pc and 10pc. Conversely, withdrawal of the subsidy would cause “calamitous unemployment and emigration” in the North.
But nothing is ever simple when it comes to the public finances, and a countervailing paper by John Doyle of Dublin City University has plausibly argued that the UK financial “subvention” doesn’t matter nearly as much as supposed. On his calculations, the liability could be whittled down to as little as £2.4bn a year.
This however presupposes both that Westminster is prepared to forgive Northern Ireland its share of the national debt, and that it will continue to fund prior pension commitments. Since that’s effectively what happened when the Irish Free State was formed, it’s not an unreasonable assumption. Yet it would be most unwise to bank on such a magnanimous approach this time around. Mindful of the precedent it would set for an independent Scotland, the UK would inevitably adopt a more hardline approach. Harmonisation of benefits and welfare between North and South would also necessarily involve opting for the most generous from each side if it were to command political support, significantly adding to public expenditure in the round.
For as long as I can remember, the politics of Northern Ireland have been dominated by a deep sense of insecurity and paranoia – on the loyalist side by the knowledge that London would gladly get rid of them, and on the nationalist side by the suspicion that when all is said and done, Dublin doesn’t want them either. Well here’s the truth of the matter; sad to say that on both counts they are absolutely right.
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