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A Nation once again ? – Part 1  The economics

October 21st, 2018

In the first of three articles Alanbrooke looks at Irish affairs

The fallout from the Brexit vote has led to  more interest in the future of Northern Ireland than is usual. In particular the issue of a one state Ireland has bubbled back to the top of the political discussion with, as ever, strong views on either side

The modern Irish state is not the Ireland of old; it is a successful, self-confident country which has worked its way to overtake its European peers in the prosperity league – its larger neighbour included.  Likewise within Northern Ireland demographic shifts should set the scene for a unity vote, all seems lined up to removing the border. This article doesn’t seek to debate the pros and cons but rather to look at what are the practical issues facing a United Ireland. 

Northern Ireland is an economic basket case.

This is hardly a shock.  It has been the case since local industry was destroyed in the 1970s campaign of violence and investors scared off.  The net result has been the UK government has stepped in to fill the economic void both by transferring jobs to Ulster and outright subsidy. This support amounts to almost 30% of NI income. That’s huge. To put this in context the UK has squealed at projections that Brexit will cost 6% of GDP over 15 years.  Ireland faces an actual 5 times that and  overnight , unless there is an agreement on how to pick up the tab. 

Suggestions on how this gap should be dealt have ranged from – the UK should continue to  pay all the subsidies, The EU should pay the subsidies, Ireland will grow its way out of it. While these are all brave suggestions, personally I can’t see them working. Likewise I fail to see NI citizens accepting a one third drop in their income that willingly. Of all the things in the in tray this is the biggest.

The Republic’s economy is not strong enough

The Celtic Tiger has returned with growth rates of over 8% being clocked this year.  The Irish formula is based on attracting overseas investment in pharmaceuticals, IT, financial services and tax sheltering; these in turn drive the construction sector.

The headlines hide an underlying weakness.  Most of the wealth driving activities are dependent on foreign – usually US – corporations.  US corporations make up 14 of Ireland’s top 20 companies by turnover,  pay 80% of business taxes and create most of the country’s value added. These are not Irish businesses.  By itself hosting footloose multinationals can be a challenge but add in a grumpy “bring our jobs home” POTUS who is dishing out corporate tax breaks and the challenge goes up a notch. Move any of the core sectors from Ireland and the country faces a fiscal shock. As the song goes, nothing good going to ever last forever.

For all the progress the Republic’s economy is just not big enough or wide enough to absorb the shock of taking on Northern Ireland at one go. The UK with 64 million people grumbles about the £10bn cost of 1.9 million people across the Irish Sea. The Republic with 4.7 million people could well be staring at a wealth endangering black hole requiring something like a 11% hit to its voters wealth.  And don’t forget  after 50 years of handouts no-one in the North does gratitude, we do “rights”.

Short term the numbers are a big headache. The Republic hasn’t got the ability to comfortably take on the North without some major assistance.  The EU might help but budget rules would have to be relaxed to an eyebrow raising degree. The US under Trump I can’t see doing much he’ll want his taxes back from Ireland not the other way around. Voters either side of the border  won’t want to pay tax rises. The UK no doubt would pay its legacy bills but why should it pay  more it will be on for a dividend? So if you see a bus with £10 billion for the NHS painted on the sides its driver is John McDonnell.

Alanbrooke

Alanbrooke is a longstanding poster on PB as well as a Northern Irishman.