What do we know – and not know – about the costs of a united Ireland?

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Experts are starting to give more attention to the question of what a united Ireland or shared island would look like in economic terms.

As part of The Good Information Project we are posing the question this month ‘What could a shared island look like?’. Here, CJ McKinney examines what we know – and don’t know – about the economics and living standards of a different Ireland. 

HOW WOULD A united Ireland do economically?

At the moment, credible answers are pretty thin on the ground. There’s no single piece of research that demonstrates what the economic impact of a united Ireland, or closer ties on a shared island falling short of unification, would be.

That’s partly because trying to predict future economic performance after such a wrenching political change is a difficult and uncertain exercise, and partly because serious economists haven’t traditionally given much attention to a scenario that nobody thought was going to happen any time soon.

As you may have noticed, that’s changed. Plenty of people now think that a border poll is likely, or even a historical inevitability. If you’re more sceptical, it remains a fact that the Irish government now has a Shared Island Unit that involves building closer economic ties with the six counties of Northern Ireland.

So experts are starting to give more attention to the question of what a united Ireland or shared island would look like in economic terms. In this article we’ll take a look at what research is already out there and what some of the outstanding questions are.

Of course, if you believe in a united Ireland or the Union purely on principle, the economic costs and benefits may be irrelevant. That’s fine. But others may take a more utilitarian view of the constitutional question.

What’s the question?

One point worth making at the outset is that you can look at this question from all sorts of angles. When we ask “would the economy do better if there were a 32-county Ireland?”, do we mean the economy of Northern Ireland, the Republic, or both?

Are we looking at purely quantitative measures like gross domestic product, or ones that tell you more about equality in a society like wealth distribution and the living standards of the population, or both?

What about the fiscal costs – i.e. government spending no longer covered by the UK Treasury? And what do we even mean by a united Ireland: is the assumption that the North just becomes six normally integrated countries of the existing Republic, keeps its devolved government per the Good Friday Agreement, or some completely new political entity emerges?

Depending on what you’re most interested in and the assumptions you make, the answers to these questions will vary. Ultimately the whole exercise involves predicting the future, which was hard enough even before Brexit and Covid.

Economics also isn’t an exact science, so even the current state of play is contested, as we’ll see.

The Northern Ireland economy

One area of relative consensus is that the economy of Northern Ireland isn’t particularly strong. Things have improved since the Troubles ended, but not as much as many had hoped, and the region scores lower than Ireland and other parts of the UK on key economic measures like economic activity per head, productivity and gross value added.

Unemployment is low, but the number of people not looking for work at all (who don’t count as unemployed) has been the highest of any region of the UK for decades. The Northern Ireland Department for the Economy recently identified the “three key structural weaknesses in our economy” as too few high-paying jobs (a result of low productivity); the skill level of the workforce; and regional imbalance within Northern Ireland itself.

These problems are reflected in Northern Ireland’s fiscal position: the difference between government spending there versus what is raised there in taxes and other government revenue.

In the 2018/19 financial year, the gap was £9.4 billion (€10.8 billion), according to the UK Office for National Statistics. That’s about £5,000 per year, per person in Northern Ireland. This is actually a smaller gap than in recent years, when it was regularly above £10 billion.

That £10 billion sum – equivalent to about €11.5 billion – has become the reference point for debate about the scale of the British Treasury’s “subvention” to Northern Ireland. The idea is that, all things being equal, the Irish government would need to cover that annual bill to keep people in Northern Ireland from experiencing a devastating crash in living standards.

You can argue that sum down somewhat. The figures for money spent in Northern Ireland include an allocation for UK spending that doesn’t actually take place in any one region, such as defence and debt servicing. The NI Department of Finance calculated a few years ago that if you stripped out this “non-identifiable expenditure”, the subvention looks about 50% smaller.

Proponents of a united Ireland argue that not being on the hook for a share of the UK’s significant defence and debt spending makes Northern Ireland’s fiscal position much stronger in a united Ireland.

There’s also an argument that the UK would pay state and public sector pensions long into the future, since people in Northern Ireland have been paying into the UK system. Pensions aren’t, however, funded out of a pot of past payments into the system — today’s pensioners are paid from today’s tax receipts – and the division of pension liability would be a matter for negotiation. Ahead of the Scottish independence referendum of 2014, the Scottish government accepted that it would have to take on a “fair share of pension liabilities” after separation.

Economists John FitzGerald and Edgar Morgenroth have crunched the numbers for a range of scenarios. They conclude that the 2018 fiscal cost of Northern Ireland under an all-Ireland government would be as low as €6.7 billion (3.4% of the size of the Irish economy) under the most generous assumptions, or as high as €15.7 billion (7.9% of the economy) if you assume a transfer of debt and pension obligations and an increase in NI social welfare rates and public sector pay to match the Republic.

So while the size of this potential bill for Southern taxpayers can be whittled down depending on your assumptions, it can’t be wished away completely. But of course, that would only be the starting point. If the economic picture under a united Ireland were rosier than at present, Northern Ireland might pay its own way in time.

Modelling a united Ireland

“There are”, FitzGerald tells The Good Information Project, “very few studies of relevance to the issue of the economics of a united Ireland.”

One eye-catching piece of research a few years ago by a Canadian consultancy did try to predict the impact of a united Ireland using econometric modeling.

It concluded that “in total, Irish unification could boost all-island GDP in the first eight years by as much as €35.6 billion”.

But although specific numbers grab headlines, probably the best way to approach a study like this is not to focus on the exact figures, but think about the assumptions the researchers make before doing any calculations. (Or as a foreword to the report puts it: “when interpreting the results of the models, it is best to think of them as pointing to or reminding us of the relevant channels through which policy may shape outcomes, and giving us some guidance or insight into the impact of those policies, rather than fixating on the final decimal point of some simulation outcome”.)

In this case, the five main assumptions are:

  1. Taxes in Northern Ireland become the same as in the Republic, leading to more foreign direct investment
  2. The costs of cross-border trade are lower if there is no border, coming down by 5% a year
  3. There are no political frictions to unification and an all-island government is cheaper to run, coming down by 2% a year compared with government spending in Northern Ireland would have been
  4. Northern Ireland joins the euro, devaluing the currency
  5. The Northern Ireland budget deficit discussed above is covered in full by the Republic instead of the UK

One thing it doesn’t account for, FitzGerald and Morgenroth point out, is the negative impact on trade with the UK. That’s significant.

As we’ve seen in the past few months, putting up a border in the Irish Sea is bad for business, given Northern Ireland’s close economic and trade links to Great Britain.

The value of sales to Great Britain is more than twice the value of exports to the Republic.

The impact of a full EU-GB border would be worse than the relatively limited checks painstakingly negotiated under the Northern Ireland Protocol.

We know from Brexit that borders matter, trade-offs exist, and you can’t have your cake and eat it too.

So that study (and a 2018 Brexit update), while potentially useful, isn’t the last word in the debate.

Given the difficulties associated with making hard and fast predictions about how a united Ireland would fare, experts tend to focus their attention on making accurate cross-border comparisons.

Comparing North and South

One major study in this area is by Adele Bergin and Seamus McGuinness of the Economic and Social Research Institute (ESRI). It compared quality of life north and south of the border, with the headline conclusion being that household disposable income was 12% higher in the Republic than in the North.

That said, FitzGerald and Morgenroth have found a 4% gap in living standards in favour of Northern Ireland when approaching the question from another angle (consumption rather than disposable income).

But the Bergin and McGuinness research also used a wide range of other indicators, from air pollution to the rate of car theft, which tended to show life in Northern Ireland being that little bit worse compared with the Republic. 

“When looking at living standards, people very often compare metrics like GDP per capita. We wanted to look at as many measures as possible,” Bergin told The Good Information Project.

“Generally, across the majority of the metrics we look at, the gap in living standards tends to favour the Republic.”

Bergin says that the Republic’s higher life expectancy at birth is particularly significant: it’s a “cumulative measure of welfare” that’s affected by lots of different factors.

It’s also easier to compare than the individual factors that go into it, where putting together comparable data can be tricky: life expectancy is life expectancy on either side of the border.

In fact this whole area seems to be dogged by data difficulties, partly arising from the fact that trying to get figures on economic activity for Northern Ireland as a region of the UK that can be readily compared with the figures for Ireland as a nation is tough.

FitzGerald says “you have to do quite a lot of work to develop comparable data for the two jurisdictions – our paper was around two years in gestation”.

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Bergin agrees, and thinks the Central Statistics Office and its UK/NI equivalents should put their heads together on the data question.

“I think it is really important that the statistical agencies do produce more comparable metrics. It would take the politics out of it if it’s statisticians doing the work,” she says.

In the meantime, the experts say that the best current sources are often international organisations such as Eurostat and the OECD.

The whole point of those bodies is to put together data that can be used to make international comparisons, whereas trying to mash together Irish (national) and UK (regional) statistics may mean you’re not comparing like with like.

What’s coming down the track?

Some experts are gearing up to remedy the historic lack of research into the impact of an integrated all-island economy.

The Royal Irish Academy in partnership with the University of Notre Dame has set up the ARINS project (Analysing and Researching Ireland, North and South).

Forthcoming research includes cross-border comparisons of benefit levels and of skills/labour markets, plus more on the vexed question of the subvention. Meanwhile, the ESRI has been commissioned to look at the Economic and Social Opportunities from Increased Cooperation on the Shared Island.

The project will initially focus on four areas – education, healthcare, cross-border trade and inward investment – with a paper scoping out each area being published as early as next month.

This kind of research should give us a better picture of how the two economies compare and how they might fare if more closely connected.

It should also help shed (some) light on the potential economics of a full-on united Ireland. As Bergin puts it, “there’s an awful lot more information required for any kind of informed debate”.

Resources: 

  • Bergin and McGuinness, Who is better off?, 2021
  • FitzGerald, Investment in Education and Economic Growth on the Island of Ireland, 2019
  • FitzGerald and Morgenroth, The Northern Ireland Economy: Problems and Prospects, 2020
  • Goldrick-Kelly and Mac Flynn, Productivity on the Island of Ireland – A tale of three economies, 2018
  • Hübner et al, Modelling Irish Unification, 2015
  • Hübner et al, The Costs of Non-Unification, 2018
  • Nauwelaers et al, The Case of Ireland-Northern Ireland, 2013

This work is co-funded by Journal Media and a grant programme from the European Parliament. Any opinions or conclusions expressed in this work is the author’s own. The European Parliament has no involvement in nor responsibility for the editorial content published by the project. For more information, see here.

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