North’s economy is facing serious consequences from English nationalism
John FitzGerald: A sharp fall in vital transfers to Northern Ireland after Brexit is likely
Samson and Goliath: Twin shipbuilding gantry cranes in the Titanic quarter in Belfast, Northern Ireland.
Measuring the standard of living in different locations can be difficult. Data for 2012 shows that, when controlling for price differences, output per head in the Republic was 15 per cent higher than in Northern Ireland. However, consumption is a better measure of the current standard of living. As a paper I did with Edgar Morgenroth highlighted, data on Northern Ireland’s consumption per head in 2012 showed it was 15 per cent higher than in the Republic that year.
Thus, immediately after the economic crisis, the population north of the Border enjoyed a significantly higher standard of living than those in the South.
Public spending in the North on social welfare, housing and policing is more than 120 per cent of the UK average
The really big difference in living standards between the two jurisdictions arose in government consumption – the provision of public services. In Northern Ireland, the more generous funding of services, such as health, made a major contribution to the higher standard of living.
There was little difference in government consumption per head, however, between the UK as a whole and the Republic. So Northern Ireland was an exception.
Since 2012, the positive gap in output has widened substantially in favour of the Republic. This has also facilitated the more rapid growth in personal consumption experienced in the South.
However, when public consumption is added to the mix, the overall standard of living in the North today is still probably around 10 per cent higher than on this side of the Border. While the gap with the Republic is lower than in 2012, it is still there, in Northern Ireland’s favour.
The national accounting data for 2012 also highlight the exceptionally low level of investment in the North. This helps explain its poor economic performance.
In most normal economies, investment needs to reach around 20 per cent of output to generate growth. In 2012, in the depth of the recession, investment was around 20 per cent of GNP in the Republic, 17 per cent in Britain but only 10 per cent in Northern Ireland. Unless there is a major increase in investment in the North over the coming decade, its economy will continue to languish.
Furthermore, as a quarter of the North’s investment was public sector, only around 7 per cent constituted private sector investment, underlining the weakness of its business sector.
In 2016, Northern Ireland received a transfer from the UK government of €11.4 billion, 22 per cent of its GDP. This is the highest transfer rate from UK central government to any region. It is also higher than it was before the Good Friday Agreement.
The result of this transfer was that public expenditure per head in Northern Ireland was 120 per cent of the UK average, the highest of any region. Public spending in the next two poorest UK regions, the northeast of England and Wales, was between 105 per cent and 110 per cent of the UK average. This more generous treatment of Northern Ireland has been crucial to supporting its standard of living and in maintaining a high level of employment.
Public spending in the North on social welfare, housing and policing is more than 120 per cent of the UK average. Public investment in housing has been considerably higher than in the Republic, with more extensive provision of social housing.
Health expenditure per head in the North is on a par with the rest of the UK, and the National Health Service performs better than its more expensive counterpart the Health Service Executive in the south.
While Northern Ireland’s spending on education reaches 110 per cent of the UK average, it delivers the poorest outcome across the UK in terms of educational levels attained. Reform of the system, to substantially improve educational attainment, could bring about major long-term benefits for the North’s economy.
Northern Ireland has invested very little in transport or the environment, and this deficit shows in the quality of its infrastructure. Both public and private sector investment need to increase to enable the economy to flourish.
The North is clearly heavily dependent on the transfers from London. This leaves it open to changing attitudes in Britain. Brexit has resulted in a growth of English nationalism and impatience, and a lack of sympathy in London with the “nations” of Scotland, Wales and Northern Ireland.
In the painful aftermath of Brexit, it is quite likely that central government transfers may be rebalanced to favour poorer English regions over the Celtic fringe. If that occurs, a sharp reduction in transfers to Northern Ireland, superimposed on a weak economy, could have serious consequences for the standard of living there.