What would be the economic costs and benefits of a united Ireland?

Agenda: The subvention argument tends to view the North as a deadweight, a financial burden to be shouldered by whatever entity follows

 Traffic crossing the Border near Derry. Brexit provisions  afford the North the unique advantage of being simultaneously in the UK and in EU’s single market when it comes to trade in goods.  Photograph: Getty Images

Traffic crossing the Border near Derry. Brexit provisions afford the North the unique advantage of being simultaneously in the UK and in EU’s single market when it comes to trade in goods. Photograph: Getty Images

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Brexit, the controversies around the Northern Ireland Protocol and the possibility of Scottish independence and the eventual break-up of the UK have raised the political temperature in the UK and Ireland. They have also raised the prospect of a Border poll on a united Ireland, something that wasn’t on the political agenda prior to Brexit.

There are, of course, a number of complex political hurdles to be negotiated before such a vote could take place. Nonetheless it has prompted renewed debate and research into the economic cost, or benefit, of a united Ireland.

Much of the discussion to this point has centred on the issue of the North’s subvention, the annual subsidy it receives from the UK exchequer to cover its costs, which amounted to £9.4 billion (€10.8 billion) in 2019.

Northern Ireland was one of nine UK regions, including Scotland and Wales, to run a fiscal deficit in 2019, according to the UK’s Office for National Statistics.

Trinity College Dublin economists John FitzGerald – who is also a columnist with The Irish Times – and Edgar Morgenroth have argued that if the Republic were to take on this cash transfer in the event of a united Ireland it would trigger a financial shock – one which would require a major hike in taxes or a cut in public expenditure, either of which would trigger a decline in living standards of between 5 per cent and 10 per cent.

“The rise in taxes or cuts in expenditure just to fund the subvention [for the Republic] would be very substantial,” Mr FitzGerald told the Oireachtas Committee on the Implementation of the Good Friday Agreement.

And remember that’s before any equalising of welfare rates, which are significantly lower in the North. This has been the standard economic argument against a united Ireland.

However, Dublin City University academic John Doyle argues the North’s current level of subvention would not carry forward into a united Ireland.

In a research paper, due to the published in June, he examines the various elements that underpin the North’s subvention. The largest three elements are pensions, Northern Ireland’s share of the UK’s national debt and defence spending.

Doyle argues that most of money involved in these transfers would not apply in the event of a united Ireland. “The cost of the subvention objectively – in terms of what is relevant to the debate about Irish unity – is no more than £2 billion to £3 billion,” he says.

In theory, this would require only a modest pick-up in national income to accommodate.

The subvention argument tends, however, to view Northern Ireland as a deadweight in the equation, a financial burden to be shouldered by whatever entity follows. It also fails to assume any upside from pooling our resources North and South.

“The ‘shared island’ offers considerable economies of both scale and scope, which if harnessed dynamically would outweigh the overblown static costs of subventions,” says Ibec chief executive Danny McCoy.

“Seeing either jurisdiction as a problem for the other fails to capitalise on the peace and prosperity benefits of the Belfast Agreement. Businesses embrace opportunities rather than focusing on legacy sunk costs,” he says.

Engagement

The North-South bodies established by the Belfast Agreement explore the unity agenda to a point – and strictly on an economic basis – but critics say they suffer from a lack of unionist engagement.

In many ways companies have moved ahead of where the political institutions are. The electricity market is an obvious example. Irish energy company Viridian, for instance, owns electricity and gas supplier Energia, two power plants in Dublin and PowerNI in the North.

Cavan-based Lakeland Dairies, which acquired Northern Ireland rival Lacpatrick in 2019 to form the island’s second largest dairy co-op, is another example of a company operating seamlessly on both sides of the Border.

One of the chief stumbling blocks to greater economic alignment is the dominance of the public sector in the North’s economy – it employs over 200,000 people, 25 per cent of the North’s workforce, the highest share of any region in the UK.

Combined with the high level of people reliant on work-related benefits – 20 per cent – it points to a less than dynamic private sector. It’s obvious to anyone living in the Republic that public services and infrastructure have not kept pace with private sector growth. The same cannot be said of the North.

Creating a more vibrant private sector in the North is a key question. Might corporation tax be the answer? Invest Northern Ireland (Invest NI), the North’s development agency, typically pitches Northern Ireland to international investors as a region with competitive wage rates and an educated workforce, but it falls down when it comes to tax, or more precisely the differential between its corporation tax rate (19 per cent) and the Republic’s (12.5 per cent).

Stormont has the power to reduce its corporation tax rate to bring it more in line with the Republic, but to date it hasn’t exercised that right. A similar rate for the North could pay huge dividends, albeit that the US is proposing a global minimum corporate tax rate that might change this agenda in coming years.

According to the IDA, foreign investment created more than 13,800 jobs in 2019. In the North they created 8,700 jobs but over five years from 2015-2019. The disparity is significant.

Sum of the parts

Proponents of a united Ireland argue that the sum of the parts when fused together could create a more dynamic whole.

Mr Doyle argues that the Republic’s economy is increasingly centred around Dublin, resulting in congestion, high house prices and over-burdened public services, and that Belfast could help displace this concentration.

“There’s a limit to how much of the Republic’s economy can sit in and around the Dublin region, and by international standards Dublin is already highly congested,” he told Inside Business, a podcast from The Irish Times, this week.

“We’ve struggled to build a critical mass in Cork or Limerick or Galway to rival the attraction Dublin seems to have. Belfast because of its history, its different politics, might provide that counterbalance for the first time, and actually be a positive for the island of Ireland – not just moving jobs from Dublin to Belfast but bringing in new companies put off by the congestion in Dublin.”

The Republic’s former finance minister Brian Cowen and his counterpart in the North, Peter Robinson, gave their joint backing in 2008 to a plan that would have the International Financial Services Centre (IFSC) in Dublin expand into Belfast. It was seen as a win-win for both sides. Unfortunately, the global financial crash intervened and it never came to fruition.

In tourism, many of the popular spots in Dublin, Galway and elsewhere at the height of summer are close to peak visitor numbers.

“There are no more tourists you can fit into those destinations,” Doyle says, while noting that tourist rental sites like AirBnb have aggravated Dublin’s housing crisis.

“Spreading that tourism, and growing it across the island of Ireland” could benefit both regions, he said .

Touism Ireland is an North-South agency reposnsible for marketing the whole island to overseas visitors.

EU divorce

Debate about economic reunification was almost non-existent five years ago prior to the Brexit vote, but the UK’s problematic EU divorce and the prospect of Scotland exiting the UK has reignited the Irish unity debate.

According to SDLP councillor Carl Whyte, people in the South have underestimated the impact of Brexit “on a sizeable minority of what would have been unionist voters”.

He says there is a new openness among unionists to discuss “the future of the island, including possible political and economic union”, but many won’t have the conversation in public for fear of the backlash.

Surveys show Brexit has shifted the middle ground in the North from being more or less content with the status quo to being open to the prospect of a new political arrangement on the island.

Young unionists voters are increasingly disenchanted with the DUP’s position on liberal issues such as marriage equality and abortion, and have migrated to parties like the Alliance and the Greens. Brexit has only served to heighten this disaffection. Northern Ireland was 56 per cent in favour of remaining in the EU during the Brexit vote.

Leaving the EU represents “a cultural shock” for the majority of young voters - unionist and nationalist , Whyte says.

“If there was a Brexit referendum tomorrow there would still be a majority to stay in the European Union, ” he says.

Where Northern Ireland and Scotland – both of which voted against Brexit – differ, he says, is that Northern Ireland has a ready-made path back into the EU via a united Ireland.

The North’s possible route back was acknowledged by former UK Brexit secretary David Davis during the Brexit negotiations.

Brexit provisions

Of course entering into some sort of all-island arrangement would imply dumping the current Northern Ireland Protocol.

While the Brexit provision – and the Irish Sea border which flows from it – is seen as a betrayal by the DUP, they afford the North the unique advantage of being simultaneously in the UK, and in EU’s single market when it comes to trade in goods.

Because it’s so politically sensitive, the economics of it are rarely discussed. It is something, however, that InvestNI is looking to capitalise on.

The Border on the island, while porous, has historically been more disruptive to trade and infrastructure between North and South, perhaps for security reasons, than many of the political borders than exist elsewhere in Europe.

Since Brexit, however, trade in goods between North and South has increased, while trade between the North and Britain has declined, which is a worrying trend for Northern Ireland, which relies so heavily on selling into the British market. Of course it’s early days and the pandemic effect has yet to be isolated.

There are few reunification processes internationally that serve as a guide for Irish reunification: separation appears to be the European historical norm.

Germany’s reunification in the 1990s is the standout process, but it is questionable how much of a template this provides given its size and scale.

The Republic is nothing like West Germany in terms of industry and economic strength, and the North’s economic challenges are nothing like those in the former East Germany. There was also overwhelming political support for the project in Germany. The same claim cannot be made in the Irish case.

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