ANALYSIS:The North has never paid its way and there are worries that aid has blunted enterprise spirit, writes DAN KEENAN
OWEN PATERSON is not the first Conservative to try to rein in British exchequer spending in Northern Ireland.
The first Thatcher government in 1979 curbed the rise in spending by Britain on Northern Ireland, apart from security, as efforts were made to control spending. The attempt was in keeping with that administration’s policy of neoliberal market economics.
Yet, British government spending on Northern Ireland started to rise noticeably again in the early 1990s as the first signs of an emerging peace process were noted. The British government block grant, or subvention, to the North began a steady rise to the point where it stands today at more than £9 billion (€10.5 billion).
British funding mechanisms for the regions and the devolved administrations are complex. But it is not an oversimplification to suggest that annual British spending in the North sits at between £16 billion and £17 billion.
This figure includes the sums granted by the exchequer to Stormont for allocation by the devolved administration – the Departmental Expenditure Limits – and the amount given directly by the treasury to cover welfare costs and related items, known as annually managed expenditure.
According to estimates provided by the Stormont Department of Finance and Personnel, the Executive has between £9 billion and £10 billion to spend on its services. Moreover Northern Ireland, in general, benefits from a net gain of about £6 billion when total spending and taxes raised are taken into consideration.
This means that roughly for every man, woman and child in the North, the British state pays out more than £9,700 per year.
The North has never truly “paid its way” in relation to the UK as a whole. Following partition it was thought the British state would do well out of the new constitutional arrangement given that the bulk of industry in Ireland at the time was concentrated in the greater Belfast area.
However, traditional industries such as shipbuilding and textiles soon went into decline leaving Northern Ireland structurally weak. Attempts to diversify into new industries, such as synthetics, failed when they too went into terminal decline after the 1960s.
British spending in the North later grew in an attempt to offset economic decline and the effects of the Troubles.
Apart from mitigating the effects of violence and the absence of a political accommodation throughout the course of the Troubles, a secondary effect of the subvention has been to mask the true economic state of NI and its levels of dependence on the British exchequer.
The loss of manufacturing jobs, the dramatic shift towards service sector employment and the arrival of branch plants (which had diminished decision-making powers and few RD facilities or marketing operations) meant that the innovating skills of the local population withered.
Because of this Northern Ireland effectively lost its capacity to generate internally its own manufacturing growth.
The sheer scale of government intervention in the North’s economy dented rates of productivity.
The numbers in service industries rose as they fell in manufacturing, and it is often feared that the subsidising of Northern Ireland, added to the “branch-plant” character of local manufacturing, has blunted the region’s entrepreneurial spirit.
Indeed the Northern Ireland Economic Council, in its 1999 publication The Implementation of Northern Ireland’s Economic Development Strategy in the 1990s: Lessons for the Future, asked openly if the North’s economy was “addicted to state aid”.