Four known unknowns of the cost of Irish unity

Cost to Republic’s taxpayers would depend on factors yet to be determined

The issue of Brexit has put the question of the constitutional future of Northern Ireland at the centre of public debate. Even without Brexit, continued demographic changes in Northern Ireland make it look increasingly likely that a border poll will arise at some point in the future. Political or economic disruption as a result of Brexit may lead to this occurring sooner rather than later.

For an informed debate on an issue of such national importance, it is critical that assessments of the implications of Irish unification for citizens in both parts of Ireland are both credible and realistic. The reality is that the ultimate cost (or benefit) of unification to the Republic’s taxpayers would depend on several factors yet to be determined.

These future arrangements include the length and nature of any transition period between the ratification of a border poll and the full transfer of sovereignty. So how long might any transition period last? If we look at some recent constitutional upheavals involving the UK, while the transfer of sovereignty of Hong Kong from the UK to China in 1997 occurred 13 years following the signing of the Sino-British joint declaration, the planned transition period for Brexit was just two years.

Any transition must be sufficiently long to allow a gradual transfer of powers and the introduction of new policy approaches needed to make unification work. In this context a second unknown is the relative role of both governments during any transition period in addressing Northern Ireland’s low productivity, through reforms in educational, industrial and regional policy, and the success of such policies.

Poor performer

The Northern Ireland economy has been a consistently poor performer within a UK regional context. In terms of per-capita GDP, a broad measure of the standard of living, Northern Ireland was ranked the 10th poorest from 12 UK regions in both 2000 and 2014. Northern Ireland income levels grew by just 7 per cent between 2000 and 2014, compared with 30 per cent in the southern and eastern region of the Republic, which contains about three-quarters of the country’s population. Compared with Northern Ireland, per-capita GDP income was about €25,000 higher in the southern and eastern region in 2014.

Northern Ireland’s relatively low productivity is likely to be driven by a number of factors including a widening gap in educational attainment, lower intensity and poorer quality foreign investment, lower levels of exports and a lack of effective regional policy. It is an open question as to whether Northern Ireland’s poor productivity performance would be more effectively addressed in a united Ireland.

The third factor relates to negotiations on debt and assets that are attributable to Northern Ireland. In terms of citizens in the Republic, a central concern would be the additional cost of running Northern Ireland under unification. The level of subvention, which refers to the gap between government spending and tax revenue in Northern Ireland, is often focused on as a measure of this cost. Subvention in 2014 was £9.16 billion. However, when items of expenditure not directly related to the running of Northern Ireland are subtracted, for example its contribution to UK defence spending or UK government debt, potential subvention levels could fall by about 25 per cent.

The level falls further when account is taken of UK public-sector pensions and contribution-based old-age pensions, both of which would remain a UK liability following unification. Negotiations on Northern Ireland’s share of UK assets may also impact the figure in the event of unification.

Nevertheless, it is Northern Ireland’s low productivity levels that create a need for subvention payments in the first place, and the ultimate cost (or benefit) to the Irish taxpayer would depend on the success of policy reforms aimed at addressing this problem.

External players

The final unknown aspect is the role of key external players such as the European Union and the United States in, potentially, helping to reintegrate Northern Ireland back into the EU following Brexit and encouraging increased levels of foreign direct investment into the region.

Any credible assessment of the cost of unification should incorporate reasonable assumptions around all of these unknown factors under various scenarios. There is little to be achieved through a static analysis of Irish unification whereby the estimated current costs of administering Northern Ireland, which are themselves highly debatable, are simply superimposed on the current tax and welfare systems of the Republic. Such a scenario would never seriously be proposed, or ratified, in any border poll.

Responsible debate on the economics of Irish unification should be based on facts that have been established through rigorous research that fully accounts for the likely dynamics associated with any unification process. What we must avoid at all costs is a repeat of the UK Brexit referendum, which is best characterised as a scenario of spurious claims and counterclaims that led, ultimately, to sustained political and economic stalemate.

Seamus McGuinness is a research professor in the Economic and Social Research Institute