Blue sky thinking?








In a recent report, The Economic Impact of an All Island Economy, the journalist Paul Gosling argues the case for unity. He summarised his point of view in an article in the Belfast Telegraph; 22 February, “Unionists are facing a perfect storm of Brexit and demographic shift”.

His arguments are in some ways strange.

He describes Brexit as “devastating” given the results of leaked Treasury analysis which claims it could lead to a 2.5% to 12% (over 15 years) hit to UK income – basically we might be less rich than we could be. However, he seems complacent about advocating unity that, from his argument, would bring with it a massive reduction in employment in Northern Ireland. He argues that post-unity the percentage employment in the public sector could be reduced to the rate which applies in the Republic of Ireland. This would be equivalent to a job loss of 50,000 people.

Think of the recent Voluntary Exit Scheme but many times over.

I’m all for a re-balancing of the Northern Ireland economy under certain conditions, especially if this could be achieved via private sector growth rather than public sector contraction. What Mr Gosling proposes would be a shattering blow to the Northern Ireland economy, to which it would be very hard to adapt.

He has to assume that unity and a marked reduction in public spending in Northern Ireland would spark some sort of private sector renaissance. But why would that happen?

Once one allows for the so-called “multiplier” effect, given the reduced spending power the economy, the total job loss could be 80,000 or one in ten. In fact, this would be as bad as the worst predictions about Brexit; though with a lot more predictability and certainty about the scale of harm.

Mr Gosling underestimates just how challenging it would be for the Republic of Ireland, particularly its taxpayers, to absorb Northern Ireland.

As a part of the UK Northern Ireland benefits each year from a £9-10bn fiscal transfer from the Exchequer. As one of the UK’s poorer regions, Northern Ireland pays less in and gets more out of being a member of the club which is the UK’s economic union.

Mr Gosling tries to argue that post-unity, the Republic of Ireland would not need to find £10bn extra each year because some of the measured Northern Ireland public expenditure is in fact notional: Northern Ireland’s share of certain UK-wide services or items of spending. According to Mr Gosling, after unity Dublin would not need to pay for the equivalent amount of central services (e.g. embassies, investment promotion efforts, defence spending, payments on national debt) which is currently imputed to Northern Ireland.

Well, unless the Republic of Ireland services suddenly become much more productive there would probably be some pressure to increase these spending areas after unity.

He also assumes that the UK would impose no obligations on the Dublin government to pay for Northern Ireland’s “share” of UK National Debt.

Crucially, Mr Gosling has to assume there are no problems of public order after unification.

In fact, Mr Gosling does somewhat hedge his bets.

Whatever the true scale of the fiscal transfer he wonders whether it could continue for a number of years, up to 30, after unity. It has been said that sovereignty is like pregnancy: you can’t be a little bit pregnant. Somehow, Mr Gosling envisages the UK’s responsibility for Northern Ireland gradually fading away over the next 32 years.

Think about that. The UK ends annual payment of towards £10bn to the EU and then decides to pay Ireland about that same sum of money annually (for 30 years) to take a million British citizens into a Republic of which they have no wish to be part. What could be wrong with that?

Needless to say, having read Mr Gosling’s analysis I am not convinced: even with sweeteners about the Donegal Orangemen and a possible bridge to Scotland (presumably HM Treasury will be paying for that too). He reaches out for some of the supports which have previously been criticised on ThisUnion: for example; the writings of David McWilliams and the economic forecasts of Karl Hübner.

One last point: “Poor Britain!”.

There is a common view that the UK is obliged to pay off its obligations to the rest of the EU – for a very long time to come – in order to earn the privilege of leaving the EU. Here similarly, in Mr Gosling’s writings we see the argument in reverse, that GB is somehow obliged to relieve itself of Northern Ireland and to earn the privilege of subsidising a united Ireland for years to come!

Somewhere at the end of a rainbow….


Dr Esmond Birnie – Economist