Professor John FitzGerald:

I thank the committee for its invitation to appear. Our research on the cost of replacing the UK subvention to Northern Ireland in the event of a united Ireland was published recently by the Institute of International and European Affairs, IIEA. It updates work which we published in an academic journal in 2020. We presented an earlier version to this committee in May 2021. Last year Esmond Birnie, a Northern Ireland economist, also published an academic paper which reached very similar conclusions to ours.

It is normal in countries that rich regions support poor regions. In Ireland there are major transfers from Dublin to the rest of the country, in particular the north and west. In the case of the UK there are large transfers from central government to poorer regions, including Northern Ireland. This is normal. This transfer or subvention covers the difference between tax revenue raised in a region and the public expenditure in that region.

In the event of a united Ireland, the revenue and expenditure in Northern Ireland would be somewhat different from what it is today. We take account of several differences in this regard. Corporation tax would be higher because profits earned in Northern Ireland are reported in London, so there is an undercount there. Expenditure on defence would be much lower, by more than €1 billion, because the Irish Army is much smaller so the contribution which would be made to that would be smaller. Expenditure on development aid would be higher and is more generous than the Tory Government in Britain to the rest of the world. The EU budgetary contribution would be quite significant, at €500 million. Of course, there is no such budgetary contribution currently.

Using 2019 data, the result of these adjustments is that the transfer to the North would be approximately £1.1 billion, or €1.2 billion, lower in a united Ireland, amounting to approximately €10.9 billion, or approximately 5% of Irish national income. We used the 2019 data because the transfers are much higher in 2020 and 2021 but, as that is Covid-19 related, it is better to use the earlier data.

We estimated that to raise Northern Ireland welfare rates and public sector pay rates to those prevailing in the Republic would add another 5% of national income. A recent academic paper suggests that percentage could be higher.

The main debate about our analysis focuses on our base case, where we assume that Northern Ireland would take a share of the UK debt into a united Ireland, as happened with the Irish Free State in 1922, and that pensions in the North would continue to be funded from social insurance contributions paid in the North, with any deficit being covered by a subvention from Irish central government. Others take the view that the UK would be very generous with a departing Northern Ireland, continuing to cover a major part of the ongoing deficit for many years after unification. We think it unlikely that the UK would be exceptionally generous, as some have suggested. Northern Ireland ministers can tell you that the UK Government has not been very generous to Northern Ireland as of today. If precedents of other similar secessions were followed, the UK would not be as generous. In addition, generosity to Northern Ireland would be a strong incentive for Scotland to secede from the UK on the same generous terms. Together, both departures on these terms would be a very heavy financial hit for England and Wales. The two are related. In addition, expecting the poorer countries of the EU to fund an ongoing major transfer to rich Ireland is likely to prove a pipe dream.

Commentary on our report has rightly highlighted the fact that the subvention to the North is only one, probably minor, element of the major economic changes on this island which would result from unification. There would be a wide range of other factors, some of them positive and many of them negative. These have not yet been seriously examined. What would make a major difference to the costs of unification is if Northern Ireland dramatically changed its economy and society to greatly increase its productivity, narrowing the gap in living standards between the North and the rest of the island, and between the North and the rest of the UK. This would be very good for the people of the North, whether they chose to remain in the UK or in a united Ireland.

Extensive research has shown that the single biggest contributor to Northern Ireland’s low productivity and very poor economic performance is its defective educational system and the continuing loss of its graduates outside Northern Ireland. Research by the leading Northern Ireland economist, Vani Borooah, and others, has shown that the Northern Ireland system of education, where an elite 40% of children progress to grammar schools, with most of them going on to university, while the rest go to secondary schools, is very damaging. Too high a proportion of secondary school children leave school early, with the related economic and social costs. Recent research by Adele Bergin, Seamus McGuinness and Emer Smyth of the ESRI reinforces this picture. While our educational system offers significant equality of opportunity to children from different backgrounds, this is not the case in Northern Ireland. This is particularly damaging for working class kids in the North. If Northern Ireland immediately reformed its educational system to provide genuine equality of opportunity, after 20 to 30 years, as the children who are currently being failed progress through the educational system, there would be a big impact on productivity in Northern Ireland, as happened in this part of the island once we improved our educational system. It took 30 years, from 1970 to the mid-1990s.

If the North could attract back the high proportion of its graduates living in England, this would further improve productivity and it would do it faster. To achieve this, the Northern Ireland Government has to address the major obstacles identified in 2021 studies by Pivotal. These established that the problems of governance in Northern Ireland and the divided nature of its society were major obstacles to graduates returning, a majority of whom are from a unionist background. If they could be attracted back, that could make a big difference.

It is worth noting that despite having the same education system, Irish regions like the west continue to lag in terms of productivity, with regions diverging in terms of gross value added per capita. There is also no evidence of convergence across counties in terms of disposable income. This is consistent with the extensive academic literature on regional development that shows regional disparities tend to be persistent.

It is for the people of the North and the South, voting separately, to both decide whether they want Irish unity. If they were to decide to do so in the next decade, before major reforms in the North increase productivity, the cost for the South would be very high. If, instead, major reforms are rapidly undertaken in the North, as they began to mature after 20 years or so, the costs of unification would be much lower. Also, of course, if the people of Northern Ireland choose, instead, to remain in the UK, they would be much better off as a result of such reforms.