Growth and the ‘subvention’

Economist Michael Burke writes for us on the British government subvention to Northern Ireland. 

The economic case for Irish unity is a growth story; that people across the whole of the island would be substantially better off. So, as the author of a recent report, the Economic Case for Irish Unity I was disappointed but not surprised to find that most commentary on it related to the issue of the ‘subvention’.

Apparently, supporters of the Union want to make the case that the NI economy, which has always been part of the UK, is such a basket-case that there is no future for it except as a subsidy-junkie; Stockholm syndrome economics. Fortunately this caricature is not accurate. But it does mean that the outlandish assertions on the subvention do need to be addressed.

In my own report (and previously on Slugger) I have offered Office for National Statistics data on the scope of the household subvention. To repeat, these are official ONS data not my own. These show that that the entire net effect of all direct and indirect taxes and benefits (including social security, pensions, education, health spending and so on) is an average transfer of £981 per household in NI. As there are 739,000 households this means that the total household subvention is approximately £700 million per annum. Again, in an effort to reduce the silliness about the provenance of the data, here is the entire ONS report .

£700 million is not nothing. But it doesn’t suggest NI is a basket-case either.
Of course there are other elements of government spending, but it is this household net transfer (‘subvention’) which people have in mind when making assertions about the dis/benefits of the Union for the population of NI.

As well as other elements of government spending there are also other sources of government revenue, primarily the tax and National Insurance contributions from businesses. In order to gauge the net effect of these it would be necessary to compile them all.

Unfortunately the DfP efforts in this regard are woefully inadequate. The DfP claims that its own ‘Net Fiscal Balance Reports’ are comparable to the Government Expenditure and Revenue in Scotland (‘GERS’). This is simply untrue. Again, this is not personal verdict, but that of the main statistical body in the UK, the ONS. The ONS treats GERS as official data, a status it does not accord to the DfP’s efforts, with good reason.

To take one example of expenditure , much of the notional allocation of capital investment is simply done by DfP on a per capita proportion of the UK total. No data on public sector net investment is published for NI. But Crossrail in London costs £15 billion and HS2 is said to cost £40 billion, the new nuclear power stations at Hinckley Point will be more expensive still, and so on. On DfP methodology the ‘subvention’ will include an allocated share of these costs. The true picture is shown in the Coalition government’s £200 billion ‘National Infrastructure Plan’ in 2010 – there is nothing down for NI at all.

Further, the gaps in the revenue side render the DfP report valueless. In Table 3.7 of the latest report, of 28 revenue categories either the DfP or HMRC has no estimate for 12 of them. The ONS is right to withhold official status from the DfP reports. Yet the entire outlandish case on the ‘subvention’, and all the repetitions of it, are built on them.

The only hard data on the ‘subvention’ is provided by the ONS on the household component, which amounts to just £700 million. Perhaps, if all other items of government expenditure were also included (defence, civil service, state bodies, capital investment, interest, etc.), alongside the government revenues from the business sector (NICs, corporation tax, CGT, a small proportion of VAT, etc.) then the UK deficit was approximately £72 billion in 2013/14. A crude per capita allocation of that for NI would mean its share was £2.25 billion. This is an extremely crude method – but exactly the same as DfP’s.

Unfortunately, all the wild and foolish claims made on the subvention bring us no nearer to an understanding of the benefits and challenges of a unified Irish economy. This is because no serious economist would begin by asking what the fiscal implications of Irish unity would be without asking first about the growth implication. The fiscal position of any economy is determined primarily by its growth.

At the time of the founding of this state no country in Europe had a higher standard of living than Britain and NI. Now, half a dozen or more do. Britain is in a long-term relative economic decline and the economy in NI has fared even worse. It is the semi-detached carriage of a very slow-moving train.
A unified Irish economy provides the basis for an entirely new economy, marrying efficient public services with a dynamic multinational sector and requiring strategic public investment. In a growing economy the deficit takes care of itself.

 

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  • Ian James Parsley

    Sorry, I’m completely lost. These figures simply make no sense; they simply don’t illustrate what he claims they do. Can someone explain?

    Can I ask also, genuinely, in what way is the author an “economist”?

  • Korhomme

    By coincidence, I’m reading a biography of Richard Hayward who was an impresario, singer and actor. He also wrote ‘travelogues’ of Ireland. A critique of his ‘Ulster and the City of Belfast’ notes that “the contribution [of NI] to the Imperial Government is…several million pounds’. This was in 1949.

    Were we in N Ireland really net contributors then, and are we net beneficiaries today? And if so, why?

  • barnshee

    The costs imposed by the “welfare state”

  • he’s an economist same way as Richard Murphy. With about as much economic sense.

  • mjh

    I’m glad it’s not just me who finds this article confusing.

    So I read it again. If I have got it right the author is saying:

    1.No one knows exactly how big the subvention is.

    2.If you measure the stuff for which there are reasonable figures the subvention comes out at around £700m a year.

    3.If you do an estimate for the rest of the stuff the subvention is £2.25bn – but if you allow for the fact that a lot of this extra stuff is government capital investment the figure should be lower because NI does not get a penny.

    4.There’s no need to get too anxious about this amount because a united Ireland would result in enough growth to cover this.

    Could someone let me know if I have got this wrong.

  • Niall Chapman

    I think you summed it up better than the author, I assume his main point is that given all the variables and undisclosed figures, transparency is needed so that a calculation of the subvention can actually be obtained, then more “discussion” can ensue.

  • Skibo

    Are we all missing something here? Is there an underlying reason why DfP figures are so vague and misinforming?

  • Niall Chapman

    He mentions their lack of credibility here: “The ONS treats GERS as official data, a status it does not accord to the DfP’s efforts, with good reason.”

  • NMS

    Northern Ireland has always been dependent. Firstly it was let off its contributions towards central UK spending, back when the days of substantial central spending on defence etc. Then its local welfare system ran out of money and it began to receive support from the central UK Govt. (ALL of this was in the first ten years of partition.)

    The problem for Provo fellow travellers like Michael Burke is that Tom Healy of the Nevin Economic Research Institute has shown him up in front of some of his leftist Dublin friends. The document he wrote, but fails to point out here for the Provos, available here http://issuu.com/sinnfeinireland/docs/economic_case_for_irish_unity (note that it is a Provo document)

    I will leave it to those who wish to read it do so.

  • NMS

    Niall, I would suggest that you read Dr. Tom Healy’s short concise blog, which is what has caused Mr. Burke’s palpitations

    http://www.nerinstitute.net/blog/2015/11/06/the-fiscal-implications-of-irish-unity/. I have posted a link to Mr.Burke’s own document, which he produced for the Provos below. http://issuu.com/sinnfeinireland/docs/economic_case_for_irish_unity

  • NMS

    No, he is an economist. Mr. Murphy is an accountant.

  • Niall Chapman

    Just having a read through and this jumped out:”Non-Identifiable Expenditure” He goes on to say that “Non-Identifiable Expenditure” includes Defence Spending. Given the fact that the UK spends billions every year “defending” itself by firing drones at farmers near Kandahar, and submerging nukes around the Atlantic, I think we should ask that we not be deeming a portion of that money as money spent on subvention in NI.

  • Robin Keogh

    Try google?

  • Ernekid

    Maybe the Irish Dept of Finance and HM Treasury could release their figures to economists so they could work out how exactly the economics of United Ireland would work. It’d be interesting to hear their findings even if it was just an intellectual exercise. If there is even going to be a referendum on unification, it’d be important to know the costs and the timescale it would occur on.

  • Ernekid

    Following Partition Northern Ireland was expected to pay an imperial contribution as part of the upkeep of the Empire. That never really happened due to the costs of security in the new state coupled with the collapse of heavy industries. Even before the time of the post war expansion of the welfare state Northern Ireland was heavily running at a loss.

  • salmonofdata

    Wow. This is nonsense.

    The ONS release you’ve linked to is “The Effects of Taxes and Benefits on Household Income”, which is meant to show how taxes and benefit redistribute income between households. It does not purport to show fiscal imbalances by region in the UK, and could not possibly be meaningfully used for this purpose.

    Your criticisms of the Net Fiscal Balance Reports are absurd. You say that “much” of the total expenditure on services of £22,993m is centrally allocated. Helpfully, they split this out on Table 4.9, where £2,936m is listed as non-identifiable spend. Of this, £1,059m is Northern Ireland’s share of the UK national debt (Defence is £1,038m).

    Your point on Table 3.7, which lists the differences in estimates for tax revenue between the compilers of the NFP report and HMRC, also makes no sense. It highlights that differences in methodology mean that if HMRC estimates are used, then the NI fiscal deficit is £9,795m, rather than the NFP’s calculation of £9,160m.

    Neither number looks much like your own estimate of £700m. Your arguments are nothing but economic snake oil and nonsensical conspiracy theories. You can’t eliminate a fiscal deficit by wishing it away.

  • Zeno

    I got as far as page 4 before I burst out laughing. http://issuu.com/sinnfeinirela..
    Any Economist using Ireland’s GDP Per Capita to illustrate anything either hasn’t a clue of has an agenda.

  • NMS

    Why would the Irish Dept of Finance be bothered to waste the resources required to do so? It is unlikely to have the resources anyway. An independent study from the ESRI would perhaps be interesting, if pointless.

  • Korhomme

    In the early 1960s I was persuaded to go to Stormont to listen to the Budget. I’m not sure if it was then, or later, but I recall a statement to the effect that the government had produced a balanced budget. I also seem to recall that one way this was achieved was to reduce welfare payments (the ‘dole’) here compared to GB, though general taxation was at the same level.

    Am I remembering correctly?

  • NMS

    It wasn’t just to cover imperial costs, it related to National Defence and other centralised expenses, I suppose including keeping the various Kings & Queens in their annual stipends. There is a certain irony that the Stormont Govts. were unwilling to pay up for whatever King or Queen to which they swore allegiance. The local insurance funds were screwed by the late 1920s, if I remember my history correctly.

    In the Free State there was a Northern Presbyterian in charge of balancing the books. He rectified his problem by taking a 1/s from pensioners. (Pensions had not been adjusted post-treaty, despite Irish GDP per capita being only 60% of UK and wages being similarly lower. Also there was substantial decline in prices.)

    To take similar action, i.e. to adjust pensions to local resources would have been a major defeat for the Unionist Govt. So cap went in hand and they travelled to London.

  • NMS

    Ian, yes believe it or not he is! He has been known to write for the Guardian http://www.theguardian.com/profile/michael-burke! He also blogs here, http://socialisteconomicbulletin.blogspot.ie, and various other places.

  • NMS

    A “balanced” budget involved no contribution to national spending. At that time UK Defence spending was still running at around 7% GDP, let alone paying for the upkeep of the Queen to whom they swore allegiance. Were welfare payments variable within the UK in 1960s post welfare state?

  • Zeno

    I don’t think it’s meant for people who understand economics or data.

  • Zeno

    There are several problems there.
    Fact and Fiction: Time to review Ireland’s economic statistics?
    http://www.finfacts.ie/irishfinancenews/article_1028946.shtml

  • Gingray

    Ian
    You placed a bet on Slugger before the last election claiming the UUP would do worse without the Conservative link. I’ve asked a few times now will you say up 🙂

  • IJP

    These figures simply make no sense; they simply don’t illustrate what he claims they do. Can someone explain?

    Only that it’s complete nonsense. Slugger ‘quality control’ has obviously been asleep at the wheel…

    For a start he takes a statistical ONS tool designed to assess changes in policies on taxation and benefits and in preparing Budget and pre-budget reports and extrapolates wildly into an area in which it was never intended to be used.

    In particular, the benefits in kind allocated are: National Health Service (including Health and Social Care in Northern Ireland), State education, School meals and Healthy Start vouchers (Including nursery milk), Housing subsidies, Railway travel subsidies, Bus travel subsidies (including concessionary fares schemes).

    There are allocations made based on estimates of average use and the cost of providing those services.

    Specifically excluded from those figures are capital expenditure and expenditure on defence and on the maintenance of law and order.

    That would be the cost of the PSNI, NI Courts and legal aid here, for example.

    As for the claim that, on Capital Investment, “The true picture is shown in the Coalition government’s £200 billion ‘National Infrastructure Plan’ in 2010 – there is nothing down for NI at all.”

    Here’s what the National Infrastructure Plan 2010 actually says

    2.11 This plan is UK wide. However, in devolved areas of policy it will be for the Devolved Administrations to determine their own policies. In delivering this plan, the Government will work closely with the Devolved Administrations in Northern Ireland, Scotland and Wales, recognising their particular and varying responsibilities. They will be key partners in developing appropriate arrangements in the areas for which they have devolved responsibility, doing so in ways that meet their own circumstances and needs.

    Perhaps he should check against delivery? [And read up on Barnett? – Ed]

    But he’s not really interested in arguments about the cost. He’s the same Michael Burke, of the Socialist Economic Bulletin, who was arguing in 2010, at the fag-end of Gerry’s World Tour for Irish Unity, that the economic case was more compelling than ever…

  • Zeno

    I disagree with this bit…..

    “Only that it’s complete nonsense. Slugger ‘quality control’ has obviously been asleep at the wheel…”

    We need to know the nonsense that people are being told. An awful lot of people have fallen for that report hook line and sinker.

  • MainlandUlsterman

    Seems the economic case for Irish unity is built on the same quicksand as all the other arguments. Can’t say I’m surprised.

  • MainlandUlsterman

    I agree, it’s very useful to see this stuff put out and exposed to the light of day

  • Zig70

    It cost the Germans 100mil per year to fund unification. They have a far more complex history of what makes Germany a geographical unit. Obviously they have a better sense of identity and more importantly pride in who they are.

  • David McCann

    Right once again, I will ban both of you, if you cannot stop this nonsense.

  • Zeno

    Telling people what they want to hear is a very easy gig. The interesting part is what the “believers” do now. This is one brick wall the case for Irish Unity keeps running into. The other brick wall is the complete lack of demand. Nationalists need to work on both problems.

  • Korhomme

    I didn’t realise that ‘balanced’ meant only local revenue and spending.

    As for welfare payments being lower in NI than in GB; that is my memory, but I might be mistaken. I had the impression that welfare costs had to meet revenue to ‘balance’ the budget, but it’s entirely possible that I misremember. And perhaps I’m conflating it all with the idea that incomes in NI were less than in GB, and that Stormont had a Micawber attitude to money.

  • Really? Where does he teach? Who does he work for? What are his credentials other than left-leaning publications where he is described as an economist. Curious.

  • Ian James Parsley

    Thanks Pete.

    I was concerned I’d missed something.

    In terms of tackling the nonsense, I genuinely literally didn’t know where to begin.

  • Ian James Parsley

    Action Cancer is £100 better off!

    Apologies, I thought I’d told you that on Twitter. Must have got the wrong guy. No doubt he was pretty confused, now I think of it!

    They did worse in South Belfast, mind. Must have been the quality of the Alliance candidate… 🙂

  • Ian James Parsley

    Oh help!

  • Ian James Parsley

    I did.

    I also tried some real economists.

    It is fair to say they expressed exasperation.

  • Ian James Parsley

    You do misremember. The very problem with “parity” is that, if Stormont does not follow Westminster policy on welfare, it has to pay the entire welfare budget. That has always been higher, since welfare came into existence.

    Actually welfare spending doesn’t come out of a “budget” as such (one problem George Osborne is facing as he tried to reduce it by a specific amount).

    It is quite possible that pensions are a lower share in NI (and are thus lower proportionate to overall spending than in GB), as a lower proportion of population are pensioners. Though that is changing too. I’d need to check.

  • Gingray

    Not me! At least I hope not, I’ve never had a twitter account. And fair play, you put your money where you mouth is.

    Ha! Could have been the alliance candidate but I’ve an inkling south Belfast featured one of the least exciting uup candidates in the election.

  • Ian James Parsley

    Just worth repeating from salmonofdata (a genuine knowledge on statistics):

    The ONS release you’ve linked to is “The Effects of Taxes and Benefits on Household Income”, which is meant to show how taxes and benefit redistribute income between households. It does not purport to show fiscal imbalances by region in the UK, and could not possibly be meaningfully used for this purpose.

    I thank him for beginning the process of demolishing this nonsense. I literally didn’t know where to.

    I also thank him for the real story: http://sluggerotoole.com/2015/03/13/inattention-to-the-deficit-syndrome-how-northern-ireland-spends-more-than-it-earns/

  • Robin Keogh

    Ya, i understand. From what i can tell the piece is a bit lazy as he didnt expand on his ideas. There are indeed questions to be asked as to how the 14bn figure is arrived at. It seems as if it is plucked out of thin air.

  • Korhomme

    I’m thinking of the 1950s and 1960s, not of recent times. Despite what you say, I have it reasonably clear that, in those days, the ‘dole’ was less here than in GB. And then, Stormont had control of almost everything except foreign affairs and defence, didn’t it?

    I suspect that devolution isn’t the same as the sort of ‘home rule’ that Stormont had.

  • MainlandUlsterman

    One thing’s for sure – they’ll keep at it regardless. Reason or fairness don’t really come into it.

  • Where does he teach? Who does he work for? What are his credentials other than left-leaning publications where he is described as an economist. Curious.

  • frankie white

    Seen this link in the Irish News letters to the editor section the other day, I’m awful with numbers but the author maintains that public spending in NI is £9.8 billion where over £10.9 billion of tax is collected, and claims this link as proof. You seem to know your stuff, would you mind having a nosey and telling me if yer man is right?
    http://www.gov.uk/government/uploads/system/uploads/attachment_data/file/4641

  • JohnTheOptimist

    Whatever about the details of the tax figures, Michael Burke is correct in his claim that prospects for economic growth would be vastly superior if N. Ireland was integrated economically into an All-Ireland economy.

    The fundamental reality is that, as far as Ireland, Scotland and Wales are concerned, the U. Kingdom is a failed union. It is true that England has benefitted from the existence of the U. Kingdom, the large entity allowing England to punch well above its weight as a world power for several centuries. Without the U. Kingdom, England would probably have been a moderately successful country economically, but would never have achieved the world-power status it did. However, as far as Ireland, Scotland and Wales are concerned, the U. Kingdom has been disastrous.

    between 1841 and 1922 the population of Ireland fell by half – no other country in Europe has ever experienced such a collapse

    between 1841 and 2015 Scotland’s share of the U. Kingdom population fell from almost 20% to 8%

    Scotland has the highest mortality rates and lowest life expectancy in Western Europe

    in 1922 Ireland’s GDP per capita was half that of England

    between 1841 and 2015 net emigration from Ireland, Scotland and Wales combined amounted to 10 million (of which 1 million occurred in post 192-Ireland)

    in 2015 GDP per capita in N. Ireland, Scotland and Wales is the lowest in north-Western Europe

    Under the Union, the history of Ireland, Scotland and Wales is one of mass emigration, economic underdevelopment, slow growth, and very mediocre performance in health, education and other social areas.

    Having been the poorest and most depopulated part of the U. Kingdom in 1922, the Republic of Ireland (the only country to exit the U. Kingdom) has managed to reverse many of these trends. Its record is not perfect and there have been periods of setback (1954-1958, 1982-1986, 2007-201, but overall, since exiting the Union, the Republic has performed much better than N. Ireland, Scotland or Wales), The Republic’s GNP per capita is now higher than that of the U. Kingdom (GDP even more so) and much higher than that of N. Ireland, Scotland or Wales. The Republic’s life expectancy is now higher than that of N. Ireland, Scotland or Wales. The Republic’s scores in the last PISA tests were higher in all subjects and both genders than those of N. Ireland, Scotland, Wales and England. Since 1922 the Republic’s population has increased by 60% (v 5% in Scotland).

    These facts won’t cut much ice in N. Ireland, where attitudes are hardened and polarised on both sides, but they are having an effect in Scotland (and to a lesser extent in Wales). A century ago people in the Republic realised the Union was not benefitting them and that they could do better on their own. Today Scotland is coming to the same conclusion, and its exiting from the U. Kingdom looks certain within a relatively short time.

  • 23×7

    And what are your credentials that give you credibility? Curious.

  • 23×7

    Aside from the numbers why does the subvention exist? It’s because London has for decades sucked the talent and resources out of the UK regions and has had a complete absence of a coherent industrial policy for the whole of the UK, preferring to support gambling in the City of London.

  • Reader

    23×7: And what are your credentials that give you credibility?
    And what are your credentials to challenge thedissenter’s right to challenge Michael Burke’s credentials?
    (and where are my credentials to challenge your credentials…)
    OK let’s start over. Hands up anyone here who claims to be an economist? OK, only Michael Burke.

  • Kevin Breslin

    Surely “non-identifiable spend” is beginning to sound like capital investment for Great Britain on national issues such as nuclear energy subvention, London investment, nuclear decommissioning which has no more advantage to Belfast (not even a hypothetical advantage like Trident) than they would to Dublin and a lot more advantage to England and then to Scotland than Wales or Northern Ireland. If it wasn’t embarrassing surely a government would have no fears in identifying it as something better than non-identifiable.

  • barnshee

    “Aside from the numbers why does the subvention exist? It’s because London has for decades sucked the talent and resources out of the UK regions and has had a complete absence of a coherent industrial policy for the whole of the UK, preferring to support gambling in the City of London.”

    It exists because the stupid English allow NI to spend more than it generates in tax revenue. There are welcome signs that they have had enough and
    1 NI will have to either generate more tax its self or
    2 Live on less or
    3 A combination of 1 and 2

  • Kevin Breslin

    1. The NIO can implement its own capital investment programs … what is it doing?

    2. Under National Infrastructure Plan 2010 what programs for Northern Irish Infrastructure development have been ring fenced?

    If this is a glorious victory for the union, why aren’t the DUP who hold three relevant economic posts in Finance, Enterprise and Regional Development not highlighting what they are spending this money on?

    The major capital investment programs seem to rely on EU or ROI money.

    Why are there still Health capital investment programs being held back from approval?

    How much of a windfall is expected from welfare reform and tax credit reductions, because it seems those people on benefits must be rich or entrepreneurial?

    The great idea the Tories had was enterprise zones, there’s one in Coleraine, one company is benefiting from it, it might not do so anymore with the cuts to university.

  • 23×7

    The old simple answer to complex problems reply.

    The subvention is a consequence of our collective history. To deny this and imply that we are less hardworking than the English (who include millions of Irish&N.Irish) is nonsense. You are also seem to be in denial about the realities of geography, economies of scale and the history of these islands and instead believe that we are 100% at fault for our own problems.

    Should London refuse to subvent Hull or Blackpool? Should Cardiff refuse to subvent Anglesea?

  • barnshee

    Ni is the most heavily “subvented”

    What is the money spent on?

    Endless bureaucracy -Parliament and local authorities

    Social security dependency

    “You are also seem to be in denial about the realities of geography, economies of scale and the history of these islands and instead believe that we are 100% at fault for our own problems.”

    60-70 years ago West Belfast, Newry and Armagh Foyle etc all cried poverty. The same areas today continue the cry How long will it be before “we” recognise that “WE are at fault for our own problems.”

  • NMS

    Yes, Mr. Henigan has been beating the same drum for some time. There is a problem where you have MNCs. Ireland & Luxembourg’s stats are distorted. The ESRI produces its figures using both GDP & GNP. However what is not in doubt is that there is incredibly strong growth in Ireland at present

  • Kevin Breslin

    Sorry Ian, we have a “Welfare plus” arrangement paid out of cuts to our own public services. Are we not prepared to pay the price? Parity exists because we cut elsewhere.

    The UK benefits cuts come in we can’t stop them (short of voting for Irish unity or something), they have to be implemented and then we draw from our own resources to mitigate them.

    What we are seeing is not just the UK trying to impose its cuts to welfare but also have the NIO administer the mitigation fund as well and strangle its effectiveness as well, the welfare fines are being used to get this claw back for purely ideological reasons.

    This ideological attack on devolution should be resisted, there is no economic reason for it.

  • Kevin Breslin

    Coleraine vs. Mid Ulster go.