Separation from the UK would involve 'major costs' for Northern Ireland - and the Republic could pay up to €20 billion - report

The report by the Dublin-based Institute of International and European Affairs (IIEA) looks at the cost of raising welfare and public sector pay rates in Northern Ireland to the level of those in Ireland.

It also says separating the Northern Irish economy from the rest of the UK would involve “major costs” for Northern Ireland due to its high level of integration into the British economy – and this “would take some considerable time” to offset by integration into the EU.

The report was authored by professors John Fitzgerald and Edgar Morgenroth. Professor Fitzgerald argues the initial cost of absorbing Northern Ireland would "put huge financial pressure" on people in the Republic and result in "an immediate, major reduction in their living standards".

Northern Ireland currently receives around £14bn in ‘subvention’ from central government – money which fills the gap between how much tax is raised here and how much is spent on public services. Nationalists argue that this would be offset by the economic boom created by a united Ireland.

However, Ulster University economics professor Esmond Birnie says the report indicates that the Dublin government would struggle to maintain existing living standards in NI without adding substantially to the public spending – and therefore increased taxes in the republic.

“Any arguments that unity per se would lead to a German or Japanese style 1960s economic miracle in such a scale that unity would pay for itself lack credibility given the extent to which a profound and long run productivity and competitiveness problem has characterized the NI economy for most of the last century” he said.

He says the report suggests that “the electorate and tax payers in the RoI need to be very careful what they wish for. The two Dublin economic Professors have provided a very fair and useful summary of the most up to date data regarding ‘day one’ financial cost of so called Irish unity.

“There is a UK official statistic called the Subvention or Transfer which is measured by the Office for National Statistics and shows the extent to which public spending in NI exceeds tax revenue collected. In 2021-22 that figure was a massive £14bn equivalent to roughly one quarter of regional output or GDP.

“Some pro-unity commentators, whether academic or party political, have argued that subvention figure in no way equals the fiscal transfer which Dublin would have to provide to NI post-unity”. Dr Birnie says the report implies that such commentators have usually been very optimistic in their assumptions about what would be “an inherently uncertain process: the negotiations between London and Dublin”.

As in the Scottish independence referendum, there would be a debate during any border poll about whether the UK government should continue to pay for public sector and state pension liabilities – and whether London would write off Northern Ireland’s share of the UK national debt.

During the 2014 debate about Scotland’s future – the UK government said an independent Scottish state would become responsible for “a fair and proportionate share” of the UK’s current liabilities.

Esmond Birnie says: “It has sometimes been argued, for example, that the UK Government would continue to pay for all existing public sector and state pension liabilities in NI but would it. Similarly, why would the London Government write off NI's obligation to pay a share of UK public debt? After all, in 1921 at independence the then Irish Free State assumed a proportional share of UK debt obligations” which he said was only cancelled given the unusual circumstances of the 1925 Boundary Commission report.

“The two Irish economists further note the extent to which public sector pay rates and welfare benefits exceed those in NI. It would hardly be credible for a post unity Ireland to have two rates of pay and benefits – the unification of East and West Germany in 1990 provides an interesting precedent, in economic terms there would have been a logic in trying to run the former East Germany at a much lower wage and currency rate than the West but Chancellor Kohl and others realised this would lack political credibility.

“The impact of raising NI public sector wage and benefit rates would massively raise the required post unity fiscal transfer”, he added.