Cost of a United Ireland and the GFA

Sam Russell · 16-12-2022 4:48pm #1

Today (16-12-2022) John Fitzgerald has an article on the cost of Unification of Ireland.

https://www.irishtimes.com/business/economy/2022/12/16/john-fitzgerald-a-united-ireland-would-come-at-a-heavy-financial-cost/

[Might be paywalled]

He makes the point that the cost to the Irish State might be significantly higher than many would suggest, and that NI would carry a proportion of the UK borrowings.

He particularly says the Social Welfare State pensions would fall to the Irish State to pay. He instances the Scottish proposal in their 2014 referendum.

Now this I disagree with because the UK state took all the contributions for the state pensions from the workers who would now be entitled to that pension after 40 years of contributions. Furthermore, those contributions could have been paid into the fund from any part of the UK as it is not a separate NI fund. It is a UK wide fund, and contributions are not identified as to where the employment occurred.

Now it has been argued that the pensions are paid from current taxes, but that is like saying my mortgage is paid from my income, but my mortgage is still due if my current income is zero. I bought my house when I signed the contract, and money was passed over - not by paying the vendor over thirty years.

There is another difference. Scotland was leaving the UK to form a new state, and the basis for Scotland departure failed to win the referendum, so that proposal is now reduced to nought.

It is not the same for NI. NI is moving from one state to another, which has its own financial structure. I would think the UK state pensions will continue to be paid as they are to those in Ireland that are entitled to them, having worked in the UK and paid contributions, and have an entitlement to them. So a worker in Lisburn works forty years and gets a UK State pension, and another works in Leeds for forty years. NI votes for unity, and the Leeds worker continues to get a UK pension but the Lisburn worker gets an Irish pension. Say they both move to Cork on retirement, and do not even vote in the referendum, why should they be treated differently? It can be even more tricky, if they both move to Newry on retirement, or part of their working life was in GB and part in NI. It is too simple to say the liability passes to the Irish State.

Another point regards the GFA.

What terms are built into the GFA for NI to transfer from being governed from Westminster to being governed by Dublin? I never saw any condition beyond a simple majority voting for it - North and South. I never voted to take on the NI share of the UK national debt, and certainly not the current UK debt.

So, say a whopping majority, N&S, vote for unity - will the UK Gov say 'Wait a minute - there is a big bill to pay!'

Would they go against the majority and demand unreasonable terms? What would reasonable terms be? Would NI be saddled with all the chumocracy bills that the UK has had to swallow for dodgy PPE or failed track and trace, or even Johnson's parties in No. 10? Or the cost of two Royal Navy aircraft carriers ploughing the South China Sea with its complement of American Marines? Or the cost of nuclear subs? Or with its share of the HS2 railway infrastructure serving the SE UK, or the new Elizabeth Line underground railway for London. These are all very significant costs that have no bearing on NI.

I think the whole basis should be with zero baggage. The UK would save a huge annual subsidy to NI every year, and should continue the subsidy for perhaps a decade. They should agree a deal and have the same joy as a successful seller of a clapped out motor has when the cheque clears.

Fr Tod Umptious · 19-12-2022 9:33am

https://www.boards.ie/discussion/2058276065/cost-of-a-united-ireland-and-the-gfa

So, say a whopping majority, N&S, vote for unity - will the UK Gov say 'Wait a minute - there is a big bill to pay!'

Would they go against the majority and demand unreasonable terms?

No

Before any referendum on unification was put to the people the terms and conditions of what would happen if it was passed would have to be clear.

The cost of unification should not matter to people, if they really want unification they will vote for it, irregardless of the economic impact that it will bring.

blanch152 · 19-12-2022 11:18am

https://www.boards.ie/discussion/2058276065/cost-of-a-united-ireland-and-the-gfa

Unfortunately it is paywalled and I can't read it.

However, I would tend to agree with him and we will be on the hook for those pensions. The British taxpayer will not want a continuing liability.

Chris_5339762 · 19-12-2022 11:35am

https://www.boards.ie/discussion/comment/120013095#Comment_120013095

It wasn't with Brexit. Lies and bluster filled the air, and the true cost was not published - nor did anyone really know what it was.

Big things like this are never typically thought through. It would be done under ideological terms only, not with rationality and careful economic thinking happening. Only AFTER the vote was done would the realities hit.

Sam Russell · 19-12-2022 12:15pm

The cost of unification comes down to a few major items.

Defence is obviously not transferring as we are a neutral country and are not joining NATO nor are we paying for the British military.

National debt - well, there are two issues here. 1. Are NI responsible for big ticket items like the Elizabeth line, Heathrow expansion, or the HS rail links that do not serve north of Birmingham - so do not benefit NI in any way. 2. Much of the level of the national debt has been increased by mismanagement by the GB Gov, and a tiny bit by NI Assembly mismanagement. So how are those corrupt spendings to be divvied out.

No proper or reliable financial/economic figures are published that isolate the trading figures for NI. Many figures are amalgamated into total UK figures.

Pensions entitlement is collected UK wide by contributions to National Insurance. This is the same for a worker in Leeds as in Lisburn, or Newry or Norwich. So how is it to be accounted for, and who gets to be set in one system or the other. Currently, there are UK pensioners in Ireland collecting their UK pensions every week. Some are entitled to full Irish pensions and Full UK pensions. What happens to them?

Now a canard is dragged out that posits that as current /NI contributions are used to pay pensions but that bears no relevance.

Motor tax is supposedly to pay for roads, but it does not, it goes to the LA, who do maintain roads, the cost of which is not related to motor tax.

When I bought my house, the Vendor got 100% of the purchase price and I became the owner. Now I had to borrow from the bank for it, and repay them over the years. The fact that I pay monthly for my mortgage out of my income is detached from ownership of my home. If I pay NI contributions then that entitles me to a pension at retirement age - the terms are set for my contributions and change from time to time, but if I qualify for certain benefits, they continue till retirement. Where the Gov gets the funding to pay me is irrelevant to me.

Which bit of the deficit the UK gov is running is to pay the pensions and which bit is to pay for the HS2? Money is money - and in your head you can assign one income stream to one expense, but that is notional - not reality. When the Gov cuts back, it is political choices that determine which parts of the economy gets to suffer most, and which parts are immune because of the tendency to vote to support the Gov.

The Irish Gov has set up a 'rainy day fund' to allow the Gov to have a fund for emergencies (like Covid) but it is not assigned to anything in particular. Would that be used to pay for unification? I don't think so.

jh79 · 19-12-2022 12:44pm

https://www.boards.ie/discussion/comment/120013591#Comment_120013591

With regards pensions, the British are under no legal obligation to continue paying them. If they decide not to then we would have no choice but to pay it instead.

A lot if what you've mentioned is related to the subvention and it's true amount. The major costs come from increases in PS pay and welfare to Irish levels.

Then you have adjustments needed to keep the markets happy. Our per capita metrics are going to significantly drop due to the huge increase in population with little in the way of a revenue increase. So even if we find the cash to pay these extras we still have to reduce spending to get the per capita stuff back in line.

Our GDP is 350bn for 6m people, after unity it would be 385bn for 8m. Fitzgerald has already given research saying just the subvention at 10bn alone would require similar adjustments to the last recession.

maccored · 19-12-2022 1:19pm

how is it possible to even conceive a cost if the idea itself hasn't actually been discussed properly nationwide?

blanch152 · 19-12-2022 1:28pm

https://www.boards.ie/discussion/comment/120013591#Comment_120013591

This is a very simplistic analysis and does not take account of a number of issues.

Regarding pensions, you could make the same claim in respect of unemployment benefit or other social insurance payments as they are based on credits already acquired. The rUK taxpayer is going to pay for the rUK pensioners and unemployed. You see, what your analysis misses is that NI taxpayers are moving over, and UI tax income increases as a result. NI pensioners move over as well, and are paid out of UI taxation. There is absolutely no reason why the rUK taxpayer should pay for NI pensions out of their reduced tax income.

The cost of unification doesn't come down to a few major items, and even pensions are only a small part of the overall huge cost.

Take social welfare for example. At the moment, social welfare rates in NI (under a SF/DUP government) are far lower than in Ireland and are paid out of NI taxes plus rUK subsidy. What will happen with unification? If they are levelled upwards, they will cost more than NI taxation plus rUK subsidy. Those wishing away the rUK subsidy or pretending that the EU and the US will pick up the tab are deluding themselves. There is no doubt that, unless you want to cut social welfare rates in the South, that the cost of a united Ireland will be significantly higher than the current UK subsidy.

Sam Russell · 19-12-2022 1:28pm

@jh79 Our population is 5m not 6 m. So 350bn/6m = 50k. I assume these are €.

There are no separate GDP figures for NI given by the UK Gov. You give a figure for NI of 35bn - where did that come from?

If I qualified for a UK pension after 40 years, I would expect them to pay that pension wherever I lived in the UK while I contributed, and wherever I live in retirement. Are you prepared to forgo such a pension?

The real issue is those yet to retire but living in NI at the time they retire.

Sleepy · 19-12-2022 1:29pm

There's a huge issue with regards to the NI public sector as well. It's incredibly bloated at 27% of the total employee jobs in NI. This would be unsustainable in a United Ireland and would necessitate a huge number of redundancies.

This is also likely to exacerbate the inevitable unionist violence as there'll be grievances from some who lose their livelihood through the necessary streamlining as public services are amalgamated. While it's probably easy enough to calculate the additional spend that would be needed for whatever the unified Gardai / PSNI would be called, the repair bills for the impact of any bombing campaigns on public infrastructure (and the health spending for the victims of same) are understandably far more difficult to quantify.

No doubt there'll be a shinner bot along soon to link to their "Modelling Irish Unification” research paper authored by "world leading experts" which has claims of unification leading to a huge boost for the GDP of the island as a whole and which certainly reads well if you're economically illiterate or have no understanding of data modelling but which uses a lot of guesstimates as inputs to a model designed for analysing the impact of lifting trade barriers along the US / Canadian border i.e. it's garbage data fed into a data model that's a poor fit for the scenario being modelled.

I'm sure we'll see a referendum on unification in the next 20 or 30 years but I'd have no faith that it will be presented alongside any detailed plan on how the social institutions of both countries are to be merged, the costs of same and how the whole exercise is to be paid for. It's worrying tbh as I can see the Irish electorate voting for unification from a position of almost total ignorance of the economic hardships it'll bring and the lives it will destroy on both sides of the border.

Sam Russell · 19-12-2022 1:44pm

https://www.boards.ie/discussion/comment/120013897#Comment_120013897

Pensions are not the same as unemployment benefit or other social welfare payments. Contributory State Pensions are not social welfare - non-contributory pensions are. We are talking about UK State pensions based on National Insurance contributions made over forty years. They keep records, all of them, and are very careful to make sure those that those who are entitled to a pension get their due entitlement. And that entitlement applies world wide. So someone who worked for 20 years in the UK and paid NI stamps but emigrates to, say, Australia, will get their pension exactly as if they were in the UK with the same contributions.

You get EB if you are unemployed now - that is Social Welfare. The entitlement is fairly easy to acquire and bears on your current need. Pensions, the ones we are talking about, on the other hand are earned through contributions made over 40 years of employment in the UK - wherever that employment occurred in the UK - a totally different metric.

If the state pension was run like a private pension scheme there would be no question that the pension would continue to be paid out of the pot built up by those contributions. So what is different - just because the UK Gov does not keep a pension pot for all those past contributions, but spends it instead on current expenses?

Podge_irl · 19-12-2022 1:45pm

I suspect the UK's opening position will be "it is entirely your problem now" with regards to pensions etc. Of course that is offset against what to do with the national debt seeing as it is not calculated by region. It will be an exceedingly complicated negotiation process I suspect. I have seen the suggestion that it would inevitably entail two rounds of referenda (one on unification conceptually, one with the actual designed plan in place) which I think is a reasonable expectation. There is very little chance that the momentous effort required to negotiate and plan for the specifics will be done on a "just in case" basis.

I do not consider it all that likely that there will be an attempt to distinguish what parts of the national debt paid for what project and exclude those that did not benefit NI, as it really doesn't make much sense.

Sam Russell · 19-12-2022 2:56pm

I agree that apportionment of the national debt could not be apportioned by region because it is accumulated by spending way beyond their means over decades throughout the economy, often with the bias towards the governing parties areas of interest. NI was never within that metric.

However, it could be apportioned according to the average income earned in each region, with certain obvious major items removed.

jh79 · 19-12-2022 4:22pm

https://www.boards.ie/discussion/comment/120013900#Comment_120013900

Sorry,thought it was 6. The 35bn is the GDP increase after 8 years if unity was done as outlined in the SF approved Hubner Report. The GDP of NI is 54bn according to Google.

So, 350/5 becomes 404 /7 overnight and if we are lucky 439 bn after 8 years. That 70k per person before unity becomes 58k per person overnight and possibly 62k per person after 8 years if we are lucky and NI accepts the conditions set out in the Hubner report. The markets will expect adjustments to counter the dilution of the economy and that needs to be factored into the cost too.

With regards pensions, the law is it comes from current spending. If the British decide we should pay it instead of them there is nothing we can do about it. We accept it or reject unity.

jh79 · 19-12-2022 4:26pm

https://www.boards.ie/discussion/comment/120013870#Comment_120013870

Didn't stop SF from commissioning the Hubner report on the benefits. Outside of the subvention all other data is available. There is no magic right answer just different estimates.

blanch152 · 19-12-2022 5:12pm

https://www.boards.ie/discussion/comment/120013971#Comment_120013971

https://www.gov.uk/national-insurance/what-national-insurance-is-for

Let's start with some basics. Pensions in the UK are paid out of the Social Insurance Fund. So is Jobseekers, Maternity Benefit and some other (but not all) social welfare allowances.

How do you therefore claim that pensions are different to unemployment benefit?

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1124729/Northern_Ireland_National_Insurance_Fund_Account_-_2021_to_2022.pdf

Now look at this link. You will see three things:

(1) There is already a separate NI Insurance Fund

(2) "The National Insurance scheme is financed on a pay as you go basis with contribution rates set at a level broadly necessary to meet the expected benefits expenditure in that year, after taking into account any other payments and receipts, and to maintain a working balance."

(3) There is a subsidy from rUK taxpayers of €500m to the NI Insurance Fund.

So, unless someone can point to some unbelievable generosity on the part of the British, it is plainly obvious that the Fund will be handed over (and it amounts to 16.7% of one years benefit) and our taxpayers will then pick up the tab.

Now it gets even better when you consider that the social insurance rate in Ireland is generally 4%, while in the UK, it is generally 12%. So that means that if we switch to UI rates, then the fund will require a subsidy of more than €500m. So even if you wish away the €500m subsidy, you need to explain how we could make up the difference of up to half the missing contributions, around €1.3bn. Alternatively, you could suggest increasing SI rates for those of us living in the South.

Sleepy · 19-12-2022 5:28pm

https://www.boards.ie/discussion/comment/120014716#Comment_120014716

Like clockwork...

The Hubner Report is a work of fantasy (made up figures fed into inappropriate data models). Sinn Fein approve it because it was paid for by their US base to give the answer they wanted i.e. that unification would increase GDP of the island as a whole.

Sam Russell · 19-12-2022 5:31pm

The method used to fund pensions is a political matter, and designed for administration ease. The State pensions are based on contributions and are not the same as other benefits paid for under the NI scheme.

Pensions are not social welfare. If they were, the UK Gov would not pay pensions to people living abroad. They do not pay any social welfare to people living abroad, but they do pay pensions to anyone living abroad, wherever they live. I know someone who gets a UK pension even though they have never worked in the UK in their lives and never paid a single NI contribution - it is granted based on the spouses contributions but in the name of that person, so they retain it for the rest of their lives.

It might be a starting negotiating position for the UK Gov to pass over the cost (along with as many others that they can think of), but it should be rebuffed. If they had a separate fund for the pension contributions then the issue would not arise.

I was not aware there was a separate fund for NI, but it does not change the argument. How do they handle 'migrants' who return to NI after working in GB? Do they get a split pension from NI and GB, or just one pension - just the same as if they stayed in GB? Are the NI pensions administered from GB or NI?

[Edit: Having read through the link above, the cost of the State Pension in NI is about GB£2.5 billion pa - not an insignificant sum and well worth arguing about. The notion that payments are related to receipts is just an administrative equivalence - since unemployment is included in the equivalence but is totally separate and of no bearing. The fact that NI has a separate fund is a nicety because the whole scheme is administered by HMRC, as in GB.]

facehugger99 · 19-12-2022 5:39pm

Thankfully the GFA, in removing the constitutional claim on NI, provides Republic of Ireland voters with a veto on any unification proposals.

The eye-watering costs associated with unification will have to be laid before the people before any referendum. The first mention of 'unification tax' will scupper the proposals before they even get off the launch pad.

Irish unification is about 20 years away

and always will be.

Sam Russell · 19-12-2022 5:56pm

https://www.boards.ie/discussion/comment/120015018#Comment_120015018

You could turn that around, and the British Gov might look at the current subvention to NI a Unionist Tax, and decide to get rid of it as too expensive for no benefit only misery.

facehugger99 · 19-12-2022 5:57pm

https://www.boards.ie/discussion/comment/120015063#Comment_120015063

I'd imagine they'd love to.

blanch152 · 19-12-2022 6:01pm

https://www.boards.ie/discussion/comment/120014986#Comment_120014986

I have explained it as clearly as possible to you now with extensive links.

There is a separate fund for Northern Ireland, it includes more than pensions, it is funded on a pay-as-you-go basis, requiring an annual subsidy of £500m from rUK, and the reduced PRSI rates in the South will create an additional hole of £1.45 bn (I actually underestimated 50% of the cost in my previous post).

The absolute best that you could get from the UK if your pipedream came true would be a continuation of the £500m (or more particularly, around £400m which would be the subsidy of the pensions element). It still leaves you with a gap of £1.5bn or more, before we even look at the other areas of social welfare where the Irish taxpayer would have to pick up the tab.

jh79 · 19-12-2022 6:46pm

https://www.boards.ie/discussion/comment/120014972#Comment_120014972

To be fair it wasn't the answer they were hoping for and they tend not to mention it much anymore.

The Hubner report shows that even with an optimistic approach to a UI, the benefits would be quite small.

The reason I brought it up is that whenever there is a discussion on the costs of unity , pro unity posters tend to say you can't make estimates until there is a plan but forget their own side had no issue with estimates for the benefits.

blanch152 · 19-12-2022 6:50pm

https://www.boards.ie/discussion/comment/120015232#Comment_120015232

It is even worse than that.

The pro-unity claims all sorts of optimistic nonsense for economic growth with no real solutions for the core problems in Northern Ireland (third-level education, public service too big, political division), yet when you present hard facts around costs like detailed data on social welfare rates or pension funds, they dismiss the costs either as requiring a plan or that the EU/UK/US (delete as appropriate) will be delighted to pay for it all.

maccored · 21-12-2022 10:25am

https://www.boards.ie/discussion/comment/120014716#Comment_120014716

so you answer my question with whataboutery? Nothing new there then

The point remains - the concept itself needs to be discussed before you can start with makeyuppy scenarios of cost.

breezy1985 · 21-12-2022 10:41am

https://www.boards.ie/discussion/comment/120013434#Comment_120013434

Brexit gave absolute no idea of what the future would hold. No agreements or framework.Brexit voters voted for unicorns and castles in the sky.

I would vote for a UI despite being fully aware it will cause economic problems but I think long run it will work out.

I would certainly vote against reunification if it was one of those wishy washy UK referenda and not more like here where you know what you are voting for.

Sleepy · 21-12-2022 11:00am

The best approach for the Republic would be to refuse unification, best for NI to have a couple of decades of independence to sort themselves out and then unification can be discussed as a merger of two functioning states rather than a takeover of an economic basket case at huge costs (economic, social and - let's face it - likely in terms of lives).