Post Tory-DUP deal, Northern Ireland’s economic outlook has not improved

Post Tory-DUP deal, Northern Ireland’s economic outlook has not improved

By Peter Probert | 23 July, 2017

Now that the minority UK government of the Conservative Party has signed a Confidence and Supply Agreement with the Democratic Unionist Party (DUP) of Northern Ireland, in return for an extra £1 billion of funding from Westminster, does that mean Northern Ireland’s economic outlook has somehow improved? Hardly. In the current conditions, Northern Ireland faces a tough rocky path to economic and political success, especially in trying to attract foreign inward investment.

From a business perspective, Northern Ireland has long faced stiff competition from its neighbour, the Republic of Ireland. A company wishing to locate on the island of Ireland has a straightforward financial decision—does it pay the Republic’s 12.5% corporation tax, or the 20% rate of its northern neighbour which is applicable throughout the UK? These figures alone are persuasive and that is why Stormont, home to the Northern Ireland Assembly, lobbied Westminster to consider it a special entity, and drop Northern Ireland’s corporation tax rate to match the competition. Due to be implemented in April 2018, this now looks to be on hold.

Brexit has added to the list of adverse factors. Bombardier, Northern Ireland’s largest manufacturing employer, wanted the UK to remain within the European Union (EU), and 55% of the Northern Irish voted to do so. It is easy to see why. There is no advantage in a company paying more corporation tax and still not gain entry to EU markets. In particular, North American companies wishing access to those markets may simply head to the Republic, where there are historic ties. Brexit has caused business uncertainty, so attracting foreign inward investment is a continuing struggle. Retaining companies already in place also emerges as a factor, so other incentives must be available. These can include access to high quality talent pools, such as those to be found at universities, plus financial assistance to upskill older employees. Job losses from firms relocating elsewhere are bound to have adverse effects, and around one in four jobs are public sector roles already.

Brexit itself raises many questions for the Northern Ireland Assembly and the EU. The border between the north and the Republic is 310 miles long and porous. It will become the only UK/EU land border. So how will trade tariffs between the two entities be implemented and overseen when moving goods from one to the other? Given the region’s recent 30-year conflict, no-one there is likely to wish a return to the use of border check points. The north is reliant upon trade of goods into the EU and 61% of its exports go there, with 35% of its economy coming from the food and beverage industry. This Common Travel Area between the two countries is a fairly informal arrangement and pre-dates the EU. Both countries wish it to continue, yet immigration now raises its head as requiring resolution.

All of this supposes the Northern Ireland Assembly is functioning properly. The DUP is predominantly a Protestant loyalist (to the idea of the UK) political party. Their main opposition is Sinn Fein, which is mainly a Catholic republican (to the idea of a united island of Ireland) one. These two parties are the largest in the Northern Irish political scene—an environment which has arguably become more polarised over time. Political stability is crucial to business to create conditions within which trade and industry can flourish. That, in turn, helps bring opportunities for the population to gain employment and enhance their financial wellbeing. Yet the Northern Ireland Assembly is suspended as the two parties cannot reach common ground on certain issues.

After a decade of joint rule, Sinn Fein withdrew from power-sharing by refusing to nominate a candidate after Deputy First Minister Martin McGuinness stepped down, and who shortly after passed away of natural causes. Sinn Fein did this to highlight the “cash for ash” scandal. In her role as Minister of Enterprise, Trade and Investment, the DUP leader and now Northern Ireland’s First Minister, Arlene Foster, oversaw a scheme known as the Renewable Heat Initiative. This scheme did not have effective cost controls, meaning that for every £1 spent on fuel, perversely a £1.60 refund was available. It cost the public purse £460 million. Foster refused to step down, with the DUP losing seats in the March 2017 Northern Ireland Assembly snap-election; they have just one seat more than Sinn Fein. Meanwhile, Northern Ireland slips toward an ill-needed economic downturn. Its 2017 growth is predicted at just 0.2%, the UK’s weakest performing region.

Does an extra £1 billion from Westminster help, as Northern Ireland was expected to receive 3.5 billion euro from the EU from 2014 to 2020? It certainly helps the Conservative Party shore up the DUP to an extent, as much as DUP support in Parliament shores up the minority UK government. The Confidence and Supply Agreement agrees support on the issues of the budget, Brexit, and legislation contained within the Queen’s Speech. Everything else is on a case-by-case basis. This neatly side-steps topics where there are opposing views, like Brexit itself, creationism, same-sex marriage and abortion. Westminster already transfers £9 billion annually to Northern Ireland before the DUP deal, making it the largest single contributor by far. But given the prevailing conditions within Northern Ireland, Westminster would do well to keep a strong eye on what is happening there, and facilitate a properly functioning Northern Ireland Assembly at the earliest opportunity.

Peter Probert is Director of Spearhead Advisory Ltd.

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