Northern Ireland Net Fiscal Balance Report 2011-2012

In any debate on the economics of a United Ireland, Unionists will inevitably contend that the North receives an annual £10bn subvention from Westminster. Their argument is that in a United Ireland the Dublin government would not be able to afford to replace this block grant. Therefore it does not make economic sense to have a United Ireland.

In order to challenge this argument we need to go directly to the source of the argument. In March 2014 the Department of Finance and Learning (DFL) published the Northern Ireland Net Fiscal Balance Report 2011-2012. 

 At first glance the Unionist argument appears to be correct, that Northern Ireland generates around £14 billion in tax revenue and spends approximately £24 billion leaving a deficit of some £10 billion

2011-2012	£'billion
Estimated Total Revenue	14.1
Total Managed Expenditure	23.8
Surplus/(Deficit)	-9.7

Let us delve into the figures. We are told the estimated tax revenue is c£14.1 billion. A breakdown of the relevant taxes is given, but we are not told how much corporation tax which is generated in Northern Ireland but declared in London. This is true for companies which are located in the North with their headquarters in London.

On the expenditure side, what makes up the 'Total Managed Expenditure' figure of £23.8 billion? Total Managed Expenditure is made up of 'Identifiable Managed Expenditure', 'Non Identifiable Managed Expenditure' and 'Accounting Adjustments'. Non Identifiable Managed Expenditure of £3.3 billion relates to UK wide spending on things like Defence and servicing of debt. Basically it has nothing whatsoever to do with the North of Ireland. I'm not sure exactly what the Accounting Adjustment of £1.1 billion relates to but I do know it relates to an overall UK accounting adjustment. Again nothing to do with the North. Total Managed Expenditure £'billion Identifiable Managed Expenditure 19.4 Non Identifiable Managed Expenditure 3.3 Accounting Adjustments 1.1 Total Managed Expenditure 23.8 So that just leaves us with the 'Identifiable Managed Expenditure' of £19.4 billion. We are told it is made up of Departmental Expenditure Limits (DEL), Annual Managed Expenditure (AME) and Locally Generated Funds. Locally Generated Funds? Yes, you guessed it. These are funds collected in the North, mainly from regional and local rates. Therefore these funds are not British government funding. I am not aware of the how much of Identifiable Managed Expenditure is made up of these 'Locally Generated Funds' in 2011-2012 but I do have the figures for 2012-2013. Until I find out the figure for 2011-2012 I will take it that it is the same as the £1.3 billion figure of 2012-2013. Identifiable Managed Expenditure 2012-2013 £'billion Departmental Expenditure Limits (DEL) 10.4 Annual Managed Expenditure (AME) 8.1 Locally generated funds (mainly Regional and Local Rates) 1.3 NI Identifiable public expenditure 19.8     With the benefit of now knowing the breakdown of the figures we can conclude that the total relevant expenditure in the British government financial year to April 2012 was £18.1 billion and the real budget deficit and block grant was £4 billion. Relevant Expenditure £'billion Total Managed Expenditure 23.8 Non Identifiable Managed Expenditure -3.3 Accounting Adjustments -1.1 Locally Generated Funds -1.3 Relevant Expenditure 18.1 Real Net Fiscal Balance 2011-2012 £'billion Estimated Total Revenue 14.1 Relevant Expenditure 18.1 Real Deficit -4.0 So the real figure for the FY2012 was closer to £4 billion rather than the £10 billion that is often stated by Unionists. This is before we adjust for incomplete corporation tax figures. We do not know the current (FY2015) block grant figure although I have heard several commentators say it is closer to £3 billion. Given the Tory cuts of the last three years a current subvention of £3 billion may not be too far off the mark. In the recent Irish Unity conference in Belfast, economist Michal Burke states the subvention is just £690 million. "Outlandish numbers are frequently cited for the so-called subvention from Westminster, which is not included in the resources generated in NI. But the data above shows that there are resources available in NI that make any subvention unnecessary. Recent ONS data specified the total of taxes and benefits for all households in Britain and in NI. On average households in NI receive £982 more in benefits than they contribute in taxes and charges. As there 703,000 households in NI, the total subvention to households is just £690 million. To be absolutely clear, these benefits are not welfare, but all forms of social protection,  plus the NHS, education, bus passes for the elderly, free school meals, etc., etc. (The difference between Britain and NI is households in Britain are net contributors to government finances of £152 per annum. This is accounted for by a lower proportion of the population in work and lower paid jobs in NI- a marker of successive failures of British economic policy in NI)". No matter which figure is correct, let's be clear. The only reason that the North of Ireland requires an annual subvention is because it exists as part of the United Kingdom.