Wednesday, May 09, 2007

The Price Of Peace

These guys only got £25m

Back from the pool just in time to watch all those politicos congratulating each other on Northern Ireland's resurrected power sharing. Obviously it's infinitely better than the bombs and bullets, but as we blogged here, for those of us this side of the Irish Sea, there's a rather large tab heading our way.

Let's remind ourselves of the current facts. At present (2006-07), NI gets £16.3bn pa of identifiable public expenditure (see HM Treasury analysis here). That's £9,385 pa per capita, compared to a UK average of £7,362. It's the highest of any region, higher even than The Peoples' Republic of Scotland on £8,623.

Of course, NI does pay some tax, but it's substantially less than the spending. Not all tax receipts are broken down regionally, but we know that NI's income tax payments amounted to £2.3bn in 2004-05, or 1.9% of the total. Applying that percentage to 2006-07 income tax receipts gives an estimate for 2006-07 of £2.8bn.

If we then assume NI pays its GDP share of other tax receipts (almost certainly an overestimate), we get a total NI tax payment figure for 2006-07 of £10.6bn.

Thus, with £16.3bn public expenditure against £10.6bn tax payments the rest of us are already subsidising Northern Ireland to the tune of nearly £6bn pa. Or something like £8,000 pa for every single NI household.

And it was against that background that my jaw fell open when the man from Sinn Fein asserted to Newsnight that Northern Ireland had always been underfunded by Britain. Underfunded on £8 grand per household? How much does he think they need for gawd's sake?

Worse, he reckoned the British government agrees with him. And indeed, the oily Peter Hain confirmed more Treasury cash was "something they could negotiate"- ie it's already loaded on the lorry ready to ship out.

None of us wants to see a return to violence, but isn't £6bn pa enough? Even Danegeld only totalled a quarter of a million pounds of silver, worth about £25m today.

As we can all surely see (except Gordo), the best and quickest way to get NI standing back on its own feet is to cut taxes. In particular, it needs to slash its corporation tax rate down to the tigerish Irish level of 12.5%. According to the back of my envelope, that would initially cost between £0.5bn and £1bn pa, but as Irish experience shows, the short-term cost would soon be overwhelmed by the huge fiscal pay-off from a more dynamic economy. And in any event, it's a damned sight less than the existing fiscal bung.

Yet more public subsidy will cost the rest of us plenty and do nothing to end NI's dependency malaise.
PS Yes, silver probably had relatively more buying power in Viking times. But let's not split hairs. Or skulls.

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