The subvention matters: A response to why the subvention does not matter: Northern Ireland and the All-Island economy by John Doyle

aArticles and papers by Professors John Doyle (2021), and John FitzGerald and Edgar Morgenroth (2019 and 2020) consider how far the Northern Ireland subvention—, the extent to which public expenditure exceeds regional tax revenue, —would translate into a regional fiscal deficit following Irish unity.
We I consider whether the subvention has, as Doyle argues, dominated public debate about the economics of Irish unity. We I review his approach to the definition and relevance of the subvention. We I then respond to Doyle’s argument by up-dating the data through to 2022 as well as showing how theyit developed over the period 2000–22. We I review Doyle’s method regarding the reduction of the subvention from £9.4bn to a deficit of £2.4bn (in 2018–19).
Doyle characterised the subvention as a “…‘symptom of [this] weakness…”’. We I outline how it could have potentially positive effects (sustaining aggregate demand and employment) as well as negative impacts (harmful effect on quality of decision- making) on the regional economy. The broader question of the economic and welfare effects of Northern Ireland’s membership of a relatively larger fiscal union (i.e. the UK) as opposed to the impact of being part of a relatively smaller fiscal union (united Ireland) is considered.
The subvention should be considered as one aspect of Northern Ireland’s often fraught long -run funding relationship with the UK tTreasury and gGovernment. Given that experience, we I outline the case (moral hazard) why that a system of fiscal transfers within the island of Ireland might be especially problematic.
Finally, we I critically assess Doyle’s claim that a united Ireland would produce an upsurge in economic performance.
In considering Doyle’s approach, some of our my method is similar to that previously adopted by FitzGerald and Morgenroth, but our my data is are more up- to- date. We I provide a more detailed consideration of the potential increase in defence spending in Ireland. Additionally, the Northern Ireland subvention is compared to that of the other 11 eleven major UK regions.
There can be no certainty as to the precise scale of any fiscal transfer required by Northern Ireland post-united Ireland, but we can be reasonably confident that it will be considerably larger than the figure of £2.4bn proposed by Doyle. There are three main reasons for this:

1. (1.) the most recent ONS data for 2019 revise upwards the size of the subvention upwards;,
2. (2.) some of Doyle’s assumptions were overly optimistic; and,
3. (3.) spending relative to revenues increased massively during 2019–20 to 2021–22, given COVID, and there is likely to be a ratchet effect. It will take many years (if ever) to return to pre-crisis levels.

Doyle estimated a deficit/subvention of £2.4bn in 2018–19. It is more likely to have been in the range £3.6bn to £8.8bn. In 2021–22, replication of Doyle’s method implied a deficit/subvention of £6.8bn, but when some of his assumptions are relaxed that increases to £12.6bn. Given such figures it is highly likely that the subvention continues to matter. This is especially so because we cannot be confident that unification per se would produce an immediate upsurge in economic growth which that would render such a deficit irrelevant.