5 February 2024

Northern Ireland’s next challenge? It’s the economy, stupid


For people outside Northern Ireland, it takes a crisis to pay attention to what is happening in that corner of the United Kingdom. For too long, those crises tended to be violent, but after the Belfast/Good Friday Agreement was concluded in 1998, and a measure of uneasy peace was created. The stories now, thankfully, usually focus on political and constitutional controversies.

The most recent saga has been that of the devolved government, or rather the lack thereof. After elections for the Northern Ireland Assembly in May 2022, the Democratic Unionist Party refused to take part in the political process because it regarded the Northern Ireland Protocol, the Boris Johnson-approved deal with the EU which created an effective customs border in the Irish Sea, as constitutionally unacceptable. Last week, after nearly two years of stasis, the UK government agreed a deal with the DUP which brought them back to the assembly, and allowed a new executive to be formed.

Casual observers may regard the historic appointment of Sinn Féin’s Michelle O’Neill as first minister of Northern Ireland as the conclusion of the saga. But she and her DUP deputy, Emma Little-Pengelly, with whom all decisions must be agreed under the executive’s power-sharing arrangements, now have to govern. That, like in any other part of the United Kingdom, is going to be a daily slog of serious thought, hard truths and tough choices. And underpinning it all is tackling Northern Ireland’s economy.

If you have spent any length of time in Northern Ireland, you will know that it is strangely the-same-but-different. Before the Troubles began in the late 1960s, it was a place of agriculture and heavy industry: shipbuilding, rope manufacture and textiles. The marks of that remain in the giant Samson and Goliath cranes at the Harland and Wolff shipyard and the warehouses of Belfast’s old Linen Quarter.

Today, Northern Ireland’s economy depends primarily on services, from retail and hospitality to accountancy legal services. The sector represents just over half of economic activity, and is growing slowly after the pandemic, with the strongest recovery in business and finance. 

The public sector in Northern Ireland is disproportionately dominant: it accounts for a quarter of the workforce (in London and the South East of England it is 14% -15%) and nearly a quarter of economic output. It is currently facing a pay crisis, however, and this had brought major industrial disruption. Last month, 150,000 public sector employees, including nurses, teachers, bus drivers, carers and civil servants, staged the biggest strike in Northern Ireland for half a century. This will not be easy to de-escalate. The agreement offered by the UK government last week included a £3.3bn funding package of which £584m is earmarked for public sector pay, but the first minister has already advised Whitehall that this ‘falls short of the known pressures’ and will only be a temporary respite.                              

O’Neill has acknowledged that the economic framework of Northern Ireland is unsustainable. ‘How we are funded needs to change,’ she told the media before meeting Rishi Sunak on Monday. But she has rejected the new calculation of funding needs proposed by Westminster, which the executive has criticised as having ‘no robust independent assessment or analysis’. The deal also requires the executive to raise more of its own revenue, which is potentially highly unpopular.

Economic transformation is an uncomfortable prospect for a political community which has spent decades battling over the constitutional settlement and relying on the central government to step in financially when there is a crisis. In May 2021, the previous executive published a strategy entitled 10x Economy, which scored highly on soaring rhetoric and is supposedly ‘an ambitious pathway for fundamental change to our economy and committing to everyone feeling they are part of this transformation’. The collapse of the executive in February 2022, and the interim management by the Northern Ireland Civil Service, has brought effective stasis.

The executive now has provisions for an ‘Enhanced Investment Zone’, the devolution of corporation tax and the promise of more integration of defence providers into the wider UK defence industry. But there will need to be a cultural change at Stormont too. Placing more responsibility for revenue-raising in Northern Ireland, which has traditionally received 90% of its funding in a block grant from the Treasury, and inculcating a spirit of enterprise and entrepreneurship in an economy so dependent on the public sector will be an enormous challenge, especially for two parties like Sinn Féin and the DUP which are statist by inclination (the identity of that ‘state’ being the point at issue).

There are now a number of areas the Assembly must focus on. Nurture and emulate strongly performing sectors like tourism and tech. Make good on promises of greater inward investment to accompany political stability. Make government funding more flexible and accountable. Drive down stubbornly high levels of economic inactivity. Address persistent problems in educational attainment. These tasks are hard but not impossible. But they fall to a political class which has spent five of the past seven years in suspension, sniping from the sidelines. The change required now is generational.

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Eliot Wilson is co-founder of Pivot Point Group.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.