- A fiscal deficit occurs when public spending outstrips revenue raised. For Northern Ireland, annual deficits are usually covered – at least in part – by extra money from the UK Treasury.
- For the majority of its existence, including every year since the 1960s, Northern Ireland has been a net beneficiary of UK funding.
- However, there is evidence to show that NI was a net contributor to UK coffers until 1930.
- It’s worth noting that NI isn’t alone in running a deficit. Most UK regions run a deficit in most years – and sometimes they all do.
During a speech at a New Ireland Commission event on August 23, SDLP MLA Matthew O’Toole said:
“Northern Ireland has been in fiscal deficit for most of its existence. Put simply, it raises less in taxation than is spent on public services…
“All advanced economies have areas of stronger and weaker economic performance, with an embedded principle that the social contract that exists between citizens and the state extends to regions, and richer regions subsidise weaker ones – but we’ve been one of the weaker ones for our entire existence.”
Mr O’Toole makes two claims which are slightly different:
- that NI has been in fiscal deficit for most of its existence; and
- that it has been in deficit for its entire existence.
While the first claim is correct, there is solid evidence to suggest the second is not.
Previous work from FactCheckNI highlighted published research which states NI was initially seen as “an integral and self-supporting component of Britain’s Imperial system” with a fiscal surplus.
Research also states a regular “Imperial Contribution” was paid from NI to London, until the economic crises of the 1930s. This is backed up by excerpts from Hansard in the 1930s (here and here) which indicate that NI was a net contributor to the UK until 1930.
Later data shows that Northern Ireland has been continuously in deficit since at least the 1960s.
However, there is also a wider context. Most of the 12 UK regions are in fiscal deficit most of the time, and there are some years, such as 2010 and 2021, where every region was in deficit, with gaps in public spending plugged by borrowing.
Of course, economic comparisons taken across a century should come with a health warning.
- Deficit – definition and context
A fiscal deficit usually refers to a shortfall in a state’s (or government’s) revenue versus its spending. Slightly contrary to what Mr O’Toole said in his speech, there is no specific reference to services. Not all government spending goes on services. A significant proportion goes on welfare, including pensions, for example.
Northern Ireland’s fiscal deficit is sometimes conflated with the subvention received from Westminster. However, strictly speaking the deficit is the amount by which spending exceeds revenue and the subvention is the amount allocated by the Treasury to cover the deficit – and, in any given year, the UK Government could opt not to cover the entire deficit or indeed to provide an allocation that exceeds the deficit.
Such an example occurred in 2021-22, when NI Departments were allowed to spend £297m more than the fiscal deficit on condition it would be paid back in future years.
- Regional picture
Northern Ireland may well have a fiscal deficit, but is that so unusual? Not really, most of the UK’s 12 regions have a deficit in most years.
A January 2020 House of Commons briefing paper – i.e. research published just before the pandemic, so eliminating any uncharacteristic economic patterns caused by COVID-19 – notes that:
“In 19 of the past 20 years London and South East have been in surplus. East of England had a surplus in 13 of the 20 years, while East Midlands and South West had surpluses in two years. All other countries and regions had a deficit in all 20 years.”
In 2021 every single region had a fiscal deficit, with the shortfall made up by borrowing. That might be due to pressures from the pandemic, but it is not unique. The same situation occurred in 2010. Nor is it unheard of for all four countries of the UK to run a deficit; this happened in the last full financial year before COVID.
What about Northern Ireland, historically?
- Northern Ireland
In recent years, Northern Ireland has consistently run a deficit.
As noted above, previous work from FactCheckNI shows how NI has run a deficit since at least the 1960s up until 2013-14. Data showing fiscal deficits since then is available from the Office for National Statistics.
The same article also notes research from Professor Bob Rowthorn that indicates Northern Ireland contributed money to the rest of the UK in its first few years of existence.
Other sources for this include House of Commons debates from the 1930s, when then-Chancellor Neville Chamberlain indicated that NI’s contribution to UK finances were greater than the payments received from London until 1930.
It is worth making several observations about these comparisons:
- Firstly, subventions and/or net contributions were historically assessed somewhat differently than they are today.
- Today the subvention hovers around £10bn per year, which is significantly higher than, for example, the figure of just under £3.5bn in 1995-96 (although this would be significantly higher when adjusted for inflation).
- The subvention has never been assessed on “need”; however, the evidence from Northern Ireland’s economic history, particularly from Gross Domestic Product (GDP) figures, is that there was no need for a subvention until 1929. Northern Ireland’s per capita GDP fell to around 60% of the UK level from then until the Second World War; rose during the war to 70%; and then during the Troubles to 80%.
- At the same time, the usefulness of GDP as an economic measure is contested. For instance, Northern Ireland’s average (median) income after housing costs now exceeds that of the rest of the United Kingdom.
Furthermore, NI has other sources of income. PEACE funding such as that for €1.14 billion announced this month is not counted towards the subvention or fiscal deficit.