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Fake News from the New Statesman

Fake News from the New Statesman
Written by Graham Gudgin

Like 18th century Jacobites, Remainers never give up. The New Statesman is the latest purveyor of fake news with its meaningless comparisons of economic growth in Ireland and the UK. Living standards in Ireland are apparently double those in the UK. Anyone who actually believes that (the Irish certainly do not) is, as they say in Ireland ‘wired to the moon’.

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Nick Ferris of the News Stateman wrote admiringly this week of the latest forecast of outstanding success for Irish economic growth. He reported that the EU Commission expects the Irish economy to expand at the rapid rate of 5% this year in contrast to its dismal prediction of a 0.2% decline in the UK. Irish success in the view of Ferris’s interviewees is apparently due (naturally) to its membership of the EU. It’s educated workforce, stable political background and use of the English language are other (hardly new) factors – oh and its low tax regime. Meanwhile the UK is projected by the EU Commission to be the only declining economy this year, other than Russia. Ferris quotes ‘many (unnamed) economists’ who view Brexit (natch) as the reason for this dismal forecast. The fact that UK growth, this year and most years, is close to that of Germany, which (as far as we know) has not left the EU, is strangely not mentioned.

While UK GDP is properly measured, at least outside pandemic years, that in the Irish Republic is close to meaningless. No comparisons with Ireland should be made for the UK, or indeed any other country. Irish living standards are actually well below those of the UK as they have always been and are not converging with the UK. More strikingly they appear to be below those of Northern Ireland which is one of the UK poorest regions. These are points we have made before, including in a major report on the two economies in Ireland published by Policy Exchange. However, the NS did not even reply to an offer to publish a version of this article.

Ireland is the world’s largest tax haven with many large multinational companies paying next to no tax on their profits. For instance, most global revenues from aircraft leasing (most airlines lease their planes) is reported in Ireland. A key reason for the inflow of pharmaceutical and computer companies into Ireland is that profits in these sectors are largely returns to R&D. Much of this research is undertaken in the USA but if the profits can be reported in Ireland the companies pay little tax. Distortions introduced by low tax rates dominate economic reporting in Ireland to the extent that headline GDP figures are close to meaningless.

The huge distortions in Irish economic data are widely recognized, including by senior Irish economists. One of these is Patrick Honohan, who was Governor of the Irish Central Bank from 2009-15 and is currently a Senior Fellow at the Petersen Institute for international Economics. Dr. Honohan wrote in March 2021 that Irish measures of GDP are hopelessly distorted and provide a poor guide to either the size of the Irish economy or the living standards of its citizens. Others who had pointed this out included Nobel-Prize winner Paul Krugman who first adopted the term ‘leprechaun economics’ and also Brad W. Setzer who thought that Irish national accounts said more about the tax affairs of US companies than about the Irish economy.

Using GDP per head, the internationally accepted measure of living standards, Ireland appears over 90% richer than the UK. Of course, no-one believes that, and this measure is hopelessly distorted by the huge volume of profits from multinational companies which pass through the Irish economic accounts. Eurostat data shows that close to 70% of Ireland’s GDP consists profits compared to 37% in the UK or 39% in Germany. As a result, Ireland’s share of wages and salaries in GDP is by far the lowest in the EU and half the level of the UK or Germany.

The importance of this distortion is that the great majority of the profits reported in Irish economic accounts do not belong to Irish citizens. Instead, they flow through Ireland and out to other countries. In an attempt to report something more meaningful than GDP, statistical agencies began using Gross National Income (GNI) which subtracts net foreign income flows from GDP. This was still hugely distorted, so Irish statisticians invented a new and unique concept, ‘modified GNI’ or GNI* (pronounced GNI star). This further removes depreciation on aircraft leasing and intellectual property, much which is registered in Ireland by global companies. Also removed is the wages and profits of redomiciled companies in Ireland (which have little physical presence in Ireland).

If allowance also is made for higher prices in Ireland, using the Eurostat measure of purchasing power parity (PPP) instead of current exchange rates, then GNI* per head comes close to its UK equivalent.  However, if we wish to compare living standards then even GNI* is misleading. Household disposable (i.e. post-tax) incomes are for instance only 81% of the UK level, measured at purchasing power parity. Since savings ratios are higher in Ireland than in the UK this means that expenditure by households in Ireland must be even further below the UK level. This is indeed the case, and Irish consumer’s expenditure per head is only 76% of the UK level at purchasing power parity. When government spending on behalf of households is added in, as it is in the AIC measure, then Ireland is 16% behind the UK. AIC, or actual individual consumption, is measured by Eurostat and includes both consumption spending by households and government current spending for households on such things as health and education but excluding general services like defence and costs of government or the monarchy.

The importance of the conclusion that Irish living standards are well below those in the UK is that tax haven status does little to help the general population. Indeed, it hinders, since Ireland’s apparent prosperity means that it is now a net contributor to the EU. This helps to explain why Sinn Fein is easily the most popular party in Ireland. The related fact that Irish living standards are not higher than in Northern Ireland also has an impact on support for Irish unity. The recent IPSOS_MORI poll showed that even Catholics in Northern Ireland had less enthusiasm for Irish unity than the population of the South.  None of this will make much difference to Remainers, or to Irish nationalists. The news this week that Ireland is headed for an 8 bn euro budget surplus, following a !6 bn deficit last year), has excited yet another froth of excitement about Ireland being financially able to absorb Northern Ireland. Combatting fake news is a never-ending battle.


Dr Graham Gudgin CBE was special advisor to First Minister David Trimble from 1998-2002. His study on the two economies in Ireland is at https://policyexchange.org.uk/publication/the-island-of-ireland/ 

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Graham Gudgin