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Will they, Wont they? The DUP and Devolution.

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Written by Graham Gudgin

It remains unclear whether the DUP will agree to the restoration of devolution in NI. Their protest against the NI Protocol is based on a fear that tying NI to EU regulations with a trade border on the Irish Sea will accelerate the drift to Irish Unity. This article shows that there is little sign of an emerging economic United Ireland.

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The DUP is still dithering about the restoration of the Stormont devolved parliament.  With party leader Sir Jeffrey Donaldson clearly in favour of restoring devolution, the Party appeared to be on the brink of going back in, but has subsequently backtracked. The problem for Donaldson is the DUP’s party leader in the House  of Lords, Nigel Dodds and others, who favour staying out. One hope is that a new Labour government may cosy up to the EU, promising alignment with EU regulations and hence removing the need for a border in the Irish Sea. This might be a rational strategy for NI unionists except for the influence of Sue Gray the Labour advisor, who served in the NI Government and  is said to dislike the DUP. She might be tempted to alter the terms of the Good Friday Agreement to prevent individual parties from suspending the Stormont parliament, leaving the DUP powerless to prevent a restoration of devolution with Sinn Fein as the first minister.

The UK Government in London has gone pretty as far as it can to make it possible for the DUP to return immediately. After long negotiations and a raft of paperwork from No.10, and the offer of extra funding, it seemed that the DUP had enough to allow them to take the plunge. Donaldson puts great store in ‘restoring Northern Ireland’s place within the UK and its internal market….and reversing the harm caused by the NI Protocol erased’.  No 10 has responded by offering new legislation on strengthening NI’s position in the UK and in the UK’s internal market.

Quite what is meant by restoring Northern Ireland’s place in the UK and its internal market is unclear and we wait to see what will be revealed. It is unlikely, to say the least, that any form of words or proposed legislation will do anything to alter the Windsor Framework. Hence EU regulations will continue to apply to the production of most goods (but not services) within Northern Ireland and restrictions will remain on some goods imported into Northern Ireland from GB. To this extent NI will remain within the EU’s Single Market.

There is no real possibility of renegotiating the Windsor Framework. This horse has already bolted. The EU is not up for continuous renegotiation, and if the UK were to take unilateral action then part or all of the existing free trade agreement that the UK has with the UK would be in danger The nightmare scenario for the UK would be an imposition of EU tariffs that endanger key parts of the UK economy such as the large Nissan car plant in Sunderland. What unionists are likely to have to accept is some form of words that make it clearer than at present that NI remains part of the UK with free access to GB markets until and if NI ever decides to leave the UK.

In practice nothing much will change, but the new words will come with a substantial financial sweetener involving as much as £2.5 billion of extra money for a newly restored Stormont administration to spend. Much of this will fund a pay increase for public sector workers including backpay for those like teachers who have not had a pay increase for years. Significantly, a new settlement may open the way to a guarantee on future subsidies to Northern Ireland. A few years ago, the Welsh government obtained a guarantee that its level of public spending per head would be 15% higher than in England. NI is seeking a higher level at over 20%, which would set its funding more securely than under the current Barnett Formula.

Critics will claim that none of this alters the point that Northern Ireland’s constitutional position is weaker than before Brexit. This is true, and it is fair to say that the Protocol, even in its revised Windsor format, is a constitutional outrage which should have been avoided six years ago but which cannot now be changed. It is often claimed that this gives NI the best of both worlds on trade, but in reality, there are swings and roundabouts. Producers of goods in NI do have access to the EU market without any customs constraints, unlike firms in GB, but tariff-free access to the EU is available anywhere in the UK. NI producers also have unfettered access to GB markets with no customs or tariffs. The drawback are the constraints of goods entering NI from GB.

Unlike the rest of the UK, firms and consumers in NI face customs admin and checks on at least some goods from GB.  This will have raised prices in NI and has led some GB suppliers to cease supplying NI. A government survey, originally designed to track business behaviour during Covid provides good evidence on the withdrawal of mainland firms from the NI market. This Business Insights and Conditions Survey samples a large number of firms every fortnight and asks firms whether they sold anything to NI in the last year. After a few months of the Protocol in 2021 the number of firms selling into NI dropped permanently by 16%. For manufacturing firms, the reduction was 25%. As one might expect most of the withdrawing firms were relatively small. For firms with more than 250 employees there was no obvious reduction. Since these larger firms account for 90% of trade and include the major supermarkets, the reduction in the volume of goods supplied to NI has thus been small and perhaps under 2%.

There is certainly evidence that firms in NI are buying less from GB. New trade figures published by the NI Statistics and Research Agency just before Christmas show that purchases from GB fell from 30% of all goods bought in NI in 2019 to 25% in 2022. So, if goods were not being bought from GB where did they come from? The data shows that the main beneficiary was not the Republic of Ireland where the share of NI sales has been broadly flat at 7%. The beneficiary was instead Northern Ireland itself. Goods bought in NI have increasingly originated within NI, rising from 51% of all purchases in 2019 to 55% in 2022.

There is thus little evidence of the emerging economic united Ireland that many Unionists fear. Instead, firms appear to be reacting to the Protocol by buying locally rather than from GB but not increasing purchases from the Republic. Even so, GB remains easily the largest external source of goods coming into Ni and easily its largest export market. Trade with Republic remains surprisingly small. None of this should be a surprise. The two economies on the island of Ireland are very different. The Republic of Ireland is a sovereign state, fully part of the European Union but also one the world’s largest tax havens. Northern Ireland is a region of the UK and its economic union. With different currencies, different fiscal and monetary arrangements including different interest rates and VAT and excise duties, and with separate legal systems, the two areas are distinct. Both have their own distinctive health, education and social security systems and much else besides. It is true that regulations governing the 16% of the NI economy which produced goods rather than services are same as in the Republic but as yet these differ little from those in GB. With the prospect of s Labour Government in 2024 only limited further divergence is to be expected.

The DUP have been right to oppose the NI Protocol but effective opposition came years too late after the 2017 origins of this policy. Together with the ERG wing of the Tory Party, they managed to obtain reforms starting with David Frost and coming to fruition under Rishi Sunak. The most egregious aspects of the Protocol were changed under the Windsor framework which removed many aspects which had been unnecessary to protect the EU Single Market and which should never have been included. The PM is said to be irritated that the DUP’s failure to respond to how far the Windsor Framework went in meeting criticism of the Protocol. However, the UK Government has not done enough to recognise the failures of British statecraft in negotiating the Protocol, nor has it sufficiently reacted to Unionist fears that the Protocol has accelerated the drift to the Irish Unity which they exist to oppose. In practice Unionist fears are overdrawn and the Government should do more to point this out.

Dr Graham Gudgin CBE is co-editor of BriefingsforBrexit and Associate Researcher at the Centre for Business Research, University of Cambridge.

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Graham Gudgin