How much of GB’s economy is actually public sector?

A correspondent two days ago asks whether Northern Ireland’s economy is really that much more dependent on the public sector than Great Britain’s. It’s a good question – and I have to leave it open to readers to suggest answers to it!

My own instinct is that it is.

Very roughly, ₤4,000 more is spent per person in Northern Ireland by the Government than is raised in revenue – predominantly in taxes. In Scotland, this figure is roughly ₤2,000, and in England ₤1,000.

My understanding is that 77% of Northern Ireland GDP is dependent on public spending (versus 56% in Great Britain) – in other words, effectively, than in addition to the 31% of employment directly in government (versus 22% in Great Britain), a raft of other jobs are dependent on government (i.e. public) funding. These would include a significant proportion of voluntary sector positions, a large proportion of construction work (say building the A8 or A2 upgrades in East Antrim or new regeneration projects), and even PR contracts for government agencies. Of my own company’s turnover, for example, absolutely zero comes directly from a government department or agency, yet I would consider around 40% of it to come indirectly from government (i.e. the taxpayer) – for example, how does consultancy to assist the administration of medical training nominally through a University but based at a taxpayer-funded hospital fit?

Therefore, it strikes me that the dependency is higher in Northern Ireland, with turnover even in the “private sector” often heavily dependent on the public purse. Since nothing like 77% of that is returned in revenue to the public purse, we are left with a monumental deficit and an ever-growing government (national) debt.

What is really interesting about the above figures, of course, is that all of the UK is in the red, it is only a matter of degree – which is why the country as a whole is so indebted. Although Northern Ireland offers an extreme example of “government” revenue falling far too short of “government” spending, in fact the whole of the UK (and actually almost the entire Western World) suffers from the same fundamental problem – namely that we are relying on circulating ever smaller amounts of real wealth, rather than creating wealth by exporting products and services other people wish to buy.

It goes back to an oft-raised point on this blog: there is no fundamental reason for people in a government office job in Northern Ireland (or anywhere else in the UK) to enjoy higher living standards than people in a sweatshop in China. Unless we sort out our economy, this point will soon be realised.

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2 thoughts on “How much of GB’s economy is actually public sector?

  1. Chris Roche says:

    Mulroney says:
    Re NI economy. Martin Eichenbaum, the renowned Charles Mockes professor of Economics at Northwestern University and co-director of the Center for International Economics and Development, whose personal research focuses on the regionalised effects of aggregate economic fluctuations, said at Davos recently, “Ideologically subsidised microeconomies are black holes into which much is pumped but from which nothing ever emerges except for quite academic and theoretical fluctuations that are wholly without meaningful substance.”
    It seems then, as I suspected all along, that ‘Our Wee Norn Iron economy’ is totally FLUCCkED!

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