A defence spending bonanza could be a double-edged sword for Northern Ireland, especially if Britain funds it by cutting social welfare.
Many people inside and outside the region assume it has a strong defence industry due to its aircraft and missile plants and history of shipbuilding. Although the sector has its strengths it is surprisingly small, receiving only 1 per cent of UK defence procurement spending – the lowest of any region and a third of the national average per head of population.
Even this follows a doubling over the past year, mainly thanks to the UK Government purchasing more anti-tank missiles from French-owned Thales in Belfast to donate to Ukraine.
Any spending that does occur is almost all with a handful of large companies. The small and medium-sized enterprises that comprise 95 per cent of Northern Ireland’s defence firms receive about a 30th of their counterparts in Britain.
Figures for defence exports to the rest of the world are unavailable but Thales is believed to account for most by value.
Northern Ireland’s underperformance has been attracting serious attention in London. The Royal United Services Institute (RUSI), the UK’s leading defence think tank, published an influential report on it in 2023. Westminster held an inquiry last year and the Conservative Government pledged to bring spending up to UK levels. It also planned to increase total UK defence spending from 2.3 per cent to 2.5 per cent of GDP by the end of the decade.
Shipbuilding has returned to Harland and Wolff with a contract for naval supply vessels. The yard was bought last month by Spain’s state-owned Navantia, which has promised more investment to support the defence industry.
Labour recommitted to all these policies, although it made the 2.5 per cent deadline open-ended and subject to money becoming available. Still, Northern Ireland was in line for a tripling or quadrupling of its share over the next few years, a massive but manageable increase, all arriving as additional public spending with no cuts elsewhere. This has suddenly been turned on its head by Washington’s retreat from Europe.
Keir Starmer, the British prime minister, has been warned by his defence chiefs to raise spending to 3 per cent of GDP as soon as possible and plan for further rises.
Other departments are reportedly facing cuts of up to 11 per cent to pay for it. The UK is not in a position to borrow to rearm.
Any significant cut to Stormont’s budget would throw it into crisis. There are already concerns that it treated a one-off 9 per cent increase last year as permanent. While the northern executive has enough money in theory, decades of dysfunction have left it struggling to cope.
The UK’s ballooning welfare bill has come under the spotlight as a source of defence funds. Westminster pays Northern Ireland’s £8.5 billion (€10.3 billion) welfare bill separately to Stormont’s budget, so that could also fall significantly.
Stormont still gets the blame when benefits fall because it administers payments. The executive could refuse to administer cuts, or fail to agree on them – they are currently the DUP’s remit. A similar row paralysed devolution a decade ago.
Cutting welfare has captured headlines and the public imagination because it seems intuitive that spending on defence is more productive than paying benefits.
In reality, defence is very unproductive in the short term: it has one of the lowest multiplier effects of any form of public spending because it is not making anything most people will buy. Welfare has one of the highest effects because it is all spent immediately on basic consumption. Rapid cuts for arms could throw the UK’s sluggish economy into recession. Cynics at Westminster joke Starmer will hit his 2.5 per cent target by shrinking GDP.
In the longer term, defence spending benefits the economy by creating well-paid jobs and new technology. This is what Northern Ireland had hoped to gain in the coming years but it could miss out in a sudden splurge. The RUSI report blamed the region’s low share of defence spending on remoteness from personal networks and industry clusters in England. There is no time to fix this if spending is about to jump.
The RUSI also identified political contention as deterring investment. Nationalist parties are generally hostile to defence spending, although Sinn Féin has handled this discreetly since Stormont was restored last year. Its outgoing economy minister, Conor Murphy, welcomed the Harland and Wolff contract and otherwise left defence promotion to Invest NI, an agency under his department. Sinn Féin managed to maintain this stance amid growing debate over defence spending in the Republic during an election year. However, it may not be sustainable if the UK puts its economy on a war footing and slashes the Stormont or welfare budgets. Certainly, it will be difficult for Sinn Féin to actively lead the planning required to capitalise on a British rearmament programme.
As another deluge rises across Europe, Ulster’s dreary steeples still poke through.
