John FitzGerald: Economic fallout of Anglo-Irish Treaty was not all bad

The contentious debate a century ago in the Dáil on the treaty chafed at the continuing links to Britain it provided – the titular role for the king (not a Republic), and the oath of allegiance to be sworn by TDs. But, apart from Belfast-born Seán MacEntee, few other TDs expressed concerns about partition. With the benefit of hindsight, what is also very striking is that nobody seemed interested in the economic implications of the settlement with the UK.

No attention was paid in the treaty debates to the clause that provided acceptance by our government of a share of the UK national debt, which came to roughly 80 per cent of Irish national income. To pay the interest on this over the long term would have had a severe impact on our public finances.

While the Irish government had not planned it this way, the debt was finally written off in an agreement with the UK government in December 1925, in return for the acceptance of the Border as then drawn. The arch-conservative Lord Birkenhead privately promoted this deal, saying that Ireland could not afford to pay the debt. He was right – enforcement of the liability could have seen an annual transfer of debt interest from Ireland to the UK amounting to 3 per cent of national income, which would have posed a major burden for the infant State whose finances were strained.

While in early 1921, the UK government had wanted to maintain some control of the economic levers in Ireland, by the time the treaty was signed, this had been dropped. The Irish Free State effectively had full powers to manage the economy, including the power to impose tariffs on trade.

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‘Tariff wall’

Today's Republic would have loved either no Brexit, or a soft one, to maintain frictionless trade with the UK. In contrast, in 1923 it was at the southern government's instigation that customs barriers were introduced on this island. These were designed to protect the Free State's tax revenues from drink and tobacco. In a reversal of today's roles, it was the unionist Lord Londonderry who "regretted the suggestion of the erection of a tariff wall". The Dublin Chamber of Commerce of the day also shared this concern.

The Irish side in the treaty negotiations clearly lacked economic expertise, hence the new government welcomed the loan of some UK treasury civil servants

The customs barriers introduced from April 1923 operated for seven days a week south of the Border. However, Northern Ireland customs posts closed for the Sabbath, putting a stop to any Sunday export trade.

The Irish side in the treaty negotiations clearly lacked economic expertise, hence the new government welcomed the loan of some UK treasury civil servants. While some of these advisers quickly returned to London, others remained. Ronan Fanning’s history of the Department of Finance shows that the new Free State got significant benefits from their expertise, and from their connections in the treasury in London.

Until 1932, when the de Valera government came to power, copies of government memorandums that involved significant expenditure were regularly sent to the UK treasury for advice. While the practice of consulting London ended in 1932, for the next 40 years or so, spare copies of government memorandums continued to be sent to the basement in Government Buildings, just in case there were second thoughts on the need for treasury advice. This custom only ended in the 1970s following an audit of how many copies were actually needed.

Economic War

The decision in 1932 by de Valera to stop paying the land annuities (annuities from loans granted to Irish tenant farmers to allow them to buy lands from their landlords in the previous century) to the UK led to the Economic War. Serious restrictions on trade were imposed by the two governments. While the Department of Finance continued to note the land annuities as a contingent liability in the accounts, from 1932 the Irish government used this money to provide a major stimulus to the economy.

In spite of the neglect of finance and economics in the treaty negotiations, nevertheless, we secured two exceptionally good deals in these early years

While from 1932 onwards, relations between the two governments were extremely difficult, the ex-treasury officials in the Department of Finance maintained continued good relations with the treasury in London. This helped ensure a very favourable financial settlement with the UK in 1938 to end the Economic War. For a once-off payment of £10 million, the treasury wrote off the land annuities whose capitalised value was about €100 million, 40 per cent of national income.

In spite of the neglect of finance and economics in the treaty negotiations, and the limited capacity of the fledgling State in these areas, nevertheless, we secured two exceptionally good deals in these early years: the write-off of our share of the UK national debt in 1925, and the cancellation of the land annuities in 1938 for a fraction of their value.