Why Northern Ireland may be key to a UK government deal

Britain’s two main opposition parties remained deep in talks Sunday in a bid to hammer out the framework for a new UK government as the clock ticks down to the opening of financial markets tomorrow.

After Thursday’s inconclusive general election, in which the Conservative Party – also known as the Tories – emerged as the largest in Parliament but failed to win enough seats to form a majority, it has been wooing the centrist Liberal Democrats, who finished in third place.

The talks at government offices in London have a number of possible outcomes, including an agreement to form Britain’s first coalition government since World War II or a deal by which the Liberals would agree to support a minority Conservative administration.

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"I am very keen that the Liberal Democrats play a constructive role at a time of great economic uncertainty to provide the good government that this country deserves," the Liberal Democrat leader, Nick Clegg, told reporters outside his home Sunday morning.

If the Conservative and Liberal Democrat talks fail, however, Conservative Party leader David Cameron’s next port of call in terms of garnering support to prop up a Conservative government may be the eight MPs elected for Northern Ireland’s largest political force, the Democratic Unionist Party (DUP), although their backing would still mean that the Tories would rule as a fragile minority government.

To a large extent, negotiations would boil down to the simple question of the scale of the British government’s continued financial support for Northern Ireland at a time of austerity.

“The DUP will be keen to preserve the block grant which Northern Ireland gets from the British treasury,” says John Barry of Queen’s University, Belfast. “Northern Ireland’s economy is overly dependent on the public sector for GDP and it provides more than half of the jobs here, so the DUP would be eager to protect it from any cuts.”

Dr. Barry suggested that the DUP may also use its influence to bargain for Northern Ireland to be allowed to apply lower corporation tax than other regions in the UK.

During the years when the Republic of Ireland was enjoying its boom, many on the northern side of the Irish border looked on enviously as American companies and others were attracted by a 12.5 corporate tax rate.

DUP demands may be hard for Tories to swallow.

The Mr. Cameron caused consternation last month in Northern Ireland when he specifically named it as a region that would be in line for a squeeze in terms of future state funding.

Cameron specifically named Northern Ireland as one part of the UK where the state’s share of the economy was too big.