Select Committee on Northern Ireland Affairs Fifth Report


V. ISSUES

The political climate

31. A recurrent theme in the evidence was general support for the proposition that the improved political climate is more conducive to attracting and retaining good quality inward investment. IDB, for example, commented:[52]

    "Undoubtedly, the international perception of Northern Ireland as an area of political instability has hampered the inward investment drive in the past."

It considered also that the projects now coming in are "significantly stronger".[53] IDB also considered that failure to maintain political progress following the Good Friday Agreement "would be a disadvantage in terms of marketing Northern Ireland as an investment location."[54] CBI stated:[55]

    "In the last four to five years ... both the quality of the organisations ... and the quality of the jobs, which has reflected the nature of the sectors, have now become our target."

32. The Northern Ireland Economic Council (NIEC) considered that the prospect of durable peace and political stability would assist in attracting projects that would introduce new products and technology, and offer scope for developing higher order corporate functions.[56] It has estimated, on the basis of the experience of the Republic of Ireland, that four times the number of jobs could have been promoted during the period of the Troubles had there been peace and political stability.[57]

33. NIEC also considered that the improvement in the economic fundamentals would mean that the emphasis of inward investment policy could shift. As unemployment levels had fallen, sheer numbers of jobs could become a lesser priority and, as the political climate has improved "and the premium, because of political violence, is less", more emphasis can be placed on seeking to enhance the benefits to indigenous industry.[58] Dr Gorecki, of NIEC, considered that the balance had, in fact, changed.[59] As he commented later:[60]

    ".... if you are investing in a situation where there is political violence then you would expect that firms under these conditions are going to be characterised by easy entry, easy exit. The inward investors are not going to put down lots of roots, in terms of training a labour force, in terms of other sorts of investment which, if they decide, for whatever reason, they have to leave very quickly, they are not going to be able to recover their investment which is sunk...."

34. CBI Northern Ireland noted that the adverse political climate of the Troubles had inhibited inward investors and those it had attracted had tended to be assembly plants for multinationals.[61] It considered that developments over the last four to five years had led potential investors who might previously not have considered Northern Ireland to do so.[62] Like a number of other witnesses, CBI viewed the prospect of a continued suspension of the devolved Administration with some concern.[63] Investment Belfast commented that the perception of political instability was "something that we continually face and have to overcome."[64] Derry Investment Initiative felt the north-west was particularly vulnerable in this respect.[65] Mr Mullan, of Investment Belfast, commented:[66] "If we do get political stability .... I have absolutely no doubt that Northern Ireland will be the investment place of the new millennium.".

Cost

35. Government policy is to seek to provide the minimum financial assistance necessary to attract a project. NIEC has analysed Selective Financial Assistance by ownership characteristics over the period 1988-89 to 1998-99.[67] It has concluded that the volume of assistance for new internationally mobile investment projects shows no discernible pattern. It attributes this to the demand-led nature of the market. It notes that, over the period studied, the volume of assistance is consistently small compared to assistance given to externally owned expansions and competitiveness projects. The latter part of the period has been characterised by a decrease in the percentage rate of assistance offered to expansion and competitiveness projects, but an increasing rate for new projects. This is attributed to a change in character of more recent investors, where the projects are less capital intensive, and have a greater human resource element. So, despite a greater level of support for the capital investment, the average cost per job is declining.[68]

36. NIEC pointed out that there was evidence that "a substantial proportion" of assisted projects would have happened in any event and that, in these circumstances, the provision of public funds could be viewed as a waste. It was surprised at the relatively high rate of grant paid recently.[69]

Relations with the Republic of Ireland

37. The Republic of Ireland is an important destination for Northern Ireland exports.[70] It is also a major competitor for inward investment projects, which it seeks to attract through a wide range of incentives and a vigorous marketing campaign.

38. IDB witnesses saw competition with the Republic of Ireland as primarily on availability of people and on cost. It also considered that the Republic of Ireland has considerable infrastructure disadvantages. The Chief Executive, Mr Robinson, commented:[71]

    "If you look at the projects that have come to Northern Ireland in the last year, in software and in network services we would have been head to head with the IDA in virtually all of them. I think that the pattern of success in those areas demonstrates that we can match the offer."

39. NIEC considered that Northern Ireland could benefit in a number of ways from the high level of inward investment in the Republic of Ireland.[72] These included closer linkages between the two economies; development of cross border sub-supply networks; and the economic pressures which might attract investors to place some of their operations in Northern Ireland. It also pointed out that, even before the Belfast Agreement, some joint marketing arrangements existed in the inward investment field and that this relationship was showing signs of developing.[73] CBI drew attention to some specific examples of cross-border trade with inward investors into the Republic of Ireland.[74] Sir Reg Empey told us that there are some unofficial arrangements with the Irish Development Agency to seek to prevent the two jurisdictions being played off against one another by a prospective inward investor.[75]

40. ICTU thought that Northern Ireland lost out "substantially" to the Republic of Ireland in attracting inward investment.[76] It drew attention to the systematic approach the Republic had adopted to both ensuring a properly trained workforce and to attracting a wide range of industries.[77] Dr Bradley also commented on what he saw as a more systematic approach in the Republic of Ireland.[78] Mr Ingram commented that "Northern Ireland never lost out to anyone", but also recognised the strength of the Republic of Ireland's approach to attracting inward investment. He added that they had the advantage of a stable society.[79]

41. Several witnesses mentioned the potential impact of the low rate of corporation tax offered to inward investors in the Republic of Ireland.[80] NIEC did not see this as an over-riding factor, as against the economic fundamentals, but added:[81]

    ".... it would be foolish to deny that a 12 per cent corporation tax, which is guaranteed for a long period of time and will change very slowly, is an important attribute when you are competing with other jurisdictions."

CBI Northern Ireland considered that the tax incentive had been a particular factor in attracting fast-growth companies, notably in the information technology and pharmaceutical sectors. It also noted that forthcoming changes in the tax system might have implications for the location of many companies in the general services sector and, as a result, more such companies might be attracted to the Republic of Ireland.[82] The Northern Ireland Chamber of Commerce and Industry considered the proposed 12.5 per cent corporate tax rate for all sectors would contribute to maintaining a significant advantage for the Republic of Ireland in attracting inward investment, and might also persuade current Northern Ireland based business to locate its corporate headquarters in the Republic.[83] Belfast Investment Initiative considered that the Republic's success in using the tax system to attract inward investment should be looked at in the context of future policy in Northern Ireland. It favoured a move to tax incentives and away from grant assistance.[84] Into the West, though, suggested that overall there was little to choose between the incentive packages of each jurisdiction.[85]

42. John Simpson saw the border between Northern Ireland and the Republic of Ireland as "a fiscally discriminatory frontier, and it does make a difference in terms of the type of industry that goes south and that which comes north. The more labour-intensive the industry and the more skill-intensive the industry and the less capital intensive, the more likely it is to go south."[86] Dr Bradley suggested that multinationals would decide between the two locations on the basis of an assessment of likely profitability, with Northern Ireland more likely to attract the lower profitability operations.[87]

43. Sir Reg Empey agreed[88] that the Republic of Ireland had an advantage over Northern Ireland in the taxation field, but considered that the impact of this factor was dependent on the nature of the project. Projects which are cost centres, rather than profit generating, would not benefit from many incentives offered by the Republic of Ireland as they did not produce taxable profits. He maintained that, for some investors, the capital grants system in Northern Ireland could be very attractive, and some would achieve capital grants more generous than they could expect to receive in the Republic of Ireland. He also pointed out that such grants would not be taxed, unlike the situation in the Republic of Ireland.

44. Several witnesses mentioned the currency differential. NIEC considered that this might well influence potential inward investors, but the impact would depend on their assessment of trends in the relative levels of the pound and the euro over the longer term.[89] CBI expressed some concern about the Republic's membership of the euro and its possible impact, but argued that the very success engendered by this might create opportunities for Northern Ireland, both through drawing in skills from the Province and providing the opportunity for Northern Ireland to secure more investment.[90] Derry Investment Initiative cited a specific case where a company's profitability had been seriously reduced through the strength of sterling.[91]

45. Other factors mentioned as influencing locational decisions on the island of Ireland included the higher electricity prices in Northern Ireland, the greater availability of natural gas in the Republic of Ireland, and public expenditure on research and development in certain key areas, such as e-commerce.[92]

46. John Simpson commented that there was a case for a degree of co-operation on economic matters between the two jurisdictions on the island of Ireland. He said:

    "... The whole attitude ... to coming onto the island of Ireland will be helped if we are seen to have a shared analysis and a shared presentation of the way in which we expect the economies to evolve; that is not necessarily saying one will control the other...".[93]

NIEC had also commented on the potential contribution that might be made through the cross-border body on trade and business development.[94] Dr John Bradley also considered the North-South dimension important.[95]

47. Another factor is the impact of the prosperity in the Republic of Ireland, which CBI saw as drawing talent there. It considered, though, that this might work to the advantage of Northern Ireland, as rising costs might encourage people back to Northern Ireland, bringing with them their experience.[96] Derry Investment Initiative commented that the expected level of jobs growth in the near future might well stimulate immigration into the Republic of Ireland and it would like to see some of these jobs come north of the border instead.[97]

Relations with other parts of the United Kingdom

48. A Concordat has been agreed between the United Kingdom Government and the devolved administrations covering financial assistance to industry,[98] designed to minimise wasteful financial competition. Sir Reg Empey was "very content" with the provisions.[99]

49. IDB told us that there is a structure in place to manage intra-United Kingdom competition, through the Department of Trade and Industry and the Invest in Britain Bureau (IBB). These organisations are represented in British diplomatic posts around the world.[100] IDB's overseas representatives work closely with overseas posts and integrate their activities with them "because we certainly see them as a source of some leads."[101] As Mr Ross put it:[102]

    "There is an understanding and acceptance by IBB that competition with the UK, so long as it is not about money, is healthy and is helpful to the potential investor. .... You are selling your infrastructure in its widest sense as distinct from selling grants, and wherever we are marketing or selling Northern Ireland, we do not focus on grants. They will become an element of securing projects but they do not generally feature in the business case that has to be made in respect of Northern Ireland or, indeed, with the initial discussions that companies would have with us".

50. Mr Ingram considered that the Concordat would be a significant factor in increasing inward investment in the Province.[103] He also implied that Northern Ireland retained a degree of priority over other parts of the United Kingdom as a location for inward investment in terms of promotion by overseas posts,[104] and this has been confirmed by IDB.[105] ICTU saw Northern Ireland as being in competition with all other parts of the United Kingdom and considered that the loss of Objective 1 status would be a handicap, adding to the disadvantages of peripherality.[106]

51. Outside Government circles, knowledge of the Concordat was patchy. Neither Investment Belfast nor Derry Investment Initiative was aware of its contents[107] and a similar response was received from the two local authority consortia, CORE and Into the West.[108] John Simpson considered the Concordat "very difficult to fault" and saw it basically as a formalisation of long-standing working methods.[109] Dr Bradley considered that it might lead to a levelling of the playing field, which he foresaw might be detrimental to the interests of Northern Ireland.[110] NIEC's view was that it was difficult to assess the impact of the Concordat, given the limited period it had been in existence.[111]

Education and training

52. CBI saw the achievements of the education system as one of the key attractions to inward investors, although it recognised that there were certain problems at the lower end of the scale of academic ability.[112] It also emphasised the importance of skills:[113]

    "There is no point in having a good fiscal régime if you do not have the skills there in the first place."

CBI also expressed concern about possible over-selling of the skills base: it considered that there was a generous supply of good quality graduates, but "there is probably a weakness around the vocational skills area."[114] Derry Investment Initiative stressed the need to develop an appropriate pool of skills, and was critical of the fact that IDB did not seek to do so. It identified what it perceived to be a gap in the market, in that no agency has responsibility for training a pool of skilled labour, rather than provide company-specific programmes.[115] It also wanted to see enhanced provision for university courses in its area, particularly in Information Technology where it claimed there was a large degree of over-subscription of existing courses.

53. John Simpson drew attention to what he believed was a major skill shortage in the Information and Communications Technologies (ICT) area, where he thought "an enormous expansion of provision for teenagers and young adults" could be justified. His remedy was for the further education sector to play a much greater part in this area, leaving the Training and Employment Agency to facilitate linkages between particular skills and particular sectors in the short term.[116] Mr Doherty, of Into the West, was encouraged by recent trends he had noticed in both secondary and tertiary education in the Province, with a greater vocational awareness at the secondary level and development of university courses tailored to incoming employers' needs.[117] Mr Donnelly, of CORE, commented that the level of in-house training is not always as great as it is generally perceived to be.[118] Dr Bradley also considered that there was a need to refocus the education system in the Province.[119] He commented:[120]

    "If you do not have a large element of your labour force with second and third level education you cannot in the long run expect to attract modern industry."

54. Mr Gillen, of ICTU, reflected the generally-expressed perception that new, less capital-intensive industries should be the primary inward investment target. Thus, rather than put public money into grants, he would prefer to see it going into equipping potential employees with the necessary skills to gain employment in these sectors.[121] His colleague, Mr McKee, wanted to see a strengthening of provision of further education. ICTU considered education and training to be a higher priority than infrastructure improvements, assuming a choice had to be made.[122]


52  Ev. p. 4. Back

53  Q 29. Back

54  Q 30. Back

55  Q 112. Back

56  Ev. p. 25. Back

57  Ev. p. 26. See also Q 61. For another estimate, see Appendix 21, p. 191, 193. Back

58  Q 57. Back

59  Q 58. Back

60  Q 92. Back

61  Ev. p. 50. Back

62  Q 104. Back

63  Q 109. Back

64  Q 151. Back

65  Q 151. Back

66  Q 152. Back

67  Ev. p. 32. Back

68  Ev. p. 31-2. Back

69  Q 91. Back

70  Q 291. Back

71  Q 22. Back

72  Q 62. See also Q 69-72. Back

73  Q 73. Back

74  Q 132. Back

75  Q 431-432. Back

76  Q 339. Back

77  Q 339. Back

78  Q 296, 298-300. Back

79  Q 377. Back

80  See, for example, Q 160. Back

81  Q 76. Back

82  Ev. p. 51. See also Q 111, 128. Back

83  Appendix 21, p. 200. Back

84  Ev. p. 69-70. Back

85  Q 247. Back

86  Q 205. Back

87  Q 305. Back

88  Q 442. Back

89  Q 63. Back

90  Ev. p. 51. See also Q 340. Back

91  Q 160. Back

92  Q 128. See also Q 135. Back

93  Q 209. Back

94  Q 68- 71. Back

95  Ev. p. 119. See also Q 318. Back

96  Q 130. Back

97  Q 156. Back

98  Cm 4444. Concordat on Financial Assistance to Industry, p. 24-27. Back

99  Q 431. Back

100  Q 20. See also PAC Report, Q 107. Back

101  Q 20. See also PAC Report, Q 107. Back

102  Q 20. Back

103  Q 388-390. Back

104  Q 390. Back

105  Appendix 23, p. 207. Back

106  Q 332. Back

107  Q 165, 166. Back

108  Q 261-263. Back

109  Q 189-191. Back

110  Q 309. Back

111  Q 94-95. Back

112  Q 105, 113. Back

113  Q 114. Back

114  Q 124. Back

115  Q 145. Back

116  Q 201. Back

117  Q 272, 275. Back

118  Q 274. Back

119  Q 310-312. Back

120  Q 311. Back

121  Q 327. Back

122  Q 337. Back


 
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