Corporation Tax in Northern Ireland

UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE    To be published as HC 558-ii

HOUSE OF COMMONS

ORAL EVIDENCE

TAKEN BEFORE THE

NORTHERN IRELAND AFFAIRS COMMITTEE

CORPORATION TAX IN NORTHERN IRELAND

WEDNESDAY 10 NOVEMBER 2010

TERENCE BRANNIGAN and NIGEL SMYTH

SAMMY WILSON MP MLA, ARLENE FOSTER MLA, BILL PAULEY and DAVID THOMSON

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Northern Ireland Affairs Committee

on Wednesday 10 November 2010

Members present:

Mr Laurence Robertson (Chair)

Mr Joe Benton

Oliver Colvile

Lady Hermon

Naomi Long

Dr Alasdair McDonnell

Ian Paisley

David Simpson

Mel Stride

Gavin Williamson

Examination of Witnesses

Witnesses: Terence Brannigan, Chairman, CBI Northern Ireland, and Nigel Smyth, Director, CBI Northern Ireland, gave evidence.

Q82 Chair: I apologise for the slight delay. As you saw, there has been a Division and there may be another fairly soon. I do not know whether it will happen immediately, but if it happens we will have to disappear and suspend the Committee for 15 minutes. In the meantime, we should get started.

May I welcome you to the Committee? Thank you very much for coming. As you know, this is part of our inquiry into the different levels of corporation tax between the United Kingdom and Ireland and the particular effect that has on Northern Ireland. Given the time constraints, can you very briefly introduce yourselves and make an extremely short opening statement, if I may make that plea? I think that we probably have a good idea about what you do, but if you would like to summarise that, it would be very helpful.

Terence Brannigan: I am Terence Brannigan, and I am the chairman of CBI Northern Ireland.

Nigel Smyth: I am Nigel Smyth, and I am the director of CBI Northern Ireland.

Terence Brannigan: I will try to keep it brief. The context for considering a lower corporation tax in Northern Ireland is important and the challenges facing Northern Ireland, as you will all be aware, are very significant. Until 2008, we had an economy that experienced significant growth in employment, but much of that growth, you will be very aware, was driven by increasing public expenditure. Indeed, employment was driven in the same way. An unsustainable property and building boom, which itself was partly driven by cheap credit, has all come to an end. We’ve come to a sharp and painful end, leaving a regional economy with low levels of productivity, low earnings levels, high levels of economic inactivity and high dependence on benefits, and an economy dominated by SMEs and the private sector. The public sector is extremely dominant, representing 70%-plus of both direct and indirect GDP.

Northern Ireland has an economy which is still lagging behind the recovery in the rest of UK because of that property boom and bust and, of course, coming from a troubled past. Our legacy has left us in a difficult, painful, ongoing, challenging position. We face a very significant challenge in growing the economy in the years ahead, particularly in attracting more investment and meaningful investment. It is only through investment that we’ll get the jobs that we so desperately need. We believe that the development of a low and competitive rate of corporation tax will be transformational-I underline that word. It is not a silver bullet and it will not be instant, but it will provide a very significant marketing platform to attract and to encourage more investment. With that investment, the local economy will be part of the positive impact of that. It is believed that between 30% and 40% of growth comes in indigenous companies.

In recent weeks, the CBI published some research on the UK as a place to invest. The key findings from that research, which focused on the FTSE 350 companies, showed that the key drivers which influence companies’ decisions to invest are access to markets, political and economic stability, and then, after that, the nature and level of regulation and, immediately thereafter, business taxation. It has a very, very significant impact on the decision for people to invest.

We fully understand that the low rate of tax itself is not the answer. It’s not a silver bullet, but as I said, it could be incredibly significant, and it’s abundantly clear that in those places that have enjoyed a lower rate of corporation tax, there has been very significant success in attracting the right kinds of investment and then growing employment.

Chair: Thank you. You’ve basically covered the question I was going to ask about productivity levels. Can we move on to Ian Paisley?

Q83 Ian Paisley: Welcome, and thank you for coming. The foreign firms that have decided to come and invest in Northern Ireland, in your experience, why have they decided to come and invest? At the moment, obviously, we have a high tax rate. Why have they decided to come and invest? What do you think drives them to Northern Ireland?

Terence Brannigan: It should be said-obviously, I’ve been focusing on the need for a low corporation tax-that there are some very attractive things within Northern Ireland. We’ve got a very young and highly skilled work force. We’ve got a very good education system. We’ve got two excellent universities renowned for their research: Queen’s university, for example, is part of the Russell group of universities. We’ve got a low cost base, it has to be said, both in terms of labour and in terms of real estate. We have a very good IT infrastructure; we have universal access. We’ve got the Kelvin project, so the speed and capacity of access to information is exceptional, particularly if you’re looking from North America for access into Europe. We have some significant and major pluses. That’s why, I believe, we’ve had the successes that we’ve had.

Q84 Ian Paisley: I want to be clear. This is on your wish list? You want a reduction in corporation tax-CBI Northern Ireland would welcome that?

Terence Brannigan: Absolutely.

Ian Paisley: That’s good.

Nigel Smyth: May I just add that I think that a lot of what modest success we have attracted in recent years has been cost centres rather than profit centres? A lot of it has been around call centres and technical support centres. A number of investments have been in financial services-Halifax, Santander, ICICI Bank, Fujitsu and a number of other companies, some of which already had a presence in Northern Ireland and were building on that-but most of the investments have been in cost centres. That leaves the risk that at some stage, when costs get out of line elsewhere and in Northern Ireland, they are fairly mobile.

Q85 Ian Paisley: In terms of Invest Northern Ireland’s track record of encouraging firms to come, is there anything more that it could do, in your opinion?

Terence Brannigan: Invest Northern Ireland’s worked incredibly hard against a difficult backcloth-a very competitive backcloth, obviously, with a land border with the Republic of Ireland, which enjoys a rate of 12.5%. That is a very difficult sell against. We and Invest NI have, I believe, made the best of what we have in terms of marketing and being able to sell Northern Ireland, but as I say, we labour under that major disadvantage. There are, obviously, things that we need to be packaging up going forward, in that corporation tax isn’t the only answer: things like investment in research and development, etcetera.

Q86 Ian Paisley: Terry, you’re a hard-nosed business man. You’ve run a massive company, one of the biggest in our Province. Would you, as a businessman, take the gamble and say, "Let’s go in lower than 12.5%," or would you go in at the same level?

Terence Brannigan: I would go in lower.

Q87 Lady Hermon: And have you a figure when you say lower?

Terence Brannigan: Ten per cent.

Q88 Chair: On that point, we’ve just been to Dublin for two days and had a very positive response to the idea of a lower but harmonised rate. If we went in at 10%, would that not put at risk the very strong co-operation that we have with the Irish embassy here and everybody we met in Dublin? Would that not be rather provocative?

Terence Brannigan: I think 12.5%, in itself, is provocative.

Chair: That’s not what we found. We were told that they would welcome 12.5%.

Nigel Smyth: The CBI view is for a low and competitive tax rate. We know that the Republic of Ireland has got that and uses it as a very powerful marketing tool. The marketing aspect of it is very important; having it above the 12.5% doesn’t give that. The 12.5% is very attractive, alongside the fact that the cost base-particularly labour costs in Northern Ireland-would perhaps be in the order of 15 to 30% lower than in the Republic of Ireland. Even getting 12.5% would be significant. If you go beyond that, you have an additional advantage.

Q89 Oliver Colvile: Gentlemen, thank you very much for coming. As an aside, one of the things that came out of our trip down to the Republic over the past couple of days was a sense that it wanted to see a dynamic and vibrant Northern Irish economy, because it saw that as an opportunity to sell into markets. That, I think, is in everybody’s interest. However, for a second or so, I want to try to explore with you how we ended up getting into a position where the public sector became such a dominant force within Northern Ireland. Was it a political decision that was taken? As the troubles took place, was a decision taken here at Westminster that we needed to make sure that the Northern Irish people actually had some work to do, or was it just a gradual process whereby the public sector improved?

Terence Brannigan: I think there are too many ingredients in the mix to be able to come to a very simple answer to that, to be honest. If I had the answer, I would probably patent it. There is a famous quote, which I am sure I will misquote: "Every time you think you’ve got the answer to the Irish question, they change the question." There are so many things in the mix that have affected and impacted on the issue of employment within Northern Ireland that it’s impossible to say where it started and finished, and what was the major ingredient. But, for sure, as confidence fell away in the private sector, the public sector stepped in, and as money became more freely available, more and more expenditure was made in the public sector. While that stimulated the private sector, particularly in construction, at the same time there were significant numbers-we doubled our public sector spend in 10 years, which is massive. That is very significant. The massive part of public sector spend has always been labour.

We have grown a culture of dependence on the public sector, which we have to get out of. We must get away from that dependence. Everyone has talked about rebalancing the economy, which is a very simple phrase, but an incredibly difficult thing to do. It will take a significant amount of time. There needs to be a major lever that we pull in order to change that and swing that balance. I cannot see another game in town. I genuinely cannot see another stimulus that could be as powerful, in terms of shifting that balance away from public sector dependence, both in terms of expenditure and employment.

Chair: We were addressing why companies go to Northern Ireland in this set of questions. Is there anybody else who would like to ask something on this point?

Q90 Mel Stride: Obviously, we are focusing on the 12.5% as this headline number, but as you have touched on, we have got the other tax elements, including payroll taxes, R and D credits, IP release, and so on. Will you talk a little about those and about how competitive you feel that the North is compared to the South in that particular area of taxation?

Nigel Smyth: In terms of personal taxes, the Republic traditionally-

Q91 Mel Stride: In terms of corporate taxes.

Nigel Smyth: In terms of corporate taxes, the South has come from a position of very low corporate taxes. It had to harmonise in, I think, 2002. Before that it had 10% manufacturing and 10% in financial services. It then brought its broader business commercial services into line at 12.5% in 2002. My understanding is that it didn’t see a tax drop-it actually had more taxes coming on the back of that. Part of the strategy then was actually to bring down domestic taxes on the back of that. The VAT rates are relatively high. I do understand that in the International Financial Services Centre there are particular tax issues to do with various things, but I am not an expert in tax and I cannot comment further on the detailed aspects.

Certainly, if you actually look at its investment coming in this year, that is genuine investment bringing significant numbers of jobs. The biggest benefit would appear to be the corporation tax; it is attracting that investment, rather than any other particular taxes. It has an R and D tax credit too, which is similar, I understand, to the position in the UK, although there are some slight differences. It introduced that, I think, just after the UK introduced its own R and D tax credit.

Q92 Mel Stride: I am thinking specifically here of taxes paid by corporations, but not at the 12.5% or 28% that we have at the moment-other underlying taxes faced by them, including the payroll, R and D, IP and so on. Do you feel that Northern Ireland has an advantage in that area, with regard to those other corporation tax elements?

Terence Brannigan: They would have been broadly similar. There are two things going on here. One is that if you look at what has traditionally happened in the Republic up until the recent financial difficulties, its rates of tax were generally lower or around about the same as those enjoyed in Northern Ireland or, indeed, the UK; the big skew was corporation tax. Recently, of course, it has been addressing the whole tax regime. It is interesting to note that the one thing that it hasn’t changed is the corporation tax, so while it has been raising other tax thresholds, that is more to do with its economic travails, rather than any competitive issue. That is about its own economy, but the one thing that it has absolutely not touched, because of the impact that it has been having, is corporation tax. That says a lot in itself.

Nigel Smyth: Could I just respond? It has a property tax. Businesses pay a property tax, although the domestic sector doesn’t. My understanding is that it has something that is equivalent to our national insurance contributions, too. The IFSC-the International Financial Services Centre-had, for the first 10 years, a rate release scheme built into that, but, more broadly, it has the property taxes and the other national insurance.

Q93 Naomi Long: You talked earlier about some of the positives, in terms of being able to attract inward investment. Obviously, some of that has been done on an island-wide basis, but the difficulty and the crunch always come when people look at the corporation tax differential. Although we can market the island, if you like, to the US and so on, that always puts us at a competitive disadvantage.

You mentioned going below 12.5%. Obviously, 12.5% equalises us and, if you like, eliminates the Republic’s advantage, but it gives Northern Ireland no advantage. If you go below that, is there any reason to think that that co-operation would cease? Given that we have continued to co-operate with the Republic when there is a massive differential in its favour, would it not be in its interests to continue to co-operate and to compete on some of the other issues, in the same way that we have done while there has been a differential in place in its favour?

Terence Brannigan: To be perfectly honest, it is difficult for me to judge that, but let us just apply some logic to it. I understand that some Members may be concerned about it being seen to be provocative, but if the Republic truly wishes to see Northern Ireland get out of the major slump that it has been in for a significantly long time, surely it would allow us that 2.5% advantage. Given where we sit, given the employment issues that we have and given the history that we have suffered, my personal view is that it is not a lot to ask, but you will be better able to judge that, in terms of talking to those in government within the Republic.

David Simpson: In relation to the corporation tax, it is really not the rate of tax, or whether it is 12.5 or 10%; it is what it is going to cost the Executive at the end of the day. If we go for 12.5%-I am sure we will hear from the Minister later on-it could cost £300 million or £400 million. I don’t know what the exact figure is. If we go down lower, it would obviously cost that bit more, so it will therefore take longer to claw that back.

I would agree, incidentally, with Ian Paisley with regard to the rate. I think it should be lower than 12.5%, and I speak as a businessman in Northern Ireland. I think it would certainly give that advantage, and I don’t believe for a minute that it would cause any difficulties with the South-it may get them to wake up a wee bit. I certainly think that Northern Ireland would deserve that, after 40 years of what it has gone through.

Chair: That was more like a statement than a question.

David Simpson: It is, but, in relation to the cost, I think they would agree with the overall cost factor.

Q94 Lady Hermon: Exactly. It would be interesting for the Committee to hear the cost. If the CBI is very keen on the 10%, it must have made a calculation as to the amount that the Exchequer would lose if corporation tax were reduced to 10%. That amount would come out of the block grant going to the Executive in Northern Ireland, which concerns me considerably. What is the estimate of the cost if it were 10%?

Terence Brannigan: The estimates swing between £150 million and £250 million. That is a massive bracket, and we do not have an answer from the Treasury as yet. My understanding is that we are due to have an answer by the end of the month as to what the quantum is. It has been impacted significantly, obviously, because the banks used to be a major contributor and no longer are, so there has been a significant change in the amount of corporation tax that has been taken from Northern Ireland. The fact is that we don’t know. The Treasury has not been able to tell as yet, and unless the Minister has it up his sleeve, I have not heard a definitive figure. My understanding is there is supposed to be a definitive figure by the end of this month.

Chair: That is my understanding of it, yes.

Q95 Dr Alasdair McDonnell: Gentlemen, thank you very much for all your efforts on this subject. The question I want to ask is very simple. Would you want the reduction to be applied across the board to all businesses, whether existing or new? In other words, do you want to differentiate between new inward investment or new start-ups, and old, existing businesses? Could you apply it to clusters of interest, such as biomedical stuff or ICT stuff, or is it just a blanket? In other words, would you favour the blanket reduction, or would you favour trying to create some sort of selectivity?

Terence Brannigan: That is a good question. In looking at that I have looked at the various models that you could use, and I reverted to the best model of all, which is other people’s experience. Other people’s experience tells us that if you are selective, you end up going general. Nigel just gave a very good example of that in the Republic of Ireland. In 1987 it introduced a 10% rate for financial services, and I think it was sitting at 24% for other things. Manufacturing and financial services had 10% and the rest of the economy was 24%. The Republic came to the conclusion very quickly that it needed a single rate across all businesses, which they set at 12.5%. It is not the only country that has had that experience, so I would rely on other people’s experience. It is easier to administer, it is easier to manage and it appears to be best for the economy to have a single, lower rate across all businesses.

Nigel Smyth: I think, from a European Commission perspective, we will only have one rate; I do not believe that it will allow us to differentiate. I think if you try to differentiate, you start introducing distortions within even the Northern Ireland economy, which would be unhelpful.

Q96 Dr McDonnell: We’re different in many ways, but one particular difference relevant here is that Northern Ireland has the land border that other parts of Britain do not have. In trying to tackle this, has anyone given any thought or consideration to similar situations within other European states, for instance Germany or East Germany and Poland-some of the old EU states and some of the new states from behind the iron curtain? How do they handle their tax differentials?

Terence Brannigan: I’ll profess almost total ignorance here. They say that a little knowledge is a dangerous thing; the little knowledge that I do have is that in the old central European countries-Bosnia, Macedonia and that sort of area-they have had to come up with a rate that is quite similar. My understanding is that they are sitting around 10%. There seems to be a lesson there that they have certainly come to a much lower rate than some of their major neighbours such as Germany, and they seem to have settled around 10%.

Q97 Dr McDonnell: But has anybody done a particular study of those? Would it be possible for the CBI or somebody to take a look at some of those things?

Nigel Smyth: I am not aware of that. The CBI has done a lot of work on tax which I can bring to the Committee’s attention. Two years ago, we produced a major tax report looking at the whole area of UK competitiveness. That concluded that the UK should move towards something like 18% corporation tax over several years and outlined the benefits of doing that. It is about effective tax rates, coming back to David’s point earlier, in terms of allowances. The UK still has an attractive corporate tax rate perhaps when compared with Germany, but corporate taxes in Germany in relation to either profit or GDP are significantly lower than they are in the UK. So there is concern across the UK on that.

Q98 Dr McDonnell: On a general point, you expressed yourself in favour of a reduction to 10%. I apologise for missing your introduction as I was delayed downstairs by the vote, but would you do that as a one-off or on a phased basis? Some people have talked about phasing.

Terence Brannigan: We have had a heck of a debate ourselves within CBI on this in Northern Ireland. I think there is a consensus. There is a consensus within all the business organisations in Northern Ireland that we need a lower rate corporation tax. There is a consensus that we need at least to have a rate of 12%, which would equate to the Republic’s. There is a wish to have a big bang approach: get it in, get it in quickly, get it in effectively and then let’s see the benefit accrue. However, there is an understandable and major concern about the initial impact. Hopefully we will very quickly have an accurate answer that we can all agree to on what the impact will be.

We are all focusing our attention on the possible impact on our block grant. If it is toward the higher end, we would probably need to introduce it over, say, a four-year period, rather than take the big bang approach, because I just think it would be too much for the Northern Ireland economy and the Northern Ireland budget to be able to manage in the short term, however regrettable that might be. My instinct says, "Get it in, get it in quickly, get it in effectively," but this is one of the times when I have reined back my enthusiasm.

Q99 Lady Hermon: Mr Brannigan, you made a very impressive opening statement and described the proposed reduction in corporation tax as transformational, but not a silver bullet. You see it as part of a package of reforms. What else has the CBI concluded would be necessary along with, if agreed, a reduced corporation tax?

Terence Brannigan: It’s interesting because the reduction in corporation tax has been around as a debate for quite some time. It made a comeback, as it were, under the guise of enterprise zone. When I asked what enterprise zone meant, I was told that actually it is about corporation tax, but it started some thinking going. I know that Nigel gave a lot of thought to it. I would love to steal his thunder but, Nigel, if you would?

Lady Hermon: Nigel, please. It’s lovely to have the two of you here.

Nigel Smyth: It goes back to Terry’s opening statement: for any company moving or investing it is a package of measures. The focus is very much on the business taxation rates, but it is also about access to markets; it is about the level of regulation; it is about the skilled work force. Our experience of engaging with our colleagues in the South was that, not just tax, but their skills and their focus in their technical colleges and universities were a major strength too. I think in Northern Ireland we would agree. We will need a totally new focus and foreign direct investment strategy from Invest NI, which is going to target profit centres. We need to make sure that our skills are lined up on the back of that.

In terms of other things we could look at, as we have highlighted in our paper, there are additional tax incentives. They are not transformational but are strategically focused in terms of enhanced R and D tax credit and enhanced training credits, etcetera, on the back of that. We have also given further thought to the development of things like Belfast port as an enterprise zone and Belfast international airport. There is a very good example in the Republic of Ireland in the Shannon free zone, which has about 110 multinational companies based around the airport. The airport has full clearance procedures for accessing the US, which are not very costly, but very important if you can get them. Our understanding is that Dublin is going to get even better clearance facilities. If we could have those at the international airport, that would help.

There are other UK taxes that we looked at. Two in particular stand out at the minute: one is air passenger duty and the other is the aggregates tax. Both have significant distortional impacts on the island of Ireland. Both are being devolved to Scotland in 2014-15. They should be devolved to Northern Ireland next year because, in terms of tourism and inward investment, strategies for the UK will not be particular or relevant to Northern Ireland. So, we could look at a number of things around that, a lot of which would not be particularly expensive, but would have quite a significant impact for drawing in tourism and, indeed, helping with foreign direct investment.

Terence Brannigan: But if you put that kind of package together, led by a lowering of corporation tax, as a big headline, it would be a super marketing slogan. Get that, and then get such things as enterprise zones around the port or the airport, and you start to make Northern Ireland a true enterprise zone. That could be exceptional-really exciting in terms of driving forward.

Q100 Mel Stride: Can I come back to the issue of phasing? When we were in the Republic recently, we met the IDA, and one point it stressed firmly to us is that it is not just the rate of 12.5%, but the certainty that that rate will prevail. Indeed, people have been looking at lower rates for many years in the Republic, and that certainty is proven. The suggestion was made that, if the rate came down from 12.5% and even though that would be more attractive in the short term, that might prompt the suggestion that if it can go down, it can also go up again. Do you feel that the idea of phasing, and of not going straight in at one rate and holding it, has that inherent weakness or uncertainty about it?

Terence Brannigan: That is exceptionally important. We would have to make a statement right up front that our intention was to be absolutely wedded to going to 12.5% or 10%-whatever the rate was set at-within a given time, and we would have to stick to that for exactly that reason. There would have to be certainty, and that would have to be long term. In my view, you cannot do this for three years and say, "Let’s try it out and see how it goes, chaps." The word you use is the crunch word for me-there has to be certainty around it. If we were going to phase it because, in the short term, we could not afford to bring it in with a big bang, as I would like, you would have to have certainty around it. That would mean saying clearly to everyone, "We are starting here. Next year it will there, and the year after there. And by the end of four years-or whatever-it will 12.5%, and it will be there for the long term."

Nigel Smyth: Can I add that certainty features prominently in the CBI’s report on tax from two years ago? To go back to the phasing, we understand it is going to take one, two, three years to bring the additional investment in, so there will be a lot of dead-weight in the first year, from which the existing companies will benefit. From an economic perspective, you don’t get your bang from the buck early on. Agreeing with Terence, I think we have to agree a very defined path to get there and we then have to stick with it, for at least 10 years and probably for 15 years. If there is any move from that, there is no point in even trying to do it.

Chair: Thank you. We will move on slightly.

Q101 Gavin Williamson: I thought it was interesting that you picked up on the point that a business decision to invest in an area isn’t just one thing alone. On the tax side, obviously we pay more than one tax, unfortunately. There is a lot of cost in terms of employment tax. At our last session, a number of tax experts said that payroll taxes are more onerous in the Republic than in the United Kingdom. Would you agree with that statement?

Terence Brannigan: Referring back to what I said earlier, it depends on when you take the measurement.

Q102 Gavin Williamson: Today.

Terence Brannigan: Today-yes, because the Republic has had significant change in the past year or so. But, if we are talking about corporation tax and the impact a change in it might have in a package of measures and as part of a whole tax regime-looking at it from when it was introduced right up to recent times, with the major economic problems we have had-the Republic’s tax regime was no worse in those other areas, and in some areas it was lower than ours. It is only in recent times that some of those have gone up significantly.

Nigel Smyth: If you went back 10 years, they would have had much higher personal tax rates. Because they were doing so well, they brought those down quite significantly, and they have had to reverse that. We also have to remember the context: they don’t have property taxes in the domestic sector, and they do not have water charges. You have to look at that in the round.

Q103 Gavin Williamson: But don’t you tend to find that if you are a business and you are locating, you look at the cost to the business?

Nigel Smyth: I think you said yourself, there is a whole range of things.

Q104 Gavin Williamson: Indeed, but you are looking at national insurance and things like that, and what it will cost you as a business. When you are thinking, "I am going to employ 1,000 people," those are all key criteria that need to be taken on board.

Nigel Smyth: Yes they are.

Q105 Gavin Williamson: In the last evidence session, the witnesses stated that even though corporation tax has been lowered, the Republic of Ireland has benefitted by increased tax revenue through employment taxes. They felt that more revenue had been generated through employment taxes, as well as corporation tax. However, in Northern Ireland, the Northern Ireland Assembly would have to take the hit from the reduced income from corporation tax, whereas the money from employment taxes would go into the general Exchequer. Do you think that that would create a tension?

Terence Brannigan: No, in a way I think the opposite. We have had significant moneys. We have been dependent on the Exchequer to the tune of £9 billion per annum. I don’t think that there are too many people in Northern Ireland who would not wish for the day when the subvention was reduced significantly and Northern Ireland was seen to be paying its way more. We all know the history and the significant problems we’ve had and we’ve been grateful for the support that we’ve had, but we want to have independence in terms of our economy. We want to stand on our own two feet, but we need the levers that will allow us to do that. This is a significant lever.

If we can go back to the bundle of taxes, the significant thing for me is that when they lowered corporation tax, they did not see the overall tax take drop-as Nigel said-for exactly the reason you are giving. The volume overcame the discount, as it were. It is about getting the pricing right and driving the volume. You may have got a corporation tax reduction to 12.5%, but the volume of tax you were getting went up significantly, and also in those other areas, so there was a major compensatory factor. Those taxes, and other taxes, go to the UK Exchequer, and I don’t think we have a problem with that, but for sure, we want to have some of the levers in our own hands. We want the ability to make some of those decisions and to drive major employment opportunities for our young people. This will help to do that.

Nigel Smyth: I know that the Economic Reform Group gave evidence two weeks ago. There is a lot of detail in that report. The more you look at it, the more it seems that the Treasury is in a win-win situation-it has no risk. We in Northern Ireland take the risk. We take the early hit. If we don’t get the investment, we will have to take the pain. If we are successful, the Treasury will gain from the VAT and the employment taxes that come with that.

Q106 Gavin Williamson: This is probably a really unfair question, so I apologise for asking it-you probably can’t give an answer in some ways. If you were a gambling man-or gentleman-how long do you think it would take to start seeing the benefits of this change? I realise that it must be part of a much larger package, but do you think that people in Northern Ireland would start to see benefits in two years, five years or 10 years?

Terence Brannigan: First, I don’t think it is an unfair question. I think that people in Northern Ireland have the right to ask that question if you are asking us to take a risk, and this is a risk. I am not a gambling man, but I am a risk taker. As a business man, you have to take risks in order to go forward. I believe that within five years we would see major benefits and it would turn around significantly. I believe that that is what we are there to do. If you are going to show leadership and enterprise, you have to take risk. That has to be a measured risk, of course. That’s why Lady Hermon was right to ask what the cost would be. We need to know how much. My assessment at this moment in time would be that within five years you would see the benefit start to accrue.

Q107 Lady Hermon: To carry on from that, what is your assessment of how many additional jobs would be created in Northern Ireland within five years if corporation tax were reduced to the 12.5%?

Terence Brannigan: In 10 years we said about 45,000 jobs, so over a 20-year period you are talking about 90,000-that has been the equation. It is interesting because there are statistics that tell us that a 1% reduction in corporation tax brings a 1% increase in employment.

Q108 Lady Hermon: Those are figures used in the Republic of Ireland?

Nigel Smyth: No, the CBI report and various other sources, which we can make sure your Committee has a copy of .

Terence Brannigan: Significant research was done. A 1% reduction in corporation tax brings a 1% increase in employment. There is an interesting statistic, in terms of North American intervention-that is, FDI from North America to cover the US. It has been calculated that a 10% reduction in corporation tax brings a 60% increase in US investment. At the moment, 74% of the FDI going into the Republic comes from-where?-North America, and 20% comes from Europe, mostly from France and Germany.

That is why we are focused on corporation tax. It is not something that has been pulled out of the air. There is a lot of statistical evidence that says, "If you do it, it works." It is not just in the Republic of Ireland-look at the Azores and why we have the Azores agreement; or look at the Basque region in Spain, where there was a very significant impact when the same thing was done. There are other areas in the world where this has been done and it has had the same impact. It is evidence based-it does work.

Q109 Lady Hermon: To repeat the question, in five years’ time, if you were a gambling man, how many additional jobs do you think would be created in Northern Ireland?

Terence Brannigan: Of course, it isn’t linear. It isn’t a straight line, so I can’t just divide the 45 in two.

Q110 Lady Hermon: Given the current American economy, I do not think that drawing comparisons with what has happened in the past equates to the present time.

I am concerned that you have admitted, Mr Brannigan, quite rightly, that this is a risk. So I want to know, what guarantees has the CBI calculated? What number of jobs would be created in five years in Northern Ireland if we reduce corporation tax? It is a high-risk strategy and I want to know what the CBI is telling us this afternoon about the creation of jobs in Northern Ireland. What is the guarantee that we will create a significant number of jobs?

Terence Brannigan: The evidence says that we will. If I take a risk, it is like any risk in business, Lady Hermon: when I am looking at it, I look to see what the evidence is telling me and extrapolate it from there. The evidence says that we will develop significant jobs. Guarantee? No. There is no guarantee and it would be totally misleading of me to sit here and say that I could guarantee you. I couldn’t guarantee you anything.

Lady Hermon: That is very frank and fair, which I appreciate.

Chair: We should have finished this session three minutes ago, but given that we were slightly delayed, are you okay to carry on? We will try to finish by five minutes to 4. Do you mind if I move on to Joe, who has a completely different area of questioning?

Q111 Mr Benton: Good afternoon. In 2007, Sir David Varney made a reference to the fact that the lowering of corporation tax to 12.5% would lead to a displacement of capital and profits from the rest of the UK. I wonder what your observations are on that-on the possibility that companies that are now based in Great Britain would move to Northern Ireland to take advantage of the lower tax rate.

Secondly, is the view that you have expressed today fully shared by other CBI members? If I were a CBI member in another depressed community, in Merseyside or the North-East-indeed, I might extend it to the devolved Governments of Scotland and Wales-my reaction, with some justification, might be to say, "Well, I’ve got depressed areas also. Is it justifiable for us to benefit from these rates as well?" I am afraid there is a lot in that, but I have tried to be as quick as possible.

Terence Brannigan: If I were being cynical, I would say that there was no surprise in the Varney report. I could have told you what the outcome would be. But that would be cynical and I am not a cynic. Moving on to your main point, would we see a shift from disadvantaged areas of the UK, of which there are a number, to Northern Ireland? I genuinely don’t believe so, but then I would say that, because I am arguing on behalf of Northern Ireland. But I genuinely don’t believe so, for several reasons.

The relocation of existing operations is an exceptionally difficult, costly, time-consuming and risky business. I have done it and it is not something to be looked forward to. It is very costly both in money and in terms of resource. It is not easily undertaken. Secondly, if that were going to happen, you would probably have seen a wholesale shift into the Republic of Ireland from the UK. We sit on the same island and it is as easy to move it from the North-East or from Merseyside into the Republic of Ireland as it would be into the North of Ireland. Indeed, you would have seen a major shift from the North of Ireland down the road, down the A1 to Dublin and down to Cork and across to Limerick, and of course we haven’t seen that. There has been very little of that, so I do not believe that that is a risk. I understand people’s concern about that, but I genuinely do not believe that to be a high risk.

Nigel Smyth: I don’t think there is any evidence whatsoever to substantiate that. In Northern Ireland in the last decade, probably not even a handful of companies have even thought of moving from Northern Ireland to the Republic. As Terry said, it’s not just a tax but a whole range of things that come with that, so you’re really only looking at the fairly mobile. At a UK level, yes-if somebody’s headquarters are moving, which could go to Switzerland or elsewhere. Dublin has secured a number of those in recent years. But I don’t think there’s any evidence. If we look at the International Development Association’s 68 investments this year, not one of them comes from the UK. The vast majority are from the USA looking to access new markets.

Q112 Mr Benton: Is that the view right across the CBI?

Nigel Smyth: The CBI’s view is to support very strongly a lower corporation tax rate. This is specific to Northern Ireland. We are going to have to take the pain that comes with that. We believe it is in the interests of Northern Ireland in terms of job creation that we actually do that. We do need to know what the cost is.

Chair: We are running out of time.

Q113 David Simpson: May I follow on very briefly from Joe’s point? In discussions with the business community in my area, they of course welcome the corporation tax being lowered, but they also have emphasised that they would like to see a level playing field. By that, they mean how do we protect against brass plating if this is introduced? Companies in my area of Craigavon-the second largest manufacturing base in Northern Ireland-are saying, "OK, fine, we’ll have this, but other companies are going to come in and put a brass plate in the door for convenience." It would have to be enshrined in legislation somewhere. How do you think it can be protected?

Terence Brannigan: Every time we have talked about corporation tax, that has been one of the concerns. Our experience has been that it hasn’t happened very much. Indeed, when it started to happen, rules and regulations were introduced. The easiest one for me is head count, and that is probably what I would align it with, so there are relatively simple, straightforward ways. What you don’t want is a regulatory system that has to be blown out of proportion in order to manage that kind of thing. There are reasonably simple, straightforward mechanisms that you can introduce, and head count is one of them.

Q114 David Simpson: It has happened in the South of Ireland-not to a great degree, but it has happened in the Republic. Apart from that, apart from the taxation and so on, what other non-economic reforms do you think could help stimulate, for example, planning reform in Northern Ireland?

Terence Brannigan: If you are going to chase after a significant increase in foreign direct investment, then the single most important thing for me, besides the economic drivers, is creating an environment that is business-friendly-a culture that is business-friendly. If you have excessive regulation, if it is very difficult and long-winded to get things done-I’m not just talking about planning, but planning is the best example, because we all know about it and it is a major frustration for everyone, public and private sector, in Northern Ireland- Believe me, if you get some of these major corporations who are used to being able to make decisions quickly and get things done quickly-we are talking about massive pieces of investment-they expect you to be able to move quickly. That is it for me-a business-friendly environment, a business-driven culture with speed of action, ease of regulation and the ability for things, such as planning, to be fast-tracked. That is exceptionally important to give people confidence.

Chair: One very last question.

Q115 Oliver Colvile: Where would you see the investment priorities for Northern Ireland to ensure that you can retain the infrastructure and, more importantly, the skills base as well? We admitted earlier that it was very important to maintain that skills base, because that will be a principal reason why people will come and do business in Northern Ireland.

Terence Brannigan: It is a good point, given where we are with our budget. You will all be aware of the 7% reduction in what I call the revenue expenditure-the day-to-day budget. I believe that that is relatively comfortable to manage, although no cut is comfortable. The capital expenditure budget reduced by 37%. I have little doubt that we will probably need to transfer revenue to capital, because to allow all these things to happen you need an infrastructure that will be able to sustain the kind of foreign direct investment that we are talking about. That is part of the ease of doing business. We need to invest in our infrastructure and in our people. The obvious things are infrastructure and skills.

One of the things that we really, really need to focus on is ensuring that we keep our young people. This is my biggest single fear if we do not do this. I go back to the time when I had just come through my education and, like a lot of my friends and colleagues, left Northern Ireland. Why? Because there was nothing there for them to do in terms of a career. We lost a generation of people-a generation of people: all our best. Those who didn’t leave went into the public sector, so we have some of the best brains and exceptional talent within our public sector. Let us not forget that. Northern Ireland has exceptional talent within our public sector, but in our private sector we lost a generation. We cannot afford to do that again. Unless we make this kind of investment, unless we take this kind of decision, we will lose them.

Q116 Lady Hermon: So does the CBI have a view yet about the proposed increase in student fees? Will that affect our skills base in Northern Ireland?

Chair: Very quickly please, because we have to move on.

Nigel Smyth: The CBI has a national view. We haven’t taken a local view. That is now being considered by the Department for Employment and Learning.

Q117 Lady Hermon: But you will come to a view.

Nigel Smyth: We will come to a view, yes.

Chair: We have to move on. That was a very interesting session. Thank you very much for coming. I am sorry to have to rush, but we have one more session this afternoon. Thank you very much for coming today and giving your evidence.

Examination of Witnesses

Witnesses: Sammy Wilson MP MLA, Minister of Finance and Personnel, Northern Ireland Assembly, Arlene Foster MLA, Minister of Enterprise, Trade and Investment, Northern Ireland Assembly, Bill Pauley, Head Strategic Policy Division, Department of Finance and Personnel, Northern Ireland Assembly, and David Thomson, Deputy Secretary, Department of Enterprise, Trade and Investment, Northern Ireland Assembly, gave evidence.

Q118 Chair: Good afternoon. May I apologise for the delay in inviting you to come into the room? We were slightly delayed by a vote, as Sammy will know. Thank you very much for joining us. May I ask you to briefly introduce yourselves and your team, and to give a very brief introduction to your responsibilities in Northern Ireland? We are probably familiar, but there are one or two new members of the Committee.

Sammy Wilson: Being a gentleman, I am going to offer Arlene the opportunity to go first.

Arlene Foster: There is a first time for everything! I am delighted to be here. I am Arlene Foster, Minister of Enterprise, Trade and Investment. I deal, obviously, with enterprise and investment, but also with energy policy, tourism and telecoms in Northern Ireland.

Sammy Wilson: I am Sammy Wilson and I am responsible for the Department of Finance and Personnel. The main responsibilities are to look at the budgets for Northern Ireland. I also have responsibility for the land and property services, which deal with rates, land valuations and so on.

Q119 Chair: And your officials?

Sammy Wilson: Bill Pauley from my Department.

Arlene Foster: David Thomson, Deputy Secretary at DETI.

Q120 Chair: Thank you. As you are aware, the inquiry is specifically about the different rates of corporation tax in the UK and Ireland and the impact that has on Northern Ireland. The background is what might be described as the underperforming private sector in Northern Ireland. We are very familiar, of course, with the impact that the Troubles have had. Could you give us a little background to what you are both doing, regardless of tax rates, to try to stimulate the economy in Northern Ireland?

Sammy Wilson: Maybe I could start off in response to that question. The Programme for Government in Northern Ireland has set out a number of objectives and things that we wish to achieve. The major objective, and the first priority of those objectives, is growing the economy, particularly the private sector. Strategically, the Budget, whether it is capital investment or how we allocate our current expenditure, is designed to achieve that objective, including looking at what our infrastructure needs are as far as capital expenditure is concerned.

A lot of money has gone on the road network, on building the IT network and on tourist infrastructure-things where we believe that we do have opportunities to grow the economy if the infrastructure were in place. In terms of the resource expenditure or current expenditure, there has been heavy emphasis-Arlene can say more about this-on, first of all, attracting firms to Northern Ireland, increasing the productivity of existing firms and on building the skills within the labour market. We in Northern Ireland now have more than 50% of young people going to university. We also have heavy investment in training and FE colleges and so on. In those kinds of ways, we are seeking to change the structure of the economy in Northern Ireland.

Arlene Foster: In relation to attracting foreign direct investment, our proposition at present relates to skills, having the right people for the job and matching people to the needs of the companies that are interested in coming to Northern Ireland. The fact that we have a lower cost base in respect of wages and properties is a good selling point. Our near shore to Europe and our geographic position between America and Asia is always a good selling point, as is the quality of our people. Those are the things that we have been concentrating on.

We have also increased our innovation and research and development spend by about 130%, I think, from 2007-08 to now. That needed to be done. We have quite a low rate of innovation in Northern Ireland, so we are behind on that and really need to get more firms to spend money on innovation and research and development. Getting them to see it not as a cost, but as an investment in their company that will bear fruit in the future is a challenge. I accept that it is a challenge, but it is one that we need to meet, because it will produce benefits in the future, not least in productivity. Sammy has mentioned the Programme for Government. In that we very much set out a target to close the gap in productivity between ourselves and the rest of the United Kingdom, excepting the greater South-East. Unfortunately, we have not been able to do that to date.

Q121 Mel Stride: Welcome. Thank you for coming to see us. "The Independent Review of Economic Policy" had some concerns about the capacity for policy making and governance and also the performance of Invest Northern Ireland. Can you tell us a little about the steps that you are taking-and will be taking-to address those concerns going forward?

Arlene Foster: Yes. I commissioned "The Independent Review of Economic Policy" and I accepted all but two of its 58 recommendations. One of the two recommendations that I did not accept was on venture capital. I cannot recall the other one. Essentially, it was accepted in its totality. Because of that there is an Invest Northern Ireland programme of change going on at the moment. It is called the Transform Programme. It is about making people a lot more fit for purpose in dealing with companies. I think that we have seen the benefit of that already in relation to the innovation spend and in relation to the number of jobs that have been coming into Northern Ireland. It is not a case of there not being jobs coming into Northern Ireland. In fact, we have already exceeded our Programme for Government target, which was 6,500 jobs. We have now had 6,600 jobs brought in over the period of the Programme for Government. That productivity gap is eluding us and is a real difficulty for us.

Q122 Mel Stride: If we specifically look at Invest NI-we had a session with the IDA recently, and obviously it has a tremendous track record and some advantages, not least on corporation tax-are there particular lessons that we can learn from the IDA in improving how Invest NI operates?

Arlene Foster: One of the ways that we can make Invest NI fit for purpose-if I were to accept that it was not fit for purpose-is to have more flexibility for it in relation to Government. At present, if Invest NI lands a big piece of work, it has to work with the Department of Finance and Personnel. There are a lot of hoops to go through to allow it to be agile. Sammy and myself are looking at ways that we can make that more agile for Invest NI when it is speaking to people.

Q123 Lady Hermon: When will those changes come in?

Arlene Foster: They are already under way, Sylvia. They are already in place.

Sammy Wilson: Let me add to that one of the issues that I sometimes raise in the Northern Ireland Assembly and during debates on the Public Accounts Committee reports and whatnot. We have to get our heads around-there are lots of pressures on us for this-the fact that, in the public sector, the over-scrutiny and expectation of those who look at a decision in hindsight and can easily see the flaws and mistakes that should have been spotted has increased the degree of caution and the box-ticking exercises that sometimes happen. Those things are not obvious when you are making the decision at the time, and not only do those people identify them, but they are then overly critical of the decision makers. I think that is what Arlene was referring to. It makes the process slow and ponderous and, in a situation where you cannot have too much risk aversion, it makes people too risk averse in making some of those decisions. Some opportunities do therefore pass us by.

Q124 Ian Paisley: Very interesting, but I want to cut right to the chase. In terms of corporation tax, what discussions have you, as Executive Ministers, had with the Treasury? What is the overview, and where do you think those discussions are going, realistically?

Sammy Wilson: I’ll take it from my Department’s point of view first, and then Arlene can maybe take it from hers. After the election, the Secretary of State made it very clear that one of the things that he saw as being important-we welcomed this-was that he wanted to help us, using some of the levers of central Government, to achieve our ambition of changing the nature of the Northern Ireland economy, rebalancing it and growing the private sector. Before he took over the job of Secretary of State, when he was shadow Secretary of State, he talked about the importance of corporation tax and-this is a concept that I am still not too clear about-making all of Northern Ireland an economic or an enterprise zone. Once the Government took over, he made that a stated objective.

We wanted to work with the Treasury. Some of those levers may be held at Westminster; some of them may be devolved to Northern Ireland, so in August we sat down with David Gauke at Stormont and agreed the terms of reference for the study. One of those terms of reference was that there will be a very clear connection between Arlene and me, and the officials in our Departments, to develop a paper and to talk through the issues in that paper, so that nothing comes as a surprise and that we think through some of the issues. I have to say that since then, there has been no contact at all with Ministers here at Westminster, but there have been conversations when officials have been updated. There were no discussions, but they were updated.

Q125 Ian Paisley: Whose fault was that?

Sammy Wilson: We have certainly tried to make contact, because we wanted to be part of the process. One of the reasons given was that the Ministers were tied up with the whole Budget process until 20 October, which may well have taken up some of their time. We feel a bit disappointed, especially given the importance that was attached to the respect agenda, that there hasn’t been that work. We wanted to be engaged in it and we would have been very happy to engage. We didn’t want to be obstructive about it in any way, but it hasn’t happened.

Q126 Chair: Sorry, I just want to be clear on that. That’s a meeting with the Exchequer Ministers, not the Northern Ireland Ministers?

Sammy Wilson: The Northern Ireland Ministers were involved as well.

Q127 Chair: Have you made a formal request for a meeting?

Arlene Foster: Yes, we have. Let’s be very clear about this. The Northern Ireland Office Ministers are very keen to continue with those discussions, and I do not think that the delay is with them in any way. Sammy says that he is a bit disappointed, and I have to say that I am disappointed, because that initial meeting was very good. We set the terms of reference and it was made very clear by the Treasury, the Northern Ireland Office and ourselves that we all wanted to take forward the paper on rebuilding the economy on a partnership basis, because there was little point in the devolved Ministers being presented with a fait accompli when we didn’t have a clue as to what was in the Treasury paper. It was felt that it would be better if we shared the information right from the beginning. I’m not sure where we’re at with that paper, because we haven’t had any engagement since then.

Q128 Ian Paisley: Do we have clarity from the Northern Ireland Executive Ministers? With a unitary voice, do you want a reduction in corporation tax for Northern Ireland? Is there clarity at your end?

Sammy Wilson: I have to be very careful in all of these things. First of all, we see it as one of the tools. On a previous occasion you talked about an arrow in the quiver, and it is among the arrows that we wish to have, but we have certain reservations. My biggest reservation at present is that I do not know what price tag is coming with this. At a time when we have taken a £4 billion hit on our budget for the next four years, it would be counter-productive if the price tag were so high that it displaced even more jobs in the public sector, and prevented us from doing some of the infrastructure work or some of the work that Arlene is successfully doing to attract other firms into Northern Ireland. Those are the issues we would have hoped to discuss between August and now.

There are lots of other reservations and issues that we need to look at and tease out. The one thing that I would like to look at is that attractive headline being thrown around: "90,000 jobs in 20 years", or 64,000 in however many years, depending on the model you listen to. To be honest, as an economist, anybody who believes that they can design an economic model that will be robust for 20 years is living in cloud cuckoo land, because so many factors will change over that period. While the figures are being thrown around, it appears that we have a silver bullet in the corporation tax reductions, but we need to be a bit more cautious. Before we sign up to it and say that we would be prepared to go down that road, we want to see some of the very serious issues that have been raised sorted out, teased out and discussed.

Chair: Okay. We’ll get on to the rate in a moment.

Q129 Oliver Colvile: This is just a very quick one. I want to go back to how you tried to have a discussion with the Treasury. I understand that you haven’t actually had anything formal. Forgive me for asking, but did you write a letter to the Treasury saying, "Please can we come and see you", did you have a reply, and even if you didn’t, did you try to catch them in the Lobby to say, "Look, we’d really like to come, please"?

Sammy Wilson: In a number of ways, but the terms of reference make it very clear that there were to be, and that there would be, ongoing discussions and ongoing contact between Ministers from Northern Ireland and Treasury Ministers. Requests have been made for that. Of course officials have had discussions as well. Just so I can put it on the record: we formally wrote-I couldn’t remember when, but Bill has just passed me something-in September.

Q130 Oliver Colvile: And, you’ve had no reply.

Sammy Wilson: We got no reply.

Q131 Oliver Colvile: And you haven’t pressed the Minister quietly in the Lobby to say, "Excuse me, can we have a chat about this."?

Sammy Wilson: I spoke to him once, yes.

Arlene Foster: I can’t press the Minister in the Lobby because I am not in this place, but I have spoken to the Secretary of State for Northern Ireland, who expressed his disappointment in relation to the slowness. When I indicated to him that officials were indicating to us that it would be December before we could have a paper, Owen thought that we would have one by November at the latest, so I think he is disappointed with that as well.

Q132 Chair: Does that suggest some lack of co-ordination, to put it gently, between the Northern Ireland Office and the Exchequer?

Arlene Foster: And the fact is that this was to be a joint paper, not a Treasury paper, but a joint one between ourselves, so that we could get all the levers into it.

Q133 Lady Hermon: May I also seek clarification because it has appeared in the press? A request was made, I think by the First Minister, the Deputy First Minister and, presumably, by the Finance Minister and the DETI Minister, to visit the Prime Minister to discuss the budget consequences of the comprehensive spending review. What happened to that request? What reason was given for no meeting with the Prime Minister taking place?

Q134 Chair: But without going too much into that particular meeting.

Sammy Wilson: No reason has been given.

Chair: Can we move on to the actual rate?

Q135 Lady Hermon: Forgive me, Mr Chairman, but it is a concern. I’m sure that other members of the Committee would feel concerned that the evidence before us this afternoon is that the devolved Administration in Northern Ireland has not had the best of co-operation-let’s put it like that-with Ministers in the Treasury. On top of that they have not had the best of co-operation with the Prime Minister.

Chair: It is of concern.

Lady Hermon: It is of deep concern.

Chair: It is a concern. Can we move on to the corporation tax issue itself now?

Naomi Long: We’ve probably covered a little bit of this in the preamble, but it is good to have you both here and get the opportunity to discuss this with you. On the economic arguments, you’ve already said that it is not a silver bullet. Do you believe that it would create the kind of step change that others have claimed it would? And do you believe that there are other things that we can do that could create a similar effect?

Sammy Wilson: Can I first address the issue of step change? This is some of the jargon that has now crept into this discussion. I’m not so sure that there’s actually any evidence that it would create a step change. As I’ve said already, I believe that it would be another important weapon in the armoury for defeating the problem we have in Northern Ireland of low productivity, etc. If you look at the historical evidence, first, look at the Irish Republic. It has had 10% tax on the manufacturing industry since the 1950s or 1960s. It didn’t have an immense impact at that stage, indeed, it was only later when other factors came into play along with the 12.5% corporation tax that the Irish Republic began to get the benefits of direct inward investment.

Secondly, some other examples have been quoted in previous evidence, such as Estonia, which is supposed to be a good example of where corporation tax has led to rapid growth. Estonia’s rate is 21%, which is not radically different from the rate we have here, so there must be other factors apart from the rate of corporation tax. Some of the claims that are made for the step change are at best fanciful because it is over 20 years, and the economic model and parameters of that model can change dramatically during that period. It is easy to throw out a figure such as 90,000 or 64,000 jobs and say, "There you are. That’s a step change", but you have to drill down a bit more and ask how robust those figures are. I am not discounting it as an important aspect of industrial policy, but we also have to have some of those caveats attached.

Arlene Foster: I think the difficulty for us, Naomi, is that we don’t actually know the cost of it to date. If we did have very clear figures in relation to the cost, then we would factor that into the budget going forward. There is a question then as to how, if we were going to introduce corporation tax, it should be phased in, as opposed to having a rate set at 10% or whatever it will be set at. I think Sammy is right. People don’t just go for one reason, but for a whole host of reasons. You’ve probably heard from some of our recent announcements that they go for the people, the skills, the fact that they are loyal to the company-there are very low attrition rates-the costs associated with property, and the wages. So there is a whole package. Undoubtedly if we had corporation tax lowered in Northern Ireland, it could give us a competitive advantage. But I think it’s more than corporation tax.

Q136 Naomi Long: You very briefly touched on two issues that I was going to raise with you as well. First, given the current CSR context, where Northern Ireland has already taken a significant hit in terms of the budget, do you think that this is something that, if you were going to do it in the short term, would have to be phased in, or would you prefer to take the hit up front, in the hope of getting a kind of immediate response?

The other issue is that you mentioned 10%. The discussion that is ongoing is whether to equalise with the Republic of Ireland at 12.5%, or do you undercut them to be at 10% and get the benefit of that. Is there an issue in terms of the differential impact that’s going to have on the overall budget available in Northern Ireland?

Sammy Wilson: The lower you set the rate, the bigger the bill is going to be. That is the first thing, because the Azores judgment will require the gap to be filled by money being taken off the budget. So if you reduce it lower than 12.5%, the bill will increase accordingly.

As far as how we introduce it, knowing the strains that the current reductions have placed on budgets for Departments in Northern Ireland at present, and also the impact that it is having on capital spending there, we couldn’t afford to take a £200 million or £300 million hit on top of what we’ve already got immediately.

Secondly, there probably are good grounds for phasing it in, in so far as you probably want to prepare the ground, to first highlight the fact that this is going to be available. Anyhow, Arlene will be talking more about this-preparation and the work that has to be done to get a company to the point where they make a decision to look at Northern Ireland. We don’t ring them in the morning and get an answer that afternoon; it is going to take some time to do. So there is a phasing in there. I would also like to think that if we phased it in that way, the cost could be gradually introduced into our budget, so that we could make the adjustments over a period of time. That would be much easier than taking a big hit all at once.

Arlene Foster: Selective financial assistance, at the present, is a big tool in my armoury. It is being reduced as of the end of the year and by 2013, it is supposed to fade out completely. I, as you would expect me to, am trying to retain the SFA for a longer period of time, because when I speak to the chief executive of Invest Northern Ireland, he tells me that it is a powerful tool that he has to attract people to Northern Ireland. Some commentators have made the comment that if the SFA goes, that money could be used to offset the corporation tax loss. It is a very simplistic way of looking at things, because I think if we are trying to get additional jobs on top of what we have at the moment, we don’t just want to be displacing what we’re trying to do at the moment, but adding on and having this as a value-added proposition.

In relation to the rate, I think that obviously will be a decision for the Northern Ireland Executive. As I understand it, this is in two phases. We give the power over to Northern Ireland, if that is what the Treasury and the Government decide to do, and then it will be a decision for the Northern Ireland Executive. But as Sammy says, they all have cost implications.

Q137 Chair: I’ve asked the question, through parliamentary questions, how much it would cost, and what is the tax take from Northern Ireland on corporation tax. I am rather surprised that the Government either do not know that figure or are not releasing it. Does that surprise you?

Sammy Wilson: The truth is that they don’t know and the costs that we have been given by various studies vary between £100 million and £500 million. There are a number of reasons for that. For example, is tax paid calculated in the tax office in which it is paid or in the place where the business happens to be? If tax is generated by a business in Northern Ireland is it measured from the central office, which may be outside Northern Ireland? There are a whole lot of other factors which make it difficult to make that calculation. We were surprised at the size of the variation there, but there are explanations as to why it is not easy and because this tax has been gathered on a national basis, there has never been any attempt to try to separate it out on a regional basis like that.

Q138 David Simpson: Can I touch on the point about marketing Northern Ireland? I think, Sammy, you mentioned them at the very start and we had conversations prior to this with the CBI about enterprise zones. Could we establish, if it is possible to establish, either from you or Arlene what you believe enterprise zones mean? Some years ago in Northern Ireland similar terminology was applied to different areas of deprivation. Is it a marketing tool? Corporation tax is not a silver bullet, so what else do you see that could be used to attract investment into Northern Ireland? Do we do a package of corporation tax, stamp duty, fast-tracking and planning, which the CBI mentioned as well? Do we do all of that to make it attractive for companies coming in?

The last point is the issue in relation to brass-plating, which I raised with the CBI as well. I took it from their presentation that they did not see it as a major problem. But when I speak to local companies in my area there is concern that they would be producing the jobs, the manufacturing or whatever and others could come in and put a brass plate on the door. There are a number of questions in that.

Sammy Wilson: The second group of questions is probably more for Arlene. I’ll deal with your last question. There is absolutely no advantage for Northern Ireland in having brass-plating because we would pick up the tab but we would not get any of the benefits in terms of jobs. Therefore, whatever legislation or measures were required, and if it required legislation through the Northern Ireland Assembly, we would be more than happy to co-operate to ensure that that did not happen because there is no advantage to us in it. The one thing that arises from that, however, and it may be something that you want to touch on later anyway is that once those complications are introduced, there are administrative consequences. Whether those administrative consequences are borne by the Northern Ireland Executive or by the Treasury and then the costs are taken from the Northern Ireland budget, it is another complication and it is another factor to be borne in mind. We are told from some of the discussions that there have been that the administrative consequences are quite severe. It is not just brass-plating, there is transfer pricing and all of the rest and that would have to be carefully examined to ensure that people did not engage in tax avoidance.

Arlene Foster: Some suggestions have been made about trying to avoid that and tying the corporation tax into job creation. But as Sammy says, the more terms you put into it, the more difficult it is to administer and to sell. So the simpler the corporation tax is, the better it would be for us. In relation to enterprise zones, as I understand the reasoning behind that, it is to sell Northern Ireland as an enterprise zone. It is a marketing tool as such. So if we had a lower corporation tax we could say that the whole of Northern Ireland is an enterprise zone. The old enterprise zones seem to have fallen out of favour. I know that locally in the devolved Administration the Minister for Social Development is looking at business improvement districts as a way of trying to reinvigorate town centres, but that is a separate issue. It is not an enterprise zone, as I understand it. The enterprise zone for the whole of Northern Ireland is really a marketing tool.

Q139 Ian Paisley: There is a very serious disadvantage because you don’t know what the cost is going to be, and that is largely because you haven’t had those discussions yet with the Treasury. Let’s hope that they come, and come pretty quickly. Is there any way that you would be considering, if a reduction in corporation tax were to be introduced, that one of the ways of compensating in terms of tax take would be to look at an increase in industrial rates for companies already based in Northern Ireland? Is that on the agenda, or is that off the agenda?

Sammy Wilson: The first I ever heard this mentioned was during a discussion I did at Queen’s university last week. It was raised by one of the people who gave evidence here a couple of weeks ago.

Q140 Ian Paisley: Who was that?

Sammy Wilson: Victor Hewitt. You fill the gap, whether it is £200 million or £300 million, by putting up business rates. I have to say that is one of the most bizarre explanations that I have ever heard of how you could raise the money.

Q141 Ian Paisley: Is that the cloud cuckoo stuff that I mentioned to you earlier?

Sammy Wilson: It probably falls into the same category, I have to say, for a number of reasons. To do that you would be putting up business rates. A 1% increase in business rates will give you £3 million or £3.2 million in Northern Ireland. You would be putting up business rates by 100% if you were to do that. In doing so, you would be penalising every business, including businesses that do not pay corporation tax. Most of those are small family businesses, which are essential for the life of provincial towns.

You would also be attacking the cost base of the very companies that we have knocked our brains out trying to get to Northern Ireland. As some of the recent evidence shows, some of them are only coming because of the cost base and the cost reductions. One of those is the low business rate. To suddenly hit them with a 100% increase, especially if they are not earning all that much profit-this is the point that has been made in this discussion so far; these are low-profit firms but they are only coming because of the low cost base. So you put up the cost base and they don’t get any compensation because they don’t have the big reduction in their profits tax anyway.

If you then start making exemptions for such firms-I know, because I know the costs that are involved in collecting rates in Northern Ireland, which is something I have been trying to reduce and squeeze-you are immediately introducing an administrative nightmare to make allowances for small businesses, or for this or that kind of business. It has been suggested, but I don’t think the proposal has been very well thought through.

Q142 Dr McDonnell: You may have touched indirectly on some of these points. The point I asked the earlier CBI group was if the corporation tax were to be lowered, would you see a case for differentiating between existing businesses and new, incoming businesses? Or would you see a case for differentiating between sectors, and discriminating between say, new technology and biotechnology-the new futuristic industries-and the old industries?

Sammy Wilson: It would be good if you could do that, because part of the issue that Arlene and I have been raising about the cost would be significantly reduced if you could do that. Don’t forget one of the implications of reducing corporation tax is that it would be reduced for everyone, including firms that already exist in Northern Ireland and firms that might not create another job, ever, in Northern Ireland. They would have a windfall gain from it.

If you could separate firms out in that way, that would be good. My understanding, however, is that once you start to do that you are discriminating between one firm and another firm, or one set of firms and another set of firms, and you would be in contravention of EU state aid rules.

Q143 Dr McDonnell: To go back quickly to a point you raised there, the question of clawing back from those who didn’t deserve it, if you were allowed to do so what sort of a mechanism would you envisage for clawing back windfall gains?

Sammy Wilson: Again, this is the problem. If under state aid rules you are not allowed to discriminate between one sector and another sector, or one type of firm and another type of firm, it is not possible to do that. You may well have to live with the fact that everybody gets the benefit. That throws up all kinds of anomalies. Some of the biggest generators of profit in Northern Ireland are utility companies. One way in which a utility company can generate more profits is to put up prices for consumers. The very people who are hit by fuel poverty as a result may well be hit again, because when you give back the corporation tax to those companies, the impact is on the public purse and on public spending on the very services that would probably be beneficial to the people who have been put into fuel poverty as a result of those profits being generated. All I am saying is that starting down that road throws up a pile of anomalies.

We would want to look at this matter further. In our defence, because it is a reserved matter, we have not been able to make the approaches and have not had an opportunity to formally test how flexible the state aid rules are in relation to this. If there were ways of discriminating in the way that you are talking about, that would be one way to make this a more acceptable proposition. Perhaps it could be targeted at the kinds of firms that we believe would be most susceptible to coming into Northern Ireland as a result of low corporation tax.

Q144 Chair: I may have misunderstood you on the point regarding utilities. If their tax were lower, that would be a downward pressure on costs and prices, would it not?

Sammy Wilson: What I said was that the profits might well have been generated by putting up prices to consumers in the first place. That would place many of the lower-paid consumers in fuel poverty. The cost of letting them keep more of their profits will also fall on public services. Most of the people who would benefit from those public services are the very people who have created those profits in the first place, and who have probably been put into fuel poverty as a result. The poorer would have made that contribution to those profits and would then pay the cost of allowing those firms to have less tax imposed on them.

Q145 Gavin Williamson: In the evidence session just before you came in, that point was discussed. The feedback from CBI Northern Ireland-if I misrepresent it I am sure its representatives will yell over to me-was that having that differential was very bad for business. The example of the Republic of Ireland has demonstrated that having differential rates just does not work. What are your thoughts on that?

Sammy Wilson: Arlene can comment from the perspective of Invest NI, but we are still successful at attracting jobs to Northern Ireland. I am not denying that, given the right circumstances and the right price tag, this would give us an advantage in attracting firms to Northern Ireland. One thing that has worried me in this discussion is that perhaps it has been seen as an easy answer. People are always looking for easy answers to these problems and they are usually much more complex than that. I just think that there are things that need to be teased out and tied down if we are to go down this route.

Q146 Lady Hermon: What do you see as the major drawbacks in lowering the corporation tax level in Northern Ireland? What drawbacks are seen by your colleagues across the Executive? It is clear that the Executive are not quite in agreement on this issue.

Sammy Wilson: It is right that there is a range of views, but that is more about our degrees of enthusiasm, rather than some people saying, "No, we don’t want it," and others saying, "Yes, we do want it." To me, the biggest issue is how we deal with the impact on public services in Northern Ireland. I am not complaining. As part of the United Kingdom, I believe that if there is an economic problem that affects the United Kingdom, we have to play our part in helping to resolve it. We have taken the pain of the spending review and the cuts, which are worth £4 billion over the next four years. That will cause immense difficulties for public services in Northern Ireland. I just don’t believe that a bill of £300 million a year on top of that is sustainable. That is why I think that it is important-if we are going to introduce it-that it is either phased or its costs are reduced or, as Mr McDonnell has suggested, that we find ways of being more selective with it, but there are difficulties in all of those things, because of the EU requirements.

Q147 Lady Hermon: Could I just ask you, as the Finance Minister-the one with overall responsibility for the budget in Northern Ireland-to give us your gut instinct about the co-operation proposals? We will then go to Arlene.

Sammy Wilson: My gut instincts are that, first of all, I would like to get some certainty about what the Government’s views are on rebuilding and redirecting our economy. I think that provided that it is married to other proposals and provided that there is clear indication given as to what the costs will be and that those costs are set at a realistic level, which does not devastate the work that we are already trying to do in Northern Ireland, then in those conditions we would certainly be wanting to have the power available to us. It is then up to the Executive to decide when you introduce it, how quickly you introduce it and at what rate you introduce it. I think that that is probably a much more balanced approach than simply saying, "Hand it all over and get it done next week."

Lady Hermon: No. Devolution is a great invention.

Q148 Chair: Arlene, do you want to come in on that point?

Arlene Foster: I sometimes feel that we are speaking in a vacuum, because we don’t know the size of the bill. I am presently chairing a sub-committee of the Executive that is formulating the economic strategy for Northern Ireland to 2020. That is going out for a high-level consultation now, but we had hoped that the paper that was to be carried out by the Treasury would feed into that, so that we could then go for a full consultation on everything early in the new year before the Assembly elections.

At the present, the strategy that I am trying to formulate along with colleagues is called rebuilding and rebalancing. We are looking the short term, in rebuilding, and then looking at the longer term, in relation to productivity. I don’t know whether I am going to have that very important lever that would help in rebalancing, and, as Sammy says, because we don’t know the costs, it is very hard to factor that in. I don’t want to over-egg it, but the fact that we don’t have that paper coming forward is holding us back from moving ahead in economic strategy terms.

Q149 Ian Paisley: Would it be useful for this Committee to write to the Treasury and demand that those meetings take place? Would you find that helpful, or would that be clumsy?

Sammy Wilson: It is up to this Committee to decide where it believes that it can best put pressure.

Ian Paisley: The Committee wants to help the Department.

Sammy Wilson: All that I am saying is that we would be very anxious to have those discussions with Treasury Ministers, because, as Arlene has said, this has to be, was always intended to be and the terms of reference made it clear that it would be a partnership arrangement and that respect for the devolved Administration would be shown.

Chair: I’ll certainly seek to do it in the Lobby, as we mentioned earlier, and see where we get to.

Q150 Mel Stride: One of the interesting aspects of this session, of course, is that you’re perhaps less enthusiastic with the business people that we speak to, because, quite rightly, you are focusing cost as well as the benefit of all this. To what degree is this debate running outside of the politicians and the business people? Is it something that is being discussed and known about among the general population? To what degree are they enthusiastic about it, albeit that, of course, we don’t know the costs at this stage?

Arlene Foster: One of my concerns about the discussion is that it is a very simplistic. While we absolutely recognise the benefits that would flow from it, there is absolutely no discussion about the cost implications to the Northern Ireland block. You’ve probably seen and read about the reaction to the cut in our budget after the CSR. If we were to lose another £200 million to £300 million from that budget, I don’t think people have realised that it is for the Northern Ireland Executive to deal with the cost and not the Treasury. That is one of the difficulties surrounding the discussion at present.

Q151 Oliver Colvile: We’ve talked a bit about how it is that you are going to see a reduction in the amount of money that is coming in from the public Exchequer into public services. Have you estimated how many more people are going to be made unemployed from that?

Sammy Wilson: We have, yes. If you take the rough figures, which are built into these economic models, of a reduction of about £50,000 in public spending leading to one job loss, by year 4, when our reduction is going to be £1.4 billion, that would amount to about 28,000 jobs in Northern Ireland.

Q152Oliver Colvile: Once you have done that, have you looked at what the benefit bill will be as far as the Exchequer is concerned as well? Will that mean that those 28,000 people who have been put out of work suddenly go to the Government and say, "Excuse me, we need some employment."?

Sammy Wilson: I couldn’t give that figure off the top of my head.

Q153 Oliver Colvile: No, but could you look at that?

Sammy Wilson: The Treasury has done some figures on this, but it net those against the changes in the benefit bill as a result of welfare reform. Once it does that, there is a further reduction in the amount of money coming into Northern Ireland, because welfare reform is meant to save a fair amount of money as well. I honestly couldn’t give you the figure off the top of my head. I would be guessing.

Q154 Oliver Colvile: Okay. If you go away and look at that, that would be very helpful. That could then inform us as to how much you reckon, if things stay as they are at the moment, the economy in Northern Ireland will decrease by. You probably don’t have that figure either, do you?

Sammy Wilson: We’ve an estimate for our growth rates and for job losses. We know the expected growth rates for Northern Ireland. We had anticipated them to be about 2.6%. My brief tells me that we think it will be about 1.8%.

Q155 Oliver Colvile: What I am trying to do is give you an argument that you might want to use for the Treasury. By going for growth in the private sector, you can then actually balance out some of the implications that will come out of the reduction in the public sector. That is going to be helpful to you as far as trying to grow your economy is concerned. Otherwise, we will see a very significant decrease in the economy in Northern Ireland.

Sammy Wilson: One of the other things we have been saying-and again, I’m not sure where EU rules come out on this-is that the cost could be reduced considerably. If the Treasury believes the predictions for job promotion that would be the result of the reduction in corporation tax, it could look at the net gain to the Treasury in the form of income tax and VAT, because there are gains to the Treasury from Northern Ireland as a result of the increased job promotion. Again, I’m not sure that EU rules allow you to write it off.

Oliver Colvile: I think you need to have a "Come to Jesus" meeting with the Treasury.

Q156 David Simpson: In our discussions with the CBI, a number of issues were raised. The question that I put to the men was, "What non-economic improvements could be made to stimulate and help?" One issue that the gentlemen raised was planning reform. Although Sammy is the former Minister, Arlene can comment, too, from her perspective in relation to Invest Northern Ireland. That links with the Department of the Environment to fast-track planning. If a major corporation comes into your Department, Arlene, to say, "We are going to invest £40 million," they expect a quick response and quick answers. We have seen that in the South of Ireland, but we won’t go there as regards to planning because we have seen some of the messes down there, so we won’t go into that. But on Northern Ireland, specifically, there is fast-tracking and delivering for companies that are coming in.

Arlene Foster: You will recall, David, that when I was the Minister in the Department of the Environment that we did introduce fast-tracking and for some companies it didn’t work-in relation to Coca-Cola, for example, in Lisburn and the Titanic Quarter, in East Belfast. For some companies, it doesn’t work. The reason is-dare I say it?-the propensity in Northern Ireland for objectors to go to court and seek judicial reviews, which causes us no end of delays in the planning system. This is an ongoing discussion as you know, in relation to Northern Ireland on the planning system. I have had this discussion with the Secretary of State when he has been asking what we can contribute to the Treasury paper, as he calls it. One of those issues certainly is planning reform and the need for us to be able to deal with those issues. It is something that we have had a discussion with the DOE Minister about.

Sammy Wilson: Perhaps I could indulge myself and put this on the public record. I understand businesses do come and complain-rightly, they complain about the planning system in Northern Ireland, the slowness of the process and perhaps its inability to recognise some of the economic advantages of planning applications. I’ve got to say that, when I was in the position that Arlene once occupied, I did introduce a statement to try and encourage planners to give more weight to economic aspects of planning application. That was challenged in court by the business community, which believed that I did not consult sufficiently on it, and it was ruled to be unlawful. So sometimes the business community needs to talk with a consistent tongue as well. It can’t ask you to do things and then, when the result does not go in its favour, use the courts to challenge it. That has been a big problem with planning in Northern Ireland. Those judicial reviews are usually carried out by other businesses that object to someone getting an advantage over them. I just wanted to put that on the record.

Lady Hermon: We have an independent judiciary that has served Northern Ireland very well through really horrible times.

Q157 Chair: And you do have more control over those things now as well.

Arlene Foster: Well, not over the independence of the judiciary, nor would we want to, Chairman.

Chair: No, perhaps not.

Q158 Gavin Williamson: There’s been a lot of discussion about the actual cost of any tax cut, and we obviously don’t have the answer. Have you made any assessment of what the burden and the cost would be to yourselves of having to administer this and, most importantly, of enforcing any changes to capital gains tax?

Arlene Foster: I think it’s a matter for HMRC to decide whether we would have our own specific administration in Northern Ireland for the scheme, or whether it would keep it central within the UK. I think, again, that that goes back to Sammy’s point about cost. Would there be additional costs if we had our own Northern Ireland HMRC dealing with that issue?

Q159 Gavin Williamson: I suppose that inevitably there would be, wouldn’t there?

Arlene Foster: Yes, there would.

Sammy Wilson: It would also, I think, depend upon just how common or how serious the problem of tax avoidance was seen to be, either as Mr Simpson says with brass-plating or through people transfer-pricing to put profits into Northern Ireland, and on how expensive all that would be to police. I suspect that, providing you could be sure that it would give you the true cost, it would make more sense for it to be done by HMRC, which already has the infrastructure in place, rather than to set up a stand-alone infrastructure in Northern Ireland. But then, of course, you’d be reliant on HMRC reflecting the true cost of the service.

Gavin Williamson: You’re not trying to imply that they are always less than honest.

Q160 Oliver Colvile: Are you thinking of providing any additional support to Invest Northern Ireland as grants, as it is able to offer new finance-related support, because of the approach that the EU might take?

Arlene Foster: That’s certainly one for you, Samuel.

Sammy Wilson: I think that Arlene planted that question, because she and I are having a wrangle about our budget at the moment. All these things eventually come down to a certain degree of trading between Ministers, but all I can say, and as I said at the very start of this presentation, is that I want to look at the budget in Northern Ireland in a strategic way. One thing that is accepted by the Executive and the Assembly in the programme for government is that top of the list must be growing the economy and orientating it more towards a private-sector-based economy. That will be reflected in the budget allocations, and of course Departments such as DETI and the Department for Employment and Learning are then high up on the list of where money should be allocated, because they are the Departments that will deliver that change in the economy.

Q161 Oliver Colvile: This is probably going to get me into an enormous amount of trouble, but let’s go for it. Regarding the emerging economies of both China and India-where the Prime Minister is at the moment doing a really good job-that is an area about which you as Northern Ireland might be seeking to have a conversation with your colleagues in the Republic, to see whether you might be able to promote a joint approach.

Arlene Foster: I intend to go to China at the end of this month, and I am very glad that the Prime Minister is doing a recce for me at present. But seriously, India and China for us are emerging markets, and we very much want to work with them in partnership. In fact, we have some Indian companies working in Northern Ireland, adding value to their proposition from India. That works very well, and we’re trying to explore with China what we can do there as well.

Chair: It’s nice to know that the Prime Minister is your advance man.

Sammy Wilson: Could I just make one point on that? Although there are areas-both Arlene and I as Ministers have sought to find areas-on which we can co-operate with the Irish Republic, don’t forget that it is also a competitor of ours in this field. It is going as cut-throat for jobs for its own economy-and rightly so-as we are. Therefore, there are occasions when you will not get that degree of co-operation, nor would you expect to, and we have to paddle our own canoe.

Oliver Colvile: That comes back to what I said to you earlier. It is in everybody’s interest to have a dynamic economy in Northern Ireland, and I think you should be seen within that remit.

Q162 Dr McDonnell: I would like to just counter Mr Wilson’s comment. Although that is the generally accepted position, our visit to Dublin made it clear, through the 10 or 12 meetings that we had, that all levels of the Irish economy-economists, politicians and others-were stating quite clearly that the long-term advantage to them of having a stable, prosperous and improving state in Northern Ireland was of far more benefit than any short-term loss they might have by losing one or two projects that might move to Northern Ireland. I think that that has to be put on the record.

Arlene Foster: In fact, we are working with the Republic of Ireland. The European Commissioner for Innovation will visit Northern Ireland at my invitation on Friday. We are having her at a North South Ministerial Council meeting, because there are ways in which we can draw down European money which will make a difference to Northern Ireland, but of course we need a trans-national partner, and that is the Republic of Ireland as regards innovation and R and D. That works very well for us, Alasdair. I take your point, but I think that Sammy’s point-we have seen it in some of the jurisdictions we have been to-is that they are chasing jobs as hard as we are.

Dr McDonnell: I think it’s fair to say that I was certainly amazed that-

Chair: I confirm that that was the consistent message that came to us. I am going to try to finish at 5 o’clock to help our witnesses.

Q163 Lady Hermon: May I repeat a point that I put to the representatives of the CBI earlier in relation to our skills base? Building our skills base is absolutely fundamental to the Northern Ireland economy. May I ask both of you for your views, in whichever order, on the proposed increase-sadly and most regrettably-in student fees? It will obviously impact on Ulster university and Queen’s, as well as third-level education and the decisions that young people are going to make facing a generation of debt.

Sammy Wilson: Higher education is a devolved issue in Northern Ireland, and it is up to us to make our own arrangements. However, we are somewhat curtailed in so far as there will be Barnett consequentials in respect of the change in the way that students and university education are financed in England. If there is a greater emphasis on students making contributions and less state contribution, our budget will be reduced accordingly. That means that our room for manoeuvre is somewhat limited.

I will say two things in relation to that. I think that a balance needs to be struck. On the one hand, there are those who go to university and benefit from it. Their earning power is therefore increased and it is quite right that, in current circumstances, some contribution should be made. On the other hand, I do not want to see a situation in which those people who have the ability to benefit from a university education don’t get the opportunity because they don’t have the ability to pay. I would like to see us develop a scheme that would reflect that general principle.

The second thing I would say is this: my fear is that, by giving the universities the ability to increase fees to the extent that the Government have given them, it may well lift the pressure from universities to reduce their costs. The easy option is simply to pass it on to the student, rather than to ask, "What does it cost for us to deliver a degree and can we do it more efficiently?" In doing so, of course, they make it more difficult for many people who probably come from the same background as I did, where the idea of that kind of level of debt would simply put you off going to university-even though at the end of the day, of course, it may be possible to pay the debt off because you find yourself a good job like an MP.

Ian Paisley: Or a Minister. Or both.

Sammy Wilson: So it would worry me and, as an Administration, we have got to make a judgment as to what we do to at least help those who may well be put off university education if they can achieve and have the ability to benefit from it.

Arlene Foster: Skills are critical to our proposition as it currently sits. The First Minister acknowledged that when he made a speech recently. We need to ensure that the skills still exist for people if they are looking at us as a foreign direct investment location.

Q164 Naomi Long: On that specific issue, I think that is the challenge. Sammy’s let-out is going to be, if you like, the economic consequences in Northern Ireland of the changes that are made. The bigger challenge is what you do about that, because while you might not want to pass that burden on to students in Northern Ireland, you might not be able to avoid doing so. The consequence of not passing that burden on in Northern Ireland could be that the universities end up becoming essentially like a second tier of universities, which is the last option that you would want, where essentially they are a cheap and cheerful local alternative to what is going on across the water, but not necessarily in the position that they are in at the minute, where they are churning out some top-quality graduates.

Arlene Foster: We certainly cannot do that because of Queen’s being part of the Russell group, and the University of Ulster, with their research capability. They are very strong levers for us when we talk about Northern Ireland as a proposition.

Chair: May I thank all members of the Committee for their attendance and their contribution, and particularly thank Sammy and Arlene for their excellent evidence session? I am very grateful to you for coming. We shall certainly bear your thoughts in mind. Thank you very much indeed.