Session 2010-11
Publications on the internet

To be published as HC 803-iii

House of COMMONS



Northern Ireland Affairs Committee

Northern Ireland as an enterprise zone

Wednesday 2 March 2011

NiGel smyth

bill scott and oonagh hinds

Evidence heard in Public Questions 153 229



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Oral Evidence

Taken before the Northern Ireland Affairs Committee

on Wednesday 2 March 2011

Members present:

Mr Laurence Robertson (Chair)

Mr Joe Benton

Oliver Colvile

Lady Sylvia Hermon

Kate Hoey

Naomi Long

Jack Lopresti

Dr Alasdair McDonnell

Ian Paisley

Mel Stride

Gavin Williamson


Examination of Witness

Witness: Nigel Smyth, CBI Northern Ireland, gave evidence.

Q153 Chair: Mr Smyth, thank you very much for joining us today. I think you’re probably aware that we’re looking at a couple of issues at the moment in Northern Ireland; one is the corporation tax issue, with particular reference to the rate in the Republic of Ireland, and the impact that has on Northern Ireland, but we’re also looking at the wider aspects of attracting business, jobs and prosperity to Northern Ireland, and we’re looking at the enterprise zone concept, so we’re very pleased that you were able to join us today. Would you like to begin by introducing yourself and telling us a little bit about your work with the CBI?

Nigel Smyth: Yes, thank you very much indeed. I am Nigel Smyth, the Director of CBI Northern Ireland. I am delighted to be back again; I was here in November on the corporation tax. We have submitted a short paper. I was going to take a couple of minutes just to say a little bit about some of the context of that. Something interesting that I may touch on is that since we submitted the evidence, we have actually published, with seven other business organisations, a manifesto or a jobs plan, as we’ve called it, obviously to try to influence our political parties in the run-up to the election, but also in terms of a consultation currently under way in Northern Ireland on economic strategy and also in terms of our budget. There may be some elements in that which are relevant to the discussion today.

As I say, we have submitted a short paper. It’s fair to say that when we were consulting our members on this, there was a degree of difficulty around the vagueness of this, because historically, looking at enterprise zones, they have been fairly localised, and very much focused on urban regeneration; most of them were in the 1980s and ’90s, so very localised on the back of that, but our understanding of what the UK has referred to is Northern Ireland as an enterprise zone. So we had a little bit of trouble getting our hands around that one on the back of that.

Clearly, we were aware that, last time around, enterprise zones traditionally had three main features: one was enhanced capital allowances, up to 100% allowances; there was the whole area of rating relief; and there was also simplified planning. We have highlighted in the paper the evidence from these. I was a little surprised, but there was quite a lot of academic evidence questioning the effectiveness of enterprise zones previously. Clearly, there were benefits in terms of job creation and indeed in terms of property development, but it was quite clear from quite a variety of academic evidence that they were relatively expensive, in terms of cost per job, and there was quite a great deal of local displacement from the vicinity. Also, quite clearly landlords were one of the primary beneficiaries of the rating relief; so when the rates went down-in fact they were zero for companies-they found that the rental went up instead on the back of that. Indeed, Members may well be aware that there were two reports out earlier this week from the Work Foundation and the Centre for Cities that had similar conclusions: they didn’t create enough jobs, they were too expensive, and in many cases the benefits were short-term. Indeed, they argued that there was significant local displacement on the back of that.

We would also argue that the whole debate around economic development policy has moved on fairly considerably over the last 20 or 25 years. There is a much greater focus, certainly over the last decade, on developing capabilities within companies, particularly around innovation and skills. The cost per job over that period would have come down quite significantly.

However, in terms of having Northern Ireland as an enterprise zone, it could provide an interesting marketing tool, but in terms of effectiveness it would very much depend on the incentives that were within that. We highlight that there may be potential for sector-specific incentives. We as an organisation are not too sectorally focused, but we gave one example in our paper-the film industry; there could be particular tax incentives to help that develop. We have a young, flourishing film industry, but some additional tax breaks around that would actually help develop that further. There may be other things from other sectors on the back of that, although I would say that, other than the tax side, a lot of the initiative to support those sectors, whether it’s in the food or the ICT sector, are likely to be in the control of the Northern Ireland Executive in terms of innovation policy, skills policy, links with the universities, et cetera, on the back of that.

My final point at this stage, Chairman, is that we would argue that there should be very clear objectives about what we’re trying to do here in terms of Northern Ireland and in terms of what is reflected in the jobs plan. This is about increasing highquality foreign direct investment; it is about encouraging and accelerating the growth of the indigenous enterprises; it is about enhancing productivity; and this is very much about increasing exports. Our own analysis, as I set out in the jobs plan, is that we probably need to double the rate of our exports. In the last 10 years, Northern Ireland exports have grown by about 30%; we believe that, to hit the job target we have set out, our exports need to grow by about 60% over the next decade. That is clearly where the focus has to be. In the last decade, we have seen a lot of employment creation, but that has been very much driven by strong growth in public expenditure that is not going to be repeated and by strong growth in credit, retail, and, indeed, the whole housing boom and bust that we’ve come through. None of those are likely to be repeated over the next decade, so we’re very much looking at policies that can encourage investment on one hand and exporting on the other hand.

Q154 Chair: That would be for the whole of Northern Ireland? You wouldn’t see breaking it up into bits as advantageous?

Nigel Smyth: Absolutely. We have looked at this purely strategically as what we have to do in a Northern Ireland context. Clearly, some people may argue that we look at disadvantage, but we see it on a totally different level. The challenge is that it’s a Northern Ireland challenge.

Q155 Ian Paisley: On one level, Nigel, the circumstances in which Northern Ireland finds itself in 2011 are very different from the circumstances in which the UK found itself in 1980, when enterprise zones first came along. From what you are saying, am I right to take it that’s it a bit of a misnomer, and it’s not really an area where we should be going?

Nigel Smyth: Yes, I think that is probably a correct assessment. Certainly, we need to have much more focus. This is all about encouraging investment and exports. We have in Northern Ireland, clearly, significant areas of disadvantage and required regeneration. However, we do not think the focus of another enterprise zone should be focused in that area. It should be trying to focus on: "How can we help encourage investment generally, and how can we export our way out of this?" Just focusing something on local land regeneration, addressing derelict property, is not going to be the answer to Northern Ireland’s problems. I should say at the outset that we believe-this is why our manifesto is called the jobs plan-we have a very significant challenge, in terms of rising unemployment, particularly given the number of young people coming out from schools, colleges, and universities. We believe that over the next number of years we’re going to have very significant problems. We are already running at over 20% youth unemployment. We believe that will continue to increase over the next number of years.

Q156 Lady Hermon: Has the CBI actually submitted that analysis of the Secretary of State, Owen Paterson’s, suggestion? He’s held this idea for an awfully long time, before the general election and since it-the idea of an enterprise zone across Northern Ireland. Isn’t he aware of the CBI’s approach to this enterprise zone?

Nigel Smyth: He is aware of our jobs plan. That is not just the CBI; that is seven other business organisations on the back of that. Clearly, we understand that there is a paper, to which the Committee has referred, that is not in the public domain yet, that has been produced by the UK Government, looking at the rebalancing, looking at an enterprise zone, looking at the whole area of corporation tax, and various things. That is not out for public consultation. Now, clearly, we will respond to that when it does come out. Our document was only published on 2 February, so it’s a fairly recent document, and it is out in the public domain, and I am happy to pick up any particular questions that there are around that.

Q157 Oliver Colvile: First of all, thank you very much for coming to see us again, and I hope it was not a difficult journey over. I should declare an interest in that I have an interest in a public relations company that dealt with a lot of property redevelopment and things like that, in which I have retained my shareholding. What I wanted to ask you, before I get on to the main substance, is this. We had Michael Heseltine come to speak to us the other day. He was obviously the Secretary of State for the Environment at the time when the original enterprise zones were set up and created. One of the things that he talked quite a bit about was the necessity to regenerate brownfield sites in London and Liverpool, and places like that. We got the distinct impression that frankly, if he were doing it now, it would be a different story from what it was in the 1980s and the 1990s. Are there, do you think, large parts of Northern Ireland that need that kind of infrastructure regeneration, or would you say that it has also moved on to skills and other areas?

Nigel Smyth: Clearly, it’s moved on to skills, but we have areas, particularly in North-West Belfast and in Derry/Londonderry, where there will be inner-city areas, very significant areas of deprivation. When you’re dealing with investors, quite often they are looking for neutral areas. For many of these areas, while we clearly want to encourage local regeneration, part of the challenge is to increase the levels of mobility of the people in these areas to come out into the centre of Belfast, where a lot of the companies are going, and a lot of the service industries are going.

There is clearly a very significant problem in those areas of disadvantage around skills. We have very significant problems around literacy and numeracy. Last summer, 43% of our GCSE students came out without an AC grade in Maths and English. Most of our members will not be recruiting those people, unfortunately. It’s a very competitive labour market. Indeed, in our jobs plan, we do say that we need a radical improvement in those areas, and indeed in the attitude to the people who are coming out. The answer is yes, there are some pockets, but our view is that there is a bigger picture. If we’re going to grow the Northern Ireland economy, it’s going to be export-driven. As our jobs plan over the next decade, we have had Oxford Economics doing some assessment; we wanted to come up with a figure that was reasonably realistic and that we could stand over. We’ve talked about 94,000 jobs coming from several key exportdriven sectors. Half those jobs will be at local small companies-it’s the spin-off effect, it’s the supply chain-on the back of that.

We know that if we’re successful on the exporting, that will actually create a lot of jobs in the local industry. We’ve seen the reverse of that. We saw that when Seagate closed one of their factories in Limavady, it had a devastating impact in the local town, in terms of local retailers, local suppliers, and various things. We want to see a mix of foreign direct investment, as well as trying to accelerate the growth of our existing businesses.

Q158 Oliver Colvile: What do you see as the benefits of an enterprise zone?

Nigel Smyth: The key question is what is going to be in it. The argument is that you have to do something on the tax front. You’re doing a lot of work around the corporation tax; that is seen as the most significant transformational action in Northern Ireland. We would argue, in terms of our response to the current economic strategy that is being developed, that there are four or five other transformational actions, all focused within Northern Ireland, very much about streamlining government, making skills more relevant, the planning regime, and the whole employment burden on companies, where the costs and risks of employing people are, we believe, now just prohibitive and are major barriers to a lot of small companies in particular.

Q159 Oliver Colvile: And how would you measure success?

Nigel Smyth: The success would be actually creating jobs. The forecast would indicate, over the last decade, we’ve created about 12,000 jobs a year; current forecasts are indicating that we’re only going to create 5,000. Our plan would be creating about 9,500 jobs a year. Success will be reflected by exports. We have got figures in here of exports growing by about 60% over the next decade. If we achieve that, we believe we will achieve this broad outline of significantly higher levels of growth in employment, and indeed in productivity in a number of our companies. Hopefully that will then feed in. We do need to do a lot of work on skills. We need to join up those people who are looking for work, the unemployed. The changes we’re going to see in the welfare system will clearly bring more people on to the claimant count; there is a lot of hidden unemployment in Northern Ireland. I think this will shake that out, too. The challenge will be linking all these things together.

Q160 Gavin Williamson: You’ve talked a lot about being export-driven, and obviously about a lot of schemes to support driving exports ahead; surely the thing that is probably most beneficial to most exporters is a weak pound. Do you think that is going to have a significant effect in terms of the Northern Irish economy over the next few years?

Nigel Smyth: Absolutely. That has to be a key strength, so there is a real opportunity to take advantage of that. A couple of other responses: In terms of schemes for supporting exporters, our development agency spends probably in the order of ₤3.5 million on export support. Over the years, restrictions from Europe, and various other things, have restricted some of the support programmes. We believe that in the Republic of Ireland, Enterprise Ireland spends maybe €50 million on supporting exports. We believe that Scottish Enterprise is spending ₤20 million to £25 million. Now, even with the size of the populations, we certainly believe going forward that we need to be doing more in the export space. It is not just about things like trade missions. It is about enhancing capabilities, about sales and marketing expertise, and about helping those companies that are already growing to grow more. It’s about helping those companies that are not exporting to move into the export markets. That’s maybe the final transformational change. We actually do need an export strategy. We don’t actually have a strategy at the moment.

The final comment is that our exports are probably lagging behind the UK. The big companies, the internationally focused companies, clearly are starting to pick up business on the back of the weak sterling. The first place a lot of our small micro-businesses are going to export to is the Republic of Ireland and, clearly, we’re suffering. We’re actually seeing sales go down there. Our exports to the Republic have gone up in the order of 60% to 70% over the last decade; it’s one of the most successful markets. Clearly, with the problems in the Irish economy, that has been very difficult. Some of our construction companies, and other companies, have actually been reorientating themselves. The answer to your question is absolutely, a weak pound gives us a good opportunity.

Q161 Mel Stride: Welcome to the Committee. To pick you up on the point about the effect of the economic decline in the Republic on Northern Ireland, can you tell us a bit more about that and your assessment of the impact? Can you quantify that in any form?

Nigel Smyth: I can’t quantify it. Let me just make a couple of comments. My position in terms of the intelligence that we would have, looking at everything in Northern Ireland, is that Northern Ireland is lagging quite significantly behind the UK recovery. There are two main reasons. First, we have seen this boom and bust in the property market. That is not just an impact on the construction sector; there are a lot of companies, particularly in the business and professional services-architects, estate agents, solicitors, banks, auditors, accountants-who did very well for many years on the wheeling and dealing in the property market. That now is totally gone. So that is a very major impact. Indeed, that is actually impacting certainly on tens, if not maybe a hundred or so, trading companies who, over the last decade, have been putting money into property as a pension scheme, but they’re now finding that their trading business is keeping that property alive, and that that is holding back their trading business.

The other reason we are lagging is because we have been increasing our exports to the Republic. They went up to something like ₤2 billion; they have fallen back to about ₤1.7 billion. At the same time, we have had a lot of people, particularly construction-related, in the Mid-Ulster area, but other areas too, who were actually travelling, and working, in the South of Ireland. To put it in context, back in 200607, the UK was building about 140,000 houses a year; the Republic of Ireland was building 93,000 houses a year, for a number of years; they are probably building less than 10,000 houses this year. You can understand that that is their biggest problem: massive capacity. Indeed, Northern Ireland was taking a share of that, both in terms of some supplies, but also with regard to the fact that a number of people were working down there. Traditionally, you used to hear several years ago they were getting about a pound for every time they laid a brick-good business, but that has just gone. So that is why we have taken quite a significant level of pain on the back of that.

Q162 Jack Lopresti: You’ve offered suggestions for a very wide range of incentives for business in Northern Ireland. What would be your top priorities?

Nigel Smyth: My top priority clearly would be around corporation tax. We see that as transformational. Other than that, what I would probably tend to rule out is anything to do with property incentives and also things like national insurance. We see those as having too much deadweight and not supporting those companies that we need to. What we need to do is encourage investment, so any incentives: things like capital allowances should probably feature very prominently, moving from an existing investment allowance-I’m not sure if it’s ₤50,000 or ₤100,000-and putting up to a million pounds, or even two million.

In our consultations, I’ve been speaking to a number of small and medium-sized companies of about 1,500 people, who would do quite a lot on the R and D and innovation side, and when asked, "Do you want a bigger R and D tax credit or investment allowance?" they all immediately went for investment allowance. It’s a lot simpler and helps their cash flow quite quickly, which is going to be very important, in terms of where we are with access to credit and various things. We need to encourage investment. We need to encourage innovation, so our plan B, if we fail on corporation tax, is certainly enhanced R and D. Clearly, you’re aware of the existing R and D tax credit; we need to do something much more significant on that one, but I think we’ve improved a lot with innovation in recent years, which is maybe not fully appreciated.

The final area is whether there is anything we can do in tax to help exports. Again, we had supported something in terms of enhanced tax incentives or reliefs on training for marketing and sales people. We have never taken that through in terms of the technical issues of doing that, but that was trying to focus incentives on areas where we have strategic weaknesses in Northern Ireland, so you are trying to change behaviour and trying to encourage more investment in those particular areas. As to a broad national insurance cut, that would be very nice-I’m sure my members would love it-but it would be fairly expensive and it certainly would not reward and incentivise the type of activity that we’re looking for.

Q163 Ian Paisley: Do agri-foods form any part of your delivery plan?

Nigel Smyth: In terms of R and D, absolutely; Northern Ireland Food & Drink were part of this. We do see a number of people who have written off the food sector, but it’s a very, very important sector in Northern Ireland. There has been £180 million of investment over the last 12 to18 months. In that, there were larger companies; we have one of the largest chicken processing operations in Europe, probably, in Moy Park, now Brazilian-owned. We have significant strengths in the beef and dairy industries. We have some natural strengths in that area. Indeed, it’s a very innovative sector; some of the best managers that I come across are in that sector. There is a long supply chain on either side of it, so we would see opportunities in that sector, too.

Q164 Ian Paisley: It is too often forgotten that it is a sector that actually delivers growth. It’s one of most successful export businesses, when you consider pork products.

Nigel Smyth: Absolutely. A lot of their exports are still claimed as exports, but they are in GB. There is still a big shortfall, in terms of the food been imported into GB, so they see a big opportunity there. Clearly, they are also exporting into Europe too, but certainly over the last couple of years, when many other sectors, like manufacturing, fell quite significantly, the food sector, the food processing sector, and the drinks side, was one of the few sectors that continued to grow, albeit at modest rates, but we do see that as a fairly key sector going forward.

Q165 Dr McDonnell: One of the suggestions that you’ve made in your evidence that should be considered in any enterprise zone is ensuring that measures are aimed at achieving clear objectives. What do you think those objectives should be, if an enterprise zone is introduced?

Nigel Smyth: I’ve probably already covered that. It is very much about how we can enhance investment, increase exports and, arguably, increase our productivity? Those are the key; obviously we need more skilled people, but it’s about investment and exports; for me, those are the two key strategic issues that we need to focus on. Whatever incentives we are looking at that could go into the pot, that is certainly what we would be keen to see.

Q166 Dr McDonnell: You’ve already covered this, but just to probe a little bit further, you said that investment and exports are your key aims; where would you see jobs in that?

Nigel Smyth: Jobs are fundamental. At the end of the day, we’re only going to achieve more job growth if we export more. This is a jobs plan; this is about trying to hit 94,000 jobs, but doing that is not going to be driven by local consumers and various things; the vast majority of this is going to be driven by increased exports. We may get some job substitution or some supply substation, but that is not going to be the key strategic driver. That has been tried and we need to continue to drive it. This is all about selling more goods and services, including tourism, outside of Northern Ireland, and bringing more money into Northern Ireland.

Q167 Dr McDonnell: How big a measuring factor would you see the jobs to be? Would you see the jobs created as being the main factor and measurement, or would you see it as being qualified along with some of the other factors?

Nigel Smyth: Ultimately, it has to be the key factor, but you can’t just go in and say, "Yes, we’ve got a target for jobs." The issue is how you can achieve those jobs. Our argument is that achieving those jobs is about encouraging more investment, having more success, and taking more market share in global markets. It’s about internationalisation. It is about having things in place that are going to improve Northern Ireland’s connectivity; that’s why we touch on things like air passenger duty and various things that we think are very significant. Ultimately, this will come down to increasing the levels of employment. Northern Ireland Food & Drink, Construction Employers Federation, Momentum, which is our ICT federation, the IOD, the Chamber of Commerce, and the Northern Ireland Independent Retail Trade Association will benefit by the success we have in exports and various things. A lot of local companies will benefit from that through the supply chain. If we attract foreign direct investment, a lot of small companies will benefit.

That goes back to where the Republic of Ireland sits. It’s still a very strong economy in terms of its international businesses: 140,000 direct jobs, 100,000 indirect. It will grow its exports, according to the press, or their export association, from £160 billion this year to £170 billion next year. That growth is the total of Northern Ireland exports, so don’t rule out the Republic of Ireland. It has severe problems in the construction and the financial sector; it’s the international and food sectors-its export sectors-that are actually keeping it afloat at the moment.

Q168 Dr McDonnell: Can I ask you maybe a cruel question? When you raise those questions and set those objectives, what measures do you think the Northern Ireland Executive have taken to help meet those objectives that you have rolled out for us? Pass?

Nigel Smyth: No, I’m not going to pass. I would say "disappointing"; I could be stronger than that. Clearly, we have just seen a draft budget. We have a very difficult budget and no-one is underestimating that. The Executive are saying that they are putting the economy at the core of their priorities. In our detailed response, we believe there are significant shortfalls, in terms of DETI, which is going to provide support to Invest Northern Ireland. Its document says that it will not be able to support all the projects that we need, yet despite that, we probably have the best pipeline of potential foreign direct investment on the back of that. There is no doubt that skills are going to be absolutely critical here; part of that is for indigenous, and part of that is for foreign direct investment. There are serious threats to our Assured Skills Programme, and to adult apprenticeships, which they’ve said they’re going to close, so their actions do not reflect their words in the document. The Executive published their draft budget statement at an Executive level in December, but the departmental budgets do not reflect what was said there. This does give us serious concerns.

Having said that, the amounts of money that we’re looking at in a budget that is in excess of ₤10 billion, we are looking at sums of money of ₤10 million, ₤15 million or ₤20 million here. That could actually go a long, long way in terms of the impact it could have on jobs. As I said earlier, if anything, Invest Northern Ireland is going to have to move back. They are at 95%; I know Invest Northern Ireland is following me in, so it’s a question that you can put to them. Our understanding is that they are something like 95% committed, in terms of their funds, already into next year. They’ve been very supportive through the recession; things have not been as bad as they could have been. Giving them an additional £68 million next year would actually probably double the amount of money they had available for supporting companies, exports and innovation. There are threats in their budget that they’re going to cut innovation support. There are threats within the Department for Employment and Learning that they’re going to cut the schemes for innovation and some of the partnerships between FE sectors and businesses. We’ve actually come a long way over the last decade on the innovation and the links between business and the further and higher education sector, and we would be extremely concerned that we’re going to be going backwards over the next few years, at a time when we need to be doing absolutely everything to support and encourage the economy.

Q169 Dr McDonnell: You are telling me, basically, you would give a bit more money to Invest Northern Ireland-personally, I agree totally on that; I feel that it has been strangled-and you would also give a bit more money to R and D and training?

Nigel Smyth: Into DEL?

Dr McDonnell: Yes.

Nigel Smyth: On R and D, I think there has probably been enough money spent there, to be fair. If we look at innovation R and D, we were certainly lagging way behind the UK 10 years ago; our business expenditure on R and D was about 0.6% of GDP, compared to the UK, which was 1.3% or 1.4%. According to the latest figures in the economic consultation, Northern Ireland is now up to 1.1%, compared with the UK at 1.3%. That’s very good, if we consider that Northern Ireland does not have a big pharmaceutical industry. If you look at the size, we have got a lot of traditional sectors, such as the food sector. Yes, it spends money on innovation, but it is not spending massive money on basic research into various things. I actually think we’ve got a very good track record in innovation. There is a benchmark in here about how innovative our companies are. In Northern Ireland, the measure is 55%, and the UK level is 58%. Yes, we’re behind, but we’re not massively behind. I think we’ve actually made quite a lot of progress. We need to continue to invest in that. The bigger worry would be on the skills side. We’ve got a lot of work still to do on skills, and particularly the relevance of skills to the needs of an export-driven economy.

Q170 Dr McDonnell: If we put R and D, skills and INI aside, are there any other points or measures-anywhere else you would point the finger, in terms of what needs to done?

Nigel Smyth: The other area that features in our job plan is around planning, particularly for large projects. The planning system in Northern Ireland-it is totally devolved-has made a lot of process on the small and medium applications. When I say "progress", I mean that they have actually achieved their performance targets for the first time in probably over a decade. They are not achieving that for the large applications. That is impacting on renewable energy, tourism, retail and a number of other key sectors and various things. We do need to speed that up. Part of it is just that the processing is very long; part of it is, we believe, that there is too little flexibility in some of the planning policy statements. There is a current planning policy statement on tourism out for consultation-we’ve just responded to it-which, again, we believe is going to be too inflexible. If you don’t get the planning policy statement, and if you make it too inflexible at the start, you’ve got a real problem down the line. That’s what we’re finding.

Q171 Naomi Long: There are two issues that you’ve raised that I want to get a bit more information on. First, with respect to the budget, I don’t think that anyone would question that the members of the Executive are all committed to trying to drive forward economic development, so where do you see the issue really lying? I mean, I have a personal view that the approach to the budget has been to salami-slice across everything, so the good and the bad get cut equally. It avoids the very contentious decisions, but it also unfortunately means that some very productive stuff takes a hit, rather than being prioritised. I would be interested in your perception of why, given that there has been this drive throughout the programme for the Government’s and the Executive’s general commitment, the issues that you highlighted are not being prioritised. The other issue is skills. You mentioned the mismatch of skills, and people coming out of further and higher education establishments and so on, compared to what employers want. How much engagement is there between people like yourselves and constituent bodies on the one hand, and education establishments-individual universities and colleges-and also DEL on the other hand, in terms of trying to form what the skills policy and, indeed, the educational direction should be, so that there is a better fit between skills, education and business?

Nigel Smyth: In terms of the budget, yes, there has been salami-slicing. Clearly there have been some very difficult challenges. In our response, we believe first of all that there has not been enough re-engineering and restructuring. I have looked at every budget from each Department at least twice; I am probably one of the few people in Northern Ireland to have done so. Those were my sad days in January. They’re like chalk and cheese. Most of this is to do with natural wastage taking quite significant numbers out; it’s in nobody’s interests to go and make people redundant. There are other Departments that are literally saying, "We’re trying to protect jobs in the public sector," where there are no administrative savings and there are obvious areas for them, and where they have laid out very clearly that they are cutting services on the back of that.

To be fair to DEL, the Department for Employment and Learning, they are taking posts out, et cetera. Cleary, there are complicating factors, because of the tuition fees and various things and how that works, so it’s a little bit unclear how this will all work its way out, but it raises significant concerns for us. Our response is that 50% of the costs are labour costs. The Executive will argue, "Look, we can only control the Northern Ireland civil service, and 87% of the jobs are in the broader public sector under national pay agreements," but if you are not going to address that, it’s going to be very difficult to manage your wage bill, other than by managing through natural wastage, et cetera. We don’t think they’ve gone far enough on managing labour costs, or on the reform side.

There is a mixture between Departments. Some have done the salami-slicing; others have sat down more strategically, to be fair, and looked at it. In the case of DETI’s budget, again, there was an Executive decision on introducing a damages Act on pleural plaques for England and Wales. It went to the House of Lords, which said "We’re not going to have a Bill." DETI now has a budget of ₤12 million over the next four years, because the Executive propose introducing legislation. The initial budget looked good, but when we got the departmental budget, there is a piece of legislation coming through, which we think unfortunately is going to go through the Executive, and DETI is going to have to pay out over ₤12 million. We think it will be a lot more than that over the next number of years to compensate pleural plaques, which is a benign disease. Clearly people have worries about it, but this is a major issue. In Scotland, it has been challenged in the European Courts, and we think it’s going to reward lawyers very healthily, but we think it’s ₤12 million that could actually go into economic development and be a lot more productive.

Your second question, if I may, was on skills and the mismatch. Yes, we engage. We engage at the strategic level and the crosssectoral. To be fair, in Northern Ireland, we have, as in the UK, about 24 sector skills councils-too many, from our perspective, as we have argued for some time. We also have other forums at a regional level. We have argued for some years now that we need to rationalise that; part of the Department for Employment and Learning’s budget is actually to rationalise that, so we actually agree with that. We need to prioritise that. We need to be looking at the six, seven or eight key sectors where we’re going to see the most significant growth and the most significant value created; that’s where we should be putting our resources. That is not to say you ignore some of the other sectors, but this is all about prioritisation. Rather than cut the adult apprenticeship scheme, we believe that, yes, you could cut it in two; you could prioritise it in those sectors where you’ve got the biggest opportunities coming forward. The worry is that two to three years down the line, when things start picking up, we’re not going to have the people there to reward that. I think over the last four to five years, particularly with the further education sector, there has been a lot of engagement in that space; I think the challenge now is to cut through that and prioritise where we’re going to put our resources.

Q172 Lady Hermon: Can you elaborate on those six or seven key priorities for skills? What would you identify those to be?

Nigel Smyth: They probably were the sectors set out in our jobs plan. My understanding is that we still have the construction sector as a priority. I would take the view-I may upset my construction members here-that the construction sector will not be the priority that it would have been over the past decade, when we saw significant growth. The sectors we have identified here are, clearly, the ICT sector. I would argue that it is almost booming at the moment. It is a relatively small sector in Northern Ireland, but it has a lot of potential to grow; we think there could be about 10,000 jobs, and some good work has been done through their sectoral skills association, in terms of the whole area of creation. We’re getting more people for the first time going back into universities. There was a major drop-out after 2001-the issue. There is the ICT sector; the agri-food sector, particularly for technologists, and there are other areas in there, too; the health technology sector, a small sector, but again growing strongly; and the whole area of tradable services.

Tourism quite clearly is a priority. We had a good draft strategy in June last year, but it has disappeared and we haven’t seen it. It was an ambitious strategy to double the revenues from tourism over the last decade; we would have been very supportive of that. Clearly, there are also areas like clean, green technology and high-value manufacturing. We would certainly see the whole engineering sector, at the higher end, as being a significant opportunity and we have seen some significant investment in that sector recently. We do believe there is going to be a lot of competition for jobs; we will need more apprenticeships, with more technical people as well as graduates in those areas.

Q173 Mel Stride: Just quickly on this point of education and skills, in your opening remarks, you highlighted the low level of achievement, in your view, at GCSE and in secondary education, in terms of students gaining Maths and English. In the balance of skills mismatches, the lack of apprenticeships, and the problems that the employers have with those coming through secondary education without those basic Maths and English skills, how much of a problem is the education bit in that? It’s a problem throughout the UK, it seems to me, and I’m just interested in your comments on it.

Nigel Smyth: It is. There is no doubt that there are a number of employers in the retail sector and the food industry who would do a lot of work in terms of remedial skill for these people. They have trouble with operatives-in getting anybody. That’s why we brought in a lot of Eastern Europeans. They are keen to recruit local people, but many of them cannot read or write properly, so they would have their own schemes, and to be fair that has been supported quite strongly by the Department for Employment and Learning in terms of an essential skills strategy over the last number of years. There has been a lot of work doing that, but at the same time, every year we have another significant number of people coming out who don’t have those skills.

It’s also fair to say that a number of graduates come out who are pretty poor at filling in application forms and are not going to get through the interview process. I know this is not unique to Northern Ireland. It can be managed, but it’s an additional barrier and an additional cost that companies have to take on board, which they shouldn’t have to. They do not expect to have totally trained people, but they do expect to have educated people with basic skills. That’s just an additional burden that they have. I suppose this is slightly unique to Northern Ireland: Northern Ireland is a very small market, so there are several companies in our food sector or our engineering sector who grow to scale and then they decide, "Look, we need to be closer to our market," whether that is in Wales, England or wherever. There are dozens of companies who have now developed operations in GB. They then have to make investment decisions: are they close to the market? Do they have these problems there? Do they have the planning problems? That is why we need to make Northern Ireland much more attractive. It’s just another burden. It is going to be very difficult for those individuals. It’s penalising them, because it’s an extremely competitive marketplace and obviously a number of people do have those skills. Those people do not really have a great deal of chance, one would have to say.

Q174 Mel Stride: Getting back to enterprise zones, it’s desirable to reduce corporation tax, in your view, because of the disparity with the South, among other reasons. Would you go so far as to say that if the Northern Ireland Assembly did not reduce corporation tax, an enterprise zone would not work? Is it an essential prerequisite to make the thing fly?

Nigel Smyth: Well, it depends on what you mean by "work." The corporation tax features in this document. All eight organisations have signed up to reducing the corporation tax. Clearly, we recognise that a cost would go with that, and there could well be legal issues and various things-we’re awaiting the UK Government paper. That is a preference. That is seen as the transformational activity. That is seen as the one activity that will both help indigenous firms and bring in very high-quality FDI and really be transformative over the next 10 to 15 years. Clearly, if that’s not going to happen-the decisions are outside our control-and for political reasons they don’t decide to run with that, then there are other options, but they are less good options. Clearly things like enhanced capital allowances would be attractive for certain companies. You wouldn’t turn your nose up at those, but they’re not actually going to do what we believe is required to help us transform the Northern Ireland economy, to make it more self-sustaining. There is no way that Northern Ireland is going to end up paying its way, even after 15 to 20 years, but we can actually reduce the levels of subvention from the UK, which continue to go up every year. We are a burden on the rest of the UK; it would be nice to try to reverse that trend. I haven’t seen any arguments that indicate that even if we did something on tax allowances, capital allowances, or R and D, that that would differentiate that, but clearly it would help a number of companies; it would help to accelerate growth. I hope that has answered your question.

Q175 Mel Stride: That’s helpful, thank you. In your evidence, you allude to other countries that have had corporation tax exemptions. Could you tell us a bit about the countries you’re referring to there? What criteria have they applied in those situations, and specifically do you think those approaches would meet with the EU state aid rules in respect of Northern Ireland?

Nigel Smyth: This is one that I might pass on, because I think you might be recalling our previous efforts back in October or November. I don’t think we state that in our current paper on the enterprise zone. I know that that is an issue that Gibraltar, the Basque region and, clearly, our neighbours in the Republic are well aware of. I’m going to pass on that because that seems like a lifetime ago.

Q176 Mel Stride: One final quick question: the Government, as you know, have introduced a national insurance holiday for employers in respect of new business start-ups. Do you have any evidence on the ground of how that is working in Northern Ireland at the moment?

Nigel Smyth: It’s not. Again, this is at a tactical level; my understanding is that it is for new businesses that have been created. It was announced last year. They would tend not to be members, if they were new businesses, of CBI, so I wouldn’t be aware of that. It is clearly helpful, but it is not at the strategic level. Nobody is going to turn it down, but it’s not going to do the things that we believe are necessary to help transform the Northern Ireland economy.

Q177 Naomi Long: Obviously, the issue of an enterprise zone carries with it some challenges. There were some, if you like, negative problems created around the previous incarnations of the enterprise zones. Clearly, we’re not entirely sure whether what was meant by "enterprise zone" remains that same as it did in the 1980s, when the zones were piloted elsewhere. How would you go about minimising some of the problems that were identified with the notion of an enterprise zone in the past, such as issues of property speculation and deadweight, where people are essentially gaining benefit for doing what they would have done anyway? How do you try to eliminate that? Or do you think you simply carry that, and that it’s a cost worth bearing?

Nigel Smyth: It is a very difficult one to answer, because it comes back to what we were talking about: what’s going to be in the enterprise zone? The indication from the UK Government is that Northern Ireland would be considered as an enterprise zone, so that would be very different from where we were previously on that. I would say the big issue previously was that it was relatively expensive per job, but there was a lot of local displacement and various things on the back of that. The obvious thing that we would be putting into it is something at a broad level of tax. To repeat myself, corporation tax is the favoured one, but there may be other potential tax incentives to do with that, in terms of capital allowances, investment allowances, enhanced R and D tax credit, or something on a sectoral basis. We’ve given one example in our paper, in terms of the BBC and the TV industry.

It’s a really difficult question to respond to until we decide what the initiatives are. That is why I said that if you decided to introduce something like a national insurance contribution measure for all companies, there would be a massive amount of deadweight, so that would not be something that we would be arguing for. Yes, I’m sure my members would love it, and I’m sure there would be some benefit, but it would be a very costly thing to do. When we were considering this-as I say, my members had difficulty trying to get their hands around this-we were very much focused on: "What are we trying to achieve?" It comes back to the fact that this is all about trying to encourage investment and accelerate growth in exports. That’s what we need to be focused on. We need to be very conscious of the areas of deadweight around that, but until we decide on what the incentives are going to be, it’s very hard to tell how you would address those.

Q178 Naomi Long: In terms of the incentives and some of the discussions we’ve had in previous weeks, earlier you said that jobs were at the forefront of this; it was about job creation. You’ve mentioned two things that I suppose are key drivers: there is job creation and there are exports. Do you think, if you’re going to create an enterprise zone, that incentives particularly focused on those companies that are creating new employment and are exporting more is one way to try and eliminate some of the deadweight that could be associated with more broad-brush approaches?

Nigel Smyth: If that could be achieved, then yes. Obviously, you’ve got a very wide range of companies that are exporting. If I come back to job creation, we believe that we will only create jobs if we actually export more, because this is not going to be driven by local demand. Local demand will just shift around; there is not enough money in the economy. The only way actually to grow the economy is to sell goods and services outside Northern Ireland, or to bring significantly more tourists into Northern Ireland. That is our thinking on that. I wouldn’t rule out something targeted at companies. I was out with a company last week, an ₤80-million or ₤90-million business in the food sector. They had ambition to grow to ₤200 million to ₤300 million. They had taken on five graduates this year, and were very driven by innovation. It is a company that most people probably wouldn’t even be aware of. We were trying to tease out what more could be done on exporting. He’s got a cash-flow constraint; he can only grow at a certain rate. Our view is: how can we help him to grow at a faster rate, to get him to where he wants to be? And yes, he did say that if there was an incentive-if we said, "takes a graduate on and we’ll pay you to take on a second graduate"- he would have taken on another five graduates, if he were funded in some way to do that. That would help to develop his capabilities and he would grow at a faster rate, and I’m sure there would be a lot of spin-off benefits.

There must be ways to design a system where you’ve got growing companies. It could be, "If you take a graduate on, we will fund a second graduate." I’m conscious of the deadweight argument-"Well, next year, instead of taking five, I’ll take two, and I’ll get two for free." There is an opportunity; that’s what we’re trying to get our heads around. All Government policy is trying to minimise the level of deadweight. What we have said in our jobs plan is that we believe we need to develop maybe 100 or 200-we didn’t know what sort of number-of what we call "gazelles", really growth-led companies. In Northern Ireland, we think there is a fairly small handful of them; there is just not enough. Our challenge is to grow more. There are significant risks to exporting. For a very small Northern Ireland company, the easiest way to export is to drive down, across the border, into Dublin. It’s an expensive operation to be driving and sending people over to GB, so we have to reduce the risks. We have to make it easier. We have to develop their capabilities, skills and knowledge of the marketplace, et cetera. There may well be some way of designing something that has a very strong employment relation to that. I would link in with "You’re the export focus."

Chair: We’re over time already. I propose running to four o’clock, if that’s okay, but we will have to finish then.

Q179 Ian Paisley: You said something that I wrote down. I was wondering if anyone was going to pick up on it, because it alarmed me. You said, "Tourism: we had a good strategy in June; it has disappeared."

Nigel Smyth: Let me correct myself; we had a good draft strategy that was sent out for consultation by the Department for Enterprise, Trade and Investment in May or June. We responded to it. We liked it. It was about doubling revenues. There were a couple of areas we felt needed prioritisation. We have heard and seen nothing of it since.

Q180 Ian Paisley: It alarms me that you’ve heard nothing of it since. Tourism is major in my constituency, and it’s a major driver in the Government strategy for the way forward. Why do you think you’ve heard nothing?

Nigel Smyth: There are a lot of things put out for consultation in Northern Ireland, and many strategies, that take a long time coming through. In terms of our argument for one of the areas for transformational reform, it is all about agility and can-do, and about making sure that these things happen at a much faster pace, including strategies. Strategy in Northern Ireland is great; we used to launch boats, but we now launch strategies. We’ve failed to launch this one.

Q181 Ian Paisley: But unfortunately our strategies sink, just as quickly as some of our boats.

Nigel Smyth: It is disappointing, but things in Northern Ireland are extremely laborious and slow. That is a competitive disadvantage.

Q182 Ian Paisley: Do we need a Tourism t sar?

Nigel Smyth: Arguably yes, but I would also say, as part of that, that we need fewer Departments. In terms of economic development, the Independent Review of Economic Policy said we should knock together the Department for Employment and Learning and the Department of Enterprise, Trade and Investment. We’ve just seen a consultation on the economic strategy. There is nothing in there about governance reform or departmental reform. There is a very strong silo mentality in Northern Ireland, and that is reflected very strongly in the recent budget consultation; nothing in it was joined up. There were no opportunities to look for synergies between Departments. There are some key weaknesses there, which we have to continue to try and convince our political friends to move on.

Chair: Jack?

Jack Lopresti: Is this the finale question, maybe?

Chair: Well, I hope not.

Q183 Jack Lopresti: Do you think that an enterprise zone could be used to force the different players in Northern Ireland decision-making to pull together in the same direction?

Nigel Smyth: That is a difficult one to answer; again it depends what is in the enterprise zone. One of the key messages in our jobs plan is that it is unique; it’s the first time that eight main business organisations have come together. Part of that was the unity, a common message. Rather than us all producing different things in similar but different messages, the view was, "Let’s have a very strong message signed up to by eight organisations." Part of the message is that we need to create confidence politically to encourage investment. We need more unity. We need more of a sense of purpose within the Executive and a clear sense of direction. The question is probably going to be answered by the economic strategy. The Executive have set up a sub-committee of the Executive, which has launched the current consultation, which is pretty woeful, one would have to say, and we can be very critical about that. However, there is an effort to bring the seven Departments together to look at this in a more joined-up manner.

This consultation is about priorities. It could have been put out a year ago, one has to say, so we expected there to have been more progress. We have a chance to influence that, and clearly that’s what we’re trying to do. There is some recognition that they need to get together. We want to see that recognised in the delivery. We would have liked to have seen it more recognised in their budget decisions, but we have a very unusual Government in Northern Ireland. I’m sure it’s frustrating for those who are in it; it can be very frustrating for those outside it, trying to influence it. I’m not sure if the enterprise zone, as such, would help that further. There are other structural issues that could be taken forward in Northern Ireland that would hopefully address that. It is an important issue.

Chair: I am going to have to skip on slightly because of the time.

Q184 Kate Hoey: Whether or not we get an enterprise zone, how important is the competitiveness of air travel and the question of duty and the relationship with the Republic?

Nigel Smyth: It’s absolutely critical. You talk about exports; whether that’s tourism or exports, it’s about international connectivity.

Q185 Kate Hoey: What is the CBI doing about that in Northern Ireland? Did you do anything, for example, when they had-I know it’s pathetically small, but still-the £1 charge for drop off, and the £1 charge to be picked up at the international airport? Did the CBI make its protests known to the Spanish Government?

Nigel Smyth: It’s very hard for me to criticise my members. We don’t tend to get involved in that level of detail. There are bigger issues in there in terms of the air passenger duty. I dropped somebody off at the airport recently without paying my £1. They had to walk a little bit. I let my boss walk 400 metres-savings within the CBI.

Q186 Kate Hoey: Mr Smyth, you say that’s only a minor thing, but in fact, in reality, it’s another burden on travelling back and forward, which of course a lot of people do for their normal business, and your members do. Have you made this a hugely big issue-not that particular parking bit, but the general issue about passenger duty?

Nigel Smyth: Yes, and it has been going up the agenda in recent months, to be fair. Cleary, it’s been reflected in the South. As you’re aware, they have reduced it, or are reducing it, I’m not sure if it’s this month or next month, to €3. The biggest concern is on our international airport, particularly on the US flights. In Northern Ireland, it’s ₤60 and over ₤100 pounds in first class, and in Dublin it’s going to be €3; that’s a big differential. You’ve now got Continental jointly owned by United-United Continental. We have one service going out of Northern Ireland. It is very important for our tourism sector, and for the likes of Citigroup and the New York Stock Exchange, and some of the key sectors that we need to link into Northern Ireland. That US connectivity is absolutely critical, and it would be of strategic importance if there were any threat to that service. Dublin has something like 13 or 14 flights a day to the States. I think within the UK it’s a burden, but the biggest burden, and the biggest concern that we would have is strategically with the international airport, and particularly with the States.

Q187 Kate Hoey: What’s the CBI’s official view of Invest Northern Ireland?

Nigel Smyth: Broadly, we’re supportive. We’ve been very supportive of their last strategy. They did come under, we feel, a little bit of undue criticism from the Independent Review of Economic Policy, which said they should be spending a lot more money on innovations and R and D. Their existing corporate plan is spending a lot of money on innovation and R and D, and I don’t think we felt that that was sufficiently picked up. Over the years, we think their strategy was broadly right. It’s fair to say that they will have a new strategy starting in about a month’s time. We would like to see that more export-focused. The issues that our members would have faced in recent years have been very much around the bureaucracy with the initial applications, and indeed when they’re actually claiming the grants. Some of that has been reduced. In fact, they made some announcement recently to reduce that further. Much of that is controlled by European rules and various things; anything with European grants in it can be very bureaucratic, unfortunately. I’ve been with the CBI for 20 years and I would say that you will always find somebody with a criticism, but the feedback is as good now as it has been for 20 years, even with its predecessor organisations. It’s certainly far from fault-free, but they are moving in the right direction and internally-you can ask them-they’re going through some fairly significant changes to improve their processes and direction.

Q188 Chair: Thank you. Now for the very last questions, on a slightly different subject. Naomi.

Naomi Long: Just to refer back to the air passenger duty, obviously the other concern is about the passenger charge that’s being levied at the moment at Heathrow, which is also now likely to be introduced in Gatwick for those who are not through-passengers going to other European destinations, but are actually flying to London specifically. That’s going to have implications for business travel for people from Northern Ireland as well. I just want to raise with you the issue of the Daylight Saving Bill, a private Member’s Bill currently going through Parliament, because I wrote to lots of business organisations, and indeed other representative bodies in Northern Ireland, when this was being debated, and it didn’t seem to be on anybody’s agendas. I had some concerns that there would be a cost to business if the Republic of Ireland and the UK ended up on different time zones, or other implications for business if we all ended up on a single time zone that is significantly different from the one we’re on at the moment. I’m just wondering if that’s something that the CBI has given any consideration, in terms of the cost that might be incurred by their members.

Nigel Smyth: It was, and you should have had a response from the CBI to your letter. I certainly sent one out; I hope that it was received.

Naomi Long: You were one of the few organisations that had it on their radar.

Nigel Smyth: When I say it was on the radar, to be fair, it did not feature properly on my members’ radar. It was raised at our council meeting; we got very limited feedback on it. The view would be that we’ve probably moved on quite a bit in the last 25 years. It would not be the issue that is was, and we would not have some of the concerns that we had back then. It’s fair to say that it is just not at the top of my members’ agenda, so it is hard to get the feedback. The view was that if UK was going to move, we would be amazed if the Republic didn’t move as well, but that would obviously be a decision for them. It would be very unusual if we had an hour’s difference between Northern Ireland and the South of Ireland.

Q189 Naomi Long: And costly, in some cases?

Nigel Smyth: To be fair, I have to put my hands up and say that with all the other challenges out there-the strategic issues that we’re trying to face-it’s just not a prominent feature on people’s radar. Maybe they don’t realise how close we are to getting it, or not, and they will only wake up to it then, but from a business perspective, nobody was saying, "Hey, this is going to be dreadful." Clearly, talking about internationalising, we need to be exporting more, including into Europe. Our exports into Europe now are less than they were 10 years ago, if we exclude the Republic of Ireland, so there is a lot of work to be done there. Clearly, if you go on to the same time zone, and you all have the same day, that has to be helpful.

Chair: Thank you very much. We’ve kept you for an hour. Thanks for your very comprehensive answers. We’re grateful to you for your evidence.

Nigel Smyth: Not at all, thank you for the opportunity.

Examination of Witnesses

Witnesses: Bill Scott, Director of Regional Economic Development, Invest Northern Ireland, and Oonagh Hinds, Manager of the Regional Business Team, Invest Northern Ireland, gave evidence.

Q190 Chair: Thank you very much for joining us. I am sorry for the slight delay, but you sat in for most of it. I wonder if I could ask you to introduce yourselves and perhaps tell us a very little bit about your role within Invest Northern Ireland, and perhaps a little bit about what the organisation is working on at the moment? But if we can keep the introduction fairly brief, I’d be very grateful.

Bill Scott: I am Bill Scott. My current role is Director of Regional Economic Development with Invest Northern Ireland. My colleague is Oonagh Hinds, who is a manager in our Regional Business Team. I’ll explain a wee bit about the work of both of our areas. As you probably know, Invest Northern Ireland is a non-departmental public body sponsored by DETI-the Department of Enterprise, Trade and Investment-and our specific role is around accelerating the growth and the development of the Northern Ireland economy. We specifically do that through looking at how we can encourage exports, how we can encourage enterprise and entrepreneurship, and how we can encourage new inward investment to Northern Ireland. Those are the three broad areas. My specific role is in that area of encouraging enterprise, so a lot of the work that my team would be involved in is at a regional or sub-regional level, if you like, across the five regional offices and the three regional sub-offices that Invest Northern Ireland has throughout Northern Ireland.

Q191 Kate Hoey: How many people do you employ in Invest Northern Ireland?

Bill Scott: In total, I think it’s around 580 at the moment. Some of the work that Oonagh would be involved in is specifically in one of those areas-the Eastern area-which includes Belfast city.

Q192 Lady Hermon: Do you have a good working relationship with the CBI? We have to give you a right to respond.

Bill Scott: Well, I think there are a number of areas that Nigel focused on that we would be largely in agreement with, but maybe not so much the specific areas related to Invest Northern Ireland. We can certainly discuss those, and I’m quite happy to explore those.

Q193 Oliver Colvile: First of all, welcome and thank you very much for coming over. What do you understand by the term "enterprise zone"?

Bill Scott: As Nigel, your previous witness, said, I think that’s the crux of the matter here: what is an enterprise zone in this context? Broadly, Invest Northern Ireland would be supportive of the concept of an enterprise zone, if what we mean by an enterprise zone is, I suppose, a number of incentives, programmes, products and services that we package together to attract the appropriate investment into an area and into Northern Ireland. In very broad terms, we would be supportive of that.

Q194 Oliver Colvile: What specific incentives would you want to see?

Bill Scott: I would start off with corporation tax as one of those, but we are also looking, as the previous speaker said, at other tax incentives around that that might encourage specific development and investment around specific sectors, and that might encourage investment and spend in particular areas of capability development, such as skills training, R and D incentives, and that might encourage venture-capital investment. There is a broad range, I think, of incentives that could be packaged as an enterprise zone. If we are talking about the enterprise zones of the ’80s and ’90s that were very much property-based and focused on that, we are not sure that there is a strong argument for that at the moment. We would like something much wider than that.

Q195 Oliver Colvile: I rather agree with you. I think the thing has moved on quite considerably since the ’80s and ’90s. Having an enterprise zone for the whole of Northern Ireland-would that be helpful to you? Do you think there should be individual zones within Northern Ireland?

Bill Scott: I think there is some evidence to say that the wider the net is cast, the more beneficial, for a number of reasons, and I think it is much more easily understood and it is much easier for us to market it as well if it is for the whole of Northern Ireland. Certainly, if it were corporation tax-based-if that was the starting point for it-that certainly would lead to a Northern Ireland and province-wide enterprise zone being the best approach.

Q196 Mel Stride: A Government review of 22 enterprise zones in Britain concluded that they might have cost something between roughly £800 million and £1 billion in total-a huge expense. Do you feel that the cost, as we might be able to estimate it at the moment, to Northern Ireland would be worth it in terms of the development that might accrue, or do you think it is too much, given the current circumstances, for the public finances to bear?

Bill Scott: The difficulty in answering any questions about what it costs is that we are not sure what the assumptions are around those, and what the potential benefits are down the line, so it is very, very difficult to have a sensible debate around the costs issue until we know specifically what range of measures we are talking about, and what the likely totality of that is to the UK public purse, and to Northern Ireland, in terms of the block grant. Also, on the timing, how would that phase in over a period of time? For example, if it is corporation-tax-based, one would imagine you would take a much greater hit very early on, whereas if there are other incentives that might roll in over time, you would be looking at that.

When it comes to the benefits, it depends again on the particular package of measures; what sectors that might impact on; to what degree it might encourage FDI; to what degree it might encourage indigenous investment; to what degree it might encourage profit centres along with cost centres; and what impact those sorts of measures might have on the cost centres in Northern Ireland at the moment. I am not avoiding the question, but I think there are an awful lot of unknowns in there and there are an awful lot of assumptions to be made before you can come up with a proper cost structure.

Q197 Mel Stride: I totally understand and accept that, because we have not really defined exactly what we are considering here, but if we were looking at something that was going to cost some hundreds of millions, for example-figures of £300 million-plus have been mooted-do you think that there is the political appetite or the political capital within the Northern Ireland Executive to take that kind of step, or do you think that it would just need too many cuts in too many other places for it to even be something that could ever conceivably get off the runway?

Bill Scott: In some ways, that is a political question, but I think this is the best way I can answer that. We talked about transformational activity and, I suppose, game-changers. If there are a number of game-changers and transformational activities that can be sold, and the wider community can see the benefits of those over a reasonable time scale, then I think that a proper cost-benefit analysis can be carried through and explained publicly. I am not sure whether that answers your question or not, but I think you’ve got to understand the benefits when you are looking at those hundreds of millions. You’ve got to be able to articulate how that is going to benefit the Northern Ireland economy.

Q198 Ian Paisley: Following up on that last point about time scale, I think Sir George Quigley said, a couple of weeks ago-I hope I am paraphrasing him correctly-that if we got corporation tax, it would probably be 25 years before we saw the benefit of it. That is not really a time scale that most people in Northern Ireland want to work to, but it is realistic that whatever we do should be long-term and durable. Do you agree with Sir George Quigley that it would take 20 years before we saw the benefit of corporation tax?

Bill Scott: On corporation tax, that is a difficult one to answer, in terms of the time scales and when we might see the benefits. We might see benefits over a shorter time scale in terms of bringing a transformational change in the types of inward investment that we attract. For example, Jeremy Fitch, who was speaking to the Committee last year on the corporation tax issue, would have put the case that at the moment, we are attracting a fairly defined market of inward investment to Northern Ireland that tends to focus around cost centres. A lot of that is from North America. A lot of it is from companies that could also invest in profit centres within Northern Ireland. If we were to see that sort of investment over a short period of time, say, from existing investors-I’ll not name specific investors, but if some of our existing cost centre investors started to invest in profit centres in Northern Ireland-then I think we could see some benefits fairly early on.

When it comes to enterprise zones, there are some studies throughout the world on benefits in India, the Republic of Ireland and America that talk about benefits over a 10-year time scale, which I think is a much more reasonable time scale to work with, in terms of trying to assess the impact of an enterprise zone. That is much wider, obviously, than corporation tax.

Q199 Ian Paisley: In terms of driving us forward, obviously Invest Northern Ireland and the ministry, DETI, would have a role. Do you see any specific role for Her Majesty’s Government, in terms of continuing to drive change?

Bill Scott: Again, it very much depends on what is the enterprise-zone arena. I think the Government can drive change in a lot of areas. If we are about transformational change and if we are about game-changers for the Northern Ireland economy, it is much wider than that one Government Department, I think. We have already talked about DEL; you could also include DARD and DSD. Across the piece, and in terms of the UK Government, they all have a part to play in it, so there are a number of things that could come together there to bring focus to it. I think the Government can also play a huge part in, again, the marketing of all this. The key thing with an enterprise zone is that it does give us a headline-grabber, and once we get into the detail, it is what is in there, but it does give us something to focus our inward-investment activity on. It also gives us something to encourage local investment as well-indigenous investment.

Q200 Ian Paisley: I want to give you the opportunity to respond on the tourism issue. You heard what Nigel Smyth-I nearly called him Nigel Kennedy-said with regard to tourism and how the good draft strategy of June has disappeared, or words to that effect. Where is this draft strategy on tourism? What has happened?

Bill Scott: The difficulty I have in answering that today is that while Invest Northern Ireland has some responsibility around tourism, specifically for capability development of hotels and guesthouses and so on, the core responsibility for tourism rests with the Northern Ireland Tourist Board and within the Department. I am not sighted on where that is, to be honest.

Q201 Ian Paisley: Maybe you could ask the Department to write back to us. That would be useful.

Bill Scott: Yes.

Q202 Jack Lopresti: You and other witnesses have suggested a range of possible incentives that could be provided within an enterprise zone. What would be your top priorities?

Bill Scott: As we have said before, we believe that corporation tax would be a game-changer, precisely because it would change the types of investment that we get. It is probably the most straightforward change, in terms of the types of investment that we could attract. There is an awful lot more than that around tax incentives and imaginative grant packages that can be brought together in an enterprise package. We would focus very much on those sorts of wraparound services that might come with an enterprise zone. It is around encouraging mobility, investment, capability in terms of skills, R and D, ability to export, ease of export, and attracting new investment. For example, some countries have got involved in very innovative tax and other incentives around attracting venture capital, and that might be something that we bring to it, because we could attract global starts, for example, to Northern Ireland through that. We have a fairly tried and trusted programme around export start activity and global start activity, but we could accelerate that through other types of investment.

Q203 Mr Benton: You appear very keen on corporation tax. I put it to you that corporation tax and, indeed, enterprise zones would involve the Northern Ireland or UK Government in a very, very high cost factor. I wondered if you had done any spade-work, any investigation, into what I would call a compensatory factor: what the Government might lose in terms of loss of revenue through deferential rates of corporation tax. Have you quantified or costed in any way the benefits that might accrue from the implementation of either corporation tax or, indeed, an enterprise zone?

Bill Scott: Again, the difficulty in doing that is: what specifically is involved, and what assumptions do we make around that? In terms of corporation tax, we have worked with some of the existing assumptions and some of the headline published figures of, I think, around £200 million or £300 million for the annual costs of corporation tax. Winding that out to the enterprise zones, it really depends on what package of measures you come up with, but obviously that cost-benefit analysis would need to be done specifically before you could say, "Yes, that is the particular basket of incentives that you would come up with in this area."

The important point that we would make is that you would be trying to be much more intelligent and smart around how you would implement an enterprise zone. You would be trying to bring together a set of incentives that would minimise deadweight. At that point, you would then have to cost that and see what benefits we are likely to get out of that, what particular sectors we will be targeting, and what levels of investment we are likely to get from those sectors. Our position is that it is much too early to say.

Q204 Mr Benton: Yes. You would agree with me that there is a huge risk element, in terms of what could possibly be large quantities of lost revenues to the Government. If, for example, a corporation tax initiative was not successful and did not bring about, at the end of the day, increased jobs and productivity and so on and so forth, it is a huge thing for industry to lose if there was no compensatory factor. Likewise, you are obviously right about the enterprise zone: it depends what it all means. Really the point of my question was to see if you had made any attempt at all to identify this cost equation thing.

Bill Scott: I suppose the only thing I could add on that is that, in terms of the objectives-what we are trying to achieve here-we would start off with the assumption that, first of all, we are trying to rebalance the economy so that we grow the private sector, so we are rebalancing there. Ultimately, I suppose, from the UK Exchequer point of view, hopefully, over a period of time, you are reducing that subvention-you are having an impact on that. There is absolutely no doubt that if it could not be proven that we were having an impact on that, you would have serious concerns as to whether you undertake any of these strategies, and it would be exactly the same for the enterprise zone.

Q205 Oliver Colvile: Our role, Mr Scott, as you may know, is to make a recommendation as far as the Government are concerned, and they will then decide whether they are going to give the Northern Ireland Assembly the powers to decide whether they want to go ahead with it. One of the big conundrums, I suspect, that the Northern Ireland Assembly is going to have will be in working out whether this is actually going to pay dividends and what the reduction is going to be in the block grant that they receive from Whitehall and Government. How long do you think it is going to take-and has anybody done any modelling on this-if we were to either create an enterprise zone or, for that matter, allowed the Northern Ireland Assembly to actually determine the level of corporation tax, actually to see an increase in the economy and turnaround?

Bill Scott: It is a very difficult question, but I think it gets back to the previous answer: I think there are some quick wins in there, and there are some things that happen over a much longer period of time. Some of your quick wins could come around attracting profit centres to Northern Ireland, and those could be game-changers. You will also see, hopefully, some quick wins around the growth of indigenous businesses in servicing some of those types of investors. You could also see very early wins in terms of venture capital investment, for example, in Northern Ireland. You could see very early wins in terms of attracting new types of investment that bring new types of skills and management skills to Northern Ireland. Those are things that could happen within a relatively short period-in, say, one to five years, you could start to see those starting to come through-but there is no doubt that, in terms of the transformational change that we have been talking about, that will happen over a much longer scale.

Q206 Oliver Colvile: I get into a lot of trouble with my colleagues here because I point to Hong Kong as a place where there has been success in actually reducing taxation. Apart from the Republic of Ireland, who else do you see as your main competitors?

Bill Scott: In terms of FDI, it can change, depending on the types of project that we are focusing on at any one particular point in time. Obviously, the Republic of Ireland would be very much a competitor in terms of North America. In terms of looking for a European base for a call centre, it is Eastern Europe. Some of the developing or re-developing areas in Europe are definitely competitors, because they can be cost-competitive, and they can be in the centre of Europe and have the same sort of access to parts of Western Europe that those investors are trying to target. If we are looking at cost-centre investment that is really interested in a European base, then our competition could be across Europe.

Q207 Oliver Colvile: When you are talking to potential investors, what do they say to you? Do they say, "If only you were to do this, then we would most certainly be there like a shot"?

Bill Scott: There are definitely investors that will say to us, "Taxation is an issue." Jeremy Fitch, in some of his evidence, referred to some of our financial services investors who did look at whether there were tax benefits, and if there were no tax benefits, at what else there was that could make up the difference.

Q208 Oliver Colvile: Do you reckon part of that, though, is cost of employment and regulation on employment?

Bill Scott: Part of the deterrent?

Oliver Colvile: Yes.

Bill Scott: Yes, and there could be a perceived peripherality, as well. It could be a case of: "Why would we put it in Northern Ireland when we can put it in"-

Oliver Colvile: Plymouth.

Bill Scott - "Other parts of the UK or ROI", or wherever. If you take a company like HBO, which I know has been mentioned before, or some of the huge television and film production companies, those are very mobile investors, and they have looked at the taxation incentives as well. They are saying, "if we don’t have that, what else can we have to balance that up?" There is no doubt that it is a factor.

Q209 Gavin Williamson: Mr Scott, can I ask you a bit of a hypothetical question? If, for example, you had been promoted to First Minister-I think that is a promotion, but anyhow –

Naomi Long: You are learning about Northern Ireland.

Ian Paisley: You would have to take a pay cut.

Gavin Williamson: Let us say that you are in the role-shall I rephrase it-of First Minister, and you are sat there with the decision of whether to make a tax cut costing £220 million; you could put that as a tax cut, or you could actually give it to, let’s say, Invest Northern Ireland to invest in businesses and structural growth. What do you think you would do? Would you go for the tax cut, or would you go for, let’s say, three to five years of investing £200 million-odd a year towards creating incentives and developing businesses right across Northern Ireland?

Bill Scott: Again, it is a very difficult question in terms of an either/or. If it is a straight either/or –

Gavin Williamson: It is.

Bill Scott: If it is a straight either/or, there would have to be some detailed cost-benefit analysis involved in that.

Q210 Gavin Williamson: Which do you think would deliver more jobs?

Bill Scott: Let us just say that some would say that corporation tax is a relatively blunt instrument, and there are some issues of deadweight around that; for example, you can benefit the retail sector in the short term and you have to guard, to some extent, against brass-plating and so on-evidence that I am sure this Committee has heard before. If you are looking at other types of incentives, then you can target those at particular sectors, and you can target those at specific types of investment that you are trying to attract. You would have to take those two things into account in assessing that. I don’t know whether that answers you or not.

Q211 Naomi Long: This comes in quite neatly after that question. You already have the power to do targeted work, in terms of attracting inward investment and so on. We have talked about how important corporation tax is. If you just keep doing what you are doing, are you going to see a step change? If you are not going to keep on doing what you are doing now, what, other than corporation tax, do you have on your agenda, in terms of what could be on offer that would make a big difference? That is the question, I suppose, we need to ask. We have a range of targeted incentives. Corporation tax would be a new arrow in our quiver, but what would be the alternative that would be a game-changer?

Bill Scott: I think the alternative that is a game-changer is to have a full table, if you like, of products and services that you can work with. At the moment-and I think Jeremy Fitch made this point as well-we are playing with one set of criteria that is attractive to a certain type of investor, and that includes indigenous investors as well. If we add a range of incentives around an enterprise zone that includes significant tax change, then it allows us to tailor our products and services to the particular investor. In an ideal world-and this is maybe coming back to that either/or question-you would have maybe a set of tax-related and capability development related incentives, products and services that could help attract a certain type of profit-centre-type investor, would attract venture capital to Northern Ireland, and would attract new technology to Northern Ireland.

On the other side, you would have a set of products and services maybe even based around grant, but a different use of grant-a much more selective use of grant-around capability development for those businesses that would not necessarily see, in the short term, the benefits of a change in the tax regime. For example, if we bring in tax change, and that impacts negatively on our ability to offer grant support across certain areas, we could inadvertently penalise cost centres and existing investors. When we talk about an enterprise zone within Invest Northern Ireland, we do talk about these intelligent or smart enterprise zones that minimise the potential for consequences that we did not expect or we did not want to see-the deadweight issue.

Q212 Naomi Long: In relation to that, you have said that you need, if you like, a range of incentives, essentially, in this basket of options that you would have. You have talked, for example, about tax credits for research and development and so on. Other witnesses have been suggesting something similar. Could you maybe give us some perspective on what is available to people at the moment and what is the level of demand for tax credits that you have had from businesses coming into Northern Ireland to say, "This is something that would change what we do as a company?"

Bill Scott: Largely around inward investment, again referring back to previous evidence, the opportunity that we do not have at the moment is to pitch to those organisations that tax would be a key issue for. We are not geared up and we are not focused and targeted on trying to attract profit centres, purely because we realise that we do not have that competitive advantage there within the island of Ireland. First of all, it does allow us to open up to targeting that group. We have limited conversations around that issue, but that is not to say that it is not a key issue. I think if we were able to open up that market, there would be a much more intelligent conversation around that.

In terms of what we are doing at the moment that we could do more of, that is very much around attracting venture capital investment, and attracting investment in those capability development areas. That is very difficult particularly for small and medium-size businesses at the moment, because they have an eye to the bottom line; that really does have an impact on them. It can take some time for the benefits of that investment to come through. If we can target our support around that capability development, it allows them to do something that they cannot do at the moment-it is additional.

Q213 Naomi Long: In relation to small and medium enterprises, you said in your evidence that you felt that they should access some benefit from lower taxation rates, and obviously many of them would not be affected by the change in corporation tax directly. First of all, what do you have in mind in terms of taxation that would affect the small and medium enterprise sector in Northern Ireland? Also, do you accept the argument put forward by those in favour of the reduction in corporation tax that when you bring in those large companies, small and medium enterprises benefit by servicing some of those large companies, so they gain from corporation tax, if not by direct tax incentive, through opportunities to grow and expand their business?

Bill Scott: I think the tax advantages for small businesses are very much around, again, that capability development, so it is around that investment in areas where they do not see the benefit over a short period of time. There is no doubt that that can help, as well as the grant structure. We have seen some of that around. There is some very good evidence on that around R and D, which, in very small companies, is increasing and has increased in the last year; we’ve got very strong evidence of that. We’ve got evidence that says that, over the last five or six years, R and D investment by SMEs in Northern Ireland has more than doubled. There is evidence that changes in taxation and relief around those sorts of areas of expenditure can help.

In terms of the knock-on effect of profit-centre investment or inward investment, there is no doubt of that. We have seen that in Northern Ireland. We’ve got a history of that in Northern Ireland, but we have particularly seen that in the Republic of Ireland as well, where whole industries have grown up around inward investment. We have seen it in Northern Ireland around the ICT sector. A game-changer there was the likes of Allstate in the late ’90s coming in and investing, and that just gave scale to that sector that wasn’t there before. It is obvious.

Oliver Colvile: I have already declared my interests, so I presume I do not have to do it again, do I?

Chair: I would if I were you, just to be on the safe side. This is in property, not in Hong Kong


Q214 Oliver Colvile: I would like to have some interests in Hong Kong, I can tell you. You talked in your evidence quite a bit about how you feel that there should be a package that included something to do with land values as well, which I think is going to be very difficult, but do you think there is a huge demand for lower property values in Northern Ireland, and how do land values compare to what goes on in the Republic?

Bill Scott: Sorry, on the last part of your question: is there a huge demand in-

Oliver Colvile: For reduced property costs.

Bill Scott: The reduced property costs that we were talking about were very much more on the SME side. Yes, for the early start-up stage or the early growth stage, we certainly see on a daily basis that the costs of property definitely are a barrier for first-time entrepreneurs. What that means is that the growth of those businesses can be held back, because what is happening is they are not prepared to invest in capital, they are not prepared to invest in a suitable building at a very early stage, so the growth of the business-particularly that early-stage growth-is stunted to that degree. There are issues around that.

As to whether there is a huge failure in the property market at the moment, we do not believe there is. We would concur with what the CBI has said on that, in that we do not see a huge failure in the property market. We are not saying that we need to build loads of advanced factories and we need to clear huge swathes of Northern Ireland for industrial land use and get an awful lot more investment in that. It is not an "if you build it, they will come"-type strategy; that is not what it is about. It is about capability rather than just putting property up for the sake of property.

Q215 Oliver Colvile: How does it compare with Southern Ireland?

Bill Scott: Property prices in Northern Ireland would be significantly less. I am not sure of the specific differential, but it would be significantly less. For how long that will remain the case is a key issue, I think.

Q216 Jack Lopresti: Would you like to see changes in the law governing intellectual property rights?

Bill Scott: Specifically around-

Jack Lopresti: That is my question. It is a very generic question. If you think there should be specifics, please tell us.

Bill Scott: I suppose it depends on what the specific objective of that would be. If we are talking about making it much easier for R and D-type investment to take place in Northern Ireland, then we are absolutely all for that.

Q217 Dr McDonnell: I suppose there could be many things included in the proposed enterprise zone, but what role do you see for Invest Northern Ireland in helping to promote a culture shift towards a more entrepreneurial culture and towards greater private sector development and less dependence on the public sector?

Bill Scott: That is a good question, and I think it is across those three broad areas. Maybe Oonagh will want to come in on some of this as well, but it is across those three broad areas of entrepreneurship-encouraging entrepreneurship, awareness around entrepreneurship, and encouraging and nurturing early-stage growth. It is then around exportability and FDI. Those are the three strands, and promoting a culture around that is about showing that the Government, Assembly, Department and, ultimately, ourselves are serious about making it easier for investment to take place in Northern Ireland. We need a real culture of encouraging investment in all those areas-a culture of investment that makes it easier to consider self-employment, that makes it easier to expand into markets and invest in export-related, high-risk activity, and a culture of attracting inward investment right across the piece, not limiting ourselves to types of investment, but encouraging high-value investment right across the piece.

I think we have an important role to play in that, and I think there are an awful lot of other players. Local councils have a role to play in that, particularly at the enterprise end. Other Government Departments have a role to play in it at the FDI end, through education, through skills training and through assured skills. When we talk about areas like the food sector and so on, other Government Departments have a role to play in that as well. It is a joined-up approach, and certainly we think that the Department and the agency have a key role to play in corralling that and making sure that it happens.

Q218 Dr McDonnell: You touched on a number of things there. The private sector, such as it is, is largely small business. What do you think are the barriers to those small businesses expanding or getting involved in export? How do you think we can help them break down those barriers?

Bill Scott: There is a whole range of things we can do in terms of helping them break down barriers to export. The key issue for first-time exporters is they are often dealing with a very familiar market. It is the market they grew the business in, in the early stages. They are moving potentially into a new currency, a new language, and a whole new culture and way of working. We try to introduce them to those markets. If we could do more around encouraging top-market targeting and increasing the capability of our marketing management within Northern Ireland, then I think we could remove a lot of that fear of exporting. It is an early-stage fear of exporting. There is an awful lot more we can do around that. We can reduce the risk that comes with that early-stage exporting. I don’t know if there is anything you want to add there, Oonagh.

Oonagh Hinds: I think, to come back on some of the issues around the culture change, that is a major factor for us, and it is an area that we have tried to deal with over the last number of years, in terms of some of the marketing campaigns that Invest Northern Ireland have been involved in. With export start companies, you tend to find that a lot of the smaller companies would very much be the lifestyle businesses, and what we are trying to do is encourage them. Nigel referred to this earlier: the first obvious export marketplace for these companies is the Republic of Ireland, so we work very closely with companies in trying to encourage them to at least take that first step into the export market, but it is all about the capability and working with management teams, marketing, et cetera. You have talked about the culture change in the low business starts within Northern Ireland, and trying to encourage more start-ups-particularly quality start-ups that are going to export.

Bill Scott: If I can just come back on something that was said earlier, I think it was said that Invest Northern Ireland’s budget around this area of exporting was around £3.5 million. That is a very specific figure, which is really just our Trade Division budget for previous years, but Invest Northern Ireland would also commit a significant amount of budget through its selective financial assistance to exporting. We would also commit a substantial budget towards encouraging sales and marketing teams and the development of those teams, so to assess £3.5 million is not strictly true-it is much more than that. It is a multiple of that, if we take into account all the other assistance that would have an indirect impact on export capability.

Q219 Dr McDonnell: We all talk a lot about university spin-outs. If I could perhaps use another example, the university spin-outs are fine when they are born. How do we increase the antenatal work that basically ensures that university spin-outs occur in the first place? How do we increase liaison with universities? How do we persuade the universities? What is your feeling about how well the universities are geared up to commercialisation? My sense is that some of the departments are hostile, particularly in the life and health sciences-they are all geared towards pure research for research’s sake; they are very hostile to commercial research that might actually make money.

Bill Scott: In terms of how we can help them at that early stage and how we can get them get beyond that university incubation stage, a lot of that is about putting them in touch with people who have capability in this area. Again, I keep coming back to this word "capability", but I am talking about entrepreneurs who have come through this and investors who have cash to give to it. We try very much to do that, but I think there are some interesting products and services out there in other countries; for example, going back to the tax issue, in parts of India they will give tax relief to investors, in terms of capital gains tax. They will remove capital gains tax for investors when they are selling on businesses that they have invested in through VC at an early stage, so something like that can be a game-changer, again, for VCs. At that early stage, it is all about putting them in touch with expertise from outside that business. A lot of them are coming from a technology background; they do not necessarily have the skills to run a business, but they’ve got fantastic skills in terms of developing a particular product, so it’s putting them in touch with people who have that business acumen and also the means to resource it.

In terms of the capability of the universities, actually in life sciences we have some very good relationships with the universities around life sciences and health technologies, and some of the academics, it has to be said, have been very helpful to us in our FDI in this area, and in our exporting. Our experience is, yes, there is a difference between academia and the commercial world, and a difference between academia and the business world, but as long as you accept those differences and where they are going to be, and where the rubber is going to hit the road in some of those, you can work with academia to demonstrate a capability, again, within Northern Ireland, and we have done that.

Oonagh Hinds: One example that you will be very aware of is Andor Technology-an excellent example of a spin-out from university. I think this goes back to the earlier question around IP: obviously, there is an issue with IP within universities, so if they want to commercialise something, are they going to release the IP that is within the university? That is, I think, something that we need to work on with the universities.

Q220 Dr McDonnell: We have a difficulty, not just with IP, but rationing out who gets the reward, for instance, for anything that does come out of there. Quite often, they do nothing, rather than allow something to flourish, but that is my sense, sorry.

Bill Scott: To some extent, there can be conflicting objectives. That is the issue.

Dr McDonnell: Yes, that is exactly the issue.

Q221 Naomi Long: In terms of your corporate plan for 2008 to 2011, you said you wanted to "drive a shift towards high-value economic activity by attracting FDI in target industries, notably financial services, software and ICT, and by boosting indigenous businesses and start-ups in high-value sectors including certain tradable services, niche manufacturing, life sciences and the creative industries". You have given us the example of Andor Technology; I am also aware, in recent weeks-as recently as that-that you have had some successes in my own constituency, in attracting inward investment and developing, I suppose, target sectors in terms of, for example, tidal and wind energy and so on. I am just interested if you could maybe outline some of the other successes that you have had, to give the Committee a broad feel for just how closely you feel you have, in 2011, achieved the objectives that you yourselves at the start of the period.

Bill Scott: I’ll take a few of the key targets around R and D, I think, which is particularly relevant today. We fairly well exceeded the target there. I think we were trying to leverage investment of around £100 million-plus; we ended up leveraging investment in R and D around £320 million over that period, so there has been a significant exceeding of that target. Our export focus is very much around creating new exporters. We had a target of 630 and we achieved a result of 630 new exporters, which was a good result, given the period, again, that we are dealing with-2008 to 2011. We have seen significant investment in innovation overall through R and D, and also in terms of sectors. For example, over that period, we have seen, as you have alluded to, a step change in terms of wind-energy sectors, and also growing some of those out of traditional sectors. Again, in the previous evidence, for example, the construction industry was spoken about, and it was asked whether that was really a target. We see that high-value jobs can come from any sector; we have seen that over this period. For example, in the food technology sector, we have seen high-value jobs come through; the construction services sector, we have seen high-value jobs come through. There has been a terrible impact on the construction sector as a result of the downturn, as we know, but there are, again, some high-value areas within that sector that we have been able to nurture over the period, so that was part of that focus on tradable services.

The health technology sector and the e-technology sector have just grown in that period. It has come from a fledgling sector to one of our key priorities and something where we have seen businesses coming through from all over different regions of the Province. In our export start area, which is very close to what we do, we have seen a significant change in terms of where the start-ups are coming from. They are not coming from the traditional sectors anymore; it is a real challenge for us, because they are coming to us with new ideas-internet-based ideas, web-based ideas, very much creative ideas. It is the whole creativity sector, and it is very much a young person’s environment as well, and very challenging for some of us who have been doing this for a lot of years, in terms of just trying to understand those early concepts. Maybe around Belfast, you have seen some of the recent investments there.

Q222 Naomi Long: Yes. There were quite a few recently, obviously, in your constituency that I am aware of, but it is interesting to see the change. I have been working now with Invest Northern Ireland for 20 years, and it is interesting to see the change in the type of businesses that we are dealing with and the way that technology has developed-and, particularly for me, to see the young people coming forward with really new creative ideas, and obviously a lot more. They are talking about technology and ideas that I do struggle with personally. I just say, "Look, tell me what the benefit is here. What is it going to do? That’s great." I think it has been very rewarding, particularly, as Bill mentioned, in the economic downturn. We certainly have seen a lot of new projects and new ideas still coming forward, even within that context.

There is one other question that I wanted to ask: obviously, Northern Ireland has a certain notoriety-let’s put it that way-internationally, because of our historic difficulties. In some places, that is an upside. For example, in the US, the peace process and so on, and the transformation in Northern Ireland, has opened doors. In other places, it must still be a disincentive; people are not sure what they are dealing with when they come to Northern Ireland or what problems they will face. To what degree do you think that the legacy of the past impacts on attracting investment into Northern Ireland, and on being able to unlock potential within Northern Ireland to actually be able to service those industries that you can attract?

Bill Scott: It is certainly much less of an issue than it was, obviously. It tends to be an issue-and I had something experience on the foreign direct investment side specifically in relation to North America a few years back-in encouraging someone to come and visit the place in the first instance, but I think you can overcome that through a lot of what we can show them now through the use of technology. We can show them what it looks like; we can almost let them feel and touch Northern Ireland before they get to see it. When they get to see it, it almost always-in fact, I cannot think of a case where it has not done so-exceeds someone’s expectations, and that is a great thing to say, as someone who loves the cities. When someone comes in and they see the development of the cities and towns throughout Northern Ireland, it is much better than they thought it was going to be. In some ways, it is a great sale once they actually visit, and it is much easier to win them over once they actually visit. It is all about attracting them, and that is what our sales team are very much focused on-selecting those targets and then saying, "Come and see it", making it as easy as possible for them to come and see the place.

Q223 Naomi Long: Also one of the impacts, I think, of the troubles is that it has made people slightly risk-averse in Northern Ireland, both in terms of business and, I would have to say, in terms of Government Departments and their interventions. As you will know from personal experience, when you do take a risk on something, there will be occasions when that does not pay off. Do you think that we are starting to change that culture as well? We have talked about entrepreneurialism, but are we changing that risk-averse culture so that business can thrive-so that people are willing to take chances that are well thought-through but are still chances nevertheless?

Bill Scott: Yes, and I think, again, a lot of that comes from the structural change in terms of the age change, in that an awful lot of the ideas and activity has come from young people, who do not see the barriers that even my generation saw. One of the key issues for us in the past was this peripheralism, where someone would come to you and their vision for their business would be selling to their local community, and there still are some of those very good social enterprise businesses, but that would be the vision for some individuals. Now, nine times out of 10, the vision is immediately a global market, so that is a step change as well, I think.

Chair: Thank you. We come to the final area of questioning. Sylvia?

Lady Hermon: That’s awfully nice of you, Mr Chairman.

Chair: Last but not least.

Q224 Lady Hermon: You will be pleased to know that, in fact, these are three fairly straightforward questions. We have not actually heard Oonagh’s voice that much, with the greatest respect; it has been wonderful having the two of you, but would you mind answering, Oonagh, because this is your area of expertise, I think? If we had an enterprise zone right across Northern Ireland-we do not know if that will be the case-how effective would that be in ironing out the regional differences that we have at the moment, particularly for businesses with activities around Belfast and some in North Down-obviously even more in North Down-and then rural investments in the west of the province? How effective would it be in changing that?

Oonagh Hinds: I think that is what really does need to happen. The concern would be, I suppose, if we did look at it on a regional basis, with designated areas, that all we are going to do is to move investment from North Down, say, to a designated area such as parts of Belfast or, indeed, some of the rural areas. Personally, my opinion would be that we need to look at an enterprise zone across the whole of Northern Ireland, and I think it would benefit on a sub-regional basis. I also think that it would encourage, in some areas, potential clustering of companies. For example, if we had IT companies that locate in a certain area that were going to encourage clustering around ICT, or if we have an inward investor moving into a rural area, that will also benefit small companies in terms of some of the supply chains in the areas as well. To me, I think it is important that we are looking at it as a whole, rather than designated areas.

Q225 Lady Hermon: Yes. If the recommendation were to be that, in fact, corporation tax in Northern Ireland should be reduced, do you think that an enterprise zone has to come with a reduction in corporation tax? Would there be more effective tackling by one without the other?

Oonagh Hinds: As Bill has shown, I think, it is the range of benefits that we can offer both the inward investor and the indigenous companies. It is probably very difficult to say which one would be of most benefit. Obviously, when we are talking to lots of companies and inward investors, they will talk about the reduction in corporation tax, and obviously that disparity with the Republic of Ireland. I think it’s a difficult question to answer, personally, but I think the corporation tax would be part, I think, of the range of offers that we could provide.

Q226 Lady Hermon: Again, assuming that, in fact, they follow your wise advice and the enterprise zone extends right across Northern Ireland, what impact would you expect it to have on land and development prices across Northern Ireland-consistently good or not?

Oonagh Hinds: I suppose it would depend, again, on what is on offer within the incentives. I would have concerns, looking back to the previous lessons that we have learned, where we had property developers going in and making a bit of money, about the long-term sustainability of property in the enterprise zones. I think, with the enterprise zone across Northern Ireland, in terms of infrastructure investment and property, it has to be a good thing. It will, I think, increase value.

Q227 Lady Hermon: That brings me to the final question. This Committee has taken evidence from a very learned gentleman, and I do mean that most sincerely, but he was highly critical. I will just quote what he said: "The concept of a simplified planning zone, as with an enterprise zone, will send out a very ‘negative’ message to Northern Ireland-just as the Planning Bill is approaching a positive and confident planning hierarchy". Speaking, if you are allowed to do that, on behalf of Invest Northern Ireland this afternoon, how would you rate the importance of the changes to the planning system at a time when we are also considering the introduction of, possibly, an enterprise zone right across Northern Ireland?

Bill Scott: I will just come in on that, because I think there are some interesting questions in there. I think, around the simplified planning zones, we are supportive of that approach. We are supportive of the simplified planning zones. We do think it gives a greater degree of certainty to developers, at an early stage, on what is likely to happen down the line in the process. Anything that does that-[Interruption.]

Lady Hermon: I do apologise on behalf of my very young colleague here.

Bill Scott: Not a problem.

Jack Lopresti: Thank you.

Bill Scott: It does give it a level of surety there. If the quote means significant change to the planning side and the over-simplification of that could lead to unwanted consequences-if you like, if it could lead to deadweight and if it is a very blunt instrument-I think we would be saying that as well. We think that anything that just basically says, "Let’s relax all the planning issues to make it much easier for everybody to invest and to encourage new investments in property" per se, I think that is a difficult one, because I think what you are coming in with is something that is designed to help the developer but it does not have the safeguards in place that will mean that you get the specific types of investment that you want. You have to be much more selective about it, I think.

Q228 Lady Hermon: Yes. I know you do not have a crystal ball, but we are moving swiftly now towards the end of the life of this particular Assembly. Will the Planning Bill make it onto the statute book before the Assembly is prorogued? You do not have a crystal ball.

Bill Scott: I could not possibly say. I have no idea. I would not be qualified to answer that question, to be honest.

Q229 Lady Hermon: Do you think it is a good move, simplifying planning issues?

Bill Scott: Anything that makes much clearer at the outset what is likely to happen and the extent of what is likely to happen down the road-I think, yes, we would be broadly supportive of that, but as to changing the planning regulations in such a way that it makes it all very nebulous and creates a degree of chaos in there, I think we would not be supportive of that under this enterprise-zone measure. In the past, it has created property bubbles and it has been a bit of an advantage to property developers, but has there been any long-term economic value out of that? That is very much questionable and we have examples of buildings that were built, never occupied and knocked again. We really would not want to be there.

Chair: We have kept you long enough. Thank you very, very much, both of you. Those were very interesting answers.

Oonagh Hinds: Thank you.

Bill Scott: Thank you.