Northern Ireland as an enterprize zone
Written evidence from
the Federation of Small Businesses
Introduction
1.
The Federation of Small Businesses is Northern Ireland’s largest business organisation with 8,000 members from across all sectors of industry, and over 210,000 members throughout the UK. The Federation lobbies decision makers to create a better business environment
2.
The Federation of Small Businesses in Northern Ireland (FSB NI) supports the designation of Northern Ireland as an Enterprise Zone as part of a wide ranging strategy towards rebalancing our local economy, with a focus on growing the private sector. We believe it would be a positive action, both in terms of attracting increased Foreign Direct Investment (FDI) and in growing the indigenous business sector, especially in respect to improving innovation and managerial capabilities.
3.
The Northern Ireland economy continues to find itself at a major competitive disadvantage to its southern neighbours, while also having to contend with a range of factors that inhibit our ability to be as competitive as the rest of the United Kingdom.
FSB NI Survey Findings – What should an Enterprise Zone be?
4.
In December 2010, FSB NI conducted a survey of all 8,000 current members, covering a wide range of issues. One of the areas of inquiry related to members’ views on some potential components of a Northern Ireland Enterprise Zone. While the survey was very recent and the results have not yet been fully analysed, the following represent an early indication of members’ views. At the time of writing, over 500 responses have been received. Members were permitted, in most cases, to choose more than one option.
FSB Survey Question: In order to assist SMEs, what measures do you think an Enterprise Zone should include?
Business tax breaks 67.7%
Lower Corporation Tax rate 61.2%
Savings on employment costs (e.g. NICs holiday) 60.7%
Assistance with employee training (free or subsidised) 40.9%
Powers allowing the Assembly to vary other taxes (eg. Income tax) 38.0%
Easing of planning regulations 27.3%
Research & Development incentives 25.3%
Assistance with staff recruitment 21.4%
Business tax breaks
5.
This initiative received the highest response from members and would ideally include of a range of financial incentives and tax reductions that would appeal to new business investments and would encourage industrial and commercial activity through, for example, a competitive rate of corporation tax, Business Rates Relief, capital allowances and the relaxation of other punitive legislation and time-consuming bureaucratic processes.
Corporation Tax
6.
The introduction of a lower Corporation Tax rate in Northern Ireland appears to be the second most popular potential component of a Northern Ireland Enterprise Zone amongst our members (without prejudice to the final analysis of the full results). This is interesting given that previous surveys (Lifting the Barriers to Growth 2004, 2006, 2008, FSB-ICM Voice of Small Business Survey 2009) indicate that only approximately one third of our members are incorporated – therefore a substantial proportion of the respondents are probably unlikely to benefit directly from a corporation tax reduction and could be of the view that such a move would invigorate the wider economic environment.
7.
The FSB believes that the Northern Ireland Executive must have a greater responsibility for fiscal planning if it is to take Northern Ireland forward with the economy at its heart. The priority given to the economy by the Northern Ireland Executive in its Programme for Government sends a positive signal to investors; this must be matched by action.
8.
A reduction in Corporation Tax would be a positive and sustainable way of reinvigorating the Northern Ireland economy. As the global economy gradually emerges from recession and those charged with winning FDI are exploring new opportunities, Northern Ireland needs to be positioned to be attractive. However, it would be a misjudgement to think that a reduction alone would solve Northern Ireland’s economic problems.
Savings on employment costs
9.
In response to our survey, 71% of members said they would like to employ some or more staff in their business. A 2009 FSB Employment Survey indicated that the most significant barrier to small businesses recruiting more staff was the negative perception of the complexity of employment legislation, particularly grievance, disciplinary and dismissal procedures, and maternity and paternity leave and pay.
10.
The FSB has played a major role in representing the experience of small businesses in dealing with workplace disputes. As a result, the Assembly is currently in the process of repealing the statutory three-step grievance procedure. To encourage the early use of an informal, alternative disputes resolution process, as proposed and advocated by the FSB, the government plans to introduce a ‘user-friendly’ NI-wide mediation service and a Small Business Support Service. This is welcome.
11.
The FSB is of the view that family leave should be tailored to suit each individual business, and that a "one size fits all" approach fails to adapt to those needs. Small firms, which make up the vast proportion of the private sector in Northern Ireland, are known as the most flexible employers. They often operate in a small team that runs like a tight-knit family and the Federation of Small Businesses has been calling on the Government to reform maternity and paternity leave by introducing a ‘flexible leave' system to allow parents to choose their leave arrangements. In addition, parents should be able to choose how they receive their statutory pay and, in return, information must be given to the employer upfront and leave should be taken in one block. In doing so small firms will have more clarity on when that invaluable and skilled member of staff will return to work.
12.
The FSB NI worked with the Department of Employment and Learning regarding the introduction of additional paternity leave and pay when it was proposed last year, but unfortunately the Assembly could not move away from parity with Great Britain due to the tax and benefits implications.
13.
A NI Enterprise Zone should include the delegation of powers to the Assembly to vary taxes, benefits and employment regulations to encourage small businesses to employ, expand and export.
14.
In relation to initiatives that would incentivise small businesses to employ more people, our early survey results indicate the following:
Which of the following initiatives could the Assembly introduce to encourage you to employ more members of staff in your business?
Reduce business taxes (e.g. corporation tax, business rates)
67.2%
Incentivise employment through tax breaks
56.9%
Cut payroll taxes (e.g. National Insurance)
57.9%
Make it 2 years before unfair dismissal applies
48.7%
Support unpaid 3 month work placements for graduates
35.4%
Provide more support / advice for small businesses recruiting staff
22.0%
Expand apprenticeships
16.4%
Apprenticeships
15.
Very few FSB members currently employ an apprentice (2.4%), although a higher proportion (14%) has considered doing so. Almost 36% had not considered it or thought it was not applicable to their business.
The FSB believes that there is
massive potential to increase overall employment in Northern Ireland by incentivising small businesses to take on more staff or to train apprentices. If every small business that already employs at least one person were to take on one more, it would increase the number of people employed in Northern Ireland by nearly 40,000 people.
We asked our members:
Which of the following, if any, would encourage you to take on an apprentice in your business?
A wage subsidy
48.4%
An upfront incentive payment
21.5%
An organisation that would handle administration / HR aspects
16.3%
An apprentice shared with other businesses
4.1%
The FSB believes that the introduction of Group Apprenticeship programmes would have a positive effect on small businesses’ proclivity to employ an apprentice.
Assistance with staff training and recruitment
16.
Over 40% of our survey respondents said they would like free or subsidised staff training courses or schemes to be included in Enterprise Zone initiatives. Small business owners are keen to upskill their staff and themselves to meet current and future challenges and rapid change, but require flexibility in the provision of training programmes for staff in order to ensure continuity of normal business. Online courses and bite-sized modules, particularly if they can be taken in the workplace, provide the greatest incentive to micro and small businesses to train. A further 21% have indicated that assistance with staff recruitment would be helpful, as this is another area that micro and small businesses find daunting, meaning they are often deterred from recruiting for fear of unknowingly breaching regulations .
17.
A recent research report by FGS McClure Watters for Invest NI (2008) found that there are over 200 sources of business advice for small enterprises in Northern Ireland. We asked our members:- If there were a local Small Business Advice Centre with trained staff who could provide business advice and refer you to other advice agencies, how useful would this service be? Over 73% have so far said that it would be "very or quite useful", and there is clearly a demand for a single source of information and advice in Northern Ireland. This would be a very important measure to include in an Enterprise Zone.
Easing of planning regulations
18.
Over a quarter of members responding to our survey said that planning regulations should be eased as part of any Enterprise Zone proposals. The FSB NI welcomes the recent review of the planning system in Northern Ireland and the ongoing passage of the Planning Bill through the Assembly. We would be concerned that the current system is having a detrimental effect on investment potential. However, we are concerned that the staffing implications of DoE’s Spending and Savings Proposals will have an adverse impact on the planning application and consent timescale, and how the Bill’s aims of speeding up, simplifying and localising decision making will be met, given budget reductions. Previous Enterprise Zones have included the agreement of acceptable planning guidelines and principles, and planning permissions were able to be granted quickly, if application was required at all, as long as proposals conformed to the agreed guidance. Such a system should be considered for any proposed NI Enterprise Zone.
Research and Development Incentives
19.
An overhaul of the incentives for Research and Development is required to ensure that the benefits are maximised by businesses, particularly to encourage small businesses to look at this as an option. The Invest NI Innovation Voucher scheme has been a success since its inception – and consideration should be given to ways to extend this, and perhaps add elements to create a package of incentives to maximise R&D potential. By way of building on Northern Ireland’s historic role in innovation, the FSB is keen to explore ways of putting into the public domain the unpublished intellectual property that flows from university research
The Northern Ireland Executive and Corporation Tax
20.
An Enterprise Zone must have the tools to generate a sense of vibrancy and not be merely a designation in name only. Therefore, radical initiatives such as the introduction of a lower rate of Corporation Tax for Northern Ireland must be at its heart.
21.
The FSB has welcomed the ongoing discussions and analysis of the Corporation Tax issue, in the context of transforming the local economy. The publication of the Northern Ireland Economic Reform Group’s report in May 2010 was welcomed as providing a clear and reasoned case for a reduced rate of Corporation Tax for Northern Ireland. Similarly, in 2007, the FSB supported the need for Corporation Tax changes as part of its submission to the Varney Inquiry into Competitiveness in Northern Ireland, and welcomed the references that were also made in the Barnett Report.
22.
In response to it being ruled out at the time, the FSB said it "...believes that a corporation tax of 12.5% is justified as Northern Ireland is a unique region in the United Kingdom, being the only region with a land border with a country with a much lower rate of corporation tax.
23.
The FSB believes that a reduction in Corporation Tax is a key element in a wider "Enterprise Zone". The reality is that without such bold and ‘game changing’ initiative there will be little reinvigorating or rebalancing achieved and the underlying economic problems shall remain. It is unlikely to work in isolation but, taken as a package of measures, it will be central to an effective strategy.
24.
If introduced, Northern Ireland should see tangible benefits rapidly. It is clearly evident that despite its considerable problems, the Republic of Ireland is already attracting multi-nationals once again, and the foundations are being laid as well known names look to the future and expand their operations in Europe. If one were to set aside the Republic’s current debts, which emanate mainly from banking exposure in the property sector casting a long shadow, their economic model is nonetheless robust and sustainable, unlike that of Northern Ireland.
25.
Northern Ireland does not have time on its side. The initial enthusiasm and goodwill that accompanied the Peace Process will wane as time moves on, and other ‘deserving’ regions come to the fore. It must put in place the fiscal and regulatory environments as a priority.
26.
There is now a vast quantity of analyses and reports on Northern Ireland’s economic future. The time has now come to take decisions and move the process forward. Competitors are doing so and there is an urgent need for implementation of a clear economic strategy if Northern Ireland is not to fall further behind.
27.
The foundations must be in place to attract investors and this will require a co-ordinated approach across government departments to implement the various components in a swift but consistent fashion. Northern Ireland must also ensure that it can meet other expectations of potential investors in areas such as skills, research and development, and manageable energy costs.
28.
The companies that commit will need to be serviced and that will principally be the responsibility of small business. This trickledown effect is essential to the development of the indigenous small business sector in Northern Ireland, leading to increased innovation amongst small businesses, investment in research and development. It will also demand a consequent examination of the need for further skills development.
Post Bank
29.
The creation of an Enterprise Zone in Northern Ireland could be an opportunity to explore new initiatives to stimulate local economies, particularly rural, which encompass many businesses - micro, small and medium - not necessarily exporters but equally vital to economic life in Northern Ireland.
30.
The FSB has championed the creation of the Post Bank initiative, which would provide:
·
Financial advice
·
Financial management tools
·
Local business knowledge and assistance
·
Links to other financial institutions such as credit unions and organisations providing micro finance
·
Innovative banking tools
31.
Small businesses are currently not getting the services that they need from the Post Office and, as such, a future Post Office should look and function very differently from the current model. Individual Post Offices have the potential to become flexible ‘business hubs’, operating independently and providing a full range of services to the business community.
32.
By introducing such innovations as Post Bank to Northern Ireland, there is the potential to reenergise the small business sector. If Northern Ireland is to meet its targets for growing its tourist industry, for example, it must have the infrastructure in place to support the resulting growth in small business numbers, and their requirements.
Sectoral Targets
33.
Clearly there are sectors with significant growth potential, in which assistance should be maximised. For example the food manufacturing sector has continued to grow and many companies in this sector have demonstrated an innovative approach towards product development and seeking additional export markets.
34.
Similarly, Northern Ireland possesses considerable technology-led capabilities in areas such as IT, marine and environmental technology, advanced manufacturing and life sciences. These are also target areas for the IDA Ireland (Industrial Development Agency), which has enjoyed considerable success to date, and Northern Ireland must consider these as high priority areas within the context of an Enterprise Zone to deliver significant growth in the years ahead. Such growing and vibrant sectors, in turn, benefit the wider small business sector through sub-contracting opportunities and other supply services – again, generating a ‘trickle down’ effect. This also stimulates business start ups and, through the sharing of technical and commercial knowledge, improves the enterprise capability of the local community.
35.
As well as these ‘new’ sectors there are a considerable number of small businesses in Northern Ireland, often family owned, who do not exploit the potential to expand their sales opportunities, principally through exporting and modernising their business practices. Whilst considerable support already exists to work with these businesses, principally through the Invest NI with the support of DEL (Dept of Employment and Learning) management and leadership programmes, this area can be further developed with options such as making online learning and Continuous Professional Development more accessible to micro and small businesses, subject to rigorous evaluation and improvement.
36.
The local retail sector should not be overlooked in the context of an Enterprise Zone. It provides a significant proportion of those in employment, considerable training and development opportunities for young people, and the sector is vital not only in the context of serving the indigenous population, but in the context of being an important element in the drive to increase tourist numbers, and provide a route to market for local products.
37.
Given the expected reductions in resources available for projects such as town centre regeneration through the Department of Social Development, an Enterprise Zone could maintain the momentum towards improving local town centres, improving the balance between these and out of town retail parks.
Energy Costs
38.
One of the main emerging threats to the success of any Enterprise Zone concept is the seemingly ever increasing rise in energy costs. Already there is real concern amongst small businesses that this is an area fast running out of control and from an inward investment perspective this, in itself, is fast becoming a disincentive.
39.
The report published in January 2011, "The impact of CRC Legislation on Northern Ireland", forecasts that the impact of introducing the new Carbon Reduction Commitment Energy Efficiency scheme could double energy costs for businesses within five years. This is simply unsustainable for the majority of businesses and itself has the potential to nullify the positive benefits within the context of an enterprise zone.
Costs
40.
There will be an inevitable cost to implementing many of the elements of an Enterprise Zone. There have been suggestions, for example, that the costs associated with a reduction of the Corporation Tax rates will negatively affect the community to the benefit of business and industry. This is to believe that the two are mutually exclusive and for one to benefit, the other must suffer. In reality, businesses are the lifeblood of communities, creating employment and generating wealth and well-being. Small businesses will thrive in an environment of increased FDI, benefitting directly from subcontracting etc and indirectly through greater consumer spending and increased confidence.
41.
In short, it is the community who will reap the benefits from a greater emphasis on enterprise. However it is only by taking radical steps and thinking for the long term that meaningful change will happen.
For how long should an Enterprise Zone Operate?
42.
The FSB is of the view that there should be no specific time limit on the operation of an Enterprise Zone, but rather GVA and employment targets set. A time limit associated with a lower rate of Corporation Tax would significantly reduce its effectiveness, and lead to the dominance of potential "brass-plating" as the main aim of large companies, as they would be less inclined to consider Northern Ireland as a permanent European or UK base. Instead, an Enterprise Zone should be the catalyst that transforms economic prospects and delivers a cultural change in Northern Ireland’s workforce and global reputation.
Examples of Good Practice
43.
There are many examples of the successes of Enterprise Zones throughout the world. For example, in California, a number of such zones were created; based on incentives such as:
·
Hiring credits for qualified employees
·
Sales tax credits for the purchase of plant and machinery
·
Assistance for banks that give zone business loans
·
Tax deductions and upfront capital allowances for certain property transactions and improvements
44.
France has created a number of Zones Franche Urbaines, in which small and micro businesses in 100 areas are eligible for exemption from employers' social security contributions, profits tax, business tax and real-estate tax. The benefits include exemption from:
·
de l'impôt sur les bénéfices ;
Tax on profits;
·
Business tax
·
Employers' National Insurance Contributions (equivalent) for the portion of the monthly wage for employees earning less than 1.5 times the minimum wage
·
Personal NI Contributions for craftsmen or merchants
·
Property tax for properties located in built
ZFU
s whose activity is within the scope of those permitted by the Act
The Roles of UK Government and Northern Ireland Executive
45.
Many of the key elements are already within the powers of the Northern Ireland Executive, through departments such as DETI, DEL and DOE. There is already an economic sub-group, formed by the Executive Ministers, and this should be the responsible body rather than creating another, separate committee. It should be aided and advised by specialists to implement the necessary powers and by business representatives who can advise on the potential practical outworkings of proposals.
46.
It will clearly be necessary for the UK Government to be a key player in any Corporation Tax reduction, and the FSB in Northern Ireland would welcome the opportunity to provide information on the impact and benefits for members. Beyond reducing Corporation Tax, there is clearly a central role for the UK Government to work in tandem with the NI Assembly and Executive. The past generation in Northern Ireland has seen a terrible conflict and destruction of value. Latterly, the situation has seen dramatic political transformation, but economic change has been elusive. The establishment of a generously conceived and resourced Enterprise Zone, with a long term objective of economic transformation and cultural change is a colossal challenge but one which must be seized for the good of the people of Northern Ireland and for the wider benefit of stability throughout the whole of the UK and Ireland.
47.
In conclusion, the FSB in Northern Ireland welcomes this opportunity to have been able to highlight some of the facets of a potential Enterprise Zone for Northern Ireland. We would be very happy to appear in front of the Northern Ireland Affairs Committee to expand upon these if it is felt that this would be beneficial.
21 January 2011
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