Northern Ireland as an enterprize zone

Written evidence from Invest NI

(a) How does an enterprise zone operate?

The way in which an Enterprise Zone (EZ) will operate is dependent on the criteria used and objectives set at the time of its establishment. However, in general terms, the creation of an EZ would be to enable businesses locating within it to benefit from preferential rates and other benefits. These may include lower taxation rates, lower property costs, access to specific infrastructure benefits etc.

An Enterprise Zone concept could therefore be used to address a range of issues including:

· To accelerate sub regional growth

· To cluster targeted sectors

· To attract new FDI

· To support early businesses

(b) Why should Northern Ireland be declared an enterprise zone?

Consideration is already being given to lowering the rate of corporation tax in Northern Ireland. Notwithstanding the outcome of such considerations, Invest NI would support NI being given EZ status as this could facilitate the application of a range of tax options that would stimulate the economy. These could include tax credits (e.g. for TV drama production; marketing; training; capital allowances). Recently, political parties and commentators have pointed to the continuing differential between the GB and NI economies in terms of Gross Value Added and also in terms of the public / private sector split. The argument is that a "boost" to enterprise should be given through an approach targeted on encouraging both indigenous and Foreign Direct Investment (FDI) through such enterprise zone - based incentives. While there appears to be strong cross party support in the NI Assembly for the concept of NI as an Enterprise Zone, there may be variation in the specific understanding of what that entails. However, if the incentives were sufficiently attractive, an EZ with specific fiscal benefits could allow Northern Ireland to compete effectively with other areas having a lower corporation tax rate.

(c) What should be included in any enterprise zone proposals?

Proposals for inclusion in an Enterprise Zone should be those that can be used to encourage companies to either locate in or expand in Northern Ireland, an example of which could be tax benefits such as capital allowances. Most manufacturing FDI into Northern Ireland comes through expansions and existing manufacturing investors could be encouraged to take advantage of such a benefit, particularly if all of NI was made an EZ rather than just specific areas.

While various commentators have focused on the corporation taxation issue there are other options which could be considered, including:

· SMEs attracting lower taxation rates than large companies

· Lower property costs, including rent in Enterprise NI premises

· Specific benefits in terms of grants or tax credits for investment in certain areas eg: R&D tax credits / training grants etc.

· Support for specific sectors.

(d) Are these proposals aimed at any particular sectors?

Enterprise Zones may be cross sectoral or sectoral, depending on the key sectoral objectives of both indigenous company development and FDI.

(e) Is there a priority as to what should be included?

Invest NI would strongly support Northern Ireland being made an Enterprise Zone. If this were the case, Invest NI's focus would be on those target areas identified in its Corporate Plan, and it would therefore be important to include options which would encourage both the development of indigenous business and the attraction of new inward investment. In determining which specific tax benefits should be ascribed to the EZ, consideration should be given to the tax benefits that would further enhance the sectors in which NI already has an international competitive advantage as there is little to be gained by offering tax advantages that will only enhance sectors in which NI cannot demonstrate a competitive business proposition.

(f) How long should the enterprise zone operate for and what aspects might be made permanent?

Given that companies are seeking stability in tax rates when they are assessing location options, the EZ should be established for 10 - 15 years.  Any shorter period provides no certainty for companies of the proposed benefit and undermines the very purpose of the initiative. However, given a dynamic economic environment, "permanency" seems inappropriate without reviews being undertaken at appropriate intervals.

(g) Which aspects would be the responsibility of the UK Government and which would be the responsibility of the NI Executive?

It is assumed that the UK government would agree costs within the context of the block grant and it would then be up to the NI Executive to decide how to allocate incentives / budget.

(h) What worked well, and what did not work well, when there were enterprise zones previously in Northern Ireland?

Previous EZs in Northern Ireland were focused on offering advantageous property rates and largely resulted in the development of hotels and warehousing facilities. As such, they achieved limited success in terms of stimulating and expanding economic development throughout Northern Ireland. Should a decision be taken to re-establish the Enterprise Zone provision in Northern Ireland, it would be essential to make all of NI an EZ, to ensure that significant displacement was not an unintended consequence of the initiative.

It would also be essential that the EZ operated strictly within agreed policies and that robust monitoring is carried out to ensure compliance with the established policy guidelines and that specific objectives are being met.

(i) What lessons can we learn from enterprise zones, or similar initiatives to try and stimulate enterprise, in other countries?

Commentators have looked to the packages of measures used by governments in countries such as ROI, India and Israel. There is evidence that a coordinated, multi-layered approach which includes a "basket" of ideas and incentives is the best approach. For example, targeting incentives at a particular sector and developing a skills policy to complement this, as in India’s approach to IT, or Ireland’s approach to Financial Services.

21 January 2011