Corporation Tax - Northern Ireland Affairs Committee Contents

Examination of Witnesses (Questions 32-54)

Q32 Chair: Welcome to the Committee. I think you heard all of that evidence?

Jeremy Fitch: I have, thank you very much. Yes.

Chair: You heard my introduction then, saying how important this issue is, so you are very welcome and we are very pleased that you were able to join us today. I wonder if you could perhaps introduce yourself and maybe briefly explain the role of Invest Northern Ireland?

Jeremy Fitch: Okay. Invest Northern Ireland is a non­departmental public body. It is sponsored by the Department of Enterprise, Trade and Investment and it is responsible for the support, development and growth of the Northern Ireland economy, really through three channels. One is to take the existing businesses in Northern Ireland, whether they are indigenous or externally owned, and encourage them to become more competitive through research and development, through training or through capital and employment assistance. In addition to that, we will encourage a spirit of entrepreneurship in Northern Ireland by encouraging local new starts, specifically those that are focused on markets outside of Northern Ireland. Thirdly, Invest Northern Ireland has a responsibility for attracting new inward investment into Northern Ireland. My specific role and my area of expertise is in inward investment. My role is Managing Director of Business International and the Clients Group, so it is both attracting new first time investment into Northern Ireland and then the Clients Group encompasses the existing clients that are already located in Northern Ireland; developing relationships with them and encouraging then to invest further.

Q33 Chair: Thank you. In terms of your work then, you perhaps could explain to what degree you get frustrated by the fact that the corporation tax is so much lower in the South. What effect does that have on the decision making of companies who might want to come to the island of Ireland? I know you cannot put numbers on it, but can you give us some idea of the extent of the problem?

Jeremy Fitch: Okay. Yes, I look enviously to what the Republic of Ireland has on the corporation tax side. If I am being asked whether it would make a significant difference: definitely; absolutely it would make a significant difference to promoting Northern Ireland as an investment location. The reason that I say that is that it immediately allows us to target a larger market. At the moment, the market that we target for inward investment is constrained. If you think about it, we will target those particular companies where we believe we have a competitive advantage. If a company is looking to make profits and to have a low tax, then we are less competitive than the Republic of Ireland, so our market is immediately reduced. Having a lower corporation tax will allow us to broaden our market and it will give us a more attractive hook to bring those companies to Northern Ireland. So it immediately makes the target market that we are pursuing a lot bigger. Now, the evidence that you can see in that is that in the last five years, in relation to jobs, the Republic of Ireland has an 85% market share compared with our 15% market share of inward investment. It has been aggressive in the way that it has been defending its position and letting companies know that it will be keeping 12.5% corporation tax, despite the economic difficulties that it faces. It was made absolutely apparent last week, when we had the US Northern Ireland Investment Conference hosted by Secretary of State Hilary Clinton, where in the breakout group that I attended, the question was asked about tax. The conclusion was simple—tax matters, period.

As an anecdote, when I first joined the economic development world, I was told of a story where we were at a particular conference and Northern Ireland had a very professional looking stand; they had done a really good job on it. Next to us was the Republic of Ireland, which did not look quite as smart as ours, but someone had pinned up in handwriting—and at that stage it was 10% corporation tax—"Corporation Tax 10%". That is where all the interest was; there was a big queue at that one. So we have always looked enviously, Mr Chairman, at what they have. Someone once said, "The Republic has a tax advantage, and we have the Troubles". Now, that was a few years ago and maybe we will address that particular issue at some point during the questions, but yes, it is something that I would definitely say would make a difference.

Q34 Chair: When you talk about your target audience or your target market, can you say a little bit more about that? How does that then break down? I understand the point that if they are looking for lower tax, then they are going to go south, but how does that influence which countries or which companies you target for inward investment?

Jeremy Fitch: Okay. Well ultimately anyone in a sales role has to put themselves into the mind of the customer: what is the customer looking for? We focus very specifically on target markets. Now, most inward investment is driven by a desire to increase sales or to service customers. On this particular issue, because Northern Ireland has a small indigenous market, we are disadvantaged in that. If you are looking to companies who are going to service Europe, we are relatively peripheral to the rest of Europe, so that is another disadvantage. Another reason for inward investment is through joint ventures or mergers. Now, we have quite a small private sector in Northern Ireland, so again, there is quite a small market for that.

So we have tried to look at, "What are we good at? Where do we have a competitive advantage and where can we win those projects?" It falls down to three or four criteria. Bottom line, the key resource that we have is our people—a talented, well­educated and available work force. Consistently, inward investors to Northern Ireland cite that as the primary reason why they came to Northern Ireland. The other ways that we will focus our market—I mentioned this to some of you before at Hillsborough—is what we call our six Cs. They are, first of all, where are we culturally compatible? The previous witnesses talked about being English speaking or having a time zone overlap—cultural compatibility. Basically what businesses are looking for is: "Where is it easy to do business? Where will that save me costs? Where is it less complex? Where can I be slicker?" So we are talking about being culturally compatible, being close to customer, being a near­shore solution to western Europe and being cost competitive.

Maybe an example is the best way of illustrating this. I think it is the example I used at Hillsborough as well, so forgive me for using it again. In 2001, an Indian business process outsourcing company called HCL bought a BT contact centre in Belfast. At that time, the BT contact centre employed about 375 people. If we were being honest with ourselves, we thought all those jobs were going to go east; they were going to go to India to a contact centre. How could we compete? Today, HCL has two sites in Northern Ireland and employs more than 1,000 people—the figure has risen to 1,400 at some stages, but it fluctuates. We had a good look at why this happened. The reason was that Indian companies no longer wanted just to be Indian companies; they wanted to be global. So they needed to be near to their customers in western Europe; they needed to have a cost competitive base in western Europe and Northern Ireland was a good place to do it. Then the cultural compatibility issue was also cultural compatibility with those near­shore customers. The cultural compatibility is a very strong reason, particularly with North American clients.

What happens then, Chair, is we segment the market and ask where those criteria fit well. They fit well in a number of specific sectors: ICT and software development, financial services and business services are the three that we would target specifically in our overseas markets. Those three sectors would account for about 80% of the new jobs that we have secured in the past eight years.

Chair: Thank you. Turning to jobs, I call Mr Colvile.

Q35 Oliver Colvile: The Independent Review of Economic Policy in Northern Ireland identified concerns around attracting high­value employment. How successful have you been, and can you estimate the difference a lower corporation tax would make?

Jeremy Fitch: On the issue of higher-value jobs, the period that the independent review covered was prior to our current corporate plan. Our current corporate plan has a specific target to look at higher-value jobs. Previously, there was not a target like that, so in a sense we thought it was a little bit unfair that they criticised us; our target was to get jobs. Everybody said, "Well now we need to look at productivity," and prior to the downturn, productivity became the major issue. So we are focused on that and our target is to try to get about 5,500 new jobs above the private sector median in this three-year period, which is 17% higher than what we did in the previous three-year period. I hope that we will be able to achieve that target by the end of March this year.

Q36 Oliver Colvile: Do you think that the Troubles have actually had an impact on what has been going on?

Jeremy Fitch: In Northern Ireland.

Oliver Colvile: Yes.

Jeremy Fitch: In attracting inward investment it has, but it depends on whom you are talking to. If you are talking to an inward investor who has been in Northern Ireland for a long time, it is less of an issue. If you are talking to someone who knows of Northern Ireland but has never been, it is an issue. Remember that a lot of businesses, if you are putting yourself into the mind of the customer and the investor, want to minimise risk. Even if there is a perceived risk, very often what happens is a lot of companies will employ location consultants and Northern Ireland will rarely get on the shortlist because we are not deemed to be an attractive location for consultants to put on the list.

I will give you an example. There is an old adage; people say, "No one ever got fired for buying IBM." Northern Ireland is not IBM in this scenario. What we find is that if I was to bring a potential investor into Northern Ireland and show them around, usually it is someone at project manager or project director level. Their job is to go out, do all the research and find out what is the best location. They will go back to their board and make a recommendation. You also have to put yourself in that particular individual's shoes; their career is at stake on the recommendation that they make. If there is a risk in the back of their mind that Northern Ireland is not the best location, then, if it is a close call, we will get relegated to second. As someone has said, there are no silver medals in inward investment. So we have to make sure that we give that particular individual the cover, so we have to make sure that we get their chairman or their chief executive to visit Northern Ireland as well. That is the way that we do it. We simply encourage them to come and have a look, talk to the existing investors who are already here, and we find that it generally works. However, it is hard to get them here in the first place. So yes, it has made a difference.

Q37 Chair: On that point, has there been any change recently? Has it got harder or easier recently?

Jeremy Fitch: I grew up in Belfast. I love Northern Ireland and I love the job that I do and certainly the environment that my children are growing up in compared with what I grew up in, it is like a big dark cloud has lifted. I think everybody in Northern Ireland appreciates that and sees that, and they do not want to go back. We have also been fortunate that there has been economic growth over the past 10 or 12 years as well, which has been encouraging. So I think a lot of people see that. The support that we have had from the US administration on this particular issue as well has been absolutely fantastic. To have support from the Secretary of State, Hillary Clinton, and we are the only country in the world that has a special US economic envoy in Declan Kelly. To have that conference last week makes an absolute difference to us. The reason that they are interested in supporting us is because they see Northern Ireland's political story as a success story. They are interested in peace around the world and they want to show that as an example around the world. So inward investment is important to cementing that particular process.

Q38 Oliver Colvile: Obviously here, and most certainly in my patch, we have had real difficulty in getting the banks to lend to the small businesses. Is that the same problem as well in Northern Ireland? Have you had real difficulty getting the banks to actually—

Jeremy Fitch: I do not have statistics right across the board, but anecdotally, I am aware of some companies experiencing difficulties. I think the difficulties that are experienced in Northern Ireland are similar to the rest of the United Kingdom. We are aware, when we are tracking the grant claims that come in; there has been slippage in particular grant claims being made because those investment programmes have not been able to be implemented because the bank funding has not been secured.

Chair: Ian Paisley.

Q39 Ian Paisley: Your evidence suggested that the tax could help create something like 64,000 new jobs over 20 years. The organisation we have just heard from estimated that growth to be nearer 90,000 and we have seen other suggestions that it could be more than 100,000. Some 64,000 jobs would equate to where we are at the moment; about 3,000 to 3,500 jobs every year for the next 20 years. So where is the real bounce on this, Jeremy? Where are we going to get the significant growth? You and I have knocked some interesting doors in the past. I remember being in Donald Trump's office with you one day. It would have been nice to be able to say, "We have the lowest tax rate in Europe." Would this have made the difference? Do you see companies operating in the Republic of Ireland today that you know in your heart of hearts could actually have been in Ulster?

Jeremy Fitch: Absolutely. As I said at the start, the target market that we can go after is reduced because we are not competitive in that particular area of tax. If companies are looking for that, we cannot compete. In relation to the estimates of the benefit, it is difficult to predict with any certainty the practical impact that 12.5% will have. You can see that in the different estimates. The 3,200 that we have put into our paper is additional to what we are already doing. It fluctuates a little bit, probably between 2,500 and 4,000 on an annual basis. So we are saying that the 3,200 is additional to what we are already doing. Now, I must say that the Economic Reform Group's model is a lot more sophisticated than our own, but all that we did was just to try to get a flavour of the rough size of this. All we did was we took all of the investment into Ireland and simply prorated it on a population basis and that would be the additional amount that we would get.

If I could, I have jotted down some points of where we are different. So the Economic Reform Group correctly excludes acquisitions and mergers, because if it is just a pure takeover, then there is no net economic benefit; it is just a change of ownership. As does ours; ours excludes that. The Economic Reform Group correctly excludes activities focusing on local markets, as does ours. So basically retailers coming in and doing that; we have not included that. Economic Reform Group excludes reinvestment by existing companies; ours does not. Now, theirs is more accurate than ours on that basis, so in a sense, our 3,200 for that one could be overstated. What we are saying there is that the South already has a very strong cadre of existing investors; stronger probably than what we have. So we are assuming that we would get an equal amount; that is probably not the case. Ours assumes similar economies. So it could overstate by not accounting for firms that are going into Ireland specifically because they want to be in the eurozone or seeking to locate in a capital city of a sovereign state. So there are a number of assumptions and a number of differences there, but it is a broad brush; we are trying to get some sort of feel of what the difference would be.

Chair: Naomi Long.

Q40 Naomi Long: I want to ask a couple of things. You mentioned the issue of the Eurozone. In terms of the companies that you would be pursuing for FDI in Northern Ireland, how much of an issue is the eurozone for them when you are dealing with them about potentially coming to Northern Ireland? To what extent do they look at the island of Ireland, if you like, as a whole, and then see the differential rate in corporation tax as a disincentive for Northern Ireland, having already in their mind made the decision that in terms of the profile of the work force and all of those other things that the island is the right place, but Northern Ireland then gets excluded almost at the last hurdle? To what degree is that an issue?

Jeremy Fitch: Okay. I will take the eurozone question first. Largely people are aware that when they are looking at Northern Ireland, they are looking at sterling, so it has not been a major issue. Because of the way that we target our markets, we are effectively targeting cost centres rather than profit centres; so functions that can be established and it is just the cost that is allocated. So the issue that arises with the eurozone is just if the exchange rates change. Now generally it will just be between sterling and say the dollar; that is probably more of an issue. If the eurozone changes between the dollar, it is trying to say comparatively how much more or less competitive do we become as a result of those exchange rate fluctuations? So even if we move to the eurozone, then there would be an immediate counter: "How does Northern Ireland compare with other currencies as well?" if you are looking at the US market.

With regard to the tax rate, they get there at the last hurdle and there are varying degrees of understanding. We all assume that everybody knows the detail, but there are a lot of people that we talk to who are very unfamiliar with the politics, or even that Ireland is not one country; they do not see it is two and it is only as they come to visit that they start to understand some of those differences. So a lot of the things that we take for granted are not the case. Because we are targeting the type of companies that we want to go after, we find that we are eliminating at the front end the ones that would be looking for 12.5% corporation tax. So I guess like any good process, the quality control is going to take out any wastage at the front, rather than go through the whole process and discover you have a problem at the end. That is what we are trying to do by focusing on segmenting and targeting our marketing.

Q41 Naomi Long: Chair, the reason that I raised the issue was because I met recently with a company from China who were looking at investment in Northern Ireland and it was at an early stage; when they came they were basically on a fact finding. For them, it was an issue that they were raising with us when we were having the discussions with them.

Jeremy Fitch: I am familiar with the particular company you are talking about and they were coming, in a sense, proactively to us. We find that if we are segmenting and targeting our market, we do not have that problem as much, but we welcome any companies coming and having a look at Northern Ireland.

Chair: Mr Stride.

Q42 Mel Stride: I just want to come back to this issue of potential migration of businesses from the rest of the UK into Northern Ireland. I think I am right in saying that in the previous evidence session, Mr Donaghy suggested that it would be unlikely that this would be a major factor in what would happen if we lowered the tax rates. Yet, when you were going through the kind of things that you were looking for in terms of targeting businesses, you mentioned cultural compatibility, proximity to market and so on, and those would seem to me to be things that you are going to find in abundance in the rest of the UK. So would you agree with Mr Donaghy's comment there, or would you take a different view?

Jeremy Fitch: I think of Mr Donaghy's comment about how do you balance it and I like the idea that they are proposing that if the Revenue see particular tax claims coming in and there is not a balanced or pro rata employment level, so if the profits that are being attributed in Northern Ireland do not compare equally to the employment levels that they have in Northern Ireland, then that flags an issue for the Revenue and that is a way to deal with it.

On the issue of the displacement, there are strict rules within state aid and within the UK Government about jobs moving within regions. So for example, we do get a significant amount of investment from GB, but we cannot use UK taxpayers' money to bid for those projects unless there is a threat of those projects being lost to the UK economy. So if a company just wants to move from Liverpool to Belfast and they say, "We are just moving," we cannot assist it. But if they were to say to us, "We are looking at all of the options"—say they were in south-east England or something like that—"and we are seriously considering Eastern Europe," UK taxpayers' money can be used to keep that investment in the UK and if we do the economic efficiency tests to verify that the UK taxpayer gets a good return on his money, then we can support those projects.

Q43 Mel Stride: Sorry, Chair. This is the approach that pertains now, under current arrangements.

Jeremy Fitch: That is correct.

Mel Stride: Say we were in the new world of the 12.5% rate, would you not expect that the rest of the UK would be a significant target market for you to migrate businesses from the rest of the UK into Northern Ireland?

Jeremy Fitch: In the sense that if you have a 12.5% tax rate, you are allowing market forces to prevail at that point. The counter would be that the Revenue has a way of trying to balance it. One of the issues that we face is that the state aid rules that the previous witnesses referred to are changing. So in a sense our hands are going to be significantly more tied come the 1 January 2011 and all that we will be able to do is promote the actual benefits of Northern Ireland rather than offer as much financial assistance.

Chair: Mr Williamson.

Q44 Gavin Williamson: Mr Fitch, you probably cannot answer this totally accurately, but how much would you say Invest Northern Ireland has to spend in order to generate a job in Northern Ireland?

Jeremy Fitch: I can answer it. In the last eight years in inward investment, we have paid about £367 million to attract in or safeguard 35,114 jobs. On average, it works out at about £10,500 per job in assistance. In addition to that, we have a marketing budget for our overseas offices of about £5 million a year, which is there for the overseas operations and the sales teams.

Q45 Gavin Williamson: Right. Obviously, if you take the figures that you have put forward of 64,000 jobs and assuming that is 3,200 per annum, and then the cost per annum is £215 million, effectively that in some ways is a subsidy of £67,000 per job created, is it not?

Jeremy Fitch: Sorry, I do not understand where the £67,000 is coming from.

Gavin Williamson: Well, I suppose this is where my slightly bad GCSE maths probably starts to show, but £250 million per year is effectively costing in terms of tax cuts, isn't it, by reducing corporation tax to 12.5%?

Jeremy Fitch: Well that is the question that I do not know the answer to. What I would say to the Committee, because it is a point I meant to get across at the start but didn't, is that yes, this would make an absolute difference to us, but the element Invest Northern Ireland is not familiar with or does not know the detail on is the cost. Before a final decision is taken, we need to know, if we are going to make an investment, what the cost of that investment is. We do not know that at the moment.

Q46 Gavin Williamson: I believe the estimated cost is £215 million, which, if we took your figures, would be £67,000 per job created in a year, or £47,000 per job created if you used the higher figure from the Economic Reform Group of 90,000. I suppose one question would be, could you do a lot with £67,000 if you had to create an extra job per £67,000?

Jeremy Fitch: On the basis that we are creating and safeguarding jobs at the moment, the average cost per job is £10,500.

Gavin Williamson: Yes.

Jeremy Fitch: I cannot do the mental arithmetic, so—

Q47 Gavin Williamson: No, no, and it is a bit unfair. I was desperately working with the benefit of my calculator. But I suppose it was just a question and I thought the £10,000 figure was interesting.

Jeremy Fitch: Well that is the benchmark. The benchmark is £10,500 per job is what we have been putting in.

Gavin Williamson: Okay.

Chair: Okay, Naomi Long.

Q48 Naomi Long: Just on that last point, though it is a slightly different mechanism for attracting employment, and I think that is the issue, if this was an ongoing subsidy that was going to cost the £200 million in every year, that would be a different debate. The idea is that £215 million is your initial hit and then as you grow the economy, your actual take back is more significant; it is a smaller proportion of the profits made but the profits that you are drawing on grow. So the idea is not that you would be constantly out of pocket by that amount; that is the difference between the £10,000 subsidy, I would imagine, because that is something that, if things stay as they are, you would at least have to continue with a subsidy of that level to attract in those jobs, whereas this would be a step change in how you would be able to get actual companies to come in and generate income. So I think this is slightly different combination involved.

Jeremy Fitch: That is absolutely the correct point to make, because in a sense you can use £10,000 per job on average but there comes a point where there are diminishing marginal returns. I think the point that a lot of us want to make is that we have always consistently got a similar amount of investment, say it is between 2,500 and 4,000 jobs every year in inward investment. If you want to have a step change then there has to be a paradigm shift of some description. It is not as if, if you had so many more blocks of £10,000, would we be able to get all of those extra jobs? I do not think so, because we have not been able to in the past.

Chair: Okay, let us move on a little bit. David Simpson.

Q49 David Simpson: Jeremy, I do not know whether you read the article yesterday in the Belfast Telegraph by the economist John Simpson—all these economists are fantastic guys—where he advocates a 19% rate, which would be a lot easier managed. That is one for another debate, but it is a very interesting article. The former guys might not agree with that, but that is one of the points that he put across. In relation to European aid, which is obviously going to be diminished, how will that affect your overall job of creating new investment in the area? Secondly, in relation to the economy and how bad things are at the moment across the United Kingdom, have you any insight to any companies that wish to pull up sticks from Northern Ireland and go to the Republic of Ireland?

Jeremy Fitch: Okay. I may just come back on the 19% point very quickly. An issue about the 12.5% is it just makes us the same as the Republic. It does not give us the competitive advantage; it just makes us the same. That is all I will say on that; it just makes us the same.

The SFA changes are what keep me awake at night at the moment; that is my big fear. At the moment, the state aid rules allow companies in specific regions within the UK, of which Northern Ireland is one, to offer a contribution towards eligible investment costs. So at the moment for large companies, all of Northern Ireland can offer 30%. On average, we are probably doing about 20%; we are trying to get the best value for taxpayers' money, so we are not using the full 30%, just 20%. From the first of January, that drops for large companies in Belfast to 10% and for the rest of Northern Ireland to 15%. So our armoury for going out to win inward investment is going to be severely damaged come the first of January.

Your other question was whether, with the economy, there are companies wanting to up sticks at the moment. I think on that particular issue, companies want to make money. They will go where they can increase their revenues or they can reduce their costs. If it does not make business sense, they will be looking around for other locations. I was very encouraged last week at the conference that we had with the number of Chief Executives—not just Directors, but Chief Executives—of multinational US companies that went around that table and said they were pleased with their experience of doing business in Northern Ireland. That was a great endorsement to have and I think it reinforces the point that I made earlier. If we can get companies to come and have a look, underlying everything else, there is quite a strong proposition. The 12.5% is not the silver bullet to everything, because you need to have the skills there, you need to have an infrastructure there; telecoms, a transport infrastructure; and you need to have all of those other things in place to win the business as well, but as I said before, it would make a big difference.

Q50 David Simpson: Just to finish, Chair, are you aware of any companies in Northern Ireland that have brass plated in the south of Ireland?

Jeremy Fitch: Well there are a few—I cannot name any specifically, but I am aware of three or four that have from GB to the Republic of Ireland. We are also aware, if you think about it, of Northern Ireland indigenous companies, when they start to be successful and become profitable, that they will say to us, "How can you help us to be competitive in Northern Ireland compared with the Republic?" Basically, their business becomes mobile at that point. So if you are in Londonderry, for example, you are five minutes from the border. If you are in Newry, you are five minutes from the border. If you are in Belfast, you are 45 minutes from the border. So it is not far and that has become a big issue. There are companies that are saying to us, "Look guys, it is no longer competitive for us to do this, so how can you, Invest Northern Ireland, help in this particular scenario?"

Q51 David Simpson: I think, Chair, we saw that in the past with transport companies, where they have registered vehicles in the south of Ireland and are refuelling in the south of Ireland and taxing their vehicles there, because obviously there are lower rates, some of them are brass plating. So it is a major issue when you have a land border; there is no doubt about this.

Jeremy Fitch: Absolutely, yes.

Chair: Okay. Mr Stride.

Q52 Mel Stride: Just looking at the target markets that you were talking about—ICT, financial services and business services types of companies—if we have a reduced tax rate, we are in that world with 12.5% and have done what we want here, do you see that as applying just to new entrants into Northern Ireland or do you see that for all those businesses in those areas? What sort of tensions and problems do you see there?

Jeremy Fitch: Well, it is a good point. If I could maybe answer it in reverse, we have a lot of existing investors that have made a big difference to Northern Ireland. I think if 12.5% was to be brought in and something was put in then to try to penalise some of the existing investors—say, for example, an increase in business rates—then all that would do is make the cost base for the existing investors that are there as a cost centre just more expensive and make Northern Ireland less competitive. I know that is answering your question maybe a little bit the wrong way round, but it is a big issue for us. We get a lot of investment and a lot of jobs from the people who are already here and like any good business, you want to look after your existing customers, so we would want to make sure that they are looked after and that their investment continues to grow.

With regard to the new companies, what we find encouraging is that with some of the existing investors, once they come to Northern Ireland, we can encourage them to look at other functions. So they have already got a footprint here; Citigroup, for example, when it came to Northern Ireland, came to do financial services and IT. Now they do some back office operations and they also do some legal and compliance. Allstate has expanded into other functions. Caterpillar, which has a manufacturing operation in Northern Ireland, has recently opened a financial services and sales and marketing centre in Northern Ireland for Europe, to look after those particular areas. So I think it would allow us to go back to those multinationals and say, "What other functions do you have that would make good business sense for you to locate in Northern Ireland now that we have this advantage?"

Q53 Mel Stride: Thank you. When you look at the make-up in terms of businesses in Northern Ireland, you obviously have a very large public sector and you have a small private sector.

Jeremy Fitch: That is correct.

Mel Stride: As I understand it, if you were to take the top dozen businesses there, they would account for quite a large slice of that, and then you have a very large number of small businesses, employing small numbers of people. What would you say to the argument that says that those kinds of businesses are going to be less favourably affected by a corporation tax change because they are making smallish profits, so the advantage of lower tax is not as great as perhaps for a large company? They are employing relatively large numbers of people even though they are small, so payroll taxes are probably as important, if not more important. Is that an area that you can comment on?

Jeremy Fitch: I do not see it as a specific threat, because I do not see the situation getting any worse for them. If they have set up their operation to neutralise the tax effect, then the tax effect is largely less important for them. I come back to the previous answer: it might allow them to bring in some functions that do have a profit attribute to them, but largely, if the 12.5% comes in, it is not going to make any big difference unless there was some counterbalance to say, "We need to try to raise revenues in other areas," and that would make it more costly for them; for example, rates.

You are absolutely right. If I could give just some statistics for the importance of the international companies in Northern Ireland. Northern Ireland is largely regarded as a small business economy, because the vast majority of businesses that we have have fewer than 10 people, by a long way. In Invest Northern Ireland, we have 2,500 client companies; the companies that are largely focusing on exports and running business outside Northern Ireland. Of those 2,500 about 160 are internationally owned. Only 160; about 6%. They account for nearly 50% of the employment, over 50% of the sales, 50% of the research and development spend and over 70% of the exports; just that 6%. So yes, we are a small business economy, and it is important to focus on that and build that too, but the engine house of what is going on in Northern Ireland is also the international and we have to make sure that we look after those companies too.

Q54 Mel Stride: Okay. Final question from me on this: the Secretary of State has mentioned in the past potentially making Northern Ireland an Enterprise Zone. What would you understand that to mean in terms of the things that would be useful for the Province?

Jeremy Fitch: Well, it would be helpful to have a more detailed explanation of what different people mean by an Enterprise Zone, because it is quite broad. There were Enterprise Zones in the past in Northern Ireland in the early 1980s, where certain sections of Northern Ireland were given Enterprise Zone status. My understanding of that is that there was just displacement; that one business moved to another business and there was no net effect for Northern Ireland as a whole. So I think if we were to look at Enterprise Zones, it would need to be Northern Ireland as a whole, would be the first point. The second point is, does it make some of the changes that we would bring in temporary? The point the previous witnesses made was that if you want a business to come in for corporation tax, it needs to be pretty certain for a longer period of time; that they know that if they are going to make an investment for, say, 10 years, they will have that benefit for the 10 years.

On a positive front, though, are there other mechanisms that we could use that would be beneficial to Northern Ireland? For example, we have HBO filming in Northern Ireland doing a television series called Game of Thrones. This is magnificent for us; it is just fantastic, because if we want to build a creative media sector, it is difficult to do it via films that come and go, but if you have a company of HBO's status that comes in and does a number of series, then you can build a cluster around that. Now, one of the issues that we face in the UK is that there is a tax credit for film but not for television drama production. The Republic of Ireland has that tax credit for television drama. So we want to make sure that companies like HBO come in and do TV drama in Northern Ireland, but if an Enterprise Zone status allowed us to have that sort of mechanism and put that sort of change in place, that would be wonderful.

Chair: Thank you. Any final questions? Okay, I think you have answered everything we wanted to ask you. Thank you very much for your evidence.

Jeremy Fitch: Thank you very much.

Chair: Thank you.

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