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.
|
