Examination of Witnesses (Questions 118-164)
Q118 Chair: Good afternoon. May
I apologise for the delay in inviting you to come into the room?
We were slightly delayed by a vote, as Sammy will know. Thank
you very much for joining us. May I ask you to briefly introduce
yourselves and your team, and to give a very brief introduction
to your responsibilities in Northern Ireland? We are probably
familiar, but there are one or two new members of the Committee.
Sammy Wilson: Being a gentleman,
I am going to offer Arlene the opportunity to go first.
Arlene Foster: There is a first
time for everything! I am delighted to be here. I am Arlene Foster,
Minister of Enterprise, Trade and Investment. I deal, obviously,
with enterprise and investment, but also with energy policy, tourism
and telecoms in Northern Ireland.
Sammy Wilson: I am Sammy Wilson
and I am responsible for the Department of Finance and Personnel.
The main responsibilities are to look at the budgets for Northern
Ireland. I also have responsibility for the land and property
services, which deal with rates, land valuations and so on.
Q119 Chair: And your officials?
Sammy Wilson: Bill Pauley from
my Department.
Arlene Foster: David Thomson,
Deputy Secretary at DETI.
Q120 Chair: Thank you. As you
are aware, the inquiry is specifically about the different rates
of corporation tax in the UK and Ireland and the impact that has
on Northern Ireland. The background is what might be described
as the underperforming private sector in Northern Ireland. We
are very familiar, of course, with the impact that the Troubles
have had. Could you give us a little background to what you are
both doing, regardless of tax rates, to try to stimulate the economy
in Northern Ireland?
Sammy Wilson: Maybe I could start
off in response to that question. The Programme for Government
in Northern Ireland has set out a number of objectives and things
that we wish to achieve. The major objective, and the first priority
of those objectives, is growing the economy, particularly the
private sector. Strategically, the Budget, whether it is capital
investment or how we allocate our current expenditure, is designed
to achieve that objective, including looking at what our infrastructure
needs are as far as capital expenditure is concerned.
A lot of money has gone on the road network,
on building the IT network and on tourist infrastructure—things
where we believe that we do have opportunities to grow the economy
if the infrastructure were in place. In terms of the resource
expenditure or current expenditure, there has been heavy emphasis—Arlene
can say more about this—on, first of all, attracting firms
to Northern Ireland, increasing the productivity of existing firms
and on building the skills within the labour market. We in Northern
Ireland now have more than 50% of young people going to university.
We also have heavy investment in training and FE colleges and
so on. In those kinds of ways, we are seeking to change the structure
of the economy in Northern Ireland.
Arlene Foster: In relation to
attracting foreign direct investment, our proposition at present
relates to skills, having the right people for the job and matching
people to the needs of the companies that are interested in coming
to Northern Ireland. The fact that we have a lower cost base in
respect of wages and properties is a good selling point. Our near
shore to Europe and our geographic position between America and
Asia is always a good selling point, as is the quality of our
people. Those are the things that we have been concentrating on.
We have also increased our innovation and research
and development spend by about 130%, I think, from 2007-08 to
now. That needed to be done. We have quite a low rate of innovation
in Northern Ireland, so we are behind on that and really need
to get more firms to spend money on innovation and research and
development. Getting them to see it not as a cost, but as an investment
in their company that will bear fruit in the future is a challenge.
I accept that it is a challenge, but it is one that we need to
meet, because it will produce benefits in the future, not least
in productivity. Sammy has mentioned the Programme for Government.
In that we very much set out a target to close the gap in productivity
between ourselves and the rest of the United Kingdom, excepting
the greater South-East. Unfortunately, we have not been able to
do that to date.
Q121 Mel Stride: Welcome. Thank
you for coming to see us. "The Independent Review of Economic
Policy" had some concerns about the capacity for policy making
and governance and also the performance of Invest Northern Ireland.
Can you tell us a little about the steps that you are taking—and
will be taking—to address those concerns going forward?
Arlene Foster: Yes. I commissioned
"The Independent Review of Economic Policy" and I accepted
all but two of its 58 recommendations. One of the two recommendations
that I did not accept was on venture capital. I cannot recall
the other one. Essentially, it was accepted in its totality. Because
of that there is an Invest Northern Ireland programme of change
going on at the moment. It is called the Transform Programme.
It is about making people a lot more fit for purpose in dealing
with companies. I think that we have seen the benefit of that
already in relation to the innovation spend and in relation to
the number of jobs that have been coming into Northern Ireland.
It is not a case of there not being jobs coming into Northern
Ireland. In fact, we have already exceeded our Programme for Government
target, which was 6,500 jobs. We have now had 6,600 jobs brought
in over the period of the Programme for Government. That productivity
gap is eluding us and is a real difficulty for us.
Q122 Mel Stride: If we specifically
look at Invest NI—we had a session with the IDA recently,
and obviously it has a tremendous track record and some advantages,
not least on corporation tax—are there particular lessons
that we can learn from the IDA in improving how Invest NI operates?
Arlene Foster: One of the ways
that we can make Invest NI fit for purpose—if I were to
accept that it was not fit for purpose—is to have more flexibility
for it in relation to Government. At present, if Invest NI lands
a big piece of work, it has to work with the Department of Finance
and Personnel. There are a lot of hoops to go through to allow
it to be agile. Sammy and myself are looking at ways that we can
make that more agile for Invest NI when it is speaking to people.
Q123 Lady Hermon: When will those
changes come in?
Arlene Foster: They are already
under way, Sylvia. They are already in place.
Sammy Wilson: Let me add to that
one of the issues that I sometimes raise in the Northern Ireland
Assembly and during debates on the Public Accounts Committee reports
and whatnot. We have to get our heads around—there are lots
of pressures on us for this—the fact that, in the public
sector, the over-scrutiny and expectation of those who look at
a decision in hindsight and can easily see the flaws and mistakes
that should have been spotted has increased the degree of caution
and the box-ticking exercises that sometimes happen. Those things
are not obvious when you are making the decision at the time,
and not only do those people identify them, but they are then
overly critical of the decision makers. I think that is what Arlene
was referring to. It makes the process slow and ponderous and,
in a situation where you cannot have too much risk aversion, it
makes people too risk averse in making some of those decisions.
Some opportunities do therefore pass us by.
Q124 Ian Paisley: Very interesting,
but I want to cut right to the chase. In terms of corporation
tax, what discussions have you, as Executive Ministers, had with
the Treasury? What is the overview, and where do you think those
discussions are going, realistically?
Sammy Wilson: I'll take it from
my Department's point of view first, and then Arlene can maybe
take it from hers. After the election, the Secretary of State
made it very clear that one of the things that he saw as being
important—we welcomed this—was that he wanted to help
us, using some of the levers of central Government, to achieve
our ambition of changing the nature of the Northern Ireland economy,
rebalancing it and growing the private sector. Before he took
over the job of Secretary of State, when he was shadow Secretary
of State, he talked about the importance of corporation tax and—this
is a concept that I am still not too clear about—making
all of Northern Ireland an economic or an enterprise zone. Once
the Government took over, he made that a stated objective.
We wanted to work with the Treasury. Some of
those levers may be held at Westminster; some of them may be devolved
to Northern Ireland, so in August we sat down with David Gauke
at Stormont and agreed the terms of reference for the study. One
of those terms of reference was that there will be a very clear
connection between Arlene and me, and the officials in our Departments,
to develop a paper and to talk through the issues in that paper,
so that nothing comes as a surprise and that we think through
some of the issues. I have to say that since then, there has been
no contact at all with Ministers here at Westminster, but there
have been conversations when officials have been updated. There
were no discussions, but they were updated.
Q125 Ian Paisley: Whose fault
was that?
Sammy Wilson: We have certainly
tried to make contact, because we wanted to be part of the process.
One of the reasons given was that the Ministers were tied up with
the whole Budget process until 20 October, which may well have
taken up some of their time. We feel a bit disappointed, especially
given the importance that was attached to the respect agenda,
that there hasn't been that work. We wanted to be engaged in it
and we would have been very happy to engage. We didn't want to
be obstructive about it in any way, but it hasn't happened.
Q126 Chair: Sorry, I just want
to be clear on that. That's a meeting with the Exchequer Ministers,
not the Northern Ireland Ministers?
Sammy Wilson: The Northern Ireland
Ministers were involved as well.
Q127 Chair: Have you made a formal
request for a meeting?
Arlene Foster: Yes, we have. Let's
be very clear about this. The Northern Ireland Office Ministers
are very keen to continue with those discussions, and I do not
think that the delay is with them in any way. Sammy says that
he is a bit disappointed, and I have to say that I am disappointed,
because that initial meeting was very good. We set the terms of
reference and it was made very clear by the Treasury, the Northern
Ireland Office and ourselves that we all wanted to take forward
the paper on rebuilding the economy on a partnership basis, because
there was little point in the devolved Ministers being presented
with a fait accompli when we didn't have a clue as to what was
in the Treasury paper. It was felt that it would be better if
we shared the information right from the beginning. I'm not sure
where we're at with that paper, because we haven't had any engagement
since then.
Q128 Ian Paisley: Do we have clarity
from the Northern Ireland Executive Ministers? With a unitary
voice, do you want a reduction in corporation tax for Northern
Ireland? Is there clarity at your end?
Sammy Wilson: I have to be very
careful in all of these things. First of all, we see it as one
of the tools. On a previous occasion you talked about an arrow
in the quiver, and it is among the arrows that we wish to have,
but we have certain reservations. My biggest reservation at present
is that I do not know what price tag is coming with this. At a
time when we have taken a £4 billion hit on our budget for
the next four years, it would be counter-productive if the price
tag were so high that it displaced even more jobs in the public
sector, and prevented us from doing some of the infrastructure
work or some of the work that Arlene is successfully doing to
attract other firms into Northern Ireland. Those are the issues
we would have hoped to discuss between August and now.
There are lots of other reservations and issues
that we need to look at and tease out. The one thing that I would
like to look at is that attractive headline being thrown around:
"90,000 jobs in 20 years", or 64,000 in however many
years, depending on the model you listen to. To be honest, as
an economist, anybody who believes that they can design an economic
model that will be robust for 20 years is living in cloud cuckoo
land, because so many factors will change over that period. While
the figures are being thrown around, it appears that we have a
silver bullet in the corporation tax reductions, but we need to
be a bit more cautious. Before we sign up to it and say that we
would be prepared to go down that road, we want to see some of
the very serious issues that have been raised sorted out, teased
out and discussed.
Chair: Okay. We'll get
on to the rate in a moment.
Q129 Oliver Colvile: This is just
a very quick one. I want to go back to how you tried to have a
discussion with the Treasury. I understand that you haven't actually
had anything formal. Forgive me for asking, but did you write
a letter to the Treasury saying, "Please can we come and
see you", did you have a reply, and even if you didn't, did
you try to catch them in the Lobby to say, "Look, we'd really
like to come, please"?
Sammy Wilson: In a number of ways,
but the terms of reference make it very clear that there were
to be, and that there would be, ongoing discussions and ongoing
contact between Ministers from Northern Ireland and Treasury Ministers.
Requests have been made for that. Of course officials have had
discussions as well. Just so I can put it on the record: we formally
wrote—I couldn't remember when, but Bill has just passed
me something—in September.
Q130 Oliver Colvile: And, you've had
no reply.
Sammy Wilson: We got no reply.
Q131 Oliver Colvile: And you haven't
pressed the Minister quietly in the Lobby to say, "Excuse
me, can we have a chat about this."?
Sammy Wilson: I spoke to him once,
yes.
Arlene Foster: I can't press the
Minister in the Lobby because I am not in this place, but I have
spoken to the Secretary of State for Northern Ireland, who expressed
his disappointment in relation to the slowness. When I indicated
to him that officials were indicating to us that it would be December
before we could have a paper, Owen thought that we would have
one by November at the latest, so I think he is disappointed with
that as well.
Q132 Chair: Does that suggest
some lack of co-ordination, to put it gently, between the Northern
Ireland Office and the Exchequer?
Arlene Foster: And the fact is
that this was to be a joint paper, not a Treasury paper, but a
joint one between ourselves, so that we could get all the levers
into it.
Q133 Lady Hermon: May I also seek
clarification because it has appeared in the press? A request
was made, I think by the First Minister, the Deputy First Minister
and, presumably, by the Finance Minister and the DETI Minister,
to visit the Prime Minister to discuss the budget consequences
of the comprehensive spending review. What happened to that request?
What reason was given for no meeting with the Prime Minister taking
place?
Q134 Chair: But without going
too much into that particular meeting.
Sammy Wilson: No reason has been
given.
Chair: Can we move on to the actual rate?
Q135 Lady Hermon: Forgive me,
Mr Chairman, but it is a concern. I'm sure that other members
of the Committee would feel concerned that the evidence before
us this afternoon is that the devolved Administration in Northern
Ireland has not had the best of co-operation—let's put it
like that—with Ministers in the Treasury. On top of that
they have not had the best of co-operation with the Prime Minister.
Chair: It is of concern.
Lady Hermon: It is of deep
concern.
Chair: It is a concern.
Can we move on to the corporation tax issue itself now?
Naomi Long: We've probably
covered a little bit of this in the preamble, but it is good to
have you both here and get the opportunity to discuss this with
you. On the economic arguments, you've already said that it is
not a silver bullet. Do you believe that it would create the kind
of step change that others have claimed it would? And do you believe
that there are other things that we can do that could create a
similar effect?
Sammy Wilson: Can I first address
the issue of step change? This is some of the jargon that has
now crept into this discussion. I'm not so sure that there's actually
any evidence that it would create a step change. As I've said
already, I believe that it would be another important weapon in
the armoury for defeating the problem we have in Northern Ireland
of low productivity, etc. If you look at the historical evidence,
first, look at the Irish Republic. It has had 10% tax on the manufacturing
industry since the 1950s or 1960s. It didn't have an immense impact
at that stage, indeed, it was only later when other factors came
into play along with the 12.5% corporation tax that the Irish
Republic began to get the benefits of direct inward investment.
Secondly, some other examples have been quoted
in previous evidence, such as Estonia, which is supposed to be
a good example of where corporation tax has led to rapid growth.
Estonia's rate is 21%, which is not radically different from the
rate we have here, so there must be other factors apart from the
rate of corporation tax. Some of the claims that are made for
the step change are at best fanciful because it is over 20 years,
and the economic model and parameters of that model can change
dramatically during that period. It is easy to throw out a figure
such as 90,000 or 64,000 jobs and say, "There you are. That's
a step change", but you have to drill down a bit more and
ask how robust those figures are. I am not discounting it as an
important aspect of industrial policy, but we also have to have
some of those caveats attached.
Arlene Foster: I think the difficulty
for us, Naomi, is that we don't actually know the cost of it to
date. If we did have very clear figures in relation to the cost,
then we would factor that into the budget going forward. There
is a question then as to how, if we were going to introduce corporation
tax, it should be phased in, as opposed to having a rate set at
10% or whatever it will be set at. I think Sammy is right. People
don't just go for one reason, but for a whole host of reasons.
You've probably heard from some of our recent announcements that
they go for the people, the skills, the fact that they are loyal
to the company—there are very low attrition rates—the
costs associated with property, and the wages. So there is a whole
package. Undoubtedly if we had corporation tax lowered in Northern
Ireland, it could give us a competitive advantage. But I think
it's more than corporation tax.
Q136 Naomi Long: You very briefly
touched on two issues that I was going to raise with you as well.
First, given the current CSR context, where Northern Ireland has
already taken a significant hit in terms of the budget, do you
think that this is something that, if you were going to do it
in the short term, would have to be phased in, or would you prefer
to take the hit up front, in the hope of getting a kind of immediate
response?
The other issue is that you mentioned 10%. The
discussion that is ongoing is whether to equalise with the Republic
of Ireland at 12.5%, or do you undercut them to be at 10% and
get the benefit of that. Is there an issue in terms of the differential
impact that's going to have on the overall budget available in
Northern Ireland?
Sammy Wilson: The lower you set
the rate, the bigger the bill is going to be. That is the first
thing, because the Azores judgment will require the gap to be
filled by money being taken off the budget. So if you reduce it
lower than 12.5%, the bill will increase accordingly.
As far as how we introduce it, knowing the strains
that the current reductions have placed on budgets for Departments
in Northern Ireland at present, and also the impact that it is
having on capital spending there, we couldn't afford to take a
£200 million or £300 million hit on top of what we've
already got immediately.
Secondly, there probably are good grounds for
phasing it in, in so far as you probably want to prepare the ground,
to first highlight the fact that this is going to be available.
Anyhow, Arlene will be talking more about this—preparation
and the work that has to be done to get a company to the point
where they make a decision to look at Northern Ireland. We don't
ring them in the morning and get an answer that afternoon; it
is going to take some time to do. So there is a phasing in there.
I would also like to think that if we phased it in that way, the
cost could be gradually introduced into our budget, so that we
could make the adjustments over a period of time. That would be
much easier than taking a big hit all at once.
Arlene Foster: Selective financial
assistance, at the present, is a big tool in my armoury. It is
being reduced as of the end of the year and by 2013, it is supposed
to fade out completely. I, as you would expect me to, am trying
to retain the SFA for a longer period of time, because when I
speak to the chief executive of Invest Northern Ireland, he tells
me that it is a powerful tool that he has to attract people to
Northern Ireland. Some commentators have made the comment that
if the SFA goes, that money could be used to offset the corporation
tax loss. It is a very simplistic way of looking at things, because
I think if we are trying to get additional jobs on top of what
we have at the moment, we don't just want to be displacing what
we're trying to do at the moment, but adding on and having this
as a value-added proposition.
In relation to the rate, I think that obviously
will be a decision for the Northern Ireland Executive. As I understand
it, this is in two phases. We give the power over to Northern
Ireland, if that is what the Treasury and the Government decide
to do, and then it will be a decision for the Northern Ireland
Executive. But as Sammy says, they all have cost implications.
Q137 Chair: I've asked the question,
through parliamentary questions, how much it would cost, and what
is the tax take from Northern Ireland on corporation tax. I am
rather surprised that the Government either do not know that figure
or are not releasing it. Does that surprise you?
Sammy Wilson: The truth is that
they don't know and the costs that we have been given by various
studies vary between £100 million and £500 million.
There are a number of reasons for that. For example, is tax paid
calculated in the tax office in which it is paid or in the place
where the business happens to be? If tax is generated by a business
in Northern Ireland is it measured from the central office, which
may be outside Northern Ireland? There are a whole lot of other
factors which make it difficult to make that calculation. We were
surprised at the size of the variation there, but there are explanations
as to why it is not easy and because this tax has been gathered
on a national basis, there has never been any attempt to try to
separate it out on a regional basis like that.
Q138 David Simpson: Can I touch
on the point about marketing Northern Ireland? I think, Sammy,
you mentioned them at the very start and we had conversations
prior to this with the CBI about enterprise zones. Could we establish,
if it is possible to establish, either from you or Arlene what
you believe enterprise zones mean? Some years ago in Northern
Ireland similar terminology was applied to different areas of
deprivation. Is it a marketing tool? Corporation tax is not a
silver bullet, so what else do you see that could be used to attract
investment into Northern Ireland? Do we do a package of corporation
tax, stamp duty, fast-tracking and planning, which the CBI mentioned
as well? Do we do all of that to make it attractive for companies
coming in?
The last point is the issue in relation to brass-plating,
which I raised with the CBI as well. I took it from their presentation
that they did not see it as a major problem. But when I speak
to local companies in my area there is concern that they would
be producing the jobs, the manufacturing or whatever and others
could come in and put a brass plate on the door. There are a number
of questions in that.
Sammy Wilson: The second group
of questions is probably more for Arlene. I'll deal with your
last question. There is absolutely no advantage for Northern Ireland
in having brass-plating because we would pick up the tab but we
would not get any of the benefits in terms of jobs. Therefore,
whatever legislation or measures were required, and if it required
legislation through the Northern Ireland Assembly, we would be
more than happy to co-operate to ensure that that did not happen
because there is no advantage to us in it. The one thing that
arises from that, however, and it may be something that you want
to touch on later anyway is that once those complications are
introduced, there are administrative consequences. Whether those
administrative consequences are borne by the Northern Ireland
Executive or by the Treasury and then the costs are taken from
the Northern Ireland budget, it is another complication and it
is another factor to be borne in mind. We are told from some of
the discussions that there have been that the administrative consequences
are quite severe. It is not just brass-plating, there is transfer
pricing and all of the rest and that would have to be carefully
examined to ensure that people did not engage in tax avoidance.
Arlene Foster: Some suggestions
have been made about trying to avoid that and tying the corporation
tax into job creation. But as Sammy says, the more terms you put
into it, the more difficult it is to administer and to sell. So
the simpler the corporation tax is, the better it would be for
us. In relation to enterprise zones, as I understand the reasoning
behind that, it is to sell Northern Ireland as an enterprise zone.
It is a marketing tool as such. So if we had a lower corporation
tax we could say that the whole of Northern Ireland is an enterprise
zone. The old enterprise zones seem to have fallen out of favour.
I know that locally in the devolved Administration the Minister
for Social Development is looking at business improvement districts
as a way of trying to reinvigorate town centres, but that is a
separate issue. It is not an enterprise zone, as I understand
it. The enterprise zone for the whole of Northern Ireland is really
a marketing tool.
Q139 Ian Paisley: There is a very
serious disadvantage because you don't know what the cost is going
to be, and that is largely because you haven't had those discussions
yet with the Treasury. Let's hope that they come, and come pretty
quickly. Is there any way that you would be considering, if a
reduction in corporation tax were to be introduced, that one of
the ways of compensating in terms of tax take would be to look
at an increase in industrial rates for companies already based
in Northern Ireland? Is that on the agenda, or is that off the
agenda?
Sammy Wilson: The first I ever
heard this mentioned was during a discussion I did at Queen's
university last week. It was raised by one of the people who gave
evidence here a couple of weeks ago.
Q140 Ian Paisley: Who was that?
Sammy Wilson: Victor Hewitt. You
fill the gap, whether it is £200 million or £300 million,
by putting up business rates. I have to say that is one of the
most bizarre explanations that I have ever heard of how you could
raise the money.
Q141 Ian Paisley: Is that the
cloud cuckoo stuff that I mentioned to you earlier?
Sammy Wilson: It probably falls
into the same category, I have to say, for a number of reasons.
To do that you would be putting up business rates. A 1% increase
in business rates will give you £3 million or £3.2 million
in Northern Ireland. You would be putting up business rates by
100% if you were to do that. In doing so, you would be penalising
every business, including businesses that do not pay corporation
tax. Most of those are small family businesses, which are essential
for the life of provincial towns.
You would also be attacking the cost base of
the very companies that we have knocked our brains out trying
to get to Northern Ireland. As some of the recent evidence shows,
some of them are only coming because of the cost base and the
cost reductions. One of those is the low business rate. To suddenly
hit them with a 100% increase, especially if they are not earning
all that much profit—this is the point that has been made
in this discussion so far; these are low-profit firms but they
are only coming because of the low cost base. So you put up the
cost base and they don't get any compensation because they don't
have the big reduction in their profits tax anyway.
If you then start making exemptions for such
firms—I know, because I know the costs that are involved
in collecting rates in Northern Ireland, which is something I
have been trying to reduce and squeeze—you are immediately
introducing an administrative nightmare to make allowances for
small businesses, or for this or that kind of business. It has
been suggested, but I don't think the proposal has been very well
thought through.
Q142 Dr McDonnell: You may have
touched indirectly on some of these points. The point I asked
the earlier CBI group was if the corporation tax were to be lowered,
would you see a case for differentiating between existing businesses
and new, incoming businesses? Or would you see a case for differentiating
between sectors, and discriminating between say, new technology
and biotechnology—the new futuristic industries—and
the old industries?
Sammy Wilson: It would be
good if you could do that, because part of the issue that Arlene
and I have been raising about the cost would be significantly
reduced if you could do that. Don't forget one of the implications
of reducing corporation tax is that it would be reduced for everyone,
including firms that already exist in Northern Ireland and firms
that might not create another job, ever, in Northern Ireland.
They would have a windfall gain from it.
If you could separate firms out in that way,
that would be good. My understanding, however, is that once you
start to do that you are discriminating between one firm and another
firm, or one set of firms and another set of firms, and you would
be in contravention of EU state aid rules.
Q143 Dr McDonnell: To go back
quickly to a point you raised there, the question of clawing back
from those who didn't deserve it, if you were allowed to do so
what sort of a mechanism would you envisage for clawing back windfall
gains?
Sammy Wilson: Again, this is the
problem. If under state aid rules you are not allowed to discriminate
between one sector and another sector, or one type of firm and
another type of firm, it is not possible to do that. You may well
have to live with the fact that everybody gets the benefit. That
throws up all kinds of anomalies. Some of the biggest generators
of profit in Northern Ireland are utility companies. One way in
which a utility company can generate more profits is to put up
prices for consumers. The very people who are hit by fuel poverty
as a result may well be hit again, because when you give back
the corporation tax to those companies, the impact is on the public
purse and on public spending on the very services that would probably
be beneficial to the people who have been put into fuel poverty
as a result of those profits being generated. All I am saying
is that starting down that road throws up a pile of anomalies.
We would want to look at this matter further.
In our defence, because it is a reserved matter, we have not been
able to make the approaches and have not had an opportunity to
formally test how flexible the state aid rules are in relation
to this. If there were ways of discriminating in the way that
you are talking about, that would be one way to make this a more
acceptable proposition. Perhaps it could be targeted at the kinds
of firms that we believe would be most susceptible to coming into
Northern Ireland as a result of low corporation tax.
Q144 Chair: I may have misunderstood
you on the point regarding utilities. If their tax were lower,
that would be a downward pressure on costs and prices, would it
not?
Sammy Wilson: What I said was
that the profits might well have been generated by putting up
prices to consumers in the first place. That would place many
of the lower-paid consumers in fuel poverty. The cost of letting
them keep more of their profits will also fall on public services.
Most of the people who would benefit from those public services
are the very people who have created those profits in the first
place, and who have probably been put into fuel poverty as a result.
The poorer would have made that contribution to those profits
and would then pay the cost of allowing those firms to have less
tax imposed on them.
Q145 Gavin Williamson: In the
evidence session just before you came in, that point was discussed.
The feedback from CBI Northern Ireland—if I misrepresent
it I am sure its representatives will yell over to me—was
that having that differential was very bad for business. The example
of the Republic of Ireland has demonstrated that having differential
rates just does not work. What are your thoughts on that?
Sammy Wilson: Arlene can comment
from the perspective of Invest NI, but we are still successful
at attracting jobs to Northern Ireland. I am not denying that,
given the right circumstances and the right price tag, this would
give us an advantage in attracting firms to Northern Ireland.
One thing that has worried me in this discussion is that perhaps
it has been seen as an easy answer. People are always looking
for easy answers to these problems and they are usually much more
complex than that. I just think that there are things that need
to be teased out and tied down if we are to go down this route.
Q146 Lady Hermon: What do you
see as the major drawbacks in lowering the corporation tax level
in Northern Ireland? What drawbacks are seen by your colleagues
across the Executive? It is clear that the Executive are not quite
in agreement on this issue.
Sammy Wilson: It is right that
there is a range of views, but that is more about our degrees
of enthusiasm, rather than some people saying, "No, we don't
want it," and others saying, "Yes, we do want it."
To me, the biggest issue is how we deal with the impact on public
services in Northern Ireland. I am not complaining. As part of
the United Kingdom, I believe that if there is an economic problem
that affects the United Kingdom, we have to play our part in helping
to resolve it. We have taken the pain of the spending review and
the cuts, which are worth £4 billion over the next four years.
That will cause immense difficulties for public services in Northern
Ireland. I just don't believe that a bill of £300 million
a year on top of that is sustainable. That is why I think that
it is important—if we are going to introduce it—that
it is either phased or its costs are reduced or, as Mr McDonnell
has suggested, that we find ways of being more selective with
it, but there are difficulties in all of those things, because
of the EU requirements.
Q147 Lady Hermon: Could I just
ask you, as the Finance Minister—the one with overall responsibility
for the budget in Northern Ireland—to give us your gut instinct
about the co-operation proposals? We will then go to Arlene.
Sammy Wilson: My gut instincts
are that, first of all, I would like to get some certainty about
what the Government's views are on rebuilding and redirecting
our economy. I think that provided that it is married to other
proposals and provided that there is clear indication given as
to what the costs will be and that those costs are set at a realistic
level, which does not devastate the work that we are already trying
to do in Northern Ireland, then in those conditions we would certainly
be wanting to have the power available to us. It is then up to
the Executive to decide when you introduce it, how quickly you
introduce it and at what rate you introduce it. I think that that
is probably a much more balanced approach than simply saying,
"Hand it all over and get it done next week."
Lady Hermon: No. Devolution
is a great invention.
Q148 Chair: Arlene, do you want
to come in on that point?
Arlene Foster: I sometimes feel
that we are speaking in a vacuum, because we don't know the size
of the bill. I am presently chairing a sub-committee of the Executive
that is formulating the economic strategy for Northern Ireland
to 2020. That is going out for a high-level consultation now,
but we had hoped that the paper that was to be carried out by
the Treasury would feed into that, so that we could then go for
a full consultation on everything early in the new year before
the Assembly elections.
At the present, the strategy that I am trying
to formulate along with colleagues is called rebuilding and rebalancing.
We are looking at the short term, in rebuilding, and then looking
at the longer term, in relation to productivity. I don't know
whether I am going to have that very important lever that would
help in rebalancing, and, as Sammy says, because we don't know
the costs, it is very hard to factor that in. I don't want to
over-egg it, but the fact that we don't have that paper coming
forward is holding us back from moving ahead in economic strategy
terms.
Q149 Ian Paisley: Would it be
useful for this Committee to write to the Treasury and demand
that those meetings take place? Would you find that helpful, or
would that be clumsy?
Sammy Wilson: It is up to this
Committee to decide where it believes that it can best put pressure.
Ian Paisley: The Committee wants to help
the Department.
Sammy Wilson: All that I am saying
is that we would be very anxious to have those discussions with
Treasury Ministers, because, as Arlene has said, this has to be,
was always intended to be and the terms of reference made it clear
that it would be a partnership arrangement and that respect for
the devolved Administration would be shown.
Chair: I'll certainly seek to do it in
the Lobby, as we mentioned earlier, and see where we get to.
Q150 Mel Stride: One of the interesting
aspects of this session, of course, is that you're perhaps less
enthusiastic with the business people that we speak to, because,
quite rightly, you are focusing cost as well as the benefit of
all this. To what degree is this debate running outside of the
politicians and the business people? Is it something that is being
discussed and known about among the general population? To what
degree are they enthusiastic about it, albeit that, of course,
we don't know the costs at this stage?
Arlene Foster: One of my concerns
about the discussion is that it is very simplistic. While we absolutely
recognise the benefits that would flow from it, there is absolutely
no discussion about the cost implications to the Northern Ireland
block. You've probably seen and read about the reaction to the
cut in our budget after the CSR. If we were to lose another £200
million to £300 million from that budget, I don't think people
have realised that it is for the Northern Ireland Executive to
deal with the cost and not the Treasury. That is one of the difficulties
surrounding the discussion at present.
Q151 Oliver Colvile: We've talked
a bit about how it is that you are going to see a reduction in
the amount of money that is coming in from the public Exchequer
into public services. Have you estimated how many more people
are going to be made unemployed from that?
Sammy Wilson: We have, yes. If
you take the rough figures, which are built into these economic
models, of a reduction of about £50,000 in public spending
leading to one job loss, by year 4, when our reduction is going
to be £1.4 billion, that would amount to about 28,000 jobs
in Northern Ireland.
Q152Oliver Colvile:
Once you have done that, have you looked at what the benefit bill
will be as far as the Exchequer is concerned as well? Will that
mean that those 28,000 people who have been put out of work suddenly
go to the Government and say, "Excuse me, we need some employment."?
Sammy Wilson: I couldn't give
that figure off the top of my head.
Q153 Oliver Colvile:
No, but could you look at that?
Sammy Wilson: The Treasury has
done some figures on this, but it net those against the changes
in the benefit bill as a result of welfare reform. Once it does
that, there is a further reduction in the amount of money coming
into Northern Ireland, because welfare reform is meant to save
a fair amount of money as well. I honestly couldn't give you the
figure off the top of my head. I would be guessing.
Q154 Oliver Colvile: Okay. If
you go away and look at that, that would be very helpful. That
could then inform us as to how much you reckon, if things stay
as they are at the moment, the economy in Northern Ireland will
decrease by. You probably don't have that figure either, do you?
Sammy Wilson: We've an estimate
for our growth rates and for job losses. We know the expected
growth rates for Northern Ireland. We had anticipated them to
be about 2.6%. My brief tells me that we think it will be about
1.8%.
Q155 Oliver Colvile:
What I am trying to do is give you an argument that you might
want to use for the Treasury. By going for growth in the private
sector, you can then actually balance out some of the implications
that will come out of the reduction in the public sector. That
is going to be helpful to you as far as trying to grow your economy
is concerned. Otherwise, we will see a very significant decrease
in the economy in Northern Ireland.
Sammy Wilson: One of the other
things we have been saying—and again, I'm not sure where
EU rules come out on this—is that the cost could be reduced
considerably. If the Treasury believes the predictions for job
promotion that would be the result of the reduction in corporation
tax, it could look at the net gain to the Treasury in the form
of income tax and VAT, because there are gains to the Treasury
from Northern Ireland as a result of the increased job promotion.
Again, I'm not sure that EU rules allow you to write it off.
Oliver Colvile: I think you need to have
a "Come to Jesus" meeting with the Treasury.
Q156 David Simpson: In our discussions
with the CBI, a number of issues were raised. The question that
I put to the men was, "What non-economic improvements could
be made to stimulate and help?" One issue that the gentlemen
raised was planning reform. Although Sammy is the former Minister,
Arlene can comment, too, from her perspective in relation to Invest
Northern Ireland. That links with the Department of the Environment
to fast-track planning. If a major corporation comes into your
Department, Arlene, to say, "We are going to invest £40
million," they expect a quick response and quick answers.
We have seen that in the South of Ireland, but we won't go there
as regards to planning because we have seen some of the messes
down there, so we won't go into that. But on Northern Ireland,
specifically, there is fast-tracking and delivering for companies
that are coming in.
Arlene Foster: You will recall,
David, that when I was the Minister in the Department of the Environment
that we did introduce fast-tracking and for some companies it
did work—in relation to Coca-Cola, for example, in Lisburn
and the Titanic Quarter, in East Belfast. For some companies,
it doesn't work. The reason is—dare I say it?—the
propensity in Northern Ireland for objectors to go to court and
seek judicial reviews, which causes us no end of delays in the
planning system. This is an ongoing discussion as you know, in
relation to Northern Ireland on the planning system. I have had
this discussion with the Secretary of State when he has been asking
what we can contribute to the Treasury paper, as he calls it.
One of those issues certainly is planning reform and the need
for us to be able to deal with those issues. It is something that
we have had a discussion with the DOE Minister about.
Sammy Wilson: Perhaps I could
indulge myself and put this on the public record. I understand
businesses do come and complain—rightly, they complain about
the planning system in Northern Ireland, the slowness of the process
and perhaps its inability to recognise some of the economic advantages
of planning applications. I've got to say that, when I was in
the position that Arlene once occupied, I did introduce a statement
to try and encourage planners to give more weight to economic
aspects of planning application. That was challenged in court
by the business community, which believed that I did not consult
sufficiently on it, and it was ruled to be unlawful. So sometimes
the business community needs to talk with a consistent tongue
as well. It can't ask you to do things and then, when the result
does not go in its favour, use the courts to challenge it. That
has been a big problem with planning in Northern Ireland. Those
judicial reviews are usually carried out by other businesses that
object to someone getting an advantage over them. I just wanted
to put that on the record.
Lady Hermon: We have an
independent judiciary that has served Northern Ireland very well
through really horrible times.
Q157 Chair: And you do have more
control over those things now as well.
Arlene Foster: Well, not over
the independence of the judiciary, nor would we want to, Chairman.
Chair: No, perhaps not.
Q158 Gavin Williamson:
There's been a lot of discussion about the actual cost of any
tax cut, and we obviously don't have the answer. Have you made
any assessment of what the burden and the cost would be to yourselves
of having to administer this and, most importantly, of enforcing
any changes to capital gains tax?
Arlene Foster: I think it's a
matter for HMRC to decide whether we would have our own specific
administration in Northern Ireland for the scheme, or whether
it would keep it central within the UK. I think, again, that that
goes back to Sammy's point about cost. Would there be additional
costs if we had our own Northern Ireland HMRC dealing with that
issue?
Q159 Gavin Williamson: I suppose
that inevitably there would be, wouldn't there?
Arlene Foster: Yes, there would.
Sammy Wilson: It would also, I
think, depend upon just how common or how serious the problem
of tax avoidance was seen to be, either as Mr Simpson says with
brass-plating or through people transfer-pricing to put profits
into Northern Ireland, and on how expensive all that would be
to police. I suspect that, providing you could be sure that it
would give you the true cost, it would make more sense for it
to be done by HMRC, which already has the infrastructure in place,
rather than to set up a stand-alone infrastructure in Northern
Ireland. But then, of course, you'd be reliant on HMRC reflecting
the true cost of the service.
Gavin Williamson: You're
not trying to imply that they are always less than honest.
Q160 Oliver Colvile: Are you thinking
of providing any additional support to Invest Northern Ireland
as grants, as it is able to offer new finance-related support,
because of the approach that the EU might take?
Arlene Foster: That's certainly
one for you, Samuel.
Sammy Wilson: I think that Arlene
planted that question, because she and I are having a wrangle
about our budget at the moment. All these things eventually come
down to a certain degree of trading between Ministers, but all
I can say, and as I said at the very start of this presentation,
is that I want to look at the budget in Northern Ireland in a
strategic way. One thing that is accepted by the Executive and
the Assembly in the programme for government is that top of the
list must be growing the economy and orientating it more towards
a private-sector-based economy. That will be reflected in the
budget allocations, and of course Departments such as DETI and
the Department for Employment and Learning are then high up on
the list of where money should be allocated, because they are
the Departments that will deliver that change in the economy.
Q161 Oliver Colvile:
This is probably going to get me into an enormous amount of trouble,
but let's go for it. Regarding the emerging economies of both
China and India—where the Prime Minister is at the moment
doing a really good job—that is an area about which you
as Northern Ireland might be seeking to have a conversation with
your colleagues in the Republic, to see whether you might be able
to promote a joint approach.
Arlene Foster: I intend to go
to China at the end of this month, and I am very glad that the
Prime Minister is doing a recce for me at present. But seriously,
India and China for us are emerging markets, and we very much
want to work with them in partnership. In fact, we have some Indian
companies working in Northern Ireland, adding value to their proposition
from India. That works very well, and we're trying to explore
with China what we can do there as well.
Chair:
It's nice to know that the Prime Minister is your advance man.
Sammy Wilson: Could I just make
one point on that? Although there are areas—both Arlene
and I as Ministers have sought to find areas—on which we
can co-operate with the Irish Republic, don't forget that it is
also a competitor of ours in this field. It is going as cut-throat
for jobs for its own economy—and rightly so—as we
are. Therefore, there are occasions when you will not get that
degree of co-operation, nor would you expect to, and we have to
paddle our own canoe.
Oliver Colvile: That comes
back to what I said to you earlier. It is in everybody's interest
to have a dynamic economy in Northern Ireland, and I think you
should be seen within that remit.
Q162 Dr McDonnell: I would like
to just counter Mr Wilson's comment. Although that is the generally
accepted position, our visit to Dublin made it clear, through
the 10 or 12 meetings that we had, that all levels of the Irish
economy—economists, politicians and others—were stating
quite clearly that the long-term advantage to them of having a
stable, prosperous and improving state in Northern Ireland was
of far more benefit than any short-term loss they might have by
losing one or two projects that might move to Northern Ireland.
I think that that has to be put on the record.
Arlene Foster: In fact, we are
working with the Republic of Ireland. The European Commissioner
for Innovation will visit Northern Ireland at my invitation on
Friday. We are having her at a North South Ministerial Council
meeting, because there are ways in which we can draw down European
money which will make a difference to Northern Ireland, but of
course we need a trans-national partner, and that is the Republic
of Ireland as regards innovation and R and D. That works very
well for us, Alasdair. I take your point, but I think that Sammy's
point—we have seen it in some of the jurisdictions we have
been to—is that they are chasing jobs as hard as we are.
Dr McDonnell: I think it's
fair to say that I was certainly amazed that—
Chair: I confirm that that was the consistent
message that came to us. I am going to try to finish at 5 o'clock
to help our witnesses.
Q163 Lady Hermon: May I repeat
a point that I put to the representatives of the CBI earlier in
relation to our skills base? Building our skills base is absolutely
fundamental to the Northern Ireland economy. May I ask both of
you for your views, in whichever order, on the proposed increase—sadly
and most regrettably—in student fees? It will obviously
impact on Ulster university and Queen's, as well as third-level
education and the decisions that young people are going to make
facing a generation of debt.
Sammy Wilson: Higher education
is a devolved issue in Northern Ireland, and it is up to us to
make our own arrangements. However, we are somewhat curtailed
in so far as there will be Barnett consequentials in respect of
the change in the way that students and university education are
financed in England. If there is a greater emphasis on students
making contributions and less state contribution, our budget will
be reduced accordingly. That means that our room for manoeuvre
is somewhat limited.
I will say two things in relation to that. I
think that a balance needs to be struck. On the one hand, there
are those who go to university and benefit from it. Their earning
power is therefore increased and it is quite right that, in current
circumstances, some contribution should be made. On the other
hand, I do not want to see a situation in which those people who
have the ability to benefit from a university education don't
get the opportunity because they don't have the ability to pay.
I would like to see us develop a scheme that would reflect that
general principle.
The second thing I would say is this: my fear
is that, by giving the universities the ability to increase fees
to the extent that the Government have given them, it may well
lift the pressure from universities to reduce their costs. The
easy option is simply to pass it on to the student, rather than
to ask, "What does it cost for us to deliver a degree and
can we do it more efficiently?" In doing so, of course, they
make it more difficult for many people who probably come from
the same background as I did, where the idea of that kind of level
of debt would simply put you off going to university—even
though at the end of the day, of course, it may be possible to
pay the debt off because you find yourself a good job like an
MP.
Ian Paisley: Or a Minister. Or both.
Sammy Wilson: So it would worry
me and, as an Administration, we have got to make a judgment as
to what we do to at least help those who may well be put off university
education if they can achieve and have the ability to benefit
from it.
Arlene Foster: Skills are critical
to our proposition as it currently sits. The First Minister acknowledged
that when he made a speech recently. We need to ensure that the
skills still exist for people if they are looking at us as a foreign
direct investment location.
Q164 Naomi Long: On that specific
issue, I think that is the challenge. Sammy's let-out is going
to be, if you like, the economic consequences in Northern Ireland
of the changes that are made. The bigger challenge is what you
do about that, because while you might not want to pass that burden
on to students in Northern Ireland, you might not be able to avoid
doing so. The consequence of not passing that burden on in Northern
Ireland could be that the universities end up becoming essentially
like a second tier of universities, which is the last option that
you would want, where essentially they are a cheap and cheerful
local alternative to what is going on across the water, but not
necessarily in the position that they are in at the minute, where
they are churning out some top-quality graduates.
Arlene Foster: We certainly
cannot do that because of Queen's being part of the Russell group,
and the University of Ulster, with their research capability.
They are very strong levers for us when we talk about Northern
Ireland as a proposition.
Chair: May I thank all members of the
Committee for their attendance and their contribution, and particularly
thank Sammy and Arlene for their excellent evidence session? I
am very grateful to you for coming. We shall certainly bear your
thoughts in mind. Thank you very much indeed.
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