Corporation Tax - Northern Ireland Affairs Committee Contents

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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