Examination of Witnesses (Questions 1-64)
Q1 Chair: I welcome
our witnesses to the Committee. Thank you very much indeed for
joining us. As you know, we are starting to conduct an inquiry
into a potential enterprise zone for Northern Ireland. As well
as that we are looking at corporation tax, and the difference
between UK and Irish corporation tax and the effect that may have
on Northern Ireland. So they are two separate inquiries, but
obviously may be linked in certain ways, so we have various questions
we would like to put to you today. Perhaps I could start off with
the questions. With regards to Northern Ireland, do you think
that declaring it an enterprise zone is potentially a good way
to increase investment and prosperity in the Province? The question
is to all of you.
Roger Pollen:
I am Roger Pollen, Federation of Small Businesses. Thank you,
Chair and Committee, for having us here. I think we very firmly
believe that it is a good route to go, with the one caveat: what
is it? What is in it? It sounds good and we looked at a number
of things one might see in it. It is enticing. The concept is
a place in which the private sector thrives, and generates employment,
opportunity and wealth. That would be good. Wealth that underpins
continued improvement in the living standards there and in the
resources that are available to let the country flourish in education
and health; a low tax environment that attracts inward investment,
that rewards risk takingI think that is a very important
point we might come back toand that encourages indigenous
businesses as well as investors from afar. Something I think
that is also important to us is a place that stands on its own
two feet and pays its waypreferably more than pays its
way. I think that is an important change that it could help deliver.
If I may say in this place, with respect, an area where Government
works in partnership when neededreducing barriers and cutting
red tapewhere it sets goals and provides incentives, but
also, importantly, where it gets out of the way when it is not
needed. That is what we would see as being part of the ingredients
within an enterprise zone. So that is a description of an enterprise
zone, but whether it is the description of the enterprise zone
that we are discussing hereI look forward to the discussion.
Aubrey Calderwood:
I totally agree with what Roger said. My name is Aubrey Calderwood,
from Capitus; we are an investment incentives consultant. Everything
that Roger mentioned in terms of how we would envisage an enterprise
zone operatingthose are the elements that we would definitely
want to see within the Northern Ireland enterprise zone structure.
Around the other areas of the UK it has been primarily a taxbased
regime where enhanced capital allowances have been available to
investors in those areas, also reduced planning red tape and maybe
some stamp duty land tax holidays. As Roger says, however we
want to come up with what an enterprise zone looks like for Northern
Ireland, it must be able to stimulate economic growth and create
jobs at the end of the day.
Q2 Lady Hermon:
I wonder if I could just clarify one point. Do you wish all of
Northern Ireland to be declared an enterprise zone? I refer to
the fact that there was some ambiguity between the response from
the Federation of Small Businesses and from Capitus, because you
referred to "an" enterprise zone.
Aubrey Calderwood:
I mean the whole of Northern Ireland. I envisage the whole of
Northern Ireland being an enterprise zone.
Lady Hermon: Is that the
case for you?
Roger Pollen: We
are absolutely in tune with that. I think to create subdivisions
in somewhere of the size of Northern Ireland would just be divisive
and distort the playing field that as a whole needs to have a
step change induced in it.
Aubrey Calderwood:
I think it would also create areas where you had increased land
values and property bubbles arising, if, for example, you had
an area of Belfast that was just an enterprise zone as opposed
to other areas of Northern Ireland. I think that would lead to
some of the worst parts of enterprise zones being prevalent in
Northern Ireland.
Q3 Chair: Would
your colleagues like to comment further at this stage? We have
lots of questions we will ask. Obviously, the Government paper
has not been published yet; we have been pressing for that for
quite a while and we raised it in the Commons just today. At
this stage, have any of you been asked to put ideas forward or
is that expected to come in the consultation period?
Roger Pollen: We
have not been asked yet to put ideas forward.
Chair: Not at this point?
No, that is fair enough.
Q4 David Simpson: In
relation to the enterprise zonesand I know that both you
and I would not be old enough to remember the old enterprise zones
many, many years agoin your opinion were they successful
in the areas that they were put into? Did they create and have
that stimulus that was required of them?
Aubrey Calderwood:
I think throughout the areas of the UK where the enterprise zones
were set up, they were successful. Some areas were more successful
than others. If you go from the premise that the primary purpose
of the enterprise zone is to create economic activity and economic
growth, I think that certainly happened in the areas where enterprise
zones were set up.
Q5 David Simpson: But
on their own, they are only part of the elements that are required?
Aubrey Calderwood:
Sorry, say that again please.
David Simpson: On their
own they will not achieve it; you need a cocktail of different
elements?
Aubrey Calderwood:
Yes. This goes back to what Roger said: what is an enterprise
zone? Is it a low taxation zone? Is it an area where you are
going to get capital allowances for investment? It just really
depends what we come up with as being our utopian enterprise zone.
Q6 Mel Stride:
Welcome to the Committee. Have you made any quantified estimates
of the benefits of an enterprise zone for the whole of Northern
Ireland in terms of jobs and investment, and perhaps quantified
the cost in tax revenues that might be lost as a consequence of
having an enterprise zone? Do you have any feel for that?
Aubrey Calderwood:
As a company we have not got any empirical data on that. We have
just got our views on what works and what does not work and if
an enterprise zone is set up, what we think will happen arising
out of that.
Q7 Gavin Williamson:
You just touched on an interesting point. You said you have got
your views about what works and what does not. If you had three
things that you wanted to suggest as really good things that would
work, what would they be?
Aubrey Calderwood:
A simplified planning regime within the enterprise zone. I think
that is very much a crucial element, particularly for Northern
Ireland, because I think the planning regime in Northern Ireland
is very detrimental to investment and encouraging growth in the
Province. I think a low taxation regime within the zone would
definitely encourage investment in the zone.
Q8 Gavin Williamson:
Is that corporation tax?
Aubrey Calderwood:
Corporation tax, yes.
Andrew Reid: From
our perspective, investment incentives would possibly be preferable
to the blunt instrument that is a reduction in corporation tax
straight off. We have had a chat several times about it and we
feel that an enterprise zone allows someone to take tax relief
from corporation or income tax from investment, so the more you
invest, the more you get a return.
Q9 Gavin Williamson:
For example, there is talk about a corporation tax reduction costing
£200 million. Do you think there would be better ways of
using that £200 million in order to stimulate business
investment?
Andrew Reid: At
the end of the day, I think most people want some sort of kick-start
to the Northern Ireland economy, whether it is the tax reduction
or whether it is increased reliefs or allowances against corporation
or income tax. I think either/or.
Gavin Williamson: I think
we would be in favour of lower income tax, actually.
Chair: I think we are
going to come back to that issue in somewhat more detail later.
Roger Pollen: Can
I just answer your first question? One of the points you made
in it was had the tax cost been quantified, but that is assuming
that there would be a tax cost.
Chair: We will come back
to corporation tax in more detail.
Q10 Mel Stride:
You mentioned a little earlier the downsides of enterprise zones,
I think in the context of whether the whole Province should be
a zone or a part of it should be a zone. Are you referring there
to the displacement effect perhaps of an enterprise zone? What
issues are coming to mind at that point?
Roger Pollen: I
suppose there are several. My colleague here can come on to some
of them, but I think we are saying Northern Ireland is the size
of Yorkshire; is it tenable to have it subdivided into enterprise
zones? You asked earlier whether we had done any assessment of
the efficacy of operating as an enterprise zone. It is difficult
to do until we know what is likely to be included in that. That,
I suppose, is the circle we are trying to square here. So I think
what we have tried to do in the paper we submitted, which admittedly
was led by your own questions, is to put in ideas and hopefully
today we can add some further ideas as to what might be included.
Thereafter, once you start to get some consensus about what is
in it, you can evaluate the impacts and costs of that and the
benefits for jobs and so on. But I think we are trying to advance
a number of proposals that will, in our view, create the game-changing
effect that is desired and that the Secretary of State set out
as his 25-year approach that needed to be taken to rebalance the
economy there.
Aubrey Calderwood:
Let us remind ourselves of why we are talking about this in the
first place: we are trying to rebalance the whole of the Northern
Ireland economy to be less reliant on the public sector. I think
if you are just creating small zones within the Province, that
will not have the desired effect. You need an actual sea change;
a complete shift in attitude to investment in the Province.
Q11 Mel Stride:
Looking again at the downsides of enterprise zones, is a speculative
property bubbleasset price increaseswhich may have
driven some of the problems in the South, something that you think
is a very real issue here?
Aubrey Calderwood:
From our point of view it is the key issue that has to be addressed.
We have to put some checks and balances in place to make sure
that that does not happen and that we are going to create real
growth and real jobs within the Province; it is not just a property
speculator's paradise.
Q12 Mel Stride:
What are the things that you would be looking to put in place
to ensure that did not happen?
Aubrey Calderwood:
We put forward in our submission possibly tiered rates of tax
incentives depending on the type of investor you need in the Province.
So for example, we need property developers and we need property
speculators, so we do not want to cut them totally out of the
loop. We have to give them some kind of incentive, but whether
they get the same kind of incentive as a pharmaceutical company
or a company that is going to be engaged in creating real manufacturing
jobsthere is maybe some scope there for giving enhanced
capital allowances to the sectors that we feelor you feelwe
are trying to attract growth in within the Province.
Andrew Reid: We
said in the submission, Aubrey, about possibly splitting the tax
reliefs between landlord and tenant so you have to incentivise
the developers to build these high spec science parks and what
have you, and maybe provide a different type of benefit to the
tenantsthe pharmaceutical companieswho are coming
in and utilising that.
Aubrey Calderwood:
We gave the example of 50% tax relief that could apply to ordinary
property investors and 100% for property investors providing properties
with a very energyefficient building, taking account of
the low carbon commitments that we have as well. So rather than
look back to what an enterprise zone has meant in the past throughout
the UKjust 100% capital allowances for investment and propertyI
think we have got an opportunity, if we go down this route, really
to target it at specific sectors and specific areas and create
the kind of investment that we want.
Q13 Lady Hermon:
Would that be compatible with European Community law, to target
particular sectors of the economy and give them tax breaks and
not other sectors of the economy? Have you checked the compatibility
with Community law?
Aubrey Calderwood:
I think we already have it on R&D, don't we?
Andrew Reid: At
present obviously you have the R&D tax relief scheme, which
in theory is open to all, but in reality is specifically for the
higher tech industries. The Government at the minute is looking
to bring in the Patent Box idea, which will possibly be for specific
industries. I think the EU permits innovation and research and
development enterprise, but I am not sure whether you can actually
limit the industry itself. Does that make sense?
Aubrey Calderwood:
I think in the Republic as well, they have targeted incentives,
or they have had in the past. So to encourage building hotels,
you get 100% capital allowances for hotel investment. The same
thing happens for nurseriesdifferent sectors. We have
not really done any research to establish whether in European
law we can do it, but that would be anecdotal evidence that it
is possible.
Chair: It is a minefield.
Aubrey Calderwood:
Yes.
Q14 Mel Stride:
Very quickly on R&D allowances, Northern Ireland has not done
very well in terms of R&D investment, has it? It has lagged
behind the European average quite significantly. Why is that?
What is the drag there, do you think?
Andrew Reid: It
is difficult. We talked about this on the plane on the way over.
We talked about the possibility that the mentality is just not
quite there. I specialise in research and development tax relief
and to be honest, a lot of clients I speak to were not aware or
just did not take the time to look into it. So there may be some
sorts of R&D taking place, but they just have not quite defined
it correctly.
Aubrey Calderwood:
I think over the years as well, obviously with the welldocumented
TroublesPatricia and I were just having a chat outsidewe
definitely have had a brain drain that has led to not so many
entrepreneurs being available in Northern Ireland. We have had
to go outside the Province. Some come back, but most do not.
So I think that is probably one of the key factors in why you
do not get the same levels of take-up of R&D that you would
in other areas of the UK.
Patricia O'Hagan:
I am managing director of a local software company and we do use
R&D tax credits and we benefit from funding from Invest Northern
Ireland to supplement our investment in R&D. So there are
companies in Northern Ireland who are very interested in doing
this. I think there is an issue, as you said, that our ambitions
have always been curtailed by the experience we have had over
the last number of years. I would very much endorse creating
an environment whereby our young people who are coming out of
universities consider the opportunity of entrepreneurship. Certainly
when I qualified from university, that was not seen to be a career
opportunity at that point in time, but we have a lot of young
peoplewe are seeing them come through the Science Parkwith
great ideas coming out of university. But we also need to create
an environment to nurture that. So, for example, to make them
aware of seeking funding, to create a VC environment where they
can fund early-stage ideas, develop them, access skills and people
to help them grow those business ideas and make them aware and
establish an ambition to grow large-scale international companies.
Q15 Mel Stride:
A final question if I may, Chair. The Secretary of State has
suggested that whatever approach we take here, it might take 25
years to rebalance the Northern Ireland economy between the private
and public sector and get it moving. Do you feel that is a realistic
assessment? Do you think that is about the time it will take?
Roger Pollen: There
is a degree of realism about that, but I think that the danger
of putting such a timescale on it is that it can seem always just
to be sometime in the future. I think he first floated that idea
in October 2009 and here we are in February 2011 and there
does not yet seem to be engagement between yourselves and the
Secretary of Stateand also on corporation tax with the
Treasury and our own finance Ministryon working together
to see any sense of urgency about this. So there is a danger
about setting a 25-year timeframe that it is "something we
will get round to". Political parties will change and so
on. That idea was floated when the Secretary of State was in
opposition; he is now in government, so things will move along.
To go back to your opening question about setting a time limit
on it, what we are trying to encourage here is an entire change
of culture, so that it has not got an end to it. We are not looking
at long timescales as being the period over which you can judge
its success; you are starting that change as soon as possible
and trying to move a generation away from what has become the
norm because of our historical legacy.
Patricia O'Hagan:
But I think we have to be careful, too, about putting a five-
or ten-year timeframe on it. Then we will find that companies
coming from outsideforeign investmentwill just come
in for that period and that will limit the impact of people considering
investing in Northern Ireland.
Q16 Chair: So
it is an ongoing thing?
Roger Pollen: An
ongoing thing, yes.
Q17 Oliver Colvile:
Before I go on, I should warn you that I am a member of the FSB,
although not in Northern Ireland obviously. Secondly, I have
an interest in a small communications company that does a lot
of consultation when it comes to development, so I have some understanding
of the planning process, though I have to say it is some years
since I did anything in Northern Ireland. But it seems to my
mind that one of the things that one has to do if one is going
to be able to attract inward investmentand I will presume
this would come under a sideshow of the enterprise zone debateis
you have to do something about your unit costs, to make sure those
are going to be competitive not only with Southern Ireland but
also other parts of the United Kingdom. The most important one
is going to be the whole business of wage costs and things like
that. You have to have the skills base, but you also have to
make sure that your wage costs are going to be lower and so that
is actually going to attract people to want to come and invest.
I just wondered what your view was about that.
Andrew Reid: Personally,
I would have thought it was pretty clear that Northern Ireland
as a whole was a lower wage area than the rest of the UKutilities,
and possibly rental charges and property costs, are all lower
than particularly Glasgow, Edinburgh and London. If you look
at the wages in key areas of investment of late: Citibank, for
instance, said that the reason they came was because of the lower
wages, comparable with those if they set up in London. So I think
there is evidence there to suggest that.
Roger Pollen: A
couple of statistics have come back through our research. One
is that the average private sector wage in Northern Ireland is
about 20% lower than the public sector wage. That in itself is
a major distorting factor, but it also means that there is scope
for private sector wages to rise quite a bit without getting out
of kilter with other parts of the economy.
Q18 Oliver Colvile:
Or reducing public expenditure.
Roger Pollen: That
is another whole area. I think the aspiration in many ways surely
should be for wages to rise, because you are creating value; you
are creating wealth.
Q19 Lady Hermon:
Patricia just told the Committee a few minutes ago that she was
conscious of and concerned about the brain drain from Northern
Ireland, particularly in R&D. I suggest to you that one of
the reasons might have been the low wages to retain people with
R&D skills in Northern Ireland. Is that the case?
Patricia O'Hagan:
I would say more that, in my experience, I left Northern Ireland
to develop my professional career and to get job opportunities
that were not available in Northern Ireland at that time, because
perhaps there were not organisations big enough to give me an
adequate career path. I think that is a more likely influence
for our young people, that there are more opportunities on the
mainland, for example; more companies, larger companies with defined
career paths for young graduates.
Q20 Lady Hermon:
So are lower wages in Northern Ireland, which has been the evidence
that you have given us, not a deterrent to people staying in Northern
Ireland?
Patricia O'Hagan:
I would say that is only one aspect of it. In practice, I meet
lots of young people who want to stay in Northern Ireland.
Lady Hermon: Irrespective
of the wage?
Patricia O'Hagan:
Yes.
Andrew Reid: And
the rain.
Lady Hermon: And the rain?
Oh, we have rain in London as well.
Oliver Colvile: And in
Plymouth too; don't worry about that.
Q21 Dr McDonnell:
There were just a couple of things I wanted to pick up on, Chair.
Number one was the R&D stuff. You skimmed over that; it
was not quite clear to me whether you were saying nobody was interested
in R&D or whether there was R&D going on under the radar.
But I think the most important point that I have heard so far
is the question of R&D and I would like to know, if we are
not exploiting R&D, why we are not exploiting it. What would
it take to get R&D out there?
Andrew Reid: I
will start off with this one. It is difficult for every business,
but there is definitely R&D going on, especially within SMEs.
In particular in our experience with the aerospace industry,
there are quite a few small and medium enterprises that feed in.
One of the main problems I would find is that if a company receives
support for R&D from Invest NI, they actually lose some entitlement
to the R&D tax relief that is available, so the actual benefit
is much lower and they are not as keen to follow it through.
However, in our proposal we were mentioning the fact that possibly
increased rates for R&D tax relief might help to draw the
companies in and really help kick-start the research and development.
Q22 Dr McDonnell:
Have you any familiarity with European Framework 7 and why we
do not avail of it? There is something like £10 billion
or 10 billion a year and we are not accessing it at
all.
Andrew Reid: Is
that the grants available for
Dr McDonnell: From Europe.
Andrew Reid: I
have seen quite a few companies availing of it, but I did not
realise there was that much available.
Aubrey Calderwood:
I think it goes back to the entrepreneurship of the people who
live in Northern Ireland. We do have entrepreneursthere
is no doubt about thatbut we do not have enough of them
compared with the Republic of Ireland and the rest of the UK.
I think that goes back to what we are trying to redress here.
We have become too public-sector reliant, which does not really
encourage a spirit of entrepreneurship. So there are obviously
people in Northern Ireland who are entrepreneurs, but if we are
not taking advantage of the R&D funding that is available,
it is because there are not enough of us doing it, in my view.
I think that goes back to what we are actually trying to address
here in terms of an enterprise zonemaking sure that the
graduates we produce have the skills that R&D companies need
to take R&D forward in the Province.
Q23 Naomi Long:
I am interested in this particular issue about research and development.
My perception certainly has been that in terms of employment,
people in Northern Ireland generally are very risk-averse and
therefore the public sector is a very strong lure. I was thought
of as slightly strange when I graduated and went into the private
sector on a lower salary because I did not want to work in the
public sector and that was a choice that I had made at the time.
There is the cultural history of it, and the other aspect is
about the commercialisation of research, because I know from my
experience of working with Queen's in the QUESTOR Centre and places
like that that they actually do some really good, high level research,
but one of the challenges has been commercialising that. I was
interested in what you just said about access to venture capital.
I am aware that that is being addressed in a small way within
this Northern Ireland Science Park in terms of there being a number
of organisations who are now offering more venture capital. But
is that something that if it were to be further developed, young
people with good ideas would actually get the opportunity to take
them forward and create a business out of them?
Patricia O'Hagan:
Very much so. I think there are three levels that capital is
needed at. At the early stage, like seed funding, to develop
an idea. So a young person coming out of university may have
a great idea and give them access to funding where they can develop
that and scope out what it would be, how much it would cost to
develop it and so on. That is very high risk. It is difficult
to get private investors to fund that and I think there is a need
for the Government to come in at that funding level. The next
level is really to commercialise the idea and bring it through
to where it is going into the market. There are different venues
for that; there is the angel funding, where private individuals
invest in it. We are starting to get an effective angel network
running in Northern Ireland, but I must say it is very early days.
The Halo Network won an award last year for being the best network
in the UK, but that can be developed much more. There are a limited
number of VC funders in Northern Ireland. There really is not
any competition between them and for a company like us, we may
find that what we are trying to do is not aligned with their investment
criteria, so we would have to look outside Northern Ireland.
Q24 Naomi Long:
Chair, on that specific point around the seed funding, if you
like, being the high-risk element. You said that that would be
where Government intervention was required. Is there an element
where Government is actually really reluctant to invest in that
early stage because of the risk of failure and of the risk of
them then being audited and it being seen to have been a bit of
a gamble, rather than recognising that a proportion of businesses
will fail in those stages but a proportion will actually take
off?
Patricia O'Hagan:
Yes. I think that is a big issue at many levels within Government.
Even looking at Government procurement, the products we produce
improve efficiencies for Government Departments and trying to
introduce those innovative new products is very difficultvirtually
impossiblebecause the procurement process at the moment
has no way to introduce innovation. So there are many layers
at which our Government is risk-averse and as you say, there has
to be an acknowledgment that risk has to be taken in order to
advance and that there will be a percentage of failure, but that
is quite natural.
Q25 David Simpson: Very
briefly, Chair, on the whole issue around enterprise and education
for young people, Patricia mentioned some award being won recently.
I was at an awards ceremony this morning for the Enterprise UK
Award for Enterprise and the Southern Regional College in Northern
Ireland won it. I was privileged to be there as it is in my constituency.
Young people going through universities and FE collegesdo
you believe that that is where it really starts? The colleges
today, to produce entrepreneurs and people of enterprise, need
to offer courses that are relevant to what the industry needs.
When we come out of this recession, no matter how long it takes,
we need to have young people there that are trained with proper
courses. Whether it be in sciences or whatever, we need to have
young people coming out ready and geared for it. I think that
is where it starts and today winning the United Kingdom Enterprise
Award for that college and for the young people is fantastic.
Aubrey Calderwood:
I think that is what they did in the Republic. As far back as
before 1995, they identified the subjects that students needed
to study forso of course STEM: science, technology, engineering
and mathematicsand they geared their education system towards
that. I think that is what you were saying as well. We would
be very much in favour of that.
David Simpson: Yes, tailored
towards what is required.
Aubrey Calderwood:
I think Northern Ireland has fewer students studying those types
of subjects than anywhere else in the UK and certainly in the
Republic as well. Again, going back to why we are actually sitting
here, this is the country that we share the border with; we are
on the same island and to compete with that, we really need to
address that as a fundamental issue of the enterprise zone.
Andrew Reid: Not
to blame it all on the parents, but I have a quite a few friends
whose parents are in the Civil Service and that, as Naomi said
earlier, is just the easy way to go; mum and dad were civil servants
and it is seen as a safe job and everything else. So it is the
risk-averse nature as well. However, as you quite rightly say,
if you can start it early and really get people involved in those
science, economics and finance from an early age
Patricia O'Hagan:
David, can I comment on that?
David Simpson: Yes.
Patricia O'Hagan:
I think there are twosorry.
Chair: Please go on
David Simpson: You can
ask me if you want, but
Gavin Williamson: He will
always say yes.
Patricia O'Hagan:
I think there are two aspects. There is education and the subjects
that people studythe STEM subjectsbut there is also
entrepreneurship, introducing that into the curriculum and giving
young people the experience of what business is like and how they
build a business. That, from what I can see at the moment in
our society, is being managed by voluntary organisations and they
are going into the schools and giving the young people opportunities
to experience entrepreneurial activities.
Q26 Oliver Colvile:
Do you think that Northern Ireland failed to benefit from previous
enterprise zones compared with other parts of the United Kingdom?
What lessons do you think we can learn should Northern Ireland
become an enterprise zone again in order to make sure that we
do not repeat problems that you had last time round?
Aubrey Calderwood:
I personally think that we cannot really compare like with like
here, because the enterprise zones that we had previously were
in the context of the Troubles in Northern Ireland. So yes, they
did work to a certain degree; they encouraged investment in those
areas. But compared with the enterprise zone that we envisage
now to get away from the reliance on the public sector, it is
not the same animal at all. I think they were successful in spite
of the Troubles, really, but if you had an enterprise zone like
the one we are envisaging at the moment, I think it would be completely
different. What we are actually trying to achieve in an enterprise
zonethe economic growthwould happen because the
Troubles on the face of it are not there at the moment.
Andrew Reid: It
is not just the regeneration of one area per se; it is trying
to regenerate the entire country.
Aubrey Calderwood:
As Roger says, the cultural shift that you talked about.
Roger Pollen: All
these things, Chair, seem to me to be very closely related. It
is a change of culture, where at the moment if you take risk and
you get away with it you are maybe a lucky chancer; if you take
risk and you fail, you will be condemned for a long time. Thinking
back to President Kennedy, setting out an ambition to land
a man safely on the Moon and bring him back within a decade was
fairly fraught with risk that a Government was taking, but it
set a direction for an entire industry and a country to look at
and very publicly be judged. We are not necessarily looking at
something on the same scale as that.
Chair: I don't know.
Roger Pollen: In
terms of changing a mindset, that is a massive challenge.
I think we need to have fairly big, bold visions that will move
people away so that the first choice is to go into businessthat
is where people will naturally gravitateand to work in
the public sector may be something that they will come to at a
different stage for a different reason. But the primary driver
is to get into business. That means coming in at school level
and at university level, and changing the attitude of what you
will do with what you get when you go through those. I think Patricia
may come on later to some interesting comments on the concept
of internships to sit parallel to apprenticeships to harness that
sort of activity as well.
Q27 Chair: Mr
Reid touched on it earlier, but obviously all parents want security
I suppose above all else for their children. How much does that
perversely hold people back from going into business?
Andrew Reid: That
is not quite what I meant earlier.
Chair: No, I am moving
it on a bit.
Andrew Reid: My
mother and father wanted the best, so they pushed me on and what
have you, but I think if you can amend the mentality within Northern
Ireland as a whole and if people can see these jobs coming in
and they can see a large corporate coming in and they can aspire
themselvesif they drive or walk past it on their way up
to Queen's or wherever else, then that can help to drive the mentality
on.
Q28 Naomi Long:
I would just in passing say my husband runs a small business.
He is a dentist and he spent five years qualifying and half a
day being trained to run a business, which says everything about
what is wrong, because most dentists will end up in that situation
of running a small business. So I think there is an imbalance
in terms of perception of the academic being supreme over the
practical and everything else. In terms of the 1980s situation,
which, as I have told other Members and I will remind you, I was
not around to see much of, only part of Northern Ireland at that
point was designated as an enterprise zone; it was basically Belfast
and Derry at that time and the idea was to try to address difficulties
in those areas and to regenerate them. What are the drawbacks?
You mentioned briefly some of the drawbacks there can be if you
designate only a particular area. What are the drawbacks of that
versus a wider designation for the whole of Northern Ireland?
Building on what you said earlier, if the whole of Northern Ireland
is designated, given that you said there is an issue of diverting
activity from other places if the zones are smaller, would we
simply be diverting activity from the Republic of Ireland and
from other parts of the UK or would we be creating a platform
on which we could show people what is on offer that they are maybe
just not aware of?
Roger Pollen: I
think our feeling and feedback is that it is to divert activity
from other parts of the world to come to Northern Ireland. Northern
Ireland is probably in a unique position at the moment, in that
American policy is to see American jobs repatriated to America
in most parts of the world, with the exception of Northern Ireland.
That is a very clear policy that we should be able to harness.
There is great sympathy in Europe as well from President Barroso,
for Northern Ireland's position, and offers to assist. There
is the Secretary of State's commitment to see an enterprise zone
and to examine something as fundamental as changing corporation
tax for Northern Ireland. So there are a lot of reasons and a
lot of support around the world that could be harnessed. I do
not think that would be to do something to the disadvantage of
either the Republic or other parts of the UK; it is a much bigger
game than that. It is actually to elevate Northern Ireland and
see it as a beacon of best practice and at the same time achieve
the rebalancing that we are talking about over a 25-year period.
Q29 Dr McDonnell:
Do you think that would be better than selectively picking on
various deprived areas and saying, "Yes, we will put an enterprise
zone somewhere in Craigavon"that David might suggest"we
will put one in North Belfast, we will put one somewhere else"?
Do you think the whole of Northern Ireland as an enterprise zone
would be better than that?
Aubrey Calderwood:
I personally do. I think the original intention of the enterprise
zone was not to regenerate disadvantaged areas; it was to encourage
economic growth and a spirit of entrepreneurship in those areas.
So it was not really just to do up rundown or disused buildings;
it was really just to get that economic activity in the area.
I think they did that in the Republic in Dublin, along the banks
of the Liffey. There are some rundown areas there where they
had enterprise zones and that undoubtedly generated a lot of construction
activity and gave rise to a number of shiny new buildings being
built. But that is not really what we are trying to do here.
We are looking at the whole of the Northern Ireland economy,
not just parts of Belfast or Derry or wherever.
Q30 Dr McDonnell:
How did it stack up? I would love one or two of you guys to come
along with me to the South Belfast federation of residents groups,
who want third party appeals on planning and all the rest. You
are suggesting that there would be literally no planning regulations.
Roger Pollen: Can
I come in on your first question and then on your second question?
On the first question, I think the difficulty of that is you
will not change a culture with that. You will designate those
areas that you have called enterprise zones as impoverished areas;
bad areas; areas that need some sort of special assistance. What
we are trying to get here is an entire culture change through
the private sector, the public sector, schoolchildreneverybodyto
see Northern Ireland's opportunities as different. On planning,
certainly the FSB's position is not to try to achieve a single
change to the outcome of any planning process; it is to shorten
the process and give clarity to that. At the moment, that is
one of the biggest things hampering it. Can I ask, Chair, for
Patricia to give you a very quick example of what happens if we
treat planning and building control together?
Chair: Can we delay that?
We are going to come back to planning in a bit more detail later,
if that is okay.
Roger Pollen: Certainly.
Q31 Jack Lopresti:
Mel brought this matter up when he said that previous enterprise
zones have been criticised for creating property booms rather
than real jobs and employment. What can we do to prevent the
risk of this happening again?
Aubrey Calderwood:
As I said earlier, if we target the allowances available to different
classes of investor within the zone, I think that would go some
way towards addressing that point.
Q32 Jack Lopresti:
Is that pretty much it as far as what Government could do?
Andrew Reid: Obviously
there is the other issue that was raised in the CT debates that
if you can somehow tie it to economic activity and job creationso
for every 50 jobs you get another 50% or something along those
lines. But that is a little bit further down the track. I think
that is one of the key areas.
Aubrey Calderwood:
In the Republic at the moment they have got a limitation on the
amount of tax you can shelter from investing in enterprise zones,
so they have obviously realised that the professional classes
have invested in those enterprise zones purely to shelter tax.
We do not want that, so a similar kind of arrangement could be
put in place here as well.
Q33 Kate Hoey: Hello,
Mr Pollen. You said that enterprise zones were very shiny and
exciting and then went on to say, if you knew what they were actually.
I am a bit wary of all these new, glossy things that come in.
Have you done anything on the costings of all this and how much
it would actually cost, particularly in terms of the whole of
Northern Ireland having an enterprise zone? Have you thought
about whether there might not be better ways of helping to change
that culture that you were talking about?
Roger Pollen: With
respect, the cost of all what?
Kate Hoey: Presumably
the benefits that you are trying to give or ask for for small
businesses, for the setting up of it, the bureaucracy of it and
the machinery of it. It does not just happen that you are now
an enterprise zone; somebody has to pay something extra. I am
trying to find out what my constituents in my area or the rest
of the United Kingdom are going to have to pay and why.
Roger Pollen: As
I said at the very beginning, I think our objective would be for
Northern Ireland to cease to be a net beneficiary and recipient
and actually become a contributor. So in the longer term, your
constituents would benefit from it. Again, we have set out the
pieces and because we are not quite clear what we are commenting
on, I will just flag up a few. Some of it should see a fairly
rapid reduction in costs, because what we are talking about is
stripping away bureaucracy.
Q34 Kate Hoey: But
could you not get that done anyway without being an enterprise
zone? My constituents and my businesses and small businesses
in England would like the bureaucracy stripped away as well.
Roger Pollen: I
think that is one of the challenges and that comes back to how
you are creating a climate in which the culture changesin
which civil servants, politicians, businesses and local authorities
all look to see what they can do to try to make things run better
and more efficiently. So it is about having the land-a-man-on-the-Moon
objective; it is about having an enterprise zone at the forefront
of everything that you think about when you are carrying out activity
so that when you as a Department or as a Minister go to take a
decision or to implement a policy, you can say, "Well, what
is the impact of this going to be on Northern Ireland's competitiveness?"
That is the culture that we would like to try to see fostered.
All of these things are as yet admittedly unquantified measures
that might contribute towards that. So we have not really got
into the detail of what these things are yet, but to touch on
one very quickly, there is an idea I want Patricia to flesh out
for us about internships, which is where people are working in
professions alongside their time in university, so that they are
learning what it is like to be in a business, to work in a business
and to run a business while they are studying.
Q35 Kate Hoey: Why
does it need an enterprise zone to do that?
Roger Pollen: Because
we would like to see, for that particular one, companies incentivised
to do that by, for example, an exemption from the National Insurance
payable for anybody who is on a registered internship or apprenticeship.
Q36 Kate Hoey: Have
you done any costings on that?
Roger Pollen: No,
in all honesty, because how long is that piece of string? How
many people might be caught up in it? I think what we are trying
to get is the ideas to take hold and once people see that yes,
those ideas could really deliver change, let us look at what the
costs of those would be. I think that has to be the sequence,
because even looking at the corporation tax debate, getting accountants
and the Treasury and everybody else to put a cost on that has
been very difficult to get consensus on and those are people who
have the resources and the statistics behind that to evaluate.
So with these things I think it would be unwise to try to put
figures and hard costs onto things that are still only ideas that
we are trying to get into play.
Aubrey Calderwood:
I think one of the key things to remember as well is the fact
that unless there is actually capital investment, there is no
give-up in any tax relief available, so you are giving 100% capital
allowances to investors in property or in businesses in the Province,
but you do not actually have to give that up unless they are making
that capital expenditure commitment in the first place.
Andrew Reid: And
hopefully the increased revenues from indirect taxes, if they
are not affected by the enterprise zone, never mind the social
externalities that will flow.
Q37 Mr Benton:
In answer to my colleague, I think you also answered the question
that I was going to put, which was in effect, why enterprise zones?
I have had experience of an enterprise zone on Merseyside and
I suggest to you that one of the difficulties is trying to assess
the success or otherwise of it at the end of the day. You never
really know if it was this initiative that created work. Would
it have happened naturally? In my own personal experience of
it, I think business found the establishment of an enterprise
zone on Merseyside very, very welcome.
So in answering the question, I think you have come
up with some very interesting and very thoughtful ideas about
how you bring about the restoration of an economy and so on.
Everything that has been mentioned truly is a very important factor.
In answer to the Chair earlierI think it was the first
questionI can understand that nobody is quite clear what
they mean by an enterprise zone. What it will mean, effectually
what it will do, the cost, to which you just referred in answer
to my colleaguethese are all unknown factors. At the end
of the day, the Government, I am sure you appreciate, has got
to make a decision about the cost to the Exchequer in terms of
corporation tax and also the cost, of course, of creating an enterprise
zone. So what I think is very important and what I think is a
most interesting pointI would appreciate your observations
on it, because it is not quite clear to meis all things
being equal, if you were to get the enterprise zone put in place
that you and all the business and the economy in Northern Ireland
wanted to see, would you still think that is a better proposition
than a reduction in corporation tax? It seems to me that there
is a genuine argument about which of the two is best. So I can
appreciate the difficulty when you answered the Chair, because
there are lots of unknown factors. But most of all, as I said
earlier, one of the problems is that you are limited in how far
you can judge an enterprise zone, unless it is some marvellous
thing that everybody can identify. So, just to satisfy the Committee,
all things being equal, could you indicate exactly what would
be preferable to the economic and industrial interests in Northern
Ireland?
Andrew Reid: Can
I just clarify one point? It was my understanding that if we
ever see key rate reduction or an enterprise zone, the additional
funding will come out of the block grant, not the Exchequer per
se. So Northern Ireland's budget will actually be paying for
it. The other point is that, quite interestingly, all the benefits
of the added tax will flow back to the Exchequer.
Roger Pollen: I
do not think that any of us should be looking at it as a choice
between one or the other and I think if you got one, it would
fit beautifully with the other and be a really logical part of
supporting the other. So if you got the corporation tax, that
would play a key part within an enterprise zone, because it would
be sending the signals; it would be the cultural change; it would
be rewarding the companies that you would be hoping to attract
and also to grow indigenously. Admittedly we have not yet seen
the corporation tax paper, but it is interesting reading the BBC's
comment on it yesterdayso we can assume that is accurate.
There is a quote in it that says that "such a move 'would,
on its own, be likely to have a positive effect on local private
sector investment'". Now that is different from the signals
we have been getting unofficially for some time; that is clearly
suggesting that there is a move within the Treasury to recognise
that the corporation tax change could be beneficial and could
have a positive return. So I do not see that it is a choice between
the two; I think we clearly see a low tax environment. But the
other attractionI think Aubrey alluded to itis that
we see taxation policy being how you drive changes in behaviour
and therefore, in many ways, a more effective tool than simply
Government intervention through grant aid. I am not suggesting
you get rid of grant aid, because it clearly has strategic values
for certain objectives. But by doing that, all you are really
doing is sacrificing potential taxes by getting private sector
investment to do the job you want. So that is why we are trying
to look at this thing as a whole.
Aubrey Calderwood:
There is not a huge amount of research on the effectiveness of
enterprise zones, but there was quite an extensive study carried
out in the United States on their enterprise zone regimes and
their culture about trying to encourage economic growth in enterprise
zones. Just going back to your point that it is almost imperceptible
about how effective it iswould it have happened anyway?
Just to read from this report for a second, the research team
"found that the relationship between incentives and investment/development
was complex and often ambiguous. For instance, many existing
facilities that found themselves in enterprise zones made investments
and expanded operations while ignoring incentives for such activities.
This was explained as the 'placebo effect' whereby business responded
to government commitment to an area while simultaneously paying
little attention to the government incentives and 'rewards'".
So that goes back to the fact that just because an enterprise
zone is created, it creates a spurt of entrepreneurship and local
indigenous companies within that area can feel confident that
the Government is committed to the area and therefore they invest
in it anyway.
Andrew Reid: May
I add one final point to that? One of the key advantages of an
enterprise zone over the rate reduction per se would be the requirement
for investment. As Aubrey has already mentioned, a company would
have to make that step and make the investment into the area,
so you already have £1 million going to local contractors,
hopefully, and then they feed off the economy through that, as
opposed to just setting up your Facebook head office with 10 people
in it and paying 10% tax.
Q38 Lady Hermon:
I think if we were in a court of law my next two questions might
be described as leading questions, but we are not in a court of
law, so let me lead you. Am I right in thinking from what you
have just saidand please correct me if am wrongthat
it would be the unanimous view of the four of you that if permission
were given and the Assembly decided to take the opportunity to
reduce corporation tax in Northern Ireland, that it would be a
missed opportunity not at the same time to declare Northern Ireland
as an enterprise zone? That is the first. Since it was Mr Pollen
who said he would not like to see it a choice between lowering
corporation tax in Northern Ireland or an enterprise zone, if
you prefer the two to go together, do they go literally hand in
hand at the same time?
Aubrey Calderwood:
My personal opinion on that is yes, they go hand in hand together
and yes, it would be a missed opportunity if we did not create
an enterprise zone at the same time as lowering corporation tax
within the Province. The reason for that is because, in my view,
we are competing directly with the Republic of Ireland and the
advantages that they have available to them in terms of their
low corporation tax rates. They are already set up for ones throughout
the island of Ireland, whereby they have specific clusters of
areas earmarked for, for example, biopharmaceutical companies.
So they have planning permission already in those areas ready
to go and if we do not do the same thing in Northern Ireland,
then if you have got a CEO of a company in America wishing to
invest in the island of Ireland, why would they come to the North
as opposed to the South?
Q39 Lady Hermon:
Mr Pollen or Patriciawhicheverare you unanimous?
Roger Pollen: I
think we would echo that, yes. That is fair comment. The one
thing I would add to it is that Declan Kelly, the US Economic
Envoy to Northern Ireland, made the point last week in a speech
in Belfast that he felt there was a period probably of about two
years where Northern Ireland needs to seize the opportunities
that it is being presented with, if it is not going to spend a
generation ruing the fact that it has missed them. So to take
your leading question, it should be done, it should be done concurrently
and it should be done fairly quickly.
Q40 David Simpson: Very
briefly again, Chair. For a long time now the Committee has taken
evidence on the whole issue of corporation tax. We have had numerous
organisations giving evidence. We have Invest Northern Ireland
saying that it is a key component in order to stimulate the whole
of the economy again and get industry going and of course we have
had numerous economistsI hope none of you are economistsin
the room giving their opinion. We get a different answer every
time we talk to an economist. I am going to put the same question
to you that I put to John Simpson when he was here. Blank sheet
of paper, from one to 10, where do you put corporation tax? I
know what his answer was. What is your answer?
Andrew Reid: If
I can just pick it up
David Simpson: I do not
want a bluff answer.
Andrew Reid: No,
okay. I am an economist, but we will just quickly
Oliver Colvile: I think
you have given your answer.
Andrew Reid: Retrained
in accountancy. I think lower taxation would be close to the
topif not three.
David Simpson: He differs,
Chair. Do you want to clarify?
Chair: 10 being the highest,
I think. Is that right? 10 being the highest?
Andrew Reid: Oh,
10 being the highest? Sorry, I meant top three as in one, two,
three.
David Simpson: John Simpson
said six, because there were five other important elements to
achieve before we got to the stage of corporation tax. I have
to say I am an advocate for lower corporation tax. We do not
all agree round the table on how we get there, because I think
if we are looking at £350 to £380 million coming
out of the block grant, it is impossible. We could not even phase
that in over a two-year period after the cuts that we have already
had within the Assembly. So that is the difficulty for us. But
I think it is a stimulus; it is not a silver bullet, but it is
part of a cocktail of measures to take to drive us forward. I
have been in business in Northern Ireland for 30 years and no
one would love to see lower corporation tax more than me. I hope
that is not minuted, Chair. It probably is.
Chair: It is, yes.
Roger Pollen: I
think it is interesting that out of all those economists who appeared
in front of you, you chose one. I think our comment on that is
that the time to move is now. The cost of that could be deferred.
I think this is the point that Sammy Wilson has been bringing
forward, that at least if you are in a position to signal that,
in three years' time, corporation tax will be down to this level,
then, if that is done as part of a wider package of introducing
elements that might make up an enterprise zone, that delay probably
is not going to be material.
Q41 David Simpson: But
does delaying it really take away the impact? "We are now
open for the lowest corporation tax anywhere in Europebut
it will not be there for three years". Does it take away
the impact?
Aubrey Calderwood:
I personally think it does and I think it would cost more if you
delay it as well. We are trying to come out of recession and
we are trying to encourage growth at the moment, so the tax takewhat
you would give up in taxationwould be lower if you did
it now. So I think in terms of both the impact and presenting
it as a complete package as part of the enterprise zone, now is
the time to do it.
Andrew Reid: The
Patent Box will be coming in from April 2013, which offers you
10% for intellectual property profits. So personally I would
prefer to see tax reliefs and allowances targeted at investment,
so increased research and development tax relief, the same for
capital investment and then you have got the companies doing the
R&D now and they can take advantage of the 10% Patent Box
in 2013.
Q42 David Simpson: How
do small companies, which are very much the backbone of Northern
Ireland and very much hands-on, take advantage of R&D? Do
they buy it in? How do they take advantage of it?
Patricia O'Hagan:
We take advantage of it. We are a software company but the grants
that we get from Invest Northern Ireland for R&D actually
pay wages. If I did not have those grants, I would have fewer
people sitting at desks working for me.
Q43 Chair: So
it is grants rather than tax relief?
Patricia O'Hagan:
I take advantage of both, so they both contribute.
Q44 Gavin Williamson:
Assuming that the enterprise zone is a package of various things,
whether it be planning reform and lots of other bits and pieces,
and the Government says reducing corporation tax is an absolutely
fantastic idea but it is not for the UK Government to decideit
is for the devolved Assembly; the decision is devolved; the devolved
Assembly says no because the price of it is too expensivedoes
that totally scupper absolutely everything? Is there something
that can still be saved out of it all?
Aubrey Calderwood:
I suppose just having an enterprise zone without the low corporation
tax rate is better than not having anything at all. I personally
feel that that will not achieve what we are trying to achieve.
Gavin Williamson: It would
be very shallow?
Aubrey Calderwood:
Yes.
Q45 Mel Stride:
R&D incentives are currently clearly within the remit of HMRC.
Is there any case, in your view, for devolving that to the Northern
Ireland Executive itself? What would the issues surrounding that
be?
Andrew Reid: It
is quite tricky. The Coalition are currently looking at R&D
tax relief as a whole and they are asking for proposals on streamlining
the process. But in terms of taking it away from HMRC, my experience
with HMRC has been very, very good. The people in the R&D
unit within Northern Ireland especially really do help to push
on. There is one chap in particular we meet regularly and he
actively goes out and promotes the scheme to businesses. I am
not sure if Patricia has had that experience herself with Revenue.
Patricia O'Hagan:
Not yet, no.
Andrew Reid: Not
yet.
Mel Stride: You will after
this meeting, I suspect.
Andrew Reid: I
will give you their phone number. We are coming up with a few
ideas at the minute, but the proposal is for a few weeks' time.
Q46 Mel Stride:
In terms of using R&D credits as a device for targeting particular
types of employers and sectors, you mentioned green housing and
so on. Are there any other sectors? What specific sectors would
you be looking at and how would you design it so that it worked
for those particular areas?
Andrew Reid: We
talked about this at length because we did not want to restrict
the relief available to particular industries. For instance,
one of our clients is a concrete manufacturer and you would not
normally associate those guys with expansive research and development.
However, they have availed of the relief and have been able to
employ another 10 people as a result. So I think, to strip it
back, it can be quite difficult. However, if the likes of Queen's
and Jordanstown can really put on these high quality graduates
in ICT, biosciences, agri-food and those kinds of industries where
we already have a bit of a base, if we could target those and
maybe give them a little bit extra just to help the employment
figures, I think that would help.
Q47 Oliver Colvile:
Do you think that research and development is seen as a cost or
do you think it is seen as an investment?
Roger Pollen: Seen
by whom?
Oliver Colvile: By your
members and by the people you are involved with.
Patricia O'Hagan:
It is most certainly an investment to us. It is what our business
is built on. We differentiate ourselves from larger companies
by the innovative product that we can offer and our responsiveness
to the market.
Q48 Oliver Colvile:
So part of the package that you would be looking for to do with
becoming an enterprise zone potentially is some kind of tax break
on research and development? Would that be helpful?
Patricia O'Hagan:
Yes. We already do get a tax rebate and if that was emphasised
more that would be even better, yes indeed.
Q49 Oliver Colvile:
It seems to my mind that the other thing that is very important
is to try to build up a knowledgebased economyusing
the university much more and doing all those kinds of things to
try to promote it. I rather agree with you that low taxation
is a good idea and I am for ever in trouble for talking about
Hong Kong, but there we go.
Chair: Go on.
Lady Hermon: I will speak
to him after the Committee.
Q50 Jack Lopresti:
What kind of changes to the law on intellectual property do you
want to see and how would this be part of an enterprise zone?
Roger Pollen: Obviously
it is being talked about at present because I think the UK as
a whole has lagged far, far behind the rest of Europe and indeed
some areas of the world with respect to IP and foreign companies'
taxation. I think they are really trying to bring that up to
speed. I think it would be handy to try to streamline the patent
process. I think it will be rather difficult within EU regulations.
However, I think if you can open up at least the tax relief and
really try to benefit the holders of IP, get the people to do
the work in the UK, particularly in Northern Ireland, and get
them to hold the IP within Northern Ireland so we continue to
get the tax benefits.
Q51 Naomi Long:
In terms of the FSB, do you have any idea of how many of your
member companies would be involved in employing staff and how
many would not be involved in employing staff?
Roger Pollen: I
do not have a specific figure on that at the moment, but I do
know that from a survey we carried out in December of the entire
membership of 8,000 members, 71% of them said that they would
be keen to take on an additional employee or a new employee if
the circumstances were right. We looked at a number of measures
that might be put in place to support or assist that and that
then is where it starts to get more extensive. But certainly
that is the number of businesses that were indicating a desire
to take on an additional employee. We were very encouraged by
that figure.
Q52 Naomi Long:
So they might be pleased with the Chancellor's announcement this
afternoon about an extra £1 billion for the Business
Growth Fund then, potentially?
Roger Pollen: I
am sure they will be.
Q53 Naomi Long:
In terms of job creation, obviously if we are going to create
a positive culture in Northern Ireland in terms of being able
to seek a rebalancing of the economy away from the public sector
more towards the private sector, that will require us to grow
new jobs. Do you think that it is fair and realistic to say that
there has to be a requirement on the enterprise zone to create
employment to benefit from those elements that would contribute
to its structures? So people have to create employment to benefit,
rather than simply continue to do what they are already doing.
Roger Pollen: I
think the danger when you get into that sort of micromanaging
is that you could actually be setting up a structure that will
drive the wrong sort of change and you may then get people whose
jobs just disappear because they were not incentivised or were
not able to benefit alongside a competitor who was slightly larger
and was able to effect that change. It seems to be about creating
this cultural shift, going back to the point of the Member who
has just leftthe one who asked about intellectual property.
Again, it is getting these links between the universities and
the businesses so that there is an understanding of what is coming
throughwhat is able to come throughand then people
who can see what is coming through and might be in a position
to exploit that. We think that in the context of this type of
zone and the sort of change of culture that you are trying to
develop and foster will make those links, formal and informal,
easier to develop.
Q54 Naomi Long:
Do you think there are other measures of business growth that
are just as important as job creation in terms of judging whether
this scheme would be successful? Obviously a lot of the focus
is on job creation, but are there other measures of business growth
you think would be just as critical in judging success?
Patricia O'Hagan:
I think something that we need to focus on in Northern Ireland
is export sales and business and that would be a good measureif
we can encourage more businesses to seek markets and take part
in markets outside Northern Ireland.
Roger Pollen: That
is one of the other things. You say, "How do you drive that
change?" That is where Government has a role to play and
that is why ideally the enterprise zone is a mix of local government,
Assembly, Executive and Westminster playing their parts in it.
That one could be driven by fiscal policyby taxation incentives
focused specifically on export activity. If you create an economic
climate where one part of your sales is more attractive and profitable
than another through tax policy, that is where people will gravitate
their effort.
Q55 Mr Benton:
I know that reference was made earlier to skills levels, but I
was wondering how the enterprise zone designation could be used
to enhance the skills base. Have you any thoughts on that? How
would you apply the establishment of an enterprise zone directly
to increasingI agree with the comment made before by Patricia
O'Hagan; it is absolutely imperative in any sort of economic resurgence
that we have the right skills and so on. I think there is a very
important question in terms of the designation of enterprise;
one of the really strong elements in economic recovery is to have
the right skills available. If an enterprise zone is going to
bring about these benefits, surely one of them must be to enhance
the skills base. Do you have any specific thoughts on how that
could be best achieved?
Patricia O'Hagan:
I think it could affect the skills levels at different levels.
At one level I think business needs to engage with universities
more by feeding into the universities what specific skills we
need the students to be educated in. I think we can engage more
by offering internships to students so that they can spend more
time working in an industrial environment as part of their course
so that when they graduate they have very good skills. We have
done this in our company and we have worked with a number of graduates
who have worked with us while studying and they have come out
with very good results in their degrees. I think that is the
input of a live environment. As we attract larger corporations
into the environment through the enterprise zone, we will bring
people with skills into our community and then the indigenous
companies may have access to attract those into our businesses
or even informally get access to those additional skills. So
I think there needs to be several layers at which we interact
with the education providers and also benefit from the new people
who would bring skills into our community.
Q56 Mr Benton:
My view is that there is a certain problem in terms of apprenticeships.
I think it is so vital to encourage apprenticeships and skills
in that direction. Of course, over many years, we have seen a
terrible decline in what you would call these traditional skills
and the people coming forward. So to me it has got to be that
if you are talking about enterprise zones you have got to have
this coupling. Again, I know I am going over old ground, but
I am trying to suss out what difference an enterprise zone can
make to encouraging the resurgence of these skills; what cannot
be done without an enterprise zone, if you are following me.
It involves investment in training and in education; that has
got to happen in any event if it is desirable to get your skills
base up. I am really looking to see where an enterprise zone
can make that difference between what is going on now in terms
of enhancing the skills base. What effect would an enterprise
zone have on increasing the number of skilled people?
Patricia O'Hagan:
I think that having an enterprise zone that aims to bring about
cultural change and transform the economy needs everyone to buy
into it; it needs the universities, the colleges and everyone
to buy in. It is not just about the business community; it is
aspirational and for everyone to have that focus on growing our
economy; that puts more pressure on our education providers to
be part of that.
Aubrey Calderwood:
I think the enterprise zone per se does not increase the educational
standards of people within the Province. I think what they did
in the Republic before they introduced the corporation tax rate
of 12.5% and introduced the various enterprise zones within the
RoI was they decided what kind of businesses they wanted to attract
within the Republic and then they had the joinedup thinking
to match the skills to those kinds of businesses they were trying
to attract. So I do not think the enterprise zone itself would
be responsible for creating those skills; it has to be a longer-term
plan of the skills we need for the kinds of businesses we want
to attract in the first place. So, in that sense, the enterprise
zone does create the skills, but it has to go back further; there
has to be more planning about what we need first of all.
Q57 Lady Hermon:
We are drawing towards the end of this session, so we are going
back to the beginning. At the beginning, when asked to identify
the key components as you envisaged them that an enterprise zone
tailored for Northern Ireland's needs would needI did take
a note quicklyyou said, "A simplified planning regime
within the enterprise zone". That was number one. Number
two was low taxation. Number three, investment incentives compared
to the "blunt instrument" of corporation taxnot
my words but a witness's words. Now, for the sake of clarity
of our understanding in the Committee, I am looking at the information
that was given to us about the survey conducted by FSB when asking
the members in Northern Ireland what they thought should be in
an enterprise zone. We have it in our documentation today and
this is what was so interesting. It came back that when asked
about the planning regulations they featuredand David Simpson
would love to know where they are rated, but it is right downonly
27.3% of those who answered the questionnaire rated the easing
of planned regulations. Now, which is it? Is it top priority
within an enterprise zone that the planning regime is simplified
or is it, according to your membership, actually a very low percentage
of them who identified planning as a problem? We just need clarity.
Roger Pollen: That
is absolutely fine. Thank you for asking the question in the
way you have. In constructing that question for our survey, in
many ways it was where do you start on this circle we have been
talking about? We set out a number of issues that we would like
to have had members' opinions on that might be included in an
enterprise zone. Given that an enterprise zone had not been defined
and there had been nothing published that we were consulting on,
this was a number of things that we wanted to get feel for from
our members. But I think you have to recognise first of all that
more than a quarter of our members see that as one of the things
that is important to them. That is a significant factor. When
you consider that 99% of businesses in Northern Ireland are small
to medium-sized enterprises, a lot of people have an issue there.
But I think also that you have got to look at when the survey
was done. It was done in December 2010, at a time when an awful
lot of businesses have been contracting, and planning and expanding
has not been necessarily one of their highest priorities. We
deliberately did not put a question about banking into this survey,
because we did not want to draw a particular amount of attention
to an area that we knew had been exercising a lot of people for
quite a lot of time. So we were looking at things that could
be in here. I have to say that it repeatedly comes back to us
from members that planning issues are big problems for them.
Within planning we are also looking at building control; it is
the whole thing to do with how you use your buildings and how
you construct, how you extend and everything else. It can be
right down to putting up signage. If you do not mind, can I draw
in Patricia here with a very relevant example, which beggars belief?
Patricia O'Hagan:
We have recently expanded and taken on several new members of
staff, but we are in the existing premises, which is far too small
for us and we have been planning to move for some time. We are
actually moving into a building that has been built by Invest
Northern Ireland, which is great; it is a very modern building,
built within the last five years. We need building control to
approve our plans for that and it has taken us two months. It
is going into a building that was recently built for the purpose
of officebased small businesses and all we are trying to
do is put up a few internal walls, which are not structural, and
it took us two months to get permission to do that.
Q58 Lady Hermon:
But you have achieved it now, after two months?
Patricia O'Hagan:
We have, yes.
Lady Hermon: That is probably
a record.
Aubrey Calderwood:
Yes, I was going to say that is not too bad. How did you manage
that?
Roger Pollen: But
there has been a cost, because there has been a requirement to
get architects' plans and everything else, so that business has
had a whole cost put on it. That is in premises that are specifically
designed to accommodate businesses of this sort. If you look
in areas where there are private landlords who are maybe being
required to make a minor amendment or alterationit is just
unnecessary. The request there was of such insignificance in
the scheme of things that we need to find a way of shortening
that process, notas I said earliernecessarily to
change the outcome of it, but to make the process shorter and
more costeffective.
Q59 Lady Hermon:
So would it be more accurate to summarise that in fact as presently
drafted, our planning regulations and policy are in effect an
obstacle to business and business expansion? Would that be fair?
Roger Pollen: Yes.
Patricia O'Hagan:
Yes.
Lady Hermon: I heard two
yeses and then silence.
Aubrey Calderwood:
I would definitely agree with that, but could I just add that
it does not
Lady Hermon: Yes please.
You are the witnesses. This is information gathering. It has
been very, very helpful; you are very generous in your time here
today; you have come over here at your expense today, so we can
only benefit from the evidence that you give us. So please expand.
Aubrey Calderwood:
It does not particularly surprise me that the members of the Federation
of Small Businesses do not have planning as an issue high up on
their agenda, but one of the features of enterprise zones is that
it involves major construction of large buildings. For inward
investors to attract foreign direct inward investment into the
Province, they will require premises that will go through the
planning process. I think in that scenario it would be a huge
issue in terms of the planning obstacles that exist in Northern
Ireland at present. So if you have got a developer wishing to
develop a commercial property in Northern Ireland, they will face
huge challenges in terms of their planning. I think if that could
be simplified in the enterprise zone, it would be very attractive
for speculative developers to construct in the Province. So on
the one hand, small businesses do not really have the need to
build large premises; they move into them and they will have planning
issues and building control issues and building regulation issues.
But in terms of the overall planning process of, "Can I
build that property in that location?" I think it is well
documented that developers find it very difficult to construct
properties in Northern Ireland without obstacle and that would
be one of the features that I would very much advocate for a Northern
Ireland enterprise zone. Some form of simplification for the
types of investors that we are trying to attract into the Province,
so that they know that if they want to set up a pharmaceutical
company, that there is a piece of land there, ready to go, as
they do in the South of Ireland, and there are no planning obstacles,
because I think that very much puts them off.
Q60 Mel Stride:
Would it be fair to say in a way that that figure of 27% plus
is quite large? Whereas tax and the cost of employing people,
etc. is going to be highly relevant to almost everybody who answered
your survey, presumably there are many who answered the survey
for whom planning is generally not something that they are coming
up against that much. But where they are, they are having very
significant problems with it. Does that summarise it?
Roger Pollen: I
think that is a very fair point. I take your pointit is
well under halfbut I think we would still see it as a significant
figure, given the matrix of small businesses across Northern Ireland.
Lady Hermon: That is very
helpful.
Q61 Chair: Just
going back to what Joe asked, in some ways, yes, an enterprise
zone would help, but maybe it should be done anyway. Do you see
that as a temporary measure or a long-term measure or a permanent
measure?
Roger Pollen: Two
points there. Virtually nothing that we are looking atI
cannot think of anythingwould be deemed as a temporary
measure. I think this is a change we are trying to achieve.
To take your point, all these things could be done without the
banner of an enterprise zone, but what is it that is going to
need to be put in place to get local government, the Assembly,
Westminster, universities and businesses all changing their attitude
and working together and seeing things differently? I think the
enterprise zone has arisen as a very useful wrapper for that to
change perceptions, partly at home and also partly abroad.
Aubrey Calderwood:
Yes. I think it would make Invest NI's mission to sell the Province
much easier if they knew that they could go to inward investors
and say, "This is the NI enterprise zone. This is what it
entails", and just let them concentrate on getting inward
investment into the Province.
Q62 David Simpson: I
think you have answered a lot of this already, but finally, in
looking through the research papers in the evidence, you have
said, "The relaxation of other punitive legislation and timeconsuming
bureaucratic process"that is a mouthful at this time
of the afternoon. Could you give us some examples of that, tell
us what is devolved and what are reserved matters? Just to summarise,
if you are taking it from one to five again, where would you put
it on the bureaucratic side of things to try to make it easier
for businesses?
Roger Pollen: We
were looking at the things that might be delivered under this
wrapper. For example, we have already alluded to procurement
and I think Patricia had an example where a decade ago she was
able to deal directly with a Government Department to procure
and now a number of layers have come in between. So in the last
decade alone, the risk culture we talked about and so on has brought
in more measures that have made things complicated. In terms
of taxation, part is reserved and part is devolved. If you look
at things like business rates, that is clearly devolved. If you
look at the corporation tax, that might become devolved. Things
we want to look at as well are things like enterprise investment
schemes and how those might be extended and adapted within a Northern
Ireland context. Why is Northern Ireland a special case? In
many ways there is an opportunity here to use it as a special
case for all the reasons it ought to be treated as that, but actually
to test bed some things and see if genuinely you can get enterprise
to flourish as a result of changing policies there in a controlled
cost way, then those might be unrolled elsewhere. So does that
help to answer the question?
David Simpson: Yes, it
does.
Andrew Reid: Can
I just make one point? Maybe it is not the right time to bring
this up, but the corporation tax returns that people are doing.
I had a think about this over the last few days in advance of
coming and I was trying to think how it would work in practice,
the administrative burden of having to do a Northern Ireland tax
return as well as a UK tax return, whereas if you had the EZ status,
you could just roll that into your whole UK return and you would
only have to do one and that would be it, rather than splitting
up profits and everything else. I know that is slightly different.
David Simpson: It is a
good idea. Chair, that has been raised before with me, but as
you will know, HMRC are not the easiest people in the world to
deal with.
Chair: I am sure you contest
that.
Lady Hermon: Well it was
Andrew who actually complimented them, if I am honest.
Andrew Reid: He
did indeed, yes.
Just one final point I wanted to bring in. The other
thing I was thinking about on the enterprise zone was if there
was some way to work in from Executive level easier access to
foreign exchange reserves for smaller companies, especially those
who are trying to drive on exports; if there is a way they can
commission free or hedge as a whole.
Q63 David Simpson: So
you think it would be a bad idea to go to the banks?
Andrew Reid: I
would not even go near a bank.
Q64 Chair: I think
we have probably exhausted our questions. It has been a very
interesting session. We are very grateful to you for giving up
your time and for coming here today, so thank you very much indeed.
Roger Pollen: Thank
you, Chair. I know we have done a written submission already,
but would it be helpful for us to send you another letter with
any things that have come out of this discussion?
Chair: By all means.
Thank you very much.
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