Corporation Tax - Northern Ireland Affairs Committee Contents

Examination of Witness (Questions 65-111)

Q65 Chair: We will start a little bit early. Thanks very much for coming to our Committee, Lord Heseltine.

Lord Heseltine: Pleasure.

Q66 Chair: Just by way of very brief background, I think you are probably aware we are conducting two inquiries at the moment: one into the relative levels of corporation tax between the UK and Ireland, and the impact that may be having on Northern Ireland; and we are also looking at the wider issue of enterprise zones, because it is something the Government has thrown up. The purpose of this meeting is to discuss enterprise zones, but we can talk about taxation or whatever else we feel is appropriate. We will finish at four o'clock because there will be a vote at that time, or earlier if that is best. Thank you very much for joining us today.

Lord Heseltine: Thank you for inviting me.

Q67 Chair: May I invite you to say one or two words about the rationale behind enterprise zones and your experience of how valuable they were.

Lord Heseltine: My first involvement with enterprise zones as a concept was in 1979, when we were addressing the agenda for urban regeneration, and of course there were many ideas and many suggestions, but my colleague Geoffrey Howe had a strong belief that an enterprise-zone concept would be advantageous in stimulating activity in disadvantaged or run-down areas. My view, which was parallel to his, was that simple incentives of the sort involved in enterprise zones did not address the whole issue, and I was an advocate of the Urban Development Corporation. The simple solution to this duality of approach was to combine it. In the legislation that I was responsible for in 1979, we created Urban Development Corporations and we took through the legislation necessary for enterprise zones. The London Urban Development Corporation embraced in part, in Docklands, an enterprise zone. That is the legislative background, and we can discuss what I know of what happened and the relevance of it in any way you wish.

Q68 Chair: When we talk about enterprise zones, what, in your view, is an enterprise zone? What is it?

Lord Heseltine: The enterprise zone that we introduced was a designated area within which there were preferential tax rates—particularly local authority tax rates—and there were enhanced planning procedures. It was a combination of those two factors, from what I remember.

Q69 Ian Paisley: Did you ever consider altering corporation tax within that zone?

Lord Heseltine: I do not think so. It would have been a Treasury judgment, but I do not think we explored differential corporation-tax rates.

Q70 Gavin Williamson: Lord Heseltine, it is a pleasure to have you here. What kind of incentives did you actually use in the enterprise zones to attract specific business or industry sectors into those areas?

Lord Heseltine: There were two sorts. One was lower tax rates—not corporation tax; from what I remember, I think it would have been local authority taxes. The second aspect was a simplified planning procedure. I think your Committee will obviously have available to you the precise answers to that question, and obviously they are important, but you can play any sort of tune you like by combining all these sorts of incentives. The issue for me was whether that was sufficient and, if you like, I could expand a little on what I think happened.

Gavin Williamson: Please do.

Lord Heseltine: To the best of my knowledge, we did not put an enterprise zone into Merseyside—into the Liverpool Urban Development Corporation. We did put one into London Docklands, but not into the whole of the development corporation, rather that particular part that became Canary Wharf. The chief executive of the London Docklands Development Corporation was Reg Ward, and he, whilst recognising the value of the incentives in the enterprise zone concept, was very apprehensive of what I think loosely could be called the "tin-shed consequence"; that, if you give a relaxed planning procedure and financial incentives, you will move investment into that area, but you might find yourself losing control of the quality of planning and, therefore, the arrival of very large numbers of very low-grade buildings.

Reg Ward had a very clear view about the potential for the London Docklands Development Corporation: he did not want a tin-shed phenomenon; he wanted quality. So, one way or another, he managed to avoid the arrival of low-grade buildings. He used what influence he had, which was very considerable, to make sure that the buildings were high-quality, which is slightly at odds with what you would traditionally associate with the concept behind the fast-speed process of enterprise zones.

Undoubtedly, there were buildings and there were investments that took place in London Docklands, but the big development, of course, was Canary Wharf, and it would be very interesting to call Paul Reichmann, who was the genius behind Canary Wharf, to try to establish to what extent the enterprise zone incentives were relevant to his decision. I am guessing, but I knew him quite well, and my guess is that they may have played a part but it would have been not the whole story by any manner of means, because what he was doing was creating a new facility that was relevant to the financial world that was emerging at that time. They wanted huge trading floors and very fine facilities, and he created those in Canary Wharf, but at the absolute extreme of quality. Beyond any shadow of a doubt, if you go and look at the Canary Wharf buildings, they are phenomenal and highly expensive and very high-quality, so there was none of the cheap and cheerful quick-fix in Paul's vision.

I haven't a precise date, but I think it is fair to say that Paul did not emerge on the scene until the beginning of the second half of the 1980s, whereas we set up the enterprise zone from 1979. I think that again would support my feeling that Canary Wharf did not come to that part of our country as a result of the enterprise zone. It might have affected the precise location; you would have to ask him that.

Q71 Mel Stride: Welcome to the Committee, Lord Heseltine. I wonder whether we could just go back to Ian Paisley's question about corporation tax, which, as you pointed out, was a Treasury matter and was not something that was entertained or came about. Did you deliberate on that as a possibility?

Lord Heseltine: I have no recollection.

Q72 Mel Stride: Do you have any views on what you might have felt at the time about corporation tax—

Lord Heseltine: I haven't views on what I would have felt at the time, because I was preoccupied with this great swathe of derelict London and how we got life back there, and I had no doubt about the techniques that were necessary. Whilst tax incentives could have played a part, I did not think they were the essence of it. The essence of it was land ownership, dereliction elimination, and the reclaiming of these great areas to let the private sector in. That was basically what we had to. But on the wider issue, there is obviously a very obvious issue in Ireland as an island, because you have highly incentivised Republic tax levels, which are not relevant in the north, and self-evidently that is a major issue for politicians to determine. It is fair to say that as one of my previous incarnations on Merseyside I would probably have views about that subject as well.

Chair: We may come back to that in a minute.

Q73 David Simpson: It is good to have you with us today, Lord Heseltine, to discuss this subject. I remember the 1980s and 1990s; I started my company then and we took advantage of the enterprise zones. But you rightly say that, in those early days, the enterprise zones were concentrated in certain areas, and I assume they were areas with a greater sway in terms of social deprivation or whatever within certain parts of Northern Ireland. The current Secretary of State that we have, Mr Paterson, has put this label of an enterprise zone—and we have not quite got to the bottom of it yet—on Northern Ireland. While the concept was concentrated in certain areas in the days that you were involved in it, we get the impression that the enterprise zone that the current Secretary of State is talking about is possibly intended to cover the whole of Northern Ireland. In your expert opinion, do you think that it is a good move to cover the whole of Northern Ireland and market it as an enterprise zone, with perhaps the lowest rate of corporation tax in comparison with anywhere else on the island of Ireland, or would it be better targeted at certain areas of Northern Ireland?

Lord Heseltine: I am not a member of the Government and I have no access to the thinking of Government Ministers on this particular subject, but in general terms, it is a question of what you are trying to achieve. If you are trying to equate Northern Ireland with the Republic, then, as I understand it, in the Republic there is a generalised corporation tax at the lower level we all know about.

David Simpson: 12.5%.

Lord Heseltine: So, if you are trying to balance that equation, you go for a much wider concept. If you are trying to deal with the subject that I was dealing with in the 1970s and onwards, then you are looking at issues of specific deprivation and trying to attract investment into targeted areas. So, it is a political judgment, depending on what you are trying to achieve.

Q74 Dr McDonnell: I would like to pursue the idea of a concept that applies to all of Northern Ireland versus breaking it down. Although I agree with you, Lord Heseltine, that the Urban Development Corporation can sometimes do a much better job, could we pursue the question of Northern Ireland as a whole as distinct from smaller zones? Do you think the smaller zones work better or do they just suck in initiatives and create a negative effect?

Lord Heseltine: What you cannot know is to what extent the investment that moves to a designated area is being removed from other, adjoining areas: is it new investment or is it targeted to that area because of the incentives? You do not know whether the investment would have gone into Northern Ireland in some place or other, and then you may say, "We want to target it into this particular area with an enterprise zone." You may not be getting enhanced investment; you may be just concentrating what you would have got anyway, but then you have got the other issue of how much you can move from Great Britain into Northern Ireland or, the other way, from the Republic into Northern Ireland, if you equate the tax incentives.

Q75 Dr McDonnell: Could we just touch briefly upon what we were talking about in terms of the term limitation, if you like? A lot of the enterprise zones were for 10 years.

Lord Heseltine: Yes.

Dr McDonnell: Do you feel that exit strategy is necessary? Do you feel it could be allowed to run on for more than that?

Lord Heseltine: I think that you can argue perfectly well that, if you have a 10-year period, that is quite a long time in terms of investment, and people can make a decision about whether that gives them a better pay-off for their investment. It also gives you the opportunity, towards the end of the 10 years, to decide whether you want to extend it. I think it would be bad policy to say "this is forever", because all of us in this room know that nothing is forever in politics, so it is better, I think, to inject a degree of certainty, even if then you review it at the end of the designated time. I would like to see the Urban Development Corporations playing a role in the country today.

Q76 Mr Hepburn: From your experience—obviously, I am from the north-east, so I am aware of the Tyne and Wear Development Corporation—what boxes would need to be ticked for you to recommend a development area for Northern Ireland? In the past, you have concentrated on urban areas, whereas, as we know in the UK, a lot of rural areas have deprivation and very low incomes, such as Cornwall and Devon. What boxes would have to be ticked for Northern Ireland?

Lord Heseltine: That is a huge question. Available sites, availability of skilled labour, good labour relations, good education, incentives that are at least as good as those that are available in equivalent locations—these would be the big issues. But, then again, I myself would not underestimate the significance of someone who is prepared to get off their bottom and go and fight for the investment.

Q77 Ian Paisley: The raison d'être of these enterprise zones: was it to attract inward investment—overseas investment—into the locality, or was it aimed to attract local entrepreneurial drive, or did it not really matter, as long as there was the investment coming in?

Lord Heseltine: I think that the last part of your observation is relevant: it does not really matter, as long as it comes. Whether you get it from overseas or whether you get it by switching it from one more prosperous part of the country to a less prosperous area, it still has the desired effect. The truth is, of course, that a lot of inward investments, the big ones, are necessarily associated with big, specific grants, which, of course, are now covered by state aid rules, but wherever you find these activities of inward investment being competed for, it is very common to find countries trying to find incentives to consolidate the investor's decision to come.

Q78 Kate Hoey: A lot of things have changed in the 30 years or so since they were set up first, or you set the first enterprise zone up. I just wonder how you feel: has so much changed in terms of all of the Government's involvement in the private sector and industry that is there actually no need for an enterprise zone? Particularly in relation to somewhere like Northern Ireland, do you feel that, if it was to become an enterprise zone, the effect on the rest of the United Kingdom would cause people in lots of other areas to say, "Well, why them?"

Lord Heseltine: Things have changed very dramatically and for the better—I am absolutely clear about that—and if I had to list two of the things that have changed most significantly, they would be the partnership between the public and private sectors, which just did not exist in the late 1970s, and that was driven by the incentivisation processes that we introduced, whereby we only put money on the table in the public sector if there was an identifiable partner from the private sector. That was simple incentivisation—there is nothing very profound about that idea, but it had a very profound effect, because instead of shouting at each other from the top of mountains, the public and private sector became Bill and Ben, and actually suddenly found that they were of the same flesh and blood and that they could work together in a constructive way. That has had the most profound effect.

  The second thing, and it follows on, is that—I think it may well have been relevant in Northern Ireland but for a slightly different reason—in the city I knew best, which was Liverpool, everybody knew who was at fault. There was always a list of people to blame. What there was not was anybody prepared to say, "I will show you how to do it. Follow me." So, they were broken-backed societies. That has changed out of all recognition. If you go to these great cities today—I am thinking of the English cities, which obviously I know much better—there is a can-do attitude. There is a huge cadre of men and women out there, absolutely confident that they can build on what they have achieved over the last 30 years. That is an absolutely vital change.

Q79 Gavin Williamson: Lord Heseltine, politics seems to be so much about compromise, but when you were setting these up, was there anything that you wished you could have grabbed as an incentive—something that would have made them work better; something that would have made them stronger—and, if you could have had anything, what would it have been?

Lord Heseltine: The answer to your question is vision. We do not do vision in this country. If I had said in 1979, "We are going to set up an Urban Development Corporation and I have got good news for you: we are going to have an airport, we are going to have ExCeL, we are going to have the Dome, we are going to have Canary Wharf, and we are going to have an Olympic Stadium," all on the back of the vision of developing the east end of London, I would have been locked up. So, one had to do the minimum, and the basis upon which I won agreement from Mrs Thatcher, against the wishes of the Treasury and Keith Joseph at the time, was to promise that I would spend no money, other than within my departmental budget. I was able to do that because I was Secretary of State for the Department of the Environment and I had a huge budget, so I was able to just take money away from the housing or whatever it was, or roads or something, and funnel it into the reclamation of the east end of London. But if you look today, there are these extraordinary developments that have taken place, but you would be forgiven for noticing that, with one exception, they were all done by foreigners.

Q80 Gavin Williamson: That time—1979, 1980, 1981—was a very difficult financial time, probably worse than now, but you were still able to do that. You were still able to move things along in that way.

Lord Heseltine: Yes, but that was not, with respect, the problem; the problem was public ownership. I do not wish to make a party political point, but I'm going to do it.

Gavin Williamson: Go on—carry on, carry on.

Lord Heseltine: The local authorities were all Labour-controlled, and there had not been any private sector building in the post-war world. There had been massive council developments—huge flats, council houses, whatever it may be—and, over a significant period of time, the docks and the public utilities had gone, leaving massive dereliction and toxic waste in their place. The absolutely essential thing to do was to try to recreate balanced, vibrant communities, because what had happened is that the younger, better educated, more energetic, more skilled children had gone to buy their homes in the leafier suburbs, wherever they happened to be, and the people who were left were the parents living on the council estates. So, it was quite apparent to me what we had to do and it was easy to do, even in those circumstances, because the house-builders were desperate to create private sector houses in the east end of London. The moment we had an Urban Development Corporation and we owned land and we could reclaim the land, led by people like Barratt Homes and Wimpey, I think in 1981, I announced 2,000 new houses in the east end of London. This was basically the first private sector housing opportunity in recent history.

Q81 Gavin Williamson: Lord Heseltine, you mentioned an interesting point just before that: you spoke about the lack of vision and the fact that so much of the development came from foreign businesses. Do you think, as a nation, we constantly lack entrepreneurial vision?

Lord Heseltine: You cannot say yes to that, because there are companies of such excellence that are British. Many of them operate on a worldwide scale. But there is a short-termism about much of the in-built attitude and there is certainly a short-termism within the political culture and much of the media. I can give you a specific example: I think it was the October 1981 announcement of the Docklands Light Railway. That was a sort of Toytown announcement, but it was all I could get. If it had been France or Germany, you would not have done the Docklands Light Railway. It was simply not up to the job. You would have probably done the Jubilee line or whatever it was in an enhanced way. I have not thought that through, but I suspect that is probably something you would have done.

I remember when Paul Reichmann was on the verge of going bust for the first time, I think, in Canary Wharf; the Government had let him down over the Jubilee line. We had done a deal whereby the Jubilee line would be done on time, but the recession came. He was trying to let his properties, but the Jubilee line was not complete and he was in deep financial trouble. If the Jubilee line had been the responsibility of the private sector, he could have sued them, but it was a public sector thing and he did not. There just is not that ability to cast forward on a big scale, and I still believe that that is the case in the east of London today. I think that the dynamism has gone out of the process.

The Olympic Stadium is a very interesting example in that the machine of the Ministry of Transport and British Rail were going to bring the cross-Channel link in through Waterloo to London. Ove Arup spotted the huge opportunity and undertook a private-sector initiative to bring the Channel link in north through Stratford to London, with the potential to go further. Of course, Stratford is now a huge development, but it was a very close thing that we spotted that this transport-oriented concept was going to hit the buffers at Waterloo, and that actually what you wanted to do was the alternative.

Q82 Oliver Colvile: Lord Heseltine, thank you very much indeed for coming to see us, and your wise words are very welcome here. In fact, I should probably make sure that people are aware that I have an interest in that I still have a shareholding in a company that did a lot of work in regeneration as well as in public consultation. Two questions I have for you: first of all, when you set out on to actually regenerate the east end of London, did you have a vision for the kind of business that you wanted to try to encourage into the place?

Lord Heseltine: The kind of building?

Oliver Colvile: What kind of industry? Did you have a view of what kind of industry should be coming in? Secondly, one of the very big key problems which you have when you are doing regeneration is not only making sure that the transport infrastructure is there, but that you have got the skills base too, because people are not going to go and build developments and get industry there without having the supporting skills base too. Were those two things that you considered at the time?

Lord Heseltine: Personally, I am very sympathetic to the thrust of your question, but the skills base had nothing to do with the Department of the Environment, and if I tried to involve another Government Department, it would have been another reason why we just did not make progress. That is the way of the world. So, I took what I could get and it was fortunate then that the Department of the Environment was very big and powerful and comprehensive, so it had the basic ingredients.

But I would totally agree with you: it is no secret that I am a very passionate advocate of the concept of directly elected mayors in our big cities for the very reason that that is precisely how to get that corporate approach to the evolution of the cities. In my view, you need somebody who brings together the policy on education, skills, crime, transport, housing, industrial development and urban regeneration—you need someone with a vision, which is, frankly, what every society broadly equivalent to us has done.

Q83 Mr Benton: Good afternoon, Lord Heseltine. I was interested in your references to Merseyside just a short time ago. As a former councillor for Bootle on Merseyside at the time of your initiatives, I just wanted to, if I may, correct one thing you attributed. It is nice to know, and my constituents will be delighted to hear it, that it was Labour councillors at the time who were responsible for the demise of Merseyside. I would like to correct you on that before I pose a question, but the point was the decline came about through the diminution, if you like, of the sea-going industry, maritime activity and other traditional industries on Merseyside—something similar to Belfast and Northern Ireland.

What I want to do is, first of all, appreciate and place on record, because it would be churlish of me not to do so, the contribution you made and the initiative you took at that time, because it is appreciated, and I would further like to point out, in the light of your comments, that your action at that time was most welcome indeed, because part of the problem was that there was no interventionism by Government, and I think your Government at the time would collectively have agreed with that. In fact, it was the policy at the time not to intervene, so your actions were much appreciated and they were helpful, and I want to say that.

So, we move on to the dilemma that we have got now as a Committee, some 30 to 40 years later, about deciding the effectiveness of an enterprise zone in Northern Ireland. My understanding is that it embraces the whole of Northern Ireland. Obviously, in the light of your vast experience and your knowledge of these things, my question is rather a simple one. Despite the passage of time, and in the light of your experience, if you were now in our present position or now a member of Government, would you think that an enterprise zone was the answer? You have said yourself that there was no way of quantifying the efficacy of the initiative in terms of actual jobs, and I understand that because I have posed it at a previous evidence session.

So, to be absolutely blunt about my question, if you were in our position now or you were in a position of Government now, how would you be looking at the situation in Northern Ireland in terms of setting up an enterprise zone? It is not a question of either/or, because of the relevance of the reduced corporation tax. I think that would be really helpful if you could proffer an opinion in terms of those two points to the Committee.

Lord Heseltine: You raised two issues, and forgive me if I respond to your earlier explanation. I hope I did not say—I certainly do not believe it and I did not intend to say—that I thought the Labour party was responsible for the demise of Merseyside.

Q84 Mr Benton: The Labour council.

Lord Heseltine: No, I do not believe that for a minute. Liverpool was run by Conservative and Labour authorities, and the metropolitan county was a Conservative council in 1980, so I have never seen it as a party political issue. There are obviously exceptions and there are obviously cases one discusses, but in the generalisation I would not say that. I am afraid I also do not agree with you that the decline was because of the decline of the maritime industry. The fact of the matter is that Liverpool has now got a bigger tonnage going through it than it ever had in its history.

Q85 Mr Benton: That would be technology—highly technological, yes.

Lord Heseltine: It is containerisation. But what Liverpool did—and this was not the council but it was a combination of bad management and trade union militancy—was to react to the changing pattern of the maritime industry in a way that persuaded the ship owners to move. That happened at a time when—and this is the vision thing—Rotterdam, Antwerp and Felixstowe and such places were driving a new opportunity of improved labour relationships and massive infrastructure investment. So, we had this extraordinary phenomenon that the Atlantic Bridge, which is the shortest sea journey across from the east coast of America, should have been exploited hugely to the advantage of Liverpool, but actually the ships were going to Rotterdam and breaking bulk, whereas they should have been going to Liverpool.

The vision was not there and the drive was not there to see the way the world was changing. The Dutch did see it, and of course it has had massive consequences; on a lesser scale, Felixstowe, Southampton and Bristol took the same advantage. So, that is the history of it that I believe in but, as I say, there is now a totally new spirit on Merseyside and there are huge opportunities on Merseyside. It is a question of how to unlock them.

  Coming now to your second issue, what would I do? I believe in competition, and I would encourage in Northern Ireland a worldwide atmosphere engendered by competition to encourage excellence in whatever field the local people feel they can excel in. So, I would not say, "Here is London's view. You do it," because the short answer is that London does not know. It is a mistake to think there are a lot of clever people here, but there will be very clever people in Ireland who have ideas, and if you put the money on the table in a competitive environment and you say, "If we give you this money"—capital investment, by the way—"what will you do to add to it?" and they will go out into the world and say, "This is where Belfast is excellent. We have got this facility, that facility. We want to build on it." There are models.

With some trepidation, I did put the following suggestion to the Cabinet in 1990, and I will put it to you: you should look to see what has happened in Hokkaido, the northern island of Japan—the northernmost tip of the northern island of Japan—where they have a directly elected chief executive, passionately keen on developing Hokkaido. There are problems in Northern Ireland, but I tell you there are problems in Hokkaido. It is under permafrost from November to March. But the dynamism I saw when I was there—and I have to say I am now looking back quite a long time—as the chief executive was trying to build that place on myriad different schemes that he had got working with local people was an inspiration.

Of course, a high proportion of those schemes will never get off the drawing board, and that, in this country, would mean that the national media would concentrate on one failure after another and say "It cannot be done", but the mayor that I am talking about just said, "Fine, that did not work. We have got another one." So, competition was built on excellence, stimulated locally by people who live there, work there, dream there, and incentivised by Government putting the money up for bids—not allocating it—on the basis that there would be gearing.

Q86 Mr Benton: Chairman, excuse me if I misheard Lord Heseltine. I apologise but the record will reveal that he did make a reference to the Labour council.

Lord Heseltine: I did in terms of the east end of London.

Q87 Chair: I think that was a reference generally to—

Lord Heseltine: It was the east end of London, and what I said is true.

Chair: We are happy. On Europe—

Lady Hermon: Chairman, can I just pick up—

Chair: Yes, sure. We will come to Europe in a minute.

Q88 Lady Hermon: Thank you, Chairman. I am delighted, Lord Heseltine, to have you here before us this afternoon. Could I just pick up on what you have just said, and refer to your present appointment as the chair of the Independent Approval Panel for the Government's £1 billion Regional Growth Fund? I understand the Growth Fund only applies to England.

Lord Heseltine: Yes.

Q89 Lady Hermon: Instead of looking at it becoming an enterprise zone, should we in the devolved area of Northern Ireland be looking at a Regional Growth Fund instead, or do the two work in tandem? What would you suggest?

Lord Heseltine: The answer that I gave to the previous question about money up for bids is exactly what the Growth Fund is about: it is a fund for England, the disadvantaged areas adversely affected by the cuts in public expenditure. We have the central pot. What bids have we got from local people to use the money if they win the competition? The other parallel that I would draw to your attention is City Challenge of the 1990s, which is germane to what we are talking about. It said to 30 local authorities, I believe, "We have got enough money to fund a community revival in 10 areas and we will offer"—it does not sound a lot of money now but it was quite a lot then—"£35 million over five years—£7 million a year—of Government capital. What will you add to it? You have to designate the community that is deprived; what are you going to do with it?" The most successful of all of them was the Hulme estate in Manchester, which, as one or two of you may know, was one of the worst slums in Europe. Now look at it: quite extraordinary. That was down to City Challenge.

Q90 Lady Hermon: If I could just press you on that point then, Lord Heseltine, should the Northern Ireland Assembly be looking more towards a regional fund—a growth fund—in Northern Ireland and not be worrying too much about an enterprise zone, if they had a choice to make?

Lord Heseltine: They are all part of a package. You cannot fault the concept of an enterprise zone as a means of focusing on an area that has got incentives for people to invest in, and therefore concentrating investment. That is a concept. It is tried and it works, but I think the question you are putting to me is: is it enough? I am not saying "don't do it"; what I am saying is, if you really want to get the show on the road, you have to think bigger and see a more comprehensive opportunity.

Q91 Jack Lopresti: Did you encounter any problems with the European Commission over rules on state aid with the enterprise zones?

Lord Heseltine: Not that I know, but this was 1979. But certainly, with the Regional Growth Fund, we have to be very clear that they are state aid complaint, and that would apply, I think, to you as well.

Q92 Chair: How easy is it for you to get advice in advance of doing something though from the EU?

Lord Heseltine: I think there are a lot of very clever officials in Government Departments. They know broadly what the rules are and they can advise people, so I think the answer to your question is that there would be no substantive difficulties in advising people as to what the options are.

Q93 Naomi Long: First of all, Lord Heseltine, it is great to have you at the Committee. You mentioned a couple of words that resonated. One was dynamism and the other was vision. I suppose one of my biggest concerns about the current proposals is that the Government have some good ideas but it does not really add up to a comprehensive vision for actually driving this idea forward. But on another issue that has been raised with us with respect to enterprise zones, a number of people have raised concerns about the issue of dead- weight; so, effectively, things that would have happened anyway that were then rewarded, if you like, for being within an enterprise zone. Did you take any specific steps in order to try to avoid rewarding developers for doing that which they would have done anyway, or did you simply accept that that was part of a price worth paying in order to regenerate those areas?

Lord Heseltine: I think it was closer to the latter, but you are right that this is one of the criticisms. There were quite a lot of economists who studied what was going on and said that the changes had had minimal effect because it would have all happened anyway. It might have happened in some way that was slightly different. But you run into all sorts of complications: you can have an enterprise zone, a designated area, probably fairly deprived, and you get the investment there but the people who take the jobs all drive in from more prosperous areas. How can you control that? This is not perfection.

Q94 Mel Stride: One of the things that we as a Committee and the Northern Ireland Assembly are conjuring with in this whole debate is the cost of actually rolling this out. I guess there are, truly speaking, two aspects to this: there is the cost of the incentives, but then perhaps you have got to weigh that against the growth that would not have occurred had you not had the enterprise zone, and so on. Looking back at what you did in the 1980s, do you have any comments on those two aspects? Do you think it cost the public purse a huge amount of money, or would you argue that, through time, it paid for itself?

Lord Heseltine: In politics, there are things that sometimes are right. If you have a massive disparity of wealth and you have historic dereliction that other people have created, there is a point, if you are interested in politics and you believe in a balance, when you have to put it right. There will be a lot of people with slide rules who will measure what you did but I look back over the urban renaissance of the 1980s and 1990s and I know it was right. I wonder what Disraeli would say if he was sitting here when you asked him, "Did you think that building the London parks was economically viable?" Would he have said, "They did a fantastic job on the basis that it was near Hyde Park, so that ticks my box"? Sometimes, you just have to make a judgment about what you are in politics for.

You will never get the Treasury to adopt that view. I have no complaint about that, because it enlightens the debate between those of us responsible for spending policies and those of us responsible for looking after the cash. You give some, you take some; you lose some, you win some, and that is politics. So, I do not have any difficulty in saying that rebuilding England's cities has been one of the most exciting processes I have ever been involved in.

Q95 Mel Stride: Less focusing here on the moral judgment of whether it is right or wrong in respect of the costs—and I think I would be on your side of the table on that—and on the purely dry economic point, do you think that the activity in the 1980s across all these zones was a net contributor to the economy at the end of the day, or do you think it was something that absorbed a lot of public money and was more about distribution than wealth creation?

Lord Heseltine: I do not know the answer to that question. There have been studies. They were going on when I was doing it and there were economists saying, "All this is a waste of money," and all that sort of stuff. Frankly, I do not mind how many tables or charts they produce, because I do not agree; I wanted to bring life and hope and opportunity to deprived areas, and it cost money.

Q96 Lady Hermon: One thing just crossed my mind, and that is I wonder if you would be so kind as to come to Northern Ireland and give just as inspirational evidence to the new Assembly after the Assembly election in May. It has been very powerful here this afternoon. Would you mind if I asked: does the present Secretary of State, Owen Paterson, seek your advice? Owen Paterson, before the general election, spent a lot of time in Northern Ireland. He was very, very generous with his time and, in fact, the present Prime Minister, David Cameron, spent a lot of time in Northern Ireland before the general election. They did talk about an enterprise zone and they did start that sort of conversation. I wonder: have either of them sought your views about your experience of enterprise zones and their success and their problems? Would you mind if I asked you that?

Lord Heseltine: No, I do not mind a bit. I have not been involved with the Welsh, Scottish or the Northern Irish Secretaries on any of these matters, but I have certainly been involved with the Prime Minister and he has talked to me at length. Indeed, I was chairman of the Committee that reported to him on urban renaissance about 18 months before the last election, and these ideas were then put to him and they were published and some of them found their way into the coalition agreement.

Q97 Lady Hermon: Would you kindly tell the Committee a little bit about how the enterprise zones worked when they were first established? Was there an overriding body? To whom was it accountable? If we were to do this in Northern Ireland, to whom would an enterprise zone be accountable? How does it actually work in practice to get the best out of it?

Lord Heseltine: I only remember in detail about the London one, and that was administered by Reg Ward as chief executive of the LDDC. There were others but I cannot remember, frankly, where the accountability would have been.

Q98 Lady Hermon: Not to worry; I am sure, if I read my history, I could find out.

Lord Heseltine: I do not think it would have been in my Department, because it was a Treasury-inspired idea, and I guess it had more to the DTI than the DoE at that time, but I do not know.

Lady Hermon: Not to worry. Thank you.

Q99 Mr Benton: You have covered the grounds of the questions I wanted to ask, but I was just thinking: to me, enterprise zones are all about wealth creation and job creation. Have you any recollection, Lord Heseltine, in terms of what actual jobs were created, what type of jobs, what type of skills were required, going back, again, to your endeavours back in the 1980s? Is there on record anywhere the type of jobs that were created, the number of jobs; some record of accountability as to what the initiative actually appreciated? Also, I would like to ask, again, in retrospect: did you ever consider at any time an enterprise zone for Northern Ireland?

Lord Heseltine: It would not have been anything to do with me. I think Humphrey Atkins was the Secretary of State at that time, if I remember. Whether he did or did not, I simply do not know. But on the other aspect of your question about the sort of jobs: again, as I said, there were economists who did studies on these things. My reaction would have been, "Well, what does it matter?" I am not a great one for saying that there is an alpha job and a beta job and a gamma job. People are actually rather interested in whether they get paid, and I leave it to them to decide what sort of satisfaction they get, as long as it is legal. So, I do not have an answer to the question, but I suspect that you could get an answer, but I do not know what you would learn by it because that was 1979 and the world is totally different.

Q100 Dr McDonnell: Lord Heseltine, I have a simple question about the Urban Development Corporations, but before I ask it, I thank you for your inspiration and your leadership and your vision, because I think you have been an inspiration to many of us, and certainly, while you may not have been much in Belfast, I took part in and was a director of an Urban Development Corporation called Laganside that totally renewed the face of Belfast, and a lot of it flowed from your work here. Could you just maybe, in a couple of minutes, tell us why you felt the Urban Development Corporation worked better than the enterprise zone? I think you alluded to it.

Lord Heseltine: Yes, without any doubt, because the Urban Development Corporation centralised in one body land assembly, planning, urban-dereliction elimination; it had the resources to get hold of an area, to draw up a plan for it, either inherit the land by transfer from the local authorities or public utilities, give planning consent effectively and quickly, and if there was a piece of yesterday's dereliction, they could clear it up and make the site competitive. That was the first thing.

The second thing: it was a partnership of the public and the private sector, and it was a partnership of the central Government and the local government. All of them were resisted bitterly by local authorities, but I designed them very carefully to reflect the legitimate entitlement of local authorities. I put the leaders of the local authorities on to the Urban Development Corporations. I made Nigel Broackes the chairman—he was a very distinguished property developer at the time; I made Bob Mellish, who was a former Labour Minister of Housing and an east end Member of Parliament, the deputy chairman; and I put private sector expertise on. Again, I dare say they would not ever say it, but several of the Labour leaders said to me years later, "You would be amazed what a liberating effect it was to be freed of the constraints of my party group."

Mr Benton: I understand that.

Q101 Dr McDonnell: Lord Heseltine, perhaps you might come back on another occasion and give some advice to the new generation of Conservative MPs, some of—

Lord Heseltine: I wasn't that good at giving advice to the other generation of Conservative MPs.

Dr McDonnell: Perhaps we might have another session with some of my friends who are here with us today and some who are not quite here.

Chair: That one would have to be in private, I think. Mel?

Mel Stride: Was I question number nine, Chairman? Sorry.

Chair: 12.

Q102 Mel Stride: 12—I am getting ahead of myself here. If you were to instigate an enterprise zone for Northern Ireland—and, in fact, just looking at the last question here, it has more and more dawned on me, the obvious, I suppose—there is a huge difference between what you were doing with enterprise zones as derelict city centres and reclaiming and so on, and what we are looking at in the context of Northern Ireland. Yours might be termed perhaps a very important but micro approach, and this is perhaps a bit more macro, about shifting the balance of the economy in Northern Ireland from the public to the private sector and so on. What sort of things would you instinctively look at in the case of Northern Ireland and an enterprise zone, given the things that we are trying to do in that context?

Lord Heseltine: Excellence on the ground, availability of skilled labour, availability of local leadership; in a word, strengths. Build on strength.

Q103 Mel Stride: If we took the leadership aspect of that, what would you be seeking to do as Government to try to enable that to rise and be strong and happen?

Lord Heseltine: I think that I am going to avoid that question, because the complexities of Northern Ireland politics are not something I have ever been involved in. I know that there are—as I search for my words—many pitfalls for English MPs, or ex-MPs, pontificating on how to run Northern Ireland. I have managed to get to this advanced age without falling into one and I intend to avoid it from now on, if I may. There are just so many local involvements in Ireland that you have to understand the subject like you do, and I do not. Although I have to say I did spend a very happy 18 months in Northern Ireland at the age of seven, in the war.

Oliver Colvile: It has a very good tourist industry as well.

Lord Heseltine: I was at school there.

Q104 Oliver Colvile: We have been over to southern Ireland, where we have looked at how they have been able to encourage multinationals from all round the world to come and invest. One of the things that they also set out to do in a big way was to try to encourage a cluster approach, so they have got pharmaceuticals, they have got information technology and things like that too. We are not talking, as you rightly say, about regeneration of land, because that is another part of the equation, but do you see that clusterisation as being an effective way of trying to get the regeneration going, and would you also, as I do in Plymouth, which is my constituency and where I have similar issues to those in Northern Ireland, try to make sure that you can use the universities much more in order to act as the catalyst for regeneration too?

Lord Heseltine: If I may refer you to my previous answer—I would look for strengths. As for your question about how to identify the particular strengths, such as strong universities or potential clusters of sophisticated industries—find out where there is strength and then try to build on it. Self-evidently, a good university with spin-off activities, a cluster based upon a prestigious company that wants to develop its suppliers or associated companies, whatever it is, are strengths.

Oliver Colvile: Thank you very much. Perhaps you will get so many invitations during the course of it that at some stage we might have a further conversation about the Plymouth economy as well.

Q105 Kate Hoey: You mentioned earlier the politics. Obviously, of course, many of the reasons for people asking for enterprise zones and so on stem from the fact that the Republic of Ireland has much better incentives for businesses to invest from abroad and, obviously very importantly, the corporation tax at 12.5%. Do you see that as something that is being used perhaps just as almost a reason for not doing things in Northern Ireland, unless they get the corporation tax down, and that perhaps, really, it is not just about equalising with the Republic, but more about having much more of a have-do and we-can-do approach and remembering that we are part of the rest of the United Kingdom, who would not actually have their rate going down to 12.5%?

Lord Heseltine: I do not think that the Republic corporation-tax level is an issue related specifically to Northern Ireland, because it has exactly the same effect upon Great Britain.

Kate Hoey: Exactly—that is my point.

Q106 Chair: One of the points put to us is the effect because Northern Ireland obviously shares the land border with Ireland. Do you see that as being particularly significant though? Perhaps not.

Lord Heseltine: I do not think we are conducting an inquiry into whether the border should be changed.

Q107 Chair: No—not today, we are not. Certainly not today, no. But that is seen as being the problem: it is the only part of the United Kingdom that shares a land border with another part of Europe.

Lord Heseltine: Scotland is beginning to throw up similar issues.

Q108 David Simpson: Just very briefly, I have listened to everything that you have said, Lord Heseltine, in relation to economists, and I agree with you from that point of view, and political decisions and all the rest of it. Whenever we look at it all, even if we had lower corporation tax, we had an enterprise zone, all of those things, and all the ducks in a row, would you agree that it comes down to a gamble and taking a risk, along with the vision that you talked about? There is no guarantee, there is no silver bullet, there is no magic wand but, at the end of the day, somebody somewhere has to take a risk and say, "This is what we are doing. We are going to go for it."

Lord Heseltine: I agree with that, and there is no short-term solution.

Chair: Just a few minutes left. Does anybody else have anything they would like to ask?

Q109 Mr Hepburn: What would be the most important for Northern Ireland: to get the corporation tax on a par with the Republic, or to get an enterprise zone, if it was one or the other? For example, if they go ahead with an enterprise zone, is it absolutely futile because they are not on a par with the Republic in terms of corporation tax?

Lord Heseltine: I do not think it is fair to ask me that question, because this is so much tied in with the Anglo-Irish relationships and the issue between Northern Ireland and the rest of the United Kingdom. This is a matter for Government. It is lonely decision making and I do not think I wish to take a stand on that.

Q110 Chair: It is interesting that the Irish Government would be happy to see a harmonisation of the corporation tax. Could I ask a slightly more general question? As you are aware, we have got the debate on youth unemployment at the moment, which is at a quite worrying level, as are the unemployment levels generally across the United Kingdom, and that is even before the impact of the cuts. What comments would you have on that? How would you see that going? What could best be done to improve that?

Lord Heseltine: I think we have gone through a period where the effect of the cuts has become the agenda item, and the dialogue has been conducted very largely between the media and representatives of those affected by the cuts, and those representatives have a job to do. If you ask a trade union official what he thinks about the cuts, he will expand at considerable length about the damage to his membership and everything else that occurs to him or her. If you talk to a representative of the voluntary sector, you will get exactly the same story. If you talk to a representative of local government, you will be told of the harrowing experiences that are going to happen. And that has been basically the backdrop against which this whole dialogue has taken place.

What you do not get is any attempt to quantify what is happening in the private sector marching in parallel. We can all take a cynical view about economists, and I probably share that approach, but as I understand the view of the OBR—the Office for Budget Responsibility—the British economy in this current year is likely to expand at bordering 2%; that is the sort of figure. Make it 1.8%, make it 2.1%—they do not know and I do not know—but we are talking about that sort of figure.

The private sector is four times the size of the public sector and employs 20 million people. 20 million people growing by 2% is 400,000. Job losses in the public sector are something like 80,000 in the current year. If you put that together—or anything like it—we are not going to see soaring levels of unemployment. I do not want to appear harsh or anything like that, because there are going to be lots of people who lose their jobs, and that is painful for them, and they will have to move—that is often inconvenient and difficult and sometimes not successful. But the macro position seems to me that, if the economy is growing as we are told it is, then there will be a very significant number of private sector jobs, which is what the Government's strategy is based on, and that will be bigger than the losses in the public sector. My guess is that that is what is happening.

We all know, for example, that the manufacturing base is enjoying, in many sectors, very significant export-led expansion because of the devaluation of the pound, and people then say, "But it is only 13% of the economy, so what are you talking about?" The fact is that anyone who knows anything about the manufacturing sector knows that, over the last two decades, they have outsourced anything that can be done by a service-industry company. They all used to do their own printing, they would have their own window-cleaners, they would have their own canteens—they would have all these things within the manufacturing sector. They have now outsourced all of that; the manufacturing sector is, therefore, much smaller, but the dependent service-industry sector is, therefore, still there. If an exporter is doing well, you can be absolutely sure that the hotels near that particular company will be full.

You can go on and on about this, and my own view is that we will look back on this period as a difficult period, but not as harsh and not as long term as it has been forecast to be. Next year, the OBR is forecasting even better growth figures than this year.

Q111 Chair: It has been a fascinating session. May I thank you very much indeed on behalf of the Committee for coming and sharing your experience with us? I am sure it will be very valuable. Thank you very much indeed.

Lord Heseltine: Thank you.

Chair: We will reconvene at 4.15, because I am certain there is going to be a vote.

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