Examination of Witness (Questions 153-189)
Q153 Chair: Mr
Smyth, thank you very much for joining us today. I think you're
probably aware that we're looking at a couple of issues at the
moment in Northern Ireland; one is the corporation tax issue,
with particular reference to the rate in the Republic of Ireland,
and the impact that has on Northern Ireland, but we're also looking
at the wider aspects of attracting business, jobs and prosperity
to Northern Ireland, and we're looking at the enterprise zone
concept, so we're very pleased that you were able to join us today.
Would you like to begin by introducing yourself and telling us
a little bit about your work with the CBI?
Nigel Smyth: Yes,
thank you very much indeed. I am Nigel Smyth, the Director of
CBI Northern Ireland. I am delighted to be back again; I was
here in November on the corporation tax. We have submitted a
short paper. I was going to take a couple of minutes just to
say a little bit about some of the context of that. Something
interesting that I may touch on is that since we submitted the
evidence, we have actually published, with seven other business
organisations, a manifesto or a jobs plan, as we've called it,
obviously to try to influence our political parties in the run-up
to the election, but also in terms of a consultation currently
under way in Northern Ireland on economic strategy and also in
terms of our budget. There may be some elements in that which
are relevant to the discussion today.
As I say, we have submitted a short paper. It's
fair to say that when we were consulting our members on this,
there was a degree of difficulty around the vagueness of this,
because historically, looking at enterprise zones, they have been
fairly localised, and very much focused on urban regeneration;
most of them were in the 1980s and '90s, so very localised on
the back of that, but our understanding of what the UK has referred
to is Northern Ireland as an enterprise zone. So we had a little
bit of trouble getting our hands around that one on the back of
that.
Clearly, we were aware that, last time around, enterprise
zones traditionally had three main features: one was enhanced
capital allowances, up to 100% allowances; there was the whole
area of rating relief; and there was also simplified planning.
We have highlighted in the paper the evidence from these. I
was a little surprised, but there was quite a lot of academic
evidence questioning the effectiveness of enterprise zones previously.
Clearly, there were benefits in terms of job creation and indeed
in terms of property development, but it was quite clear from
quite a variety of academic evidence that they were relatively
expensive, in terms of cost per job, and there was quite a great
deal of local displacement from the vicinity. Also, quite clearly
landlords were one of the primary beneficiaries of the rating
relief; so when the rates went down—in fact they were zero
for companies—they found that the rental went up instead
on the back of that. Indeed, Members may well be aware that there
were two reports out earlier this week from the Work Foundation
and the Centre for Cities that had similar conclusions: they didn't
create enough jobs, they were too expensive, and in many cases
the benefits were short-term. Indeed, they argued that there
was significant local displacement on the back of that.
We would also argue that the whole debate around
economic development policy has moved on fairly considerably over
the last 20 or 25 years. There is a much greater focus, certainly
over the last decade, on developing capabilities within companies,
particularly around innovation and skills. The cost per job over
that period would have come down quite significantly.
However, in terms of having Northern Ireland as an
enterprise zone, it could provide an interesting marketing tool,
but in terms of effectiveness it would very much depend on the
incentives that were within that. We highlight that there may
be potential for sector-specific incentives. We as an organisation
are not too sectorally focused, but we gave one example in our
paper—the film industry; there could be particular tax incentives
to help that develop. We have a young, flourishing film industry,
but some additional tax breaks around that would actually help
develop that further. There may be other things from other sectors
on the back of that, although I would say that, other than the
tax side, a lot of the initiative to support those sectors, whether
it's in the food or the ICT sector, are likely to be in the control
of the Northern Ireland Executive in terms of innovation policy,
skills policy, links with the universities, et cetera, on the
back of that.
My final point at this stage, Chairman, is that we
would argue that there should be very clear objectives about what
we're trying to do here in terms of Northern Ireland and in terms
of what is reflected in the jobs plan. This is about increasing
highquality foreign direct investment; it is about encouraging
and accelerating the growth of the indigenous enterprises; it
is about enhancing productivity; and this is very much about increasing
exports. Our own analysis, as I set out in the jobs plan, is
that we probably need to double the rate of our exports. In the
last 10 years, Northern Ireland exports have grown by about 30%;
we believe that, to hit the job target we have set out, our exports
need to grow by about 60% over the next decade. That is clearly
where the focus has to be. In the last decade, we have seen a
lot of employment creation, but that has been very much driven
by strong growth in public expenditure that is not going to be
repeated and by strong growth in credit, retail, and, indeed,
the whole housing boom and bust that we've come through. None
of those are likely to be repeated over the next decade, so we're
very much looking at policies that can encourage investment on
one hand and exporting on the other hand.
Q154 Chair: That
would be for the whole of Northern Ireland? You wouldn't see
breaking it up into bits as advantageous?
Nigel Smyth: Absolutely.
We have looked at this purely strategically as what we have to
do in a Northern Ireland context. Clearly, some people may argue
that we look at disadvantage, but we see it on a totally different
level. The challenge is that it's a Northern Ireland challenge.
Q155 Ian Paisley:
On one level, Nigel, the circumstances in which Northern Ireland
finds itself in 2011 are very different from the circumstances
in which the UK found itself in 1980, when enterprise zones first
came along. From what you are saying, am I right to take it that
it's a bit of a misnomer, and it's not really an area where we
should be going?
Nigel Smyth: Yes,
I think that is probably a correct assessment. Certainly, we
need to have much more focus. This is all about encouraging investment
and exports. We have in Northern Ireland, clearly, significant
areas of disadvantage and required regeneration. However, we
do not think the focus of another enterprise zone should be focused
in that area. It should be trying to focus on: "How can
we help encourage investment generally, and how can we export
our way out of this?" Just focusing something on local land
regeneration, addressing derelict property, is not going to be
the answer to Northern Ireland's problems. I should say at the
outset that we believe—this is why our manifesto is called
the jobs plan—we have a very significant challenge, in terms
of rising unemployment, particularly given the number of young
people coming out from schools, colleges, and universities. We
believe that over the next number of years we're going to have
very significant problems. We are already running at over 20%
youth unemployment. We believe that will continue to increase
over the next number of years.
Q156 Lady Hermon:
Has the CBI actually submitted that analysis of the Secretary
of State, Owen Paterson's, suggestion? He's held this idea for
an awfully long time, before the general election and since it—the
idea of an enterprise zone across Northern Ireland. Isn't he aware
of the CBI's approach to this enterprise zone?
Nigel Smyth: He
is aware of our jobs plan. That is not just the CBI; that is
seven other business organisations on the back of that. Clearly,
we understand that there is a paper, to which the Committee has
referred, that is not in the public domain yet, that has been
produced by the UK Government, looking at the rebalancing, looking
at an enterprise zone, looking at the whole area of corporation
tax, and various things. That is not out for public consultation.
Now, clearly, we will respond to that when it does come out.
Our document was only published on 2 February, so it's a fairly
recent document, and it is out in the public domain, and I am
happy to pick up any particular questions that there are around
that.
Q157 Oliver Colvile:
First of all, thank you very much for coming to see us again,
and I hope it was not a difficult journey over. I should declare
an interest in that I have an interest in a public relations company
that dealt with a lot of property redevelopment and things like
that, in which I have retained my shareholding. What I wanted
to ask you, before I get on to the main substance, is this. We
had Michael Heseltine come to speak to us the other day. He was
obviously the Secretary of State for the Environment at the time
when the original enterprise zones were set up and created. One
of the things that he talked quite a bit about was the necessity
to regenerate brownfield sites in London and Liverpool, and places
like that. We got the distinct impression that frankly, if he
were doing it now, it would be a different story from what it
was in the 1980s and the 1990s. Are there, do you think, large
parts of Northern Ireland that need that kind of infrastructure
regeneration, or would you say that it has also moved on to skills
and other areas?
Nigel Smyth: Clearly,
it's moved on to skills, but we have areas, particularly in North-West
Belfast and in Derry/Londonderry, where there will be inner-city
areas, very significant areas of deprivation. When you're dealing
with investors, quite often they are looking for neutral areas.
For many of these areas, while we clearly want to encourage local
regeneration, part of the challenge is to increase the levels
of mobility of the people in these areas to come out into the
centre of Belfast, where a lot of the companies are going, and
a lot of the service industries are going.
There is clearly a very significant problem in those
areas of disadvantage around skills. We have very significant
problems around literacy and numeracy. Last summer, 43% of our
GCSE students came out without an AC grade in Maths and
English. Most of our members will not be recruiting those people,
unfortunately. It's a very competitive labour market. Indeed,
in our jobs plan, we do say that we need a radical improvement
in those areas, and indeed in the attitude to the people who are
coming out. The answer is yes, there are some pockets, but our
view is that there is a bigger picture. If we're going to grow
the Northern Ireland economy, it's going to be export-driven.
As our jobs plan over the next decade, we have had Oxford Economics
doing some assessment; we wanted to come up with a figure that
was reasonably realistic and that we could stand over. We've talked
about 94,000 jobs coming from several key exportdriven sectors.
Half those jobs will be at local small companies—it's the
spin-off effect, it's the supply chain—on the back of that.
We know that if we're successful on the exporting,
that will actually create a lot of jobs in the local industry.
We've seen the reverse of that. We saw that when Seagate closed
one of their factories in Limavady, it had a devastating impact
in the local town, in terms of local retailers, local suppliers,
and various things. We want to see a mix of foreign direct investment,
as well as trying to accelerate the growth of our existing businesses.
Q158 Oliver Colvile:
What do you see as the benefits of an enterprise zone?
Nigel Smyth: The
key question is what is going to be in it. The argument is that
you have to do something on the tax front. You're doing a lot
of work around the corporation tax; that is seen as the most significant
transformational action in Northern Ireland. We would argue,
in terms of our response to the current economic strategy that
is being developed, that there are four or five other transformational
actions, all focused within Northern Ireland, very much about
streamlining government, making skills more relevant, the planning
regime, and the whole employment burden on companies, where the
costs and risks of employing people are, we believe, now just
prohibitive and are major barriers to a lot of small companies
in particular.
Q159 Oliver Colvile:
And how would you measure success?
Nigel Smyth: The
success would be actually creating jobs. The forecast would indicate,
over the last decade, we've created about 12,000 jobs a year;
current forecasts are indicating that we're only going to create
5,000. Our plan would be creating about 9,500 jobs a year. Success
will be reflected by exports. We have got figures in here of
exports growing by about 60% over the next decade. If we achieve
that, we believe we will achieve this broad outline of significantly
higher levels of growth in employment, and indeed in productivity
in a number of our companies. Hopefully that will then feed in.
We do need to do a lot of work on skills. We need to join up
those people who are looking for work, the unemployed. The changes
we're going to see in the welfare system will clearly bring more
people on to the claimant count; there is a lot of hidden unemployment
in Northern Ireland. I think this will shake that out, too.
The challenge will be linking all these things together.
Q160 Gavin Williamson:
You've talked a lot about being export-driven, and obviously about
a lot of schemes to support driving exports ahead; surely the
thing that is probably most beneficial to most exporters is a
weak pound. Do you think that is going to have a significant
effect in terms of the Northern Irish economy over the next few
years?
Nigel Smyth: Absolutely.
That has to be a key strength, so there is a real opportunity
to take advantage of that. A couple of other responses: In terms
of schemes for supporting exporters, our development agency spends
probably in the order of £3.5 million on export support.
Over the years, restrictions from Europe, and various other things,
have restricted some of the support programmes. We believe that
in the Republic of Ireland, Enterprise Ireland spends maybe €50
million on supporting exports. We believe that Scottish Enterprise
is spending £20 million to £25 million. Now, even with
the size of the populations, we certainly believe going forward
that we need to be doing more in the export space. It is not
just about things like trade missions. It is about enhancing
capabilities, about sales and marketing expertise, and about helping
those companies that are already growing to grow more. It's about
helping those companies that are not exporting to move into the
export markets. That's maybe the final transformational change.
We actually do need an export strategy. We don't actually have
a strategy at the moment.
The final comment is that our exports are probably
lagging behind the UK. The big companies, the internationally
focused companies, clearly are starting to pick up business on
the back of the weak sterling. The first place a lot of our small
micro-businesses are going to export to is the Republic of Ireland
and, clearly, we're suffering. We're actually seeing sales go
down there. Our exports to the Republic have gone up in the order
of 60% to 70% over the last decade; it's one of the most successful
markets. Clearly, with the problems in the Irish economy, that
has been very difficult. Some of our construction companies,
and other companies, have actually been reorientating themselves.
The answer to your question is absolutely, a weak pound gives
us a good opportunity.
Q161 Mel Stride:
Welcome to the Committee. To pick you up on the point about the
effect of the economic decline in the Republic on Northern Ireland,
can you tell us a bit more about that and your assessment of the
impact? Can you quantify that in any form?
Nigel Smyth: I
can't quantify it. Let me just make a couple of comments. My
position in terms of the intelligence that we would have, looking
at everything in Northern Ireland, is that Northern Ireland is
lagging quite significantly behind the UK recovery. There are
two main reasons. First, we have seen this boom and bust in the
property market. That is not just an impact on the construction
sector; there are a lot of companies, particularly in the business
and professional services—architects, estate agents, solicitors,
banks, auditors, accountants—who did very well for many
years on the wheeling and dealing in the property market. That
now is totally gone. So that is a very major impact. Indeed,
that is actually impacting certainly on tens, if not maybe a hundred
or so, trading companies who, over the last decade, have been
putting money into property as a pension scheme, but they're now
finding that their trading business is keeping that property alive,
and that that is holding back their trading business.
The other reason we are lagging is because we have
been increasing our exports to the Republic. They went up to
something like £2 billion; they have fallen back to about
£1.7 billion. At the same time, we have had a lot of people,
particularly construction-related, in the Mid-Ulster area, but
other areas too, who were actually travelling, and working, in
the South of Ireland. To put it in context, back in 200607,
the UK was building about 140,000 houses a year; the Republic
of Ireland was building 93,000 houses a year, for a number of
years; they are probably building less than 10,000 houses this
year. You can understand that that is their biggest problem:
massive capacity. Indeed, Northern Ireland was taking a share
of that, both in terms of some supplies, but also with regard
to the fact that a number of people were working down there.
Traditionally, you used to hear several years ago they were getting
about a pound for every time they laid a brick—good business,
but that has just gone. So that is why we have taken quite a
significant level of pain on the back of that.
Q162 Jack Lopresti:
You've offered suggestions for a very wide range of incentives
for business in Northern Ireland. What would be your top priorities?
Nigel Smyth: My
top priority clearly would be around corporation tax. We see
that as transformational. Other than that, what I would probably
tend to rule out is anything to do with property incentives and
also things like national insurance. We see those as having too
much deadweight and not supporting those companies that we need
to. What we need to do is encourage investment, so any incentives:
things like capital allowances should probably feature very prominently,
moving from an existing investment allowance—I'm not sure
if it's £50,000 or £100,000—and putting up to
a million pounds, or even two million.
In our consultations, I've been speaking to a number
of small and medium-sized companies of about 50 people, who would
do quite a lot on the R and D and innovation side, and when asked,
"Do you want a bigger R and D tax credit or investment allowance?"
they all immediately went for investment allowance. It's a lot
simpler and helps their cash flow quite quickly, which is going
to be very important, in terms of where we are with access to
credit and various things. We need to encourage investment. We
need to encourage innovation, so our plan B, if we fail on corporation
tax, is certainly enhanced R and D. Clearly, you're aware of
the existing R and D tax credit; we need to do something much
more significant on that one, but I think we've improved a lot
with innovation in recent years, which is maybe not fully appreciated.
The final area is whether there is anything we can
do in tax to help exports. Again, we had supported something
in terms of enhanced tax incentives or reliefs on training for
marketing and sales people. We have never taken that through
in terms of the technical issues of doing that, but that was trying
to focus incentives on areas where we have strategic weaknesses
in Northern Ireland, so you are trying to change behaviour and
trying to encourage more investment in those particular areas.
As to a broad national insurance cut, that would be very nice—I'm
sure my members would love it—but it would be fairly expensive
and it certainly would not reward and incentivise the type of
activity that we're looking for.
Q163 Ian Paisley:
Do agri-foods form any part of your delivery plan?
Nigel Smyth: In
terms of R and D, absolutely; Northern Ireland Food & Drink
were part of this. We do see a number of people who have written
off the food sector, but it's a very, very important sector in
Northern Ireland. There has been £180 million of investment
over the last 12 to18 months. In that, there were larger companies;
we have one of the largest chicken processing operations in Europe,
probably, in Moy Park, now Brazilian-owned. We have significant
strengths in the beef and dairy industries. We have some natural
strengths in that area. Indeed, it's a very innovative sector;
some of the best managers that I come across are in that sector.
There is a long supply chain on either side of it, so we would
see opportunities in that sector, too.
Q164 Ian Paisley:
It is too often forgotten that it is a sector that actually delivers
growth. It's one of most successful export businesses, when you
consider pork products.
Nigel Smyth: Absolutely.
A lot of their exports are still claimed as exports, but they
are in GB. There is still a big shortfall, in terms of the food
been imported into GB, so they see a big opportunity there. Clearly,
they are also exporting into Europe too, but certainly over the
last couple of years, when many other sectors, like manufacturing,
fell quite significantly, the food sector, the food processing
sector, and the drinks side, was one of the few sectors that continued
to grow, albeit at modest rates, but we do see that as a fairly
key sector going forward.
Q165 Dr McDonnell: One
of the suggestions that you've made in your evidence that should
be considered in any enterprise zone is ensuring that measures
are aimed at achieving clear objectives. What do you think those
objectives should be, if an enterprise zone is introduced?
Nigel Smyth: I've
probably already covered that. It is very much about how we can
enhance investment, increase exports and, arguably, increase our
productivity? Those are the key; obviously we need more skilled
people, but it's about investment and exports; for me, those are
the two key strategic issues that we need to focus on. Whatever
incentives we are looking at that could go into the pot, that
is certainly what we would be keen to see.
Q166 Dr McDonnell:
You've already covered this, but just to probe a little bit further,
you said that investment and exports are your key aims; where
would you see jobs in that?
Nigel Smyth: Jobs
are fundamental. At the end of the day, we're only going to achieve
more job growth if we export more. This is a jobs plan; this
is about trying to hit 94,000 jobs, but doing that is not going
to be driven by local consumers and various things; the vast majority
of this is going to be driven by increased exports. We may get
some job substitution or some supply substitution, but that is
not going to be the key strategic driver. That has been tried
and we need to continue to drive it. This is all about selling
more goods and services, including tourism, outside of Northern
Ireland, and bringing more money into Northern Ireland.
Q167 Dr McDonnell:
How big a measuring factor would you see the jobs to be? Would
you see the jobs created as being the main factor and measurement,
or would you see it as being qualified along with some of the
other factors?
Nigel Smyth: Ultimately,
it has to be the key factor, but you can't just go in and say,
"Yes, we've got a target for jobs." The issue is how
you can achieve those jobs. Our argument is that achieving those
jobs is about encouraging more investment, having more success,
and taking more market share in global markets. It's about internationalisation.
It is about having things in place that are going to improve
Northern Ireland's connectivity; that's why we touch on things
like air passenger duty and various things that we think are very
significant. Ultimately, this will come down to increasing the
levels of employment. Northern Ireland Food & Drink, Construction
Employers Federation, Momentum, which is our ICT federation, the
IOD, the Chamber of Commerce, and the Northern Ireland Independent
Retail Trade Association will benefit by the success we have in
exports and various things. A lot of local companies will benefit
from that through the supply chain. If we attract foreign direct
investment, a lot of small companies will benefit.
That goes back to where the Republic of Ireland sits.
It's still a very strong economy in terms of its international
businesses: 140,000 direct jobs, 100,000 indirect. It will grow
its exports, according to the press, or their export association,
from £160 billion this year to £170 billion next year.
That growth is the total of Northern Ireland exports, so don't
rule out the Republic of Ireland. It has severe problems in the
construction and the financial sector; it's the international
and food sectors—its export sectors—that are actually
keeping it afloat at the moment.
Q168 Dr McDonnell:
Can I ask you maybe a cruel question? When you raise those questions
and set those objectives, what measures do you think the Northern
Ireland Executive have taken to help meet those objectives that
you have rolled out for us? Pass?
Nigel Smyth: No,
I'm not going to pass. I would say "disappointing";
I could be stronger than that. Clearly, we have just seen a draft
budget. We have a very difficult budget and no-one is underestimating
that. The Executive are saying that they are putting the economy
at the core of their priorities. In our detailed response, we
believe there are significant shortfalls, in terms of DETI, which
is going to provide support to Invest Northern Ireland. Its document
says that it will not be able to support all the projects that
we need, yet despite that, we probably have the best pipeline
of potential foreign direct investment on the back of that. There
is no doubt that skills are going to be absolutely critical here;
part of that is for indigenous, and part of that is for foreign
direct investment. There are serious threats to our Assured Skills
Programme, and to adult apprenticeships, which they've said they're
going to close, so their actions do not reflect their words in
the document. The Executive published their draft budget statement
at an Executive level in December, but the departmental budgets
do not reflect what was said there. This does give us serious
concerns.
Having said that, the amounts of money that we're
looking at in a budget that is in excess of £10 billion,
we are looking at sums of money of £10 million, £15
million or £20 million here. That could actually go a long,
long way in terms of the impact it could have on jobs. As I said
earlier, if anything, Invest Northern Ireland is going to have
to move back. They are at 95%; I know Invest Northern Ireland
is following me in, so it's a question that you can put to them.
Our understanding is that they are something like 95% committed,
in terms of their funds, already into next year. They've been
very supportive through the recession; things have not been as
bad as they could have been. Giving them an additional £6
million to £8 million next year would actually probably double
the amount of money they had available for supporting companies,
exports and innovation. There are threats in their budget that
they're going to cut innovation support. There are threats within
the Department for Employment and Learning that they're going
to cut the schemes for innovation and some of the partnerships
between FE sectors and businesses. We've actually come a long
way over the last decade on the innovation and the links between
business and the further and higher education sector, and we would
be extremely concerned that we're going to be going backwards
over the next few years, at a time when we need to be doing absolutely
everything to support and encourage the economy.
Q169 Dr McDonnell:
You are telling me, basically, you would give a bit more money
to Invest Northern Ireland—personally, I agree totally on
that; I feel that it has been strangled—and you would also
give a bit more money to R and D and training?
Nigel Smyth: Into
DEL?
Dr McDonnell: Yes.
Nigel Smyth: On
R and D, I think there has probably been enough money spent there,
to be fair. If we look at innovation R and D, we were certainly
lagging way behind the UK 10 years ago; our business expenditure
on R and D was about 0.6% of GDP, compared to the UK, which was
1.3% or 1.4%. According to the latest figures in the economic
consultation, Northern Ireland is now up to 1.1%, compared with
the UK at 1.3%. That's very good, if we consider that Northern
Ireland does not have a big pharmaceutical industry. If you look
at the size, we have got a lot of traditional sectors, such as
the food sector. Yes, it spends money on innovation, but it is
not spending massive money on basic research into various things.
I actually think we've got a very good track record in innovation.
There is a benchmark in here about how innovative our companies
are. In Northern Ireland, the measure is 55%, and the UK level
is 58%. Yes, we're behind, but we're not massively behind. I
think we've actually made quite a lot of progress. We need to
continue to invest in that. The bigger worry would be on the
skills side. We've got a lot of work still to do on skills, and
particularly the relevance of skills to the needs of an export-driven
economy.
Q170 Dr McDonnell:
If we put R and D, skills and Invest NI aside, are there any
other points or measures—anywhere else you would point the
finger, in terms of what needs to be done?
Nigel Smyth: The
other area that features in our job plan is around planning, particularly
for large projects. The planning system in Northern Ireland—it
is totally devolved—has made a lot of process on the small
and medium applications. When I say "progress", I mean
that they have actually achieved their performance targets for
the first time in probably over a decade. They are not achieving
that for the large applications. That is impacting on renewable
energy, tourism, retail and a number of other key sectors and
various things. We do need to speed that up. Part of it is just
that the processing is very long; part of it is, we believe, that
there is too little flexibility in some of the planning policy
statements. There is a current planning policy statement on tourism
out for consultation—we've just responded to it—which,
again, we believe is going to be too inflexible. If you don't
get the planning policy statement, and if you make it too inflexible
at the start, you've got a real problem down the line. That's
what we're finding.
Q171 Naomi Long:
There are two issues that you've raised that I want to get a
bit more information on. First, with respect to the budget, I
don't think that anyone would question that the members of the
Executive are all committed to trying to drive forward economic
development, so where do you see the issue really lying? I mean,
I have a personal view that the approach to the budget has been
to salami-slice across everything, so the good and the bad get
cut equally. It avoids the very contentious decisions, but it
also unfortunately means that some very productive stuff takes
a hit, rather than being prioritised. I would be interested in
your perception of why, given that there has been this drive throughout
the programme for the Government's and the Executive's general
commitment, the issues that you highlighted are not being prioritised.
The other issue is skills. You mentioned the mismatch of skills,
and people coming out of further and higher education establishments
and so on, compared to what employers want. How much engagement
is there between people like yourselves and constituent bodies
on the one hand, and education establishments—individual
universities and colleges—and also DEL on the other hand,
in terms of trying to form what the skills policy and, indeed,
the educational direction should be, so that there is a better
fit between skills, education and business?
Nigel Smyth: In
terms of the budget, yes, there has been salami-slicing. Clearly
there have been some very difficult challenges. In our response,
we believe first of all that there has not been enough re-engineering
and restructuring. I have looked at every budget from each Department
at least twice; I am probably one of the few people in Northern
Ireland to have done so. Those were my sad days in January. They're
like chalk and cheese. Most of this is to do with natural wastage
taking quite significant numbers out; it's in nobody's interests
to go and make people redundant. There are other Departments
that are literally saying, "We're trying to protect jobs
in the public sector," where there are no administrative
savings and there are obvious areas for them, and where they have
laid out very clearly that they are cutting services on the back
of that.
To be fair to DEL, the Department for Employment
and Learning, they are taking posts out, et cetera. Cleary, there
are complicating factors, because of the tuition fees and various
things and how that works, so it's a little bit unclear how this
will all work its way out, but it raises significant concerns
for us. Our response is that 50% of the costs are labour costs.
The Executive will argue, "Look, we can only control the
Northern Ireland civil service, and 87% of the jobs are in the
broader public sector under national pay agreements," but
if you are not going to address that, it's going to be very difficult
to manage your wage bill, other than by managing through natural
wastage, et cetera. We don't think they've gone far enough on
managing labour costs, or on the reform side.
There is a mixture between Departments. Some have
done the salami-slicing; others have sat down more strategically,
to be fair, and looked at it. In the case of DETI's budget, again,
there was an Executive decision on introducing a damages Act on
pleural plaques for England and Wales. It went to the House of
Lords, which said "We're not going to have a Bill."
DETI now has a budget of £12 million over the next four
years, because the Executive propose introducing legislation.
The initial budget looked good, but when we got the departmental
budget, there is a piece of legislation coming through, which
we think unfortunately is going to go through the Executive, and
DETI is going to have to pay out over £12 million. We think
it will be a lot more than that over the next number of years
to compensate pleural plaques, which is a benign disease. Clearly
people have worries about it, but this is a major issue. In Scotland,
it has been challenged in the European Courts, and we think it's
going to reward lawyers very healthily, but we think it's £12
million that could actually go into economic development and be
a lot more productive.
Your second question, if I may, was on skills and
the mismatch. Yes, we engage. We engage at the strategic level
and the crosssectoral. To be fair, in Northern Ireland,
we have, as in the UK, about 24 sector skills councils—too
many, from our perspective, as we have argued for some time. We
also have other forums at a regional level. We have argued for
some years now that we need to rationalise that; part of the Department
for Employment and Learning's budget is actually to rationalise
that, so we actually agree with that. We need to prioritise that.
We need to be looking at the six, seven or eight key sectors
where we're going to see the most significant growth and the most
significant value created; that's where we should be putting our
resources. That is not to say you ignore some of the other sectors,
but this is all about prioritisation. Rather than cut the adult
apprenticeship scheme, we believe that, yes, you could cut it
in two; you could prioritise it in those sectors where you've
got the biggest opportunities coming forward. The worry is that
two to three years down the line, when things start picking up,
we're not going to have the people there to reward that. I think
over the last four to five years, particularly with the further
education sector, there has been a lot of engagement in that space;
I think the challenge now is to cut through that and prioritise
where we're going to put our resources.
Q172 Lady Hermon:
Can you elaborate on those six or seven key priorities for skills?
What would you identify those to be?
Nigel Smyth: They
probably were the sectors set out in our jobs plan. My understanding
is that we still have the construction sector as a priority.
I would take the view—I may upset my construction members
here—that the construction sector will not be the priority
that it would have been over the past decade, when we saw significant
growth. The sectors we have identified here are, clearly, the
ICT sector. I would argue that it is almost booming at the moment.
It is a relatively small sector in Northern Ireland, but it has
a lot of potential to grow; we think there could be about 10,000
jobs, and some good work has been done through their sectoral
skills association, in terms of the whole area of creation. We're
getting more people for the first time going back into universities.
There was a major drop-out after 2001—the dot.com issue.
There is the ICT sector; the agri-food sector, particularly for
technologists, and there are other areas in there, too; the health
technology sector, a small sector, but again growing strongly;
and the whole area of tradable services.
Tourism quite clearly is a priority. We had a good
draft strategy in June last year, but it has disappeared and we
haven't seen it. It was an ambitious strategy to double the revenues
from tourism over the next decade; we would have been very supportive
of that. Clearly, there are also areas like clean, green technology
and high-value manufacturing. We would certainly see the whole
engineering sector, at the higher end, as being a significant
opportunity and we have seen some significant investment in that
sector recently. We do believe there is going to be a lot of
competition for jobs; we will need more apprenticeships, with
more technical people as well as graduates in those areas.
Q173 Mel Stride:
Just quickly on this point of education and skills, in your opening
remarks, you highlighted the low level of achievement, in your
view, at GCSE and in secondary education, in terms of students
gaining Maths and English. In the balance of skills mismatches,
the lack of apprenticeships, and the problems that the employers
have with those coming through secondary education without those
basic Maths and English skills, how much of a problem is the education
bit in that? It's a problem throughout the UK, it seems to me,
and I'm just interested in your comments on it.
Nigel Smyth: It
is. There is no doubt that there are a number of employers in
the retail sector and the food industry who would do a lot of
work in terms of remedial skill for these people. They have trouble
with operatives—in getting anybody. That's why we brought
in a lot of Eastern Europeans. They are keen to recruit local
people, but many of them cannot read or write properly, so they
would have their own schemes, and to be fair that has been supported
quite strongly by the Department for Employment and Learning in
terms of an essential skills strategy over the last number of
years. There has been a lot of work doing that, but at the same
time, every year we have another significant number of people
coming out who don't have those skills.
It's also fair to say that a number of graduates
come out who are pretty poor at filling in application forms and
are not going to get through the interview process. I know this
is not unique to Northern Ireland. It can be managed, but it's
an additional barrier and an additional cost that companies have
to take on board, which they shouldn't have to. They do not expect
to have totally trained people, but they do expect to have educated
people with basic skills. That's just an additional burden that
they have. I suppose this is slightly unique to Northern Ireland:
Northern Ireland is a very small market, so there are several
companies in our food sector or our engineering sector who grow
to scale and then they decide, "Look, we need to be closer
to our market," whether that is in Wales, England or wherever.
There are dozens of companies who have now developed operations
in GB. They then have to make investment decisions: are they
close to the market? Do they have these problems there? Do they
have the planning problems? That is why we need to make Northern
Ireland much more attractive. It's just another burden. It is
going to be very difficult for those individuals. It's penalising
them, because it's an extremely competitive marketplace and obviously
a number of people do have those skills. Those people do not
really have a great deal of chance, one would have to say.
Q174 Mel Stride:
Getting back to enterprise zones, it's desirable to reduce corporation
tax, in your view, because of the disparity with the South, among
other reasons. Would you go so far as to say that if the Northern
Ireland Assembly did not reduce corporation tax, an enterprise
zone would not work? Is it an essential prerequisite to make
the thing fly?
Nigel Smyth: Well,
it depends on what you mean by "work." The corporation
tax features in this document. All eight organisations have signed
up to reducing the corporation tax. Clearly, we recognise that
a cost would go with that, and there could well be legal issues
and various things—we're awaiting the UK Government paper.
That is a preference. That is seen as the transformational activity.
That is seen as the one activity that will both help indigenous
firms and bring in very high-quality FDI and really be transformative
over the next 10 to 15 years. Clearly, if that's not going to
happen—the decisions are outside our control—and for
political reasons they don't decide to run with that, then there
are other options, but they are less good options. Clearly things
like enhanced capital allowances would be attractive for certain
companies. You wouldn't turn your nose up at those, but they're
not actually going to do what we believe is required to help us
transform the Northern Ireland economy, to make it more self-sustaining.
There is no way that Northern Ireland is going to end up paying
its way, even after 15 to 20 years, but we can actually reduce
the levels of subvention from the UK, which continue to go up
every year. We are a burden on the rest of the UK; it would be
nice to try to reverse that trend. I haven't seen any arguments
that indicate that even if we did something on tax allowances,
capital allowances, or R and D, that that would differentiate
that, but clearly it would help a number of companies; it would
help to accelerate growth. I hope that has answered your question.
Q175 Mel Stride: That's
helpful, thank you. In your evidence, you allude to other countries
that have had corporation tax exemptions. Could you tell us a
bit about the countries you're referring to there? What criteria
have they applied in those situations, and specifically do you
think those approaches would meet with the EU state aid rules
in respect of Northern Ireland?
Nigel Smyth: This
is one that I might pass on, because I think you might be recalling
our previous efforts back in October or November. I don't think
we state that in our current paper on the enterprise zone. I know
that that is an issue that Gibraltar, the Basque region and, clearly,
our neighbours in the Republic are well aware of. I'm going to
pass on that because that seems like a lifetime ago.
Q176 Mel Stride:
One final quick question: the Government, as you know, have introduced
a national insurance holiday for employers in respect of new business
start-ups. Do you have any evidence on the ground of how that
is working in Northern Ireland at the moment?
Nigel Smyth: It's
not. Again, this is at a tactical level; my understanding is
that it is for new businesses that have been created. It was
announced last year. They would tend not to be members, if they
were new businesses, of CBI, so I wouldn't be aware of that.
It is clearly helpful, but it is not at the strategic level.
Nobody is going to turn it down, but it's not going to do the
things that we believe are necessary to help transform the Northern
Ireland economy.
Q177 Naomi Long:
Obviously, the issue of an enterprise zone carries with it some
challenges. There were some, if you like, negative problems created
around the previous incarnations of the enterprise zones. Clearly,
we're not entirely sure whether what was meant by "enterprise
zone" remains that same as it did in the 1980s, when the
zones were piloted elsewhere. How would you go about minimising
some of the problems that were identified with the notion of an
enterprise zone in the past, such as issues of property speculation
and deadweight, where people are essentially gaining benefit for
doing what they would have done anyway? How do you try to eliminate
that? Or do you think you simply carry that, and that it's a cost
worth bearing?
Nigel Smyth: It
is a very difficult one to answer, because it comes back to what
we were talking about: what's going to be in the enterprise zone?
The indication from the UK Government is that Northern Ireland
would be considered as an enterprise zone, so that would be very
different from where we were previously on that. I would say
the big issue previously was that it was relatively expensive
per job, but there was a lot of local displacement and various
things on the back of that. The obvious thing that we would be
putting into it is something at a broad level of tax. To repeat
myself, corporation tax is the favoured one, but there may be
other potential tax incentives to do with that, in terms of capital
allowances, investment allowances, enhanced R and D tax credit,
or something on a sectoral basis. We've given one example in
our paper, in terms of the BBC and the TV industry.
It's a really difficult question to respond to until
we decide what the initiatives are. That is why I said that if
you decided to introduce something like a national insurance contribution
measure for all companies, there would be a massive amount of
deadweight, so that would not be something that we would be arguing
for. Yes, I'm sure my members would love it, and I'm sure there
would be some benefit, but it would be a very costly thing to
do. When we were considering this—as I say, my members
had difficulty trying to get their hands around this—we
were very much focused on: "What are we trying to achieve?"
It comes back to the fact that this is all about trying to encourage
investment and accelerate growth in exports. That's what we need
to be focused on. We need to be very conscious of the areas
of deadweight around that, but until we decide on what the incentives
are going to be, it's very hard to tell how you would address
those.
Q178 Naomi Long:
In terms of the incentives and some of the discussions we've had
in previous weeks, earlier you said that jobs were at the forefront
of this; it was about job creation. You've mentioned two things
that I suppose are key drivers: there is job creation and there
are exports. Do you think, if you're going to create an enterprise
zone, that incentives particularly focused on those companies
that are creating new employment and are exporting more is one
way to try and eliminate some of the deadweight that could be
associated with more broad-brush approaches?
Nigel Smyth: If
that could be achieved, then yes. Obviously, you've got a very
wide range of companies that are exporting. If I come back to
job creation, we believe that we will only create jobs if we actually
export more, because this is not going to be driven by local demand.
Local demand will just shift around; there is not enough money
in the economy. The only way actually to grow the economy is
to sell goods and services outside Northern Ireland, or to bring
significantly more tourists into Northern Ireland. That is our
thinking on that. I wouldn't rule out something targeted at companies.
I was out with a company last week, an £80-million or £90-million
business in the food sector. They had ambition to grow to £200
million to £300 million. They had taken on five graduates
this year, and were very driven by innovation. It is a company
that most people probably wouldn't even be aware of. We were
trying to tease out what more could be done on exporting. He's
got a cash-flow constraint; he can only grow at a certain rate.
Our view is: how can we help him to grow at a faster rate, to
get him to where he wants to be? And yes, he did say that if
there was an incentive—if we said, "takes a graduate
on and we'll pay you to take on a second graduate"—
he would have taken on another five graduates, if he were funded
in some way to do that. That would help to develop his capabilities
and he would grow at a faster rate, and I'm sure there would be
a lot of spin-off benefits.
There must be ways to design a system where you've
got growing companies. It could be, "If you take a graduate
on, we will fund a second graduate." I'm conscious of the
deadweight argument—"Well, next year, instead of taking
five, I'll take two, and I'll get two for free." There is
an opportunity; that's what we're trying to get our heads around.
All Government policy is trying to minimise the level of deadweight.
What we have said in our jobs plan is that we believe we need
to develop maybe 100 or 200—we didn't know what sort of
number—of what we call "gazelles", really growth-led
companies. In Northern Ireland, we think there is a fairly small
handful of them; there is just not enough. Our challenge is to
grow more. There are significant risks to exporting. For a very
small Northern Ireland company, the easiest way to export is to
drive down, across the border, into Dublin. It's an expensive
operation to be driving and sending people over to GB, so we have
to reduce the risks. We have to make it easier. We have to develop
their capabilities, skills and knowledge of the marketplace, et
cetera. There may well be some way of designing something that
has a very strong employment relation to that. I would link in
with "You're the export focus."
Chair: We're over time
already. I propose running to four o'clock, if that's okay, but
we will have to finish then.
Q179 Ian Paisley:
You said something that I wrote down. I was wondering if anyone
was going to pick up on it, because it alarmed me. You said,
"Tourism: we had a good strategy in June; it has disappeared."
Nigel Smyth: Let
me correct myself; we had a good draft strategy that was sent
out for consultation by the Department for Enterprise, Trade and
Investment in May or June. We responded to it. We liked it.
It was about doubling revenues. There were a couple of areas
we felt needed prioritisation. We have heard and seen nothing
of it since.
Q180 Ian Paisley:
It alarms me that you've heard nothing of it since. Tourism is
major in my constituency, and it's a major driver in the Government
strategy for the way forward. Why do you think you've heard nothing?
Nigel Smyth: There
are a lot of things put out for consultation in Northern Ireland,
and many strategies, that take a long time coming through. In
terms of our argument for one of the areas for transformational
reform, it is all about agility and can-do, and about making sure
that these things happen at a much faster pace, including strategies.
Strategy in Northern Ireland is great; we used to launch boats,
but we now launch strategies. We've failed to launch this one.
Q181 Ian Paisley:
But unfortunately our strategies sink, just as quickly as some
of our boats.
Nigel Smyth: It
is disappointing, but things in Northern Ireland are extremely
laborious and slow. That is a competitive disadvantage.
Q182 Ian Paisley:
Do we need a Tourism tsar?
Nigel Smyth: Arguably
yes, but I would also say, as part of that, that we need fewer
Departments. In terms of economic development, the Independent
Review of Economic Policy said we should knock together the Department
for Employment and Learning and the Department of Enterprise,
Trade and Investment. We've just seen a consultation on the economic
strategy. There is nothing in there about governance reform or
departmental reform. There is a very strong silo mentality in
Northern Ireland, and that is reflected very strongly in the recent
budget consultation; nothing in it was joined up. There were
no opportunities to look for synergies between Departments. There
are some key weaknesses there, which we have to continue to try
and convince our political friends to move on.
Chair:Jack?
Jack Lopresti: Is this
the finale question, maybe?
Chair: Well, I hope not.
Q183 Jack Lopresti:
Do you think that an enterprise zone could be used to force the
different players in Northern Ireland decision-making to pull
together in the same direction?
Nigel Smyth: That
is a difficult one to answer; again it depends what is in the
enterprise zone. One of the key messages in our jobs plan is that
it is unique; it's the first time that eight main business organisations
have come together. Part of that was the unity, a common message.
Rather than us all producing different things in similar but
different messages, the view was, "Let's have a very strong
message signed up to by eight organisations." Part of the
message is that we need to create confidence politically to encourage
investment. We need more unity. We need more of a sense of purpose
within the Executive and a clear sense of direction. The question
is probably going to be answered by the economic strategy. The
Executive have set up a sub-committee of the Executive, which
has launched the current consultation, which is pretty woeful,
one would have to say, and we can be very critical about that.
However, there is an effort to bring the seven Departments together
to look at this in a more joined-up manner.
This consultation is about priorities. It could have
been put out a year ago, one has to say, so we expected there
to have been more progress. We have a chance to influence that,
and clearly that's what we're trying to do. There is some recognition
that they need to get together. We want to see that recognised
in the delivery. We would have liked to have seen it more recognised
in their budget decisions, but we have a very unusual Government
in Northern Ireland. I'm sure it's frustrating for those who
are in it; it can be very frustrating for those outside it, trying
to influence it. I'm not sure if the enterprise zone, as such,
would help that further. There are other structural issues that
could be taken forward in Northern Ireland that would hopefully
address that. It is an important issue.
Chair: I am going to have
to skip on slightly because of the time.
Q184 Kate Hoey:
Whether or not we get an enterprise zone, how important is the
competitiveness of air travel and the question of duty and the
relationship with the Republic?
Nigel Smyth: It's
absolutely critical. You talk about exports; whether that's tourism
or exports, it's about international connectivity.
Q185 Kate Hoey:
What is the CBI doing about that in Northern Ireland? Did you
do anything, for example, when they had—I know it's pathetically
small, but still—the £1 charge for drop off, and the
£1 charge to be picked up at the international airport? Did
the CBI make its protests known to the Spanish Government?
Nigel Smyth: It's
very hard for me to criticise my members. We don't tend to get
involved in that level of detail. There are bigger issues in
there in terms of the air passenger duty. I dropped somebody
off at the airport recently without paying my £1. They had
to walk a little bit. I let my boss walk 400 metres—savings
within the CBI.
Q186 Kate Hoey:
Mr Smyth, you say that's only a minor thing, but in fact, in reality,
it's another burden on travelling back and forward, which of course
a lot of people do for their normal business, and your members
do. Have you made this a hugely big issue—not that particular
parking bit, but the general issue about passenger duty?
Nigel Smyth: Yes,
and it has been going up the agenda in recent months, to be fair.
Cleary, it's been reflected in the South. As you're aware, they
have reduced it, or are reducing it, I'm not sure if it's this
month or next month, to €3. The biggest concern is on our
international airport, particularly on the US flights. In Northern
Ireland, it's £60 and over £100 pounds in first class,
and in Dublin it's going to be €3; that's a big differential.
You've now got Continental jointly owned by United—United
Continental. We have one service going out of Northern Ireland.
It is very important for our tourism sector, and for the likes
of Citigroup and the New York Stock Exchange, and some of the
key sectors that we need to link into Northern Ireland. That
US connectivity is absolutely critical, and it would be of strategic
importance if there were any threat to that service. Dublin has
something like 13 or 14 flights a day to the States. I think
within the UK it's a burden, but the biggest burden, and the biggest
concern that we would have is strategically with the international
airport, and particularly with the States.
Q187 Kate Hoey:
What's the CBI's official view of Invest Northern Ireland?
Nigel Smyth: Broadly,
we're supportive. We've been very supportive of their last strategy.
They did come under, we feel, a little bit of undue criticism
from the Independent Review of Economic Policy, which said they
should be spending a lot more money on innovations and R and D.
Their existing corporate plan is spending a lot of money on innovation
and R and D, and I don't think we felt that that was sufficiently
picked up. Over the years, we think their strategy was broadly
right. It's fair to say that they will have a new strategy starting
in about a month's time. We would like to see that more export-focused.
The issues that our members would have faced in recent years
have been very much around the bureaucracy with the initial applications,
and indeed when they're actually claiming the grants. Some of
that has been reduced. In fact, they made some announcement recently
to reduce that further. Much of that is controlled by European
rules and various things; anything with European grants in it
can be very bureaucratic, unfortunately. I've been with the CBI
for 20 years and I would say that you will always find somebody
with a criticism, but the feedback is as good now as it has been
for 20 years, even with its predecessor organisations. It's certainly
far from fault-free, but they are moving in the right direction
and internally—you can ask them—they're going through
some fairly significant changes to improve their processes and
direction.
Q188 Chair: Thank
you. Now for the very last questions, on a slightly different
subject. Naomi.
Naomi Long: Just to refer
back to the air passenger duty, obviously the other concern is
about the passenger charge that's being levied at the moment at
Heathrow, which is also now likely to be introduced in Gatwick
for those who are not through-passengers going to other European
destinations, but are actually flying to London specifically.
That's going to have implications for business travel for people
from Northern Ireland as well. I just want to raise with you
the issue of the Daylight Saving Bill, a private Member's Bill
currently going through Parliament, because I wrote to lots of
business organisations, and indeed other representative bodies
in Northern Ireland, when this was being debated, and it didn't
seem to be on anybody's agendas. I had some concerns that there
would be a cost to business if the Republic of Ireland and the
UK ended up on different time zones, or other implications for
business if we all ended up on a single time zone that is significantly
different from the one we're on at the moment. I'm just wondering
if that's something that the CBI has given any consideration,
in terms of the cost that might be incurred by their members.
Nigel Smyth: It
was, and you should have had a response from the CBI to your letter.
I certainly sent one out; I hope that it was received.
Naomi Long: You were one
of the few organisations that had it on their radar.
Nigel Smyth: When
I say it was on the radar, to be fair, it did not feature properly
on my members' radar. It was raised at our council meeting; we
got very limited feedback on it. The view would be that we've
probably moved on quite a bit in the last 25 years. It would
not be the issue that is was, and we would not have some of the
concerns that we had back then. It's fair to say that it is just
not at the top of my members' agenda, so it is hard to get the
feedback. The view was that if UK was going to move, we would
be amazed if the Republic didn't move as well, but that would
obviously be a decision for them. It would be very unusual if
we had an hour's difference between Northern Ireland and the South
of Ireland.
Q189 Naomi Long:
And costly, in some cases?
Nigel Smyth: To
be fair, I have to put my hands up and say that with all the other
challenges out there—the strategic issues that we're trying
to face—it's just not a prominent feature on people's radar.
Maybe they don't realise how close we are to getting it, or not,
and they will only wake up to it then, but from a business perspective,
nobody was saying, "Hey, this is going to be dreadful."
Clearly, talking about internationalising, we need to be exporting
more, including into Europe. Our exports into Europe now are
less than they were 10 years ago, if we exclude the Republic of
Ireland, so there is a lot of work to be done there. Clearly,
if you go on to the same time zone, and you all have the same
day, that has to be helpful.
Chair: Thank you very
much. We've kept you for an hour. Thanks for your very comprehensive
answers. We're grateful to you for your evidence.
Nigel Smyth: Not
at all, thank you for the opportunity.
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