Corporation Tax - Northern Ireland Affairs Committee Contents

Examination of Witnesses (Questions 230-261)

Q230 Chair: Thank you very much for joining us again, Mr Simpson; it is good to see you. I am sorry that we are a little bit depleted; I think there are one or two things going on in Northern Ireland, which has not helped.

John Simpson: The heavyweights are here, sir.

Chair: It is kind of you to describe us as that. I will take it as a compliment, but thank you very much for joining us again. As you know, last time we spoke to you we were talking principally about corporation tax and maybe we will touch on that again today. We are broadening the investigation or the inquiry into enterprise zones in general, so we would be very happy to hear your thoughts on that. Of course, George Osborne announced on, I think, Saturday or Sunday that there were going to be some enterprise zones across the United Kingdom. Does that fill you with some optimism?

John Simpson: Chairman, as a brief reply to that sort of issue, which is not the core, I think the announcement runs the risk that it could confuse precisely what we are playing at and it does present your Committee with a dilemma when you write the report—if you commend the projects or something of this nature, doing it in a way that does not lend itself to the shorthand of, "Here's the Northern Ireland version of what the Chancellor of the Exchequer has announced," because I will be recommending there be very significant differences.

Q231 Chair: With the specific reference to local authorities keeping business rates, how do you read that across to Northern Island?

John Simpson: Can I come to answer that question by putting in a preliminary paragraph if I may, Chairman? I am not constrained in trying to cope with the questions that arise from this concept by whether or not this Parliament has the responsibility or whether in another place they have key responsibilities. You won't be surprised to know that one of the issues that diplomatically will have to be resolved is if there is a thrust all around the scheme that is agreed, the placing of the responsibilities must be clarified. I am sure you will be the first to want to say that.

The second thing is that in terms of what we are discussing today, dare I suggest, as I listened to your previous hearings—of which I had the pleasure at a remote distance on a personal computer—that we seem to be talking about different things and this takes me into questions of terminology. If we are talking about Northern Ireland being an enterprising region, and forgive me if I use the word in order to make it a distinction, I am certain that is what everybody would want the outcome to be. If we were talking about Northern Ireland being an enterprise zone, the question is, "Well, does zone mean bits or the totality of the area?" Obviously, we might think about that.

My preference is—a subject your Committee will take in its own direction—that we should now be directing our attention to how to make Northern Ireland an enterprising region. I am using the term in order to make a distinction with the other terminology, which will be enterprise zone. I am not pretending that the impact is not to try and get the same answers, but to avoid the confusion of terminology. So there is a question of: what is the concept we are looking for? Who has the responsibility? Then there are questions of the content, which is, I guess, Chairman, where you are taking me in terms of questioning.

To remind myself of your question, you were talking about the role of local authorities?

Q232 Chair: Specifically local authorities and keeping the revenue from business rates.

John Simpson: In Northern Ireland, the local authorities essentially have a core set of rates set at a level for the region, just one set of rates. I know districts do vary a bit, but essentially, any variation in business rates is likely to be involved in terms of the Northern Ireland Administration having to determine to have a different level of business rates across Northern Ireland. That could be a factor. Forgive me if at this stage I say one of several or more factors for which we might see a difference made in order to encourage development of enterprise. It would take you into the role of, "By how much and for how long, and for all businesses?"

I will give you one complication. There exists in Northern Ireland at the moment a 30% cap on the level of rates charged to manufacturing businesses—not other businesses—and that is an inheritance from several decades ago. It would have been abolished in the period just coming up to the end of Direct Rule, but the incoming Administration decided they wished to retain the cap on business manufacturing rates. Any change now in terms of Government involvement with financing business of any kind will be examined by the state aid authorities in Brussels. One of the casualties we might see is that Brussels will be reminded of this operating aid, which is a cap on business manufacturing rates, and may well insist that time is long overdue for it to be abolished. All I am saying is I do not dissent from the view that the cap on manufacturing business rates should now be removed because it has a lot of deadweight. It is very popular with certain businesses, but nevertheless, in order to get an incentive effect, a shift in emphasis to encouraging businesses of all kinds for a limited period—say, a 10-year holiday—might be a dramatic change in the way in which this is perceived.

Chair: Okay, we will explore some of those subjects as we go on.

Q233 Kate Hoey: Hello, John. We had a very interesting session with Michael Heseltine, who of course was talking about the urban development emphasis of enterprise zones. How different do you think—and I quite like your terminology of not using an enterprise zone but getting an enterprising Northern Ireland—it would have to be? If you had to pin it down, what would be your core objective of having this enterprise region?

John Simpson: Thank you. My core objective is that Northern Ireland would be a much more marketable area in the business communities at home and outside Northern Ireland—much further afield. For me, that comes in two dimensions. I think we have deficiencies in terms of the way in which we manage regional Government to encourage enterprise at the moment. If I now go on to make those criticisms, please let me enter the caveat: there is much that we are doing that is positive and is trying to bring Northern Ireland into a more prosperous position in the years ahead. Simply to say that there are faults to be put right is not to say everything is wrong.

Nevertheless, if you gave me a list of the things, high on my list would be the fact that many businesses regard—you will probably expect me to say this—the planning system as being loaded against them. Many businesses regard the process of the regional development strategy as being too rigid and would ask that these institutional arrangements should be loosened up to be more liberal in their approach. You will have heard the argument, if I may pick it up, that we need to get a more understandable and a quicker planning process to make decisions. To make that argument stand up, all you have to do is to say, "Look where we are in terms of the proposals for John Lewis. Look where we are in terms of the proposals for the development of an electricity plant to generate and maintain the poultry industry using you-know-what as a fuel." We are making those things into real hurdles when they ought to be processed.

However, what I would be saying of the planning system is if you read the planning documents, they contain so many conditions. We have a very elaborate, legalistic planning process in the regional development strategy and it will forever be a difficulty until we actually change the mindset. We are trying to run planning by asking people to apply for planning permission and to get over a whole series of things. There is no proposal that I could not write a valid objection to by studying the regional development strategy. It is not written to the theme of: by and large, we hope you will respect these principles, but there will be occasions on which we have to get the compromise. I suspect that we too often have a planning outcome that is too rigid and that is then supported by a process where disappointed parties seek judicial review. What does the judicial review quote? It quotes the planning ambition statements as being of statutory authority. I presume that is not what everybody would intend and certainly I would try to argue we should move away from it.

Q234 Kate Hoey: So you think the importance of the businesses being able to be entrepreneurs is more important than the views of local communities seeing their areas destroyed, ruined or whatever?

John Simpson: The danger in the argument I am making is it might seem as if I am trying to deny local communities the right to a strong enough voice; I am trying to deny—I won't call it vested interest—legitimate interests their chance to have a voice. The short answer to that is, so long as we take planning decisions that say the decision is on balance—it won't necessarily be pure in terms of every element of the criteria—then it is acceptable. At the moment, we have a situation where the planners do not seem to appreciate fully what it is we are getting at when we say that they are not effective. They think we are saying they are not quick enough. We are not. We are actually saying, "You have surrounded yourself by a set of rules and you are interpreting them in a way that is not helpful."

There is no sign that we will actually be able, in Northern Ireland terms, to say, "Your regional development strategy should be reworded in a way in which it can be interpreted to allow things to happen." At the moment, if you cannot satisfy rule No. 10, the fact that you might satisfy rules one to nine counts for nothing.

Q235 Kate Hoey: I think there are some more questions on planning later. Could I just take you back a bit to the specific zone or region? Would you see it as being time limited or would you see this as something that is ongoing?

John Simpson: Whatever we do—and I listened to Lord Heseltine on this point—time limited measures are to be commended, if only for, after a given time period, the discipline of saying, "Is this worth continuing?" and many will have reached their sunset period. It may be that if we decided on some sort of variation in terms of planning or some sort of variation in terms of national insurance, we might after 10 years say, "Let's review. We will keep it," but the idea that you actually are forced into a predetermined time review makes a lot of sense.

Chair: Naomi, did you want to come in on this one?

Q236 Naomi Long: I will probe the planning issue later, but on the time limiting: that would be contradictory to some of the evidence that has been given by others in business who have said that actually having the time limit could create a sense of instability or some uncertainty for businesses going forward. For example, it may suit those who wish to come and invest for a five or 10-year period and then move on to the next enterprising zone around the globe, whereas what we are actually after in this case is a restructuring to get business that is willing to commit in the long term. Therefore, certainty in the long term is important. Why do you see it differently than that?

John Simpson: I appreciate your point. The argument I would make in return is that I would like to see Northern Ireland established as an enterprising region on a continuing basis at a much more persuasive level than at present. As part of the addition to the fundamentals, there would then be variations in a number of pieces of legislation. I do not think the business community would reasonably object if they were told, "Well, if you are a new business we will give you now a 10-year holiday from, say, business rates"—Chairman, the point you took—because this is to encourage new businesses to start up. I am trying to load the incentives of the particular enterprise area onto something that encourages business. Once they are up and running they will pay their way, I hope. Therefore, I understand the point that Mrs Long is making, but I would still believe a time limit for periods to encourage things to happen is a useful device. Otherwise you get into exactly the problem that we have with the present cap on manufacturing rates; there is no date at which we are actually saying, "And, by the way, we are going to think about it again now."

Q237 Mr Benton: Welcome back, Mr Simpson. In your evidence, you talk about the need for stronger marketing in Northern Ireland and I think you suggest that an enterprise zone might help to serve this purpose. I wondered why you see the new enterprise zone in marketing terms, per se. The other point is, following on from that, what would you have in mind when you refer to a stronger marketing for the region? Who would be responsible for that? Do you have confidence in whoever is responsible having the skills to progress it? These are the questions. Finally, I know you have already made comments on the corporation tax, but would you think that to underpin a stronger marketing effort, a major reduction in corporation tax would be beneficial in that direction?

John Simpson: Working backwards, a reduction in corporation tax or the devolution of authority to vary corporation tax—not necessarily a reduction in the rate, but to do other things—and the exercise of that authority in a sensible way would be, there is no doubt about it, an additional useful marketing tool for people who are talking to all the businesses around the world and saying, "Come to Northern Ireland," bearing in mind the proposition is "come to Northern Ireland because it is a profitable place to do business". At the moment, there are several serious handicaps to being able to make that argument. I would make that argument if I was outside Northern Ireland. I would tell you how wonderful Northern Ireland is, but when I am back at base I will be prepared to enter the caveats of the things that now could be better.

You talked about marketing and who would do it. As I watched Lord Heseltine give evidence to you, obviously he carried the persona of everything that happened—was it 1979, 1980; that period anyway. I am not suggesting that he might now commute or migrate, but someone with the central responsibility and, indeed, the ability to do it is actually needed. Take my argument in its steps: I actually believe that in terms of selling Northern Ireland as an enterprising region, the main responsibility must rest on the Northern Ireland Administration, and it must rely on you and Westminster to be supportive where that fits. If the responsibility lies in the Northern Ireland institutions, it does actually lie somewhere in terms of the leadership that comes out of the Northern Ireland Administration.

As I look over what has been happening in the recent past, the core elements that need to be sold in this marketing plan rest partly on the Department of Enterprise, Trade and Investment, partly in the Department for Regional Development, and maybe peripherally in other departments. The interesting thing is at the moment I do not get the coherence that I would look for in terms of the physical side, which is the Department for Regional Development and the business side, which is the Department of Enterprise, Trade and Investment. It would be helpful if the next Northern Ireland Executive managed to find a focus and it may need to be, perhaps, not one of the Ministers, but someone with enough authority and the confidence of Ministers, to lead the concept of an enterprising region in the next three or four-year period.

Forgive me, underlying my comment, what I am saying is the effective leadership to make Northern Ireland an enterprising region needs to be developed. I am not saying we are very bad, but what I am saying is we can be a lot better.

Q238 Mr Benton: Just on that point, are you saying then that it should be driven by entrepreneurship or by a political figure? How should it be driven? It is a big question; I know it is a big question, but it is a very important one because unless it is driven correctly, like any mechanised vehicle, it won't go properly. That is the point of the question, really, to see how it should be driven. With the responsible body, what background has essentially to be the overriding one?

John Simpson: I will only but agree with you; it needs to be driven. It needs to be driven centrally and needs to be driven from a point at which there is sufficient influence to ensure that all the various contributors know where authority lies and know how they expect it to respond. It does, in part, need those who are in the senior positions in Government to have what Michael Heseltine called "the vision" and it also requires that they should be looking around and be able to select someone who can do it. Up until now, we have not had an organisation—in our region—that produced this sort of leadership, and we now need it. It is the local equivalent of Heseltine of 1979. I won't venture into naming names in the presence of this august body.

Q239 Gavin Williamson: Actually, I was going to ask you to name a name. I just wondered if you wanted to use it as an opportunity to invite Lord Heseltine or someone else, or someone within Northern Ireland—actually, do you think it needs to be someone from within Northern Ireland probably to take that leadership role?

John Simpson: Yes, because much of the effort is talking to the people who are around you in Northern Ireland as well as then conveying the message further afield. If you are an enterprising region, a lot of your work will be coping with people who have come to see you as an enterprising region. You need, therefore, to have your cast ready to go on the stage.

Q240 Gavin Williamson: Do you think there is almost a benefit, Mr Simpson, to that person being a politician or is it a disadvantage for that person to be a politician?

John Simpson: In our circumstances, forgive me, I suspect it has to be someone who is not an active party member.

Ian Paisley: I forgave you a long time ago, John.

Gavin Williamson: Thank you very much, Mr Simpson.

Q241 Mel Stride: Welcome back. I very much enjoyed your first evidence session, so I am really pleased that you have come back to see us. Just on this individual: what kind of skills and attributes are they going to have to have? Second question: where we are looking at marketing, where are we going to direct that marketing in particular in terms of other countries around the world?

John Simpson: The main marketing will be within 500 miles of Belfast in that it will be within the European context, but particularly within the British/English/Scottish context. Part of this has to be the evolution of a stronger business community and much of it could be from within. There must be more entrepreneurs within Northern Ireland than we have managed so far to bring forward. I recall writing in the paper I sent you that we have remarkably few big success stories to tell you about. We have some and we need to encourage more.

We are talking about somebody who has the ability to push very lethargic Government departments into a completely different attitude. We are wrong on our planning; we are wrong on our day-to-day planning; we are poor on our skills development; we are poor in our orientation of the way in which we make appeals to the business community. To say we are poor, we can improve it if we put our minds to it. The person who does this—if it is a person; you may call it a group around them—I think is more likely to be a leader; the chairman/chairwoman will be the key person, and they have to be found and put in place.

Q242 Mel Stride: And put in place fairly early in the sense of shaping the offering as well as promoting the offering, developing it.

John Simpson: Yes. This is what would happen in parallel at the moment to the economic strategy review that is being undertaken under the umbrella of the Minister for Enterprise, Trade and Investment, and is being led by Kate Barker. Kate Barker will be known to some of you. Kate Barker, in my book, proved an exceptionally valuable influence on planning processes in England. I do not know whether you all agree, but nevertheless she was there and she had the concepts and she delivered it. If she were to agree with these concepts, I think the group that she is leading should now become at least a source of inspiration for this next step, if not the actual core for it.

Q243 Naomi Long: There are a couple of things that I wanted to look at in terms of planning. You have mentioned that it is not just the speed of planning, and I would accept that, though I have to say a lot of the evidence we have is that that is a large part of the frustration—that decisions take so long to be reached, not just that the final decision is unsatisfactory. In terms of planning, I sat on the town planning committee in Belfast City Council for nine or 10 years—a thankless task because you do not take the decisions. You simply give advice to the Department and they then ignore it.

I am just wondering, in terms of good planning and bad planning, because you have talked about simplification of planning, surely the fundamental issue is that there is a difference between good planning and bad planning. At the moment in Northern Ireland the problem is that we do not have sufficiently sophisticated plans in terms of our overall development plans and strategies for Northern Ireland. We rely too heavily on development control-driven planning, so that individual planning applications take a long time to process, but the framework within which they are processed is already flawed before we start. Is that something that you feel would make a big difference, if we had more clear land use planning to start to frame the question?

John Simpson: You and I would not be very far apart in terms of reaching the conclusions from what you have just been saying. Yes, time is a factor, but my consideration is that simply to put it down to time is to make it too narrow. It is actually the approach in terms of what are they doing and how are they balancing the pros and the cons, and, may I say it too, as someone who has been on a planning committee for a local authority, you were not exactly the most powerful committee in the world as you sat there issuing advice that might be taken or might be ignored.

We are now talking about changing the administration of planning; we are talking about delegating it to the new local units—a dangerous step unless we have a better rule book, without being too rigid. There is a contradiction there. Here am I suggesting rules and saying they should not be rigid, but perhaps you understand what I am getting at. We now have the move to change things. My concern is that we are not necessarily going to change the things that matter most. The view that our planning system is one of the biggest difficulties in terms of business approach to what they want to do is not just mine. It has been expressed by other business organisations as well.

Q244 Naomi Long: Just, I suppose, to comment on that, my view is that if we delegate planning authority to local councils without having a robust land use planning framework, we will end up with a planning system that is completely held in limbo, with no one able to take any difficult decisions at all because the framework won't be appropriate. So I think there has to be clarity around that and I would agree with you on that. The other issues that you suggested were needed to improve the fundamentals to attract people to Northern Ireland were things—physical planning was one aspect—like road and transport, water infrastructure and those other things. I am not sure if I need to declare an interest; I have been away from civil engineering so long that I probably do not. Where do you feel the problem lies in terms of infrastructure planning? I see it as tied to the wider land use planning issue and the lack of forward planning rather than simply to lack of resources, which is where the blame has often been laid. I actually think part of it at least is about forward planning and the kind of scale that is required for large infrastructure projects. Do you have a view as to what needs to be done within the Northern Ireland system to make it more efficient?

John Simpson: I think I know the direction I want to travel in and I will illustrate it in this way. At the moment we have a regional development strategy developed by the Department for Regional Development. We have the planning rules implemented by the Department of Environment. We have enterprise strategy developed by the Department of Enterprise, Trade and Investment, and sitting somewhere else we have the Strategic Investment Board. The logic of this is that those three strands should somehow or other come together. One of the thoughts that I was writing on is that land, property and people, and funding for infrastructure all interrelate, and at the moment they act not independently—let's not be too rude about it—but they act with a silo-type dimension to what they are doing. We would all like it to be better, and that takes me down the road of: if we are going to be an enterprising region, this is where somebody must have the ability to pull the bits in one place.

Q245 Jack Lopresti: Hi there. Do you think the Executive is doing all it can to establish Northern Ireland as a place to do business?

John Simpson: Do I think the—

Jack Lopresti: Executive.

John Simpson: Can?

Jack Lopresti: Is.

John Simpson: Is?

Jack Lopresti: Or can—whatever.

John Simpson: For "can" the answer is yes. The "is" is: let's do it better. One of you picked on the list of things that I put in my paper that gave me cause for concern. The short answer is there is no reason why those should not be put right. I think I have a difficulty in that I suspect that many of those in the Northern Ireland Executive would say, "Well, we have people who have responsibility for each of these, and they are each doing their best." All I have to say is their best does not come together to give a synergy of a corporate purpose. Can you say synergy of a corporate purpose? The linguists might or might not approve of that, but still, it sums it up. Interestingly enough, here we are talking in Westminster; the net result, if you and I were agreeing on the answer to that question, is that we are actually passing that particular parcel to the Northern Ireland Executive, saying, "Go do it." For a lot of what we are talking about here, I would be joining the club that says, "Go do it."

Q246 Jack Lopresti: My next question is: wouldn't we be putting the cart before the horse if the Executive were trying to produce an economic strategy at the same time as the UK Government were drawing out its consultation on designating Northern Ireland as an enterprise zone?

John Simpson: We have to agree that we are looking for the concept of an enterprising region. That is our starting point. We then have to ask who delivers it, and a lot of the delivery rests with the Northern Ireland Executive. Bits that are Westminster delivery—obviously the issue of changing anything to do with corporate taxation must be part of that, but we can get an enterprising region concept in place much quicker than Westminster will approve the change in legislation to allow difference in corporation tax structures. We could be getting on and doing that; it could be something that the new Executive could pick up and get on with.

Whereas the corporation tax change may or may not be approved, whatever else we are all saying to each other will not be approved for two to three years. That is two or three years when the enterprising region should become evident because it is doing things that attract attention because, "Look at how efficiently we do things in Northern Ireland to attract business. Look at the way we changed the circumstances so that business can be profitable"—whether it is in planning, whether it is in national insurance, whether it is in taxation or whether it is in our regulations in terms of employment legislation, whether it is an area in which we say, "Time has come to improve our industrial tribunal system," which at the moment is a major handicap, although it is probably not much different from an industrial tribunal system in England.

Q247 Naomi Long: John, you have already outlined, I suppose, your concerns about the impact that the disparate nature of Northern Ireland government within the Executive brings to the table when we are trying to deal with business. You have talked about the silo mentality that you have. People here will be learning about coalition government, but we have a very complex and very disparate coalition, even in comparison with what we witness here. I suppose what I would like to ask you is this. When Lord Heseltine was with us giving evidence, he talked about two things: political leadership and vision. In some ways it is not about the structures; it is about leadership and vision. If you have leadership and vision, you can overcome the deficiencies of the system. Do you believe that there is leadership and vision on these issues? If so, how do you harness that and how do you believe you can best harness that through an enterprise zone or other means to actually show delivery?

John Simpson: The second part of your question is: if I don't believe it's there, how do we find it?

Naomi Long: Well, I was trying to be optimistic in my phrasing.

John Simpson: There is no denying the thrust that you are exploring—vision and leadership. My own feeling is that there is almost a degree of complacency. Forgive, because it is a bit unkind to people who have survived the last 15, 20, 30 years. There is almost a degree of complacency: "We have the St Andrew's Agreement; we have devolution; we have an agreement on the way in which a coalition will work; wasn't that terribly good? Now, let's just tick over." The short answer is that the next generation coming in, having inherited the St Andrew's Agreement, has the responsibility for recognising the need for the vision and leadership that will take it further. We must not be content with the fact that we can keep the Administration in Northern Ireland going on a day-to-day basis. That is not actually taking it further.

I will only give you a very superficial illustration: I watch for the type of public comments that are visionary in terms of what might happen in Northern Ireland as a successful region, and I am not hearing it. The civil servants who write ministerial speeches are writing very conservatively and I think some of the people who are in the political leadership role need to turn on the system that is supporting them to say, "Now, come on. We are not just going to keep it ticking over. We are actually going to lift things to a higher level." I am sorry; this sounds a bit philosophical and I am not a philosopher, but it is very difficult to put it in precise steps.

I am reminded that Lord Heseltine, when asked questions of this kind, resorted to, "You have to have the belief and the vision. You have to have somebody who is driving it." The last thing you want is somebody to say, "We want industry A but not industry B. We want people C and not people D." That is not what it is about; it is about actually liberating the processes so that it is worth doing enterprising things and people who see it is worth doing will do it. The short answer in terms of this part of Europe is: profitable opportunities tend to produce people who exploit them. That would not be a bad thing.

Q248 Naomi Long: Just on that, there is the issue of coherence of vision, if you want to put it that way, in that different people will have different aspirations in terms of what the economic strategy would look like. Everyone would want a more prosperous society, but people's definition of what that will look like will vary. I am just interested in the reasons that you feel people are being slightly conservative in articulating those aspirations as leaders in their community.

Lord Heseltine said something that I thought was very striking, which was with respect to the Olympics 2012 and the work that he had done in the east end of London during his term and he said, "Had I set out my stall and said my dream would be to have the Olympics in the east end of London in 2012, people would have thought I was mad. I would have been written off." You cannot always give the full picture because people will not accept that there is anything of substance behind it. I am just interested: do you think one of the reasons that people are afraid to sound aspirational is because they are afraid of the kickback from people who are maybe feeling the pain today and feel it is being dismissed by saying, "Things can get better"? I would love to know how you get that balance right, in some ways, between being able to inspire, encourage and present the vision, and at the same time not being insensitive to the current difficulties.

John Simpson: Perhaps the beginning of the answer to your question is to agree that we would like to see it happen. I suspect there are a lot of people in Northern Ireland who would think we are searching now for the end of a rainbow and, "Stop playing that game; we're doing what we have to do." The short answer is we are not doing it at a pace and with a zest that is carrying conviction. Of course, there are success stories, but what we are looking for in an enterprise region is that there should be more of the success stories and they should be to a greater degree. We cannot measure that in advance.

Q249 Naomi Long: We had evidence from Invest, for example, and they said that they had met many of their targets in terms of what they were wanting to achieve, which is really laudable. It will also go down very well, for example, with the Public Accounts Committee. What I am asking is: would it be better if they had not met them, but their targets had been stretching them further and they might have done more, if you understand what I mean. So, not met their target, but got 90% of the way to a higher target? Is the problem not that people are looking over their shoulder at the gap between their aspiration and the realisation of it, and are afraid that they will be criticised for the gap rather than lauded for the delivery?

John Simpson: When an organisation like Invest Northern Ireland writes its corporate plan, it should always be read against a background. They are writing a corporate plan for what they should deliver; they won't, therefore, be hanging themselves out on extreme risks. They will be, to a touch, conservative and I think that is exactly what has happened. Given the announcement of recent days, we have had, at least in the recent past, two different chairmen of Invest NI, and Stephen Kingon has now said he is coming to the end of his period of office. If the authorities were so minded, they could now change the remit of what is happening in Invest NI so that it broadened its focus on enterprising regions; it was not just simply narrowed in terms of the concepts of development for industry and tradable services, which is what they are good at—there is no doubt they are good at it—but they are not asked to go wider. We might ask them to go wider or we might find some other method of setting this wider agenda, but you need to be looking for it.

Q250 Mr Benton: Professor, you have made many helpful suggestions—numerous suggestions actually—in terms of enterprise zones. I wondered if you would like to say what additional tax allowances you had in mind and why these and many other concessions should apply only to new business as opposed to successful, established businesses. I also would like to put a point to you, which I think is probably a very important one inasmuch as the object of any enterprise zone or any measures that are taken would be to enhance and encourage industry. Going on the basis of witnesses we have heard previously, one would hope to see a healthy resultant factor emerging in terms of the export markets. How would you see an enterprise zone actually assisting that end?

John Simpson: I think, Chairman, I have to resort to my two-part answers to your question. The objective of an enterprising region is that we will change conditions such that more and more businesses are profitable and are prepared to invest—that is the fundamental—and to have a continuing existence on the basis that they pay their way. Then the second thing to mention is that in order to build that up, perhaps, I think we do need measures that will encourage new risk takers, new start-ups to add to the existing numbers. That gives me the justification for arguing that not every continuing business should be given the benefit of, say, a holiday from national insurance, if that were even being envisaged.

It is useful to say that for the first five or 10 years, back to where the Chairman started, there would be certain fiscal advantages. The Northern Ireland authorities would not have the ability to say, "We will make it in terms of concession on national insurance," because I understand that that may be a UK-wide matter, but forgive me if I am not too precise. Equally, there is a suggestion from the Chambers of Commerce that there should be a reduced rate of VAT on certain types of business. It seems to me that if we start playing with those marginal distinctions that is wrong. We should think of something that fundamentally alters the bottom line in start-up. That is where a period when there are no rates on a new business would be beneficial. I will immediately admit that we then enter the territory of when is a business a new business as opposed to a takeover of an existing business? Let's leave the tax lawyers to solve that problem because if we give them it as a principle I am sure they will invent a rule book to fit.

But there are those types of fiscal incentive that could be very dramatically illustrated and lend themselves to publicity. Some of the other variations in corporation tax could lend themselves to it as well. If the authority is devolved—and do not forget that is three years down the road—we could begin to talk about different discretions for capital spending in relation to taxation; fine. I would like the enterprising region concept to be under way more quickly than that. Therefore, I am looking at some of the other suggestions. Incidentally, Chairman, I am referring—at the same time I will make an apology—to the document that was published by the Chamber of Commerce recently, Enterprise Zone Blueprint for Northern Ireland, which you may or may not have seen. It has not got this far.

Chair: Not yet.

John Simpson: It is coming by pigeon post. They have made a number of suggestions. It looks like it is about 15 suggestions, not all of which I would support. The other thing is that I would apologise in that I was with them in their committee meeting when they talked about this, and you do not have to go back to check, but somebody made notes at the same time as we were talking, of the points that I was going to make in my paper to you. Therefore, you will recognise a certain amount of commonality in the language, for which I apologise in advance for those of you who think, "Who did what and why?" I claim the authorship. Did I answer your question?

Q251 Mr Benton: Yes, I think so. I am still a little bit doubtful about whether you have answered the one in relation to exports because to me this is a major plank in any initiative for obvious reasons. I am not quite sure you have answered that question.

John Simpson: Something to encourage businesses to trade to a wider market in order to grow their business—we cannot fault that as an ambition. In terms of encouraging firms to export, there would be objections from elsewhere if goods were exported from Northern Ireland with some sort of a fiscal advantage and they ended up in Manchester in competition with Manchester suppliers. Equally, if they went to Antwerp there would be European Union rules, so the business of assisting exports per se has a difficulty. That does not mean we could not have some variation or some supplement to export credits of a local kind. Indeed, the Chamber of Commerce in Northern Ireland have asked, and I quote, for "an enhanced export guarantee scheme" to promote export-led manufacturing. That is their idea, but I do not mind reporting it as part of an answer to your question.

In terms of encouraging exports, the other thing, and I have seen the evidence, is this: many an exporter needs the knowledge of where the market is rather than some sort of financial incentive. The export missions led by Invest Northern Ireland end up frequently with businesses making contacts around the world that they did not know about or had not sussed out the customers. What is happening is that they are being encouraged to meet customers—not literally but almost—at the cost of a return airfare. That is working and all you have to do is to watch the press releases from Invest Northern Ireland—two or three times a week there will be an example of that kind. It is possible that the export dimension of an enterprising Northern Ireland is happening and it will be frustrating that we cannot do too much more, but we hope it is there because there is profitable business.

Chair: We now turn to skills and education.

Q252 Naomi Long: John, you are obviously aware of some excellent work that goes on in places. For example, like the QUESTOR Centre at Queen's or the Northern Ireland Science Park in my constituency, where you have spin-out business that comes from university research and development and so on. However, there is a perception by those who have come and given evidence that there are things that could be done to strengthen that growing of new local business, and capitalising on the intellectual property that we have in our universities. Do you believe that the current arrangements are strong enough in terms of developing links and knowledge transfer between higher education and further education and business? If not, how would you go about improving them?

John Simpson: Thank you. There is a lot to be said in terms of that general agenda, but to summarise, the knowledge transfer partnership arrangements work quite well. Queen's, in particular, has done remarkably well in terms of spin-outs of business and the consequences from the science park. University of Ulster is not far behind. I suspect that the real weaknesses lie in a less prominent level. If I have a criticism, it is that we have not learnt how to harness the further education sector. The further education sector, in my opinion, and I have heard others say something similar, is the Cinderella of the system. The best thing that happened in terms of the further education sector in recent years is that they issued a report of which the title was Further Education Means Business. That was a very good title and was the best thing about the report because the rest was not there.

I keep repeating this one: we do need to get a curriculum development philosophy plan for the FE colleges. We rely on the FE colleges plugging gaps, which they try to do, but the coherence of changing the skills mix of the next generation requires them to be playing a big part in terms of vocational training. They, I think, would be the first to admit they do not have full leadership on that, and obviously in present circumstances they would say they do not have enough resources to do that, but that is going to be the complaint of every Government department at the moment.

So our biggest weakness at the moment is that we do not really have a successful skills delivery mechanism below the level of postgraduate. Postgraduate we know what we are trying to do and we could do more of it, but at the level of what used to be called—for those of you who grew up with it like me—HNDs, etc., which we now call foundation degrees, we have lost our way and there is a gap in the skills provision. The Department will tell you they have introduced a scheme called Assured Skills. Assured Skills says, "Any employer who needs more skilled staff, we will immediately take on board skills arrangements to match." To which I have to say, "Hear, hear," but I go on to say this means that you wait until you have found a leak and then you plug it. You are not actually coping with the structure of skills that you know will be needed in the next five to 10 years.

Of all the pieces of work that have been done that is actually seminal, professional and all the rest of it, there is a piece of work being done by Neil Gibson on the likely skill needs of the Northern Ireland labour force by 2020. It shows without a doubt that we are going to be very deficient in terms of the number of people with, if you use today's terminology, level three and four qualifications and we are going to have far too many people down there with level 2 qualifications, and there will not be enough jobs for them. This skills deficiency is part of my regional enterprise proposal. The Department for Employment and Learning knows, incidentally, that I am their biggest outside critic, so I am not saying something to you I have not said to them; you will have to ask them why they are satisfied with where they are because I could not be.

Q253 Naomi Long: Can I just probe a bit? For example, Belfast Met have identified one of the growth areas in the city as creative arts and creative industries and, therefore, they do a lot of work in that area and provide people with a really targeted and focused education, and with skills that are directly transferrable into the workplace. So there is clearly someone there who understands how that industry works and can deliver that. Do you think that there is a lack of communication from business to further and higher education about their needs, or do you think that it is more about long-range planning rather than that ongoing conversation?

John Simpson: Yes, the official defence of the way things are working is that the Department is only too keen to listen to business and say to business, "Tell us where you think the deficiencies are; give us good advanced warning so that we can take account of what you say." That is good intentions and, indeed, the example you quote from Belfast Met—I don't want to take away anything from the strength of that one. However, the short answer is to wait for businesses to identify gaps is inadequate. You actually need to be ahead of the game, preparing people's skills, and some of them might have skills that will go elsewhere. They will not necessarily stay within 100 miles of Belfast. Educating the next generation to meet the skills needs of 2020—first of all possibly near to home, but certainly somewhere in labour markets close to hand—is not a crime. It is something we should be doing.

Q254 Chair: When you talk about the skills gap, are you specifically talking about Northern Ireland? The issue is the same in England—exactly the same—in my judgment.

John Simpson: I agree with you, Chairman. The educational structures and the training structures we have throughout the United Kingdom are a bit behind what is necessary. It is interesting that this is an area where the Republic of Ireland was actually ahead of the game. I am, at the moment, working on a particular project where the lead is being taken by the Dundalk Regional Institute of Technology and they, in common with the other institutes of technology, have had several years of the thrust, which is that we must lift the educational qualification standards, and they got ahead of any comparable regions, I think, in the United Kingdom, to their credit. Now that it has been done, we should look at and learn from it, whether it is for Manchester or for Belfast.

Q255 Chair: I have my own ideas on why it all went wrong, but in your judgment, why did we start to create this skills gap across the United Kingdom? What went wrong? It did not used to be the case.

John Simpson: Part of the answer is that we can blame it on the teenagers. Really, they should be motivated to look after their careers. Why don't they continue their studies, get their qualifications and get the things that would serve them well? The colleges are there, if they but put in the applications. The colleges sometimes do not have the capacity; let's admit there is another problem.

The other side of it is somehow or other the incentives for people to gain the vocational skills are not producing the result. I asked of the further education colleges in Northern Ireland—I do not know how well it fits with the area of your knowledge, Chairman—"What is it? Why are you not getting as many as you like? Is it a question of fees?" To which the answer, for those who are 17 or 18, is that is not relevant. If they go on as a continuation from their full-time schooling there are not any fees, so that actually you get into a discussion of perhaps you need some sort of education maintenance allowance that is a bit more generous that incentivises them so that they can do a bit better to maintain an educational structure or training structure, rather than taking a low-paid job, which in your late teenage years you may think, "Well, it is paid," and they are prepared to accept it. We have to remotivate the generations as they come through. At the moment we are not succeeding.

Q256 Gavin Williamson: I was going to ask you one specific question in terms of how you feel about the creation of enterprise zones. Often in the past there has been some comment that this has sucked in investment, short-term profit. Do you think this is a risk that could be run in Northern Ireland? Obviously, it depends on the structure, but in your professional opinion?

John Simpson: My only close recollection of enterprise zones goes back to that period that Lord Heseltine was talking about, from a Northern Ireland viewpoint. There were earmarked areas and the main incentive was some variation in rates and a notional easing of planning restrictions. There were lines on maps and there were quite tight little areas. There was clear evidence, I thought, and other people also wrote about this, that within a city like Belfast, these lines on a map actually caused businesses to cross the road to get on the right side of the line. That was a deadweight effect that we did not need to have and this is why now that the Government is reconsidering enterprise zones, I will be watching to see how they avoid causing distortion within an urban area.

I suspect that any definition of an enterprise zone in the style that the Chancellor of the Exchequer is talking about must be a big enough catchment area so that there are not artificial lines either side of a main road. It has to be a bit more than that. In terms of Northern Ireland, and I am twisting your question to suit my purposes—forgive me—

Gavin Williamson: You should have gone into politics.

Chair: You would not be the first to do that.

John Simpson: —the concept of something on the ground, if I go away from the terminology of the enterprising region, is there a possibility of something called a zone or several zones within the region? If so, then, yes, I want to play with that idea. As a result of my experience in the last decade trying to work on some proposals that were relevant to the Greater Shankill and West Belfast, in a particular exercise that I was doing in conjunction with Padraic White, who led the West Belfast team, we debated whether or not there was a case for an urban development corporation approach to a significant area of Belfast. The logic of it is that the inner Belfast area needs something. I am not sure if East Belfast is the most needy.

Naomi Long: It has its needs. We have some of the most deprived wards in Northern Ireland in my constituency.

John Simpson: I could have relied on a little support for my argument, couldn't I, Chairman? The concept of a physically defined area for inner Belfast and for inner Stroke City commends itself. I have felt over the years that the Ilex concept for Derry/Londonderry could well do with the support of some sort of corporate structure that gives it certain advantages. I would like to see the same for a major area of inner Belfast and, in terms of getting employment generated for the area I was interested in, West and Shankill—and it does extend to one or two other spots—the idea that there might be some sort of corporate thrust of an institutional arrangement with its own particular added dimension of planning powers and maybe of some compulsory land acquisition and assembly of areas powers.

I put this alongside my plea for some of these inner urban areas. I would join anybody else who cared to be very critical of our regeneration strategy at the moment for Belfast and Derry, which is far too weak. Our regeneration strategy at the moment is led from the Department of Social Development and I think that begins to explain a tension. Regeneration is about much more than social development. It is about full development of the area and therefore we need to move from a social development influence into something of a development organisational role—call it an urban development corporation if you want. I do not know if it needs to be dressed up with that title, but something like that.

Q257 Gavin Williamson: Mr Simpson, at the very start of your answer, actually, if I could reel back to there, you actually raised something about the Chancellor's announcement at the weekend. I was just interested in your thoughts on this. He has announced that there are going to be 10 enterprise zones within England. Obviously, we do not have any information as to what they are going to have or anything else like that. Do you think the creation of 10 English enterprise zones will ultimately cause a problem in creating a Northern Ireland enterprise zone, in whatever context that is?

John Simpson: The simple answer is it makes it more important that we do not use the same terminology for two different things. It makes it more important at this stage. Maybe you can not reorientate, but redirect the language of what you are looking at in terms of, "We want Northern Ireland to be an enterprising region that is impressive because of its successful delivery of good business circumstances." The enterprise zone, as now defined by the Chancellor, is going to be a narrower concept. We may well want to read across some of the ideas the Chancellor has for his 10 into Northern Ireland; that is still open for debate, but I do think the terminology—the accident of using the same words—would be a mistake.

Q258 Mr Benton: Following on from there, the cost factor of setting up an enterprise zone, of course, is unquantified; it could be anybody's guess. The point I would like to put to you is: in your opinion, would there be a general willingness to meet the cost, whatever it may be, of setting up an enterprise zone? Could it be justified in the mind generally because it would have the effect of taking or making a shift from the public to private sector? Do you think there is there a willingness to accept that generally?

John Simpson: I think, Chairman, the concepts that we have been exploring in the last so many minutes are not major costs. They are marginal costs by varying programmes. I think the cost of forgoing, say, rates, for some businesses or the costs of changing—that is the most demonstrable cost. There might be a cost in terms of reviewing tax allowances if that so happened. I suspect though that what we are talking about today ought to be seen in terms of getting the policies right. It is not necessarily about introducing huge, extra costs. I hope we can find our way through to do it with minimal costs—not zero, but minimal.

Mr Benton: So it is well justified.

Q259 Chair: But in general terms though, when we talk about cost, in your view what is the balance between, perhaps, grants as far as they can be given and not taking tax from companies in the first place? How would you see the ideal weighting of that?

John Simpson: As an order of magnitude, I think £10 million a year would go a long way.

Q260 Chair: Is that spent or not collected?

John Simpson: Sorry?

Chair: Is that spent?

John Simpson: Spent, yes.

Chair: Or not collected?

John Simpson: Spent or not collected—yes. Those who think it would work would be quick to add the plus in the equation three or four years down the line when new businesses were in place and they were adding to the revenue. I do not subscribe to the quick switchover argument that that implies, just as I do not subscribe to those who think corporation tax would have such a quick swing-round. It might be the right change, but let's not be too optimistic.

Q261 Chair: What about national insurance? The contributions holiday that has been announced? Is that going to be helpful or not?

John Simpson: It is helpful, but it has had surprisingly little impact and I am not sure why. Is the concept on too narrow a basis? Let's give it more time. It might work.

Chair: Okay. Are there any other questions just before we finish? Again, it has been a very interesting session, so thank you very much for joining us. It has been a pleasure.

John Simpson: Thank you very much.

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