4 Enterprise zones
TURNING NORTHERN IRELAND INTO AN
ENTERPRISE ZONE
116. The Secretary of State told us that his idea
of an 'Enterprise Zone' for the whole of Northern Ireland differed
from that referred to by the Chancellor when he announced enterprise
zones would be set up across England.[197]
The concept offered to the rest of England involved measures such
as reduced business rates and relaxed planning rules. Previous
enterprise zones in the 1980s had tried to regenerate areas of
industrial decline and commonly focussed on making it easier for
land to be developed. Most witnesses agreed that this would not
necessarily be appropriate for the current needs of the Northern
Ireland economy.[198]
117. The Secretary of State for Northern Ireland
explained that his version meant two things, corporation tax and
planning.[199] Most
of the witnesses to our inquiry commented on the vagueness of
the concept or were confused by this definition. For example Terence
Brannigan from the CBI, said "when I asked what enterprise
zone meant, I was told that actually it is about corporation tax".[200]
And others agreed that, without greater clarity, it was difficult
to know what an enterprise zone would mean for Northern Ireland.
John Simpson preferred to talk about "how to make Northern
Ireland an enterprising region".[201]
118. There was, however, broad agreement that more
needed to be done to encourage companies in Northern Ireland to
export, carry out innovation, research and development, help SMEs
expand, and persuade companies to drive output levels up.[202]
Lord Heseltine told us to use the strengths of what already existed
on the ground, such as skilled labour, strong universities and
sophisticated industries.[203]
He also stressed the importance of finding people with vision,
including local leaders who would bring together the various policy
areas, such as education and transport, which contributed to whether
a culture of enterprise might succeed.[204]
119. There was also recognition that addressing the
loss of talent due to the Troubles would be helped if Northern
Ireland was seen as a place where entrepreneurs would flourish.
Patricia O'Hagan, Managing Director of Core Systems, said:
I would very much endorse creating an environment
whereby our young people who are coming out of universities consider
the opportunity of entrepreneurship. Certainly when I qualified
from university, that was not seen to be a career opportunity
at that point in time, but we have a lot of young people—we
are seeing them come through the Science Park—with great
ideas coming out of university. But we also need to create an
environment to nurture that. So, for example, to make them aware
of seeking funding, to create a VC [venture capital] environment
where they can fund early-stage ideas, develop them, access skills
and people to help them grow those business ideas and make them
aware and establish an ambition to grow large-scale international
companies[205]
120. Much of the evidence to the Committee has suggested
lowering the corporation rate would be advantageous but would
not be effective in isolation.[206]
Indeed, the Exchequer Secretary admitted to us "Is this just
about corporation tax? Does it solve everything? You are absolutely
right: no it does not".[207]
Just as there are other factors, alongside tax, which affect investment
choices, similarly, there are other things that can be done to
make it easier for businesses to locate and invest in a particular
place. Responsibility for some of these are already devolved to
the Northern Ireland Administration. Some, largely tax measures,
are reserved. As the Secretary of State said: "It was useful
to have that phrase [enterprise zone], because I said that a lot
of these competences are now in devolved hands and nothing to
do with me at all".[208]
TARGETED FISCAL INCENTIVES
121. One of the strong messages we took from our
meetings in Dublin was that IDA in Ireland use the 12.5% corporation
tax rate as a headline figure, but additionally offer a package
of extra fiscal and non-fiscal incentives that are used to target
and develop clusters of the specific sectors that Ireland wanted
to attract.[209]
122. We received evidence arguing that for Northern
Ireland to encourage enterprise and stimulate entrepreneurs and
attract investment, it should be able to offer enhanced incentives
to encourage innovation, research and development, exports and
to help SMEs expand—for example targeted tax credits to
incentivise Research & Development (R&D); the generation
of intellectual property and patents; capital expenditure; exporting
training; and marketing investment.[210]
123. PricewaterhouseCoopers quoted research that
suggested such incentives could be fiscally neutral, readily understandable,
have a significant impact on post-tax profits, be attractive to
viable and highly profitable projects rather than "cash hungry"
low return projects; and encourage investment and innovation.
The research suggested their incentives could deliver "significantly
greater retained profits that a simple 12.5 % corporation tax
alternative as then prevailed in the Republic of Ireland."[211]
As in Ireland, these incentives could offer flexibility according
to the potential investor's needs and could be provided in Northern
Ireland alongside the more blunt corporation tax, or be brought
in instead of the power to vary corporation tax.
124. However, any changes to the tax relief system
might also be covered by the same state aid rules as corporation
tax, and having a separate regime in Northern Ireland would involve
further administrative burdens.[212]
125. The Treasury consultation paper pointed out
that the Government have made recent changes to UK wide R&D
tax credits to reward those firms which do carry out innovation
and R&D. We heard evidence that companies do avail themselves
of some of these incentives already, Patricia O'Hagan, Core Systems,
told us:
I am managing director of a local software company
and we do use R&D tax credits and we benefit from funding
from Invest Northern Ireland to supplement our investment in R&D.
So there are companies in Northern Ireland who are very interested
in doing this.[213]
126. However, we were told that there were not enough
firms taking advantage of the credits available.[214]
This was partly attributed to the difficulties the SME dominated
private sector encountered in trying to carry out R&D, and
the lack of large employers who want to be innovative.[215]
127. We recognise the potential in offering targeted
incentives on top of corporation tax to incentivise particular
sectors. However, we conclude that now is not the time to consider
devolving further tax powers to the Northern Ireland Assembly.
The complexities of doing so would be likely to stall change.
Targeted fiscal incentives should continue to be legislated for
and administered on a UK wide basis.
Air Passenger Duty
128. Another matter which puts Northern Ireland at
a disadvantage is Air Passenger Duty. The one direct transatlantic
flight from Belfast to the US, carrying 100,000 passengers a year
to New York is currently at risk due to increases in the Air Passenger
Duty[216]—adding
near £60 per passenger to the US compared to €3 rate
in the Republic,[217]
although recent reports indicate that the Irish Government is
preparing to scrap even this small amount as part of a package
of measures being introduced to encourage tourists to the Republic.
The service and was referred to by one of our witnesses, NYSE
Technologies, as a factor important to their location in Northern
Ireland.[218] If Belfast
and Northern Ireland are going to compete with Dublin and the
Republic of Ireland for investment from the US then it is important
that the direct service is not lost. The CBI also pointed out
that Shannon airport has full pre-clearance procedures that allow
US bound passengers to undertake all immigration, customs and
agriculture inspections at Shannon prior to departure the US.[219]
Transport tax rates must not deter businesses from coming to
Northern Ireland; any consideration of applying a per plane tax
to freight must take into account that businesses could be lost
to the Republic of Ireland if this is introduced.
NON-FISCAL INCENTIVES
Education and Skills
129. The Independent Review of Economic Policy (IREP),
set up to look at the economic development policies and programmes
of the Northern Ireland Executive, recognised that the local education
system needed to anticipate increased demand for higher level
Science, Technology, Engineering and Maths skills (STEM) if there
was an increased prioritisation in innovation and R&D.[220]
Lord Heseltine stressed the importance of skilled labour to what
he an enterprise zone in Northern Ireland might require.[221]
Similarly, John Simpson said the Northern Ireland could not provide
the skilled labour to fill the better paid, high skilled jobs
if there was an increase in FDI. He advocated using money, that
would otherwise be lost from the block grant to pay for the corporation
tax cut, to improve education and skills training, and ensure
Northern Ireland had a skilled labour force that matched the demands
of a modern economy:
The problems of too few and inadequately trained
and skilled people have not yet been seriously tackled. [...]
A favourable corporation tax system, alone, cannot compensate
fully for the other weaknesses.[222]
130. Victor Hewitt, NIERG, said companies are interested
in a good level of basic skills but often trained the more specific
skills in-house.[223]
He also pointed out that in the past "we have done a lot
of training but have not had the jobs, and the net effect is that
Northern Ireland has managed to train some of the United Kingdom's,
Republic of Ireland's and USA's best businesspeople, because they
had to move elsewhere.".[224]
131. Witnesses pointed out that the Republic of Ireland
had strength in skills, and focussed on technical colleges and
universities.[225]
NYSE Technologies reiterated the value of good relationships with
colleges and universities that are going to provide the relevant
skills:
We have very tight ties with the local universities.
In fact, on Monday, I was in attendance at the Industry Advisory
Board, where we work very closely with Queen's University to ensure
that the curriculum, particularly in the engineering and computer
science department, maps directly onto our requirements. It wasn't
just ourselves; there were other representatives from other businesses
there as well, so there's a very close collaboration in that respect.[226]
132. Consideration also needs to be given to the
extent of broadband coverage in Northern Ireland. In addition,
mobile phone coverage should also be considered. The coverages
of both are relatively low and there should be help given to ensure
that is expanded to all areas of the Province.
Planning
133. Witnesses commonly referred to the planning
system in Northern Ireland as an important blockage to development.[227]
The IREP recommended that the system should be reformed, and should
have "processing time targets which are competitive with
those countries and regions against which Northern Ireland is
competing".[228]
134. Reform of the planning system in Northern Ireland
is currently taking place.[229]
Professor Greg Lloyd, from the University of Ulster, said the
current Planning Bill was the largest piece of legislation being
pushed through the Assembly and aimed to "bring about an
appropriate and democratic land-use planning system—one
that is much more akin to what is going on in Wales, Scotland
and England."[230]
135. A skilled workforce is essential to take
advantage of any expansion in the sectors that Northern Ireland
wants to attract. Education and planning are already devolved
matters, and the Northern Ireland Assembly must make its own decisions
about where and how to invest in skills training, and how to reform
its planning system.
197 Department for Communities and Local Government,
March 2011, Enterprise Zone Prospectus. Back
198
Ev 234 Back
199
Q 24 [Responsibilities of the Secretary of State for Northern
Ireland] Back
200
Q 99. See also Q 124 Back
201
Q 231 [Northern Ireland as an Enterprise Zone]. See also: Lifting
economic development to a more professional level, 9 April 2011,
www.ulsterbusiness.com Back
202
Q 5. The IREP said that the promotion of Innovation and R&D
was the most important long term driver of productivity. Back
203
Qq 102-104 [Enterprise] Back
204
Q 82 [Enterprise] Back
205
Q 14 [Northern Ireland as an Enterprise Zone] Back
206
See Q 59 Back
207
Q 7 [Rebalancing the Northern Ireland economy] Back
208
Q 24 [Responsibilities of the Secretary of State for Northern
Ireland] Back
209
See www.idaireland.com/ Back
210
Q 68 or Q 266 Back
211
Ev 202 Back
212
HM Treasury, Rebalancing the Northern Ireland economy, para 4.84 Back
213
Q 14 [Northern Ireland as an Enterprise Zone] Back
214
Ev w4 Back
215
Q 22 [Enterprise] Back
216
Threatened New York air route reprieved, but future is uncertain,
Belfast Telegraph, 2 May 2011 Back
217
Q 243 Back
218
Q 257 Back
219
See www.shannonairport.com/gns/at-the-airport/us-preclearance.aspx
Back
220
DETI and Invest NI, Independent Review of Economic Policy, September
2009 Back
221
Q 102 [Northern Ireland as an Enterprise Zone] Back
222
Cutting company tax rate is not cure for all our ills, Belfast
Telegraph, 26 October 2010 Back
223
Q 14 Back
224
Q 13 Back
225
Q 99 Back
226
Q 251 Back
227
For example see Q 233 [Northern Ireland as an Enterprise Zone];
Q 31 or Q 263 Back
228
DETI and Invest NI, Independent Review of Economic Policy, September
2009, para E.21 Back
229
Q 3. See also the HM Treasury, Rebalancing the Northern Ireland
economy, paras . 5.7-5.14 Back
230
Q 116 [Enterprise] Back
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