Written evidence from Belfast City Council
INTRODUCTION
1. Belfast City Council welcomes the opportunity
to contribute to the Northern Ireland Affairs Select Committee's
inquiry on Northern Ireland as an Enterprise Zone.
2. We note that this inquiry is taking place
as part of a wider piece of work by the Committee on rebalancing
the Northern Ireland economy which was expected to be completed
by the end of 2010 but which has not yet been released. These
comments are therefore made in the absence of the wider contextual
study and analysis.
3. The term "enterprise zone" was introduced
in the 1980s to denote "an experiment in urban policy to
stimulate economic activity by giving businesses as much freedom
as possible in which to operate ". These zones were geographically
designated areas, established for a period of 10 years, in which
companies could benefit from a series of tax allowances, relaxation
of planning restrictions and rates relief facilities. In total,
38 sites were designated, including sites in Belfastof
which one area is now in the ownership of Belfast City Council
- and Derry in Northern Ireland.
4. Having read the comments of the Northern Ireland
Secretary Owen Paterson and the Prime Minister David Cameron in
relation to the current proposals, it is our understanding that
the expectation is that the policy will apply across all of Northern
Ireland as opposed to geographically-designated locations. Therefore
we are working on the premise that any new proposals would focus
on growing the size of the private sector and creating additional
investment across the region as a whole as opposed to a number
of targeted interventions. Our subsequent comments are made based
on this assumption.
5. We have also assumed that the activities proposed
for the Enterprise Zones will have to be achieved within existing
(and already reduced) budgets, as opposed to any additional expenditure
becoming available. As a council, we would have significant concerns
around any proposals which may reduce the business rates income
to the council, given that this is a major driver of our wider
service delivery to the ratepayer. If additional rate relief was
to be introduced as an element of the Enterprise Zone, would we
want to ensure that the shortfall to councils would be made up
by central government or the Northern Ireland Assembly, as is
the case for the recently-introduced Small Business Rate Relief
Scheme.
6. Given the relatively short timeframe allowed
for the response, we have made our elected members in council
aware of the inquiry and have drawn together some of their comments
in relation to this. However this response has not yet been endorsed
by the appropriate committee structures. It will be considered
by the Development Committee at its meeting on 15 February 2011
and will be endorsed at the 1 March 2011 meeting of Council. Should
there be any changes to the attached comments, we will make the
Northern Ireland Affairs Select Committee aware of these in due
course. We have also taken account of the views of the business
community in the city and have discussed the implications of this
potential development with the key business organisations.
How does an enterprise zone operate
7. As previously identified, the key incentives
attributed to the enterprise zones established in the 1990s included
rates relief initiatives, tax allowances on capital expenditure
and relaxed planning restrictions. This series of measures gave
rise to a variable range of outputs. The evaluation of the Northern
Ireland Enterprise Zone experiment suggests that, of the 7,300
jobs created on the Enterprise Zones, 1,200 are net additional
jobs on the zones themselves with 440 net additional jobs in the
local areas around the zones. Given the public investment of £10.7million
(of which 90% was spent on the Belfast Enterprise Zone), this
equates to a cost per job of £9,200 in the zones themselves
and £24,000 in the local areas. The overall conclusion of
the report notes that, while there was some regeneration impact
in the designated boundary during the period of operation of the
Enterprise Zones, there was no net growth in employment in the
region as a whole and only limited impact in the surrounding areas.
Overall, it suggested that the same effect could probably have
been achieved at a lower cost by reducing the amount of "deadweight"
on both capital allowance and rate relief which could be differentiated
between economic sectors or reduced over time.
8. Although the regeneration needs of the city
today are significantly different to those in the 1980s, the lessons
learned suggest the need for careful consideration of the investment
package, taking a wider view of the incentives to be offered.
Creating an Enterprise Zone in the current climate should be a
mixture of regulatory instruments and investment stimuli set in
the context of clear targets regarding the number and type of
businesses to be established and supported.
9. As previously noted, if this is to be a region-wide
policy, consideration should be given to the types of companies
that we would like to see established in Northern Ireland, prioritising
support for those that contribute most significantly to increasing
productivity by developing a tailored suite of business support
provision.
10. Enterprise zones should be closely aligned
to the research expertise and technology capabilities of universities
and colleges. In Belfast, we have two universities and one further
education college and there is a significant opportunity to further
enhance collaboration between these organisations and the business
community in the city. This may require some consideration as
to how universities and colleges are funded, including additional
support for targeted activities that contribute directly to the
wider economic development of the region.
11. The rationale for the establishment of the
Enterprise Zones in the 1980s was to "augment weak property
markets". While the property market is currently in a downturn
period, we do not consider that the previous approach would necessarily
work in the current climate. We consider that there remains a
concern regarding potential displacement and reduction in property
values.
12. We would also caution against any significant
reduction in planning stipulations around Enterprise Zones. We
support the work which is already underway to streamline the planning
system and acknowledge the need to speed up the current system,
particular where proposals will support the economic development
of an area. However we consider that the appropriate due diligence
is also important for the longer-term viability of the site.
13. In the 1980s, Enterprise Zones were operated
by the Department of Environment, in the period of Direct Rule.
As a devolved responsibility, we suggest that consideration should
be given to the appropriate model for the operation and management
of this initiative. We would be keen to play a key role in any
Belfast-based activities and consider that this is complementary
to our wider plans for the sustainable regeneration of the city.
Why should Northern Ireland be declared an Enterprise
Zone?
14. The arguments for declaring Northern Ireland
an Enterprise Zone relate principally to the need to enhance the
region's economic competitiveness and to reduce the productivity
gap between Northern Ireland and the rest of the UK.
15. There are a number of reasons for the current
economic situation, most of which pre-date the current economic
crisis:
- Dominance of public sector and over-reliance
on the sector for direct and indirect employment opportunities.
- Traditionally high levels of public subvention.
- High levels of economic inactivity, concentrated
in small geographical areas, with consequently high levels of
deprivation.
- Relatively low levels of new business start-ups.
- Low earnings levels in the private sector.
- Geographical location with accessibility issues
and high transportation costs.
- Social problems as a result of previous inter-community
tensions and their impact on social mobility.
- Multiple governance structures increase bureaucracy
and can impede development.
16. While a number of these elements might apply
to other parts of the UK and beyond, the emergence from the conflict
situation over the last 40 years, coupled with the current economic
climate, requires a radical and fresh approach to stimulating
enterprise in Northern Ireland.
What should be included in any enterprise zone
proposals?
17. Enterprise zone proposals could include a
range of regulatory measures, fiscal incentives, investment stimuli
and business support activities. The overall drive should be to
create more businesses, particularly those which can provide value-added
services, as well as stimulating greater investment in research
and innovation and encouraging companies to explore new markets.
The support should be clearly-defined, widely accessible, of a
high standard, with limited administrative burden on the part
of the business. Consideration should also be given to the wider
social and economic impact of Enterprise zones including possible
social clauses and commitment to recruitment of long-term unemployed
etc. Enterprise Zones should provide focused, targeted support
and provide a platform for developing innovative approaches.
18. The focus of the proposals should be on providing
sustainable investment support which will lead to productivity
and business growth. There should not be a reliance on ongoing
public intervention without any clear expectation as to the outputs
expected.
Are these proposals aimed at any particular sectors?
19. There are strong arguments for supporting
incentives that will encourage the growth and further development
of identified sectors, with a view to building critical mass and
developing highly connected clusters of companies that can be
globally competitive.
20. There are a number of sectors which, we believe,
offer significant growth potential and in which we plan to focus
some of our investment in the coming years. These include:
- Creative industries: film and television, digital
media.
- IT and software development.
- Health technologies.
- Environmental technologies.
- Tourism and hospitality development: related
to the wider events and tourism development programme, particularly
in the coming years (eg Titanic Belfast, World Police and Fire
Games).
- Financial and business services.
21. We consider that, with the appropriate mix
of regulatory rationalisation and targeted support, the development
potential of these sectorsin which the region could potentially
have a competitive advantagewould be maximised.
22. However there is also an argument to suggest
that we need to see more new businesses in all sectors, to address
the current low levels of business start up rates in the region.
A tailored package of support needs to be available to those businesses
that have the potential for further growth.
Is there a priority as to what should be included?
23. We consider that there will be a need for
a "basket" of support mechanisms which can help both
indigenous businesses and foreign direct investment companies.
24. We acknowledge the role that corporation
tax has had in attracting investment and are conscious of the
wider debate of how a reduction in corporation tax can be balanced
against a reduction in the overall contribution to the NI budget.
25. As previously noted, we support a tailored
package of support for those businesses that have the potential
to grow and create wealth and further employment. From a management
perspective, it will be important to consider the relative merits
of investment in each case, with a view to maximising return in
this difficult financial climate. We consider that any intervention
should be output-focused, in agreement with the business.
26. We would have some concern about any possible
rate relief measures, particularly if they impacted on the business
rate income to councils. If a rate relief scheme was to be introduced,
we would want to ensure that councils would be compensated for
any loss of revenue.
27. We feel that significant consideration should
be given to skills development support, both for those who are
not in employment and for those already in work. This activity
should be aligned to the wider Regional Economic Strategy (currently
at consultation stage) and should be prioritised on key growth
sectors and current gaps in provision. We intend to make this
a central plank of both our Belfast masterplan and a new integrated
economic strategy for the city.
How long should the enterprise zone operate for
and what aspects might be made permanent?
28. The previous enterprise zones had a 10 year
duration. We accept that the changes required to turn around the
Northern Ireland economy will only see an impact in the medium
to long-term although we consider that measures need to be agreed
as soon as possible in order to allow that process to get under
way, as such, we suggest a minimum designation of five years.
29. We consider that what is required in the
long-term is a re-orientation of public expenditure to support
economic growth in key industries. As such, this will require
re-prioritisation of budgets over successive budgetary periods,
with all investment linked to specific targets and outputs. On
a permanent basis, public spending should focus on creating a
dynamic economy supported by a skilled labour force, with a sufficient
support system to help those who cannot access employment opportunities.
Which aspects would be the responsibility of the
UK government and which would be the responsibility of the Northern
Ireland Executive?
30. The roles of the respective governmental
partners will be dependent on the activities agreed, should enterprise
zones be introduced. However we would work on the assumption that
any fiscal measures would require UK government consent while
other incentive and support packages are likely to be determined
by the Northern Ireland Executive.
31. As the largest local authority in the region,
we would be keen to play our part in any enterprise zone activity
within our area and would commit to working with our partners
to align our expenditure to ensure maximum impact.
What worked well, and what did not work well,
when there were enterprise zones previously in Northern Ireland?
32. Successive evaluations of enterprise zones
suggest, in the main, that while they may have been successful
in attracting development to disadvantaged areas, they were a
blunt instrument that did not necessarily offer best value for
money.
33. A report by the Office of the Deputy Prime
Minister , carried out in 2006, indicates that:
- In selecting sites to be designated as Enterprise
Zones, consideration should be given to issues such as connectivity,
crime rates and general image of the area. Research showed that,
where this was not the case, it was possible that, once the incentives
ceased, the property market in that area could collapse to an
extent that the buildings were no longer lettable or saleable.
- An efficient and effective planning regime, coupled
with other incentives, can stimulate regeneration activity and
investment.
- Enterprise Zones are not always the best ways
of addressing market failure in an area. When identifying sites,
consideration should be given to long-term sustainability, rather
than prioritising solely on the basis of deprivation in a ward.
It may be more appropriate, instead, to introduce improvements
to the area eg improved transport facilities to allow residents
to access employment opportunities elsewhere in the city.
- Capital allowances were the most "popular"
element of the Enterprise Zones incentives, particularly for developers.
However in the current climate, where there is already over-provision,
it could be argued that this would simply add to the problem,
rather than encouraging businesses to occupy vacant properties.
- Enterprise Zones should have at their disposal
a package of measures, rather than being established as a stand-alone
solution, based on property incentives.
- Efforts should be made to relate the development
potential of Enterprise Zones to the available pool of labour.
Skills development and training should be a central component
of any Enterprise Zone.
34. The evaluation of the Northern Ireland Enterprise
Zones undertaken by Department of Environment and alluded to at
point 7 above suggest that while they did help with the physical
re-development of key sites, they were a costly investment and
similar outputs could have been achieved at a lesser cost. In
the current climate, this is an important issue for consideration.
35. There was no particular impetus in the Northern
Ireland Enterprise Zones to support new starts and this was largely
the case with other designated areas. Northern Ireland is a small
business economy - indeed the majority of businesses in the region
could be categorised as micro-businesses. However our business
start levels are still below the regional average. Therefore any
new Enterprise Zone activity should prioritise new business starts,
helping them enhance productivity once established.
What lessons can we learn from enterprise zones,
or similar initiatives to try and stimulate enterprise in other
countries?
36. The lessons from the Northern Ireland and
other 36 UK examples have been referred to above. Essentially,
it is important to design a package of support that meets the
needs of the local economy, as identified within an agreed economic
strategy. We are at a disadvantage in that this does not exist
at present in the region. It should be addressed as a matter of
urgency.
Wider Issues
37. We are aware of some positive experiences
of area-based economic regeneration initiatives such as the Coalfields.
Equally, we acknowledge the success of wider economic policy interventions
which were not confined to designated areas. In this regard, the
Republic of Ireland's experience (pre-2008) in establishing a
favourable taxation regime, coupled with significant investment
in education and skills development and developing a strategy
based on a number of key target sectors presents an example of
how a broader policy approach to supportive enterprise development
can be effective.
38. While these approaches were different, there
were a number of similarities in the lessons learned, namely:
- Need for a clear strategy to guide development
activity and resources.
- Need for partnership working.
- Importance of establishing clear outcomes that
are shared by all partners.
- Need for investment in skills and education driven
by the target economic sectors.
- Need to develop innovative approaches to address
deep-seated challenges.
39. The current economic climate presents significant
challenges for the Northern Ireland economy. While we are not
alone in this, we have a range of structural challenges within
the economy which need to be tackled if the economic trajectory
is to reach its optimal level.
40. It is clear that a similar mantra has been
promoted for the last half century with little change in overall
performance and output, even during our most successful decade
(1997-2007). As such, a more bold approach is required, with appropriate
budgetary resources directed towards an overall goal of enhanced
competitiveness. Designating Northern Ireland an Enterprise Zone
is one way of doing this but there is a need for further debate
as to what specific stimulus and investment packages will address
that need and what delivery mechanisms are appropriate to ensure
that it takes place.
41. Belfast is the regional economic driver and,
as the local council with responsibility for the development of
this city, we are keen to engage in further debate on the matter
and to work with partners to deliver a step-change in economic
performance in the city and the wider region, for the benefit
of all our residents.
7 March 2010
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