Written evidence from the Federation of
Small Businesses
INTRODUCTION
1. The Federation of Small Businesses is Northern
Ireland's largest business organisation with 8,000 members from
across all sectors of industry, and over 210,000 members throughout
the UK. The Federation lobbies decision makers to create a better
business environment.
2. The Federation of Small Businesses in Northern
Ireland (FSB NI) supports the designation of Northern Ireland
as an Enterprise Zone as part of a wide ranging strategy towards
rebalancing our local economy, with a focus on growing the private
sector. We believe it would be a positive action, both in terms
of attracting increased Foreign Direct Investment (FDI) and in
growing the indigenous business sector, especially in respect
to improving innovation and managerial capabilities.
3. The Northern Ireland economy continues to
find itself at a major competitive disadvantage to its southern
neighbours, while also having to contend with a range of factors
that inhibit our ability to be as competitive as the rest of the
United Kingdom.
FSB NI Survey Findings - What should an Enterprise
Zone be?
4. In December 2010, FSB NI conducted a survey
of all 8,000 current members, covering a wide range of issues.
One of the areas of inquiry related to members' views on some
potential components of a Northern Ireland Enterprise Zone. While
the survey was very recent and the results have not yet been fully
analysed, the following represent an early indication of members'
views. At the time of writing, over 500 responses have been received.
Members were permitted, in most cases, to choose more than one
option.
FSB Survey Question: In order to assist SMEs,
what measures do you think an Enterprise Zone should include?
| |
| Business tax breaks | 67.7% |
| Lower Corporation Tax rate | 61.2%
|
| Savings on employment costs (e.g. NICs holiday)
| 60.7% |
| Assistance with employee training (free or subsidised)
| 40.9% |
| Powers allowing the Assembly to vary other taxes (eg Income tax)
| 38.0% |
| Easing of planning regulations | 27.3%
|
| Research & Development incentives | 25.3%
|
| Assistance with staff recruitment | 21.4%
|
BUSINESS TAX
BREAKS
5. This initiative received the highest response from members
and would ideally include of a range of financial incentives and
tax reductions that would appeal to new business investments and
would encourage industrial and commercial activity through, for
example, a competitive rate of corporation tax, Business Rates
Relief, capital allowances and the relaxation of other punitive
legislation and time-consuming bureaucratic processes.
CORPORATION TAX
6. The introduction of a lower Corporation Tax rate in Northern
Ireland appears to be the second most popular potential component
of a Northern Ireland Enterprise Zone amongst our members (without
prejudice to the final analysis of the full results). This is
interesting given that previous surveys (Lifting the Barriers
to Growth 2004, 2006, 2008, FSB-ICM Voice of Small Business Survey
2009) indicate that only approximately one third of our members
are incorporated - therefore a substantial proportion of the respondents
are probably unlikely to benefit directly from a corporation tax
reduction and could be of the view that such a move would invigorate
the wider economic environment.
7. The FSB believes that the Northern Ireland Executive must
have a greater responsibility for fiscal planning if it is to
take Northern Ireland forward with the economy at its heart. The
priority given to the economy by the Northern Ireland Executive
in its Programme for Government sends a positive signal to investors;
this must be matched by action.
8. A reduction in Corporation Tax would be a positive and
sustainable way of reinvigorating the Northern Ireland economy.
As the global economy gradually emerges from recession and those
charged with winning FDI are exploring new opportunities, Northern
Ireland needs to be positioned to be attractive. However, it would
be a misjudgement to think that a reduction alone would solve
Northern Ireland's economic problems.
SAVINGS ON
EMPLOYMENT COSTS
9. In response to our survey, 71% of members said they would
like to employ some or more staff in their business. A 2009 FSB
Employment Survey indicated that the most significant barrier
to small businesses recruiting more staff was the negative perception
of the complexity of employment legislation, particularly grievance,
disciplinary and dismissal procedures, and maternity and paternity
leave and pay.
10. The FSB has played a major role in representing the experience
of small businesses in dealing with workplace disputes. As a result,
the Assembly is currently in the process of repealing the statutory
three-step grievance procedure. To encourage the early use of
an informal, alternative disputes resolution process, as proposed
and advocated by the FSB, the government plans to introduce a
'user-friendly' NI-wide mediation service and a Small Business
Support Service. This is welcome.
11. The FSB is of the view that family leave should be tailored
to suit each individual business, and that a "one size fits
all" approach fails to adapt to those needs. Small firms,
which make up the vast proportion of the private sector in Northern
Ireland, are known as the most flexible employers. They often
operate in a small team that runs like a tight-knit family and
the Federation of Small Businesses has been calling on the Government
to reform maternity and paternity leave by introducing a 'flexible
leave' system to allow parents to choose their leave arrangements.
In addition, parents should be able to choose how they receive
their statutory pay and, in return, information must be given
to the employer upfront and leave should be taken in one block.
In doing so small firms will have more clarity on when that invaluable
and skilled member of staff will return to work.
12. The FSB NI worked with the Department of Employment and
Learning regarding the introduction of additional paternity leave
and pay when it was proposed last year, but unfortunately the
Assembly could not move away from parity with Great Britain due
to the tax and benefits implications.
13. A NI Enterprise Zone should include the delegation of
powers to the Assembly to vary taxes, benefits and employment
regulations to encourage small businesses to employ, expand and
export.
14. In relation to initiatives that would incentivise small
businesses to employ more people, our early survey results indicate
the following:
Which of the following initiatives could the Assembly introduce
to encourage you to employ more members of staff in your business?
| |
| Reduce business taxes (e.g. corporation tax, business rates)
| 67.2% |
| Incentivise employment through tax breaks |
56.9% |
| Cut payroll taxes (e.g. National Insurance)
| 57.9% |
| Make it 2 years before unfair dismissal applies
| 48.7% |
| Support unpaid 3 month work placements for graduates
| 35.4% |
| Provide more support / advice for small businesses recruiting staff
| 22.0% |
| Expand apprenticeships | 16.4%
|
APPRENTICESHIPS
15. Very few FSB members currently employ an apprentice (2.4%),
although a higher proportion (14%) has considered doing so. Almost
36% had not considered it or thought it was not applicable to
their business.
The FSB believes that there is massive potential to increase overall
employment in Northern Ireland by incentivising small businesses
to take on more staff or to train apprentices. If every small
business that already employs at least one person were to take
on one more, it would increase the number of people employed in
Northern Ireland by nearly 40,000 people.
We asked our members: Which of the following, if any, would
encourage you to take on an apprentice in your business?
| |
| A wage subsidy | 48.4% |
| An upfront incentive payment | 21.5%
|
| An organisation that would handle administration / HR aspects
| 16.3% |
| An apprentice shared with other businesses |
4.1% |
The FSB believes that the introduction of Group Apprenticeship
programmes would have a positive effect on small businesses' proclivity
to employ an apprentice.
ASSISTANCE WITH
STAFF TRAINING
AND RECRUITMENT
16. Over 40% of our survey respondents said they would like
free or subsidised staff training courses or schemes to be included
in Enterprise Zone initiatives. Small business owners are keen
to upskill their staff and themselves to meet current and future
challenges and rapid change, but require flexibility in the provision
of training programmes for staff in order to ensure continuity
of normal business. Online courses and bite-sized modules, particularly
if they can be taken in the workplace, provide the greatest incentive
to micro and small businesses to train. A further 21% have indicated
that assistance with staff recruitment would be helpful, as this
is another area that micro and small businesses find daunting,
meaning they are often deterred from recruiting for fear of unknowingly
breaching regulations .
17. A recent research report by FGS McClure Watters for Invest
NI (2008) found that there are over 200 sources of business advice
for small enterprises in Northern Ireland. We asked our members:-
If there were a local Small Business Advice Centre with trained
staff who could provide business advice and refer you to other
advice agencies, how useful would this service be? Over 73%
have so far said that it would be "very or quite useful",
and there is clearly a demand for a single source of information
and advice in Northern Ireland. This would be a very important
measure to include in an Enterprise Zone.
EASING OF
PLANNING REGULATIONS
18. Over a quarter of members responding to our survey said
that planning regulations should be eased as part of any Enterprise
Zone proposals. The FSB NI welcomes the recent review of the planning
system in Northern Ireland and the ongoing passage of the Planning
Bill through the Assembly. We would be concerned that the current
system is having a detrimental effect on investment potential.
However, we are concerned that the staffing implications of DoE's
Spending and Savings Proposals will have an adverse impact on
the planning application and consent timescale, and how the Bill's
aims of speeding up, simplifying and localising decision making
will be met, given budget reductions. Previous Enterprise Zones
have included the agreement of acceptable planning guidelines
and principles, and planning permissions were able to be granted
quickly, if application was required at all, as long as proposals
conformed to the agreed guidance. Such a system should be considered
for any proposed NI Enterprise Zone.
RESEARCH AND
DEVELOPMENT INCENTIVES
19. An overhaul of the incentives for Research and Development
is required to ensure that the benefits are maximised by businesses,
particularly to encourage small businesses to look at this as
an option. The Invest NI Innovation Voucher scheme has been a
success since its inception - and consideration should be given
to ways to extend this, and perhaps add elements to create a package
of incentives to maximise R&D potential. By way of building
on Northern Ireland's historic role in innovation, the FSB is
keen to explore ways of putting into the public domain the unpublished
intellectual property that flows from university research
THE NORTHERN
IRELAND EXECUTIVE
AND CORPORATION
TAX
20. An Enterprise Zone must have the tools to generate a sense
of vibrancy and not be merely a designation in name only. Therefore,
radical initiatives such as the introduction of a lower rate of
Corporation Tax for Northern Ireland must be at its heart.
21. The FSB has welcomed the ongoing discussions and analysis
of the Corporation Tax issue, in the context of transforming the
local economy. The publication of the Northern Ireland Economic
Reform Group's report in May 2010 was welcomed as providing a
clear and reasoned case for a reduced rate of Corporation Tax
for Northern Ireland. Similarly, in 2007, the FSB supported the
need for Corporation Tax changes as part of its submission to
the Varney Inquiry into Competitiveness in Northern Ireland, and
welcomed the references that were also made in the Barnett Report.
22. In response to it being ruled out at the time,
the FSB said it "...believes that a corporation tax of
12.5% is justified as Northern Ireland is a unique region in the
United Kingdom, being the only region with a land border with
a country with a much lower rate of corporation tax.
23. The FSB believes that a reduction in Corporation Tax is
a key element in a wider "Enterprise Zone". The reality
is that without such bold and 'game changing' initiative there
will be little reinvigorating or rebalancing achieved and the
underlying economic problems shall remain. It is unlikely to work
in isolation but, taken as a package of measures, it will be central
to an effective strategy.
24. If introduced, Northern Ireland should see tangible benefits
rapidly. It is clearly evident that despite its considerable problems,
the Republic of Ireland is already attracting multi-nationals
once again, and the foundations are being laid as well known names
look to the future and expand their operations in Europe. If one
were to set aside the Republic's current debts, which emanate
mainly from banking exposure in the property sector casting a
long shadow, their economic model is nonetheless robust and sustainable,
unlike that of Northern Ireland.
25. Northern Ireland does not have time on its side. The initial
enthusiasm and goodwill that accompanied the Peace Process will
wane as time moves on, and other 'deserving' regions come to the
fore. It must put in place the fiscal and regulatory environments
as a priority.
26. There is now a vast quantity of analyses and reports on
Northern Ireland's economic future. The time has now come to take
decisions and move the process forward. Competitors are doing
so and there is an urgent need for implementation of a clear economic
strategy if Northern Ireland is not to fall further behind.
27. The foundations must be in place to attract investors
and this will require a co-ordinated approach across government
departments to implement the various components in a swift but
consistent fashion. Northern Ireland must also ensure that it
can meet other expectations of potential investors in areas such
as skills, research and development, and manageable energy costs.
28. The companies that commit will need to be serviced and
that will principally be the responsibility of small business.
This trickledown effect is essential to the development of the
indigenous small business sector in Northern Ireland, leading
to increased innovation amongst small businesses, investment in
research and development. It will also demand a consequent examination
of the need for further skills development.
POST BANK
29. The creation of an Enterprise Zone in Northern Ireland
could be an opportunity to explore new initiatives to stimulate
local economies, particularly rural, which encompass many businesses
- micro, small and medium - not necessarily exporters but equally
vital to economic life in Northern Ireland.
30. The FSB has championed the creation of the Post Bank initiative,
which would provide:
- Financial advice.
- Financial management tools.
- Local business knowledge and assistance.
- Links to other financial institutions such as credit unions
and organisations providing micro finance.
- Innovative banking tools.
31. Small businesses are currently not getting the services
that they need from the Post Office and, as such, a future Post
Office should look and function very differently from the current
model. Individual Post Offices have the potential to become flexible
'business hubs', operating independently and providing a full
range of services to the business community.
32. By introducing such innovations as Post Bank to Northern
Ireland, there is the potential to reenergise the small business
sector. If Northern Ireland is to meet its targets for growing
its tourist industry, for example, it must have the infrastructure
in place to support the resulting growth in small business numbers,
and their requirements.
SECTORAL TARGETS
33. Clearly there are sectors with significant growth potential,
in which assistance should be maximised. For example the food
manufacturing sector has continued to grow and many companies
in this sector have demonstrated an innovative approach towards
product development and seeking additional export markets.
34. Similarly, Northern Ireland possesses considerable technology-led
capabilities in areas such as IT, marine and environmental technology,
advanced manufacturing and life sciences. These are also target
areas for the IDA Ireland (Industrial Development Agency), which
has enjoyed considerable success to date, and Northern Ireland
must consider these as high priority areas within the context
of an Enterprise Zone to deliver significant growth in the years
ahead. Such growing and vibrant sectors, in turn, benefit the
wider small business sector through sub-contracting opportunities
and other supply services - again, generating a 'trickle down'
effect. This also stimulates business start ups and, through the
sharing of technical and commercial knowledge, improves the enterprise
capability of the local community.
35. As well as these 'new' sectors there are a considerable
number of small businesses in Northern Ireland, often family owned,
who do not exploit the potential to expand their sales opportunities,
principally through exporting and modernising their business practices.
Whilst considerable support already exists to work with these
businesses, principally through the Invest NI with the support
of DEL (Dept of Employment and Learning) management and leadership
programmes, this area can be further developed with options such
as making online learning and Continuous Professional Development
more accessible to micro and small businesses, subject to rigorous
evaluation and improvement.
36. The local retail sector should not be overlooked in the
context of an Enterprise Zone. It provides a significant proportion
of those in employment, considerable training and development
opportunities for young people, and the sector is vital not only
in the context of serving the indigenous population, but in the
context of being an important element in the drive to increase
tourist numbers, and provide a route to market for local products.
37. Given the expected reductions in resources available for
projects such as town centre regeneration through the Department
of Social Development, an Enterprise Zone could maintain the momentum
towards improving local town centres, improving the balance between
these and out of town retail parks.
ENERGY COSTS
38. One of the main emerging threats to the success of any
Enterprise Zone concept is the seemingly ever increasing rise
in energy costs. Already there is real concern amongst small businesses
that this is an area fast running out of control and from an inward
investment perspective this, in itself, is fast becoming a disincentive.
39. The report published in January 2011, "The impact
of CRC Legislation on Northern Ireland"[20],
forecasts that the impact of introducing the new Carbon Reduction
Commitment Energy Efficiency scheme could double energy costs
for businesses within five years. This is simply unsustainable
for the majority of businesses and itself has the potential to
nullify the positive benefits within the context of an enterprise
zone.
COSTS
40. There will be an inevitable cost to implementing many
of the elements of an Enterprise Zone. There have been suggestions,
for example, that the costs associated with a reduction of the
Corporation Tax rates will negatively affect the community to
the benefit of business and industry. This is to believe that
the two are mutually exclusive and for one to benefit, the other
must suffer. In reality, businesses are the lifeblood of communities,
creating employment and generating wealth and well-being. Small
businesses will thrive in an environment of increased FDI, benefitting
directly from subcontracting etc and indirectly through greater
consumer spending and increased confidence.
41. In short, it is the community who will reap the benefits
from a greater emphasis on enterprise. However it is only by taking
radical steps and thinking for the long term that meaningful change
will happen.
FOR HOW
LONG SHOULD
AN ENTERPRISE
ZONE OPERATE?
42. The FSB is of the view that there should be no specific
time limit on the operation of an Enterprise Zone, but rather
GVA and employment targets set. A time limit associated with a
lower rate of Corporation Tax would significantly reduce its effectiveness,
and lead to the dominance of potential "brass-plating"
as the main aim of large companies, as they would be less inclined
to consider Northern Ireland as a permanent European or UK base.
Instead, an Enterprise Zone should be the catalyst that transforms
economic prospects and delivers a cultural change in Northern
Ireland's workforce and global reputation.
EXAMPLES OF
GOOD PRACTICE
43. There are many examples of the successes of Enterprise
Zones throughout the world. For example, in California, a number
of such zones were created; based on incentives such as:
- Hiring credits for qualified employees.
- Sales tax credits for the purchase of plant and machinery.
- Assistance for banks that give zone business loans.
- Tax deductions and upfront capital allowances for certain
property transactions and improvements.
44. France has created a number of Zones Franche Urbaines,
in which small and micro businesses in 100 areas are eligible
for exemption from employers' social security contributions, profits
tax, business tax and real-estate tax. The benefits include exemption
from:
- de l'impôt sur les bénéfices ;Tax on profits.
- Business tax.
- Employers' National Insurance Contributions (equivalent) for
the portion of the monthly wage for employees earning less than
1.5 times the minimum wage.
- Personal NI Contributions for craftsmen or merchants.
- Property tax for properties located in built ZFUs whose activity
is within the scope of those permitted by the Act.
THE ROLES
OF UK GOVERNMENT
AND NORTHERN
IRELAND EXECUTIVE
45. Many of the key elements are already within the powers
of the Northern Ireland Executive, through departments such as
DETI, DEL and DOE. There is already an economic sub-group, formed
by the Executive Ministers, and this should be the responsible
body rather than creating another, separate committee. It should
be aided and advised by specialists to implement the necessary
powers and by business representatives who can advise on the potential
practical outworkings of proposals.
46. It will clearly be necessary for the UK Government to
be a key player in any Corporation Tax reduction, and the FSB
in Northern Ireland would welcome the opportunity to provide information
on the impact and benefits for members. Beyond reducing Corporation
Tax, there is clearly a central role for the UK Government to
work in tandem with the NI Assembly and Executive. The past generation
in Northern Ireland has seen a terrible conflict and destruction
of value. Latterly, the situation has seen dramatic political
transformation, but economic change has been elusive. The establishment
of a generously conceived and resourced Enterprise Zone, with
a long term objective of economic transformation and cultural
change is a colossal challenge but one which must be seized for
the good of the people of Northern Ireland and for the wider benefit
of stability throughout the whole of the UK and Ireland.
47. In conclusion, the FSB in Northern Ireland welcomes this
opportunity to have been able to highlight some of the facets
of a potential Enterprise Zone for Northern Ireland. We would
be very happy to appear in front of the Northern Ireland Affairs
Committee to expand upon these if it is felt that this would be
beneficial.
21 January 2011
20
"The Impact of CRC Legislation on Northern Ireland",
published 17 January 2011, by Carbon Masters. Back
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