Corporation Tax in Northern Ireland - Northern Ireland Affairs Committee Contents

Written evidence from John Simpson


1. If the Northern Ireland economy is to make progress then Northern Ireland must establish its credibility as a good place to do business or to start and develop a business. The ambition is to emphasise the positive features of the business environment to attract mobile and indigenous investment.

2. Presenting Northern Ireland as an enterprise zone can serve to convey a positive perception of the region and emphasise key qualities or characteristics that encourage investors to give careful consideration to the likely merits of locating in Northern Ireland.

3. The enterprise zone concept should combine a mixture of stronger marketing for the region and identified special selling points particular to Northern Ireland.

4. However, the enterprise zone concept, as a marketing tool, cannot stand alone, particularly if the underlying business infrastructure contains weaknesses. Therefore, consideration of the elements of enterprise zone policy also depends on the broader range of features affecting business development. Expressing that linkage in another way, effective marketing of an enterprise zone depends not solely on the specific special incentives but even more importantly on the substantive wider development strategies.

5. This suggests that the debate on the characteristics of the enterprise zone must be preceded by a reconsideration of progress in improving the general business environment. There are several features which need to be acknowledged. For Northern Ireland, in a comparison with other UK features, this includes:

  • fewer new business starts than the UK average;
  • an overall lower output per person (or employee);
  • a complex misleading perception of being a low labour cost region;
  • few outstandingly successful businesses;
  • too high a proportion of the labour force with modest or low qualifications; and
  • a regulatory and planning regime that (at best) can be unhelpful.

6. There is no major continuing reason why Northern Ireland should not take steps to enhance its locational advantage. This will call for changes to make enterprise activity more attractive mainly by demonstrating conditions for enhancing profitability as well as demonstrating supportive actions by related agencies and departments.

7. Some features will act as a constraint.

8. For some businesses, geography and associated transport costs may be a marginal disadvantage. For others, the higher costs of energy may make a difference, although this difference is now much narrower. Questions of scale may affect locational decisions since the local or all-island market may frustrate gaining economies of scale. None of these is a fundamental game changer. They will be factors relevant only to some investment proposals.

9. Other more significant features relevant to business success might emerge in:

  • labour skills and productivity ;
  • labour costs;
  • the availability of skilled people and the operations of education and skills providers;
  • the direct and indirect impact of locational factors including infrastructure;
  • the impact of Government regulation (on employment, environment, social obligations); and
  • costs for Government services, including rates and any local taxes.

10. In a slightly different context, account must be taken of the availability and cost of capital needed by entrepreneurs. Arguably there is no discrete capital market in a region such as Northern Ireland. This does not preclude the possibility of either an institutional barrier or a market failure. The case to encourage greater availability of debt funding, equity sources or venture capital needs to be revisited. To date there has only been modest use of venture capital although recently there has been some success in building a Halo Business Angel network

11. If Northern Ireland is to become an enterprise region these features underscore the logic of a two part approach.

12. First, the fundamentals of a modern business environment must be in place and convincingly demonstrated. Second, against a background of a society that welcomes and supports enterprise, some additional features to advertise, sell, or incentivise the prospectus would be helpful. The top-up or additional perks may be, in themselves, relatively inexpensive but conspicuous enough to attract the interest of potential investors.

1.  The general business environment

13. Whilst there has been much recovery and progress in the last decade, Northern Ireland has not yet adequately demonstrated that all the fundamental features of a modern business environment are firmly in place. Some of the features that await positive developments include:

  • 1.  Planning regulation and administration
  • 2.  Overall regional planning strategy (and the Belfast Metropolitan Area Plan)
  • 3.  A coherent and committed plan for physical infrastructure improvements including roads, transport and urban centre enhancement
  • 4.  Agreed policies on the development of water and sewerage services (and their financing)
  • 5.  Fiscal coherence as it affects local taxation (rates)
  • 6.  Coherence of disparate Government policies for the economy
  • 7.  Formulation of delivery plans for skills and training for young people to meet changing needs
  • 8.  Demonstrable political stability in good governance
  • 9.  A comprehensive economic strategy (as expected from the Kate Barker review)

These are some of the main agenda items for the reshaping of general regional economic strategy. However, the search for an enterprise, or enterprising, region will rely, primarily, on improvements in these features.

2.  Added features for an Enterprise Zone

14. If the fundamentals are being tackled, what might be added to underscore the creation of an enterprise zone with particular attractions?

15. Alternative suggestions can be identified:

  •   Concessions for new corporate businesses through defined tax allowances
  •   Significant initial, time limited, concessions on local Council tax (rates) for new enterprises
  •   Some (careful) easing of planning restrictions
  •   Guarantees to lenders to support favourable borrowing arrangements
  •   Extra high profile training and skills qualifications for modern businesses
  •   Tailored facilities to link a business with dedicated expertise in higher educational institutions (a stronger knowledge transfer scheme)

16. Ideally an enterprise region should be successful because of the ways in which businesses can be assured of a sustaining and helpful operating environment. A sound local economy, backed by unique selling features, is a desirable base on which to build a dynamic region.

3.  The lead responsibility

17. If Northern Ireland is to develop as an enterprise region, whilst there must be an appreciation of the objectives and support from all the institutions of Government, whether from Brussels, London or in Northern Ireland, the main leadership role must lie with the devolved Northern Ireland administration. The extensive devolution of most of the relevant responsibilities means that lead responsibility lies in Northern Ireland. When the decisions on the devolution of authority for corporation tax have been finalised, then the role of the local initiatives should be even clearer.

18. Devolution of authority to determine the basic rules for corporation tax, as well as the tax rates, would not, as a single change, be sufficient to generate a Northern Ireland economy that would become successful. The Northern Ireland Executive would be the group with responsibility for the enterprise zone policies.

19. The search for supportive mechanisms to enhance the enterprise culture in Northern Ireland is an essential component of economic progress in the years ahead. The failure of the recent past has been a failure to modernise, adapt and plan for an economy where achievements are enhanced.

20. Without becoming a more enterprising economy, Northern Ireland might remain well down the European league table of self-sustaining vigorous regions.

17 February 2011

previous page contents next page

© Parliamentary copyright 2011
Prepared 9 June 2011