Supplementary written evidence from Capitus
In response to the Northern Ireland Affairs Committee
investigating the possibility of establishing Northern Ireland
as an Enterprise Zone, Capitus Limited follows up the initial
evidence gathering process by outlining our view and opinion of
the structure of such a Zone.
1.0 WHO IS
CAPITUS?
1.1 We feel that it is important to first of
all set out the perspective from which we are commenting on this
issue.
1.2 Capitus is an Investment Incentives Consultancy
specialising in advising clients on the tax incentives available
for specific areas of investment. We act for major institutional
and listed plc investors, owner-managed businesses, banks, hoteliers,
care home operators and retailers, to name but a few, throughout
the UK. Our core activities are focused on the incentives available
for investment in commercial property, including development and
refurbishment in all sectors.
1.3 We offer clients advice with respect to the
following key tax incentives for investment and facilitate the
claiming of these reliefs to encourage and stimulate growth:
- The various capital allowances available for
investment in plant and machinery.
- The Enhanced Capital Allowances scheme available
for investment in energy and water efficient technologies.
- The R&D tax credit scheme.
- The provisions of the Business Premises Renovation
Allowances scheme which encourages investment in disadvantaged
areas (for example, all of Northern Ireland qualifies).
- The Land Remediation Relief scheme aimed at encouraging
investment and regeneration of Brownfield and Long Term Derelict
land.
- The use of Enterprise Zones to stimulate economic
growth in specifically targeted areas.
1.4 It is our specific and in-depth knowledge
of these areas that allows us to offer our considered opinion
on the possibility of establishing Northern Ireland as an Enterprise
Zone.
2.0 INTRODUCTION
2.1 We understand that the Coalition Government,
in conjunction with the Northern Ireland Executive wish to evaluate
methods to "rebalance" the Northern Ireland economy.
In particular, to stimulate growth in the private sector and reduce
the reliance upon public sector expenditure.
2.2 It is therefore imperative that the UK Government
encourages increased private sector productivity, investment and
job creation in the short to medium term within the Northern Ireland
economy.
2.3 An Enterprise Zone will achieve these desires
by providing a competitive commercial environment for private
investment. Traditionally, an Enterprise Zone would incentivise
investment and innovation by offering tax allowances or reliefs,
financial assistance or non-monetary benefits to potential investors
in excess of those currently available in other areas.
2.4 Prior experience of Enterprise Zones, particularly
within the North East and North West of England, Clyde Bank in
Scotland and the Lower Swansea Valley in Wales were relatively
successful. These original Enterprise Zones offered investors
an exemption from Land Duty and Commercial Property Rates, 100%
capital allowances for expenditure and a simplified planning regime.
2.5 Ideally, a 21st Century Enterprise Zone should
operate by targeting quality investment from job-creating private
companies and individuals. Therefore, it is important to not only
incentivise the investor to develop high quality premises but
also the tenants who bring employment to the region.
3.0 THREE KEY
POINTS
3.1 We believe that the NI Executive should concentrate
on improving the quality and quantity of the taxpayers in Northern
Ireland, not increase the level of taxes imposed as previously
intimated by Executive members.
3.2 We believe that ingrained socio-political
issues have led to a reduced focus on the NI economy. Whilst previous
reviews have produced similar economic proposals, these ideas
have not been enacted in a timely, co-ordinated fashion.
3.3 We feel a mix of fiscal stimuli, policy measures
and coherent management from Stormont and Westminster can ensure
the prosperous economic future of Northern Ireland.
4.0 WHY SHOULD
NI BE DECLARED
AN EZ?
4.1 If the Government is to achieve its stated
desire of moving NI away from the over-reliance on the public
sector, a package of stimulus measures must be introduced to encourage
private sector investment generally and foreign direct investment.
4.2 The factors that lead us to this conclusion
are as follows:
- The negative impact of 30 years of conflict
- Apart from the obvious lack of private sector
investment during that period and the economic consequences of
that, we believe that "The Troubles" have led to a whole
generation which is mentally reliant on the State for their economic
well-being. This, in turn, has led to a culture which is not conducive
to nurturing entrepreneurial spirit.
- The geographical proximity to the Republic
of Ireland
- We believe that this is a huge mitigating factor
against inward investment to Northern Ireland. The ROI has a CT
rate of 12.5%, multiple Enterprise Zones and tax incentives aimed
at encouraging investment in specific sectors and as such ROI
is still an attractive environment for a company to invest in.
- We are surprised that Northern Ireland attracts
any inward investment at all and feel Northern Ireland is in a
unique, disadvantageous position in the EU - sharing a border
with another EU country without language barriers which operates
a highly competitive taxation system.
- The brain drain
- The loss of human capital throughout the course
of "The Troubles" has been well documented, however,
to encourage some of these people to return to NI and lead "home
grown" private sector growth, it has to become a more
attractive, cosmopolitan and safe place to live free of conflict.
It is our opinion that if all the economic and taxation conditions
exist to encourage both UK private sector investment and foreign
direct investment throughout Northern Ireland that other social
and cultural developments will follow, keeping local talent here
and encouraging exiled talent to return.
- Excessive Reliance on Public Sector
- Northern Ireland's economy has long been reliant
upon public sector expenditure subsidised from the central UK
government. The public sector is responsible for over 30% of the
total employment and 70% of the total GDP of the Northern Irish
economy. The NI balance of payments suffers because the NI economy
exports very little, hence the flow of investment into the Province
is limited.
5.0 ENTERPRISE
ZONE—THE
CAPITUS BLUEPRINT
5.1 Although previous Enterprise Zones have been
relatively successful, we feel a fresh approach should be undertaken
to achieve the necessary results.
5.2 We feel very strongly that the whole of Northern
Ireland should be granted EZ status. These proposals are not aimed
at encouraging investment in deprived areas or rural areas within
Northern Ireland in preference to say, Belfast for example. They
are designed to take NI away from a culture of reliance on State
and replace that with private sector job creation and growth.
Giving EZ status to specific areas within the Province would not
achieve this and would, we believe have a detrimental impact overall.
If the whole of NI achieved EZ status, inward investors would
focus investment strategies upon the merits of the location under
consideration (access to workforce, infrastructure and transport
links, property costs etc).
5.3 We believe it is imperative that Northern
Ireland attracts investment from job-creating industries which
will benefit from the region's competitive advantages—the
excellent education system, relatively low wages and relatively
low property costs. Northern Ireland is not blessed with natural
resources or raw materials which may be exploited for export,
therefore the economy must utilise all advantages available.
We believe high-technology sectors including bio-sciences,
high-technology engineering, pharmaceuticals and particularly
information and communications technology would benefit from the
availability of educated graduates. We also believe entities operating
within the "green economy" would benefit from location
within the Province and the energy sector provides significant
growth potential.
However, if employment would be expected to shift
from the public sector to private sectors, we believe it will
be important to attract appropriate jobs for these displaced individuals.
Tertiary sectors such as financial services, banking
and retail would not require initial targeting as we expect entities
operating within these industries to flow into Northern Ireland
as the economy grows. We would not envisage Belfast being able
to compete as a primary financial hub, however, certain "back-office"
and supportive functions from within these sectors should not
be over-looked.
In line with the Coalition Government's desire for
an export-led, knowledge-based economy, we feel it is important
to attract the right entities willing to make a long-term commitment
to Northern Ireland.
6.0 FISCAL MEASURES
6.1 Our fiscal proposals aim to develop an innovative
economy which incentivises businesses to invest in R&D and
capital expenditure projects.
6.2 We feel it is important to incentivise property
investors to build, develop and regenerate in order to provide
the quality premises for occupation. An increased capital allowances
scheme for investors would benefit those wishing to incur expenditure.
6.3 Capital Investment Incentives:
- Capital allowances of 50% available to ordinary
property investors.
- Capital allowances of 150% for specific industries
(to include ICT, bio-sciences, nano-technology, pharmaceutical,
green industries).
- Capital allowances of 100% for investors with
buildings achieving "excellent" BREEAM rating.
We would suggest these allowances are made available
to indigenous entities and in-bound investors alike. The allowances
should be available on all buildings expenditure (excluding land)
and should be available for a period of not less than ten years.
Entities availing of the relief would be subject to "claw-back"
provisions, should the investment be removed during a certain
period of time.
6.4 Whilst the above allowances will benefit
those undertaking capital investment, we feel specific R&D
relief should be increased to raise the level of R&D within
NI businesses:
6.5 Enhanced R&D Investment Incentives:
- R&D tax relief for SMEs increased to 250%.
- R&D tax relief for Large Companies increased
from 130% to 150%.
- "Double" R&D uplift available for
companies employing new staff members (inc. apprentices, graduates
and interns) engaged on R&D projects.
- "Double" R&D uplift available for
payments made to local Universities for R&D assistance.
- Confirmation that the 10% Patent Box applies
to all income from intellectual property commercialised from November
2010.
6.6 Targeted infrastructure investment (including
public transport networks, roads, airports, harbours and communications)
should continue to support a wider business network and the increased
activity as a result of the aforementioned incentives.
7.0 NON-FISCAL
MEASURES AND
POLICY
7.1 It is necessary to provide financial incentives
to private investors but it is also imperative that other policies
are employed to enhance the effectiveness of the Enterprise Zone.
We would welcome:
- Introduction of a simplified planning regime
to ease the administrative burden on property investors. This
may include "pre-packaged" planning regimes within certain
industrialised areas to enable swift investment.
- Liaison with universities and education authorities
to provide relevant technical qualifications. The Republic of
Ireland had great success in providing tailor-made graduates for
high-tech industries and Northern Ireland should seek to provide
the talent to attract entities in growing sectors.
- Programmes to provide students and existing workers
with language skills which may be utilised by exporters and inbound
investors alike.
- Creation of an Entrepreneurial Business College
providing specialist one year diploma courses to those wishing
to commence entrepreneurial and innovative activity.
- Invest NI to step back from larger scale financial
support and re-focus on supporting inward investors and indigenous
companies. Invest NI should market Northern Ireland as a suitable
location for investment and assist existing businesses with export,
marketing, skills development, business generation etc.
- Creation of an oversight body with board members
from Invest NI, local business, academia and Government which
will oversee the NI Enterprise Zone. This body will take responsibility
for reviewing strategy, managing programmes and should report
directly to Stormont.
8.0 SUMMARY OF
THE MEASURES
8.1 We feel the fiscal incentives associated
with the Enterprise Zone would increase investment within Northern
Ireland, leading to significant socio-economic benefits.
8.2 Our proposals are based upon the premise
that an investor will only receive reduced taxation and support
after an investment is made. Therefore, a greater investment will
provide greater rewards.
8.3 Increased economic activity following the
Enterprise Zone will lead to higher employment and higher direct
and indirect taxation.
9.0 RESPONSE
TO RISKS
9.1 Unlike the problem of "profit-shifting"
included lower corporation tax proposals, an Enterprise Zone would
not invite entities to move head offices just to avail of a universally
lower CT rate. The level of tax relief is directly proportional
to the level of investment incurred.
9.2 The administrative burden upon taxation authorities
and businesses would be lower than the creation of a lower corporation
tax rate for income generated within NI.
9.2 Periodically as the NI economy is mentioned,
the traditional argument related to other areas within the UK
has arisen. Not only do we believe Northern Ireland represents
a "special case" in comparison to other underdeveloped
economic regions, we also feel a more self-sufficient Province
would benefit the UK as a whole.
As the Chancellor intimated in a speech to the Conservative
Party Spring conference, Enterprise Zone status will become available
for regions throughout Britain.
10.0 CONCLUSIONS
10.1 We consider that a comprehensive series
of measures all included under the banner of an Enterprise Zone
would be a tremendously positive incentive for inward investors.
From our own client base, we are aware of many companies and institutional
investors that would find such a series of measures highly attractive
and would put Northern Ireland on their list of targeted geographic
areas to invest in.
10.2 We believe that there are enough individuals
in Northern Ireland who want to see it flourish and who have the
entrepreneurial leadership to grasp this opportunity to move away
from a society being propped up by the public sector and towards
one where a culture of private sector led economic growth becomes
the norm. We strongly recommend that serious consideration is
given to making sure that Northern Ireland gains Enterprise Zone
status as soon as possible to both kick start this project and
ensure that the cost to the Treasury is kept to a minimum.
10.3 Previous consultations (specifically the
1999 Economic Development Strategy Review Steering Group, published
post Good Friday Agreement) have highlighted the issues raised
within our proposals. The issues and proposals are not new, but
without collaboration and focus from political and business leaders,
the strategy will never succeed. The ideas exist, but the desire
to act does not.
3 May 2011
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