SUBGROUP ON THE ECONOMIC CHALLENGES Tuesday 8 August 2006 Members in attendance for all or part of proceedings: Witnesses: The subgroup met at 10.11 am. (The Chairman (Mr A Maginness) in the Chair.) The Chairman (Mr A Maginness): I welcome everyone to this meeting of the subgroup. I emphasise to members that it is a necessity that they turn off their mobile phones completely. That is very important for the recording of proceedings, because mobile phone interference has caused Hansard serious difficulties. I have received apologies from David Ford. Naomi Long is attending in his place. I have also received apologies from Mitchel McLaughlin, for whom Barry McElduff will be deputising, although he is not present at the moment. Are there any other apologies? Mr Weir: Lord Morrow is here in place of Ian Paisley Jnr. The Chairman (Mr A Maginness): Let us move on to the draft minutes of the two meetings on Thursday 3 August. Mr Neeson: I attended on 3 August, but that has not been recorded in the minutes. The Chairman (Mr A Maginness): It is recorded that you were in attendance at the first meeting but that you did not attend the afternoon meeting. Is that correct? Mr Neeson: Yes. I beg your pardon. The Chairman (Mr A Maginness): Are members content that the draft minutes are an accurate record of proceedings? Mr McNarry: I have not had time to read the draft minutes carefully. I know that they are just minutes, which take us through what we discussed, but an issue was raised about writing to the Secretary of State, or to whomever, to ascertain a breakdown of the £16 billion package about which he had been talking. I do not see that recorded, although I am sure that it appears in Hansard. I do not see a letter from anyone about that either. The Committee Clerk: I have mentioned that matter to Northern Ireland Office officials, so they are aware of it, but we have not formally put it to them yet. That would not appear in the minutes of proceedings because it was not put as a question, even though agreement was registered. Mr McNarry: Can we get a letter or some information that would be useful to the proceedings? The Chairman (Mr A Maginness): Yes. A letter will be sent, and I presume that we shall receive a formal reply. The Committee Clerk: The Department of Finance and Personnel (DFP) or the Department of Enterprise, Trade and Investment (DETI) might be best placed to answer that question. There will be an opportunity today to question DFP. The Strategic Investment Board (SIB), to which the £16 billion is going, falls under the authority of DFP. Mr McNarry: I understand that, Chairman. I would have thought, however, that if the Committee had difficulties with an issue, it would ask the Secretary of State where he got his information or to what he was referring. The Chairman (Mr A Maginness): Are you content for the moment, Mr McNarry? Mr McNarry: Yes. The Chairman (Mr A Maginness): Thank you. Can we take it that members are content with the minutes? Members indicated assent. 10.15 am The Chairman (Mr A Maginness): OK. We can move on, and the minutes will be published on the Assembly website. I note that the last few minutes of the 3 August meeting of the subgroup were inquorate and cannot, therefore, be officially recorded. An informal recording has been obtained and is included in members’ papers, although part was lost because of mobile phone interference. I therefore re-emphasise the importance of keeping our mobiles switched off. I would like to move on to the matter of the subgroup’s Chairpersons. In your papers you will see a letter from the Secretary of State that details nominations from the Ulster Unionists, the SDLP and the Alliance Party to chair the subgroup. Naomi Long will chair Thursday’s meeting. Unfortunately, Mr Jim Wilson will be unavailable throughout August. The Ulster Unionists have advised that they wish to nominate an alternative Chairman through the Preparation for Government Committee. Chairpersons will be allocated on a rotational basis, subject, of course, to availability. Members have a revised work plan showing the new chairing arrangements. Mr McNarry: I hope that my colleague David McClarty will be acceptable as a replacement for Jim Wilson; I wish to advise the subgroup that we intend to proceed with that nominee. May I draw attention to a procedural issue — and I intend no mischief. I see that my colleague Naomi Long is sitting beside me. It is perhaps a matter of poacher turning gamekeeper that a member can attend the subgroup as a delegate and then return to chair it. I have no problems with that. However, since I am bound to be asked about it, I would like some assurance that such a procedure is perfectly in order. It is unique. Mr Neeson: It would be very unlike David to be malicious. Mr McNarry: It is valuable, for the sake of continuity, that the other Chairmen have sat in on these meetings. When Jim Wells was in your position, Mr Chairman, and — what do you call the other fellow? Mr Weir: Francie Molloy. Mr McNarry: They would be sitting there taking notes. She is sitting here at this table and not down there. That does seem a bit different. Mr Neeson: It is good experience, David; Naomi will know what is going on. Mr McNarry: It is a serious question. The Chairman (Mr A Maginness): Does the Committee Clerk have advice for the subgroup on that matter? The Committee Clerk: There is no procedural reason why a member cannot attend one meeting as a substitute and another meeting as Chairman. It would be inappropriate, however, to be Chairman while being a nominated, full-time member, as they are entirely different roles. However, there is no procedural impediment to Naomi’s attending today’s meeting as a substitute and chairing another meeting. Mrs Long: I am sorry that my presence has caused anyone such consternation. However, when in the Chair, I intend to be impartial. I understand the difference between attending as a representative of David Ford today, and taking the Chair at another meeting. The Chairman (Mr A Maginness): The important thing is that the Chairperson acts independently and impartially, as Mrs Long said. Mr McNarry: The background, unless I am incorrect, is that this subgroup must be attended by members of the Preparation for Government Committee and their nominees. The Committee Clerk: I took advice on that at the outset. There is no specific requirement that the formal nominees must attend subgroup meetings. The nominees can be substituted, so it is a bit of a procedural nonsense. Mr Neeson: The Deputy Speakers also sit in the Assembly as Members. What is the difference? The Chairman (Mr A Maginness): When they chair sittings, they act independently; they are not partisan. Mr McNarry: As I said, I do not have a problem with this matter. I am identifying the issues now and soliciting responses so that, if I am asked, they are on the record. I am intrigued by the Committee Clerk’s answer; I am a member of the Preparation for Government Committee, and my interpretation of that was pretty clear. It does not add up to the Committee Clerk’s. From whom did he take this advice? The Committee Clerk: I took advice from the Preparation for Government Committee staff. I can certainly formalise that advice, if members wish. The Chairman (Mr A Maginness): It would be helpful if it were formalised so that the position is clear. Let us move to the work programme. A letter from Stephen Quinn, permanent secretary of the Department of Enterprise, Trade and Investment, has been tabled, along with the latest reports from the four subgroups of the Economic Development Forum (EDF). Those reports will be treated as written evidence. If this subgroup decides to meet after 25 August, it may be possible to take evidence from the chairpersons of the EDF’s subgroups on innovation, enterprise, skills and infrastructure. As for Mr McNarry’s suggestion, the Northern Ireland Youth Council was contacted to invite oral evidence from young people on 10 August. David Guilfoyle, the chief executive of that body, has referred the subgroup to the Northern Ireland Youth Forum. We are awaiting a response from that body. Ms Ritchie: At the last meeting of the subgroup that I attended, there was a suggestion that we should obtain evidence from the enterprise agencies. Is there any further information on that? I apologise for my absence last week — Mr Dallat deputised for me. I note that Enterprise Northern Ireland gave evidence then. Does it represent the enterprise agencies? The Committee Clerk: Yes. Enterprise Northern Ireland is the representative body. The Chairman (Mr A Maginness): Are you satisfied with that, Ms Ritchie? Ms Ritchie: Yes. Dr Birnie: Mr Chairman, you will love me for suggesting another witness. We could take either oral or written evidence — I know time is short. Dr Graham Gudgin of Regional Forecasts has written an article on corporation tax in the current issue of ‘Fortnight’. He has some interesting perspectives on the subject. He is rather more sceptical than some of the witnesses we have heard from so far. Mr McNarry: He was proposed at an earlier meeting. The Chairman (Mr A Maginness): I think it might be best to consider that position. It may well be, given the time available, that we may not be able to facilitate Mr Gudgin, but it may be possible to get a written submission from him or, indeed, get a copy of the article in ‘Fortnight’ and append it to the record of the proceedings. That might be a useful way of dealing with that. Are you content with that? Dr Birnie: I suggest that the Committee Clerk write to Mr Gudgin to see whether he could provide a written submission. I do not know if we have time for oral evidence but we do have time for written evidence. He could probably expand on the ‘Fortnight’ article. The Committee Clerk: We do have time, Mr Chairman. There is no difficulty with that. The time frame may be an issue for Mr Gudgin, but there is no difficulty for us. The subgroup’s last evidence session is this Thursday, but we have slotted in a written evidence session for next Tuesday, and if we get something slightly later than that from him, it would not be a problem. Mr Weir: Indications were given that representatives from the Youth Council would be coming. The Committee Clerk: They have not responded at all. I have left messages for them. Mr Weir: Perhaps if they do respond, they could be slotted in next Tuesday. The Committee Clerk: We can give them a slot at the moment on Thursday. We had scheduled three evidence sessions on Thursday, but one group has dropped out. I cannot remember which one. Ms Gildernew: The Quinn Group. The Committee Clerk: The Quinn Group dropped out, and we were going to slot the Youth Council in, if we could get a couple of young people to come along. Mr Weir: If they do come on Thursday, we can adjust the timings of the evidence sessions, which are due to run until 1.15 pm. We could reduce each session from 60 minutes to 45 minutes. The Chairman (Mr A Maginness): That could be accommodated. The draft transcripts of last Thursday’s evidence session and the later meeting on the emerging issues have been issued to members with a deadline of close of play tomorrow, Wednesday 9 August, for proposed amendments. We will now move to the open session. As agreed, we have four sets of witnesses. Each has been allocated a 45-minute slot. We will have three hours of evidence, and if we keep to that, the meeting should be over by 1.30 pm or thereabouts. I encourage colleagues to keep their questions to witnesses brief and focused on the terms of reference, which are in members’ packs. I call the first witness, Mr Eric Reid, who is the production director of Moy Park. Mr Reid, you are very welcome to the subgroup. A 45-minute slot has been allocated to you. Perhaps you will take 10 or 15 minutes to make your presentation, and then there will be questions from colleagues around the table. You have provided a written submission, and we are grateful for that. Mr Eric Reid (Moy Park): Good morning, everyone. Thank you for allowing me to outline some of the challenges that we see. I do not know if members want me to read through my submission, but I will highlight some of the major issues. The Chairman (Mr A Maginness): That would be best. Mr Reid: I have been in business in Moy Park for more than 40 years. We started with a handful of people, and today we employ about 9,000, about half of whom are in Northern Ireland. Our core business was built up in Northern Ireland. We were originally part of the Moygashel textile group, and we go back to the Second World War, when we produced linen for parachutes. We built up the idea of working with farmers to grow the flax that was used to produce the parachutes etc. 10.30 am In the early 1960s, the company decided to move into poultry farming, on the principle of working with people in an integrated chain, from farm base to processing, trying to build relationships with retail customers. Since then, and all through the troubles, we have grown the business. Today, Moy Park is the largest poultry processor in the United Kingdom. The United Kingdom has the largest poultry population in of any European member state. The EU poultry industry uses around 20% of all cereals in Europe and directly employs more than 500,000 people. The European market presents a major challenge for us. In the final part of my presentation, I will speak about the implications of the European market on fresh product. I am not here to talk about the survival of the Northern Ireland industry, which is where our interest really lies, but of the intensive industry in Europe. That also rolls over into the red meat and milk producing industries. Other member states are already undertaking major rationalisation programmes, spending money to make and support winners — the better companies — to try to ensure that they can survive in the global economy. We can bring that back to Northern Ireland. Moy Park has invested more than £100 million over the last 10 years, which has been supported by £17 million of Government funding, for which we are very grateful. You may say that that is very good, but it should be compared to what is happening across the border. In one sector alone, the Irish Government have contributed £100 million to a £300 million rationalisation programme. The funding that we received was very good, and we are very grateful for it, but current Government proposals would scrap some of that assistance. That will move companies away from Northern Ireland and closer to the marketplace. For example, we are currently investing approximately £60 million in England to enlarge a factory and invest in the agribase to support that. We have done something similar in Northern Ireland. Michelle Gildernew and Lord Morrow have visited our plant in Dungannon and have seen that it is a global, profitable plant. We can meet the challenge, despite the extra transport costs of bringing in raw material and transporting around 170 containers of finished goods to England every week. When that is rationalised, and such a scale of production is reached, we can take on anyone in Europe. We cannot take on the rest of the world, and people must understand that. European politicians must understand that we cannot take on Third-World countries, or countries such as Brazil and Thailand, where labour rates are 20% and capital costs are a fraction of those in Europe. Those countries do not have the same social services provision that we have, and Europe is a magnet for those Third-World countries. Those countries want to export their products to Europe because of the high prices. Europe is the gold-plated economy for the Third World. There is a Third World situation in Europe, although people may not realise it, in the 10 new member states. Moy Park is now part of an international group with companies in Hungary and Brazil, for example. Through visiting those countries, and having been involved in purchasing companies in Brazil, I know what is happening. We cannot compete with such countries. The UK, and especially Northern Ireland, must have a clear strategy for agriculture. If I ask anyone in Government what is that strategy for the next 10 years, I do not get a clear definitive answer. What is that strategy? I am not interested in short-term environmental measures; they are all very good, and we support them, but we must know where we are aiming to go. The UK poultry industry produces 15 million chickens a week, with overall consumption of 25 million chickens a week. Around 60% of the market is self-sufficient. However, poultry is still being imported into Europe, whereas the United States, Brazil and Thailand no longer import any poultry. Where is the level playing field? Those are the types of challenges that we face. That is the position on the marketing side. Moy Park is trying — and I have spoken to one or two members of this subgroup about this — to promote its strong belief that fresh means fresh. If people want to buy frozen products, they have had the opportunity to do so for many, many years. Somehow or other, the retail industry has been able to go direct to overseas countries to identify companies prepared to export to Northern Ireland. Moy Park processes slightly more than three million chickens a week, but it must compete with companies such as Tyson Foods, which processes more than 45 million chickens a week, and Sadia SA of Brazil, which processes in excess of 15 million chickens a week. They are big players in the so-called Third-World economies, especially in Brazil. In the consumer era, if we allow frozen products — whether cooked or in ready meals — to be brought into Northern Ireland, defrosted and placed in chilled cabinets, consumers will believe that they are fresh. Although the products are not labelled as fresh, their being sold in chilled cabinets encourages the understanding that they are fresh. In very small print, consumers might see the words “do not refreeze”, but the busy consumer does not have time to look at the very small print. If they see something in a chilled cabinet, they believe it to be fresh. For many years, consumers have had the choice to buy lower cost frozen products, but in the UK and in many other member states, they have decided to opt for fresh products. The UK market is driven dramatically by fresh products: 85% to 90% of all food purchased is fresh. Consumers may take that food home to freeze it, but at least it was fresh when they bought it. I represent the UK industry in Brussels. I have been to meetings of DG VI and DG SANCO, and I have met Commissioner for Agriculture and Rural Development Mariann Fischer Boel and Commissioner for Health and Consumer Protection Markos Kyprianou. Although they understand and accept the issues, I can never get a decision from them. There are 25 member states fighting on this issue together. Agriculture is the number one industry in the Province. If we cannot win this battle, what is the alternative? The textile industry has gone; the shipbuilding industry has gone. I want the members in this room to tell me: what is the alternative? The agro-industry supports the whole rural economy. It supports the little villages — Carrickmore, Caledon, Dungannon, Ederney, those down by Enniskillen. It is the main industry in the Northern Ireland economy. If we kill those little rural villages, where will our people go? Which industries will they go to for work? What is the alternative? The service industry is moving to India, where wages are a fraction even of those paid in Brazil. What is the alternative? What new industry will replace the agro-industry? Members could say that in the past five years, Moy Park has employed a large number of foreign workers. They could be referred to as foreign workers, but they are members of our community from the 25 member states of the European Union. As Europeans, we must support our own house first, and the vast majority of Moy Park’s foreign workforce comes from the new member states. Some are from Portugal, but quite a few are from central Europe. In Northern Ireland, education is a bit like going to church. Once a person gets his or her first communion, it is a bit like a passing-out parade. When people go to school in this country and they reach 15 or 16 years of age, unless they are very bright, they leave school. Where do the young people of 15, 16 or 17 years of age go? Northern Ireland must have continual education. There should be an academy from which education can roll straight into industry. We must find a mechanism to do that. This will shock members: for the past number of years, Moy Park has received a little support from the Government for a pilot adult education programme. Up to 20% of our workforce — I am not talking about the Portuguese or those from central Europe, but those who were educated in Northern Ireland — cannot read or write. It is disgraceful that we have such a situation in what is perceived to be one of the world’s leading economies. We have to address that issue. We can do something to bring people into the factory environment so that they can enjoy life and learn new skills. Every operation in our factories has to be auditable. Retailers and consumers expect everything to be fully traceable. Everyone must be able to read, write and understand computers. We need to do much more, and Moy Park is prepared to do that. The company has spent money on education and has put over 2,000 people through the NVQ programme up to level 4; level 3 is fairly standard today. It costs money, and we should receive more support to help us to drive up the standard of our young people. Education is very important. Moy Park has worked well with the veterinary division of the Department of Agriculture and Rural Development on research and development. Agriculture is the main employer in the economy, and we need to have a strong veterinary division; that must be maintained at all costs. We should be leading the world. John Thompson and Sons Ltd in Belfast is the largest feed mill in the United Kingdom, and it has the highest standard of biosecure feed. In partnership with that company, Moy Park has been able to establish a situation where 18% of all breeding stock in Europe comes from farms in Northern Ireland; Moy Park does the marketing. The Northern Ireland Manufacturing Focus Group has worked hard on the rates issue, and we support it. We cannot allow Northern Ireland to become a desert. Moy Park is part of an international group. Why should we tell our shareholders to invest in Northern Ireland? We need to have some advantage. Raw materials cost us money; outward shipping costs us money. Why should anyone invest here? Across the border we can see what the Government there do for industry. There are much lower rates, and there are also tax advantages. The subgroup has reports from the Confederation of British Industry that highlight that. These are real issues. We are not against the payment of taxes, but if we do not have a workforce, the Government will not receive those taxes. Moy Park employs 9,000 people who pay taxes. We must ensure that we have a competitive base on a global scale. We need that strong base, so let us cap tax rates or find some way in which the most profitable companies pay a higher percentage. Companies cannot pay rates if they are not profitable; they will close down an operation and move to another part of the world. We are closing a small plant in Fermanagh. I have discussed this issue with a deputation from political parties. It is the start of rationalisation: Farm Fed in Coleraine closed down recently; the Grampian Food Group has closed down two Scottish operations and is now closing down an operation in the north of England. This is happening in our own sector. It is not happening only in Northern Ireland but in fringe areas of Europe, where transport costs in and out are a major burden. That trend will continue with the rising cost of fuel. The issue of fuel duty in Northern Ireland should be addressed. The Government are losing money because people drive a few miles over the border and fill up their tanks. That is not an advantage for us: we have to run our factories, and I cannot bring fuel across the border. The cost of energy must be competitive, and it is not; it is 20% more expensive in Northern Ireland compared with our English operations. That is why we must cap rates at 25% or 30%. The other area of concern is red tape. In Europe we should aim to be an inch in front of the rest of the world, not a mile, but there is too much red tape. We want to have the best environmental and welfare standards, and the best audit systems, to ensure that standards are maintained. A new integrated pollution prevention and control (IPPC) regulation has been introduced, and the Government are proposing that their employees will audit farms that have to comply with that regulation at a cost of over £2,000 per farm, per annum. Once farmers have complied with the regulation — and they require capital to do that — it is simply a matter of professional audit companies coming to farms and ticking the box. That can be done by independent audit companies for a few pounds a year. The Government are gold-plating regulations. We must find out how we can put Northern Ireland plc ahead, but we should not be gold-plating. Controls for safe food, a safe environment and the welfare of our people and stock should be met at the lowest possible cost. 10.45 am The Chairman (Mr A Maginness): Have you covered all your points of substance? Mr Reid: Yes. The Chairman (Mr A Maginness): We will move on to questions, if you are happy with that. Several members would like to ask questions, and I will take them in order. Ms Ritchie: Mr Reid, you are welcome to the Committee. In your submission you referred to the lack of a clear strategy on food production sustainability in the UK and the European Union. What are the clear components of that strategy, and what was the outcome of your discussions with the Department of Agriculture and Rural Development and with the various directorates in the European Union? Your submission mentioned the need for a skilled workforce. You referred to the need for an academy to roll out post-GCSE students to the factory floor for ongoing training. What discussions and outcomes have you had with the Department for Employment and Learning and with the Department of Education? Mr Reid: With regard to the clear strategy, the Government must work with the industry to back winners. There has been much rationalisation in Northern Ireland, and Moy Park completed the exercise with its Dungannon plant. Moy Park had contracted with five feed companies, but they have been reduced to one large company, which supplies us with our chicken feed. Therefore, we must bring scale into our business. That will also have to be done in other sectors such as the dairy and beef industries, and we must have an integrated chain. The industry and the Government can no longer be allowed to work together to — pardon the crude term — rape one sector and allow other sectors to have a bonanza. There must be an integrated system that allows a livelihood for all the links in the chain. Therefore, Government should oversee what is going on. They do not have to do anything, but they should ensure that companies are encouraged to scale up and encourage integration across the total sector. Assistance should be given to companies that perform in that way and not given to those that do not. Moy Park chicken farmers have spent a raft of money — probably as much as Moy Park itself — to build new sheds and revamp old sheds. Why are they not receiving some assistance, as farmers are in the Twenty-six Counties, where the industry is being supported in order to restructure? Support should also be given to the agri-industry, but only to those people who are investing for the future. I am not a great believer in throwing money at farms for things that have happened in the past. We are going forward, but how can we encourage young people to stay on the land? Unless they see a future in which money will come to them to look after the land, they will not stay on the farms. Northern Ireland must look forward rather than backwards. Today’s Government are looking backwards with the payment of single farm payments. I would prefer to see the money being given to people who are investing in the future rather than giving it to people for something that happened in the past. That is history; it is over. Mr McNarry: Your presentation was refreshing and informative. At its core are the elements about which we need to hear. How do the literacy and numeracy skills of your local workers compare with foreign workers? Does Moy Park own any of the farms that produce its chickens? You mentioned fuel costs. Have you talked to the Government about competitive incentives or attractions that would assist you in getting your goods to market at a competitive rate? Seven million pounds a year is an extraordinary amount of money to spend on transport costs. If you talked to the Government, did you get any change out of them? I suspect not. Mr Reid: I was part of the UK delegation that spoke to Lord Rooker recently on IPPC. The Government are not interested and believe that industry must stand on its own two feet. The Government want cheap food, they want to keep inflation down and they want to maintain a certain position. That is my interpretation, not only of the UK Government but of the European Union. They saw what happened when Russia turned off the gas tap — the price of gas soared, and it has not come down. If terrorism ever infiltrated the food chain, and something was thought to be hidden in a 40,000-tonne load of products from South America or the United States, there would be no food in the shops within three or four days. If Russia turned off central Europe’s oil supply, we would have no fuel, and civil riots would break out in the UK and Europe within a week. When there is a fuel scare, you see people queuing up, and they do not like that. We are not self-sufficient in food production. The situation is becoming serious, and the trend will continue. The Government have no interest in supporting us. Many years ago, Northern Ireland had the feed price allowance, which worked well. Approximately half our shipping costs were reimbursed, but now costs have soared, and there is no help, nor hint of it, available. In fact, the Government are abolishing the latest processing marketing grant. With regard to your point on education, there is no difference. Some foreign workers are better educated, because they are the more ambitious people who have got off their backsides. They are similar to the Irish people who went across the world to establish themselves and make money, and then returned to Ireland. These people have got off their back ends and gone out into the world. Moy Park has foreign graduates working on the production line. The foreign workers will always be first to put up their hands if we want staff to work overtime. I should not call them “foreign workers” — workers from other EU member states. Moy Park has been running private education programmes. We have in-house teachers who work on a one-to-one or two-to-one ratio. We have two full-time teachers to help the Portuguese workers to integrate with the local community, whether it is with policing, housing or trying to find a bank that will take them on. Those teachers do nothing else but that. We do it for local workers as well, and it is a major challenge. Over 20% of foreign workers that we employ have become full-time residents, and they are on our books full time rather than being employed through agencies. That will be a growing trend, and it has helped the local economy around Dungannon, as Ms Gildernew and Lord Morrow will know. Mr Weir: First, with regard to fiscal incentives, you mentioned concerns about grants being cut, but you made no reference to the rate of corporation tax. What is your view on that? Secondly, you gave an example of the effect of red tape. Are there any further examples of where you feel that Government red tape ensures that Northern Ireland does not have a competitive advantage? Mr Reid: Welfare is another example. People do not like talking about the subject, but new proposals in Europe would bring stocking densities down to as low as 30 kilograms per square metre. Who will inspect breast fillet meat from Thailand, Brazil or the United States at the point of entry? Who will ensure that that meat has been produced under the same environmental standards as in Northern Ireland? We have to collect the dust from the roofs of chicken sheds, because it might kill — and I have seen no evidence of this — a little flower in a bog a mile away. Do members believe that those standards exist in Brazil? I can tell you that they do not, because I spend about four weeks a year in Brazil. It will cost £40 million in the UK to bring that one standard up to a new dream of bureaucrats to be better and holier than anyone else. Yet at the same time they allow the import of a product that will not be labelled, because a fillet is a fillet and a ready meal is a ready meal. They will not have been produced to x, y, or z environmental standards in Brazil or Thailand. If we were making enough money, corporation tax would be a major issue. Currently we are not, but we need to be competitive. When considering a reduction in the rate of corporation tax, we have to think of the outside investor and remember the American shareholder. The four of us still run the company, with no American management yet. However, I will be 64 years of age on my next birthday, so I assume that that may soon change. We must show our shareholders an advantage to investing in Northern Ireland. What is the advantage? We have been able to sell the good old Irish charm, green fields, and this, that and the other, but sooner or later our time will run out. I am thinking of the young people about whom Ms Ritchie was speaking, who will come into the industry in 10 years’ time. Will shareholders be happy to invest in Northern Ireland then? Unless the structures are in place today to prove to them that Northern Ireland is the place to invest, they will not do it. A reduction in the rate of corporation tax is one tool, but we must also be profitable. Ms Gildernew: I welcome the Chairman to his first meeting. My apologies for being late. It is good to see you again, Eric. I am acutely aware of the impact that Moy Park has had in Dungannon. I have been concerned about jobs further west. In meetings of this subgroup, I have consciously tried to tease out the implications for employment and the standard of living west of the Bann, particularly in Fermanagh, which is not as well serviced with jobs as Dungannon and other parts. Eric, you and I first met when we spoke about manufacturing rates. Do you consider the capping of rates to be a fiscal incentive? Should this subgroup recommend to the British Exchequer that that would make us more competitive, taking into account the high cost of fuel and all the other disadvantages? 11.00 am Mr Reid: There is no alternative but to support that. Almost £1 million comes straight off Moy Park’s bottom line, and last year our net profit was zero. So you can see what a difference £1 million makes. Our turnover is more than £700 million. We must get a return, and that is only one element of success. If industry does not secure returns, it will walk out of this Province, and that has already started to happen. We are considering a 10-year programme. Anyone who invests must consider the long term. Capital programmes are not written for 12 months or two or three years. There must be a long-term commitment to invest in Northern Ireland, either by a family, a shareholder or the public. Would a car industry invest in Fermanagh? Why would a big industrial food factory invest in Fermanagh when the raw material has to be brought in and the finished product has to be sent out? It is the same story. Small plants may survive in Northern Ireland to supply the butchers and the smaller shops and outlets if they are nimble, fit, have good education and good R&D, and do not have excess costs. However, small plants will still have higher energy and raw material costs. They need support, and a capping in rates would be a good help. Sometimes factories need a lot of space to cope with all the regulations, and it is unfair to judge companies on the size of a factory. Rates should be levied on those who can afford to pay, and it should be the same for industry. A company may not be making much money, but what is the alternative if it moves out of Fermanagh? We must find some other mechanism. A company that is not making much money would be completely blown out if it were presented with a rates bill for £100,000 or £200,000. It is essential for rates to be capped at today’s level —either 25% or 40% — and they should be competitive with industry across the border. I hope that that also answers Mr Weir’s question. Dr Birnie: Thank you for coming. You are very strong on the need to retain grants and selective financial assistance (SFA). Can I put to you the often-made objection that SFA rates in Northern Ireland are much higher than in most other areas in western Europe, which has led to a high degree of cushioning? I have a related question, which is similar to one that Peter Weir asked earlier. If you had the choice between keeping SFA — and there is some debate about whether we can keep it under European rules — or getting the headline corporation tax rate down, which would you go for? Mr Reid: We have to invest for the future. We need capital support, and any assistance we can get to invest in new capital to get ourselves into the global market, become more competitive and drive out inefficiency. Tyson Foods located in Dungannon, and it, along with the John Thompson and Sons Ltd feed mill, are supported by the Government. However, we had to come up with the ideas to bring in the technology. John Thompson and Sons Ltd is ahead of the field — its programme was started six or seven years ago. Companies from China, Australia, South America and from all round the world have come to see the efficiencies of the Thompson feed mill plant, including Tyson Foods. Dr McDonnell: I have a few scattered questions, which are more supplementary than mainstream. Mr Reid, you mentioned that you have a USA shareholding. How much of your company is US owned? Mr Reid: One hundred per cent. Dr McDonnell: You referred to the transporting of chicken. It may be difficult to answer this question in the light of your global perspective, but how many of your chickens are sourced locally? Mr Reid: For our Dungannon plant, which is the only primary plant we have in Northern Ireland, 100% of our chickens are grown by 350 Northern Ireland farmers, and that is from grandparents, parents and broilers. No other company in Europe has a primary processing operation and three generations of stock. In answer to Dr Birnie’s point, it is that which makes us different. Dr McDonnell: When you referred to transport costs, what are you bringing in? Mr Reid: I was referring to raw materials. We use 7,000 tonnes of feed every week to feed those chickens, which is brought into and manufactured by the John Thompson and Sons Ltd feed mill. One company distributes that feed to all the farms. Dr McDonnell: Are you connected with Thompsons? Mr Reid: No. We have a partnership with Thompsons, although it is not a financial partnership. We take over 60% of its volume. There used to be five feed companies, but now there is one. James Clow and Co Ltd of Belfast no longer exists because of what we have done; Dalgety Feed Ltd of Belfast and Scott’s Feeds Ltd of Omagh no longer exist. Wilson’s Feeds Ltd of Belfast no longer exists, although it still has a plant outside Dungannon. That is the effect of rationalisation. The Thompson feed mill now processes more feed than all those firms put together. It has been a major success. It has lower costs as well as the added advantage of having biosecure food or — in simple language — salmonella-free food. That firm leads the world. In the past week or two, the EU has brought in legislation to drive down salmonella levels across Europe. In Portugal, salmonella levels are as high as 60%, but Northern Ireland leads the world in low levels of salmonella. That was achieved by a partnership between Thompsons and Moy Park. We do not buy feed at arm’s length; we have an open-book system, where we buy the raw materials and Thompsons are paid a margin for processing in the largest mill in the UK. Moy Park gets the advantage of scale; Thompsons gets the advantage of 52 weeks’ volume from us. Dr McDonnell: Where does your company buy feed? Mr Reid: From Thompsons. Dr McDonnell: From where does it originate? Mr Reid: Brazil produces the soya bean. The wheat comes mainly from England, although it can come from eastern or southern Europe. It depends on where it is most economical to buy. Dr McDonnell: Do you then distribute the feed to farmers? Mr Reid: Yes. In the Moy Park operation, farmers’ incomes are not generated by the marketplace, unlike what happens with beef, sheep, pigs or any other commodity. Moy Park carries the marketplace, and farmers are paid on the efficiency with which they convert feed into eggs or saleable meat; that goes back to Dr Birnie’s question. The more eggs that are produced with chicks in them, or the more meat that is produced using the least amount of feed, the more income that farmers will generate. Dr McDonnell: You say that energy is 20% more expensive in Northern Ireland than in Great Britain. What energy are you referring to? Mr Reid: I am referring to electricity, but propane gas is much worse. Our operations in England use natural gas, which is only reaching Northern Ireland now. The gap in price is much wider with electricity. This year in England — just so that we know that there are some good things about Northern Ireland — prices have moved up by about 40% to 60%. In Northern Ireland, we are not too badly off with a price rise of approximately 20%. However, there is still a 20% gap between energy prices in Northern Ireland and England, so I expect prices to continue to rise in Northern Ireland. Dr McDonnell: I admire you, and I am enthused by your passion — that is the only word that I can use to describe this morning’s presentation. How do we pull all this together? How do we bring industry and farming together in a workable way? From where does the initiative come? From what you say, Government are not capable of bringing these elements together. Government are simply capable of sitting in the background. We have found this situation in many industries. From sitting around the table, I know that many members would be glad to put in their tuppence worth and support you, albeit it would not be front-end support. I understand that the Ulster Farmers’ Union is able to support you, but between that union, the industry and whatever, how do we pull this together? Despite the fact that there are not many farmers in my constituency of South Belfast, I agree with all that you have said, Mr Reid. The agriculture industry must be the bedrock of the economy in Northern Ireland. That sector may not be high-flying or high-tech, but it must be the bedrock of the economy. Where do we start? Answer in 30 seconds, please. Mr Reid: You mentioned small industries in Belfast, and the agricultural sectors are no different. In order to survive, they must either be extremely nimble or be able to service the retail trade or whoever their customers are. Those customers will go anywhere in the world to source their products; that is the strategy of today’s leading retailers. There is no way that I would say to the subgroup today: “Here is the blueprint.” It is not as simple as that. I am a great believer in “small boxes”, which is what we call the profit centres in each of the agricultural industry sectors. We in the poultry sector can put forward proposals to the subgroup. Similarly, the beef industry, working together as an integrated business, can put forward proposals, as is the case across the border. The milk sector can do likewise. There will be pain and sorrow, but there will also be success for the winners. This subgroup is part of Northern Ireland plc; it can grease the wheels for us, and it must be part of any decision-making. Small boxes must work together to support those who members, and the sector, believe will be the winners. Some people in the industry will not want to face the heat of the fire and will gladly get out if they can join an out-goers’ scheme. Such schemes may be partly funded by the industry, as will be the case in the South. The key is to have small boxes working together. I am not sure whether that was 32 seconds or longer. Mr Neeson: I am astounded by the impact that poultry markets in countries such as Brazil have on the UK and European poultry market. I was well aware of the problem with the red meat sector, but not with poultry. First, should imports from countries such as Thailand and Brazil be subject to Government controls? Secondly, to what extent is the so-called supermarket revolution in the UK — which has now reached Northern Ireland — driving the poultry market? Mr Reid: The first matter is quite simply down to the World Trade Organization (WTO). None of us can change that; the WTO wants to encourage Third World development, and we will have to play our part in that. However, I want honest labelling. I do not want the consumer to be fooled, which is what is happening at the moment. People from outside our industry are becoming involved and are making big bucks out of fooling the consumer. That is wrong, so we must have honest labelling. Mr Neeson: Should the supermarkets tackle that issue? Mr Reid: No, because supermarkets are out to compete with other supermarkets, so they will sell products that will make them competitive. Supermarkets will not tackle that issue. Many people in the industry — including our friends from the Ulster Farmers’ Union, who are sitting behind me — have tried to raise this issue with the Government, and at a European level, but it has been pooh-poohed on every occasion. The Governments of Europe want cheap food, so they will support the import of goods from China or Brazil or wherever to keep the voters happy. The industry must find tools or mechanisms to ensure that we can compete globally, but with honest labelling. All investment should be for the future in order to ensure that we can face that forthcoming challenge. Lord Morrow: Mr Reid, you are very welcome. I have heard some of your remarks before, when my colleague Arlene Foster and I met you on a previous occasion. I know that other political parties have also met you to discuss these issues. I would like you to clarify a few points. I know that the debate on the freshness of poultry has exercised you greatly, not just today, but for some considerable time. You may already have answered some of my questions, but I may have missed the answer, so I apologise if you have to repeat yourself. First, what is your definition of “freshness”? Does it mean poultry that has been produced today to be on the shelf tomorrow and consumed on that day or the next? Secondly, Moy Park is the backbone of the local economy in south Tyrone. There is no dispute about that; it is a valued and valuable asset in south Tyrone. You said that Moy Park employs around 4,500 people in Northern Ireland, and 9,000 people globally. How many of those 4,500 employees come from the indigenous population? Thirdly, I would like you to confirm or deny a rumour that I heard some time ago. The rumour was that Moy Park had said that it could produce chickens much more cheaply in France than it could in Northern Ireland. I would like you to address that important issue. 11.15 am You said that John Thompson & Sons Ltd’s feed mill is state of the art and that, because of efficiency and effectiveness at its plant, other plants have ceased to exist. Is the fact that Thompson & Sons Ltd is now the main — and probably the only — player a good thing, given that we wish to build a thriving economy? You also spoke about young people coming to work for Moy Park in 10 years’ time. That was encouraging to hear, because it tells me that you see a future here and that you will be around for at least 10 or 15 years. Mr Reid: The company might be. Lord Morrow: You said that you were 64, but you do not look it. It is fair to say that your company is profitable. It is not in financial difficulty, so that is good news for Northern Ireland. I wish to return to the argument about freshness. You said that all 25 EU member states are fighting on that issue. Are they fighting the same corner, however, because if, as I think you said, Brazil and Portugal do not allow imports — Mr Reid: Brazil, Thailand and the United States do not allow imports. Portugal is in the same boat as the rest of us. The Chairman (Mr A Maginness): Lord Morrow, could we leave it there? Lord Morrow: I wish to ask a final question, Mr Chairman. If the whole of Europe takes the same standpoint, why are we not achieving a different result? Mr Reid: At present, we think that the definition of “freshness” should be up to 15 days from the date of slaughter. A European delegation from the poultry sector went to Europe to fight for that, but our case was thrown out. As a result, the European Commission assumed responsibility for the product being safe for up to 14 days from date of slaughter. The Commission beat us by being very clever. Member states’ Governments’ veterinary divisions’ interpretation of what constitutes “fresh” is as follows: if, when an animal is brought to slaughter, it is fit for slaughter, it is considered to be fresh. After that, it is irrelevant whether the processor freezes it, seals it in atmospheric packaging or sells it as chilled. Europe’s definition — that includes the UK — of “freshness “ is “fit for slaughter”. What the processor and the consumer do with the poultry afterwards is irrelevant. That issue is still being fought in every member state. The Commission has invited us back, so we shall meet with it in the next couple of months. That meeting is further to those we are holding with the Food Standards Agency (FSA) and the Department for Environment, Food and Rural Affairs (DEFRA). We want “date of slaughter” put on packaging now. We know that it will be a challenge to convince the consumer to buy products marked “date of slaughter”. If the poultry is 10 days old, will the consumer go to the chill cabinet, look at the dates and — a bit like when buying milk in a supermarket — opt for the fresh poultry, leaving the older poultry on the shelf? Therefore a major education programme must be launched if we are to use “date of slaughter” on packaging. I hope that that answers your question. That is the thinking of the poultry industry across Europe at present. However, each member state must ratify any change, and then together we shall go to Brussels to fight our case. Ten days or 14 days is no longer acceptable, because that puts responsibility on to the Commission. That could create a serious financial position because a processor could, through being shoddy, put dangerous products on the shelf. That is a clever move. Some 1,450 people work in our Dungannon plant, of whom 700, or about 50%, are foreign workers. Of our Craigavon workforce of 1,300, some 50% are foreign workers. Remember that seven or eight years ago Dungannon’s unemployment was running at about 15%. I do not know what the figure is today, but I imagine that it is less than 4% or 5%. Lord Morrow: It is about 2%. Mr Reid: We could not survive without the foreign workers; they have been a major success and have helped the economies of both those towns. Lord Morrow: Can Eric comment on chicken production in France? Mr Reid: We have no primary agriproduction in France. The French operations concern imported products, mainly of meat from here in Ireland or Brazil. We make no money from that, because Brussels removed the salted meat subsidy; however, Brussels lost a subsequent legal case, so the subsidy will be restored and we will, we hope, start to make to money from that again. However, our operations in France depend totally on tariffs. We fought Brazil and lost the battle. Therefore, its meat will be coming back into Europe again with a 10% tariff instead of a 90% tariff, which is unbelievable. However, that is the real world and there is nothing that we can do to stop it. We in Europe are fighting to make sure that there is a limit on the amount of meat that is imported. In other words, we want a quota to be imposed on the amount of meat that is imported into Europe. The Chairman (Mr A Maginness): How much does your company invest in research and development? Mr Reid: I do not have the figure in my head, but I imagine that we invest about £2 million to £3 million a year at least. Our centre of excellence in Craigavon does nothing but research and development. More than 70 people work there, all of whom are graduates, not people who leave school at 15 or 16. We have a similar centre in England. We employ people with every level of education. I talked about the academy earlier. The Chairman (Mr A Maginness): Thank you, Mr Reid, for a very interesting, stimulating and — if I may borrow Dr McDonnell’s word — passionate presentation. You have provoked a great deal of interest around the table. Mr Reid: Thank you for listening to me. If I can be of help to any party, please let me know. The Chairman (Mr A Maginness): I welcome Mr Clarke Black, chief executive of the Ulster Farmers’ Union; and Mr Kenneth Sharkey, president of the Ulster Farmers’ Union. Thank you for your attendance, gentlemen, and for your written submission. We have 45 minutes. We ask you to make a short presentation of about 10 minutes; then members will ask you questions. Mr Clarke Black (Ulster Farmers’ Union): Thank you, Mr Chairman, for the opportunity to present evidence from an agricultural perspective to the subgroup. I wish to introduce Kenneth Sharkey, who is president of the Ulster Farmers’ Union (UFU). I am its chief executive. I understand that members have copies of our presentation. I shall make some comments by way of introduction and to set the UFU’s thoughts in context before I deal with the three specific issues in the subgroup’s terms of reference. The importance of the agriculture and agrifood sector to the Northern Ireland economy has been seriously underestimated for many years, yet, by most of the key measures, this is an industry that, in spite of all the difficulties that it has faced, has survived in remarkable shape. The output from direct agriculture is more than £1 billion, and from the agrifood sector it is £2·3 billion. Although those are significant figures in their own right, the value-added element is more important. Agriculture and agrifood is one of the primary industries. Starting from the basics of life, there is a product. That product has a value, which, in turn, creates wealth. I know that many farmers would say that farming is one of the quickest and surest ways to destroy wealth. That may be true for some individuals, but the industry’s contribution to the overall economy should not be devalued. Employment is another way by which to measure the importance of the agriculture sector. It is the largest private-sector employer and the largest manufacturing employer. It employs 80,000 people. Some jobs are part-time, but when the figures are examined, there are between 57,000 and 60,000 full-time equivalents. Direct farming accounts for 4·1% of the workforce, the processing sector for 2·53%, the supply sector for 0·53%, and the service sector for between 0·25% and 0·5%. Therefore, more than 7·5% of total employment in Northern Ireland is directly or indirectly related to the agriculture and agrifood sector. A useful comparator is the unemployed total, which is 36,000. That gives an idea of the size of the industry. I shall attempt to debunk the myth that the agriculture and the agrifood sector is a sunset industry — members may have already heard something similar from the Moy Park delegation. It is difficult to identify from where that label came. I suspect that it came from a comparison that was made between the industry and the sunrise industries, which were the high-tech industries of the late 1980s, the 1990s and the early part of this century. That label has stuck, and there is absolutely no doubt that Governments of developed and — as they see it — sophisticated economies continue to ignore the contribution that the agriculture sector makes to the overall economy. The UK Government in particular continues to ignore the agriculture sector’s contribution. Agriculture is the one industry in which Northern Ireland has a natural competitive advantage. We do not have that advantage when it comes to, for example, producing television sets or some of the other goods that inward investment companies manufacture. The security of our food supply has been brought sharply into focus since we were reminded last autumn of the extent of the potential difficulties of relying on an energy supply from parts of the world over which we had little influence and certainly no control. The industry has had to be flexible and innovative, not only to survive, but to expand in difficult trading conditions. There are sectors in the industry — including Moy Park Ltd, from which members heard earlier — that have dealt with the challenges and have flourished in spite of the difficulties. It is all about being flexible and innovative. Farmers own and manage more than 76% of the total land area in Northern Ireland, and the management of the natural environment would not be possible without an industry that is alive and vital. We believe that the proactive use of land offers the most potential for the future. Whether it will be growing oil seeds for biofuel, growing wood for heat, or using land as a filter for, say, the bioremediation of society’s waste, we think that those proactive uses of land can be developed for the future. Then there is the industry’s role as a core element in the sustainability of rural communities. The industry is not only the key to the economic sustainability of those communities; it also provides the social cohesion that we believe has been a vital, sustaining and stabilising factor in Northern Ireland society over the past 30 or more years. Far from being a sunset industry, the agriculture and food industry has the ability to contribute to Northern Ireland’s economy in a variety of integrated ways that, we believe, no other single industry can. 11.30 am I have tried to show you how important we feel the agriculture and food industry is to the economy. We believe that the overarching impediment to the development of the sector flows directly from the erroneous viewpoint that farming and food are a sunset industry. To be more specific, we have looked at the major impediments in three main areas. The first one is the lack of profitability across the sector. Profits have not been sufficient to enable the industry to invest and restructure. As a result, we have a primary sector in which the average age of farmers is 56 or 57 years. We have a processing sector that is fragmented in many cases and suffering from acute underinvestment. I accept that some of those problems have been of our own making. Nevertheless, the stark imbalances in the food supply chain have been and continue to be one of the main contributors to the lack of profitability and, therefore, the lack of investment across the sector. For example, I was struck by two headlines that appeared side by side in my local newspaper in Coleraine a couple of months ago. One concerned a story about one of the four big retailers expanding, opening a new store and creating 150 jobs. The other concerned a story about the local chicken-processing factory closing down with the loss of 320 jobs. Those are the type of stark imbalances that we have in the supply chain. The sunset mentality has been more evident within Government. The lack of vision across Government Departments has resulted in very limited and ineffective support for the industry. Furthermore, for an industry which is so influenced by politics in Europe — it is largely controlled by Europe — the additional layer of representational bureaucracy that we have through London and DEFRA has meant that the distinctive needs of the Northern Ireland industry are often represented less effectively. There are broader UK agendas, and the outcome of the recent negotiations on the level of EU rural development funding is just one example of that. Finally, food production is one of the most heavily regulated industries, and I am thinking of impediments. For example, farmers are faced with having to register for an exemption for a licence to permit them to collect and burn hedge trimmings. When we have got to that level of overzealous interpretation and imposition of regulations by more than one Department, innovation is severely stifled, and the potential for developing any form of competitive advantage is lost. The subgroup asked us to comment on fiscal incentives aimed at promoting investment. Our focus is naturally on indigenous investment. There is no reason why properly targeted, strategic, inward investment in processing facilities, which would utilise primary farm production, could not make a significant contribution to the wider Northern Ireland economy. One good example is Diageo in Glengormley, where local cream is used in the production of Baileys liqueur, which is sold worldwide. Using local ingredients in industrial production is something that could be done to promote indigenous investment. It is perhaps a little early in the morning to speak about alcohol. Ms Gildernew: Not for David, by the looks of things. Mr McNarry: Are potatoes not used to make poteen? [Laughter.] Mr Black: The subgroup should certainly consider the impact that targeted investment support for the agribusiness sector could deliver for the wider Northern Ireland economy. Restructuring the processing sector would deliver undoubted benefits in cost savings, marketing and increased competitiveness. Indeed, our nearest neighbours have been convinced of the benefits of such an approach, with the recent announcement of significant funding support for that purpose. Investment in restructuring in the primary sector, particularly targeted at enabling farmers at the top end of the age scale to exit the industry, would also provide opportunities for the creation of economies of scale, along with much higher levels of innovation and flexibility and a much-improved ability to compete globally. Previous consideration of that approach has always fallen at the hurdles of finding money and equitable distribution issues. However, there are parallels in other parts of society where a peace dividend, for want of a better term, has been used to restructure and adapt to changed circumstances. That should be considered for the agriculture industry. Again, our neighbours in the Republic of Ireland have been reasonably successful in adopting that approach. Focusing support on the agriculture and agrifood sector would undoubtedly significantly contribute to economic regeneration, for all the reasons that we have outlined. However, the subgroup also correctly asked us to visualise how that would be delivered. First, there needs to be a real sea change in the strategic vision for the food production sector, backed by targeted support of the type that I have already mentioned for the food processing and primary production sectors. That is vital to produce a sea change in attitude. What else do we actually mean by “strategic” and “targeted”? The Food Strategy Implementation Partnership (FSIP) was tasked with looking into the future to envisage what type of industry we could expect to have in 2020, for example. In doing that, we considered the difficulties of dealing in commodity markets. The disadvantage of being a small market is never really being able to compete in real terms on a global scale. However, that disadvantage is very well offset by the real advantage of being very nimble and responsive to, and capable of, change. Our future will depend on our capacity to change. The FSIP’s foresight work identified several areas where the Northern Ireland agrifood sector could realistically hope to achieve excellence in global terms. It has also concluded that, in order to achieve global excellence, more resources need to be committed towards research and development. To illustrate our examples, we have compared Northern Ireland to Finland. Finland was chosen as a comparator primarily because of its size and scale, and because, despite its geographic peripherality, it is the second-best performing economy in the EU. The most obvious differentiator between Finland and Northern Ireland is the level of R&D spend from both Government and industry. Northern Ireland’s R&D spend is approximately one third of that of Finland. Being located on an island — albeit an island with two different political regimes — has significant potential benefits for animal and plant health, as well as the related areas of animal and plant breeding and genetics. The Ulster Farmers’ Union believes that there is a great deal of potential for Northern Ireland to become a world-class centre of excellence for animal and plant breeding and genetics. The Ulster Farmers’ Union believes that, as a small region, Northern Ireland is uniquely positioned to develop solutions for big issues such as renewable energy and the management of waste. Some work is being done on that, but the key to exploiting that potential would be to take a much bolder approach to testing and developing alternative technologies, marketing them aggressively and dealing with the associated risks. Given the subgroup’s time constraints, it is difficult to cover all the relevant issues in detail. However, the Ulster Farmers’ Union believes passionately that it has presented the subgroup with the basis of a blueprint on which agriculture and the agrifood industry could build their already significant contributions to the Northern Ireland economy in a way that would be sustainable and advantageous to those in the industry and to the wider Northern Ireland economy. We are happy to elaborate on the issues that are raised either during questions or at a later date. It is up to the subgroup. The Chairman (Mr A Maginness): Thank you very much, Mr Black. I assume that Mr Sharkey will want to take part in the question-and-answer session. Mr Kenneth Sharkey (Ulster Farmers’ Union): Yes. Mr McNarry: For some years now, I have noticed changes in my constituency, which is the beautiful area of Strangford. Those changes include reduced circulation of money because farmers are not spending as much, and there have been job losses because of that. I have also noticed an increase in the number of people who, when I first got to know them, worked as farmers and who now need to take second jobs. Of course, they still have to work on their farms, and the hours that they put in seem to be horrendous. Much has been made of farmers diversifying their businesses. In my constituency, diversification means keeping a family afloat and bringing in a wage to supplement the money made by the farm. That is not diversification in the true sense, and it could be argued that diversification is talked up a great deal. Have enough studies been done on diversification? Is it a good thing or a bad thing? Would true diversification make farmers redundant by taking them out of farming? Are we winning or losing the battle to sustain the interest of young people in farming? Are young people from non-farming families coming into farming? Finally, we are seeing — I will not be political about this; I will forget the adjectives — rural school closures, particularly primary schools. How does that affect the farming community? Do those closures present the farming community with difficulties? Mr Sharkey: I will answer the questions on young people and rural schools; Clarke will take the questions on diversification. I feel strongly that young people need to be attracted to the farming industry to lead it and drive it forward. Those young people will work in our industry when they receive rewards that are equal to those of the other jobs or types of work that they can do. That attraction has to exist. Young people will expect an average week’s wage if they are to stay and work on the farm. As Mr Black says, the lack of profitability has had a crippling effect on our industry. 11.45 am When young people are not building houses and living in the countryside, pupil numbers at rural schools go down, and that causes problems. The key point is to ask how we can get back to a profitable farming industry. If we did that, diversification would be less important. You are right to ask whether diversification is good or bad. In some cases it is a lifeline to have someone in the farming family bringing in some income from another project to try to sustain the family business. Profitability — and I think that Moy Park Ltd would tell you the same thing — comes down to the distribution of the food chain. I do not know how we can deal with that difficulty, but the lack of profitability is the real problem that prevents our industry from growing and moving forward. Mr Black: I have nothing much to add, other than to say that Mr McNarry’s observations about money not being recycled through the community are true. I referred earlier to how the agriculture sector is completely integrated into the economy, and the money circulates round the economy. That happens across Northern Ireland. Diversification comes down to the lack of profitability. It is about people trying to remain in rural communities in order to keep them alive and working. Those people see a way to do that other than their traditional route. Mr Neeson: Over the years, Europe has had a major impact on the agriculture industry. The foot-and-mouth-disease crisis happened during our short period of devolution, so, bearing that in mind, were there more benefits to the industry then? The Enterprise, Trade and Investment Committee carried out a major inquiry on energy. The Secretary of State recently announced that £60 million will be set aside for the development of renewables. What will the Ulster Farmers’ Union do to encourage the farming community to become involved in the area of renewables? Will it encourage the farming community along the lines of John Gilliland’s work on the promotion of renewable energy? Mr Sharkey: I will deal with the first question. There is no doubt that the agriculture sector benefited from a local Administration. Look at our counterparts in Wales and Scotland: the Administrations there have been hugely beneficial to the local agriculture sectors. Look at our friends in the South of Ireland: they have a direct input into local government. That is very meaningful. We thoroughly appreciated the work that the previous Executive did on agriculture; all the political parties can support agriculture because it is an industry that is found across the Six Counties. In every townland, someone works in the agriculture industry. We do not doubt that a local Administration would be of significant value to us, and we would appreciate that. Mr Black: We have already highlighted the raft of issues that are connected to renewable energy as a potential solution to many of our problems. Agriculture can deliver that solution. You mentioned John Gilliland, our former president, and the work that he is doing in a particular area. He works on the production of wood for heat, but he also works on dealing with waste. He has done some remarkable work on how to use sewage sludge on crops for harvesting. Instead of using fossil fuels as an energy source and having to landfill our waste, you suddenly start looking for the potential for an integrated approach that will deal with energy. That sort of thing should be happening. You also mentioned the Secretary of State’s announcement on money being set aside for the development of renewables. We welcome it, but it was largely conceptual and is now stuck between various Departments. The money has not yet been delivered. That goes back to what I said about the need for us to be bolder about taking risks, developing them and then going out and servicing them. An Ulster Farmers’ Union member was in the United States in the past couple of months, and he talked to representatives from large municipal authorities about how they were dealing with their waste. They said that it seemed that Northern Ireland was 10 years ahead of the United States. It is a sin that Northern Ireland is in such a positive situation but is not able to benefit because we are struggling with bureaucracy and everything that goes with it. It certainly does not help our economy. Mr Sharkey: The Ulster Farmers’ Union is passionate about renewable energy, and farmers are looking forward to the opportunity to grow energy crops, and so forth. However, we do not want to be in the same position in which we have found ourselves with food production over the years. If farmers grow energy crops, we must ensure that we add value at farm level and are not merely producing a commodity on which multinationals will get rich quick. We would like to see some mechanism whereby we add value at farm level, and farmers get a bigger share of the energy market. Ms Gildernew: That is one of the points that I wanted to make. We have seen how heavily regulated the agriculture industry has been and how the influence of Europe is not always good. When that is combined with the Department for Environment, Food and Rural Affairs’s lack of common sense and the different level of importance of the agriculture economy, in GDP terms, in the Twenty-six Counties as compared to England, it hugely disadvantages our farmers. I agree with David McNarry: when farmers are doing well, everyone is doing well. The farming community is important to the rural economy, which is why I suggested that we needed witnesses at the subgroup to give us the farming or rural perspective. Foreign direct investment does not impinge particularly on what we do in the rural communities or on the sustainability of the rural economy. I see R&D and alternative energy as ways in which we could enable farming to move up a gear in the value that is added. Those areas might benefit from a peace dividend: helping farmers to produce the right crop or the right product at the right price. Farming needs to be profitable, and whatever we come up with on this subgroup needs to be worthwhile. How does the price of milk at the farm gate and the price that we pay in the supermarket impact on rural wealth and on the sustainability of the economy? What are your views on modulation, and how will further modulation affect the rural community? If Fermanagh, Tyrone, south Derry and rural parts of the island do not have an agri-economy, they will have no economy. In his presentation last week, John Simpson mentioned the work of the Ulster Farmers’ Union when the beef ban was lifted and the fact that its representatives were in Brussels promoting red meat on the day that the ban was lifted. Is the quality of Irish beef our last major market advantage? You both used the word “passionate”. We have no doubt that you are equally as passionate as Eric Reid; you do not have to convince us. Mr Sharkey: Our members are totally opposed to modulation. We see it as a mechanism for taking money from one sector and giving it to another, or for reducing a single farm payment to put it into a pot of money and creating a great deal of administration to think of ways of getting that money back to rural areas. Rural development is important, but, unfortunately, the UK has received a poor share of rural development money from Europe. It is not the Northern Ireland farmers’ fault. It is wrong to take some of our single farm payments to create more rural development money, because that is not what was meant to happen. Other member states can have a good pool of rural development money as well as a single farm payment. That is our standpoint. The Ulster Farmers’ Union is opposed to additional modulation to fund rural development, not because we are opposed to rural development, but because we believe that extra money should go into the pot. We were pleased to be in Europe when the beef ban was lifted. The ban had been a millstone around our necks. We are glad to have freedom, but we knew that things would not change overnight. Some product goes to Europe, and we are glad of that. There is a good relationship between the processing sector and UK supermarkets. At times, we question whether there is a real desire to bypass UK supermarkets and sell meat to Europe. Unfortunately, we are considering the export of live animals from Northern Ireland to member states, because UK supermarkets are not getting the message that either the price of meat must rise or we must receive a greater share. The current situation is unsustainable: we cannot continue to produce red meat and receive such meagre returns from UK multiples. Either we increase prices or we rear the raw material in Ireland and export it to Italy or Spain where the meat will fetch a higher price. Ms Gildernew: That does not add value to the product here. Mr Sharkey: We are opposed to it; it is the last resort. Mr Black: It all comes back to profitability. Michelle asked about milk prices. At our last auction, which sells milk for three-month periods, the price was down by between 11% and 12% from this time last year, which leads to a drop in dairy farmers’ income. They face increased energy costs from contracting for silage, and they are also faced with a bill to comply with the Nitrates Directive and the Water Framework Directive. That will cost the industry between £150 million and £200 million. You cannot squeeze both ends without consequences. The total amount of single farm support from Brussels is approximately £225 million, compared to a total Government spend in Northern Ireland of just under £9 billion, so about 3% of support goes to agriculture, and that helps 7% to 8% of the population. Northern Ireland figures are similar to those across Europe. It is money well spent. The Ulster Farmers’ Union is passionately opposed to modulation, because it is proposed that part of the £225 million be siphoned off into other schemes. 12.00 noon However, the total income from farming last year in Northern Ireland was £175 million. That indicates the level of profitability in the industry. That is why the investment and innovation is not coming through. That is the crucial impediment that must be addressed. Did I cover everything? Ms Gildernew: I wanted to ask about the possibility of a peace dividend for research and development on renewable energy. Mr Black: That is vital. The Ulster Farmers’ Union thought that the money announced by the Secretary of State would kick-start that. We are concerned that the money has not yet filtered out onto the ground, because there is a pent-up desire to get on and do things, but the system seems to stifle that. Ms Ritchie: Gentlemen, you are most welcome. You talked about the continuum that is required in the farming industry. Until the last couple of years, there had been considerable discussion about a farm retirement scheme, and you probably referred to that as part of restructuring. What recent discussions have taken place with the Government about such a scheme, and what was the outcome? Perhaps I can assume that the Government are not too keen on the idea. What is impeding the Government’s introduction of such a scheme? What work on animal and plant health must both Governments do on a North/South basis in order to facilitate further study on animal and plant health in the research and development institutes? What resources must be invested to address that on an all-island basis? Mr Black: There have been no recent discussions on any form of retirement scheme or exit strategy for people in the farming industry. The industry has always needed some form of restructuring, and if there were sufficient profitability in the industry, it would happen naturally. Given the lack of profitability, it is much more acceptable for those people to stay in the industry and survive for another 10 or 15 years, or for whatever period of time they have left on this fair land. That stifles the change process. There are parallels in the peace dividend; we have seen how other parts of society have been restructured, and perhaps similar principles could be used in farming. Should that be the case, and if we take the view that restructuring is a core and integral part of progressing the farming industry, it would be beneficial. Ms Ritchie: I have a short supplementary question. Should that not be part of the whole farming industry rather than part of a peace dividend? Mr Black: I would like to see that happen. However, when restructuring has been mentioned, we have always run up against the problem of having no means of achieving it, and the Department’s response has always been that it will happen anyway. People will retire at some stage, so why should taxpayers’ money be used to restructure an industry that will be restructured over time. It is almost as though a constant weight is bearing down on an industry that is not ready to take up some of the new things that are happening. I am not really prepared to discuss the political difficulties that surround animal and plant health. However, to be pragmatic, this island has one of the best protection systems — it is surrounded by x miles of water. That allows tighter control over disease, which means that much better animal and plant health regimes could be established. As a result, quality food and quality livestock and plants could be sold throughout the world. Many countries would be keen to do that, but we really need to make it better than it is now. The Chairman (Mr A Maginness): We are running behind time. I would like the questions to be briefer and more to the point, and I remind members of our terms of reference: the major impediments to the development of the economy, fiscal incentives and the economic package or peace dividend. Dr McDonnell: Instead of one heavy question, I have a couple of small supplementaries or probing questions. The first question is similar to the one that I asked Eric Reid. Where does the responsibility lie? We have mentioned retirement schemes and energy from crops. The bio-diesel issue is a runner, but I need to be convinced about the effectiveness of a retirement scheme. Where does the initiative lie? Who starts these schemes, and who decides to make them work? What are the obstacles to either of those two schemes working? Is the milk industry dead or dying? I have seen dozens of people getting out of the dairy industry in the past few years, and some of them had big businesses. If prices have dropped 12% against costs rising by 10% or 12%, is that not the death knell? Research and development may fall in with the energy issue, but what are your views on the R&D spend? How is it that Finland has three times the R&D spend that Northern Ireland has? What do we need to do, and who is holding it up or blocking it? Mr Black: I will deal with the question about who takes the initiative. The figures for R&D spend are difficult to come by because they are spread over different Departments and different pots; I suspect that there may be a reason for that, but we should not go there. The industry spends a fair amount. Mr Reid has already told the subgroup that he spent £2 million to £3 million. The Ulster Farmers’ Union believes that the total spend in R&D in the agriculture sector is somewhere between £15 million and £18 million, and some of that is from Government, some comes from industry and some comes from farmers. The spend in Finland is around £45 million, and that is where the comparators come from. Finland has being going down that route for eight or 10 years and has really moved it on. If the Government do not take some form of initiative, there will be many small initiatives, as is already happening with renewable energy and biofuel plants. John Gilliland is researching wood chips —all sorts of different things are happening. However, there is no integrated approach. Some integration has been introduced into food strategy, but it is limited because of resources. It is good that the practitioners — the people on the ground — are doing it, rather than using the machinery that is already there. When that happens, there is more initiative, pragmatism and reality. Mr Sharkey: I can assure the subgroup that milk producers are not a dying group: they are very vibrant. Recently, a milk producer in Dungannon won an award for the best breeding and production herd in the UK. Over the years, the number of farmers milking cows has fallen, but the pool of milk has been maintained and, indeed, has increased. By and large the farmers are restructuring and taking costs out of the system. Herds are larger, which makes them more efficient. The farming sector has done almost as much as it can — some 4,500 farmers produce about 2 billion litres of milk, which is phenomenal. The main difference between Northern Ireland and the mainland is that we have a small population. The percentage of our total milk pool that goes to liquid milk is 15%, whereas across the UK it is 50% to 60%. Many more people there drink milk every day. Therefore we have to turn our milk into many different products — we must sell milk products rather than liquid milk. The processing sector will have to be restructured to manufacture more innovative products that use large amounts of milk. We have been moving towards that, although not as quickly as we might have. On the farmers’ side, there is a stable number of vibrant producers; on the processing side, there is a need to find more innovative products that use more milk and find markets for them, rather than concentrate on the liquid market. We simply do not have the population for the production of liquid milk. The Chairman (Mr A Maginness): Three members wish to ask questions: Mrs Long, Dr Birnie and Lord Morrow. I ask them to keep their questions short so that witnesses can reply. Mrs Long: I found your presentation useful. Mr McNarry asked about the negative side of diversification, which merely takes people away from food production. From a previous career, I am interested in the waste treatment and biodiesel side of diversification. Given what you said about environmental and social impacts when people give up farming to do something completely different, could waste management and biodiesel be a more positive form of diversification? Could that complement food production rather than simply take people away from the land? My second question is on research and development, which has already been mentioned. Northern Ireland businesses suffer from a lack of investment because the local economy has many small and medium-sized enterprises. Can research and development in farming and agribusiness in Northern Ireland be increased only by restructuring the industry, or is it simply a matter of investment? Dr Birnie: This point is perhaps provocative, but allow me to play devil’s advocate. The New Zealand model allegedly allows for much freer trade, the ending of subsidies and specialising in comparative advantage. Why should we not do that? Lord Morrow: What is your position on rural planning as laid out in Draft Planning Policy Statement 14? Do you support its measures? Is that the way forward and does it benefit agriculture? How long will it take for the benefits of the lifting of the ban on beef exports to other EU countries to filter through to Northern Ireland farmers? Mr Sharkey: I will work backwards, taking the beef ban and rural planning first. We thought that the advantages of the lifting of the beef ban would have filtered through the system more quickly than they have done. The UK retail market is at a low level, which presents us with a dilemma. Farmers in Italy get 50% more for carcass meat than we get, even though the retail price in the store is the same as here. That tells us that farmers’ share of the food chain could be better. Unless there is a dramatic change soon, production will fall and prices will be forced up. As for rural planning, the Ulster Farmers’ Union responded to the consultation on Draft Planning Policy Statement 14, although I am not sure whether the subgroup has seen a copy of that response. Reflecting our membership, there were quite diverse opinions on that, but our conclusion was basically that in recent years planning has needed better structure and regulation. Bearing that in mind, however, we realise that to have a vibrant rural society there must be development and building in the countryside, and people must live and work there. 12.15 pm The countryside would look much better if the many disused houses there were replaced with new buildings. That would also give people an opportunity to build houses in country areas without using up any green land. Another concern is that VAT can be reclaimed on a new build, but not on a renovation. That forces people to build new houses rather than simply renovating an existing one. Planning needs to be better planned and controlled than it has been, but there should not be a blanket ban on new buildings. Development and planning are necessary for the creation of a vibrant rural society, which will encourage new people, particularly young people, to settle in the countryside. Mr Black: My apologies to Mrs Long, but I will not answer her question first — I am working up to it, though. Dr Birnie asked about the New Zealand model; I will make two brief comments on that. First, farmers would be quite happy to do without support if they could find profitability within the industry. Ultimately, the market has to move upwards before support can be stopped. We know what it takes to produce something, and farmers would prefer to get some form of support from a European system rather than depend on a food chain that is currently dominated by four or five big retailers. That is a much safer bet; we just do not feel that we would get that support the other way around. The second point is wider. The European model of agriculture has been based on a three-stranded approach: economic, environmental and social. We have touched on the need for sustainable rural communities, and there have been questions about skills. Rural areas are sustained by an industry that recycles funds and energy back into them. New Zealand found to its cost that much of that had disappeared for a period, although some of it is now coming back again. That is one way to preserve a European model of farming that involves a longer-term strategy rather than a short-term, market-driven strategy. To return to the first question, we agree entirely with the point about the complementarity between alternative production and food production. Farmers are not necessarily wedded to the idea of producing beef and milk if nobody wants it. We know that there is a need for it. For some of those commodities, there is as little as just a few days’ or a few weeks’ supply at world level. You can afford to go down to that level because there is a production cycle that keeps producing it. We think that we can afford to drop to that level; it has never been proved otherwise. Oilseed rape is an example of a good crop that fits very easily with wheat production in arable areas. Many of us would be uncomfortable with some of the thinking in parts of the south of England, where they are considering producing wheat to burn for energy. Our natural reaction is to feel very uncomfortable about that because of the starvation in many parts of the world. However, a complementary way of dealing with that would be to grow wheat in years one and two, then oilseed rape in year three, and then back to growing wheat for food. I was asked about restructuring and investment. We believe that that is the way forward for research and development, but that will not happen unless it is driven forward. Plenty of people in our industry are happy to do that if they receive support rather than be told: “You can’t do that, because of this”. They must be encouraged, not restricted. The Chairman (Mr A Maginness): Thank you very much, Mr Black and Mr Sharkey, for your very interesting and stimulating presentation. I am grateful for your coming here today. I propose a short comfort break, and we shall recommence in about five minutes, at which point we shall hear from Mr Wright. The subgroup was suspended at 12.21 pm. On resuming — 12.27 pm The Chairman (Mr A Maginness): I invite Mr William Wright, the chairman of Wrightbus Ltd, to make his presentation. Before I do, however, I propose that we have sandwiches at the end of the session rather than during it. I hope that colleagues find that satisfactory. Mr Weir: Mr Chairman, by that do you mean at the end of Mr Wright’s presentation or after the Department of Finance and Personnel has made its presentation? The Chairman (Mr A Maginness): The latter. Thank you for your patience, Mr Wright. We have heard two very interesting and worthwhile presentations, and we look forward to hearing yours. Perhaps you would make a 10-minute presentation, at the end of which members will ask questions. Mr William Wright (Wrightbus Ltd): I appreciate this opportunity, because sometimes we in industry feel a bit like a patient: the consultants go round the bed while the patient hopes that they will find a cure for his disease. So many people pronounce on industry that we wonder whether they know about it all. I will start with education because I have been involved in the administration of technical education for about 25 years. I spent six years with the North-Eastern Education and Library Board. I have another qualification: we use the product of the education system. In my presentation, I ask whether the education system has failed industry and commerce. I say categorically that that has had a major impact. We have a training school into which we bring between 30 and 50 apprentices, depending on the marketplace and the quality of the apprentices. We are a skilled enterprise with very few semi-skilled employees; they are all skilled coachbuilders, engineers and fitters. Therefore, we depend on skills, and it is on their skills and ability to absorb what we teach them that we select our apprentices. However, when we test our incoming students, we find that one third could not measure the number of square metres in this room. They could, when shown how. We have a pretty high profile in the Ballymena area; we visit all the local schools and encourage them to visit us. We try to encourage the kids, but, unfortunately, the education system is not working. I wanted to start my presentation with education, because if we do not get the right quality of students and apprentices, we will not build the industrial base that we need. I was at two board meetings yesterday, so I am not as well prepared as well as I wanted to be. 12.30 pm I read an article in one of the broadsheets last week. It quoted some observations from the Organisation for Economic Co-operation and Development (OECD), which is probably one of the most respected think tanks on economic matters. The headline read: “Poorly educated workforce is drag on UK productivity”. The article states that productivity is the most reliable indicator of the country’s economic health and reports the OECD’s views on UK productivity. The OECD said that the UK is relatively weak in the field of innovation. It continues: “30 pc of 25 to 34-year-olds are low-skilled, a considerably larger share than in most other OECD countries.” The OECD also said: “There is therefore a clear need to expand education and training at the intermediate level.” I wish to make a point about that. A new education system has been proposed for Northern Ireland. I do not see how that will work. In Ballymena, there are three grammar schools — St Louis Grammar School and Ballymena Academy, which are first-class schools, and Cambridge House Grammar School, which is a newcomer and therefore probably not as well developed as the other two. They are all located in the affluent town of Ballymena. How in the name of goodness are we to divide pupils among those schools? My solution is quite simple: our secondary schools should become junior technical schools. I have a great admiration for the education that I received. I received two scholarships: one to Ballymena Academy and one to Ballymena Technical College. I picked the tech because that was what I wanted. If we were to have junior technical schools, we would raise the awareness of the secondary-school system. At present, parents see it as a second-class system. We could dispel that view by changing the emphasis and by introducing a curriculum that is orientated towards industry and commerce. Pupils would probably attend those schools from 14 years of age — that was the age at which I moved from the primary-school sector to the technical college. That change would make a tremendous difference to our education system. It would produce people with the knowledge to be able to appreciate the world of industry. I have only a junior technical certificate, but it has helped me immensely throughout my life in industry. Wrightbus Ltd has a turnover of £100 million and employs almost 1,000 people. We depend on the people coming through. At the moment, we are getting very poor-quality entrants coming in at the bottom end. If we bring in 30 people, we will probably lose about 10 in the first year. Do not ask me why. They probably find our system too intense. It is intense; it has to be. We are an industrial operation that sells across the world. We must also be very competent technically. When we send a vehicle to Hong Kong, it had better be good — it is a long distance away. If we can get our education system right, we can make great strides forward. However, I cannot see that happening at present. We are starting to amalgamate our institutes of further education. I was involved in the 1994 amalgamation of Antrim Technical College, Ballymena College and Magherafelt College of Further Education. Its problems have just about been solved, after losses of £2 million. The new amalgamation will take in Coleraine and Larne, and all stations in between. I cannot see the logic in that. I will move on to fiscal incentives, rating, energy costs and planning. Fiscal incentives help. We get quite good help from Invest Northern Ireland. We cannot complain, even though that contribution is only 25% of the total cost. We spent £2·5 million on developing the StreetCar, for which we received a Government grant of only a couple of hundred thousand pounds for research and development. One must be prepared to be innovative all the time. Fiscal incentives are OK, but they are only a small part of what is required. If people do not want to innovate, all the grants in the world will not persuade them. I will provide some figures: our electricity bill is £250,000; our oil bill is about £300,000; and our total rates bill is £312,000. That has a two-fold effect. We had planned two new expansions for a new R&D centre and a new composites centre. We scrubbed both those because of the rating system. Rating is a major issue. The difficulty is that we are in an industry that requires a lot of square footage. A bus measures 12 metres by 2·5 metres, and a great deal of space is required to build a bus. We produce 1,000 buses. We have roughly 5,000 40-foot trailers, in addition to equipment and buses. We import 1,000 chassis from the likes of Volvo, Scania and other companies, and we export 1,000 buses. Approximately 10 articulated lorries arrive at our plant every day. The total value of the material at our plant is around £50 million. We import material from as far away Poland, Romania and Italy. For example, our seats come from Italy. We must import material, which is a cost that our competition on the mainland does not have to bear. Rating is just one issue; there are higher energy costs on top of that. Our economy costs are not a terrible burden, but they are an additional burden. The rating system recently killed two of our projects. Our rates bill was increasing, and the projects would have taken money away from research and development, which is our lifeblood. We started our company at the back of the family home. We would probably have been strangled at birth by the planning authorities of today and we would never have survived. Planning is a major difficulty. The applications for planning permission for the extensions that I mentioned have been in the system for three months now. The extensions will be built on an industrial site; the applications should be rubber-stamped. I wonder about the value of foreign investment. Look at the headlines: General Motors paid off 20,000 people in the USA. We have a licensee in America, and we have quite close contacts there. The help that American industry gets is quite phenomenal because a lot of industry has been lost. The Japanese have taken over quite a bit of the car industry. New factories that were set up to build trucks are all closing. Local authorities are producing incentives to get people to move into a brand new factory with a workforce. Foreign investment is a bit of a damp squib. If the indigenous population has the right mentality and the right outlook, companies will do far better. If, for every pound spent on foreign investment, 50p were spent locally, there would be a better output. That is my view, after 60 years in industry. We have been helped at different times by the Industrial Development Board and Invest Northern Ireland, but only in part. If we had not had the inclination and the ability to go ahead, we would not be where we are. Indigenous investment can play a big part, because it is very difficult to attract foreign investment at present. I want to speak about licensing, which is a far more effective way to attract investment. My design director used to work for Ford. In fact, he drew the first sketches of the Ford Fiesta. His wife is from Lurgan, and their parents were getting old, so they decided to come back to Northern Ireland, even though things were quite hot at the time. We looked for potential markets around the world. At the time, we employed about 130 people. We realised that the Northern Ireland market was too small. The large tariff barrier in the Republic of Ireland meant that we could not export to there, so we had to look elsewhere — to America, for example. At a trade fair in Frankfurt, my design director and I spotted a system of putting aluminium framing together. We use that system in all our buses, and it has been the secret of our success. It is a simple system that was patented for 10 years, although the patent has now expired. When we discovered the framing system, the patent was held in Switzerland when the system was exported from there. Licensing is the way forward. With its worldwide contacts, INI should be looking for licences that will appeal to people in Northern Ireland, but our people must have a hunger and a knowledge in order to use that licence. A door manufacturer in Ballymena is doing quite successfully from an American licence. Licensing is a far better way in which to obtain overseas money than foreign direct investment. Reducing the rate of corporation tax would certainly be an advantage to business. We pay around £1·3 million in corporation tax a year; under the Republic’s tax system, that figure would be about £450,000. Electricity costs are high, and, although we use quite a bit of power, we do not use that much for electricity costs to be an issue. As I said, there is nothing that we can do about oil prices. Our bank has been quite good to us. We use one particular bank, but I do not want to name it. [Laughter.] We have been through tight times and good times, and, generally speaking, I cannot complain about the bank. The early years were certainly difficult. When we started the business, we had an overdraft of £100, and it is difficult to run a business on that. Now, however, we lend the bank some money, and it lends us some money. That is how we deal with biggish amounts of money. Our bank has worked with us and helped us to expand at certain times. In my experience, if a person is truthful and open with the bank, it will be there for him during tight times. On one occasion, I was working with a man on a big contract in Strathclyde. When he went bankrupt, it caused tremendous difficulty. In three days, my overdraft was increased four times. It took us two years to rid ourselves of that problem, but the bank stayed with us. The man who went bankrupt was not really bankrupt — the bank lost faith in him. Banks have been a good source of finance. Other sources of finance can be difficult, because they are mostly provided by venture capitalists. We have steered clear of venture capitalists because they usually want quite a big slice of the cake. We have many opportunities now — in America, for example — but we do not like to expand beyond our capability to finance it. We have financed the company partly through bank loans, but mostly through ploughing back the profits into the company. We are a family company of miserable Ballymena men and women. As Willie John McBride said, copper wire was invented when two Ballymena men got the hold of a penny. [Laughter.] The Chairman (Mr A Maginness): Thank you very much, Mr Wright. Mr Weir: Thank you for your informative presentation, Mr Wright. You mentioned that R&D is your company’s lifeblood, and that the 100% rates that are being phased in are a disincentive to opening new or additional premises for R&D. It would be helpful if you could tell the subgroup how much R&D your company undertakes and by how much you hope to expand that. Moreover, what potential threat do the 100% rates pose to your future R&D? 12.45 pm You specifically referred to difficulties with planning issues. Obviously, that is one example of where Government inefficiency or over-regulation is a barrier to business. What are your views on Government regulation? Is it a barrier to expansion or efficient business use? Mr Wright: This year, Wrightbus Ltd is likely to make a profit of between £4 million and £5 million. The taxman will take 30% of those profits. As a family, we do not take much of the profits. As I said, we are relatively simple, miserable Ballymena people. We do not have a BMW in the family, although we do have a Lexus. In developing the StreetCar, we spent £1·5 million last year and £1 million this year. We had to develop three new models — two for Volvo and one for a new customer. We have also produced a hybrid-electric vehicle, six of which are running in London, which save 40% on fuel. We built the first low-floor buses in Britain. We got the first contract for low-floor buses in London, mainly because we saw a gap in the market. We had been building vehicles for the welfare market, and we saw that those buses had to transport people with disabilities. We realised that disabled people felt nervous when they had to be lifted high off the ground, so when we saw the designs for low-floor buses in Germany, we decided to build them. As I said, we got the first contract for low-floor buses in London, and we have retained roughly 70% of that market. Increased outgoings such as higher fuel costs, higher electricity costs and higher rates mean that there is less money to spend on R&D. I know that Government could give us 25% of the cost of R&D, but we would still have to find the remaining 75%. Another thing to remember about R&D is that, because the people who are involved in R&D do not produce gross value added (GVA), they are an expense. To make R&D worthwhile, we need to reinvest 50% of our profits. We developed the low-floor bus. We also built a double-decker bus for the First Group. The market difficulties that the Hatfield rail disaster caused meant that bus companies stopped buying buses, because they were not receiving cash from the rail companies. Therefore we looked for alternatives, and the only market that was still buying was London, which remained nationalised and had money to spend. We developed a new double-decker bus, and it has been one of our most successful products. Wrightbus Ltd has 700 double-decker buses in London. We have spent approximately £500,000 to £750,000 on R&D for the hybrid-electric bus. The hybrid was my idea. As a kid, I was asthmatic, so I was always very conscious of fumes, especially motor fumes. I realised that hybrid buses would be the next big thing in city centres, and, therefore, we developed the hybrid bus. We had it tested by Transport for London. The tests show that it saves about 40% on fuel, which in turn saves 40% on carbon dioxide; nitrous oxide emissions are down to 0·2%; so particulates are reduced dramatically. We really feel that the hybrid bus has a bright future. Last weekend, we held talks with the boss of the First Group, which runs 10,000 buses. It is looking for 100 buses for a project in Glasgow and is interested in the StreetCar. As the market for engines for hybrid-electric buses is difficult and our knowledge is limited, I did not trust us to build an engine here to supply to America. Therefore, we have linked up with an American company. It is building the engine, and we are building the body and shipping it over from Ballymena. Unfortunately, we are over-regulated. One company in Ballymena was expanding; I was on Ballymena Borough Council, and our health and safety people recommended that the workers be allowed to work only until 6.00 pm, or 1.30 pm on a Saturday. It was unbelievable that that should be imposed on what was quite a big employer in Ballymena. I do not want to name him, but he is in the agriculture sector. He had spent quite a bit of money on expansion and was working to a timescale, and somebody comes along and says that he could work only until those times. The reason was that the factory was cheek by jowl with a housing complex. The planners allowed that to happen, and it happens all over the place. We suffered from that on our site. Regulation is an increasing burden, and much of it is nonsensical. Mr McNarry: I recall the day when the banks backed the man; now they seem to back the payback. That style of man and his ideas are hard to encourage today, and I suspect that you have sympathy for young entrepreneurs. They might not go through the brick walls that you have gone through; sometimes they need some help. Do you think that the problems that you have identified in education are indicative of parents, pupils and schools thinking that manufacturing industries are not likely to offer sustainable employment? I agree with what you said about vocational skills. The curriculum is not being directed in that way, perhaps because of the mistaken perception that there is no future in local manufacturing because it is in decline. I was speaking to some medium-sized manufacturers from the South at the weekend. They recognise the benefits of the corporation tax rate in the South. Interestingly, they said that capital gains tax is a major issue for them. They have probably banked the corporation tax moneys and are now examining capital gains tax. What benefits do you think capital gains tax on a par with the Republic could have for local manufacturers and businesses? Mr Wright: Tax is one of those things. The Government keeps inventing taxes, and we keep paying them. I am going to say something that I did not intend to say: the size of our public sector and the Civil Service have reached intolerable levels. There are 90,000 people in manufacturing industry, and we cannot sustain it. I do not believe that we can cure the problems, because they are so well entrenched. I served 16 years as a councillor and six years on an education board, and there is no way that the Secretary of State will ever reduce it by any sizeable proportion. Lord Morrow: He says that he is starting on 24 November. Mr Wright: He will do you guys first. [Laughter.] You talk about the education sector. We had a growth challenge, which is industry trying to get the whole thing going again. Coming from my background in education administration, I suggested that trainee teachers visit factories in order to counter the “dark Satanic mills” image. I thought that it was a good idea, but they did not, because within nine months, it floundered. It started off with about 20 trainee teachers, then there were 15. I think that Wrightbus Ltd was the last company they visited, and by that stage there were six teachers. Wrightbus Ltd probably has about 150 computers, and there are quite good offices, although there is no air conditioning. We are also doing well on the working environment. However, there is a particular notion in the education sector about factory work and much of it is to do with administration. I was on the North Eastern Education and Library Board, and most of the people on the board were ex-teachers and ex-lecturers — two thirds had been nominated by the officials. They had never seen the inside of a factory. Somehow we must break this cycle, and I do not know how to do it. I tried and I floundered. I thought that it would be beneficial to allow trainee teachers to visit the factories in order to let them see the workings of the industry and to see if there might be jobs for the children of the future. The Chairman (Mr A Maginness): Perhaps a few civil servants could visit factories as well. Mr McElduff: I welcome Mr Wright’s practical, common-sense approach. We saw it earlier when Mr Reid from Moy Park Ltd gave evidence to the subgroup; he also brought us the benefit of his practical experience. Mr Wright, if you could prioritise one element of Government intervention or support that would benefit indigenous local businesses, what would that be? Mr Wright: I would recommend that we use the Invest Northern Ireland network to look for licences; that would be the best thing. I said that at an Invest Northern Ireland conference one day, but they were not of the mindset to understand. The Chairman (Mr A Maginness): What do you mean by licences? Mr Wright: I mean obtaining a licence to manufacture. For example, a Swiss aluminium company developed a system for bolting a bus together. The advantages are simple. If a bus has a damaged pillar, I can screw it out. If a bus has a damaged front end, it can be lifted off and replaced by another. That is what we do; we send complete front ends to England to replace those that have been damaged in bad smashes. Dr McDonnell: That is like the old Morris Minor. Mr Wright: The person must look for the licence he or she needs at any particular time. When we had a particular product need, I went to America and found the solution there. The advantage was that I had 10 years of learning how to use the product before the licence expired, so I knew more about it than the licensee; I had practical experience. I got a licence for a hybrid-electric bus from a company in Los Angeles, and I also licensed a turbine from another company in Los Angeles, but it was not a success. However, that is how it is done; you have to look for the product. I could have had English drive units, but I did not have the correct software. The software for driving hybrids is complicated. Therefore instead of trying to encourage a manufacturer in Taiwan to come to Ballymena — or somewhere else in Northern Ireland, because there is only 2·5% unemployment in Ballymena — the Government should help Northern Ireland companies to obtain licences. Mr McNarry: They should come to Newtownards; nobody ever comes there. Dr McDonnell: You have scared them all away. Mr Wright: That would be a great advantage for the industry, and it would be beneficial for those who are looking for products. There will be always be a downturn at some point, and people will need to look for products. I believe that the solutions are out there, if you look for them. The person who licences something will have an indigenous manufacturing operation; he will have paid for all the product development work. If he can add value by licensing the component, or whatever it is — especially in a market where he has no existing input — that is a plus for him. It is also a plus for the person who licenses the product, because he gets the technology. He may have a learning phase, but he has the chance to build further on that knowledge. Therefore it is a plus for everybody. That is my basic reasoning. I know that Invest Northern Ireland has offices all over the world. I believe that they should search for product licences instead of trying to encourage some American or Chinese company to come here. I do not think that completely works. Invest Northern Ireland has done some good, but it has done more bad. The Chairman (Mr A Maginness): Sean Neeson, Margaret Ritchie, Alasdair McDonnell and Esmond Birnie wish to ask questions. They will ask their questions in that order and Mr Wright will answer. 1.00 pm Mr Neeson: I always feel chuffed when I go to London and see Wright buses travelling the streets. Does your company depend greatly on the export market? Mr Wright: We sell to Translink, and we have sold to the Republic of Ireland, but not since 2002. Our main market is the UK. We sell to Hong Kong, and we have sold to Holland, but the European market is difficult. We have a licensee in America who builds under licence for us. Markets have peaks and troughs, and exports help to fill in the troughs. Markets may be strong in one place but weak in another. Consequently, export markets are valuable, but they will not keep a company going. England is our real market. There are five big bus companies there, and we sell to four of them. That has been a successful operation. Ms Ritchie: With regard to financial incentives, what contribution would a peace dividend make to the local economy? Mr Wright: You were involved in the Peace I programme with me, unfortunately, just after it became apparent that a great deal of money had gone to the wrong place — Belfast — but that was just one of those things. I am unsure about Peace money. I was on the Peace I programme board, and I examined the need for investment in Ballymena. I was also head of economic development in Ballymena Borough Council. The most difficult thing was to allocate the money, especially in the farming sector. Through an INTERREG programme, we tried to encourage farmers to be inventive and to consider how they could diversify. We did our utmost, but we were unsuccessful. You cannot take a horse to water if it does not want to drink. There is a lot of that about. A friend of mine talks about the “BMW syndrome”. People do quite well until they get a BMW in the driveway, and then that is it. We never had a BMW — we kept looking for one, but we never got one. Dr McDonnell: I congratulate Mr Wright. He has done a tremendous job, starting from humble simple origins at the back of his home to employing 1,000 people with a turnover of £100 million a year. If we had one or two more people like him, we would not have as many economic problems. I welcome Mr Wright’s comments on licensing in both directions, because, not only do you license in but you license out and manufacture buses in the United States. Perhaps we should pursue that concept more aggressively. As an aside, you mentioned importing seats from Italy. Are you unable to source more components locally, or is there something wrong with the local market? A company in Kilkeel makes aircraft seats, but perhaps aircraft seats and bus seats are different. Ms Ritchie: That company is BE Aerospace. Dr McDonnell: Yes, and it struggled at times. Mr Wright: The problem is the cost of seats. It makes sense for Wrightbus Ltd to buy whatever it can in Northern Ireland. We buy fibreglass units, and so forth, from Poland. We need a week’s supply of stock to be able to handle any delays in supply that may have been caused by a bad storm on the continent or at sea. Therefore we must carry more stock so that we can remain part of that supply chain. However, it is in the balance as to whether Poland can supply us at the right price. We find it difficult to educate local industry about delivering on time. The priorities at Wrightbus Ltd are, in order, delivery on time, quality and price. We run a production line. Every bus moves along that line every night, and if the materials are not there, we are in trouble. Consequently, it makes sense that our logistical supply lines are as short as possible. Anyone who visits Nissan will see satellite companies located all around the factory. We have great difficulty in finding local suppliers who are clued-up enough to understand our demands. However, we use one or two good local suppliers, such as a sheet-metal firm in Magherafelt. We buy as much as possible locally, but the Italians seem to have a flair for designing seats, and so forth, and are likely to produce good-quality seats on time. We have used English seat manufacturers who have not reached that standard. Big bus companies usually influence and select the style of seats. Bus interiors have changed and are now completely colour-coded. When the bus industry was denationalised and the money that was received from selling off all the nice bus depots that town centres had disposed of, it was decided that the only way to make money was to get people onto the buses. When market research discovered that 70% of ridership was made up of women, Wrightbus Ltd started to colour-code the interiors of its vehicles according to women’s preferences, which are pink and that sort of colour. I am sorry, Margaret. [Laughter.] Do not worry, Margaret, some of our bus interiors are red. We brought in a new strategic buyer recently — a returning ex-pat — whose express job is to develop our use of local suppliers. The Chairman (Mr A Maginness): Dr Birnie, as we are running out of time, will you forgo your question? David, are you coming back? Mr McNarry: No. The subgroup became inquorate at 1.09 pm. On resuming — 1.10 pm The Chairman (Mr A Maginness): I welcome officials from the Department of Finance and Personnel (DFP) — Mr Bruce Robinson, permanent secretary, and Mike Brennan from supply branch. Gentlemen, we have read your written submission. Mr Robinson, after you have touched on the salient points that you wish to highlight, the subgroup will move to questions. Dr McDonnell: Could the presenters brace themselves to answer some of the questions raised by the previous presentation? We will have to go to town on them. The Chairman (Mr A Maginness): I think that that is a health warning. Mr Bruce Robinson (Department of Finance and Personnel): I heard it as a promise. We are delighted to be here. Mike Brennan is involved in the supply side, but he is also our chief economist, and that will inform his contribution this afternoon. I will tie the key messages to the subgroup’s terms of reference, and talk briefly about the performance of the local economy. The local economy is doing well, and that is significantly due to employment growth. The challenge for us as a regional economy in the developed western European world is to greatly increase our value-added figures. I have listed five absolute key points that illustrate the need to improve. Gross value added (GVA) per hour is around 15% lower than the UK average. Our performance in the four productivity drivers — enterprise, innovation, skills and infrastructure — all leave something to be desired. Everyone recognises that Northern Ireland has a heavy dependence on public expenditure. One of the points that I wish to put forward, which has come forward in evidence from other groups, is that — given the range of issues — it is exceptionally difficult to see a single action or intervention that could change everything. That might well be a contentious point for the subgroup. I do not need to deal with the four drivers of productivity, as they probably featured heavily in the Department of Enterprise, Trade and Investment’s presentation. However, there are some indications of improvement on the enterprise side with the trend on VAT registrations increasing. I am also conscious that the subgroup is interested in economic inactivity, and I have produced a slide that shows that the gap in economic inactivity rates between Northern Ireland and other regions in the UK, when education is stripped out, is not as great. In relation to public sector dependence, both the levels of employment and the percentage of public expenditure are very high. There are reasons for the identifiable public spend per head, which has evolved over time in response to the particular needs in Northern Ireland. 1.15 pm Current thinking on the economic development policy is largely based on the work that has emerged from the Economic Development Forum, centring on the interaction among the four drivers of productivity and the need to rebalance the local economy. Although some of the economic incentives package is open for us to deal with locally, the key interest for the subgroup concerns fiscal incentives, and we note the fact that those are, at present, determined nationally. A consequence of that is that engagement with the Treasury is crucial. The current policy — and I am stating the obvious — is for a unified regime across the UK. One issue that features in suggestions for a different fiscal regime is the likely impact of differential treatment in Northern Ireland on the other parts of the UK. That is something that would have to be considered by the subgroup. I will reiterate some points about corporation tax: although the headline rates are 30% and 12·5%, the effective rates are 21·7% and 13·7%. Many smaller firms in Northern Ireland enjoy a rate around 19%. References have been provided on the sources of those figures. An economic package or peace dividend is obviously a key part of the subgroup’s work. Given existing policy and the emphasis on the four drivers of productivity, it seems to the Department that that is the way to address the long-term endemic problems of the Northern Ireland economy. That is why we have referenced addressing those as part of the package. To do otherwise might achieve an improvement in some areas of activity but, overall, it would not achieve the desired level of impact. Putting the economic package into context, there is no doubt that a significant change in public expenditure is under way. The Department is committed this year to participating in the comprehensive spending review. That work is well under way. The next stage involves the detailed work to be done in the autumn. The Treasury has acknowledged in discussions that the extent of public sector reform under way in Northern Ireland is exceptionally high. I have highlighted the main aspects of that: the Review of Public Administration, water reform, rating reform, fit for purpose reforms in education and further education, and curriculum reform in education. There is recognition that Northern Ireland is committed to ambitious changes, designed to redress the balance in the local economy between the private and public sectors. That is helpful in creating the context and the climate for your work. That is a quick summary. I am happy to take your questions. The Chairman (Mr A Maginness): Thank you, Mr Robinson. Dr Birnie: How much revenue is currently collected in Northern Ireland from corporation tax? Were the rate to be reduced to 12·5%, what would be the estimated revenue? Have the Department of Finance and Personnel or others in the Civil Service attempted to model the effect of a lower rate on revenues over time? I ask that with regard to an argument with which you will be familiar — that a lower rate will encourage inward investment and therefore higher revenue. That is important because it has been suggested to us in previous evidence. Mr Mike Brennan (Department of Finance and Personnel): Corporation tax estimates lag quite considerably. The latest figure that we have was given to us by the Treasury when we were compiling our fiscal deficit work — around £640 million of the corporation tax collected in 2003-04 was attributed to Northern Ireland. As Mr Robinson said, the vast majority of companies in Northern Ireland are classified as small and medium-sized enterprises, so if they pay any corporation tax at all, it is at 19%. We estimate that if the corporation tax rate were reduced from 19% to 9%, the difference would be only between £70 million and £90 million — but, to be honest, that is a back-of-the-envelope calculation. In answer to your third question, we have not considered in any great detail what the effects of a lower rate of corporation tax would be. Dr Birnie: I suggest that that crucial issue should be examined. Other witnesses have argued for a lowering of the rate. Mr Brennan: We are tied into work that the Department of Trade and Industry and the Treasury are carrying out as part of the comprehensive spending review. The outcome of that work will be the starting point. Mr B Robinson: It is important to remember that, in the context of attracting FDI, the relevance of the corporation tax rate differs among businesses and among sectors. If it were a simple black-and-white issue of corporation tax being the determinant, the conclusion would be that Northern Ireland could not attract any FDI at this time — nor could it have during the past 20 years — because of the lower rate in the Republic of Ireland. If corporation tax were the all-consuming difference, Northern Ireland would not have been able to attract any FDI. Therefore, attributing a weighting to corporation tax in the corporate decision is hard work. Mr Brennan: It is worth pointing out that when Forfás carried out work to establish the factors that are critical to attracting inward investment, issues such as skills levels and English language skills ranked higher than corporation tax. Dr Birnie: Surely our skills levels and language skills are comparable to those in the Republic of Ireland? There must be something else differentiating the two economies. Mr Brennan: One of the issues that have emerged in the drafting of the economic strategy on the skills side is the possibility of a mismatch between the skills that employers are looking for, and the skills that are currently provided. The vocational and technical colleges in the South have been very successful in forging links with industry. The Chairman (Mr A Maginness): Sir George Quigley has argued very publicly and forcefully that a lower corporation tax in Northern Ireland would be of great assistance. He says that investors from outside the UK have told him that they preferred to invest in the Republic of Ireland because of the lower rate of corporation tax. That is his experience; it is really an empirical approach, rather than theorising. What do you say in answer to Sir George’s argument? That position is supported by other people too; it is a very forceful argument that has gained a lot of traction among politicians here. Mr B Robinson: I am not disputing that; I am making a somewhat different point. Some businesses have undoubtedly gone to the Republic of Ireland because of its rate of corporation tax. However, if the corporation tax rate were the all-powerful, single determinant — Sir George does not say that, but some of what he has said has taken on that aura — Northern Ireland would not have attracted Seagate, Montupet and Citibank. The challenge for all of us, and the really difficult challenge for the subgroup, is to shape not a twentieth-century view but a twenty-first-century view of the relative importance of high skills versus the best interactive electronic network infrastructure versus corporation tax. We are looking to the future and to a developed Western World that will be competing against a significant economic challenge from China and India that was not around even as recently as 10 years ago. Moreover, taxation is one of the key issues that any corporation looks at, but, as Mr Brennan said, the work that Forfás has done points to several other issues. Companies that decide to invest in the Republic of Ireland have either been satisfied on all of the issues, or the corporation-tax issue outweighs some of their other concerns. It has undoubtedly been very successful. Dr McDonnell: Our biggest problem is that, at times, everybody is in control of our economy, but, at other times, nobody is in control of it. All sorts of components have a veto, but — with all due respect to you, Mr Robinson, particularly because of your previous experience in the Department of Enterprise, Trade and Investment — nobody is prepared to lead or drive our economy, even though we have DETI, the Department for Employment and Learning and the Department of Finance and Personnel. The question of R&D has arisen time and again. Even the Ulster Farmers’ Union referred to R&D, and that surprised me. They brought up the level of R&D in Finland. We are all very fond of Finnish R&D. We all carry examples of it in our pocket — my mobile phone was at the edge of R&D about five years ago when I bought it. Ms Ritchie: It is very old. Dr McDonnell: It may be old, but it still works. Ms Gildernew: Do you mean you or the mobile phone? Dr McDonnell: Both. I work very well, as does my phone. We need to find a mechanism to encourage R&D, because it is not coming through in Northern Ireland. I do not apportion blame, but in the event of market failure or private-sector failure, the responsibility falls to the public service, aided and abetted by whatever political influence and support that we can give. I shall now get on my hobby horse. Queen’s and the University of Ulster must create new businesses. We are not doing enough of that, although a remodelled and reworked UUTech seems to be working better. Despite its brainpower, Queens is not coming up with innovation and practical, applied product. It may be doing wonderful economic research and development, but it has mystified me for years why we cannot get some of that to the point where the rubber is hitting the road and where we establish start-ups. 1.30 pm The start-ups that we have established — Andor Technology, for example — have been tremendous. Failures are not coming out of Queens, but that is because we do not have enough start-ups. What does come out of Queens is successful, but we do not take risks. How do we learn to take risks when encouraging start-ups? Willie Wright applied his experience to a very localised, specific industry, and there was much wisdom in what he said. We have enough indigenous brainpower to do better than use foreign direct investment, yet we depend on it because we are not unblocking the universities’ output. Mr B Robinson: All of the evidence supports your point about the importance of innovation and R&D. Therefore, I agree with you 100%. In future, successful businesses in this part of the world will have significant intellectual property and significant R&D. I gathered from the last witness that risk-taking is intertwined with our attitude towards the importance of the economy and its priority in education. I agree that we have become exceptionally risk-adverse. One way of addressing that is to look at business start-ups as a portfolio in which the question is not about what has failed, but about whether the success percentage outcome is reasonable in response to the resources employed. Rather than microanalyse why two or three — or more — out of 10 businesses failed, we should say that three successes out of 10 is a perfectly reasonable return. Mr Neeson: There seems to be a contradiction in the figures. Why, when unemployment in Northern Ireland is lower than in the rest of the UK, do we have the highest level of economic inactivity in the UK? I am worried about the amount of investment from Northern Ireland that goes to India, China and eastern Europe. What can we do to stem that flow and encourage investment to remain here? Mr B Robinson: Mike will talk to you about the categorisation of economic activity and inactivity. Mr Brennan: We have considered that contradiction: we have the fastest decline in unemployment in the UK in the past decade, and we are now below the UK average. That is unheard of for Northern Ireland. Mr Neeson: It was 20% when I was in the 1982 Assembly. Mr Brennan: It is now 4·5%, which is phenomenal. However, the figures show a shocking increase in inactivity, as many more people register for welfare and inactivity benefits. There is a close correlation between the drop in the unemployment figures and the increase in those claiming benefits. That is not unique to Northern Ireland, and the Government are considering the problem nationally. How do we motivate people to get back into the workforce? Several pilot schemes, such as Pathways to Work, are trying to address that issue. There is an issue about labour market signals trying to encourage people to re-enter the active workforce — and I stress the words “active workforce”. On one level, it is encouraging that the official unemployment rate is low, but if we look beneath the surface, we may be discouraged. Mr B Robinson: I might engage in a philosophical debate on your point about the flow of investment out of Northern Ireland being bad. Certain activities are no longer viable in Northern Ireland. Business in Northern Ireland has a choice about whether it stays astride the market that it has won, and the only way that it can do so is by finding lower-cost production. I know that that is difficult, and it raises questions in everybody’s mind. However, it is an indication of the progress of much of Northern Ireland business. It chose to keep its markets and to develop the management capability either to run significant operations remotely, or to source crucial parts of their products. When Moy Park Ltd first went to France and Brett Martin Ltd bought operations in Holland — that was about 15 years ago — I would have described that as a hallmark of the success of Northern Ireland business. The dynamic of globalisation is such that that must continue. I accept that it runs counter to what one would feel instinctively. We may have moved beyond the point where unemployment should occupy a lot of our thinking on economic development and progress in the Northern Ireland economy. It is a very long time since unemployment here was worse that the UK average. One of my concerns is that, not intentionally but unwittingly, we all carried the burden of unemployment for too long in our economic policy development and policy-making. If you look at the convergence of performance, the Northern Ireland economy has been significantly driven by a growth in employment; however, it has not grown in terms of value added. We solved what we saw as the biggest single problem, but there is a danger that we are continuing to solve it to our detriment in the next stage, which is to climb up the value-added chain. Ms Ritchie: Welcome, gentlemen. I have two questions. How would DFP support and move forward the four drivers of productivity when Northern Ireland is a peripheral region? In his announcement about the Review of Public Administration last November, the Secretary of State referred to — and you referred to the same issue in your presentation — the overemphasis on the public sector and the need for the private sector to develop. Is there not a problem in that the private sector is mobile and could move out of Northern Ireland and locate elsewhere, particularly in low-cost economies, thereby undermining what we are trying to do in the first place? Mr B Robinson: With regard to the second point, that is the reality that we face anyway. These are open economies, and quite apart from business, labour is totally mobile. Therefore, that is one significant change that the subgroup will have to wrestle with. A recent phenomenon in Northern Ireland is that increased numbers of people from other parts of the EU have come into its employment market. The die has been cast for the mobility of business and people. Why do people want to live here? Evidence shows that many people want to live and work in Northern Ireland, and Government must create a society that provides them with the opportunity to do that. The service industry is important, and the last thing that I want is for this to become a manufacturing industry versus service industry argument. I will use an analogy: a well-known former chairman of the IDB — members can guess who he was — said that once the railways were expanded, there would be no future in building stagecoaches. That is the difficulty for Northern Ireland. Its people are having to learn how to live in a post-textile-industry world. I did not think that I would ever say this, but the textile industry is not particularly important to Northern Ireland now. I do not say that with any delight: I am merely recognising reality. If Northern Ireland did not have manufacturers such as Wrightbus Ltd, which have invested significantly in intellectual property and conduct high levels of R&D, I do not think that there would be a manufacturing industry. However, that is not to suggest that that would be the end of the world as we know it. Northern Ireland is operating in a different world and environment. Nowhere else in the world has 100% broadband access: Northern Ireland does. The future is about maximising the available economic benefits. Ms Gildernew: Gentlemen, you are very welcome. Forgive my cynicism, but you mentioned unemployment figures from 20 years ago. Those figures might be more relevant had Maggie Thatcher and the current Administration not massaged them to ensure that rather than being termed “unemployment” figures, they are known as “inactivity” figures. Although fewer people are recorded as unemployed in Northern Ireland, there is much hidden unemployment. It is known as “inactivity”. Some of the people listed on those records are inactive because of barriers to work, which include a lack of affordable childcare, lack of support and care for disabled and elderly people from the Health Service, and unrealistic travel-to-work times. Constituents of mine have been made redundant three and four times and have very little hope of getting the same type of employment. You mentioned the four drivers of productivity, which include skills and infrastructure. It must be accepted that the lack of infrastructure — roads infrastructure, in particular — has had a huge impact west of the Bann. On skills, the technical colleges and further education colleges in the Twenty-six Counties are successfully contributing to the economy. Projects such as the Young Scientist of the Year have interested young people in their third and fourth years at school in science, and that may encourage them to study science and mathematics on an vocational level, as opposed to furthering their academic studies. Perhaps, in the past, academic study, rather than vocational training, has been overly promoted. Would DFP agree that more resources should be diverted from the academic sector to vocational training? Does more need to be done to remove the barriers to the work? What should be done to improve the infrastructure west of the Bann in order that employment and an investment windfall can be generated? Mr B Robinson: Our submission contains information on road density, which underscores precisely Ms Gildernew’s point. Neither the Department nor I is responsible for developing economic policy; that is for DETI and DEL to formulate. In deploying resources to those ends, as opposed to extra resources, it is accepted that the emphasis on further education needs to be in the direction that Ms Gildernew has outlined. The Economic Development Forum has achieved a great deal in producing a pretty solid consensus on the importance of that and of infrastructure. 1.45 pm The emphasis is more on creating the conditions in which businesses can thrive rather than on supporting individual businesses. We are seeing a switch from supporting individual firms to creating a wider environment of support. That is consistent with Dr McDonnell’s point about risk. Infrastructure is certainly important, both for how Northern Ireland is perceived globally and within Northern Ireland, if economic benefits are to be spread across the community. Ms Gildernew: What about barriers to work? Mr B Robinson: That presents a really difficult set of issues. When the regional development strategy was published five years ago, it recognised the challenges of providing employment in rural areas. The strategy tackled that issue pretty well by referring to the creation of significant hubs for employment throughout Northern Ireland, which seemed to be a good way to address this challenge. Broadband availability greatly reduces the handicap of distance and makes employment in rural areas of Northern Ireland much more viable. I completely agree that rural employment is very important. Mr McElduff: Does the Department of Finance and Personnel agree that the economic interests of the North would be better served by a different tax regime than that applied in England, Scotland and Wales? If so, is the Department arguing for a different tax regime? Does the Department see the merit or benefit of a harmonised, single-island approach to corporation tax? I realise that we have covered some of this territory, but these are more specific questions. What stands in the way of establishing an incentive for attracting FDI? Mr B Robinson: This issue has come up in a variety of guises. The Department’s job is not to argue for a particular tax regime or tax rate. Essentially, those are ministerial and political decisions. I understand why the subgroup approaches the matter in that way, but I hope that it equally understands why the Department cannot approach it in that way. Those are significant political decisions that are very much in the remit of Ministers. Mr Weir: Thank you for your presentation. I will refer to two issues that have already been mentioned. I would appreciate it if you could provide more detail to the subgroup. My first point concerns economic inactivity rates. If the percentage of people in Northern Ireland on incapacity benefit is compared to the UK average, I agree that much of that is due to attempts by successive Governments to remove people from the pure unemployment figures towards other benefit figures so that the headline unemployment rate will not seem as bad. Inactivity rates have previously been highlighted to the subgroup, and I found your graph quite useful in that regard. There was a general reference from either DEL or DETI — whichever Department issued the figures — to the higher number of students featuring in the economic inactivity figures. Leaving aside the issue of mismatched skills and considering the broader economic value, a higher number of economically inactive students could be described as good working age inactivity, in that students represent a longer-term investment, whereas higher economic inactivity among other sectors of the working age population is obviously damaging to the economy. I want to take on board what was said about potential barriers to work. You have produced a differentiation for the student element of inactivity, but it would be useful to have some analysis and more detailed figures for the remainder of the inactivity rates. We know the figures for the unemployment element, but how much of the recorded inactivity is due to increased numbers of people receiving incapacity benefit, people on carer’s allowance, or people who have to remain at home because they cannot afford to pay for childcare? If we could see a more detailed set of figures, showing where the comparisons lie, our eventual recommendations could, I hope, ensure that people get back into employment. I appreciate that rather than your giving the subgroup an answer now, it would be better for you to supply us with figures in writing. The Chairman (Mr A Maginness): Some of those figures are listed in the “Economic Inactivity” section of the DETI paper. Mr Weir: I do not have that paper with me, but I think that some of those figures are listed in it. It would be helpful to see the full set of figures. Mr B Robinson: If we can add to that analysis, we will do so. Mr Weir: I agree strongly with Alasdair McDonnell’s comment that it seems that many Departments, at various levels, are involved in matters concerning the economy, but no one Department seems to be — for want of a better expression — in overall control. There is a concern that public expenditure decisions, particularly those that affect the economy, and which have implications for other Departments, can be made by DFP, DEL, DETI and, to some extent, DSD. I am concerned because when the subgroup quizzed officials from DETI, we found — and correct me if I am wrong — that that Department does not seem to have input into DRD’s decisions on roads announcements. Irrespective of whether announcements are right or wrong, if a major infrastructure project is announced, which will affect the economy, it is natural to be concerned if the lead Department has not sought input from any of the other Departments. Can you reassure members on what changes have been made to guarantee greater financial co-ordination between Departments to ensure that when public expenditure is being agreed, it is either driven by, or takes cognisance of, the effect that its allocation will have on the economy? Have Government made any changes to provide a greater degree of co-ordination? Mr B Robinson: The work of the Economic Development Forum (EDF) is bringing about greater financial co-ordination. The drivers that have emerged from the EDF’s work point clearly to infrastructure. DRD representatives attend the EDF, as do DEL officials on the skills side. Initial steps have been taken, but I quite happily concede that they are the first steps to draw this together. The points made by members are important, and more work needs to be done. There is interaction between DARD and the EDF, and DETI, Invest Northern Ireland and the tourism agenda also come together strongly. Mr Weir is quite right: inevitably, when several Departments are involved, issues can be disaggregated, and there is the danger of their not getting sufficient strategic input. Mr Weir: Briefly, the roads issue is one example. It is clear that, in economic terms, Government realise that infrastructure is a problem and that there is a need to invest in roads. However, how much input is there in the individual decisions on which roads get the money? At the very least, there needs to be some input into deciding how best the money could be spent to benefit the economy and Northern Ireland directly. Mr B Robinson: Economic benefits are factored in when the cost-benefit analysis and the detail of the projects are being worked on. However, I took your question to be referring to strategic inputs. For example, a significant input would be the Westlink’s impact on the port. The Chairman (Mr A Maginness): Thank you for your contribution; it has been very helpful. Many questions remain, but that is part and parcel of politics. I look forward to dealing with you in a different format in the near future. Mr B Robinson: Thank you. The Chairman (Mr A Maginness): Before everybody departs, we must deal with a written submission from the Freight Transport Association. We are waiting for further information from DETI. The Committee Clerk: The Department has sent that information. It will be of particular interest to Mr Weir because it breaks down rates of inactivity into “Student”, “Family/home”, “Sick/disabled”, “Retired” and “Other”, which is very useful. We did not ask for all that. The Chairman (Mr A Maginness): Dr Birnie mentioned Mr Graham Gudgin. His office has been contacted. A written submission will be forwarded, and I hope that we will be in a position to receive that. The article that appeared in ‘Fortnight’ has been tabled. There is a draft press release, to which there are some minor amendments. I hope that we can agree to that being published. The Committee Clerk: I have added in some of the key points that witnesses made that were not clear in their submissions. For Eric Reid I have added: “Mr Reid highlighted the challenge posed by the global market and the need to develop a strategy for agriculture that equips it to compete effectively in the global market.” For Clarke Black and the Ulster Farmers’ Union, I have added “and renewable energy”, but I have also said that they “support the provision of ongoing financial support from Europe rather than an entirely free-market approach” and that they noted that a focus on research and development was the way forward for the industry. For Mr Bruce Robinson I have added: “Mr Robinson noted that the Northern Ireland economy currently operates within a unified UK tax regime and that the subgroup would need to examine the relative merits of the options that might be available to improve fiscal incentives.” If you are content, I will add that to what is already there. Mr Weir: Obviously, there are also two changes to the list of members attending. The Committee Clerk: Yes: Margaret Ritchie and Lord Morrow instead of Alex Easton and John Dallat. The Chairman (Mr A Maginness): OK. That is agreed. The next meeting will be on Thursday 10 August. Ms Ritchie: Will we be able to consider the written submission from the Freight Transport Association on 15 August? The Committee Clerk: As we have an extra week, we have slotted in a written evidence session. Paul Moore has been asked to write a paper summarising all the written evidence that has been gathered up to that point. I have asked him to pay particular attention to where it agrees — or not — with some of the oral evidence that we have heard. Ms Ritchie: The submission from the Freight Transport Association is a thought-provoking one. It points to the peripherality of our region. Mr Robinson did not answer my question about how we address that, despite the four drivers for productivity. Better transport links is one of the main issues, but he did not answer that. 2.00 pm The Chairman (Mr A Maginness): That is a matter for critical comment at an appropriate point. Mr McElduff: I welcome the additional information from DETI on inward investment in Fermanagh and Tyrone. The Chairman (Mr A Maginness): The next meeting will be on 10 August and will include the final oral evidence sessions, with the Northern Ireland Tourist Board, the Economic Research Institute of Northern Ireland and the Northern Ireland Council for Voluntary Action. The Committee Clerk: If we get a positive response from the Northern Ireland Youth Forum, it will also be here. Mr Weir: I will not be at that meeting, but somebody will represent me. The Chairman (Mr A Maginness): There is no further business. The subgroup will now adjourn. Adjourned at 2.01 pm. |