SUBGROUP ON THE ECONOMIC CHALLENGES Thursday 14 September 2006 Members in attendance for all or part of proceedings: Economic adviser to the subgroup: Witnesses: The subgroup met at 10.14 am. (The Chairman (Mr Wells) in the Chair.) The Chairman (Mr Wells): We are ready to go. I remind members that the quorum is seven. Mr McLaughlin is not here: Kathy Stanton will replace him. Ian Paisley Jnr cannot attend, but we hope that Peter Robinson will replace him. Although Peter Weir is not here yet — I suppose that he is still talking to ‘Good Morning Ulster’ — he has said that he will need to leave at 11.00 am. Edwin Poots will replace him. Mrs Long will be here at 2.00 pm to chair the afternoon session. Sean Neeson has sent his apologies, and I hope that Kieran McCarthy will be here at 11.00 am to represent him. Are there any other apologies? Some Members: No. The Chairman (Mr Wells): I can see trouble ahead. The subgroup is going find it difficult to maintain its quorum, and I may need to talk to the Committee Clerks. Witnesses are due to attend right through to 4.00 pm, and we do not want find ourselves in the embarrassing situation of not having enough members present to continue. 10.15 am Ms Ritchie: I have to leave at 2.00 pm. The Chairman (Mr Wells): Can you get an SDLP body in to replace you? Mr Dallat: Just a body? The Committee Clerk: It does not have to be a live one. The Chairman (Mr Wells): We have had members who have basically performed the same functions as an inflatable doll. [Laughter.] Ms Ritchie: I am utterly shocked! [Laughter.] Ms Gildernew: If a member has one in the boot of his or her car, please bring it in. [Laughter.] The Chairman (Mr Wells): I meant to say puppet — Dr Birnie: We know what you meant. The Chairman (Mr Wells): — or an equivalent word. [Laughter.] Mr Dallat: Stop digging. The Chairman (Mr Wells): I may have to have a word with the Editor of Debates later. This shows you how innocent I am. We will move on to something more serious. Please ensure that all mobile phones are switched off. We will consider the draft minutes of 7 September. I think that it is safe to say that myself and another DUP member have said things that we regret in the past 24 hours. [Laughter.] Ms Ritchie: The minutes are in order, but can issues be raised in them that cannot be raised at a later stage? The Committee Clerks may have addressed this matter already, but I want to know whether any common themes or attitudes emerged from the debate on Monday and Tuesday that might be helpful to the subgroup’s work. The Committee Clerk: I sat through most of the debate and took notes. Members welcomed the recommendations in the report, and I noted that some general themes emerged. There was general support for the fiscal incentives, with the caveat that they need to be researched carefully to identify the best mix. The need to address the education and skills deficit came across strongly, and the need for closer alignment between the priorities of the two universities and the interests of business and industry was another theme. Finally, the potential to boost the contribution of tourism to the economy also came across. Those are the four main themes that I noted. Ms Ritchie: We must be mindful of those issues, as they may inform future sessions of the subgroup. I thank the Committee Clerks for their observations. The Chairman (Mr Wells): Are members content that the minutes are an accurate record of proceedings and can be published on the website? Members indicated assent. The Chairman (Mr Wells): The next item on the agenda is matters arising. Mr Ford: May I digress slightly, Chairman? You mentioned publishing information on the website. Today, a journalist asked me about next Monday’s public meeting between the Secretary of State and the PFG Committee. It appeared to him that although press releases are published on the Assembly website, they are not circulated. Could the Clerks take up that matter? The Committee Clerk: That is not within our remit. Press releases are issued through Information Services. Mr Ford: Would you ask Information Services what it is doing? It seems bizarre that press releases are being written but not distributed. The Committee Clerk: Are you referring to PFG Committee press releases? Mr Ford: Yes. The Committee Clerk: You should raise that issue with PFG Committee staff. It is not our concern. I will mention it to Information Services. Mr Ford: I assume that Information Services works for the PFG Committee and the economic subgroup. The Committee Clerk: Press releases are issued to the list of press people. The Chairman (Mr Wells): Perhaps the issue is that nobody publishes them? Mr Ford: That is a separate issue. My point is that members of the press are claiming that they are not receiving press releases. The Chairman (Mr Wells): So, members are content for the minutes and future press releases to be put on the website. Members indicated assent. We shall proceed to the appointment of the economic advisers. Responses from Mike Smyth and Graham Gudgin are in members’ packs. They need no introduction to members of the subgroup. Have members had a chance to look through the responses or do they want to do so now? The Committee Clerk: Mike Smyth and Graham Gudgin were the only respondents. I spoke to John Simpson and John Bradley at Queen’s University, neither of whom, given their work commitments, was able to respond during the time frame. However, John Simpson will provide evidence to the subgroup when it meets next Thursday. The question before the subgroup is whether to approve formally the appointment of the economic advisers. In anticipation of that, Mike Smyth is waiting outside. Last week, Graham Gudgin apologised for his not being able to attend today due to other commitments. Mr McNarry: I propose that we accept the appointment of the economic advisers. Ms Ritchie: I second that. The Chairman (Mr Wells): Are members content? Members indicated assent. The Chairman (Mr Wells): That is in line with the tender document. Good morning, Mike. The subgroup has accepted the tender that you and Graham put forward. I welcome you as a joint economic adviser to the subgroup. You have advised us many times. We know, therefore, that you can hit the ground running. I believe that you have met all the subgroup’s members. You met some of us at the weekend. Does any member who has not met Mr Smyth wish me to introduce them? Ms Stanton: There is no need; we met at the weekend. The Chairman (Mr Wells): Everyone’s face should be familiar. We expect Mr Edwin Poots, Mr Peter Robinson and Mr Kieran McCarthy to join us later. Unfortunately, Graham has a prior engagement today and cannot be here. I want to go over what is expected of the economic advisers. It is outlined to some extent in the tender document. Have you read the first report? Mr Michael Smyth (Economic Adviser): Yes. The Chairman (Mr Wells): You will, therefore, be aware that it does not make light reading. The subgroup requires that a written review of the evidence compiled in the report, and the evidence given today, be provided at the next meeting on 21 September. We will provide you with the Hansard reports, which are also available on the Assembly website. Unless we stipulate that both economic advisers must be present, we expect at least one adviser to attend every meeting. Mr Smyth: Graham has communicated to me that he may have a problem next Thursday as well. The Chairman (Mr Wells): We will leave it to the two of you to arrange ongoing cover. We also expect ongoing provision of advice and possible questions for potential witnesses, etc. You have done that in the past. I would prefer both advisers to attend the next meeting. However, is it correct that Mr Gudgin has a prior commitment? Mr Smyth: He did tell me that. The Committee Clerk: Is that for the whole day? Mr Smyth: He did not say. The Committee Clerk: I will have a word with him. We were hoping that the two advisers would facilitate the afternoon meeting, which will concentrate on the evidence that the political parties and others have produced to date. We also want to hear their views on the options, so that we can take a balanced approach. If Mr Gudgin is unable to attend, I am sure that we will be able to get something from him in writing. The Chairman (Mr Wells): It would be helpful if Mr Gudgin could drop in for even part of the meeting or towards the end. It would be good to have both advisers present at some stage. The subgroup is required to provide substantive written input on the first report by 25 September and on the second by 12 October. That is a tall order, but it should be of no surprise to Mr Smyth and Mr Gudgin. It does not leave us with a lot of time, considering that it is already 14 September. That input should include placing the detailed economic projections against the recommendations and conclusions, as well as researched advice on best practices in education and skills provision elsewhere. This is a case of teaching granny to suck eggs, but the advisers are expected to work as a team. However, that should not be a problem, because they have worked together frequently. Their advice should be balanced, and it should facilitate decision-making in the subgroup on issues such as the preferred fiscal measures. I accept that, given the time span, it is a tall order. However, the advisers have been following the subgroup’s deliberations quite closely, so much of the information will not be a surprise. The subgroup has been given the authority to continue its work, and that is why members have asked for experts. From now on, either Mr Smyth or Mr Gudgin will be well-established figures at our meetings. I hope that they enjoy their time with us and that they find it fruitful. I cannot guarantee any employment beyond 24 November. Ms Gildernew: A bit like ourselves. The Chairman (Mr Wells): It could be a short-term appointment, but I am glad that they were able to take up the offer so quickly. The ‘First Report on the Economic Challenges Facing Northern Ireland’ was debated on Monday and Tuesday. The PFG Committee has ownership of it. Therefore, responsibility for following up the recommendations and receiving comments on the report falls within its bailiwick. The subgroup can make representations to that Committee, but feedback on the report will not come directly to us. However, I will ensure — as will the other Chairmen — that any comments received by the PFG Committee are relayed immediately to the subgroup. I hope that members understand that and do not hammer on the Committee Clerk’s door to ask why he is not pursuing a particular matter. Do members understand the protocol? Members indicated assent. The Committee Clerk: The Minister has said that she will be happy to return to the subgroup, and I have been checking available dates for that meeting. I am sure that members will want to ask for her response to the report’s recommendations. Members should remember that, as the timeframe is tight and the terms of reference are set, they should not use too much time going over what has already been done, as that would not give them time to complete what they are currently required to do. 10.30 am Mr McNarry: Could we work on the basis that the Minister has already attended a meeting of the subgroup and that she has made the promises that have been mentioned? Could we also request that she reply to the first report in advance of her next meeting with the subgroup in order that we have an idea of what she thinks of it? Better that than her greeting us with the waffle and tittle-tattle that she offered in the previous meeting under the guise of being unprepared. I am not prepared to listen to a Minister go through a brief that civil servants prepared for her — and which meant very little to me — and then dodge our questions. I sympathised with her for not having had time to read the report. However, it was lamentable that the Minister had not been properly briefed. She has said, and Hansard has recorded, that she would respond in writing to two questions that I asked, and she said something similar to Margaret and other members. I would like to see those answers, and I am surprised that we have not yet received them. The subgroup is owed a response that shows what the Minister makes of the report, particularly its recommendations. The Chairman (Mr Wells): Can we ask for those responses, or would that have to be done through the PFG Committee? The Committee Clerk: We can do two things. In making the preparations for the Minister’s return, I can certainly mention to the Department of Enterprise, Trade and Investment (DETI) that it would be helpful if — Mr McNarry: I am not asking that you “certainly mention” it. Let us get this straight: I am asking that that be done. The Committee Clerk: I can also speak to the PFG Committee about the formalities. Mr McNarry: I propose that we write to the PFG Committee formally. It is meeting tomorrow, is it not? The Chairman (Mr Wells): It will be meeting tomorrow and Monday. Mr Molloy will be chairing tomorrow’s meeting. Mr McNarry: A formal request could be tabled. The Chairman (Mr Wells): Are members content that we write to the PFG Committee and ask for it to request the Minister’s responses? That is the proper protocol. Members indicated assent. The Chairman (Mr Wells): That is a good idea, because we need to keep the ball rolling. We cannot let a report and a meeting with the Minister just sit there. We must keep returning to the important issues in the report. Mr McNarry: I know that jokes have been made about the deadline of 24 November, but, joking aside, the report has also gone to the Government, and we would want the Government to pursue the issues in the absence of restoration. Dr Birnie: Chairman, I want to be clear about the procedure for questioning witnesses today. We have two different reports to produce. Do we ask questions about the full range of subjects for the two reports or simply questions that relate to the first report? The Committee Clerk: Questions should mainly relate to the report on the economic package, but fiscal incentives are relevant to that report. However, the difficulty is that research on fiscal incentives will not have been completed in time for it to be included in the report on the economic package. Therefore we need to cover both issues, and get an up-to-date position on fiscal incentives as well. Dr Birnie: Thank you. The Committee Clerk: There is a list of six potential core questions on the financial package in members’ packs. At the subgroup meeting of 7 September, it was agreed that such a list would be useful. It is important that the core questions are asked, and we suggest that each member ask one core question in addition to his or her own questions. At the end, the Chairman will ask those core questions that have been left unanswered. The process will then start again for each new set of witnesses, with the first member to speak choosing the first core question, and so on, until all have been asked. Not all core questions are relevant to the Planning Service. The Chairman (Mr Wells): Are members content to go down that route? Members indicated assent. The Chairman (Mr Wells): Mrs Long will be chairing the meeting later, but I hope to sit at the back of the Committee room while witnesses from the Planning Service are giving evidence. The witnesses from the Northern Ireland Business Alliance are currently waiting outside. Mr McNarry: How are we going to apportion the questions? Is Michelle likely to take the first question? Is that how we plan to do it? The Committee Clerk: The easiest way to proceed is for the member who happens to be first on the list of speakers, which the Chairperson will develop as we go along, to ask the first question, and so on. Who the first member to ask the first core question will be will vary with each new set of witnesses, and the Chairperson will ask any remaining core questions at the end. Mr McNarry: Are questions other than the core questions allowed? The Chairman (Mr Wells): Yes, providing they are directly relevant to the question that is being answered. Ms Gildernew: I thought that David would understand that I would ask the questions about Fermanagh and South Tyrone and west of the Bann. [Laughter.] Mr McNarry: Had Sinn Féin attended the plenary debate on Monday and Tuesday, Michelle could have been in her element. She could have had the whole Fermanagh and South Tyrone angle to herself. The Chairman (Mr Wells): The work plan has been updated. I am conscious that we have kept witnesses waiting outside. Please remember that we are required to maintain a quorum. Does anyone have to leave during this first evidence session? Mr McNarry: I have to take a telephone call at about 11.15 am. Mr Dallat: Not again. The Chairman (Mr Wells): The difficulty is, David, that as soon as you walk out, we shall have to stop. Only seven members are present today. Mr McNarry: I have to take the call. The Chairman (Mr Wells): Is there no prospect of anyone else coming, so that we can avoid becoming inquorate? Mr Ford: Kieran McCarthy should be here by 11.00 am; that would allow David five minutes’ breathing space. I hope that he will need only five minutes; otherwise we will be back to the minimum number of members for a quorum. Mr McNarry: We are running a bit behind schedule now. Victor Hewitt was due to come in at 11.15 am, so I assume that that will now mean 11.30 am, and my call will only take five minutes or so. The Chairman (Mr Wells): On a broader note, if this subgroup is to continue, it needs to take evidence. Therefore, we simply must ensure that members sort out substitutes. I say that in reference to all parties, not just one. There is nothing more embarrassing than calling witnesses, who have prepared documents, only for a member to leave the room, leaving the subgroup inquorate. Mr McNarry: That is a good point, which I accept. I do not know how other members feel, but I find it pretty difficult to move immediately from one group of witnesses to another. There are times when I would like a five-minute time out to gather my thoughts. The Chairman (Mr Wells): We have built in a little time between witnesses. Ms Gildernew: I suggest that if witnesses intend to read through a presentation verbatim, we ask them to summarise it. At some previous evidence sessions, witnesses read through three or four pages. We can all read, so perhaps that would cut down on time. The Chairman (Mr Wells): Witnesses hand in their documents to us anyway. Mr McNarry: That is a good point. Will each group of witnesses be giving another 15-minute presentation? The Committee Clerk: That is up to members. Ms Gildernew: They may do that. The Chairman (Mr Wells): It is to be hoped that their material will be new. Ms Gildernew: We do not need witnesses to read out their presentations. The Committee Clerk: Witnesses have been asked specifically to focus on the new terms of reference. They have been asked to present material that is additional to their previous evidence. The Chairman (Mr Wells): Some of today’s witnesses are big players. If the press get hold of the fact that the subgroup is constantly becoming inquorate, we shall look rather silly. It is important that we try to sort that out. Perhaps I, or the Committee Clerk, will talk to the party Whips over the next few days to try to ensure that parties take the subgroup seriously and get their representatives to attend. We are now ready for the first witnesses. Welcome, gentlemen. Dr Dobbin, it is good to see you again. Dr David Dobbin (Northern Ireland Business Alliance): It is nice to see you, Chairman. The Chairman (Mr Wells): I met some of these folk over the weekend. Dr Dobbin is well known to you all, and with him today are Michael Maguire, Mark Sweeney and John Compton. You have been extremely helpful to us in the past. You have seen the new terms of reference. Dr Dobbin: If I may interrupt, Chairman, we are not sure of the purpose of, or the preferred outcome from, today’s session. We want to ensure that our evidence, or input, contributes to the outcome that the subgroup seeks, as opposed to going down any side roads. The Chairman (Mr Wells): The Committee Clerk will deal with that. The Committee Clerk: I have been in discussion with all the witnesses about what they could possibly add. There is a recognition that we are going over some of the old ground. However, given that the subgroup has been given new terms of reference, you must ensure that your evidence is specific and enlarges on your previous contributions where possible. One of the difficulties that the subgroup has had, and which I experienced when compiling the draft report, is that previous evidence has tended to be fairly unspecific, particularly on the economic package. Therefore, we are trying to gather evidence both from witnesses and from the political parties in a form that enables us to argue a case. Today’s meeting is an opportunity to expand on previous evidence and to give more specific details. Dr Dobbin: First, we would like to congratulate the subgroup on its work. Sick and sad person that I am, I have read almost all of the report’s 1,000-odd pages. The executive summary and the main output of the subgroup’s work are excellent and very encouraging, and any businessperson to whom I have spoken has said the same. The subgroup has not yet reached the end point, but we were very encouraged by the consensus that was reached and by some of the output, with which we largely agree. The Chairman (Mr Wells): Thank you very much, Dr Dobbin. You made similar comments at Oxford University in front of some quite influential people, and those comments were much appreciated. Would you like to make a short introduction? We have a series of questions for you. Dr Dobbin: I wish to make a few points, and then we can get a dialogue going to tease out any issues that the subgroup might like to explore. We need to move from a broad range of recommendations to the development of a strategic action plan, and we must ensure that there is evidence to back up any recommendations. We must be careful not to abandon or duplicate the work that has already been carried out. We have brought with us today a number of documents that we recommend that the subgroup explore. The Economic Development Forum (EDF) carried out a great deal of work and produced ‘Action Plan: Working Together for a Stronger Economy’, which business, trades unions and the voluntary sector endorsed. Some of the events mentioned in it are out of date, but its content is still quite relevant, particularly on some of the areas about which the subgroup has asked questions. We recommend that the subgroup, and any economic advisers that it may have, examine that action plan and identify the areas that are still relevant to today’s agenda. It contains some relevant material. In Southern Ireland, the Enterprise Strategy Group, under the chairmanship of Eoin O’Driscoll, produced an economic strategy report, ‘Ahead of the Curve: Ireland’s Place in the Global Economy’. If the subgroup has not already done so, we recommend that it look at the report from two perspectives: that Southern Ireland is a colleague and an ally; or that it is a competitor. Either way, the subgroup should understand where Southern Ireland is going and what it is doing. It contains some relevant material about what the South is doing now and what it has achieved to date, which would be useful evidence to include in any further studies or in the preparation of an action plan. As regards the three areas covered in the new terms of reference, we believe that, without foreign direct investment (FDI), we shall not achieve the levels of growth that are essential to the development of a much more vibrant economy and to the creation of the necessary opportunities. We stress that the challenge is to create higher-value-added jobs, as opposed to just jobs. We are nervous about the fact that some of the jobs that are currently being created in the service sector do not mirror the value added by the jobs that they are replacing, perhaps in manufacturing and elsewhere. We must be more specific about what we want. We cannot build an economy on just retail and catering, although we welcome new jobs in those sectors, because they are, of course, better than not having any jobs at all. We would like to focus on how we can create more value-added jobs. If there is to be some form of peace dividend or financial support for a fledgling Executive, it should be directed at areas that can provide a sustainable outcome, not at measures that will be good for a short time, only for Northern Ireland to find itself back where it started. It is vital that any money or financial package be directed towards building a sustainable future. Fiscal incentives have been focused on to quite an extent. A flexible fiscal policy is essential. Northern Ireland will not hit the necessary targets by pursuing principally UK policies, given that its competitor on the island has a much more attractive regime. Northern Ireland needs a tailored policy, and fiscal flexibility should play an important part — without that, it will be difficult to compete on an all-island basis. 10.45 am We are not entirely in agreement about whether it would be better to have a reduction in corporation tax or to increase, or add to, the fiscal incentives. The studies by Sir George Quigley’s Industrial Task Force and by Prof Richard Harris — and perhaps a future study by the subgroup — should offer an evidence-based assessment to help to decide what will provide the best outcome and what will be easiest to deliver. There may have to be a compromise between what we would like and what we can get. The subgroup should adopt a pragmatic view between what might be the optimum economic outcome and what might be best in terms of delivery. A formal economic strand to the talks process is essential, so that any economic deal will be enshrined in embryonic legislation. We would be worried that a handshake on tax, in particular, may not be deliverable. In an economic strand, there should be a layout of the legislative path to delivering the so-called peace dividend. Without that, the legislative process, the Treasury or other Westminster Departments could derail the consensus on how we achieve our aims. We must emphasise the investment required in software — by software, we mean skills, innovation, and intellectual property — as well as in hardware, which is the infrastructure. We are pleased that one of the subgroup’s new terms of reference relates to an integrated skills and education strategy, as we believe that that is crucial. Together with fiscal incentives, we need a package of three or four key activities that will make an economic difference. Skills and innovation are core areas. In the absence of a reduction in headline corporation tax, fiscal incentives to encourage innovation may do the same job. I know that the subgroup has agreed its new terms of reference, and that we cannot unpick or change them, but we would like businesses to be offered an incentive to invest in the appropriate areas, which are skills and innovation, and probably marketing. One point that perhaps is missing from the subgroup’s first report is an emphasis on how to encourage more exporting. I am not suggesting that the subgroup has not discussed that matter, but it should be a stronger element, and should include fiscal incentives for companies that export. We would like to add three or four points not in the terms of reference that we believe may have some relevance. The subgroup’s report notes the £30 million package that was announced by the then Minister responsible for the economy and finance, Ian Pearson, three years ago but, as yet, has not been implemented because of state-aid difficulties. The report states that perhaps an alternative use should be found for that money. My view will not fall under Chatham House rules, because this meeting will be recorded in Hansard, but when the business bodies negotiated with Ian Pearson when he wanted to introduce rates, it was agreed that the £30 million package would be a way in which the burden on manufacturing could be offset. We told him that we had the highest energy costs in the British Isles. We also said that the relief on manufacturing rates, to some extent, offset those energy costs. Ian Pearson agreed to provide an energy-relief package, and one, to some extent, that would offset the additional rates burden. To date, we have seen almost none of the £30 million. We would be content if that money were considered as a way of providing rate relief for the manufacturing industry, because, originally, it came in a package when we were negotiating a measure to offset the additional rates burden. We have state-aid approval for manufacturing rate relief, but we do not have state-aid approval for anything else. To give up state-aid approval would be foolhardy. Therefore, this is something that can be done immediately, because it would be a case of using the existing state-aid approval and money that would largely go to the manufacturing industry anyway. Mark Sweeney will say something about that later, during the question-and-answer session. Manufacturing is still a core part of the economy and is the area that has the highest value added. We should not be bewitched by the philosophy that there is no room for manufacturing in the economy as it goes forward; we believe that there is, but that manufacturing may take a different form as regards product and the part of the supply chain to which it applies. Finally, we believe that some elements must be further built on, and the report covers, to some extent, innovation and research and development (R&D). We have two universities with fantastic graduate and R&D output, and we have a good set of colleges. We want to see them posed the challenge of delivering on an economic outcome. Indeed, I have talked to representatives of both universities, and they are preparing an economic plan that addresses what they can deliver. We wish to see the universities and colleges becoming more involved as stakeholders and being placed under some pressure to provide more bang for the considerable buck that is being provided to them in the shape of public money. We really want to see a price tag placed on the public money that is going into higher and further education when it comes to what it will deliver to the economy and to society. We recognise that societal issues are also involved. In summary, we recommend that an evidence-based study be conducted to determine the best path to follow, and that a pragmatic view be taken as to the ease of implementation. There should be a scoring system that marks economic benefit, ease of implementation, and so on, so that one can take a balanced view on what can be done. That then should be enshrined in some form of embryonic legislation. The legislative path for delivery must be examined; otherwise one could come up with an outcome or a recommendation that cannot be implemented. I shall ask Michael Maguire to provide some evidence on the integrated skills and education strategy. That will end our formal submission. Dr Michael Maguire (Northern Ireland Business Alliance): Chairman, this is an area in which, from a strategic point of view, we do not need to reinvent the wheel. A Department for Employment and Learning (DEL) skills strategy is in place, and it was widely consulted on during its development. That sets out the platform for what we want to do. We do not need to go back and rethink what we are trying to achieve on the skills side. The critical issue is implementation, and there are two points that I wish to make on that. First, the Business Alliance’s submission identifies a number of areas in which the skills strategy is currently underfunded. An opportunity exists to put additional money into programmes that could be developed to deliver on some of the objectives that have been set out in that strategy. Secondly, a huge amount of money is spent on the training and education infrastructure in universities and in the further education (FE) sector in Northern Ireland. There must be a much greater push to look at the responsiveness of that sector. I will give one example: in the late 1990s, the Department of Economic Development identified a number of skills priority areas for the FE sector, such as construction training, hospitality, and so on. As a member of the Economic Development Forum subgroup, I asked recently for information on the profile of training across the FE sector in Northern Ireland. From memory, only 30% of vocational, professional and technical skills in the FE sector related to the priority areas that had been identified. We have a huge infrastructure, which is, in some cases, top class. Rather than work off a blank page, we must start to push on with the objectives that we wish to see achieved. We must start to push through the delivery mechanisms that exist in the educational establishment. Dr Dobbin: I want to add one final point, which I forgot to mention earlier. To add to what Dr Maguire has said, I believe that the business community recognises the social need issues that exist in Northern Ireland. For any economic drive to encourage growth in both the economy and in jobs, we must direct it to the areas where there is greatest need. We are not talking about just geographical need, because we could find wards in Belfast as well as in Derry, or wherever, that have some of the highest levels of deprivation in Europe. Thus far, public expenditure and, indeed, the economic growth that has been achieved are still not reaching those communities. In Protestant communities, particularly around greater Belfast, the demise of the engineering industry has removed a vocational route for young people wishing to pursue careers that have been traditional in their community. Similarly, the demise of the textile industry in and around Derry has removed a route for people to enter that industry. One of the key elements of the third term of reference is to find a route that allows people with even basic formal qualifications — or none at all — to end up in a worthwhile job. At present, although vocational education is widely talked about, no one has come up with an ideal pathway by which citizens, no matter how poor their starting position, can realise their potential. We are not going to address the issue of social need unless we can find a pathway for young people from deprived communities to follow. These young people have only a few low level opportunities of employment, few role models and little work ethic, because they have been cut off from opportunity for so long. Vocational education is one of the key issues, balanced with what we do at the top end to ensure that we do not lose all of our best young people to employment outside Northern Ireland. There is a top-and-bottom challenge to the skills agenda. How can we get young people with no qualifications to have a worthwhile career and realise their potential while, at the top end, not lose our best young people, who are disappearing because we cannot create job opportunities for them? I am not saying that those are the only two problems that we face, but if we were to deal with these problems, that would make the greatest contribution to our economy. We must keep our best assets and switch on an asset that we are not using at all. Mr McNarry: Gentlemen, you are most welcome. It is good to see you again. Thank you for your encouraging remarks and for your recommendations, of which I have taken note, particularly what you have said about there being an economic strand to the negotiations. I am pretty sure that that there will be. You have our word that we will try to ensure that that happens. I have a couple of questions. How would you prioritise the broad areas that require investment and to which a financial package might be put to best use? I say that slightly tongue in cheek. We have hedged our bets as to what the big sum of money that we want for an economic package might be. You are in the hot seat, so I expect some guidance on that. Secondly, if the Government were to agree to an economic package and to a sum of money — not on a handshake, but in writing — but said that it would have to be paid for by cuts in services, how would you respond? Dr Dobbin: I shall answer the second question first. It is essential that the political parties set up a devolved Government in order to succeed. Members have a huge task ahead, socially and economically, and to do it without the necessary assets in place is close to being a mission impossible. The local voters would feel let down, because there would be a high expectation on the new regime to deliver. There are some looming issues. The economy is in for a more difficult time than it has experienced in the past year or two. It would be very difficult for a new Executive and Assembly to come into power without there being some ring-fencing of public expenditure and some support for initiatives to create more social and economic development. The Treasury will try to play a zero-sum game; it will say that it is about choices and about how we spend the money that we have got. Our argument should be that if one is going to build a new house or create a new business, one starts off by investing at the beginning and expecting a return. We need additional investment now, whether that comes in the form of infrastructure, fiscal incentives or education. That would produce a return for the economy, both locally and nationally, through a reduction in subvention and an increase in the tax take. The mission is to get Northern Ireland out of its dependency culture and out of the situation in which subvention is the only way forward. That debate, Mr McNarry, will be difficult, as the Treasury has been pre-programmed to take rather than give. 11.00 am As regards getting more bang for the buck, as Dr Maguire said, there are areas of waste in Northern Ireland’s expenditure, and I am sure that a new regime could identify those. It will take time to review current spend, and how it could be better utilised, and it would be unfair to ask a new regime to suddenly take stock of a quite complex set of Departments and identify where savings could be made. Departments will argue that, under the current spending review, the Department of Finance and Personnel (DFP) is already identifying where savings could be made. In fact, a new comprehensive spending review (CSR) is imminent. At all costs, members should avoid being sucked into a situation in which Departments are asked to make sacrifices before the Assembly has had the chance to open the books and study them. The Assembly would become a hostage to fortune. Mr McNarry: That is very important. The subgroup has identified the need to see the books. The sequencing is the issue. It would be fine to go into an Executive — if we get that far — but getting to see the books before that point will be difficult, because the hidden agenda of the NIO and the Civil Service is to protect everything and tell us nothing. Dr Dobbin: Therefore, you understand what I am saying: without that evidence and knowledge, how could members be expected to legitimately answer the point regarding sacrifices? Mr McNarry: I understand. Dr Dobbin: I would stick to the position of not going in that direction. If members open that particular box, they will be sucked into a discussion about what sacrifices can be made. That said, there are areas to which funding could be directed that would give a better outcome. That is the case in any regime, including the UK-wide regime. Dr Maguire talked about further and higher education. There are other areas of Government in which we could get more bang for our buck. Under NIO rule, the public sector has been going for reform and driving for efficiency, but what savings have been made and what efficiencies have been identified? There are very few. It would be hard for a new regime to make savings early in their term. Current spend should be ring-fenced for a period, with the policy commitment that, following the honeymoon period — and having looked at the books — the new regime would initiate an efficiency drive. Mr McNarry: Do you believe that there is a case for drawing down an additional sum for the amount that the Executive wish to spend? Dr Dobbin: The answer is twofold. First, there is an argument for ring-fencing current spend, indeed current real levels of spend, in key areas. For example, economic development spend is under significant pressure and has been cut in real, and actual, terms over the past three or four years. If we are going to grow the economy — and we reckon that the private sector needs to be doubled, and maybe more — there must be additional money for FDI and local business development. There are initiatives that could be embarked upon, such as skills innovation and fiscal incentives, which would carry price tags. Members need to be careful about opting for measures that cannot be sustained, or those that involve only the offer of a fixed sum of money in year one. In taking that approach, members could find that they have started initiatives that are not sustainable or that they have spent money and have little to show for it. If there is money to spend, put it into infrastructure. We need to avoid getting into too much hock with PPP and PFI. A significant proportion of the forward budget is already committed to the unitary repayments for PFI and PPP contracts. In education, in particular, there has been a wake-up call in that officials have realised that their future money is spoken for by unitary payments for the investments that they have already made. If I had a sum of money, I would pay off my mortgage. In other words, I would pay for infrastructure items with Government money, rather than take out a mortgage through PPP/PFI. With such an approach, the Executive would be free of the debt, or future payments, that it otherwise would usually have to make. That would allow the Executive to go forward faster because it would not have the unitary repayments to service. It would be clever footwork, because the Executive would have swapped debt for a dowry. Members would have to decide to what extent they want to do that. Your economic adviser is nodding. There is clever footwork to be done in not taking on debt. No one wants to start any type of venture too heavily in debt. However, the Government are cleverly opening schools, hospitals and God knows what without paying for them. Taxpayers have to pay for those projects on the never-never, and the costs are starting to rack up. Although I am on the Strategic Investment Board (SIB) and believe that there is merit in PFI and PPP, we do not want to get to the stage where the amount of unitary repayments becomes difficult. If members look at current figures, they will see that the repayments are becoming a problem, particularly for schools and the wider education sector. If the Executive were allocated the additional money, it would be difficult to avoid their being besieged by thousands of single-issue groups that want money to be spent in their communities. The lesson from the European money in the 1970s and 1980s was that the South made long-term investments, particularly in infrastructure, business development and education, and created the legacy of the tiger economy. Northern Ireland tended to spend that funding on voluntary-service activity. I am not saying that that was bad, but Northern Ireland did not create the same legacy. The EU likes to put a flag on everything and sees investments as hard assets. In order that Northern Ireland can create its own money and avoid the need for its citizens to get sucked into debt, it needs to spend money on economic enabling activities. Dr Maguire: We talk about ring-fencing public expenditure, but it would not be right to assume from that that we are happy with the profile of that expenditure. We mentioned education and the need to put greater emphasis on reshaping and refocusing the further education sector and the universities. There is an opportunity to “economics-proof” expenditure, whether it be on planning or the Environment and Heritage Service (EHS) or whatever. There needs to be an economic dimension to the spending decisions in those areas that touch upon the economy — almost all aspects of Government here. The Review of Public Administration (RPA), which is looking at how money is spent on health, education and a range of other areas, is an opportunity to create such an economic dimension. To get the kind of change that is needed, an active look at reshaping expenditure in those areas, by taking it away from administration and putting it into front-line services, must be taken. We are not saying that public expenditure should be ring-fenced: leave it as it is and ask for more money. We are saying that, as part of the agenda, the profile of that expenditure should be considered closely from an economic viewpoint, and in a way that allows for meaningful decisions. Dr Dobbin: That will take time, and members must be careful that they do not give up-front promises about sets of books that they have not studied. If they do, they will end up having to deliver savings without knowing how to do so. Mr McNarry: We could mislead the electorate. Mr Sweeney: I will just comment on the first question about economic priorities. FDI is a critical requirement, but it is covered very well in the first report. Exports follow FDI closely and are associated with it, but that area has not had the same emphasis. To reinforce Dr Dobbin’s point, almost by definition, exports bring jobs to the sector where they have an added value, where some skills can be exported. As managing director of a company that provides almost 10% of Northern Ireland’s total exports, and as president of the Northern Ireland Chamber of Commerce and Industry (NICCI), which is very focused on exports, I think that that is something that needs to be developed further. Over the past year, I have chaired a NICCI forum on exports. The forum will close its report at the end of the month; perhaps we could submit it to the subgroup for its consideration. It is an extensive study of small-to-medium-sized enterprises (SMEs) and focuses on barriers to export and what Government and business organisations could do to bring greater exports to the indigenous sector, which would be a second step from bringing in FDI to raise the level of the economy. My final point touches on the cost base for manufacturing businesses in Northern Ireland. Having a competitive cost base would increase the table stakes as far as being able to compete is concerned. It is often said that Northern Ireland’s energy costs are the highest in the UK. My company competes not only with companies in the UK, but globally, as do many other companies. Gas prices here are higher than in the rest of the UK and mainland Europe. Therefore, as regards £30 million to make that cost base more competitive, I support Dr Dobbin’s point strongly. Whether the money is targeted at rates or at energy is not really that important. The cost base should be competitive in its totality. It should not be the case that one element is competitive and another is not. If that competitive cost base could be created by using £30 million to offset some of the increases in rates, as distinct from £30 million that we cannot apply to the energy situation, that would be the smart thing to do. Mr Compton: I have one observation to make on the second part of Mr McNarry’s two-part question. About a year ago, NIBA met representatives of the US Department of State. At the meeting, it was commented that, since 1945, whenever the US has been involved in post-conflict situations, only one of those has not involved a peace dividend. It was Northern Ireland, and the reason given was that nobody asked for one. Mr McNarry: That is an amazing comment. What have we been going to Washington for all these years? Mr Compton: To deal with part one of the question, the broad priorities will have to be based on where Northern Ireland is today. There are about 57,000 VAT-registered businesses in Northern Ireland, and 89% employ fewer than 10 people. About 40% have no employees other than the owners. Northern Ireland has the second lowest level of business formation in the 12 UK sub-regions and the second lowest level of business growth. It has the highest level of business survival, which, believe it or not, is not a good thing. Ten companies account for something like 60% of all Northern Ireland’s exports. Therefore, that is where we have to start. I noted the significant amount of work that the subgroup has done to examine how to generate additional FDI. Mr Smyth will be aware of a report produced 10 years ago, which involved 9,000 businesses and was the single largest review of FDI in the UK since 1945. First, it asked which regions of the UK foreign direct investors considered and why they picked the regions that they did. Not surprisingly, Northern Ireland was the least-selected option and the reason was the security situation. The second question that the review asked was whether, once a region was chosen, pre-investment hopes were realised. Northern Ireland, of all the UK regions — and compared to the Republic of Ireland — delivered best and delivered most on the pre-investment promises. That was interesting because, when that was measured, the report determined that, over the period, Northern Ireland, with 2·8% of the UK population, consistently attracted 9% of all FDI into the UK. Equally surprisingly was that grants were not one of the top three reasons for investment. The main reasons were available labour, labour skills, infrastructure and a business friendly environment. Also featured in the top ten were strong business and industry links and proximity to markets. In that sense, it would be wrong to assume that Northern Ireland’s FDI is, and always has been, through the floor. It has performed reasonably well, having regard to the prevailing political and security situation. During the second Clinton visit, a meeting took place with some of the leading business chairpersons who accompanied him. Someone made a comment that stuck in my mind. It went along the lines of: US investment goes where it is welcome, where it is profitable and where it is safe, and you guys still have not cracked the third one. That comment reinforces the necessity to restore the political institutions and to demonstrate political stability to a wider potential FDI market. 11.15 am It is not by accident that the report from the review that Eoin O’Driscoll chaired has as its second headline: “Ireland’s place in the global economy”. If we want to know where the broad priorities lie, we have to start by looking at Northern Ireland’s position in the global economy. Only by doing that can we decide what we need to do to move Northern Ireland up the value chain and, as my colleagues said, create additional attractions for FDI and drive indigenous businesses into international markets and to increase their export potential. Ms Ritchie: Gentlemen, you are very welcome. Mindful that Dr Dobbin said that we should concentrate on economic-enabling activity, infrastructure and developments that have a sustainable future and outcome, can NIBA suggest initiatives in which a one-off investment could make a tangible difference to our economy? What would be the costs and benefits of such initiatives? Dr Dobbin: I want to set infrastructure aside for a moment, Ms Ritchie, as I have already identified areas in the infrastructure plan which, if I had control of the country, rather than take out mortgages, I would get the Government to pay for as much of the implementation of that plan as possible. Apart from infrastructure, which includes specific projects, there are certain other areas of activity that merit consideration. Before we came here today, Michael Maguire and I discussed skills. We are nervous about the amount of money that is going into some areas: unless there is a coherent delivery plan, there is a risk that that money may be chasing markets that do not exist. In addition, I have a couple of examples of the sort of innovation that we may need. There is a slight weakness in the subgroup’s report in that it does not give sufficient detail on how to take forward innovation. I want to distinguish between innovation and research and development: research and development is about creating knowledge; innovation is about creating money from knowledge. Both the universities say that funding for PhD students is being cut and that, despite Northern Ireland’s having some of the best graduate output, it is producing far fewer PhD students for key research areas, such as technology, than other UK regions and Europe. The universities say that we should spend money on creating posts for PhDs in nanotechnology, electronics and life and health sciences, etc. The output of those higher-degree students will feed into the economy in two ways: it will increase Northern Ireland’s knowledge base, and it will increase the ability of our skilled people to feed into industry. The universities say that although such expenditure would be relatively modest, it would address the skills and knowledge bases in one fell swoop. They say that although the Department for Employment and Learning (DEL) has cut its expenditure on higher degrees, PhDs and postgraduate study, such investment is crucial. The other area of innovation on which I would spend money would be a programme to encourage inactive companies to become more active in design and product development. I would also spend more on encouraging companies to market outside the Province. I would spend money on product development linked with sales drives. I am not sure whether we need to spend more money on skills or just spend it differently. A business analogy might be useful: if people want to grow their businesses, they beef up their sales teams to more effectively go out to look for business; they beef up their products so that they have something that somebody wants to buy; and they ensure that they have the necessary skills and capacity in their businesses. Lack of ambition is an issue in Northern Ireland. Companies must be encouraged to be more outward looking. The Department of Enterprise, Trade and Investment (DETI) is cutting spending on trade missions; whereas Southern Ireland is increasing the amount spent on them. We need to spend more on marketing and getting our companies to export, and we need to spend more on encouraging them to innovate and to develop products and skills. When Michael and I debated the matter before today’s meeting, we were nervous that we would not be able to identify specific skills-development projects that were almost ready for — if I may use this word — cash. Dr Maguire: David and I are members of a skills group, the objective of which is to examine the future skills needs of the Northern Ireland economy. One would expect some of the outputs of the thinking of that group to provide a framework within which the education sector could deliver. Anecdotally, my son had to choose recently between A-level English and A-level chemistry because timetabling meant that he could not do both. He chose English. Through the entitlement framework, the Department of Education (DE) is beginning to open up the range of options for children. It is not just about having a narrow range of academic A levels in subjects that we regard as acceptable; rather, it is about having a much broader range, as you move further along the skills’ spectrum to professional vocational skills and considering the range of options that can deliver those. A way to do that could include schools working together — rather than protecting their sixth forms — in a way in which they have not done previously. It could also include bringing in further education colleges, which can be much better than schools at delivering some of those skills. It is a case of going back to that level and saying that we need a wider range of skills to move the economy forward. Of course, we need to be able to make some uncomfortable decisions on how to do that. Ms Ritchie: Would joined-up Government between DE and — Dr Dobbin: If representatives of Invest NI were here they would say that they have bypassed, or almost missed out on, FDI opportunities because they do not have enough money. The team is not looking as actively as it could for inward investment because it knows that it does not have the money to provide the support that the investment would normally require. We need to ensure that a kitty exists to encourage FDI. At our previous session, David McNarry talked about the inward investors’ happy hour and their promiscuity to Northern Ireland. That is an issue. I would like to think that we are cleverer now at attracting the right type of FDI. We still need that investment, but we also need to spend time and money growing our own. If we grow indigenous business, we would have a much better chance of securing commitments to stay in the Province, to put money back in and to keep headquarters here. Our first choice is to grow home investment. However, Northern Ireland does not have many large companies turning out good managers or economically viable expertise. The South has used FDI companies to create a legacy of capability, which feeds into the economy. Mark’s and my companies are two of the biggest in Northern Ireland, yet, on a global scale, they are quite small. To improve the economy, movers, such as Mark’s company, must invest in and train graduates and managers. Right now, we should look at how we create the seedbed of future managers. I was trained at a multinational that arrived in the 1960s. It has now gone. My company is doing its best, but it cannot provide the same personal development opportunities as a multinational or create the same calibre of people coming through its books. The Chairman (Mr Wells): As we are running out of time, would the two Sinn Féin members ask their questions in tandem? If they do that, Dr Dobbin could deal with both at the same time. I am sorry about this, but time is against us. This is good stuff. It is extremely relevant and it is exactly what we are after. The idea behind the questions is to elicit information, and, to some extent, you are providing information without having been prompted. Mr McNarry: If you have any information about Fermanagh, would you perhaps skip over it? Ms Gildernew: It is good to see that I have moved Mr McNarry along. Gentlemen, you are welcome. Thank you for this morning’s presentation. I shall deviate slightly. I am interested in some of your comments. Dr Dobbin made a point about ensuring that people at the top and bottom of the scale have opportunities to get into the workplace. At the bottom, the voluntary and community infrastructure was built up using European money. That took some people out of third-generation, long-term unemployment and trained them and gave them the potential to enter the workforce. That money was spent wisely. It gave the communities in west and north Belfast a sense of being that had not existed previously. Dr Maguire talked about the wider range of skills that are needed in schools and colleges. In the first report, we refer to the Twenty-six-County model. While we have A levels, the South’s Leaving Certificate covers a wider range of subjects. Pupils are not asked to specialise in three or four subjects at age 16 or 17; they are given broader choice. Should we consider something like that? Dr Maguire: We should not tinker with A levels. They are a good qualification, but I agree that they may not be right for everyone. Mechanisms are available to broaden the education spectrum — a BTEC, for example, is the equivalent of three A levels. The problem is that grammar schools are perceived to be under attack. We want to state firmly that we do not want to get rid of the best elements of the education system in Northern Ireland. However, other elements may need to be improved, which means that we must focus on the entire education structure and, possibly, make difficult decisions. If some schools are bad, close them. If some further education colleges are not up to scratch, change them. We cannot allow everything to continue as it is and assume that we will see a difference. We need a radical examination of the current education provision so that we can maximise the situation. However, I am uncomfortable about tinkering with A levels, because they are a good qualification that employers recognise. They provide a good route to university for those who want to pursue a broad academic education. Dr Dobbin: Ms Gildernew made a good point about the voluntary sector. In the past, we have not done enough to anchor the voluntary sector to the economy. Perhaps we need a hybrid model in which the business sector is more actively involved in transforming the output of voluntary programmes into jobs, as opposed to upskilling people but not getting them jobs. We have immigrants living and working in Northern Ireland, which proves that while jobs are available, local people are not filling them. Sometimes, nobody wants to do a particular job, but on other occasions, in certain areas, local people cannot fill jobs because they do not have the required skills. Margaret asked earlier what we could do. We need more pump-priming. I could have gone to a university in England, but I did not. I was awarded a scholarship and, through a graduate-training scheme, got into a Northern Ireland company. That anchored me in Northern Ireland, and I stayed here. Money would be well spent on schemes to place young people, at graduate level and at the lower end of the ladder, in a local business environment. I am aware that the subgroup has discussed ways in which the west and the north-west could be developed. SIB would like to see more money spent on roads. It would like to see good carriageway links to the west and the north-west because that would allow people to commute more easily to their jobs, and it would also be easier for businesses to set up in certain areas. The Southern Irish Government put money into the north-west at City of Derry airport. I think that they should put a peace dividend on the table. I do not know whether that would be politically acceptable — I am looking at Jim Wells to see how he reacts. Ms Ritchie: He has not reacted yet. Dr Dobbin: What is Bertie Ahern putting on the table? In private conversations that we have had with officials, it has been hinted that the Southern Irish Government would be prepared to offer a peace dividend. If I were you, I would go to them and ask them to build a road from Dublin to Derry that links with the road to Belfast. It would help the economy in Donegal, which has not seen a boom, and the economy in the west of Ireland, which is struggling, even with its low rate of corporation tax. Members should say to Bertie that, as part of a deal, he should pay for that road. Members should have a wish list for Southern Irish Government. If they want to help Northern Ireland, let them do it in the best possible way, by getting their chequebook out. You might get a pleasant surprise and be able to lever some money from them. I would bite their hand off and take the money if it meant that they paid for a road from Dublin to Derry. I am not proud and would take money from any source. Mr Compton: It has been stated that one reason that the border/midlands/west (BMW) region of the Republic consistently failed to meet its targets for FDI was that it took longer to get from Dublin to Sligo than from New York to Shannon. If the infrastructure is not good, you will not attract FDI. I have been guilty of saying that if there were a motorway to Derry, it would do a hell of a lot of good for FDI and indigenous investment. Why, is there virtually no unemployment in Magherafelt? It is because it has a motorway at the end of its main street. It is not a joke to say that linear infrastructure development can also bring with it economic development. A study that the Federal Highway Administration in the United States has been running since the 1950s shows that for every dollar it spent on new interstate highways it leveraged around 35 cents of private-sector economic investment and improved productivity, that would not have been the case otherwise. Here we have something similar in the “Antrim effect”. The Naas dual carriageway was the first example in Ireland of where the equivalent of interstate highway directly stimulated linear development. 11.30 am Dr Dobbin: I hope that that is not heresy, Mr Chairman. The Chairman (Mr Wells): As Chairman, I am totally neutral on those issues. Dr Dobbin: Sorry, I am addressing you as the body politic, as opposed to you individually. Mr Sweeney: If you are going to build a motorway to Derry, it should also go to Lisnaskea. Dr Dobbin: I would like it to go to Armagh. Mr Sweeney: I look forward to that time. An example of community regeneration is Caterpillar in Springvale in west Belfast. F G Wilson Engineering Ltd, as it was then, decided to build a facility in west Belfast at a time when the area was not politically stable. They employed people from both communities in that area — people who might have been from the second or third generation of a family that had been without full-time employment — and there is now an exemplary plant there that employs 500 to 600 people. There is a connection between attracting FDI or helping indigenous businesses to grow and getting people’s skill sets to a targeted endgame. That is distinct from simply training people for the sake of training them, and then not having the jobs in place for them to do. Good examples exist of where that joined-up approach of training people for a purpose and utilising their skills has worked. Ms Gildernew: I agree wholeheartedly with what you have said about roads. It is no coincidence that there is not an inch of dual carriageway in Fermanagh. We have had very little FDI, and we would have been in bad shape economically had it not been for the Quinn Group. Do you agree that investment in infrastructure is probably the most sustainable route for a financial package to take? If money were going into physical infrastructure, particularly roads, would that be our best chance of attracting businesses that would provide long-term sustainability? Dr Dobbin: If you wanted to know where to invest, roads would be an essential element, but more would be required. For example, roads and fiscal incentives together would make up a powerful package, because you would be creating better transport and a more favourable investment climate. However, for me, skills are up near the top. Skills and innovation will have the biggest impact on gross value added (GVA) of anything that we do. For example, in today’s world it might be the information superhighway rather than the road highway that is most important. The west would improve if there were better roads to and from it. A motorway to Armagh would be a good start, and there should be more carriageways. It takes a great deal of time to get around. I travel on many country roads, and they are very slow. Ms Stanton: Do you agree that the same emphasis should be put on the community and voluntary sector as on the business sector, taking into account the safety measure that was mentioned? Mr Compton: In everything that the Business Alliance has said, it has linked two phrases together: “economic regeneration” and “social inclusion”. I do not believe that it has ever written anything where it has used the phrase “economic development” without the phrase “social inclusion”. The two are inextricably linked. If we were to have a two-tier entitlement to jobs, wealth and prosperity, we would have a major problem — perhaps not today, but in a year’s time or in 10 years’ time. Dr Dobbin: We must ensure that the money that is put into the voluntary sector is generally for capability building. I accept that there are people who will never be economically active, because of their health or whatever reason. Those people will always need support. Some sections in the voluntary sector are addressing needs that are economically related. For example, foreign aid to Africa and other parts of the developing world has moved away from providing food aid to, where possible, trying to encourage farming. Foreign aid has moved away from giving handouts to trying to create self-sustainable employment. The challenge for the voluntary sector is to ensure that it builds capability and thereby eventually builds itself out of a job. That is not to suggest that there will no longer be a role for the voluntary sector to play; however, a more joined-up approach is needed. The voluntary sector in Northern Ireland employs, directly or indirectly, an estimated 40,000 people. That is a large figure for an economy of our size. The voluntary sector cannot, therefore, just simply be abandoned or cut off. We must examine what it delivers. To make progress, we must almost build it out of a job — we must kill the need. We must determine how the voluntary sector and the private sector can be used to build the capability in communities, so that they can stand on their own two feet and have their own jobs and incomes, instead of relying on the voluntary sector to make ends meet. I am interested in that type of approach. There is a role for the voluntary sector. It does great work: it trains people and tries to create social coherence. I am not suggesting that it should be done away with. Instead, I urge us to be careful. We could spend a lot of money on the voluntary sector, but still not kill the need for it. We must remove long-term need by addressing its fundamental cause rather than offering handouts that will address only today’s needs. Ms Stanton: That can be measured by stability on the streets. Dr Dobbin: Absolutely. Ms Stanton: That cannot be produced using the safety measure that you suggested earlier. Mr Compton: Having said that, it is equally important that the voluntary sector is efficient, effective and fit for purpose. Often, there is a tendency to allow the voluntary sector to take up the slack when the public sector steps back, without ensuring that a voluntary service can provide the same effective service delivery that the private sector would. We must examine whether the voluntary sector is efficient and does the best job it can in areas where it is actively engaged; it should not simply rely on the goodwill of someone who comes to help out two days a week. It must be professional and efficient in its service delivery. Ms Stanton: The Committee on the Administration of Justice’s (CAJ) report indicates that the gap between the rich and the poor has widened. That must be addressed. It must be addressed at that level and on an equal basis. The Chairman (Mr Wells): Time is running out. I suggest that our adviser, Mr Smyth, ask a question, but Esmond is next on the list. I will reluctantly ask David Ford not to ask a question during this round. I will give you absolute priority with the next witness, David. Mr Ford: I will take up the first 20 minutes of questions. The Chairman (Mr Wells): That is the only way in which we will be able to fit in everyone. Perhaps we should have allocated extra time for those topics. Dr Dobbin: We can come back at a later date, Chairman. The Chairman (Mr Wells): I am also conscious of the fact that Mr Hewitt has been waiting for quite a long time. I am sure that he must be anxious by now. Dr Birnie: I want to thank the representatives from the Business Alliance for attending the meeting. They have made some fascinating points. David mentioned manufacturing several times. How do we tailor any package and any change to fiscal incentives in order to promote tradable services? I want to comment on the contentious issue of building roads everywhere. There are examples in the Mediterranean of economic development that failed because investment was made in motorways and bridges that literally did not lead anywhere. We must be cautious of that. [Laughter.] I do not suggest that that would apply to Fermanagh. Mr Ford: What Esmond meant was that if we were to start building the roads in Fermanagh, there is nothing to the east. Ms Gildernew: Roads that go nowhere? Get outside, so that I can hit you a slap. [Laughter.] Dr Dobbin: Esmond is correct to say that the building of roads is not a panacea. However, the north-west, where there is a gateway hub with ports, an airport and a large community, is also a tourist destination. The Armagh area also has huge opportunities for tourism. If carriageways or motorways were built to every destination in Northern Ireland, not all of them would be used. The Roads Service has done significant work in identifying what the average journey times are on certain roads. Investment should be made in areas where the average road speed is low, provided that there is a traffic requirement. In some cases, however, it is a chicken and egg situation. The EDF subgroup on innovation examined tradable services and identified two issues that are holding them back. Invest Northern Ireland evaluates its support to tradable services using its traditional model; that is, it helps companies with assets. It struggles to help companies that have a great deal of intellectual property but hardly any assets. First, companies in the information technology (IT), healthcare and pharmaceutical sectors complain bitterly that they have a long-term return model because they are associated with intellectual property and have no assets, and Invest Northern Ireland is reluctant to support them due to the Treasury’s Green Book and the way in which they are assessed. I am sure that Victor Hewitt, who is sitting behind me, is wondering what I am talking about. Those types of businesses require a different support model. Invest Northern Ireland must be given some latitude to support them. Secondly, we want to avoid tradable services where there are “battery hen” jobs, with a lot of people doing call-centre-type work. We compete almost solely with India in that line of work. I am not saying that we do not want those jobs, but they are not in my hierarchy of preferences. I would prefer support-desk jobs in IT or in financial services, where the operative in the call centre is required to have some capability that cannot be replicated easily, and for which a graduate or someone with the necessary training is required. Let us avoid replicating “sewing machine” jobs. We need to create a higher level of jobs in the tradable-services sector. We are particularly deficient in financial services. Edinburgh, Bristol and other regional capitals in the UK have vibrant financial-services sectors, as has Dublin. That is where the highest added value is and, generally, where more wealth goes into the community. Northern Ireland has almost none of that. The biggest opportunity for us — this is not a political point but an economic one — is to take the overspill from Dublin. Dublin is overheating. Rents are going through the roof, and there are companies who would love to expand on the island, but they cannot get suitable people. Good arterial routes between Dublin and the north-west and between Dublin and Belfast are required, as is good office accommodation. We have the perfect broadband infrastructure. Northern Ireland could take the overspill from the South, because those guys are struggling, and they are keen to do it. As I said, that is not a political point, but if there is business to be done, why not bring it here rather than let it go to Edinburgh, London or Bristol? Northern Ireland is a relatively low-cost centre, and we have graduates whom we can get back to Northern Ireland or keep here. However, we must ensure that the education system is turning out the right type of skills. Invest Northern Ireland has started a financial security certificate programme — a good initiative and through it is trying to create some critical mass, but, at the same time, we should be bringing in one or two big players. Invest Northern Ireland is also doing that, and that might lead to a cluster and some good value. Mr Smyth: I will push the challenge back to Dr Dobbin. I have been impressed with the subgroup’s first report, which covered lots of territory. Aside from the fiscal incentives and the economic package, no one seems to want to talk about the longer term — although we have come close to discussing it this morning. A few years ago, Northern Ireland had an advantage over the rest of the world. Northern Ireland is still the only place on earth where four- to 18-year-olds have broadband Internet access in support of the national curriculum. We are supposed to have a balanced learning environment around that — Classroom 2000. However, that is falling flat on its face. Apart from looking at the other interesting topics that arise, innovation in education is a clear instance in which there was no joined-up thinking. Someone took a big risk by spending £300 million on it. It is still not too late to rectify the situation, but bridges need to be built. Dr Dobbin: Do you know why it is not working? Mr Smyth: Yes. Dr Dobbin: I have been reasonably close to it, and my feeling is that they put all the money into hardware. The infrastructure was created, but no investment was put into educating teachers on how to use it or on how to coach pupils. It was a classic example of opting for the nice, big, shiny vehicle and forgetting to teach someone to drive it. Many of our teachers are not exposed economically, and we have a particularly conservative bunch of teachers in both primary and secondary education. Money must be spent on marketing, and teachers must be sent out into business, so that they can be more informed about career choices and IT. In IT, the kids are ahead of the teachers in some cases, and teachers complain that broadband Internet was installed but that they were not well enough prepared in order that pupils could benefit fully. Do you agree with that? Mr Smyth: I do indeed. Dr Dobbin: Is there anything that we have said that Mr Smyth thinks is economic heresy? Mr Smyth: Not at all. I have some further questions, on which we will come back to you, no doubt. The Chairman (Mr Wells): Unfortunately, time is running out. Do not get me wrong: you have provided us with good stuff. We should perhaps allocate more time the next time that you attend the subgroup, so that we can tease out more information. Dr Dobbin: We are happy to return. 11.45 am The Chairman (Mr Wells): If you have any further written evidence that you would like us to receive about anything that has arisen during discussions, we need to have it by 18 September. We are working to a tight deadline. I thank you and your team for a comprehensive and detailed submission, which is what we expected. It has been extremely useful. The subgroup has been fortunate in the standard of evidence taken throughout this process, and you have added to that. If we continue beyond 24 November, I am sure that we shall be seeing a lot of you. Dr Dobbin: You must continue. The one thing that we cannot afford, and I speak now as a voter — The Chairman (Mr Wells): Can you tell us where your vote lies, first? [Laughter.] Mr McNarry: There goes the Chairman’s impartiality. [Laughter.] Dr Dobbin: My vote is decided by manifestos, not by tribal politics. What I want to see are economically sound manifestos and momentum in this process. I hope that you do a deal by 24 November but, if you do not, you must bank something, so that the prospect after that is better for a deal. Mr McNarry: The Assembly is finished if we do not do it. Dr Dobbin: I want to see a deal. Without devolution, the Northern Ireland Office (NIO) will wreck Northern Ireland, whether through perversity or because Ministers are part-time and not that interested. National policy is killing Northern Ireland at present — we need to get away from it. The population is missing out on a big opportunity. We need devolution. How you guys do it, I do not know. Set aside constitutional politics and get stuck into making life better for all of us. That is the way forward. Some Members: Hear, hear. Ms Gildernew: You have just written our manifesto. [Laughter.] Mr McNarry: The past 30 years did not happen then? We do not have terrorists, and we are not being asked to bring them into the Government, is that it? Dr Dobbin: I do not want to minimise these issues, but we are where we are. The Committee Clerk: On the practicalities, Chairman, we covered a lot of ground on education and skills near the end. That is for our third report. Would the subgroup like to invite the Business Alliance back to cover that particular area? Dr Maguire: Are we not meeting on 28 September, in the guise of EDF, to talk about skills? The Committee Clerk: Yes, and you could cover skills and innovation then. We should not duplicate unnecessarily. The Chairman (Mr Wells): Thank you, gentlemen. We still have a quorum, but only just. Mr McNarry: Is the DUP absent for a genuine reason? It is not a boycott? Ms Ritchie: It is not a diplomatic absence, for want of a better word? The Chairman (Mr Wells): Definitely not. There is a genuine reason for why the DUP is not here. As I speak, we — sorry, they — are trying to formulate a team. [Laughter.] Ms Ritchie: Is that a slip of a cup? The Chairman (Mr Wells): Mr Hewitt, I am sorry for keeping you waiting, but you can see why that has occurred. Mr McNarry: Are you not in the same position as Naomi Long? Can you not double-up this afternoon? The Chairman (Mr Wells): No. I am not a member of the subgroup. The Committee Clerk: It would not be procedurally correct for Mr Wells to chair the subgroup, and then to sit on it as a member. The Chairman (Mr Wells): Yes, and that is why I cannot constitute the seventh member to maintain a quorum, if that is what you were thinking. Mr Hewitt, thank you for coming. We have got off to a good start, as you can see. We look forward to your evidence. Normally, we would give you an opportunity for a few opening comments. Mr Ford will be the first to ask questions. To be fair to members, I have reversed the order of questioners, to compensate those who felt rushed last time. Mr Victor Hewitt (Economic Research Institute of Northern Ireland): Thank you, Chairman. I congratulate the subgroup on its remarkable progress thus far and for reigniting a long-overdue debate on the economy. That said, the hard work begins now. The problem is how to interpret the vast amount of evidence that has been accumulated and frame it into sensible proposals. Economics is a difficult discipline. I know many amateur economists, even though I do not know too many amateur brain surgeons. However, economics is a good deal more difficult than brain surgery, although both make one’s head hurt after a time. The problem with interpreting economics is that matters are interconnected, so that what appears on the surface to be straightforward is, in fact, anything but. There are all sorts of feedbacks in the economy, and apparently simple linkages turn out to be quite the contrary. I hope that the subgroup will think everything through carefully and take the best advice that it can find. I have read the evidence that has been presented so far, and all the building blocks are in place. It is now a matter of assembling them. There is some confusion in the first report about cause and effect. Poor industrial structure and productivity are mentioned as though they are two separate things, whereas one leads to the other. In my second submission, I have tried to clarify the distinction between various economic instruments, because there seems to be an assumption that some can be substituted for others, and that subsidies or grants for inputs, such as capital, training and skills, R&D tax credits, and so forth, are almost perfectly substitutable for other incentives, such as corporation tax. That simply is not true. They are qualitatively different animals. When talking to people from the Republic, I find that it is perfectly clear that Northern Ireland is quite a few paces behind the game. The Republic is currently a much more sophisticated operation than Northern Ireland. That said, because we have the ability to see what has been happening elsewhere, we do not have to reinvent the wheel. I hope that what comes out of this process is a radical package to get Northern Ireland on the higher trajectory of growth that we all want to see. If we keep going as we are, everyone in this room, their children and their children’s children will be dead before Northern Ireland ever achieves convergence with even the UK average. The Chairman (Mr Wells): David, as you were squeezed out when the previous group of witnesses were being questioned, I promised you the lion’s share of the early stages of questioning. Mr Ford: Thank you. Mind you, after Mr Hewitt’s comment on amateur brain surgery, I am deeply conscious that I am sitting beside Esmond Birnie. Dr Birnie: I am not a surgeon. Mr Ford: I should probably not declare my primary degree. You can look it up on the Assembly website if you wish, Mr Hewitt. I do not claim to be anything more than an amateur economist. Thank you for your written submission. As the first questioner, I confess that I have not had as much time to study it as I should have had. I want to tease out something on the issue of the balance that should be struck between attracting FDI and the growth in indigenous business. I did not have a chance to ask the previous group of witnesses about that, but it featured in their evidence. David Dobbin, in particular, rightly emphasised that one virtue of indigenous businesses is their commitment to Northern Ireland, and yet, on the other hand, because there is not a critical mass, FDI may be necessary. I am interested in your thoughts on that, Mr Hewitt. Your submission specifically referred to where resources should be targeted to bring about growth. You mentioned schools, particularly those at the lower end. Will you tell us more about how you consider education to be linked to driving the economy forward? That crucial issue requires detailed consideration. Mr Hewitt: When examining the balance between FDI and indigenous businesses, it is important to identify which growth model we are considering for this economy. On what basis can this economy grow to its maximum potential? The economy cannot grow on the basis of its population of 1·7 million. That simply is not a big enough market. Therefore, the only way forward is through what economists call export-led growth — it is necessary to access and export to the wider world. Northern Ireland imports from the wider world, but is not exporting enough to pay for that. That leads to the question of who the exporters are. Many indigenous firms export, but 90% of them are small and employ fewer than 10 people, and getting into the export market is difficult for small firms. The real heavy lifters in the export world are FDI companies, because, almost by definition, they work globally. They are attempting to sell their wares around the world and organise themselves in a way that will maximise their profits around the world. Without accessing the FDI market, the prospects for growth on the back of the indigenous sector alone are fairly minimal. It is as simple as that. There is a moral imperative, as well as an economic one, to improve our schools and our education system. For decades, we have endured a situation whereby the top end of the schools system is producing excellent people, but the output at the bottom end is relatively dismal. That is partly a matter of resources, but it is as much a question of management as anything else. The schools system is unique in that it holds a vast amount of information —the history of individual pupils can be traced right the way through the system. We know who taught them and what schools they attended. That is a fantastic database to interrogate. However, we are not making use of that information to improve the system, especially at the bottom end. ‘The Irish News’ has published some school tables. I know that there are problems with those; nonetheless, it is rather disturbing to note the huge disparities between the top and bottom ends — that is in the secondary sector alone, never mind the grammar schools. It is really not acceptable that, in some schools, only 4% of pupils are obtaining A to C grades at GCSE. We must address that problem. Educational performance relates to economics in that the less educated people are, the less able they are to interact with the labour market and the world. We must interact with the world, because that is where our future lies. Mr Ford: Should the curriculum be changed to focus more on vocational aspects, or is it simply a matter of schools doing what they are currently doing, but doing it better? Mr Hewitt: It is more a case of the latter than the former. The curriculum is, of course, important. A great deal of thought goes into developing it — sometimes new ideas come along that are somewhat suspect, but, by and large, we have a reasonably solid curriculum. As I said, this is really a management issue, not a policy issue. The information is available, as, by and large, are the resources, although some skewing and additional pump-priming is probably needed. However, it is a matter of starting the hard slog needed to achieve the objective. That is what we are not doing; we are not putting in that management. It will probably take a decade, but if we made a start and if we knew what we wanted to achieve, good management would deliver it. Dr Birnie: Thank you for coming here today, Victor. I have two questions. You used the expression “radical package”. Could you give us any hints as to what such a package might contain? Secondly, my interpretation of the final paragraph on page 2 of your written submission is that corporation tax is the best fiscal instrument. Is that right, and, if so, why do you argue that? Mr Hewitt: The two matters are somewhat linked. The most radical dimension of a new package would be a refocusing of our fiscal incentives away from grant packages and towards a tax-based package of incentives. Why is corporation tax the superior instrument? The reason, to put it simply, is that it is simple. 12.00 noon Companies seek simplicity in the packages that they are offered, so that they can calculate easily the effect that they would have on their bottom lines. I do not decry skills or the availability of labour and good infrastructure. They are important. However, when courting companies, those attributes only really get interested parties on to the long list. Beyond that, companies seek sophistication and understanding of their wider needs, and that means their profits. Corporation tax is an instrument that goes to the heart of that. It does not influence companies’ behaviour in matters such as R&D or capital investment — that is their choice. The Chairman (Mr Wells): Mr Dallat was to ask the next question but he has been called away. Perhaps Ms Ritchie would take his place. Ms Ritchie: In your submission, you refer to the need to move to a high-growth trajectory. Emphasis has been placed on corporation tax, but, on a totally different slant, where could savings be made to cover the costs of fiscal incentives? Mr Hewitt: In the longer term, there should be no costs for fiscal incentives. The purpose of the exercise is to ensure that someone else takes a hit on tax — that works to one’s advantage. Microsoft has intellectual property rights in the South. Therefore, its profits are channelled through there. It generates about £9 billion turnover in Europe. It paid €300 million corporation tax in the South and €17 million in the rest of Europe. That is the game in the South — even if it gets nothing else from Microsoft, at least it will have gained €300 million in tax. If corporation tax works, it is as a revenue generator. There are upfront costs, because one cannot be selective with corporation tax — all companies must pay it. Inevitably, companies will take a hit upfront of 30% or 19%, but they only pay 12·5% in the South. However, there are ways in which that tax could be minimised. FDI will not be attracted for a couple of years, so there is no point in giving corporation tax upfront now — it could be phased in over three years. However, the whole purpose is to generate more activity here. That activity will generate tax revenue, which will more than compensate for any initial loss, and windfall gains to existing customers. Lord Morrow: You said that our education system is good at the top end and poor at the bottom, but I am not sure what is happening in between. Could I take you to South Tyrone — The Chairman (Mr Wells): We have been there already this morning. Lord Morrow: There are entrepreneurs who have never set foot in a university, yet, today, they employ up to 900 people and have done exceptionally well. I mean no disrespect to anyone around the table, but those entrepreneurs put us all to shame with their performances, regardless of their education. They possess entrepreneurial skills, and those are more lacking than anything else in Northern Ireland. It is popular to knock our education system: it seems to be the fashionable thing to do. However, I have a higher regard for it than most members. I am not saying that the system is perfect, but it is better than it has been given credit for. Is there scope to look at those who have achieved success, in spite of, as you call it, a bad education system? They came through the existing education system, and they are the main employers now — at least in my part of the world. I do not know about elsewhere. We get carried away sometimes and blame all our problems on the education system. I am not saying that it should not be improved on, but we are moving towards scrapping the whole system and starting over again. That is a dangerous route to go down. Mr Hewitt: I want to make it plain that I have the highest admiration for teachers. I was involved with a school and I saw what teachers go through. It is no surprise to me that, at the end of, say, 30 years, they are pretty tired. Teaching is a hard job. However, we must be aware that qualifications affect life chances. I will give you a specific example. Suppose pupils are in a good grammar school that has not produced a single A grade in chemistry for years. Effectively, that cuts the chances of those studying chemistry in that school to move on to subjects such as medicine, because they simply will not get into university without that qualification. That is a practical example; there may be other routes to university, but, in general, if a school does not produce the required qualifications, it cuts off people’s life chances. As regards those who come through school without formal qualifications, talent will always find its way to the top. I salute such people. However, we cannot rely entirely on that group of people for the future of our economy. Ms Gildernew: As Maurice pointed out, there are parts of the country in which the future of our economy has had to rely wholly on people who do not have formal qualifications. Earlier, the Business Alliance talked about the importance of infrastructure. Have you any suggestions in respect of one-off investments from the peace dividend that would address some of the difficulties that we have, particularly the regional variations? Mr Hewitt: Members may have seen Google Earth on the Internet; users can zoom in on maps of particular countries. We have facilities that allow us to map certain characteristics onto pictures of Northern Ireland using Google Earth. We produced one on wealth, with blue representing the wealthy areas and red representing the less wealthy ones. It was fascinating to see the dark blue over north Down become paler and to see the map become progressively red as it moved westwards. The regional imbalance is a serious problem — we cannot pretend otherwise. I am in favour of opening up the west of the Province through infrastructural links. I listened carefully to what David Dobbin said about mobilising not only ourselves, but the Government of the Republic to produce additional roads infrastructure. That is an interesting idea that should be pursued. I am wearing a political hat in that regard, but, on an island, infrastructure and networks are important. They should be considered in the round, however, rather than in small parts. That is only one part of the jigsaw. Fermanagh is “out there”. It is not going to attract a vast amount of FDI. I am not saying that it could not; it has happened in the South. Fermanagh’s future, however, properly lies in exploiting tourism, sympathetically and to the maximum. The population base in Fermanagh is 50,000 in total — the equivalent of a medium-sized town. It is very difficult to carry out economic development at a distance for a population of 50,000, which is well scattered around a fairly substantial piece of land. Ms Gildernew: It is more than 50,000. I get almost 20,000 votes there. Lord Morrow: Is that Fermanagh and South Tyrone? Ms Gildernew: Yes. Mr McNarry: You are only in two years — you will be taking out a mortgage on the strength of those votes. The Chairman (Mr Wells): Let us not get into that. We have discovered this morning that one member’s view of the world ends at Dunmurry and another’s starts at the Ballygawley roundabout. It does not look as though John Dallat will be back in time to ask his question. I am not sure what has happened to him. I was about to call him, but he has gone. Ms Ritchie: May I go out to find him? The Chairman (Mr Wells): If he gets back in time, John Dallat will ask the next question, followed by David McNarry. Mr Smyth: I have two questions for you, Victor, and you are probably expecting the first one. As a second-best measure, would you care to speculate on the potential impact of a slightly more generous R&D tax credit than that considered by Prof Richard Harris — perhaps something in the order of 200% — on Northern Ireland’s attractiveness for FDI? Secondly, will you consider the corporation tax relief grant legislation that is still on the statute book as a possible second-best measure? I am not sure whether the subgroup knows about that legislation, which was not operable at the time. I understand your arguments about simplicity, but it seems to me that that is a measure that we already have. It is a de facto 10% corporation tax rate, if we could make it work. Mr Hewitt: I will answer those questions in turn. On the R&D tax credit, as members are aware, we sponsored a fairly extensive study by Prof Richard Harris in Glasgow. I think that members have a copy of that. He found that if one throws money at problems, one can make things happen, but they tend to happen very slowly. It took 10 years for the effect of the tax credit to work its way through. That is a very slow-acting measure. The magnitudes that we are talking about are, at present, quite small. Your question is really about whether we can attract FDI on the back of a more generous tax credit system. That is possible, but I do not think that there will be an enormous avalanche of companies coming in on the back of an R&D tax credit. That does not apply only to Northern Ireland. The UK experience with R&D tax credits has been really quite disappointing. The Chancellor has been reconsidering means to improve those measures. He was particularly interested in the take-up in Northern Ireland being so low, and what could be done about that. Existing firms favour grants over R&D tax credits, because they immediately transfer the risk, whereas the R&D tax credit transfers some of the risk back to them — firms must do the risky bit to gain the credit. R&D tax credits are perhaps one weapon in the armoury, but I emphasise that it is an input weapon that deals with activities of firms and attempts to induce them to do more than they would perhaps wish to do in the hope that that would drive up output. That is not an output instrument. In its entire history, only three firms considered corporation tax relief grant legislation. It was an attempt to use grants to produce the same result as a 10% corporation tax, which was then in existence in the Republic of Ireland. The conditions placed on that measure, with regard to its justification, meant that it was a dead letter from the beginning. One had to make 20-year projections of the profits of the likely inward-investment company. That was a nonsense, and the measure never really got off the ground. That measure fails the simplicity test massively. I cannot emphasise enough the importance of simplicity. The Republic has forged ahead on the basis of a very simple and well-understood tax rule, backed up by a fairly comprehensive set of double-taxation treaties with likely investors. We have an enormously complex grants system, whereby firms have to go through business cases, green book appraisals and all sorts of things. If they have a choice, businesses will always go for simplicity rather than jump through hoops such as that. 12.15 pm The Chairman (Mr Wells): Lord Morrow has reminded me that several members are involved in the Business Committee at 12.30 pm, so we need to work to that scheduling. Mr Dallat: We are conscious of the millions of pounds that the Department for Employment and Learning (DEL) spends on basic skills. You said that the school curriculum is fine and that the examination system is good, and then you referred to the school league tables, which are very attractive at the top end but — and here I agree with you — an absolute horror story at the bottom end. Are we to believe that the teachers and pupils at the bottom end, who produced the 6%, are all dysfunctional and really bad, or is there a need to take a second look at the education system and how we treat people? I can see the revolving-door syndrome going on and on, with people who fell through the safety net being sent round and round on basic skills courses, which cost the sun and the moon, and never become part of the economy. Mr Hewitt: I quoted the school league tables, which focus on GCSEs and A levels. There are problems at a much more basic level than that. Quite a few people have great difficulty with reading, writing and counting beyond 10. That is not acceptable. We should not write off those people, saying that it is too difficult and that they have problems. Of course, they have problems. Everyone has problems, but if we give up on those sorts of basics, we are taking ourselves out of the game altogether. The Chairman (Mr Wells): Mr McNarry, you are the last member to ask questions. I am conscious of the time because of the Business Committee. Can you try to wind it up at about 12.25pm? Mr McNarry: Yes. It is good to see you again, Mr Hewitt, and refreshing as usual. The report was debated in the Assembly, and comments were made about corporation tax. I am glad to see that some of those comments have percolated into the public domain. I am asking this question in total ignorance: is there an accurate costing available that would show the benefits and the uptake of reducing corporation tax, which would make it easier for people like me and the general public to understand? Going to under 12·5% is some drop. That point needs to be understood because there is a widespread perception — one that is growing because of what is happening in people’s lives — that such a radical proposal, without explaining its merits and value, would only feed the fat cats more, while people are overtaxed, politicians do not know what they are doing, and hospitals are under pressure — the one just up the road from here certainly is. How can such a reduction be justified, and, above all else, if we are going to justify it, how can it be explained fully to the layman? You mentioned Microsoft. Could some figures be produced so that people could actually see the potential value? Mr Hewitt: At the beginning, I said that we must be very careful when interpreting economics, and I will give you an illustration. Corporation tax is a tax on the profits of companies. The natural assumption is that companies pay this tax. Companies pay no tax at all. The people who pay tax are the shareholders, the workers and, to some extent, the supply chain of the company. There is a difference between the formal incidence of a tax: who is legally responsible for paying it, and who actually pays it. Corporation tax is one of the taxes that shifts massively from the person who is charged with it to others. In a sense, the distributional aspect of corporation tax is really a non-question. I understand why a layperson might think that we were giving companies a lot of money. The reality is that we would not be. What happens is that the tax payments that these companies would otherwise have made in their own countries of origin are diverted. If companies come to Ireland from the United States to get the benefit of lower corporation tax, the real losers are taxpayers in the United States. They are prepared to live with that because Ireland is a relatively small country. If the UK were to introduce a lower rate of corporation tax, it would be a different matter. There are a lot of misconceptions about tax that need to be cleared up. One of the objectives of the study that we are working on is an attempt to quantify the benefits and the Exchequer costs of the exercise. The initial Exchequer costs would probably be about £250 million — that is a simple calculation off the top of my head. If everything went well, that would be more than repaid. Indeed, one of the practical difficulties is that if corporation tax were repatriated to Northern Ireland, it might bring in so much money that the Treasury would decide that it wanted a share of it and that Northern Ireland could not keep it all. Mr McNarry: I have no doubt that you say that with some expertise, but how do you prove it? Can you show the subgroup that that benefit would arise? Bear in mind that if something came to pass, our political futures could rest on this if we were unable to explain the benefits to the public, who might have a different perception. Mr Hewitt: The simplest way to do that is to look at where corporation tax works and to compare that with what we have at the moment. There are different estimates, but corporation tax brings in £600 million a year tops here. In the Republic, it brings in about 40 billion. Its population is three times the size of ours. You need only look at those figures to see the potential gain. If we could replicate that on our scale, we would be doing very nicely indeed. The Chairman (Mr Wells): Is that figure in euros or sterling? Mr Hewitt: It is probably in euros. I can get the actual figure. Mr McNarry: How could we, as a region of the UK, argue for this, while respecting our membership of the UK with other regions such as Scotland and Wales? Mr Hewitt: Now we are getting into the practical difficulties, which are, of course, very important. There are at least five, probably six, practical difficulties. Top of the list is making a case for Northern Ireland’s being so unique that it needs this differentiated corporation tax. There are the political arguments, but I shall leave you to make those. Mr McNarry: I was looking for a bit of help. Mr Hewitt: There is the legacy of conflict, and we are literally on the border of a country that has such a tax regime. You can play it around that. This is probably a one-off opportunity that will not come again. I can tell you this much on the practicalities: it is doable only under devolution. It is not available under direct rule. That is not a political issue with the UK Government; it is a European issue. The findings in the Azores case made it absolutely clear that one cannot get a reduction in the rate of corporation tax under direct rule. There are many other difficulties, such as the European Union. One of the difficulties that I have run across, and which no one has mentioned yet, is the matter of double taxation treaties with the countries from which we might expect FDI. The Republic has a whole series of double taxation treaties with various countries. Northern Ireland would need to get the UK to modify its double taxation treaties on its behalf, and that might involve major difficulties. The Northern Ireland Act 1998 would have to be amended, because it does not contain powers of taxation. There are difficulties, but sometimes the difficulties argue for themselves, so they should not intimidate us. We should consider them, analyse them and find ways round them. Mr Smyth: That was a very clear articulation of the problems. My reading of the Azores decision is that it addresses the issue of making up the deficiency in taxes. That is an internal decision. In addition to being autonomous, we would have to take a decision on corporate tax unilaterally, as it is a matter for a geographical sub-region. My only question is: if a reduction in corporation tax is not doable, what is the next best fiscal incentive that we should campaign for? Mr Hewitt: We are back to more of the same. We would be tinkering at the margins of matters that we have been involved in for years anyway. There are no other really big ideas floating around. That is the blunt truth. If we keep doing what we have always done, we will keep getting what we have always got. The Chairman (Mr Wells): Thank you, Mr Hewitt; that was very helpful. Our witnesses have opened a rich seam of information for us. That is the end of the public hearing. As I am conscious of our quorum, I remind members to be back here at 2.00 pm. Mr McNarry: When the report for which we are anxiously waiting is complete, perhaps Victor will come back to us. Mr Hewitt: I know that you are very keen to get the report — so am I. Given the subgroup’s timetable, it is unrealistic that a full report will be available in time. We might be able to give you a preliminary view, one that may not be fully articulated and that may be based, to some extent, on a review of the existing literature. It might answer such questions as whether there is clear evidence that corporation tax has a substantial impact on FDI. I will not promise a quantification of matters, but, by next week, I may be able to provide a helpful statement along those lines. Of course, there will also be a full report in due course. Mr McNarry: We can meet beyond next week, can we not? The Committee Clerk: Yes, but the difficulty is that the economic package report is due by 4 October. Mr McNarry: Could we have an extension on the fiscal issues report? The Committee Clerk: Yes, but the timeframes are related. Mr Hewitt: With your permission, we will take a two-stage approach. Initially, we will try to get you a statement of the likely outcome, without giving absolute guarantees; and the report will follow when it is available. The Committee Clerk: You mentioned 16 October, but the subgroup had hoped that you could get the report out by 5 October. Mr Hewitt: I am dealing with academics; I hesitate to give absolute assurances on anything. The Chairman (Mr Wells): You are welcome to stay for lunch. Naomi Long will chair the 2.00 pm session. The Subgroup was suspended at 12.29 pm. On resuming — 2.04 pm (The Chairperson (Mrs Long) in the Chair.) The Chairperson (Mrs Long): Members, we have a quorum. Mr Ford: It took an economist to make up the numbers. The Chairperson (Mrs Long): This afternoon, we shall take additional evidence from Sir George Quigley, and also evidence from InterTradeIreland and the Planning Service. The questions that we hope to ask the delegations can be found in the members’ pack. I remind members to switch off their mobile phones completely because they interfere with the Hansard recording system. Mr McNarry: Have the witnesses been told to keep their presentations short? Some presentations have been a bit lengthy. The Chairperson (Mrs Long): I intend to ask the witnesses to state their cases coherently and concisely, allowing them 10 to 15 minutes for their presentations. That would give the subgroup more time to ask questions, and the witnesses can raise further points during the question-and-answer sessions. I hope that members are happy about that. The Committee Clerk: When Sir George first appeared before the subgroup, he read from his presentation. You might discourage him from doing that today. Mr McNarry: Witnesses tend to ignore that guidance. I can understand that. The Chairperson (Mrs Long): If witnesses have written presentations, I can ask them to circulate their papers in order to expedite the presentations. That would leave us more time to ask questions, which is the more important part of the session. If everyone is happy with that, we can move on. Ms Gildernew: Before we do, Naomi, I want to say that the staff has done excellent work over the past hour or so. A lot of hard graft has gone into all that photocopying. Some Members: Hear, hear. The Chairperson (Mrs Long): Good afternoon, Sir George, and welcome to this meeting of the subgroup. We thank you for agreeing to attend. If you have a mobile phone with you, we would be grateful if you would switch it off because it interferes with the Hansard recording equipment. The evidence session will last approximately 45 minutes, and your presentation should be as brief as possible — about 10 minutes. If you have a written presentation, you may wish to circulate it among members, who would be grateful to receive it. That would allow us to use the remainder of the time to focus on the question-and-answer session, when we can tease out in more detail the points that you wish to raise. We thank you again for attending the evidence session, and you may now start your presentation. Sir George Quigley (Industrial Task Force): Thank you very much indeed for your welcome. May I introduce my colleague Mr Tony Hopkins, who is joining me in this project? The Chairperson (Mrs Long): Thank you, Tony. You are also very welcome. Mr Tony Hopkins (Industrial Task Force): Thank you. Sir George Quigley: Nobody could fail to be impressed by what the subgroup has produced so far in such a short time. I offer my congratulations to the members and to the staff. I am sorry that we were unable to provide written evidence in advance of this evidence session. There was simply not enough time, but we shall let you have something in writing no later than Monday. I hope that that written evidence will reinforce what I intend to say briefly this afternoon. The challenge is to find ways to develop and implement a new model that delivers a high-value-added, export-driven, well-balanced economy and closes the persistent wealth gap, and the growing productivity gap, between Great Britain and Northern Ireland, and still more between the Republic and Northern Ireland. Only a highly productive economy is capable of remaining competitive and, therefore, sustainable. Only thus can we get out of the rut of an economy that provides low value-added, low-paid jobs, with all that that entails for access to opportunity, quality of life and standard of living. Only a radical change of direction will enable a move to a new growth path that achieves the necessary fundamental structural change — and I stress “structural”. A reduction in corporation tax to not more than 12·5% is an indispensable element in any package, and one that challenges the status quo to such an extent that, if those who will be responsible for the economy cannot secure a reduction before the establishment of an Executive, the chances of reducing the rate after that will be minimal. That is a critical point, so timing is of the essence. Our previous oral evidence and papers that we submitted to the subgroup set out our stall. However, our further written evidence will elaborate on a few points. First, the most recent authoritative evidence demonstrates how buoyant global FDI flows will be over the rest of this decade and, one assumes, beyond. Western Europe is set to be the world’s largest recipient of FDI. Secondly, that evidence expects the Republic of Ireland — a country with a population of about four million — to attract approximately 1·5% of all global FDI. Between now and 2010, average FDI inflows to the Republic are expected to be just short of $5,000 per head of population. If Northern Ireland were to receive FDI on that scale, it would amount to £4 billion per annum. That is more than 10 times Northern Ireland’s total FDI in the past 10 years. That starkly shows the urgent need for Northern Ireland to equip itself to emulate, as far as possible, the Republic’s performance. Thirdly, with regard to the location of investment, the relevant tax rate is the effective average tax rate, not the effective marginal tax rate. The marginal tax figures were quoted in evidence to the subgroup a month ago. The Centre for European Economic Research (ZEW) figures for the effective average tax rate for the UK and the Republic are 28·9% and 14·7% respectively. Finally, assembling a package of other forms of fiscal incentives, such as tax credits, tax allowances, and so on, for R&D or whatever, would not equate to a reduction in the rate of corporation tax; they are apples and oranges. Other fiscal incentives would not have the same significant attraction factor as the corporation tax proposal would have. Following a chief executives’ forum in Queen’s University last week, a senior figure in the Republic’s business world took the trouble to write to me, saying: “I thought I should let you have a brief comment to support your arguments in favour of a 12·5% rate, rather than maintain a higher rate with targeted capital allowances and research credits. The low rate of tax is automatically far more attractive to high-profit margin companies and constitutes a self-selection process for such companies. These are typically ones which are at the most profitable phase of the product life cycle and who have written off, or incurred elsewhere, R&D expenditures at an earlier phase of product development. The profits margins of such companies can be very high, so a low tax rate without conditions is most attractive.” He also said that a high corporation tax rate with generous offsets might appeal to low-margin industries, such as those in many traditional sectors, but that we should not be trying to attract such firms to Northern Ireland. 2.15 pm I shall move on to the other elements of the package that we suggest. Coupled with tax, the subgroup should major on the remoulding and development of the human-resource element in Northern Ireland — the human capital. That takes us into the field of education and training. It is useful to have an overarching theme, not only for local consumption but for the outer world. The theme that we suggest is “tax and talent”, which could become the brand to characterise Northern Ireland and be the key selling point to the outside world. The human-capital agenda is huge and all-embracing, and it touches every man, woman and child in the country. An Executive looking back after a first term could take pride in having touched Northern Ireland significantly and in so many ways. In a way, the human-capital agenda defines itself. The first task is to eliminate the underachievement that starts at primary level and, very often, persists throughout secondary level. The second task is to diversify opportunity for all at secondary level, so that those who want to pursue vocational accreditation are as well placed as those who have traditionally followed A-level programmes. The third task is to reinforce that greatly by strengthening the role of the FE sector. There is a parallel here with the community colleges in the United States. I have often read of companies that have moved within the US saying that the colleges, with their tailored training programmes, have been absolutely crucial in their being able to establish themselves in that new location. In the world of the knowledge economy, it will be the postgraduate level and the sub-degree level that will be critically important — not so much the graduate level, although we shall obviously need many graduates. The FE colleges have a key role to play. The fourth task is to shape higher education so that its output, at both graduate and postgraduate level, matches the economy’s changing profile. That may happen at the expense, if necessary, of publicly funded provision of less relevant activity. The higher-education sector must deliver in the relevant areas, and that takes us back to the school system, because the mix of disciplines coming out of schools must match the access requirements of the universities. The fifth task is to tackle adult literacy and numeracy deficiencies more decisively. A couple of weeks ago, I visited one of our community training centres in west Belfast — in fact, it was just off the Shankill Road. I was saddened when I talked to potential joinery trainees who have to spend weeks learning the basic literacy and numeracy skills that are required to enable them to start their joinery training programmes. What a comment on our society in 2006 that is. The sixth task is to equip the economically inactive in order to make them capable of rejoining the workforce. I am familiar with the role that the job assist centres play, and that type of activity needs to be reinforced. Much good work is being done at the subsequent training stages, but one must determine what is working and what is not working. It is very difficult territory, and one should reinforce the successes and roll out best practice. If we could begin to raise income levels in the way in which the tax change and inward investment would do, we would give people more incentive to go into jobs that pay real wages. Reconnecting people with the world of work, whether they are economically inactive or long-term unemployed, is the best way to draw the margins into the mainstream. That would raise communities’ self-esteem and give the hard edge to community regeneration that would ensure its sustainability. The subgroup may say that there is nothing startlingly novel in any of that. We do not need new schemes — we have oceans of schemes. Rather, it is the political direction, the planning capability, the management effectiveness and the professional delivery that make things happen. Success will be down to how we score on execution. Ultimately, the elimination of underachievement requires a transaction between a pupil and his or her teacher or instructor. In order to beat skills deficiencies in the community, we must identify the need — what the deficiencies are and what occupations are affected — and connect that need to those who are able to provide the relevant training. That is not rocket science — it can be done. The specifics can only be worked out within Government. One could pluck figures out of the air and say that it will take this or that amount of money to achieve. There must be a commitment from Government that the resources necessary to carry out that massive programme will be provided in addition to the Northern Ireland block, independent of any adjustments that may be made to the block as a result of the comprehensive spending review (CSR). As an earnest of intent, political parties could commit themselves now to setting up a unit in the Executive that would be responsible for co-ordinating the delivery of that comprehensive agenda and ensuring that stretching targets are set; that accountability for their being met is established; that progress is audited; and that causes of failure are identified and corrected promptly. Far too many programmes have been launched, only to be deemed failures seven or eight years later. We cannot afford those long delays and feed-loop periods. Finally, a comprehensive annual report to the Assembly on all those issues must be produced. A key role of the unit would be to interface with the Government’s economic-development policy process. I am surprised by the extent to which there seems to be a gap between that function and the education function. They must be closely linked. Implicit in what I have said is that all the functions that relate to education and employment should be held in one Department. Those functions and activities should not be discrete, operating in silos on their own terms and to their own objectives. There must be a holistic vision. Those functions and activities must interconnect if they are to be delivered effectively. That is a massive and exciting agenda. The spotlight must be kept on the totality of that agenda and on its implementation, under strong ministerial direction, in a way in which has not happened in the past. Government is not about thinking about what should be done, but about ensuring that it is done. If Northern Ireland is to provide an environment that will host world-class companies, those companies must be assured that the human resources will be of a world-class standard. I suggest another agenda, which could be subsumed under the general rubric of the business innovation agenda. Although the existing industrial base is unable to deliver the goods in the quantity that we want, it must, nonetheless, be encouraged to make its best contribution to the totality. That requires a step change in export performance. To say that companies will only be successful if they are competitive is a truism, but, more importantly, they will only be competitive if they master the art of innovation. That means multidimensional innovation right across the board: business models, strategy; product development; processes; materials; management; logistics; and human resources. Nobody can work out what the innovation agenda should be for a particular company; that is a matter for the company and depends on its circumstances, its ambitions and its markets. However, it can be assisted. The role of Invest Northern Ireland is to provide direct assistance or to ensure that the assistance is available elsewhere. I agree with the suggestion that Invest Northern Ireland should be comprehensively reviewed. Invest Northern Ireland should be aware of the extent to which it is making an impact in the areas that I have mentioned and of why it may not be making enough impact, and it should be able to suggest how those deficiencies might be remedied. That is critical. The Industrial Task Force recommended the establishment of a technology centre, probably within the universities, in which the existing facilities should be drawn together, refocused and reinforced. Its aim would be to provide a resource by which companies — particularly small and medium-sized enterprises (SMEs) — could pinpoint their position on the global technology map. They would be able to see where they were in relation to worldwide trends and what adjustments they would need to make to remain competitive. They would also see what it would be nice to do, and what it would be absolutely essential to do. The Industrial Task Force suggested that Invest Northern Ireland should give assistance only to companies that could show that they had undertaken that exercise. The subgroup’s first report contained a section on tourism potential. Northern Ireland has a chance to increase tourism revenue from 2·5% of gross domestic product (GDP) up to 6% or 7·5%. That is a considerable contributor to economic growth and performance. As well as that benefit, it also permeates the whole economy geographically and helps rural regeneration. The Chairperson (Mrs Long): Thank you for your comprehensive presentation. I have a list of members who wish to ask questions, and I am sure that other members will express an interest to speak as we proceed. Michelle Gildernew will ask the first question. Ms Gildernew: You are welcome, and thank you for your presentation. I have a two-pronged question. Leaving aside corporation tax, can you suggest any specific initiatives in which a one-off investment could make a tangible difference to the economy, particularly with a view to addressing poverty and regional imbalances? Secondly, after yesterday’s comments by Ian Paisley Snr, without some kind of a deal on 24 November, do you think that we are wasting our time here? You mentioned the need for strong ministerial input, but we shall not have that if we are relying on direct rule Ministers. Sir George Quigley: I was greatly encouraged by the content of the subgroup’s report. As to whether a deal is likely to be reached on 24 November, I would put my money on that happening. It was interesting that Dr Paisley, in another part of the interview, said that he thought that business could be done. I shall, therefore, pick up on that remark rather than the more negative comment. If Northern Ireland is going to go anywhere, it needs devolved government. We are motoring along without the necessary momentum or direction. You politicians are the people who can put that right. However, you need the proper equipment and tools for the job. That is why the Industrial Task Force focused on tax, the huge human-resource agenda and the business-innovation agenda. Those are important issues. The task force’s written evidence, which the subgroup will see in a few days, contains details on what is perhaps a bold initiative. It is often the benefits trap that prevents economically inactive or long-term unemployed people from getting back into work. That is revolutionary heresy, but why should I not say it? South of the border, there is a much more graduated progression from being on state benefit to getting back into work. If that is a significant factor in getting approximately 120,000 economically inactive and long-term unemployed people back into work, why do we not do something about it? I have heard the matter discussed for at least the past 25 years; we keep on discussing it, but we have not jumped over the hurdle. That would take us into UK Government territory, because it is related to social services payments, and so on, but it would do as much as anything to transform our human resource situation. There is a risk associated with putting more money into local communities to compensate for the fact that they are not in the mainstream of our regional life. The difficulty with that is that money must be continually invested. It is an unsustainable situation. People can be reconnected with the labour market and progressively encouraged up the value chain by having their skills increased and being given the right qualifications. That lifts up a community. It also encourages people not to see opportunities as being limited to their own communities. Once again, I use the example of my visit to the Shankill training centre — I have been all over the place, but that visit was just 10 days ago. People there said that their expectations are limited to within about a half-mile radius of where they live. As far as the labour market is concerned, we want people to feel that the world is their oyster, and that they have as much right to jobs that are five, 10, 15, 20 miles away, as anyone else does. 2.30 pm Furthermore, there should be public transport provision so that people do not have to make three journeys to get to work. Think about people who have been unemployed and economically inactive. They have all the difficulties of getting back into work. One of the difficulties that they have to overcome is the disincentive of moving from benefits to low-paid jobs. Then they have the disincentive of perhaps having to make three journeys to get to work. Would any of us want to make that kind of effort? It is in such practical areas that we can make a real difference to communities. As momentum gathers, role models will emerge, and people will begin to say that they know half a dozen people who have taken a certain approach that works. Once a person is on a roll, things begin to happen. The Chairperson (Mrs Long): There is a long list of members who wish to ask questions, and I am conscious that we might be pressed for time. Mr McNarry: It is good to see you again, gentlemen. I hope that the subgroup will be allowed to see you for a third time. You spoke passionately about education. You might be surprised to hear about allegations from normally reliable sources in the Council for the Curriculum, Examinations and Assessment (CCEA) of downsizing science in the curriculum. I am talking hypothetically, but I suspect that the allegations might prove to be true. How damaging might that be? Secondly — and forgive me if I have misinterpreted you — it seems that all your eggs are in the reducing-the-corporation-tax basket. If the Treasury were to show no desire to treat Northern Ireland differently from any other region of the United Kingdom, would you dismiss the cocktail of incentives that it might offer as useless? Sir George Quigley: I will be blunt: it would be absolutely appalling were schools to diminish their efforts on science. That would demonstrate to the wider world that we are not serious about economic development and would reinforce my point that this must be considered holistically. To do such a thing might make good sense in someone’s narrow terms, but it is nonsense in wider terms. As to your second question, a cocktail of measures that excludes reducing corporation tax is like purchasing accessories for motorised equipment. The accessories are useless without the motor, because that is what makes the equipment work. A package could be put together that would stimulate the existing industrial base, and everyone, including me, would be very happy were that to happen. However, that is as far as it would go. It would never take Northern Ireland into the higher league: it would not provide the motor that will get Northern Ireland from where it is to where it wants to be. We are confident that the only way to do that is to participate in the huge global FDI flows that members will read about in my written evidence. For the past 30 years, FDI has been pouring into the South of this island, whose population is four million, with the result that its stock of FDI is now one of the highest in the world. It is amazing — the Republic of Ireland’s stock of FDI is twelfth in world rankings that include the US, China, Japan and Germany. The Republic of Ireland’s stock of FDI is at least one third of the next six countries above it in the rankings. If 1·5% of all global FDI is going to the South, I want to know why Northern Ireland cannot get a decent share. Mr McNarry: Sir George, do you know whether your opposite numbers in Scotland and Wales, if they exist, are making the same representations to the Scottish Parliament and the Welsh Assembly as you are to us? Sir George Quigley: I am putting my neck out again, but my guess is that within the next 10 years, Scotland will receive the tax regime we seek. If Northern Ireland does not push for, and succeed in getting it, we will end up asking why Scotland was successful and Northern Ireland was not. Northern Ireland has a much stronger case than either Wales or Scotland. One figure illustrates that: to achieve the same balance between the public and private sector in the Northern Ireland economy, as exists in Wales and the north-east of England, which are not regarded as star economic performers, requires a 43% increase in the size of the private sector. As members know, I am not suggesting reducing the public sector to achieve that balance. That figure demonstrates how much ground must be covered. Therefore, when productivity statistics, and the way in which the productivity gap is developing, are considered, we can hold our heads up and say that Northern Ireland has a good case, and we should really take it to the world. Mr Hopkins: I want to add to that. If I make only one point this afternoon, I want it to be this: the last time that the Industrial Task Force came to the subgroup, I approached this topic from a slightly different perspective than Sir George. However, I have joined him in his campaign, and I applaud his efforts, largely because I spent about 25 years in the front line competing with the Republic of Ireland and other parts of the UK for inward investment. I can say, without anyone disagreeing, that in every case of competition with the Republic of Ireland for major, quality investments, the corporation tax rate was fundamental. I could not emphasise that enough if I were to swear to it three or four times. It is a vital component: do not diminish it. I do not speak for the entire group, but if I had to settle for one thing, I would settle for a lower rate of corporation tax. Everything else would fall into place. I have watched the Republic move forward over the past 10 years, and everything has been given a lift, including the regions. I go to Donegal, the forgotten county, and see investment in roads, infrastructure and the telephone system. Regional imbalance is addressed when we raise the game. I see that from my position as the chairman of the Laganside Corporation. There are now 14,000 people working around the River Lagan. Many of them, although not enough, come from disadvantaged communities. The main reason for that is that the jobs are there, and, after the jobs were introduced, we and other agencies made efforts to ensure that people moved on a level playing field. However, there would have been no point to a level playing field without the jobs. The key factor is to attract quality companies, not low-value-added companies, and not, with due respect, call centres, but companies that really stimulate growth. They will put the pressure on the universities. The universities have money for R&D now, but there is no cluster of companies shaping the demand for R&D in the local economy. Dr Birnie: Thank you for coming back to the subgroup. Since we last met, the European Court of Justice has delivered its judgement on the Azores case. What relevance has that to Northern Ireland’s position and potential request for a differential rate of corporation tax? Supplementary to that, some say that the Irish Republic has had a low rate of taxation on corporate profits since as long ago as 1958. The Celtic tiger economy only became obvious in about 1988, so there is a 30-year lead time. Are you confident that the process, and thus the effect, would be much shorter in our case? Sir George Quigley: I will start with your first point about the Azores case. I have read the very lengthy judgement a couple of times, and I will have to read it many more times to ensure that I am fully abreast of it. As far as I can tell, the European Commission was prepared to accept Portugal’s case for reducing the corporation tax for the non-financial intermediation sector but had baulked at doing likewise for the financial intermediation sector. Every case hangs by its own tail: they all have their own circumstances, twists and peculiarities. Interestingly, our argument would not be about the internal UK situation; rather it would be about the fact that the disparity in tax rates between two states that sit cheek by jowl within the European Union is distorting our position. Although we have pretty much all the attributes that would be attractive to international investment, the investment flows are simply passing us by and going to the southern half of the island. Therefore, the European Union is bound to say that that situation needs to be at least considered. There are strong arguments to be advanced. I am not suggesting that this is a walkover, but one would have to mount a very strong case and support it in all kinds of ways. An important element is whether the two Governments will stand shoulder to shoulder to get the change made. It is one thing for one Government to say that they want the change to be made, but it is an entirely different matter for two contiguous Governments to say it. It is important that the Governments can see the benefits to both economies, not through North/Southery per se, but simply through the interaction that will occur from both parts of the island having buoyant economies. Meaningful interaction cannot occur without that. Dr Birnie: What about the 30-year gap in the Irish Republic? Sir George Quigley: The Republic was in a peculiar situation. We could discuss this at length, but I think that the kick-in time for a lower corporation tax rate would be much quicker here, because Northern Ireland would not have to overcome a 15% to 20% unemployment rate and huge emigration. There are a number of reasons. The Chairperson (Mrs Long): I am conscious of the time, so I ask members to be as brief as possible. Four members have yet to ask questions, and we are drawing near to the end of our time. Lord Morrow: Sir George and Tony are very welcome. It is good to see you both. I am sure that you would agree that the basis for economic activity is a stable society that fully supports the agencies of law and order and that does not have to contemplate what happened in Newry, in my town of Dungannon, and what happened to Denis Donaldson and people such as him. We are reassured all the time that they have not gone away, you know. Until we can get past all the nonsense that has been going on for 35 years and achieve a stable society, I suspect that it will be difficult to generate the wealth and economic drive that could bring contentment to the whole country. Sir George spoke about engaging the economically inactive. The unemployment rate is probably the lowest on record, yet the highest influx of eastern Europeans live and work in my town, many — if not all — of whom provide a very useful service. How can we have so many poorly paid jobs and the highest influx of immigrant workers, yet also have the lowest unemployment level on record? The two matters do not tie up. How can that be? Sir George Quigley: It is a conundrum. I will start with your first point. I hope that the work of the Assembly will enable us to go out to the world at large with a dual message that this is the start of a new political era and a new economic era. That would be a powerful message, because there have been many sorties into the outer world to sell Northern Ireland, but something has always happened to bring us back down again. We must decide whether Northern Ireland is going places and whether we have that ambition. If we have that combined political and economic message, we will be unbeatable. 2.45 pm On the second point, unemployment figures have been going down, but the economically inactive figures have been going up. That has been a phenomenon throughout the UK, although it is more severe in Northern Ireland, partly due to the fact that a considerable proportion of the economically inactive give stress as the reason. It is a question of accepting that some of those people are incapable of work, but others could be induced back to employment. It would not be easy, but it could be done. Everyone focuses on unemployment, but we ought to focus on people who are not actively engaged in the workforce. In some Northern Ireland communities, at least half of the working-age population does not work, either because of unemployment or, largely, due to economic inactivity. Mr Dallat: Your example of young trainees learning basic literacy and numeracy skills at the centre on the Shankill Road was very touching, and I am sure that that scenario is repeated many times. If we cracked that deficiency, would it attract FDI? Do you agree with Lord Morrow that political stability, greater self-esteem and a lessened likelihood of going back to the past would also attract FDI? Sir George Quigley: Yes. Acting on the human side is critical and makes Northern Ireland more attractive. Political stability is also important, because investors are interested in societies that are competent in settling their own problems. Companies know that they will face problems — they face plenty of problems in the Republic — but they are interested in whether their problems will be solved. If we cannot solve our own macro problem, those companies will think that we will be unable to solve their problems. Potential investors tend to take it for granted that they will get the skills, the infrastructure, and so on. Then they question what their investment will do for their shareholders, and that is where the tax issue becomes critical. Mr Ford: Let me add my welcome. You restated your case on fiscal incentives so eloquently that I shall leave that and turn to the financial package that we may receive. This morning, the Business Alliance talked about human skills and what they termed “software”, as you have done. The Business Alliance also talked about “hardware” in the context of infrastructure and physical improvements, but you addressed little of that. Do you think that is important? When considering issues such as a skills package, you also talked about unemployment and about attracting people back to work from long-term sickness. How do we deal with the problem that I classify as “under-employment”, that is, those who work in the low-skills sector of the economy who ought to work in the higher-skills sector, but who may have acquired some comfort in that sector? Sir George Quigley: We have not mentioned infrastructure, because, if I were examining the key impediments to growth in Northern Ireland, I would not say that the money that has been allocated for that is a priority issue. Rather, we should examine that budget and consider whether the balance is right. An objective observer, with experience outside Northern Ireland, told me privately that he was surprised at the balance in the proposed infrastructure package and at the extent to which it is still skewed towards education and health and does not focus on economic development. That made me question whether we need to consider the proposed infrastructure budget, because, although it may not require more money, it may be that we need to reprioritise and decide what will increase our attractiveness for investment. One can work endlessly at infrastructure, which is the ultimate great black hole. However, there comes a point at which the law of diminishing returns kicks in. Let me give you an example: some people are about to sell their house and are told that if they spend £10,000 on it, it would add 5% to the sale price, but that if they spend £100,000, it would be counterproductive. We must get the balance right. I do not wish to controvert anything that the Northern Ireland Business Alliance might have said, but our approach would be more cautious. We want to see what the priorities are and ask whether we can re-prioritise without looking for more money. Ms Stanton: You are most welcome. I want to refer to your example on corporation tax in America, particularly with reference to the Republic. The gap between the rich and the poor is growing by the day. The Committee on the Administration of Justice (CAJ) published a report this morning, ‘Equality in Northern Ireland: The Rhetoric and the Reality’, which highlights the problems in the Six Counties. There is a low rate of corporation tax in the Twenty-six Counties, but the gap between the rich and the poor has widened. The Government in the Twenty-six Counties are trying to tackle long-term unemployment through measures that Sinn Féin would support, such as allowing certain people to continue to claim housing benefit until they feel secure enough to get out of the benefit trap. That is to be welcomed; however, there are still winners and losers. The Conference of Religious in Ireland (CORI) has highlighted research that was conducted by the Central Statistics Office in the Republic on the widening gap between the rich and the poor. It compared the incomes of the richest 10% of Irish households against the poorest 10% and concluded that methods could be used to eliminate poverty worldwide. We should think outside the box about what radical changes could be made. That gap will continue to widen if there is no professional help available to create stability in communities and if there is not sufficient regeneration and development in those communities that are being treated like poor relations. I disagree with people who say that we should not throw money at communities without measuring outcomes. I have seen the outcomes of community regeneration and development, and it should be given the recognition that it deserves. Sir George Quigley: There are two issues. First, how do we create wealth? Secondly, how do we distribute it? The Republic is in the beautiful position of being collectively, in national terms, a very wealthy country. It is amazing. In global terms, the Republic ranks highly on GDP per head, and absolute poverty has diminished. However, you are quite right; the gap between the rich and the poor has widened, including in the UK. The challenge for any rich society is how to spend its wealth, which leads into issues such as taxation and redistribution policies of all kinds. Eleven per cent of the Republic’s tax yield comes from corporation tax, whereas in most countries, it is fewer than 7%, which demonstrates the contribution that corporation tax makes to the wealth of the Republic. Let me paint a scenario for Northern Ireland. Let us suppose that we had that kind of wealth machine in Northern Ireland plc; let us suppose also that the Treasury subvention started to come down, as it should, on all the usual phenomena. The tax take has gone up in 11 of the 14 Organisation for Economic Co-operation and Development (OECD) countries that have reduced their tax rates. If the Treasury subvention started to come down, how much more strongly would Northern Ireland be placed to go to the Treasury and make an argument? I would love to be in the delegation that goes to the Treasury to say that we have put our house in order, and that the wealth machine is going through the tax change, for which we thank you, and you, oh Treasury, are now reaping the benefits of that. I would say that I am here to talk very toughly about how Northern Ireland can get more public expenditure to deal with the relevant issues. We will be in a far stronger position if we can do that standing on the high moral ground, instead of going along, cap in hand, and pleading for some miserly addition to Northern Ireland’s public expenditure block. I would love to be there on the day that that happens. The Chairperson (Mrs Long): Thank you. There is one final question — a second one from Edwin Poots. Please keep it brief because we are running over time. Mr Poots: It is my first question, Madam Chairperson. The Chairperson (Mrs Long): You were on my list. Were you called? Mr Poots: No. The Chairperson (Mrs Long): My apologies. It is your first question. Mr Poots: I will be relatively brief, nevertheless. Sir George, you are very welcome. You make a very strong and concise case for the rate of corporation tax to be reduced. You made that case with great clarity. However, that is not to say that the Treasury will accept that case. Do you have a fallback position? If not, and if the case is of such importance to the Northern Ireland economy — and if we in this room were agreed — should we hold out and state that we are not setting up an Administration until we get that issue resolved? Sir George Quigley: It is always very comforting when one’s medical adviser tells you that he or she will give you the best advice possible and that if he or she were in your shoes, this is what he or she would do. Mr McNarry: Esmond wants to know whether you will join us on the barricades. Sir George Quigley: Frankly, If I were in your shoes — given that, as a member of the Executive, I would have to carry the can in the future — I would simply not be prepared to undertake that responsibility, knowing what lies ahead, unless I were given the corporation tax weapon. There is no more buoyancy in the public sector. One might get the gap between Great Britain and Northern Ireland up from around 80% — one might get it to 81% or 82%. That may slip down again as public expenditure slackens off, so we would still be teetering at around 80% for the next 10 to 20 years. The population would then ask members of the Executive what they are doing, what differences they are making and what value they are adding? I would dig in and say that getting the economics right is as important as getting the politics right. I think that you will win it on that basis. There is a very strong case to make, and you, as politicians, are as entitled as any other politicians in these islands to tell the Government that you have to watch your political backs. When you come into office, the Government will be over the hills and far away, having told you to live within the block grant. I would dig in and I think that I would get the reduced rate. Mr Hopkins: Just a final word, if I may. This morning, I was thinking that we have a choice, perhaps, economically, of being a South Korea or a North Korea. I do not say that jokingly. All my children are back home and are bringing up families here, so I hope that we choose to be a South Korea, and I hope corporation tax will give us a chance to do that. The Chairperson (Mrs Long): Thank you, Sir George and Tony, for your presentation and for answering members’ questions. This has been a very useful session for the subgroup. We appreciate your coming along and giving us your time and experience for the second time during this process. Sir George Quigley: Thank you very much, Madam Chairperson. I was grateful to you for not suggesting that the answers should be shorter, as well as the questions. [Laughter.] If there is any further help that we can provide, we will be only too delighted to do so. The Chairperson (Mrs Long): Thank you. We look forward to receiving your written submission. The Subgroup was suspended at 3.00 pm. On resuming — 3.12 pm The Chairperson (Mrs Long): I am aware that a number of members have other engagements and must leave at around 4.00 pm, which will make it difficult to work through the rest of the agenda. Therefore, we should concentrate on getting the evidence on the record as quickly as possible. If members could make the effort to stay at least until all the evidence has been received, we can consider how to deal with the remainder of the agenda. On behalf of the subgroup, I welcome Mr Liam Nellis and Mr Aidan Gough from InterTradeIreland. Gentlemen, thank you for attending. It was intended to allow 45 minutes for each presentation. However, given the time constraints, presentations will be restricted to 30 minutes. It will be appreciated if your opening statements are kept as brief as possible, to about 10 minutes, to allow more time for fuller questioning. Mr Liam Nellis (InterTradeIreland): Thank you for giving us a second opportunity to talk to the subgroup on the economic challenges facing Northern Ireland. We have looked at the paperwork that came out of the first round of discussions, and it is coming together well. We have been asked to give further evidence on several issues that the Committee Clerk identified, such as infrastructure, education and skills, community regeneration and fiscal incentives. We shall talk a little bit more about some of those than others — given our all-island perspective, it might not be appropriate for us to talk in detail about fiscal incentives for Northern Ireland. Although we do have some ideas on the matter, we shall focus mainly on education and skills and on infrastructure. First, I welcome the subgroup’s conclusion in its first report that: “there are no economic borders in the global market and that, where possible, all practical initiatives should be explored to examine the mutual benefits of enhanced collaboration and market exploitation”. There exists a broad scope for co-ordination in the public service and in infrastructure delivery on the island. An economic peace package or dividend could contribute to economic regeneration. 3.15 pm A significant element of any peace package or dividend should be ring-fenced for initiatives, such as those that we shall outline later, to improve the flow of economic resources across the island for the mutual benefit of all. However, before we address those issues, I want to draw the subgroup’s attention to the work of the British-Irish Intergovernmental Conference (BIIGC), with which we have been closely involved in a secretariat capacity. The conference has identified several of the same issues that we shall consider today: infrastructure; labour-market and skills development; science, technology and innovation; the promotion of trade and investment; and enterprise and business development. Those are the areas on which the conference is concentrating. At the conference’s meeting in July, it was agreed to pool resources in trade promotion — specifically to try to bring more synergies to trade missions, North and South. It agreed an all-island approach to labour and skills forecasting that recognises that a skilled workforce is a vital resource for a globally competitive economy, North and South. The conference wants to organise work to identify skills gaps and how those might be addressed. The conference pushed for a new, all-island approach to international collaboration on science and technology. At our previous meeting with the subgroup, we talked about what we are doing with the US-Ireland Research and Development Partnership. InterTradeIreland is pushing hard for an all-island approach to business development through collaboration and network clusters. Our view of all-island competitiveness is pragmatic: we want to use the resources across the island to the mutual benefit of everyone on the island and to drive success in global markets. Such co-operation, if strategically organised, could give mutual advantage in lower costs, higher levels of innovation, higher productivity and greater wealth creation across the island. The main economic resources at the disposal of Governments — North and South — are primarily the people and the physical and institutional infrastructure. Investing in those resources sensibly over the next few years will pave the way for the development of a sustainable and equitable economy on the island for the next 20 years. Collaboration is important in attracting and retaining those resources. Each jurisdiction faces a common set of challenges that are unbounded by geography; each has developed a separate, but largely similar, response to those challenges. However, we feel that there is an imperative to develop some form of complementarity that enhances the competitiveness of both parts of the island. People and infrastructure are the two key resources. Both have been highlighted by the subgroup, and we have addressed them from an all-island perspective in some of our reports. We feel that it would be appropriate to emphasise those two areas first. A significant element of any economic package or peace dividend could be ring-fenced for initiatives that will improve the flow of resources across the island to mutual benefit. Where the public sector is a provider of goods and services in both jurisdictions, there is likely to be much greater opportunities for co-ordinated action. The effect of low-cost competition from within the EU and further afield means that, to be successful, firms will have to rely increasingly on the superior skills of their workforce. Given the productivity gap in Northern Ireland, to which we referred in the previous meeting and which is 86% of the UK average, the economic package will have to address the skills deficiency. Managerial, sales and marketing and technical absorption capabilities must be addressed as part of that deficiency. At company level, one approach that we hope to pilot in the near future is the extension into Northern Ireland of the business-led training networks that are being developed so successfully in the Republic through Skillnets Ltd. Indeed, we are talking to that group at the moment. On a wider level, a recent report that we commissioned — ‘Engineering a Knowledge Island 2020’ — highlights the requirement for collaboration to ensure that people on the island are equipped with the necessary skills to drive competitiveness in a knowledge-based global economy. The report, which we commissioned but which was carried out by the Irish Academy of Engineering and Engineers Ireland, sets a target for the island to be in the top five global economies for income per head by 2020. That represents quite a challenge. The report also believes that we can achieve that through a 4·5% per annum growth rate until 2020 and that the creation of a “knowledge island” should be adopted as a feasible target. Achieving those targets will require much closer collaboration in fulfilling people’s economic and skills potential. Qualified engineers, IT staff and those with PhDs are of key importance in the development of world-class centres of research. However, to improve human capital in Northern Ireland, the so-called brain drain of non-returning students needs to be stemmed or reversed by increasing the number of local university places. Collaboration between the expert skills groups of both jurisdictions is ongoing, and we encourage the development of an all-island approach to skills forecasting. The key points of that are that: future success in the tradable services sector will rely on superior skills; business-led training networks such as Skillnets Ltd are important; we need to increase the output of qualified engineers, IT staff and PhDs; we need to increase the number of university places; we need greater policy collaboration on areas to do with in-migration; and we need to collaborate in the development of world-class centres of research. We also commissioned the recent report ‘Spatial Strategies on the Island of Ireland’. The International Centre for Local and Regional Development worked on that report, which articulates the vision of where: “all citizens throughout the island will gain from access to better markets, higher quality public services, economic growth and reductions in regional disparities.” An economy that has the capability to innovate, compete and adapt successfully will create win-win outcomes for Northern Ireland and the Republic of Ireland. The island is embarking on a demographic growth path with a trajectory that indicates that the population will be almost seven million by 2021 and eight million by 2031. Therefore we need to have a much higher-level framework for collaboration than merely spatial and strategic planning. We could: inform future investment programmes in both jurisdictions; maximise the synergies between the different aspects of our investment programmes; underpin a balanced regional competitiveness; and reposition and re-image the island as a globally innovative and competitive location. The report concentrated on some key areas, which I will go through again quite quickly, given the time constraints. The report talked about infrastructure, particularly road and rail, and the City of Derry Airport was identified as a particular area for further collaboration. Telecommunications, particularly an improved connectivity for broadband and mobile across the island were mentioned in the report. That has been largely sorted out in the North, but we need to get it rolled out further. Co-operation on energy was also discussed, as was developing cross-border planning corridors for areas such as Newry and Dundalk, Derry and Letterkenny, Enniskillen and Sligo and Omagh and Cavan-Monaghan. The report talked about tourism initiatives, waste management and so forth. Broad agreement exists on the requirement for a cross-border road infrastructure, particularly on the Belfast to Dublin corridor. One potential problem is that the resources that have been committed to transport infrastructure in Northern Ireland are significantly less — measured by proportion of total spend — than those that are available under the National Development Plan in the Republic. A table in our paper shows that the investment pot in the two parts of the island is divided quite differently. In the South, 38·1% is spent on transport; in the North, 15·7% is spent on transport. There is more alignment in the South, where there is an integrated transport system. That reflects the greater priority given in the North to the social infrastructure, and it also reflects a difference in historical endowments. However, if the issue is not addressed, it will slow down the implementation of co-ordinated road provision. Both spatial plans recognise the importance of the city of Derry to the development of the north-west region, including Donegal. A precedent has already been set, in that the Irish Exchequer is part-funding the City of Derry Airport, based on the fact that it also provides a service to Donegal people. However, the decision to upgrade the road from Belfast to the city of Derry is probably the most important measure that could be taken in infrastructure terms to enhance the growth prospects of that region. The Secretary of State announced recently that the A6 road from Derry to Dungiven will be dualled at a cost of £250 million, and work will begin within 10 years. Dualling is also planned for the road from Castledawson to the M22. Further benefits could be realised if the road from Dublin to the city of Derry were upgraded. We will push strongly for the stretch of that road that runs south of the border to be improved as part of the South’s National Development Plan. InterTradeIreland’s remit does not include health, but there are several possibilities for collaboration on health issues — for example, on hospitals, the infrastructure and healthcare provision. Altnagelvin Hospital could be a regional hospital for the entire north-west, and, given that the new southern regional hospital will be located near the border, it could have a cross-border catchment. Electricity is another area that has been moving forward at some pace. Both Governments are committed to a single wholesale electricity market by July 2007, and we feel that, over time, that will remove market distortions and help to reduce the wholesale cost of electricity. Many issues constitute a win-win situation. The key points about infrastructure are: there should be a high-level framework of collaboration between the two planning authorities on spatial and strategic infrastructure plans; the Dublin to Derry road link should be a priority; there should be an integrated plan for key health service facilities in the border regions; and the energy needs of the island might require additional investment, perhaps in the shape of a second east-west electricity interconnect to Britain. That might be built from the Republic to Britain, but the entire island would benefit. Borders represent the interface between national, economic and social systems. Borders tend to break down natural hinterlands. In Northern Ireland, economic activity is currently concentrated in the Belfast metropolitan region. In order for sustainable development to occur in Belfast and, more particularly, across Northern Ireland, spatial planning must provide the basis for the economic regeneration of communities outside Belfast. The Regional Development Strategy for Northern Ireland recognises that and has prioritised the strengthening of the city of the Derry as the hub of the north-west. In addition to that, Newry and Enniskillen, two of the three urban centres that the strategy identified as having major inter-regional development roles, are located in border regions. The adoption of an all-island approach to policy development could put border counties in the centre, rather than on the periphery, of a new functional all-island economic area and would help to regenerate those border communities. The development of the Dundalk to Belfast and Derry to Letterkenny corridors, as well as the Dundalk to Sligo corridor, with links to Armagh, Cavan, Monaghan, Enniskillen and Omagh, should be prioritised, as that would significantly benefit border communities. InterTradeIreland does not have a detailed remit on fiscal incentives, but we want to say something about that. Our strategy has been to try to develop all-island sectoral networks in a range of areas, and we feel that, in the shorter term, the financial-services sector could benefit Northern Ireland quite significantly. We undertook a review of the all-island financial services sector and found that the industry contributes £5·5 billion to the economy, North and South, and employs more than 93,000 people, 80% of them in the Republic. However, in the Republic, the sector has benefited from the establishment of the International Financial Services Centre (IFSC) by the Irish Government in 1987 in Dublin docklands. At the time, it was thought to be a bit of a white elephant, but it is now a leading location for a range of internationally traded financial services. The IFSC is host to half of the world’s top 50 banks and half of the top 20 insurance companies. 3.30 pm Recent data suggest that, in 2002 alone, the Irish Exchequer collected more than €700 million from IFSC companies in corporation tax. Twenty thousand people work in the IFSC, and more than 430 international companies are approved to trade there, with a further 700 managed entities approved to carry out business under its auspices. With a very strong political leadership and goodwill, that model could be replicated in or extended to Belfast, and that would bring obvious benefits to Northern Ireland and would help the sustainable development and growth of the IFSC in Dublin, which has issues of overheating, and so forth. The idea should at least be explored in the current context of preparing for Government. The Chairperson (Mrs Long): Thank you very much. Members, we are extremely short for time. Five people have indicated that they wish to ask questions, and we have roughly seven or eight minutes available. I ask members to put their questions as succinctly as possible and not to make long statements. Mr Ford: Welcome, gentlemen. The subgroup has been looking at prioritising areas of investment. You talked about ring-fencing social capital and infrastructure investment — what is the balance between those? If the subgroup were to consider replicating the IFSC in Belfast, what timescale would be involved? Mr Nellis: As regards the balance between the economy and social capital, we are talking more about barriers to developing an all-island economy. I would push much more strongly for creating the environment for a better economy, as that would increase the social advantage of people who come into contact with it. One follows the other. We should concentrate initially on rolling out any dividends to the peripheral areas on both sides of the border that have been starved, not only for the past 20 or 30 years, but since partition. There is a clear case for rolling out infrastructure across the border to get those economies moving again, and the spin-off would help local communities. In Dublin, the IFSC was thought to be one of Charlie Haughey’s more hare-brained ideas at that time. People thought it would never work, and getting any kind of investment for it was very hard. My chairman, Dr Martin Naughton, was one of the first private investors to put money into it. He was very happy to have done so, and there have been spin-offs and benefits from that. What was an idea in 1987 has proved its worth less than 20 years later. Replicating the IFSC would take a bit of time to get going. However, such an idea could attract significant private finance. With public finance added to the mix, it could be up and running in the next few years. Mr McNarry: I am indebted to Liam and Aidan for their presentation. I am grateful to them, and wonder whether we, as a subgroup, can pick up on it. With the greatest respect to everyone — and I hope that they will be sensitive to my views — political alarm bells are sounding in my head with reference to the subgroup. I have genuine concerns, and I feel that we should ask the Secretary of State for a full report and details of the Government’s activities and their remit arising from the BIIGC and of the aspect of further economic collaboration in areas of mutual benefit. I can see where it is mutually beneficial to — The Chairperson (Mrs Long): Mr McNarry, I am sorry to interrupt. That is a matter that we can address later. Given the time constraints, do you have a specific question for InterTradeIreland? Mr McNarry: No. Will you allow me to address that point? It is extremely important. The Chairperson (Mrs Long): Could we address it in our closed session? It would allow us to get the evidence. Dr Birnie: In the table on page 5 of your statement, Liam, you seem to be implying that the percentages of investment should be much more similar between the Republic and Northern Ireland. I put it to you that that may or may not be the case. However, it may be that people in the two jurisdictions have chosen differently, so why should they be similar? My second question relates to the IFSC. Why does investment in Northern Ireland run at only 20%? What has gone wrong, or, to put it another way, what has gone right south of the border? Mr Nellis: On the first question, the two jurisdictions have chosen to invest their money in different areas. My point is that if we are serious about developing a coherent and co-ordinated infrastructure strategy, there must be a little alignment in funding. That is not to say that there are not different priorities for the Governments on the two sides of the border. For example, the Governments clearly have different priorities for the public sector: in the North, it is about the Review of Public Administration and rationalisation; in the South, it is about decentralisation. No one is saying that everything should be the same but, to capitalise on the potential benefits of North/South synergies, there should be a little more alignment in those areas. On the second question, the difference between the IFSC garnering 80% of the investment on the island, compared with 20% in Northern Ireland, is the fact that the Southern Government went for it. The Government put their money where their mouth was and put the infrastructure in place. That, in itself, created a cluster, which generated more activity, and so on. A snowball effect was produced. Ms Gildernew: Gentlemen, you are very welcome. Can we attract the IFSC and the level of investment that we need without changing the rate of corporation tax? As you said, the financial-services sector in Dublin is overheating. We have the skills, accommodation, and so on, here, but if corporation tax is not addressed, can we still attract investment? Your statement is very good. The Business Alliance gave evidence to the subgroup this morning and made a similar recommendation that money should be sought from the Twenty-six County Government to invest in infrastructure, particularly roads — especially the Dublin to Derry road, which runs through my constituency. Members knew that I would mention my constituency sometime. [Laughter.] However, there are definitely tangible benefits to be made from asking the Twenty-six County Government for help. Can you suggest any specific, one-off initiatives, such as a fiscal package, that would help to turn around our economy? Mr Nellis: Tax is one issue that has attracted companies into the financial-services sector, but the availability and concentration of skilled labour and the attraction of a quality destination were major contributing factors. That could just as easily be created in Northern Ireland, and there would be a spillover effect. The Southern system would welcome that spillover into the North, creating a greater island cluster, rather than that spillover leaving the island. Given my position in a North/South body, it is not for me to comment on whether there should be alignment or parity on tax. From a business perspective, however, I would be happy if tax were to be reduced. It would help to attract some high-profile investment here, but it would not be absolutely critical. To answer the question on infrastructure, the precedent has already been set with the City of Derry Airport, which has been mentioned at different events by different officials, North and South. I have attended meetings to discuss the Donegal area. For the Southern Government, Donegal is certainly one of their greatest difficulties and highest priorities. Donegal comes top in all measures of deprivation, even coming above inner-city Dublin. The Government have a significant imperative to get economic activity into Donegal. It is not as if it would be a handout; it would be of great benefit to the Irish economy to regenerate Donegal. The timing is right, but the best way in which to regenerate Donegal would be to improve the corridor through Ms Gildernew’s constituency, which she mentioned, and also by improving the traditional road. Mr Aidan Gough (InterTradeIand): To follow on from that question, and Dr Birnie’s, the impact of corporation tax on developing a centre similar to the IFSC in Belfast docklands would be to speed the achievement of that centre greatly. There is no doubt that it hastened the achievement and growth of the IFSC in Dublin, but there are other variables, such as the telecoms infrastructure and skilled labour, and many of those are in place. The second issue relates to prioritisation of initiatives. Collaboration and taking an all-island dimension is a source of competitive advantage: it is not the only source, but it is a new source, and we should exploit that. Mr Dallat: I was glad to hear you mention the word “rail” — I think it was the only time that it was mentioned — and tie it in with the City of Derry airport. The case was made that Donegal, and probably Sligo, benefited from investment from the Republic. Is there a case to be made for the Southern Government’s investing in the Belfast to Derry railway? It would also complete its own rail strategy for the island of Ireland, and in particular the west, where rail transport has been sadly neglected on the southern side and in the North — both neglected and a victim of the troubles. Mr Nellis: If members were look back at any map of railway infrastructure on the island one hundred years ago, they would see a complete network of railways — north, south, east and west. Unfortunately, that was allowed to fall away, and it would be take significant investment to reclaim it. Whatever shape the Government take, they will need to prioritise, because they cannot do everything. If they want a good, strong road network, they will not have the investment to put into the rail network as well. It is up to people like yourselves — if and when you go back into the Assembly — to take those hard decisions. In value for money terms, getting the network up and running to move goods and services by road would be considerably easier and more cost effective in the short term. However, if the money were available, I would encourage an all-island rail network. The Chairperson (Mrs Long): That concludes the questions. Thank you very much; your presentation has been very useful. Thank you for your co-operation in sticking to time, and I apologise for the delay. Thank you for your written submission and for your time and effort this afternoon. If members have any questions, I am sure that they will contact you. Mr Nellis: Thank you very much. If members would like us to follow up in writing or by telephone, I will be happy to assist. The Chairperson (Mrs Long): The next presentation is from the Planning Service, and its representatives are Mr David Ferguson, Mr Tom Clarke and Mr Pat McBride. Thank you for attending and giving evidence to the subgroup, and thank you for your patience: we are well behind our scheduled time. The subgroup has about half an hour to hear your evidence. However, could you keep your initial opening remarks brief, so that we can tease out additional issues during the question-and-answer session? 3.45 pm Mr David Ferguson (Planning Service): Thank you. Pat McBride is our operations director and Tom Clarke is the strategic plans and policy director. The subgroup received our paper some weeks ago. I have three quick sets of points about context and our experience of the planning process and the planning system that I would like to make before we get into discussion. First, with regard to context, I think it is important to bear in mind the pressure on the agency from the well-documented increase in applications in the past number of years, which has far exceeded forecasts. The Planning Service also has ministerial commitments to an ambitious programme of area plans and policies. Secondly, the planning system has become more complex because of EU directives, legislative changes and case-law precedents, and the increase in interest and involvement in the planning process from a wide range of organisations and individuals, who, almost invariably, have conflicting views. Thirdly, as well as trying to keep the show on the road and respond to demands, the Planning Service has had to work through an ambitious modernisation programme that involves legislative, administrative and process changes. It has also begun to prepare for the implementation of the Review of Public Administration (RPA), which will see the Planning Service out of existence in less than three years’ time. Fourthly, at the heart of the modernisation programme, there are two objectives — speed and transparency — that pull us in opposite directions. Everyone wants the Planning Service to make quick decisions. However, more and more people want to know how those decisions are made and to have their say in the outcome. That was a quick thumbnail sketch of the context in which we believe any debate about the planning process should take place. Concerns about the process are well known to the Planning Service and have, indeed, been well documented. They have been reflected in the subgroup’s report and in its recommendations. We have had only a quick chance to read the report and the evidence that was submitted. I want to summarise those concerns, if I may. There are general concerns that the process is slow and unresponsive and that it is a deterrent to investment. There are also specific concerns, in particular the need to review, streamline and have adequate resources and tighter controls over response times by our key consultees. The Planning Service recognises those concerns. It agrees with much of the broad thrust of the report’s recommendations and has, it believes, responded to them. That is critical. Before I elaborate on how the Planning Service has responded, I want to explain the profile of our operational work. Some four fifths of our business is bread-and-butter stuff — small house extensions, single dwellings and small housing developments. Those applications comprise about 80% of the Planning Service’s business. Around one fifth of our business covers applications that might be classified as major — big retail developments, significant infrastructure projects, and so on, of which only a small proportion is truly regional. The Planning Service does not dispute that the overall process is slow. We could discuss the reasons for that. However, with regard to economically significant projects, which we assume are at the heart of the subgroup’s interests and concerns, we believe that the picture is not as bad as it has frequently been painted. For example, the planning requirements of the Investment Strategy for Northern Ireland — one of the mainstays of the Government’s drive to prime and support the expanding economy — are being met. We work with our Strategic Investment Board (SIB) colleagues to ensure that the planning process continues to support that programme in a timely way. In other areas, Belfast City Council recently published figures that show that 93% of all developments in the city during the past four years have received planning permission within, on average, three and a half months. Planning permission for other major private sector projects — Coca Cola’s all-island distribution centre; Bridgewater Park, a major development outside Banbridge; the North/South gas pipeline, and so on — has also been granted quickly. The Subgroup became inquorate at 3.49 pm. On resuming — 3.55 pm The Chairperson (Mrs Long): Members, we are now ready to continue taking evidence. I offer the witnesses from the Planning Service our apologies. Please continue. Mr McNarry: I have a problem in my constituency that I must deal with. I needed to make a couple of phone calls. The Chairperson (Mrs Long): That is all right. Please continue, Mr Ferguson. Mr D Ferguson: Perhaps I could pick up from the general points that I was making: the context of our work, the profile of our operations, what we treat as major and what we do not. We do not dispute that the overall process is slow. However, we do not believe that the picture with major applications is as bad as it is painted. I gave examples to show that, ranging from the investment strategy through to specific private-sector projects. We acknowledge, however, that perception is as important as reality, and we have responded to that with significant internal changes at headquarters. They are aimed at providing a sharper focus on the effective management and processing of economically significant applications, placing more emphasis on pre-application discussion with, and advice from, an internal, multi-disciplinary group of planners, roads engineers and so on. We work with consultees, especially the Environment and Heritage Service (EHS), which, as I said, acknowledges that there are problems with its response times. That is not in dispute. We recognise too that certainty is very important for prospective investors. On the area plan side of our work, we deserve greater recognition, if not credit, for what has been achieved. Just under 80% of the region’s land area, containing over 70% of the population, is now covered by up-to-date draft or fully adopted area plans. Work is in hand to secure coverage of the remaining five district council areas over the next couple of years. I have just a few brief concluding remarks. There is a wider debate about public confidence in, and the performance of, a planning process that the Planning Service has a clear responsibility to manage, but over which it does not have complete control. There is also a wider debate about a process that is growing in complexity and that has at its heart two objectives: speed and transparency, which are almost invariably in conflict. We want to promote, and are happy to be involved in, a balanced and informed debate about improving the system, starting with recognition of its conflicting objectives and of the fact that everyone involved, including us, has a part to play in its efficiency and effectiveness. In the meantime, and in the context of the subgroup’s first terms of reference, we are trying to respond to its recommendations and the critical role that planning has to play in the expanding economy by completing the suite of up-to-date area plans; continuing to sharpen our focus on the effective management and processing of economically significant applications; putting more emphasis on pre-application discussion and advice; and working with key consultees on service level agreements. The Chairperson (Mrs Long): Thank you for that presentation. We appreciate the information that you have provided. I ask members to be brief and succinct. Ms Gildernew: I am sure that that is not directed just at me. [Laughter.] It is good to see you again. I will begin with a declaration of interest. Many fine people work in the Planning Service, my sister among them. My constituency must contend with highly competitive neighbours. Towns such as Carrick-on-Shannon and Monaghan are frequently nipping at our heels in relation to private investment. People who want to develop or expand businesses often cannot do so because of planning restrictions and the slowness of the planning process. The backlog is causing huge difficulties in Enniskillen and Fermanagh in particular. Does the Planning Service intend to employ extra people to deal with the current backlog and to get to grips with the problem that impinges on development and expansion? 4.00 pm Mr D Ferguson: The Planning Service has no immediate plans to put in place extra resources, because they are not available. Planners, especially good, experienced planners, do not grow on trees; they require a certain amount of training and experience. Therefore, we do not have the resources for a quick fix. However, as I said in my presentation, we are trying to sharpen, and have been significantly sharpening, the focus on the big projects that pump-prime the economy. Other smaller bread-and-butter applications have got in the way, and we are tackling that separately in a different way. Our view is that we should focus our effort, both at headquarters and throughout our divisional network, on the big projects, and that is what we are doing. Mr Pat McBride (Planning Service): I am conscious that Draft Planning Policy Statement 14 has resulted in specific problems, particularly in two divisions, where there has been an influx of single-dwelling applications, and we are trying to manage that. I do not want to go into the nitty-gritty but, as David rightly says, it is difficult to attract experienced, qualified staff into the system. However, I am not sure that that is the solution. Our internal mechanisms, particularly those applicable to divisional managers, prioritise key applications, not only the high-level ones that David mentioned, but the significant localised commercial and industrial applications. Those mechanisms are already in place, and were drawn up in response to the large increase in single dwellings in the countryside. On a more functional level, Tom and I work together closely to see how the available resources can best be used to fill gaps and deal with the appeals process and so on. Currently, there are 1,200 live appeals. We attempt to manage those as far as we can with the available resources and by working together to recognise pressures and achieve results, particularly in relation to commercial development applications. Mr Tom Clarke (Planning Service): Part of our message to the subgroup is to acknowledge the general slowness in the process. However, perception within the Planning Service is that there are certain applications, such as commercial applications, that must be monitored and kept moving through the system, even though other applications are also in the system. Mr D Ferguson: Could I just add to that and stress the point that I made in my presentation? Part of the slowness is due to the sheer level of demand. However, it can also partly be attributed, in different ways and to varying degrees, to all participants in applications — from a large retail application to the smallest house extension. Every participant has the capacity to speed up or slow down the process, according to taste. It is extremely important to remember that the slowness does not derive only from the sheer volume of work; it derives from the quality of applications, the strength of opposition and so forth. Mr Dallat: The existing influx of applications will disappear. What future plans does the Planning Service have to engage more fully with economic recovery? To give an example of what prompted my question: as members know, there is a campaign to identify all small businesses in the countryside that have existed for 20 or 30 years without planning approval. In my constituency, that applies to the wee filling station in Garvagh that has had a Maxol sign for 40 years for which it has no planning approval. The Planning Service is probably the last organisation that I know of that does not have to answer to anyone. In fact, it does not even have to answer its telephones. Mr D Ferguson: What is your question? Mr Dallat: Sorry, that is fairly typical of what happens. My question is: where is the interrelationship between people like ourselves, who want to regenerate the economy, and the Planning Service, which must have the flexibility to do that in an open and accountable way? The Planning Service must not operate in a manner that is contrary to how, for example, the Department of Agriculture and Rural Development operates. What plans does the Planning Service have to talk to the Departments that are engaged in economic development? Mr T Clarke: The overall answer is that every Planning Service policy has been through a consultation process with all the Departments — there is no policy that has not been through such a process. That consultation is part of our normal procedure. For instance, recent draft planning policy statements such as Draft PPS 14 and Draft PPS 5 were passed to Departments for comment before being published and placed in the public domain for public comment. Therefore, there is integration at a policy level — for example, a policy that deals with rural businesses will have been through a consultation process. Likewise, the Planning Service is producing area plans that zone areas for industry, which will also be subject to an internal Government consultation process before being put out for external consultation. There is full integration at that level too. Thus, there is full Government awareness of policy and zoning plans. There may well be some differences about the minutiae of policy, but there is certainly co-operation and consultation prior to publication. Mr McBride: Just to clarify; Mr Dallat, you mentioned a campaign against rural businesses. I am assuming that your experience is that the Planning Service exercises enforcement functions when it thinks that it is expedient to do so. There is no campaign as such. Mr Dallat: It is partly that. Take the businessman in the rural area who runs two or three buses — Ms Gildernew: Or woman. Mr Dallat: My apologies. I was using the word “man” in the biblical sense. The small rural bus provider, who provides a service to rural people because there is no Translink service, cannot get planning approval to park buses. That is only one example. Small garages that are servicing farmers are told that they must close down because the Planning Service has discovered them. Draft PPS 14 has taken care of the human element; there will be no more planning approvals in that respect. I can see Jim Wells smiling about that. Mr McBride: This is not meant to be a fudge, but I do not know whether you want to go into the details. We have our own priorities and responsibilities in relation to enforcement, if that is what is being said. The Chairperson (Mrs Long): These issues are perhaps better addressed on a one-to-one basis, although I understand their relevance to economic development. Mr Dallat: Chairperson, I was trying to connect the Planning Service with economic development, but I admit that I have failed miserably. The Chairperson (Mrs Long): Thank you for that admission. Mr Ford: I welcome the gentlemen here today. I acknowledge that there has been some significant improvement in the backlog, particularly in the area-planning process. Of course, Edwin Poots and I were on the Committee for the Environment and got the Planning Service some additional resources, so we can take credit for that. Half of my constituency is in the Belfast Metropolitan Area Plan (BMAP) and the other half is in Antrim, Ballymena and Larne — and I shall not ask any rude questions about that. You have talked about economically and socially significant applications, and I do not dispute that key schemes have gone through reasonably well. However, I am concerned about Pat McBride’s comments about small-scale schemes. A small workshop that provides four or five jobs or a farm diversification project that underpins a couple of jobs are actually very significant applications. Some 40 such schemes could create the equivalent number of jobs that were lost at the Daewoo Electronics factory in Antrim last month. Some of those schemes are not strategic in any sense, but are nonetheless very important to small businesses. Those schemes are getting lost in a welter of patio doors and single dwellings. How is the Planning Service endeavouring to deal with that? Mr D Ferguson: That is a fair point. Pat McBride has already mentioned this, and perhaps he will say a bit more about it. However, at the divisional level, the bigger projects that I mentioned are managed in two ways. First, the regionally significant ones are handled directly by a special unit at headquarters. If an applicant seeks advice early in the process, the unit can carry out much of the work beforehand in co-operation with professional people from other Departments, such as the Roads Service and the Water Service. Secondly, our team at headquarters monitors the economically significant applications being handled at divisional level. If a blockage of applications arises, we can ensure that the matter is elevated to senior management level as quickly as possible. That is paying dividends. I would accept, however, that there are clusters below that, such as small commercial operations, which are not caught by those arrangements. Pat McBride will elaborate on how divisional managers try to manage that, in addition to dealing with the other issues that have been described. Mr McBride: Guidance was issued to managers on the prioritisation of planning applications, largely due to the influx of single-dwelling applications. It was of some comfort to know that managers already prioritise a range of commercial, industrial, social and grant-aid applications. There is a perception that planning processes have militated against farm diversification, for example. I could provide a list of those applications, but there are not that many. I am not answering the question with a question, but is the Committee saying that current rural planning policies do not make enough provision for small rural businesses? Ms Gildernew: Yes. Mr Ford: Mr Dallat referred to grants and planning processes being tied to a timescale. I was thinking of a particular case where an application seemed to take a long time. In that instance, the fault did not lie entirely with the Planning Service, but it seemed that the service was treating the case as it would any other routine matter. When I queried the matter, there was some speedy movement. However, there was no process in place to ensure speedy movement, because the case was not big enough economically. Mr McBride: Recently, another Department introduced grant-aid schemes, without any reference to the Planning Service. If it is any comfort, we picked up on that and have developed new working relationships with Departments to ensure that not only is the service actively engaged when such a grant scheme emerges, but actively involved in any new schemes that Departments may introduce. Of the many cases in Northern Ireland, only one, in the Omagh Division, resulted in a refusal. However, there were strong amenity reasons for that. Those who had provided information about that grant had not identified certain planning issues, which, we must all agree, are important. That is also our responsibility. The Chairperson (Mrs Long): The subgroup should note that interlinkage, because it is important to provide measures that would aid the Planning Service in helping developments. Mr McNarry: From the evidence that we have gathered, it is clear that the Planning Service has an image problem. I cannot do anything about that, but you should be able to do something about it now that it has been pointed out to you. Invariably, expressions of interest, particularly for large sites, are leaked. Can the Planning Service, within its constraints, pick up on that? Can the service anticipate problems that could arise if the application were to go ahead? That could be equally useful to the applicant and to potential objectors. I sympathise greatly with the Planning Service, as it may be aware of matters that are likely to arise. However, is the service restricted in reacting to those matters until an expression of interest becomes official? If so, that seems to be an impediment and is a resource issue. I would not want the Planning Service to waste time and effort on something that may not come to fruition. 4.15 pm However, the message seems to be that it would help an investor if he could get quick answers to his economic needs, including planning, so that he can ascertain whether he — or she — was wasting his or her time. Do you have a think tank that could address something that you heard was in the offing, and, if so, how would that work? Mr D Ferguson: The short answer is that we do. The unit that I mentioned earlier, which is at our headquarters, can do exactly that. I will come back to restrictions in a moment, but the unit is there to do exactly the sort of thing that you suggest — it is there to engage with prospective investors and developers on sites, large and small. As regards planning applications, the more pre-application discussion that we have, especially if the proposal is fairly certain to progress to application, the better, and there is a greater chance of the application going through the system once it comes in. Therefore we would encourage that, particularly for bigger projects. The only restriction is that we discharge a dual function. We have an advice-giving role, which is critically important for the larger applications, but we also have a regulatory role. We must decide on applications when they come in, sometimes to the dissatisfaction of the applicant, and sometimes to the dissatisfaction of the objectors, but we still have to decide on them. In giving pre-application advice, however, we need to be absolutely clear that we do not step over the important dividing line between giving advice and being a regulator. We are not the only ones in the business of giving advice. I would strongly advise applicants, especially for large projects, to get private advice as well. Mr McNarry: That is very interesting, and I want to feed into it. I am neither objecting to it nor am I against the entrepreneurial spirit of people going into business, but the business of planning consultants is growing. In some cases they are rip-off merchants and in other cases they are genuine people. It depends on what end of their brief you are at. Do they have access to the unit in any special way? Could I access the unit? The money that is spent on making an application is not small beer. Mr D Ferguson: Yes, you could, but we are not a substitute for applicants — particularly applicants for larger projects — engaging their own planning consultants. However, if you had a major development, you could engage — Mr McNarry: Or a small development? Mr D Ferguson: It depends. The unit deals with the larger projects that we have assumed in all our discussions are the focus of the subgroup’s consideration. I would strongly encourage an individual making an application for a smaller project that the unit would not normally deal with to approach the divisional office. Mr Poots: We referred in our report to creating an enabling environment for the planning of our economy. However, what we have is a restrictive environment, because in an economy one wants to grow things. We want the economy to grow and to create jobs and wealth. However, that can be done only if we have people. Area plans that are particularly restrictive and drive up house prices to an extortionate rate — by more than 50% this year in many areas — need to be addressed. How are we to encourage people back to Northern Ireland to take up employment if they have to spend much more on buying a house here than they would in mainland UK? That must be addressed. The area plans are not meeting the housing growth indicators (HGIs), and the Belfast Metropolitan Area Plan (BMAP) is an example of that. When it was originally produced, it contained more housing than was required, but, before we have reached the public-inquiry stage, there are now fewer houses in the plan than the HGIs show are required. Leaving aside the issue of single dwellings in the countryside, Draft PPS 14 hugely restricts tourism and rural diversification. As I represent a largely green-belt area, that may not seem to make that big a difference. However, I have discovered that some £2·5 million of European grants from a budget of £7·5 million has had to be handed back because, although the grant aid had been approved, planning permission had been refused. Those projects were almost exclusively in the green belt, and similar policies will now be applied throughout Northern Ireland. As a result, we shall not be able to make use of a lot of European money that might otherwise have been available to us. When can we move from what is essentially a restrictive planning environment to an enabling one? Mr D Ferguson: I shall make a general observation in response to that. Northern Ireland’s economy is growing, and there are a number of reasons for that. Northern Ireland is also rich in natural and, to some extent, built heritage — it is a very rich region indeed. Planning policy, in broad terms, is aimed at striking a balance that allows the economy to flourish in a way in which that rich natural and built heritage is not destroyed or unreasonably affected. That is what is at the heart of planning policies that have an effect on the economy. I assume that you are not suggesting that development should be let rip. Mr Poots: You assume correctly. Mr D Ferguson: Since that is the case, some sort of balance must be struck, and we are trying to do just that with policy at the minute. We may not, in your view, get the balance right, but we are trying to ensure that the economy can flourish in a way that does not have a deleterious effect on the natural and built heritage. Mr T Clarke: One of the biggest contributions that we can make to an enabling environment is to provide the certainty to which David refers. That is why all our area plans contain clear policies. Members can argue about whether they are restrictive or not, but they do give a degree of certainty, and that is really what developers are after. We intend to have them all out in the next 18 months or so, and then we shall be in an almost unique position in the British Isles in having such a level of up-to-date coverage, and that should give us an advantage. Mr Poots knows that the area plans that we produce are controlled by the figures in the Regional Development Strategy and in the HGIs. Those were changed recently, and all our area plans are adjusting to reflect that. You mentioned BMAP, which was published with figures that were above the then HGIs. New HGIs came out, and we are seeing how we can revise the plans in the light of those indicators. We do try to make adjustments as HGIs come out. The figures show that we have been approving increasing numbers of houses each year for a while now. From 1998 to 2004, we increased the number of permissions granted for housing by close to 100%, so there is more to the rising cost of housing than any lack of planning permission. We are trying to facilitate, but there are key factors at work here other than planning. Mr Poots: One matter that has to be addressed is land banking. As a result of having a comprehensive set of area plans, people can identify land that can be developed. Developers are banking land — they make more money by buying land and sitting on it than by building on it. Has any thought been given to how we can counteract that process for the benefit of the people, as opposed to for the benefit of the developers? Mr T Clarke: The Government are aware of that. The Planning Service does not see itself as the lead agency in solving that problem, but we know that our Department for Social Development (DSD) colleagues are addressing it. For what it is worth, our contribution is to grant time-limited permission for housing, and that will ultimately lapse it if is not implemented. I do not argue that that is the key solution to the problem, but it is an area to which we can contribute. The Chairperson (Mrs Long): Michelle Gildernew has one further brief question to ask to finish the session. Ms Gildernew: As a supplementary to David McNarry’s question, what is your definition of the word “major”? Developments that are major in Belfast may not necessarily be major elsewhere. Mr D Ferguson: That is a good question. We do not have a specific definition of that word written down as such. However, I take your point that what is big in Belfast may not be big in Enniskillen or Omagh. A large acute hospital in Enniskillen is as important as a big acute hospital in Belfast. Work on one of the projects that I mentioned has been proceeding well, because of the time and effort that applicants put in before their application was received. Ms Gildernew: However, to be more specific, 60 additional jobs with expansion potential in Beleek is different from 60 additional jobs in Belfast. Mr McNarry: Do not forget that I also represent a rural constituency, so that point applies just as much to Newtownards. However, the planners do not know where Newtownards is. [Laughter.] The Chairperson (Mrs Long): On that high point, Mike Smyth, as adviser to the subgroup, will ask a question about some of today’s presentations. Mr Smyth: What could planning bodies generally and the Planning Service in particular do as part of a comprehensive economic package to rebalance Northern Ireland’s economy? What positive contribution could you make? I notice that your presentation discusses the current situation and perhaps reflects on past bad publicity, but do you have any positive and proactive suggestions for the package? Mr D Ferguson: To pick up on the recommendation in the subgroup’s report, which was debated in the Assembly, we think that we are already doing most of the work that the subgroup wants. Planning is pivotal to the development of the expanding economy, and we have been positioning ourselves in recognition of that in order to deal with what is coming through the system and with the perception of the slowness of the process. We have been positioning ourselves to ensure that the big stuff, which we assume is at the heart of the subgroup’s interest, goes through the system as quickly as possible and that the not-so-big stuff is adequately and quickly handled at divisional level. I return to a point that I made at the beginning. I cannot stress that point enough, along with the fact that we know that we are pivotal and that we have a responsibility to manage the process. However, there are limits to our ability to do that, because others are involved. It is important that the subgroup look at where and why there are delays. I suggest that there is a combination of reasons for those delays. I freely admit that some are down to the Planning Service and some are down to difficulties that our consultees are having. However, some are due to applicants and their agents not supplying us with the information that we need in order to process an application. An application, large or small, will go through the system at the speed of the slowest in the column, which is made up of individuals and organisations. It is in everyone’s interests to ensure that everything moves through the system quickly. Mr Poots: The Environment and Heritage Service (EHS). The Chairperson (Mrs Long): Thank you very much for coming before the subgroup this afternoon and giving us your time. I am sorry about the delay; I thank you for your patience. It has been a useful session, albeit robust at times. The documentation that you have provided for members will be very useful. Thank you for that. Mr D Ferguson: Thank you. Mr McNarry: If Jim Shannon were here, he would be running after the witnesses saying: “There’s a couple of wee applications that need sorted out.” [Laughter.] 4.30 pm The Chairperson (Mrs Long): We are now in closed session and will deal with the remaining items on the agenda. A number of members are under considerable time pressures because they have other engagements and should really have left the meeting before 4.00 pm. We should try to deal with the rest of the business as quickly as possible. I suggest that the review of today’s evidence session be postponed until the next meeting of the subgroup. Are members content? Members indicated assent. The Chairperson (Mrs Long): There are three other items on the agenda. We should deal with the first item — the quorum — as quickly as possible. At present, the quorum is seven; members have demands on their time, attending PFG Committee meetings and plenaries, and it has become increasingly difficult to maintain the quorum. It has been suggested that the quorum be reduced to five, with one member from each party being present, which would be a significant enough quorum to ensure that we meet our obligations on all-party consensus on issues. Are members agreed that that proposal be forwarded to the PFG Committee for its consideration? Members indicated assent. The Chairperson (Mrs Long): The second item was raised by David McNarry during the question-and-answer session with InterTradeIreland, and it relates to his concerns about increasing all-island economic collaboration and pressure being applied by Government to move in that political direction. We discussed that issue during the suspension of the meeting and were unsure whether it fell within the remit of the subgroup. Given that the issue has political overtones, it would be an appropriate item to raise at the PFG Committee. Mr McNarry, are you happy for the matter to be referred to the PFG Committee, at which it could be discussed and any information fed back to the subgroup? Mr McNarry: I cite the precedent of the subgroup’s writing to the Secretary of State about the working group on industrial rating, which includes the Northern Ireland Manufacturing Focus Group. The Secretary of State established that working group without informing us. The Government would appear to be working on all-island economic collaboration. I am concerned about the issue, and I think that we are due an explanation from the Government about what activities they are involved in and what decisions they are taking, especially given that this subgroup is meeting and reporting back to the PFG Committee. After all, the Secretary of State is the genesis of all this. The Chairperson (Mrs Long): There is a difference, in that the working group on industrial rating came under the remit of the economic challenges subgroup at the time that the letter was sent — Mr McNarry: That is not true. The Chairperson (Mrs Long): — whereas North/South co-operation is not. It is an important issue that should be dealt with, and, although it has implications for the subgroup, it would be best dealt with by the subgroup’s asking the PFG Committee to write to the Secretary of State, as it falls more under a political remit. Mr McNarry: I shall not get into an argument with you, but this is an economic issue. I have concerns about the political aspects, but it is an economic issue, in that the Government are taking economic decisions about our country. We have had an extension to our time, and we have been charged with producing further evidence. We raised some of the matters that arose in InterTradeIreland’s statement today. We raised them, and they are included in the subgroup’s report, which was endorsed by the PFG Committee and accepted by the Assembly, so it relates specifically to economic issues. The Chairperson (Mrs Long): Do you wish to put a specific proposal? Mr McNarry: I propose that we request of the Secretary of State a full report and details of the Government’s remit in this economic collaboration, as outlined in the InterTradeIreland statement. The Committee Clerk: The UK Government’s remit? Mr McNarry: Well, this is the United Kingdom. The Committee Clerk: I appreciate that; I am just writing it down. The Chairperson (Mrs Long): Is there consensus on that proposal? Ms Gildernew: No, there is not. First, it is political, and people have come to give evidence who may be more closely aligned politically to Mr McNarry than I am. However, it makes absolute economic sense to piggyback one of the most successful global economies. Many people have said that increased collaboration means more economic success for the people who live here. I am very disconcerted about David’s opposition — Mr McNarry: I am not denying that. I need to know what they are doing. Ms Gildernew: The more the better. Mr McNarry: You cannot just say that. Ms Gildernew: I can. The Chairperson (Mrs Long): Members, let us have some order. We are not going to enter into discussion on the pros and cons of that issue. We asked whether there was consensus. There was not, so can we vote to establish whether we ask for a report from the Secretary of State? That is the crux of the matter. I am aware that we could lose our quorum, so we need a decision in order to progress. Ms Gildernew: Take it as an individual, rather than a subgroup, proposal. I appreciate that Mr McNarry has his opinion, but — Mr Ford: David has not explained why the work of InterTradeIreland, as opposed to that of all the other agencies that have a remit on this subgroup, should be singled out. Mr McNarry: Let me make it clear: I picked up from the InterTradeIreland statement more information than I was previously aware of. I expressed my gratitude to those who presented the statement for producing that information. However, I read from it that our Government are doing things in Northern Ireland’s so-called economic interest about which I know nothing and about which this subgroup should know more, so that it can be included in its deliberations and its second report. The Chairperson (Mrs Long): You have put your proposal, and we have advice on that proposal. The Committee Clerk: The practice would be that David would ask the PFG Committee to request a report, so if the proposal — Mr McNarry: No, I am sorry. That is a cop-out. The Committee Clerk: It is the only thing — Mr McNarry: No, it is not. I will challenge you on that. The Committee Clerk: It is not the subgroup of the PFG Committee’s — Mr McNarry: We have a voting situation, because it was agreed that this subgroup could agree proposals by a majority vote. If my proposal is knocked back to the PFG Committee, consensus will be required. We have already heard from Sinn Féin that there will not be consensus, so I may as well not put my proposal. Some substance must be applied to the fact that we can vote on a proposal. I am quite prepared to accept the decision of that vote, but we should not play at ducks and drakes with it by knocking it back to the PFG Committee. Everybody knows fine well that we have knocked other proposals back there, and, because there is no consensus, they go out the window. The Chairperson (Mrs Long): The substantive point is that if we put David’s proposal to a vote and it is agreed by a majority, it will have to go to the PFG Committee in order to be progressed, because this is a subgroup of that Committee. We can take the vote today, but the issue is what subsequently happens to the proposal. We are simply making you aware of that, David. You have put your proposal — The Committee Clerk: To be fair, David has a point, and I would want clarification before saying that that would be the procedure. What you say, Chairperson, is my impression, but we have in the past invited the Minister without going through the PFG Committee, so, in deference to David’s point, I would prefer to check that first. However, it would be useful, irrespective of whether we have to through the PFG Committee, to be clear about David’s request. I have written: “To request of S of S a full report and details of the UK Government’s work on North/South economic collaboration with the Republic of Ireland” — Mr McNarry: Through the British-Irish Intergovernmental Conference. The Chairperson (Mrs Long): That is the proposal. It will be put to a vote and, depending on whether it is successful and on the advice that we receive on protocol, will be passed either to the PFG Committee or to the Secretary of State. Are members clear? The proposal will be put to the vote, and everything will become apparent afterwards. The Committee Clerk will read the proposal. The Committee Clerk: Mr McNarry’s proposal is to request from the Secretary of State a full report and details of the UK Government’s work on North/South economic collaboration, through the BIIGC. Members should bear in mind that each party has one vote on the proposal, so members should not vote contrary to their colleagues. [Laughter.] Dr Birnie: That would never happen, would it? The Chairperson (Mrs Long): Are members agreed? Can we have a show of hands? Mr Ford: I agree to seeking the information, but I certainly do not agree that it should hold up the subgroup’s work. Mr McNarry: No. Mr Poots: All we want is the information. The Chairperson (Mrs Long): Are members agreed? Members indicated assent. The Chairperson (Mrs Long): The third issue, which Esmond Birnie raised, concerns the industrial rating subgroup. For information, Dr Birnie asked why the Minister had not responded to our enquiries. We have been advised that the Minister is on leave until October, which explains the delay. The Committee Clerk: An interim reply was received a couple of weeks ago. Dr Birnie: Is David Hanson on leave? Mr McNarry: Goggins, or whatever you call him. Dr Birnie: Has the responsibility moved to another Minister? The Committee Clerk: Hanson was due to reply, and a holding reply, which I put before the subgroup, was received a couple of weeks ago. Dr Birnie: We should probably write to the Minister in any case, so that the issue is dealt with as soon as possible. A number of members are concerned that we are working in a very similar area to the working group on industrial rating, and we want to know what it is doing. My understanding is that the working group on industrial rating will meet David Hanson on 18 September. The fact that the NIO claims that Minister Goggins is looking after it seems to be a discrepancy. What is going on? The Committee Clerk: It may be a question of names in my mind, but I will check. The Chairperson (Mrs Long): Are members content that we consider the matter further? Members indicated assent. The Chairperson (Mrs Long): The next item of business is the date, time and place of the next meeting. Before that, we must agree the press release. The Committee Clerk has a draft. The Committee Clerk: The draft press release covers all witnesses that appeared before the subgroup today, except the Planning Service. The Chairperson (Mrs Long): Are members content with the press release? Members indicated assent. The Chairperson (Mrs Long): The subgroup will meet again at 10.00 am on Thursday 21 September in room 135. The subgroup will take evidence on an economic package/peace dividend, and fiscal issues. The Department of Enterprise, Trade and Investment and the Economic Development Forum will attend the morning session, and John Simpson will attend after lunch. Members will be asked to briefly outline party views on an economic package and fiscal issues in the afternoon. That will be followed by a facilitated discussion, led by the two economic advisers. It is therefore important that parties submit written documentation on their position, as that will ease the discussion. The economic advisers will also give their views. The meeting will run until late afternoon. The objective is to achieve consensus on the basic ingredients of a peace package, including preferred fiscal measures. Are members clear on the tone of the next meeting and about what is required? Ms Gildernew: As the meeting is likely to go on until late afternoon, is the quorum issue likely to be resolved by next week? The Committee Clerk: That depends on the PFG Committee. When will it meet next? The Chairperson (Mrs Long): Tomorrow. The Committee Clerk: I will write to the PFG Committee immediately. Mr Dallat: As a mere substitute on the subgroup, can I ask an entirely innocent question? The Chairperson (Mrs Long): Yes. Mr Dallat: Thinking positively, as I always do, if a new Assembly is up and running from 25 November, the Budget will be announced the following week, detailing all the various proposals and the new industrial rating system. Should the PFG Committee address that issue now? The Secretary of State, with his usual arrogance, said that individual MLAs could not address the rating system. However, because the Secretary of State established the PFG Committee, it could provide some input into how the rating system will function. Political parties would not then be hung out to dry for having to operate a system into which they had had no input. The matter should be mooted at the PFG Committee. The subgroup is like Alice sitting in Wonderland discussing matters that may never happen. On the other hand, we shall inherit a direct-rule Budget — and everything associated with it, such as rates, which we were crucified for on the radio this morning — that we have had nothing to do with. We were not allowed to have anything to do with it. 4.45 pm The Committee Clerk: Speed is always an issue when the subgroup needs to raise issues with the PFG Committee. I suggest that the quickest and best approach would be for each party’s representatives on the PFG Committee to put the matter on the agenda if they feel that it is appropriate. Mr Dallat: How do we get it on the agenda? Ms Gildernew: Talk to your PFG Committee representative. Mr Dallat: That could be difficult. Mr McNarry: I want to return to the question of producing papers. The Ulster Unionists would prefer to hear what the economic advisers have to say, if that were in order, so that we could work out some balance. I have a fair idea of what the Ulster Unionists will say, and a fair idea of what everyone else will say, but we would be interested to hear what the economists have to say. The Chairperson (Mrs Long): The timing is difficult. The subgroup has had to move the review of evidence from today’s session until the start of the next meeting. Mr McNarry: The Ulster Unionists could produce a paper 48 hours after they have listened to the economists, if that would be of help. The Committee Clerk: There is a practical issue to consider. The deadline for the report on the economic package, which includes fiscal measures, is 4 October. That means that the subgroup will have to consider the draft report at the meeting before that, which is 28 September — the week after next. The reason why it was suggested that we discuss the draft report on the afternoon of 28 September was that all the evidence would have been heard, except for more from the political parties. The idea was to have an open forum discussion informed by the economic advisers, who would also submit their views, and try to reach consensus. The difficulty with the timing would be that there would be no space to do that if you leave any views out, unless we were to hold a further meeting. The Chairperson (Mrs Long): The other option would be that members could arrive equipped with their overview statement and with a draft report that they could amend after the discussion. At least there would be some basis for progress. If that were acceptable, it would allow the Ulster Unionist Party to firm up its position in the hours following the meeting, as opposed to being tied to a final draft at the meeting. Mr McNarry: I feel that we are being rushed. I do not live too far away, so I am asking for something for members who have to travel greater distances. I would prefer to slot in another day and get it right rather than — with all due respect — rush something, only to find that it is incomplete, because the further evidence that the economists will have presented will not have been included. Ms Gildernew: You have great faith in the economists. Mr McNarry: We are paying them. The Chairperson (Mrs Long): The meeting would need to take place on Monday or Tuesday of next week, so we need to agree that we shall meet. Ms Gildernew: Monday does not suit me. Mr McNarry: Monday is a difficult day, as the Secretary of State is giving evidence and all sorts of crap to the PFG Committee. The Chairperson (Mrs Long): There could also be a plenary on Monday or Tuesday. Mr McNarry: There is a plenary on Tuesday. The Chairperson (Mrs Long): I have just been told that there is a plenary on Tuesday and Wednesday. I take on board the points that have been made, but there does not appear to be any way of extending the deadline. If members could work on the basis of draft reports, that would allow the subgroup to move on. Adjourned at 4.48 pm. |