FSB Response to Varney Reports

The Federation of Small Businesses is Northern Ireland’s largest business organisation with over 7000 members and growing, from every sector of industry. As well as providing an invaluable legal helpline for members, the FSB lobbies all decision makers to create a better business environment.

From the outset the FSB would like to acknowledge the work carried out by the Treasury team and its willingness to engage with the business community including holding meetings with representatives from our policy committee and policy staff.

In general the Federation is disappointed with the two reports produced by Sir David Varney. Whilst many excellent issues have been raised and some useful proposals put forward, our members feel that the recommendations lack the recognition that the business economy in Northern Ireland needs an effective boost to revitalise and that it has been held back by almost thirty years of ‘the Troubles’ and as a result has suffered from a major lack of investment in its infrastructure.

Our critique will examine each of the reports separately. Firstly, we will respond to the Review of Tax Policy in Northern Ireland. We join with all the other business organisations, business leaders and politicians in their disappointment that Sir David Varney felt unable to recommend that Northern Ireland be granted a corporation tax rate that mirrors its closest economic neighbour the Republic of Ireland. Whilst we can agree that there is no ’silver bullet’ that will kick start the economy of Northern Ireland, it is our belief that this one action would encourage much needed foreign direct investment and would in turn encourage the Northern Ireland Assembly and businesses to invest in other elements such as skills development.

Corporation Tax

The FSB believes that a corporation tax of 12.5% is justified as Northern Ireland is a unique region in the United Kingdom - being the only region with a land border with a country with a much lower rate of corporation tax. The FSB feels that the Review did not acknowledge the potential amount of FDI that could come to Northern Ireland as a result of this action. In our view it would lead to a significant increase in inward investment.

The companies that invest will need to be serviced and that will principally be the responsibility of small business. This trickle down effect is essential to the development of the small business sector in Northern Ireland, leading to increased innovation amongst small businesses, investment in research and development , and a consequent examination of the need for further skills development.

Other incentives

The FSB is awaiting a decision on the issue of Small Business Rate Relief from the Northern Ireland Executive. Northern Ireland is the only region in the UK that does not have this form of relief, and we believe that a model recognising the needs of small businesses locally would provide an additional boost to business confidence and ultimately to the economy. We would urge the Minister for Finance and Personnel to proactively consider the Welsh model of Small Business Rates Relief for Northern Ireland.

The second and most recent report - the Review of the Competitiveness of Northern Ireland has much in it that the FSB wishes to respond to on behalf of its members. Our critique will focus on the issues of Employment and Skills, Investment, Innovation, Enterprise, Public Sector Reform and Infrastructure Investment.

Employment and Skills

The FSB supports all proposals that will enable employment and skills levels in Northern Ireland to be increased. Northern Ireland has the largest level of economically inactive people in the United Kingdom as well as a culture of not seeking to maximise the benefits of further education.

Back to basics – Literacy and Numeracy

Whilst we can support an increased focus on subjects relating to Science, Technology, Engineering and Mathematics, it is our belief that the most basic of skills i.e. literacy and numeracy need to be urgently tackled by the Northern Ireland Assembly.

Whilst the FSB welcomes recent announcements that a taskforce on literacy and numeracy will soon be presenting its findings, the business community cannot wait years for its recommendations to be formulated and implemented. We therefore agree with the conclusion of the Review that ‘improving basic skills in the current workforce must be the Executive’s primary goal’. The FSB further supports the Review call for a review of ‘Success Through Skills’ to determine if it is delivering basic skills and workforce training.

Next Stage – Apprenticeships

The FSB supports the call for the Department of Employment and Learning to consider ways to increase the take-up of youth and adult apprenticeships. These apprenticeships should be tailored to produce ‘career path apprenticeships’.

Low skilled/No skilled

The FSB supports the Review recommendation that low skilled workers should be kept in employment. A skills audit should be conducted of the low skilled workforce to determine and support the development of skills in this group. There should also be support for measures that would tackle the issue of the economically inactive by basing the delivery of some benefits on an individual attending skills courses.

The FSB supports action taken by the Assembly in these areas and realises that there are budgetary limits to delivery on some of these elements. However, these elements form the basis of future economic success. It is to be hoped that Sir David Varney and the Review Teams’ recommendation that "the UK government should help the Northern Ireland Executive to take and implement the difficult decisions that are needed to reform their economy by providing incentives that are linked to reform."

Investment

Whilst the FSB believes that a more favourable corporation tax rate would do more to assist Northern Ireland in attracting foreign direct investment, it does welcome some of the recommendations detailed in the Review.

Planning

The FSB agrees with the Review that the review of the planning system in Northern Ireland need to be ‘quickened to enable reform to take place more rapidly.’ Planning is often seen as a barrier to business of all kinds as it is too slow a process and is a frequent issue of concern raised by small businesses. The review of planning needs to recommend a faster more streamlined process such as the Strategic Infrastructure Bill in the Republic of Ireland.

Infrastructure

The FSB welcomes the thrust of the Northern Ireland Executives’ Programme for Government and Investment Strategy and its commitment to make the economy the number one priority and to have it serviced by a world-class infrastructure. At a time of global economic challenge the only way Northern Ireland business will have the capacity to compete is by having a reliable transport system including rapid transport initiatives as well as up to date and fully functional telecommunications infrastructure.

Invest NI

Invest NI has not been a fully engaged partner with the small business sector in Northern Ireland. Whilst its corporate plan pays lip service to the desire to help develop small business in reality a large proportion of members are unhappy with the outcomes from their dealings with the body.

The FSB supports the call for a review of the work of Invest NI and would wish to see the body develop the role not only of politicians and departments but also that of business representative organisations who should have an input into the future work of Invest NI.

Innovation

The FSB is an active stakeholder in the recently published Northern Ireland Innovation Strategy and is currently seeking to work with members in promoting this concept. Too often innovation is associated with the hi-tech and IT sectors, when in fact many ‘traditional’ businesses practice innovation without recognition. The FSB would like to see greater acceptance of a broader definition of the term innovation.

R&D Tax Credits

Innovation requires investment in time and resources for a small business. The Review states that there is a low uptake of these credits in Northern Ireland. The FSB is aware of the existence of R&D tax credits, however many businesses have neither heard of them or have the time or knowledge of the application process. At the very least the FSB would like to see an administrative support programme to assist small businesses with applications as well as a promotional campaign to raise awareness of the credits amongst small businesses.

Third Level Education

The FSB supports the call in the Review for closer links between business and third level education i.e. universities and colleges of further education. The FSB is already working closely with the further education sector, although there is clearly scope for future development of this partnership.

Voucher Scheme

The Innovation Voucher Scheme mentioned in the review is a good idea. Small businesses will need to be consulted in order to ensure the format of it is useful and relevant to the sector.

Recognition

Small businesses and others who invest time and financial resources in innovation need to be recognised by government and the public. This will act as a further incentive to business to innovate and will encourage others to engage in this activity.

Enterprise

The FSB is pleased to see that the Review proposes an investigation into the causes of the low uptake of the Small Firms Loan Guarantee. It is likely that there will be a case for further intervention to support the scheme; however, the FSB would like Invest NI to consult with small business to assess the knowledge and applicability of the loan to small businesses as soon as possible.

All forms of financial assistance to businesses should be small business-proofed to ensure that the largest business sector in Northern Ireland has the opportunity and awareness to benefit from support. The FSB looks forward to contributing to the development of the Regional Economic Strategy, which needs to include recognition of the contribution of SMEs to the economy and to consider the issue of business support.

The Review recommends examining in detail the barriers to growth. Indeed, the FSB produces a bi-annual report in entitled ‘Barriers to Growth’. This report is currently being updated and the FSB would be delighted to share the findings with relevant bodies.

There is whole hearted welcome to the recommendation that regulatory burdens are kept to a minimum, and the FSB acknowledges the Executive’s current commitment to addressing this issue. In order to achieve this, the FSB believes that there should be a mandatory small business impact assessment of each new regulation. This should be coupled with an independent audit of regulations in Northern Ireland, with the objective being to see that the regulatory burden can be reduced.

One of the greatest barriers to growth is the high level of red tape, bureaucracy and regulation, and despite many pronouncements that work has been carried out to achieve this, many small businesses report seeing little, if any, improvement.

Public Sector Reform

Performance and Efficiency

Much is spoken of the need to grow the private sector but a cost effective and structurally efficient public sector has a key role to play in economic development. The FSB agrees with the Review that there needs to be a value for money and reform of the public sector. Whilst pleased with the thrust of the Review of Public Administration the FSB believes that it is not happening either quickly enough or with sufficient transparency.

The FSB supports the role of the recently formed PEDU (Performance Efficiency Delivery Unit). It is to be hoped that this unit will ensure value for money and a public sector focused on delivery and service to people and business.

Asset Disposal

Asset disposal is a sensitive issue for businesses and the broader public in Northern Ireland. Whilst the Prime Minister has recently announced that the Executive will be authorised to retain £2bn of the proceeds of such sales, caution is urged. It should be realised that this would be a one-off sale of what can be considered the economic ‘crown jewels’ of Northern Ireland, such as Belfast Port. The present global economic climate does not allow for consideration of the sale of some of these assets as their true value would not be recognised. When the time comes for any potential disposal there must be a fully transparent and consultation based approach on how to invest the proceeds.

Public and Private Delivery

The FSB agrees with the Review findings that some services delivered by the public sector could more efficiently be provided by the private sector including public car parks and the Driver and Vehicle Agency. The FSB suggests that the Executive formulate a list of services that the private sector could deliver on behalf of government. This would also provide an extra rationale to protect post offices as they could deliver some appropriate services.

Infrastructure Investment

The FSB is reassured by the approach taken in the Programme for Government and Investment Strategy by the Northern Ireland Executive. The Executive clearly recognises that investment in infrastructure is crucial to the development of the economy in Northern Ireland.

The basic call by business leaders is to be able to deliver their products to market quickly and cost effectively. The FSB recognises the work already being carried out by the Department for Regional Development on roads; however, more strategic investment is needed in airports, ports and transport links to them. The Review stated that Northern Ireland as a small economy needs to export its products therefore anything that facilitates this is welcome.

A rapid transport system for Belfast is also to be welcomed as it will support tourism and business investment.

Conclusion

The major concern of the Federation of Small Businesses is that the Northern Ireland Executive has not been given a sufficient financial package by the UK government to support the proposals laid out in the Reviews. If lower Corporation Tax is not to be granted, then the series of measures proposed by the Reviews needs to be adequately funded.

Northern Ireland is a special economic case within the United Kingdom. It is the only region to suffer massive difficulties because of thirty years of conflict. Economically, it is the only region of the UK to share a European land border with a much more competitive and business friendly state in the Republic of Ireland.

We believe that the implementation of many of the proposals in the two Reviews would create an excellent basis for a developing economy but the Northern Ireland Executive will require an increase in financial support to ensure that delivery is possible.

Our critique ends by repeating the words of Sir David Varney encouraging further support and reform.

"The UK government should help the Northern Ireland Executive to take and implement the difficult decisions that are needed to reform their economy by providing incentives that are linked to reform."

Thank you again for the opportunity to offer this response.