Subgroup on the Economic Challenges
facing Northern Ireland

Tuesday 25 July 2006

Members in attendance for all or part of proceedings:
The Chairman, Mr Francie Molloy
Dr Esmond Birnie
Mrs Diane Dodds
Dr Seán Farren
Mr David Ford
Ms Michelle Gildernew
Mr Mitchel McLaughlin
Mr David McNarry
Mr Sean Neeson
Mr Edwin Poots
Ms Margaret Ritchie

Witnesses:
Mr Frank Bryan, Northern Ireland Business Alliance
Mr Declan Billington, Northern Ireland Business Alliance
Dr David Dobbin, Northern Ireland Business Alliance
Mr Stephen Kingon, Northern Ireland Business Alliance
Dr Michael Maguire, Northern Ireland Business Alliance
Mr George Dorrian, Federation of Small Businesses
Mr John Friel, Federation of Small Businesses
Mr Glyn Robert, Federation of Small Businesses
Mr Aidan Gough, InterTradeIreland
Mr Liam Nellis, InterTradeIreland

The subgroup met at 10.08 am.

(The Chairman (Mr Molloy) in the Chair.)

The Chairman (Mr Molloy): I welcome members and remind them to switch off their mobile phones. The session is being recorded for Hansard, and mobile phones interfere with the recording equipment.

The mother of Cathie White, the Committee Clerk at last week’s meeting, died on Friday and was buried yesterday; there is a sympathy card circulating if members wish to sign it.

The Committee Clerk: We have received apologies from Alasdair McDonnell — Seán Farren will attend in his place — and from Ian Paisley Jnr and Peter Weir, who will be substituted by Diane Dodds, who will be slightly late, and Edwin Poots, who will be here in a moment or two, as will Michelle Gildernew, who is on her way back from Westminster.

The Chairman (Mr Molloy): Members will have copies of the draft minutes of the meeting held on 20 July. Can they be agreed?

Members indicated assent.

The Committee Clerk: Members should bear in mind that the minutes will appear on the website and will be available to the public.

The Chairman (Mr Molloy): The Economic Development Forum (EDF) was invited to attend this session but declined. As it is an overarching body, and as the subgroup will be taking evidence from a number of its constituent groups, it felt that its attendance would be inappropriate.

Mr McNarry: For the record, who are “Hutchinson, Graham” and “Lamb, Edel” who received a copy of the e-mail? This is an Assembly Committee, and this e-mail has been circulated to people that I do not know and those sitting at the top table do not know. Who are they and for what purpose have they been circulated the e-mail?

The Committee Clerk: I have just arrived back, David, so if you pass me a copy of the e-mail I will check it out.

Mr McNarry: It is on the file.

Dr Farren: I recognise one of the names: Graham Hutchinson is associated with the EDF.

The Committee Clerk: I think that they are all associated with the EDF.

Dr Farren: It would be appropriate for them to be informed, since the EDF was invited. They are the civil servants who service the forum.

The Committee Clerk: That is the explanation.

Mr McNarry: If that is the case, fine. I am not sure that I would expect them to be circulated on this issue.

You could infer from the EDF communication that as it claims to represent the majority of key players, perhaps we should dispense with inviting the key players and just ask the EDF. It has a dual role. However, I do not want that interpretation because the EDF is presumptuous in its communication. It is important that the EDF attend as a representative, stand-alone group.

This subgroup is an offshoot from the Preparation for Government Committee, to which we are asked to report back. I cannot accept that, in making preparations for Government, it would be inappropriate to ask the people whose primary role is to provide advice for Ministers to share that advice with the subgroup. It is an important role, and I would like to know what advice the EDF is giving to Ministers.

Will the subgroup concur that we advise the EDF that we require a senior presence to co-operate with the subgroup?

Mr Neeson: I would not get so hot under the collar. All of the bodies that sit on the Economic Development Forum are coming to give evidence. Members of the subgroup have attended meetings of the EDF on occasion. It would be duplicating the evidence given to us by the other bodies that have been invited.

Dr Farren: I agree more with what David McNarry said. The advice of the EDF is not given to Ministers in private. A publication — which is a distillation, I take it, and an agreed document — come from the consultations with the EDF. Since we will not to be in a position to reinvent the wheel, and since we have a short time to make an initial report, it would be helpful to have a sense of how the EDF arrived at this consensual document. That does not mean that we agree with it or that all of the members represented on the forum agree with it. However, it would be helpful to hear some of the independent voices represented on the forum, as they may not all agree with everything. We can study what the EDF produces ourselves, but it would be helpful to hear from some of the key players in it and then arrive at our own decisions.

If this subgroup manages to produce even a single document, it will be one for which people have had to tuck and weave their own views and allow them to be meshed with those of others. All policy documents are compromise documents, based on the input of those involved.

I find the situation strange. Perhaps EDF could come before the subgroup at a later date because, of course, the Minister has been invited to attend later as, regrettably, she is not available until September.

10.15 am

Mr McLaughlin: My experience of EDF is that it comprises a disparate group of people and there are significant internal dynamics. Its published report — to which Seán referred — was based on a loose consensus, and I suspect that it would not be the most difficult task to get amongst them and discover that, at times, there are radical differences of opinion. The chronology that Seán suggested might allow this subgroup the opportunity to talk to EDF, but perhaps we should talk to its representatives at the end of the sequence, as the work of the subgroup is developed.

EDF may be reluctant to come forward because it does not feel that it has a position that is coherent and cohesive enough to withstand rigorous cross-examination. EDF processes its work by commissioning and discussing reports and, in my experience, they quite often disagree on their content. We could end up spending a lot of time exploring EDF’s disagreements, rather than concentrating on issues that are salient and useful to the subgroup.

The Chairman (Mr Molloy): Yes; we could spend time refereeing. It seems that it would be more beneficial if EDF were to meet as a group and then come before the subgroup. Seán’s point about EDF coming here later is a possibility.

Dr Birnie: I will be brief, because I agree with David and Seán. It is relevant to us to know what advice EDF is giving the Secretary of State, and it would be a pity if its real reason for declining the subgroup’s invitation was that it does not want the public — through the subgroup — to have access to that.

In a sense, EDF is the current substitute for the old Northern Ireland Economic Council (NIEC). If NIEC were still in existence, we would have had no difficulty in getting its representatives to come to give evidence. It indicates a regrettable change in how advice is given on economic policy-making here. It has become less transparent.

The Chairman (Mr Molloy): Are members happy for me to write to EDF to invite its representatives here and to make the point that the subgroup wishes to speak to them due to their experience in advising Ministers? The subgroup cannot compel a witness to come forward; it can request that it does so.

Mr McNarry: We said from the outset that we did not want lobby groups coming here to lobby us. We said also that we would facilitate those who did not want to make public statements but who would be content to give statements less publicly. It is important that EDF attend the subgroup, and I thank those who have supported that request. I know that we cannot compel EDF to attend, but I put on the record that even though it may be a ministerial decision, I will take a dim view if it refuses to attend. I see no reason for its refusing.

I do not wish to be pedantic about it. Sean Neeson is right to say that there is no need to get hot under the collar; I am not getting upset about it. However, its correspondence to the subgroup is a “go and get lost” letter, and I do not like those.

The Chairman (Mr Molloy): We will proceed, because there are evidence sessions this morning.

To deal with the issue of privilege, I restate that limited privilege arrangements apply to subgroup members, in the same way as in the Assembly. However, those arrangements do not extend to those who give evidence to the subgroup. Therefore, I will point that out to today’s witnesses.

Members have copies of the list of potential witnesses. Also, I can advise members that we hope to receive the Hansard transcript of this meeting within 24 hours.

The Committee Clerk: Members should report any suggested amendments to the transcript to Colin Jones on Ext. 21767 within 24 hours. The 24-hour turnaround for suggested amendments will apply to witnesses also.

The Chairman (Mr Molloy): Therefore, if members have any comments to make or questions about the evidence, they should contact Colin Jones.

Alan will now take us through the revised programme of work.

The Committee Clerk: We did not receive many phone calls with additional suggestions for the transcript of last week’s meeting. However, a lot of suggestions are contained in the transcript. We have listed those and circulated them to members. There are two lists, one of which shows confirmed evidence sessions. Members have also received the revised work programme, which includes the confirmed evidence sessions.

If the subgroup runs with the idea of three evidence sessions per meeting and two meetings per week, the revised work programme offers a minimum of eight slots to take evidence from witnesses. I suggest that three evidence sessions are as many as members would want to take in one meeting, as it would mean three hours of witnesses plus the other business of the subgroup.

In theory, members could invite three groups of witnesses on 10 August, but that would leave us with limited time in which to produce the subgroup’s report. From speaking with Committee on the Preparation for Government staff, my understanding is that there may be a couple of day’s leeway on the 18 August reporting date. Therefore, I have suggested that in week commencing 15 August the subgroup provide a draft report, outlining its recommendations and conclusions. If PFG agrees those, it would allow us to fill in the details. It is really the recommendations and conclusions on which we need to have absolute agreement and clarity.

If we run with that approach, the final draft report will be ready for members on 17 August, which is the day before the deadline. It is a tight timescale, particularly if members decide to include an extra evidence session on 10 August.

The list of confirmed evidence sessions has been circulated to members. The transcript of last week’s meeting highlighted that there are a lot of other potential witnesses. Given that the subgroup has only a month to conclude its business, it is important that members focus strategically on hearing evidence from appropriate witnesses in order that the subgroup should meet its terms of reference.

There have been many cross-party suggestions that it would be useful to include the doers — those people who are successful practitioners — in the list of witnesses. We have listed those people among the potential witnesses. I suggest that members include some of those people and groups. However, it is for the subgroup to determine its priorities. There is a minimum of eight evidence slots, and a maximum of 11. It is for members to decide whom it would like to invite, on top of those already invited.

The Chairman (Mr Molloy): Do members have any suggestions as to who would be a priority?

Dr Farren: Are the first sets of suggested witnesses included in the sessions identified so far?

The Committee Clerk: Yes.

Dr Farren: Therefore, we are moving through the additional proposals and highlighting any people or groups not there whom we think should be there.

The Committee Clerk: Yes. If the three Depart­ments are taken separately, there are 12 groups, meaning that there is one witness more than the maximum number of evidence sessions. It may be that members would wish to invite just one of the economists. Mike Smyth was mentioned quite a lot during last week’s meeting.

Dr Farren: Would it be possible when inviting the Mike Smyths of this world to have Mike Smyth and John Simpson together?

The Committee Clerk: That would be subject to their diaries.

Dr Farren: If that were the case, I suggest inviting John Bradley from the Economic and Social Research Institute (ESRI) in Dublin, who has been involved as a consultant to the former Northern Ireland Economic Research Centre. Esmond and others might be familiar with his work on the all-island perspective.

He contributed to a conference in Armagh not so long ago on this very subject. I would like to propose him, and I just wonder whether the three of them could be taken in one session. Perhaps it could be lengthened by half an hour, so that we would have both the local and wider perspectives, which are essential.

The Chairman (Mr Molloy): Are members content with that? We will bring in all three — depending on their availability, of course.

Ms Ritchie: I think we could then counterbalance that by hearing what practitioners have to say — such as the Quinn Group; William Wright’s company, Wrightbus Ltd; and perhaps Moy Park.

Mr Neeson: I know through the Assembly Business Trust that Ivan McCabrey of Mivan has been very active with international success.

Dr Farren: Are all strategic interests represented? I suggested John Bradley not only to have another name but to have a strategic overview. Is there any other individual, a doer as it were, who could add to what the existing set of doers are going to say in a strategic sense? It is not personal stories that we want; it is what those personal stories can teach us about the strategic direction to be followed. That is important.

The Chairman (Mr Molloy): All of it has to be kept within the terms of reference of the subgroup. Are there any other names?

Mr Poots: Graham Gudgin is another name. He was involved with the last Executive and has considerable knowledge about people who are advisers.

Tourism is an area in which we anticipate significant growth, and we should be getting significant growth. I should like to see the tourism industry represented via written and oral submissions. Agriculture should also be represented, as is still the largest single industry in Northern Ireland’s manufacturing economy. The freight haulage industry is an industry with particular problems, but it is of critical importance given Northern Ireland’s peripheral location. It would be useful to get oral or written submissions from those three groups.

The Chairman (Mr Molloy): The Ulster Farmers’ Union will link in agriculture when we come to hear from the trade unions.

The Committee Clerk: As mentioned last week, the witnesses on the list are all organisations and entrepreneurs. The subgroup may want to consider whether the Northern Ireland congress or whoever should be included as a key witness.

Dr Birnie: Chairman, the Northern Ireland Committee, Irish Congress of Trade Unions (NIC.ICTU) has produced a report on the economy.

Mr Poots: I do not think that the Ulster Farmers’ Union is associated with the Irish Congress of Trade Unions. It is not a public-sector body; it represents a particular industry.

Mr McLaughlin: Perhaps we could consider inviting submissions from the three cross-border organisations. They represent a significant social and economic interest. I have done some work with these groups over the years, and I am aware that they have up-to-date material that would be relevant to the work of the subgroup. We should not crowd the calendar, but they would be glad of the opportunity to write to the subgroup and make a submission.

The Committee Clerk: In that case, we will ask them for it.

To recap for the benefit of members: if we work with a maximum of 11 including the meeting on 10 August, we have more than three per session at this stage, and 13 if we include NIC.ICTU and the Ulster Farmers’ Union as oral submissions. Then there is Mivan and Ivan McCabrey, so you have got 14 at the moment.

Therefore, members can choose to prune the list of potential witnesses, or we can invite the full list and organise an additional meeting.

The Chairman (Mr Molloy): It may be that some of the potential witnesses will be unable to attend within the time available to the subgroup.

10.30 am

Mr Ford: Seán Farren made a good point a few minutes ago. We need to see how witnesses might fit together. For example, Moy Park might fit into one neat section with the Ulster Farmers’ Union. Hearing witnesses such as those together would provide us with different aspects of the one basic protest.

The Chairman (Mr Molloy): Yes. They might tell also of associated problems.

We will leave that at this stage to let the clerks try to piece our discussions together.

The Committee Clerk: To give people the opportunity to meet with others if they have to, and to make written submissions, we need to issue the invitations today.

Dr Birnie: Chairman, Seán suggested John Bradley in addition to Mike Smyth and John Simpson. If any of them are not available, I suggest you look to the Economic Research Institute of Northern Ireland (ERINI), and possibly, in that context, to Prof Richard Harris, who has done some studies on investment incentives.

The Chairman (Mr Molloy): OK, representatives from the Northern Ireland Business Alliance will make the first presentation. We will ask them to complete their presentation and take members’ questions. We are trying to tie it down to one hour.

The Committee Clerk: Once we start, the red button will be pressed, meaning that the session will be transmitted across the Building. Members should bear that in mind when deciding what to say.

Dr Birnie: I have always done that.

Mr McNarry: No four-letter words, Esmond. [Laughter.]

Dr Birnie: You keep me in order, then.

Mr McNarry: I will.

Dr Birnie: Don’t let me get too excited.

The Committee Clerk: The button has been pressed.

Dr David Dobbin (Northern Ireland Business Alliance): Good morning.

The Chairman (Mr Molloy): Gentlemen, you are very welcome. Sorry for keeping you a little late. We have been trying to finalise the other witnesses that we wish to invite to give evidence to the subgroup. Hansard is recording this session, and its transcript will be available to you within 24 hours to allow you to make any corrections or amendments that you might want. Although members have limited privilege in this subgroup, unfortunately, those giving evidence do not have any privilege whatsoever. [Laughter.]

I am sure that will not make any difference to you. Would you like to introduce your team and make your presentation?

Dr Dobbin: Before we start, may I check the timing? As we are starting late, what is our target?

The Chairman (Mr Molloy): One hour.

Dr Dobbin: Thank you. Our delegation is slightly depleted due to holidays. The Northern Ireland Business Alliance represents the Confederation of British Industry (CBI); the Institute of Directors (IOD); the Northern Ireland Chamber of Commerce; and the Centre for Competitiveness. I am David Dobbin and I am a past chairman of the CBI.

My colleagues and I plan to speak for 10 or 15 minutes, leaving most of the hour for discussion with, and questions from, the subgroup. I hope that many of you attended our presentation to the Assembly on 16 May. Today’s submission builds on that presentation. I understand that you have copies of it.

There is widespread consensus between business, Government and the various economic commentators that the apparently strong performance of the local economy conceals underlying weaknesses and problems that must be addressed. Those issues are: an over-dependence on the public sector and public expenditure; an underdeveloped private sector that is relatively unsophisticated; low levels of business start-up and spending on research and development and innovation; and low levels of labour market participation or economic activity, as it is known.

That is also characterised by relatively high levels of long-term unemployment and, indeed, some areas of the Province where there are low levels of growth and economic activity.

Finally, we believe that, under current UK Exchequer pressure, the subvention that we rely on to maintain our economy at current levels is under threat. Projections carried out by economists working for the Economic Development Forum show that if we maintain current Government policies, we will not be able to close the prosperity gap between Northern Ireland and the rest of the UK or Southern Ireland.

We contend that radical policy changes are required if we are to change the trajectory of the local economy. When we met the Assembly, we talked about creating 140,000 quality private-sector jobs and about trying to grow the economy at a rate of 5%. There has been a great deal of debate between economists since then about whether those figures are correct. We suggest that the Assembly must confirm the challenges ahead with regard to targets for job creation and economic growth and establish how the proposals from various groups would address those. Some form of study or work must be done to ensure that the future policy of a devolved Executive is driven by evidence and fact as opposed to opinion.

The challenge ahead is to close the gap that exists in economic activity, wages and gross value added per person; to reduce long-term unemployment; and to ensure that there are sufficient quality jobs to employ the many young people that have to leave Northern Ireland each year to find work in the rest of the UK and beyond.

We believe that the gap can be best closed only in the context of devolution. That is because we have unique problems that are quite different from those in other regions of the UK. We have a land border with Southern Ireland and the legacy of civil unrest. We need a tailored strategy for this region. We do not believe that Northern Ireland Office and direct rule Ministers applying national policies will do any better than achieve a similar level of growth to that in the rest of the UK. We need to grow faster to close the gap.

Furthermore, to re-balance the economy we must encourage private-sector activity so that we are less dependent on the public sector and public expenditure. Over the next five minutes we will focus on how we can achieve that.

There are no silver bullets; there is no quick fix. Whatever we do to address this problem is part of a long-term process. We believe that that would be best achieved by some form of social partnership between the public and private sectors, business and elected representatives, and trades unions and the voluntary sector.

A business-friendly environment must be created that supports the conditions for growth and is attractive to international investors, who must be persuaded that we have a stable and safe investment location. To do that, we need political stability and an end to paramilitary activity, sectarianism, criminality, disorder and unrest. We must normalise this society so that it is as welcoming as any other part of Europe to businesses, visitors and people coming to live here.

If we are going to move from a public- to a private-sector-led economy in an increasingly competitive world and create the growth and jobs that we have talked about, we must do a number of things. This is the core of what we are saying. We need to promote proactively investment in business formation and growth. We need a flexible and competitive fiscal environment. A skills strategy and action plan that matches the future, rather than the past, needs of the community and the economy, is necessary. We need a sustained investment in infrastructure. We must increase the levels of innovation and technology transfer, and ensure that the changes that take place in the public sector support the transition to a private-sector-led economy.

Finally, we must ensure that we have flexibility and responsiveness in regulation and planning.

We must ensure that we exploit the opportunities that exist on the island for all-island markets and an all-island economy. My colleague Stephen Kingon, who is chairman of the Northern Ireland Centre for Competitiveness, will now deal with the fiscal issues.

Mr Stephen Kingon (Northern Ireland Business Alliance): As David has said, one of the problems that we face is increased global competition in a competitive fiscal environment. Northern Ireland has some financial incentives, but we have a fiscal regime that is not as competitive as any elsewhere. Puerto Rico has a corporate tax rate of 1·5%, and approximately 30 countries have reduced their tax rates in the past 18 months. Even the emerging eastern European states are trying to compete on tax rates.

David said that, although it is fundamental that we are attractive to inward investment, we must encourage investment through our indigenous business. Obviously, a competitive tax rate is one way in which to do that. Issues arise such as EU competitiveness and how the sovereign tax rate can be changed, but there are other ways in which to create an effective tax regime.

As a developed country, we must play up the value chain, so in the key areas of innovation, skills technology and export orientation, tax credits can be used to encourage investment by businesses and to promote Northern Ireland as an attractive centre of excellence for inward investment.

The Chancellor has previously allowed accelerated capital allowances in Northern Ireland. That he has differentiated at a sub-regional level means that a precedent has been set. To encourage business investment, the re-introduction of accelerated capital allowances would assist us. There should be some fiscal flexibility in some of the indirect taxes to allow for, as David mentioned, anomalies that arise on the island because of the land border and the tax regime. We should look at how we effect some of the indirect taxes. Moreover, other areas of flexibility could be covered by looking at, among other things, the old enterprise zone requirements.

Dr Dobbin: Declan will now comment on infrastructure and innovation.

Mr Declan Billington (Northern Ireland Business Alliance): I want to focus on competitive infrastructure — how infrastructure can help us to become globally competitive, how it can help economic growth and possibly even employees’ economic participation.

We are an island that is next to an island that is next to Europe, and that puts business at a disadvantage when competing in a global economy. Moreover, versus Asian and eastern European markets, we are not a low-cost economy, so we must concentrate on value. Value is about the supply chain as well as about the product. If we think about the supply chain, Northern Ireland focuses on service. For Northern Ireland to move up the value-added chain — competing in Europe and globally — it must be in a position to enter time-sensitive markets, in which the customer is prepared to pay a premium for the service.

Taking international air routes from Northern Ireland as an example, any business that exports services and consultancy, or even technical support for products, must be able to support those through prompt delivery of skills to the customer anywhere in the world. Where businesses operate off regional hubs, time is added. When time is added, cost is added. The fact that our international air-route structure is not as well developed as others elsewhere disadvantages us in the market, and that must be rectified.

The supply chain is very important to manufacturing locations that export to Europe. Businesses do not want to risk running off an infrastructure that may create problems for them in getting their products to ports for export. Missing a connection out of Belfast could add two days to the time it takes to deliver products to continental Europe — seven days as opposed to five days. Therefore, if we want to grow the economy of Northern Ireland, infrastructure will play a critical part.

10.45 am

If we want to address employment and move industry deeper into the Province, we will have to improve our roads infrastructure to encourage businesses to move further afield — poor infrastructure puts our businesses at a competitive disadvantage. Poor infrastructure also means that our businesses may not be able to locate in rural areas in order to create employment there, because people measure travel to work by time rather than by distance. Building a good infrastructure gives people more opportunities for employment outside their communities. They would also bring greater wages into their communities, which, in turn, would stimulate local service jobs — restaurants and supermarkets — which might involve more local participation in the community. That is why infrastructure plays an important part in competition and in addressing the problems of unemployment black spots.

We have talked about the physical infrastructure, but the knowledge infrastructure — not just the bricks and mortar of the universities — is also important. If they want to compete on the international stage, they need to have critical mass and be adequately resourced. That is not just a question of facilities but also of third- and fourth-level education and of the support available for research and development posts. Multinationals that want to invest in research and development will want to know that there is a critical mass of graduates and postgraduates to support it. My colleagues will pick up on the issues surrounding skills and education.

Dr Dobbin: I stress that we need a world-class infrastructure with electronic connectivity, and we are starting to see that locally in good measure. As Declan said, we need the necessary hardware in our roads, ports and airports. One of the key elements in our presentation is that public-sector behaviour can have a big influence on how we develop the private sector. I would like to ask Frank to comment briefly on public-sector reform and how we can refocus the public sector to help to drive the economy.

Mr Frank Bryan (Northern Ireland Business Alliance): Thanks, David. I will touch briefly on where we are at the moment. There is consensus that, as we move into the twenty-first century, what we have is simply not good enough. There is also consensus that it is not healthy for an economy to be over-dependent on the public sector: at the moment, more than 60% of our gross domestic product depends on the public sector. That has many spin-off effects on how we operate as an economy.

The original narrow remit of the Review of Public Administration did not make sense. The figures show that the review accounts for only 5% of the public spend that currently goes through the councils, although that percentage might rise to 10% through the Review of Public Administration. If we are serious about making changes, we need a complete overview of how the public sector in Northern Ireland is run. From a business perspective, we welcomed recent comments that a debate can start that will go to the heart of the Civil Service here.

There are opportunities for designing public-service delivery around the citizen. In order to manage change — and we take into account the very difficult transition that would be required — it would be necessary to tie into private-sector expertise. We see an opportunity to use the reform agenda to drive an economic agenda. That agenda may take many shapes and forms, but if some service delivery could be outsourced — for example, shared services among the various Departments — we could develop the necessary expertise here in Northern Ireland. As the same process evolves across the water, we might be able to tender for such outsourced service delivery, and that would provide the opportunity to develop our economic growth and employment.

Dr Dobbin: Finally, for the last piece of our oral submission I am going to ask Michael Maguire, the past Chair of the Institute of Directors, to make some comments about skills.

Dr Michael Maguire (Northern Ireland Business Alliance): The Business Alliance has been working with the Economic Development Forum for a number of years on moving forward on several dimensions of the economy. My interest is in skills and education.

Our starting point is the skills strategy document from the Department for Employment and Learning. The strategy aims to ensure that individuals have the skills to enhance their employability; that employers have access to the necessary skills to develop their businesses successfully within the context, as we have already heard, of foreign direct investment, increasing the strong entrepreneurial base, SME growth and literacy and numeracy.

We support the skills strategy. We believe that the four themes are important in trying to push forward the skills and education agenda: first, understanding what skills are required for the development of the economy both in the short and long term; secondly, improving the skill levels of the workforce; thirdly, improving the quality and relevance of education and training provision; and, fourthly, tackling the skills barriers to employment. Anyone who thinks about the skills debate could not challenge that these are the right things to do in relation to the skills agenda.

However, there are issues about implementing the skills strategy, we would like to bring those to the subgroup’s attention. First, we need a responsive education and training infrastructure to meet existing employer needs. For example, large employers are currently looking for individuals with software development skills sets. Secondly, we need to think about the longer-term needs of the economy, whether it is in the life sciences, technology or nano-technology. Work is being undertaken to think about the future skills needs of the economy, and we would reinforce the importance of that work. We need to set out our stall and say: “This is the space we are in, and this is what we want to do in relation to training and education.”

It was of some concern to the Economic Develop­ment Forum, and the subgroup of which I am Chairman, that roughly 97% of the skills strategy expenditure focuses on one theme: improving the quality and relevance of education and training. There are two issues. First, it means that three of the themes are accounted for by 3% of the expenditure, and we need to ensure that in the education and training budget the right moneys are being placed in developing the skills and training infrastructure. Secondly, the 97% expenditure is largely accounted for by universities and further education provision.

The business community believes that there is a need for a responsive education system. There needs to be a direct alignment — and a much stronger link — between the strategic intent of Northern Ireland’s economic development needs and what is happening within further education colleges and the university environment. A responsive training and education system is important.

I would also reinforce the importance of literacy and numeracy in supporting the economic growth objectives of the local economy. For us, it is a critical factor in building the generic skills base required to meet business needs both now and in the future. My final point relates to that context and to what I have said already. I would like to emphasize the importance of vocational skills in meeting the immediate and longer-term needs of the economy.

Dr Birnie: Gentlemen, your preference seems to be for tax credits, as Dr Dobbin termed it, as opposed to a corporation tax headline change. If that is so, why is that your preference? What evidence is there as to how elastic the supply of local investment and foreign direct investment (FDI) would be to such changes?

In other words, if we can boost net profits by 1%, what percentage growth would we see in the level of investment in Northern Ireland?

Mr Kingon: If we were able to achieve a very competitive rate of corporation tax — whatever that may be — that would be the option to go for. For several reasons, we have concerns about the current tax rate. The Internal Revenue Service (IRS) in the United States is taking a test case against Apple Computers, basically stating that if the intellectual property of products rests in the States, it does not matter which low-tax regime one goes to. If that case is successful, putting all one’s eggs in the rate basket will lead to difficulties.

So far, there has been no allowance at the EU Competitiveness Council for a sub-regional rate; the sovereign tax rate must be changed. As a practicality, given that Northern Ireland’s corporate tax take is £500 million versus £49 billion in the UK as a whole, the Treasury is unlikely to reduce the overall rate. We are being pragmatic and practical. If we could get it, a zero tax rate would be fine.

Existing tax credits are not flexible enough, and their definitions are too narrow. We must broaden and enlarge the areas to which tax credits apply. We have said that innovation is very important. There is an R&D tax credit, but most businesses do not claim it. The definition is too narrow, and half of the costs are excluded. We are seeking a redefinition of that credit so that more companies will claim it and so that it will be more beneficial.

We mentioned the need to examine matters such as skills strategies. We need companies to invest in training and development, particularly our smaller SME businesses. To encourage them to do that, we would seek some incentives through tax credits. The benefit of the tax credits is that they encourage people to invest and spend in the areas that are required to move the economy on. If you do not spend, you do not get. If we simply have a go at the tax rate, we will not encourage those expenditures. We are being pragmatic. However, if someone said that there was a 1% or a 0% tax rate —

Mr Billington: I would add that corporation tax is generally associated with FDI (foreign direct investment), and the Chancellor Gordon Brown stated that we did a very good job in creating 85,000 jobs over the last 10 years. While there is some discussion, the Business Alliance reckons that 140,000 new jobs will be needed over the next 10 years. To achieve that, we must basically buy in business, which means FDI, and fiscal incentives could help with that. We should not narrow ourselves to just one tool: corporation tax.

The Assembly noted fuel duty as an option. There are a number of fiscal tools available. We must decide on which one is the best fit for bringing business in; which one is the best fit for taking small businesses and growing them rapidly; and which one is the best fit for helping businesses at a certain critical point to make the next step.

Rather than coming up with a solution without understanding the problem, it is important that work is done to identify the best tool to create growth by sector and by size of business. That is the package of incentives for which we should be arguing. That includes a corporation tax that is deliverable and capital allowances to get the same result in a different way. We should keep this discussion broader than just focusing on corporation tax.

Dr Birnie: What is the evidence that tax credits work?

Dr Dobbin: It is a matter of the whole tax regime. There is the headline rate of tax, but with tax credits the actual rate could be much lower. It is clear that if we wish to achieve revenue-generating businesses, the tax issue and the fiscal issues are very important. We have seen that with all of the FDI. From talking to our international clients, I know that financial control rests with the vice presidents of finance, who are heavily involved in the fiscal and tax regimes. That is a critical factor in decision-making. It is not the only factor; there are others, such as the skills base, university support, infrastructure and other aspects that we mentioned. However, there is no doubt that that fiscal regime is more important than even financial incentives.

11.00 am

Dr Farren: Thank you for the opportunity — at long last — to meet you and the others who will appear before the subgroup over the next few weeks.

Let us assume that we have an attractive and competitive package to attract additional investment from whatever source, be it foreign or indigenous. A target of 140,000 new jobs over 10 years has been set. To clarify, I assume that those jobs will not all be in the private sector?

Mr Kingon: No, that is the total employment target.

Dr Farren: Where can growth in the private sector be expected? In other words, what sectors will you target? Do you aim to make the best possible pitch to the widest possible range of investors, be they, as I said, indigenous or foreign, and hope that the wind will blow in a sufficient number of jobs and the investment to produce those jobs? Or, do you have a reasonably clear idea of the sectors to which investment is most likely to be attracted? With that knowledge, we can speak confidently to skills and education providers to ensure that there is a good supply of the skills and qualifications necessary to fulfil those jobs.

As you know, we are in a globally competitive market, and our package may not bring all that we need. I am anxious to know where you see the balance between indigenous and foreign investment and what sectors are most likely to see the best returns from such investment.

Mr Kingon: We said earlier that, as a developed country, Northern Ireland must move up the value chain. Currently, we need to concentrate on the back-office and financial services sectors. Software is a still a key growth area. That is also linked to innovation, particularly to universities, and including life sciences and medical devices. Those sectors are important. There is also a reasonable cluster of investment in advanced electronics.

Those are the sectors in which we can compete, because we are not playing at the low-cost end of the market; however, technology and knowledge transfers also play a role. There is already a base in some of those sectors, albeit not to the full critical mass that one would like. That is where we see the need, although, as Michael said, that is linked to the skills strategy, as we need to put more resources into some of those key sectors.

There are obviously spin-offs from that, because sectors such as tourism and retail will also provide jobs. The tourist sector needs investment in training and development, in addition to the infrastructure spend that we mentioned. Less than 2% of Northern Ireland’s gross domestic product (GDP) comes from tourism vis-à-vis Scotland and the Republic of Ireland, where the figures are 7% and 9% respectively. Northern Ireland has much the same climate and physical infrastructure as those countries, so we should be able to raise that contribution to the GDP. Investment in infrastructure in the tourist sector is necessary, but investment in people is also required.

Dr Dobbin: It is important that we do not get too restrictive. Government economic development agencies did not always get it right in the past whenever they selected the stars for the future, and the market is quite dynamic. When we consider innovation, there is an opinion that even some of our traditional sectors can transform themselves. For example, our very large agrifood industry is the biggest indigenous manufacturing and exporting sector. We need to examine how we can rescue— or maintain — rural and processing activity in that sector.

When we look at that sector, there are specific opportunities to get into functional foods and fresh foods. Products that have a short shelf life cannot be supplied from China or further afield, only from nearby. Functional foods are foods that have health benefits or are perceived to be more natural.

There are also opportunities in engineering and in some traditional industries, including textiles, to get into high-fashion design. Product turnover is fast in those areas, and there is a constant flow of new products and ideas. It is difficult for long supply chains in the Far East to match that.

Stephen Kingon is right that Invest NI’s vision has identified five key technology areas, including food and life science. We need to encourage all business to be more outward-looking, more ambitious and more innovative. There is no reason to write off a sector, particularly agrifood, in which we see growth even though all the pundits said that it should have died and given up several years back. We need to be careful that we do not write off an industry only to discover that there was a way of transforming it.

Dr Farren: I stressed the need for indigenous as well as foreign investment. In the light of what Michael Maguire was saying, where are the skill-provision and higher-level-qualification gaps that need to be filled? Without the already existing significant levels of migration and assuming that the investment packages are achieving their goals by attracting investors, can we reasonably expect to have a workforce that will meet the challenges? Investors do not find that the skilled labour force — at whatever level — is here to meet their needs.

Dr Maguire: That is the right question. When we talk about the need for a responsive education and training system, the question arises: “Responsive to what?” We have in some cases a very good, but very elaborate, training infrastructure that is demand-driven: it is driven by the needs of the students and the needs of local employers who are developing what they do in a very small area.

If you are asking where we need to be, this is work in progress. One of the things that we — David, others and myself —have been pushing within the EDF is thinking about the skills that will be required in industry in Northern Ireland. We need to think about where the gaps are and what we need to develop a more responsive structure to.

The answer is probably on two levels, but I am not sure where the balance is exactly. On one level, you need to develop the generic problem-solving, team-based, well-educated, literate and numerate workforce that is a rising tide for everyone, and you have to look to the primary and secondary schools, vocational further education colleges and universities to deliver on that.

At the same time, we need to take a top-down view and consider whether Northern Ireland needs more engineers, for example. We need to be able to push those ideas through a responsive education system that considers its job to be one of helping to develop the economy of Northern Ireland, rather than considering its job in a narrow way — and I am overcharacterising here — as being purely educationalist based. I am unsure of the answer, but I am convinced that we need to ask questions in those two areas to try to get an answer.

Mr Neeson: The challenges that lie ahead are huge and growing by the day, particularly with the develop­ment of the global economy. I am aware of one local entrepreneur who has invested in China. A great deal of Northern Ireland money is being invested outside Northern Ireland. Why is that happening?

Dr Maguire did not mention the impact of high-energy prices. Like most members, I welcome the development of the all-island energy market. If the Secretary of State takes us down the line of green energy, that will mean higher energy prices. How do we compete in the global market with issues such as high energy prices? Dr Maguire has dealt with my other question regarding responsive education systems. The development of skills is critical if we are to compete in the growing global market.

Dr Dobbin: In response to Mr Neeson’s first question regarding businesses relocating to China, Estonia and Poland, the cost base is lower and they can get access to cheaper raw materials. We operate in a marketplace. When we go shopping at the weekend, we like to get value for money and good deals. If products are price sensitive or cost sensitive, businesses will move to countries with the lowest production costs. In China, where I worked for four years, there is a vast labour market, and labour costs are about one tenth of what they are here. One does not have to go to China; one could go to eastern Europe for low labour costs.

If the economies of the past were built around labour and ports, etc, the commentators say that future economies will be built around skills, innovation and universities. We have two fantastic universities here, but, unfortunately, many students who leave Northern Ireland to study in GB do not come back. It is not that there are insufficient university places; there are not enough good graduate employment opportunities. We must try to encourage the formation of businesses that tap into that talent, as it is earning money for itself, and for the companies that it is working for, elsewhere. Every­one should consider how we could use our universities better to drive the economy. Both universities are aware of that, but there is no formal strategy in place for exploiting the knowledge that we have in our universities, and the talent coming out of them, to better advantage. I have spoken to both vice-chancellors, and they agree that there is a gap. The Department for Employment and Learning should consider that issue. We are putting a great deal of public money into universities; let us ensure that we get a return.

Seán Farren touched on the issue of choosing the products and areas that we should go into. The reality will be a mixture of where we are already and whether we can sustain those industries and encourage some new ones. Dr Maguire touched on the skills issue. Nanotechnology and bioscience are seen as areas of emerging technology, and our universities have expertise in those areas.

Stephen Kingon would say that the British Govern­ment target the financial services industry. That is because there is a history of strength in the UK, particularly in London. However, Dublin also has a history of strength, and businesses are running out of affordable office space and people in the South. If we had a centre for financial services, perhaps in an enterprise zone, we could create a seedbed that could await the overflow from the South.

The Southern economy is definitely overheating in areas where it cannot get the skills, and yet we are seeing a brain drain. We need to find some clever way to tap into that overspill, and the overspill from other parts of Europe, in back offices and financial services. We need fiscal flexibility: not just a lower tax regime, but one that targets the people we want — those that can give something back into the economy. It should not apply to everybody.

11.15 am

Mr Billington: In relation to the question of where local businesses outsource, it is either evolve or die. If our cost base in Northern Ireland continues to rise so that local businesses cannot compete, they will outsource the lower-value-added work and retain the design and marketing work. Those businesses evolve to outsource the low-value-added work and concentrate on the high-value-added end of the business. That is evolution. The more our cost base rises, the more that evolution will move across our indigenous businesses. That is the challenge. There is always equilibrium. As the cost base rises, a new equilibrium reaches a new point where more is outsourced.

You are quite right in that the high cost of energy is putting businesses under stress. Combined with that, there is a stranded cost that has still not been addressed, which means that whatever happens in the UK, we will be worse off by that extra slice of cost, and that must be addressed.

However, moving forward, the key issue is that businesses evolve, and that is not necessarily a bad thing: they either die or evolve, but that rate of evolution or change will be determined by the cost base in Northern Ireland. Managing the cost base here could be under the control of the devolved Assembly.

Dr Dobbin: A major problem is the cost of transporting our products. The UK, for its own reasons and because of climate change, has imposed a tax on fuel higher than that in almost any country in the world, while Southern Ireland has a more modest tax rate. That has led to two things. First, the transport industry is moving its base to the South where it can source cheaper fuel, and, secondly, fuel smuggling as a result of the tax difference has led to more criminality. We reckon that last year the British Government lost £300 million in tax revenue because of fuel smuggling. That is one area where a reduction in excise duty would increase the tax take for Government, reduce criminality and make businesses more competitive.

The duty on fuel should be looked at. There are examples where Britain has varied the rate of duty here. A similar problem arose on the aggregates tax, and the Exchequer changed the tax because of the distortion on an island economy, and that should be looked at. It would help small and large businesses, it would stop criminality and it would probably increase the tax take to the Exchequer. Energy could be made more affordable, and at the same time it would benefit the Exchequer, and we would see the benefits for law and order and criminality.

Mr Bryan: The central message that should come through is the speed of response. Fundamentally, the greatest gift that this subgroup can give is a stable, local Government that will allow businesses the freedom to sell and invest in the future. All the messages coming through, whether that be investments overseas or whatever, reflect that times are moving on at a pace that neither you nor I can control. We cannot try to turn back the tide. We must act now, even though it may be long overdue. The central message from the business community is that we must knuckle down and get on with it.

Mr Poots: I want to deal with the practical issue of how the Government can implement changes, particularly in the light of the current planning policies in Northern Ireland. Land values for housing are now around £1 million per acre, and for business development around £400,000 per acre. Most of that money goes into the pockets of the individual selling the land.

What can the Government do, first to make land more affordable, and secondly to draw more money back into the central economy in terms of development gain, thus ensuring that developers provide more roads, sewerage and general infrastructure so that the public sector does not have to pick up that tab and has more money to spend on other areas?

With regard to education and training, Northern Ireland has many people at the higher end of the education bracket and many at the lower end. That has created some problems, because those at the higher end tended to go to the top universities in the UK — which were outside Northern Ireland — and those in the lower end found difficulty getting jobs. There are huge challenges for those in employment who have low numeracy and literacy skills. How do you see the universities rising to that challenge?

There is an issue about the number of available university places and the courses that are being taken at universities in Northern Ireland. Many young people are coming out of university, going to work in Tesco for six months or a year and then taking up a job that is completely unrelated to their degree. What practical university degrees do you see coming forward that can be used in the workforce? Should we be looking at the possibility of creating more polytechnics again? There used to be a polytechnic in Jordanstown, but that transferred to university status. Should some of our further education colleges go down the route of becoming polytechnics, and should we create more training opportunities for the jobs that are coming about?

How do you see the R&D tax breaks tying together with the employment and training opportunities? Northern Ireland universities have many degree courses available in medicine and biosciences. I see that as one of the greatest opportunities for quality employment growth. It is also an area where R&D tax breaks could attract significant foreign direct investment. How would you tie the training of people for the biosciences and nanotechnology with the introduction of the R&D tax breaks?

Dr Dobbin: I will answer the question relating to planning and land, and my colleagues will answer some of the others.

At present, the planning response is a major barrier to development of almost every kind, whether it is private housing — of which there is a shortage in Northern Ireland due to difficulties in obtaining planning permission — retail, commercial development, or business development. That was reviewed recently by the EDF, and there are several reasons why the Planning Service is not keeping up. The biggest one identified is that its sister agency, the Environment and Heritage Service, which is part of the DOE, is not responding on statutory consultation fast enough, and it is woefully behind its targets. That is a major barrier to the granting of a fast and speedy planning decision. Something must be done, and the Government recognise that. However, no one seems to be able to get the Environment and Heritage Service to respond within the deadlines set in planning. That is the biggest obstacle to a speedy planning decision that has been identified.

Any developer will tell you that the price of land is artificially high. Land with planning permission is at a premium here because it has got through the net. If the planning procedure was speeded up and the Planning Service’s regional plans were completed we might see, if not a fall in land prices, then a steadying of them. We need to build more houses, and that alone will create economic activity. Property developers are investing in Great Britain and elsewhere because they can get planning decisions faster and they can turn their money over faster. So there is definitely an issue to ponder there.

I have spoken to both vice-chancellors about the skills issue and the cap on university places. There is a cap on university places here that does not exist in other regions. Scotland provides more graduate places than it generates in terms of student demand, and Northern Ireland has fewer graduate places than it needs. Both Northern Ireland universities are cautious about expanding at present because of the slump coming through the education system: the baby boomers are slowing down and there is a rapid fall in enrolments.

There is a fear that if further and higher education provision were expanded, falling enrolment numbers in primary and secondary schools could, in five or ten years’ time, hit the further and higher education sector and affect its student numbers. Therefore, there is nervousness about a potential stop-start situation.

Before I hand over to Dr Maguire and the others, I have one final point. The comments about the technical colleges were well made. There is a strong view in business that an option must be created for those young people who are not particularly academically oriented but would make good technicians or show good vocational skills. The further education sector is being restructured, and the new technical colleges or the polytechnics even offer degree subjects. We must ensure that we get it right in those areas.

Some within the business community believe that there should be a return to secondary technical colleges, which worked very well in the 1960s and 1970s. Attending such colleges enabled those who did not get through the then selection system to follow a worthy career path. There is a demand for those skilled workers; there is a shortage of technicians, plumbers and builders in Northern Ireland. The Strategic Investment Board, of which I am a member, cannot get contractors in sufficient quantities to meet some of the infrastructural demands.

Dr Maguire: Dr Dobbin has covered my points. There must be a greater emphasis on the development of vocational technical skills. I am not of the view that we should simply create another dimension to the training and education infrastructure. We have a good network of further education colleges.

We must approach this issue on two levels. First, we must move away from the mindset that believes that the purpose of education is to create lawyers, doctors or accountants. Secondly, we must celebrate the excellence that exists in our vocational and technical skills. A BTEC is the equivalent of three A levels, and gaining that qualification allows a student to take a step further in the education process if he or she wishes to do so. Too often we take the view that there is only one education system, which celebrates academic education. That system is good, and we want to keep it, but, as Dr Dobbin said, we must consider also the importance of vocational technical skills and moving the further and higher education colleges forward.

The Department of Employment and Learning spent £163 million on the further education system. Work needs to be done to provide a business focus to the work of further education colleges, and the “Further Education Means Business” strategy should be encouraged and reinforced. However, we must keep the pressure on. We must ensure that the further education sector provides what young people and businesses need to match candidates to jobs.

To answer the question directly, we should not create another layer in the education hierarchy to meet those needs. We should try to get the maximum results from the structures that are already in place.

The Chairman (Mr Molloy): I remind members that we are running out of time.

Ms Ritchie: I noted Mr Billington’s earlier comment that there is a direct correlation between a good infrastructure and the development of a sound economy, and that we need a good infrastructure for the prompt delivery of skills, goods and services. In particular, he mentioned the lack of development of air routes and the lack of availability of certain routes for the prompt delivery of those good and services.

First, has the Northern Ireland Business Alliance (NIBA) undertaken any analysis of that issue? What discussions has it had with air carriers and airport owners, and has it considered the all-Ireland regime and the possibility of using airports in the South, such as Dublin and Shannon?

Secondly, we are overly dependent on our roads infrastructure. It is our only sound land infrastructure, as the railways are underdeveloped, although, for too long, the improvement of the roads infrastructure has been concentrated in certain areas. Has NIBA assessed the need to improve the roads infrastructure, not solely at the main hubs, but across a wider area, to ensure that the requirements of the Regional Development Strategy are met? Does NIBA consider that the five-year review of the strategy, which is currently subject to consultation, would be a good mechanism for that assessment?

Thirdly, for the prompt delivery of goods and services, we have the east-west route. How could railway infrastructure be used to bring our goods and services to ports on that route? What discussions has NIBA held with Translink and Iarnród Éireann to improve the delivery and transportation of freight on the Belfast-Dublin route?

Mr Billington: NIBA does not do air route analysis. It relies on studies from other bodies. However, having worked for a multinational, I can tell members anecdotally that the number of man-hours spent travelling to and from Europe and America means that businesses carry more people to cover the same amount of work. Any travel time that you save means that you can be more competitive and give your customers a more prompt response. Two or three years ago, Invest Northern Ireland engaged with various air companies. Indeed, Stephen will outline the work that has been done and work that is ongoing on growing air routes.

11.30 am

Mr Kingon: One of the big problems was getting direct flights out of Belfast. Air Route Development (NI) Ltd was set up to negotiate with the airlines, with the result that a few more direct routes have been opened up. There are some issues to be resolved. There is a big uptake of people leaving Northern Ireland, but the number of returning passengers is a problem. Those routes will continue to be marginal until we build a track record.

More needs to be done to develop other direct routes. There is a need for further funding and investment through pump-priming. There have been one or two failures because people went too quickly into a marketing campaign to get some of the stuff off the ground. Generally, accessibility has been an issue. The very fact that we have some direct routes now does help.

Dr Dobbin: The point about Dublin airport was well made. We need to ensure that we complement it. The market will find its own balance, but for certain routes, there is not enough demand in Northern Ireland to justify a flight. In those cases, the rapidly improving road system allows access to Dublin airport should you need it.

There has been a significant study made of railway infrastructure. NIBA was party to it, and I was personally involved through the Strategic Investment Board. With rail, the problem is one of viability, the number of people here and population density. I could almost declare myself to be an anorak. I am a railway fan. When I joined the Strategic Investment Board, I was keen to see, for example, improved railway connections to Derry. The line between Derry and Coleraine is dreadful and needs to be upgraded. However, when the cost of that is considered, it would almost be cheaper to build a main dual carriageway with a bus or tram system. It would cost less to operate and be more flexible at either end.

Either way, however, the point about Dublin airport was well made. We need better east-west connectivity, as well as improved routes between Dublin and Belfast. We need to consider the routes from Belfast to Derry, Belfast to Armagh and out to the west. The average speed on our strategic road network is well below where it should be. It is just in the early forties. We need to get it up to 50 or 60 miles per hour, and we need to make bus routes faster as well.

Mr Billington referred to commuting. It works both ways. If we could create, for example, a carriageway or motorway beyond Dungannon, it is my gut feeling that it would do two things: improve labour mobility and create business in those areas. If it were easier for businesses to connect, it would be easier for customers to reach them.

My gut feeling is that investment in transport would help rural development more than anything else that we could do — more even than allocating grants — because people would not feel as isolated. Businesses would be easier to get to for customers, investors and commuters.

I am not so sure that every region could have its own economic heartland. That is perhaps a planning issue. There is no doubt, however, that we need a strategic road structure. Rail has its place, particularly on the Belfast-Dublin route. I would like to see much-improved Belfast-Derry or Belfast-Coleraine-Derry systems.

However, the feedback and figures that we are getting suggest that it would be cheaper to build roads and have a good bus system than it would be to put huge investment into rail. To build a new high-speed track between Belfast and Derry would cost around £0·5 billion, but only the Belfast to Dublin route would have the traffic to justify that sort of investment.

Mr McNarry: As I listen, things come back to mind. Society has not recognised the debt it owes to those in business — in commercial retailing, financial services or whatever — who stuck with us through the duration of our troubles. Therefore your responses here carry more weight than politicians sometimes give them.

I have three questions. First, what advice would you give to a cross-section of 15-year-olds with regard to their employment aspirations, given the need to create the 140,000 jobs that you talked about?

Secondly, I know that Stephen has a romantic view of these things. I would love to help him create his commercial Utopia — a permanent happy hour for all those incentives, wherever he wants to site it. I listened to what was said about the enterprise zones. It would be interesting to find out how many businesses, having taken advantage of those zones, vacated them once the happy hour was over. We have to factor that into things.

Thirdly, can we escape from a “buy one, get one free” promotion mentality with regard to incentives? How confident are you of delivering stand-alone products and services — “the best in the world”, as the Secretary of State likes to call them? Somewhere along the line we are going to have to make a decision about parity, but which comes first? Our ability to deliver the best, and does it stand alone? Or must we attract by discounting and bringing people here?

Apart from the blip, we have had 30 years of direct rule. During that time, what representations did your sector make to the Government? I have followed your activities, but I have listened intently to you today and to references to the complications facing the EDF. What did you say to the Government? Were there any areas in which you felt that your representations contributed to a success? I share the views that you have expressed today. I wish that we could join you in establishing a coup tomorrow so that we could get rid of these bloody useless direct rulers. I think that that is what you are saying, though perhaps not as nicely as I put it.

What did you feel over 30 years? You said to the Government that it made a difference. In other words, why would you be listened to now by a Committee that is preparing to displace direct rule and, as elected people, to enter into Government and take all the flak that you are somewhat sheltered from? You do have a political voice, however. Was the growth of the public sector — which you are right to say got out of hand — and the dependence that we now have on it reflective of genuine difficulties, a failure to get through to the Government what they were doing, or was it that people chose to invest elsewhere? Stephen talked about stability, and he is right. Was it just that the climate was not good?

I hope that we enter an era of better prospects, a better climate, and the formation of a devolved Government. If we do not form this Government you have the right to kick every politician’s backside up and down the land because we will have failed you. We want to take this forward positively, but some of what you have said frightens me.

The Chairman (Mr Molloy): David, I must ask for a reply, as we are running out of time.

Dr Dobbin: There are some deep issues there, some of which resonate with me. I am a product of that happy hour in the 60s and 70s when Government incentives, mainly in the form of capital grant and accelerated allowances, brought in a huge wave of UK, European and American manufacturing companies. We had a golden time. Companies around Carrick, Larne and Antrim benefited from an influx of massive multi­nationals. There were textile firms; I was with Rothman’s tobacco business; and all those businesses brought employment, skills and good years to their supply base. There is a risk that they are promiscuous, that when happy hour ends they move to the next bar and feed there. So multinationals move to China or Estonia to get a better deal.

We need to recognise that foreign investment can be mobile and will not stay if better conditions are offered elsewhere. However, it leaves a legacy, and you must hope that it is a good one. Very few multinationals in Northern Ireland are anchored here and do research here. In the South, however, the golden year or happy hour tax has brought in a lot of foreign investors, such that there is a critical mass in the economy that is leading to indigenous start-ups.

I am chief executive of an indigenous company. Realistically, it does not make sense for us to be in Northern Ireland. We are going to be here because our shareholders and head offices are here; I live here and am not going to move. If we can get indigenous companies and boardrooms that have their marketing, their R&D, their financial centres in Northern Ireland, they will be here for the duration. As Declan pointed out, they may outsource to China for some of their subcontracting etc. They must do that to stay alive and to remain committed. We could do with a happy hour; realistically, we could do with bringing in some of these heavy hitters, because they will help to fast-track skills, management training, supplier development etc. We need them, but we must be mindful of the fact that they are promiscuous and will move on to feast somewhere else if they find a better deal.

On your point about NIO and the direct rule period, Michael and I have just finished a tour of duty as chairs of respective business organisations. When the bun-fight is over, we ask ourselves, what have we achieved? We go to endless meetings, meetings like this. What is it all about? Ninety per cent of the time we are stopping the introduction of stupid policies as opposed to working on productive things. Ninety per cent of the time we are pointing out what does not make sense, fine-tuning, changing policies and talking people out of the worst excesses of ideology.

If you get back into an Executive, there will be a lot of levers and buttons in front of you. You will push them and find nothing happens. The creation of a strong economy will be a long-term initiative. You will do a lot of things without knowing immediately whether they will work. There is a lot of luck to it; if the world economy booms, and you get a few inward investors who strike the right note, you could be really lucky. Equally, you could come in at a time when the world economy downturns, and you will reflect that down­turn no matter what you do.

We have one salvation. Northern Ireland has only 1·75 million people. We do not have to bring in too many big inward investments to make a difference, nor have we too many mouths to feed. A few big investments would make a huge difference.

As for the Civil Service, there is no doubt that the British Government pursue the policy of creating stability in Northern Ireland by anchoring society with a large public sector. Without that, there probably would have been some very lean years at the height of the troubles. However, that anchor is now a millstone around our necks. We enjoyed that stability, but now in a new era we are faced with “the Department for Sales Prevention”.

The Civil Service is so good at maintaining stability that it cannot be agile; it cannot transform. We must almost break it up with a hammer, so that those who want to get on and do things are not prevented. Generally when you give our civil servants a problem they come up with nine reasons why you should not do it and perhaps one supportive idea. That is how they have been trained; that is how the system works.

The public sector was very valuable in the past. Now it must change, so that it becomes our servant rather than our master — as it is at present. When you come into power, you must change it or it will be your master. It will stop your best ideas coming forward, because it is designed to create stability and even out change.

11.45 am

Mr Billington: In terms of delivering the best expertise in-house versus effectively bringing it in from abroad, no matter what the ability of the people of Northern Ireland, for which I have high regard, there is no substitute for experience. Ability must be married with experience, and the best and quickest way of getting that experience is via exposure to multinationals.

As David said, he and I have been spun out of multinationals; we gained know-how in three to five years that it would take 10 years to gain alone. That is available to local businesses.

That is one of the spin-offs. Multinationals may come and go, but we get the knowledge and the experience that is critical to making local businesses a success.

Dr Maguire: I would like to say to a cross-section of 15-year olds that, although we are locked in a cycle of generational unemployment, that does not mean that it will happen to them, because we have an education system that can tap into their individual skills and strengths. Those skills and strengths do not have to be academic; they can be vocational and technical. I would like to be able to say to 15-year olds that our education system can broaden the range of opportunities available to them to develop those skills that they need. I would also like to say to those who want to broaden their life experience by going to university outside of Northern Ireland to take that opportunity if we can bring them back to work in and contribute to the society that educated them.

However, I am not sure that I can say that to a cross-section of 15-year-olds at present, because our education system lacks the breadth to allow for those opportunities. We must acknowledge that there is not just one route to employment, but a number of routes. We must use what we have in place to help provide some of those opportunities.

Mr McLaughlin: I am conscious that we have run seriously over time, so I will ask one question and make a point on a specific issue.

How would you describe the profile of the economy in 10 years’ time? That relates to David’s first question.

We have discussed the transition process, and that discussion contained some fascinating detail. From listening to the questions and the responses, I believe that there is probably a significant amount of agreement on what has to be done to create this step-change scenario. We disagree in some instances, particularly on the public sector, but we are solidly behind the concept of growing the private sector.

A passing reference to Europe was made. In many ways, Europe provides a get-out clause for central Government in respect of state support, single-market requirements, or whatever. Do you see the need to develop a specific strategy to create the space in which Europe can support this society in transition in the same way as Europe supports the economies of other member states? Do we need a specific package from Europe that complements what we hope to achieve from the Treasury?

Dr Dobbin: If you were to go to almost any region in Europe, or, indeed, the world, Mitchel, there would probably be consensus on what regions can do to grow their economies. The difference between the successful economies and the ones that fail almost comes down to how well they implement their ideas. They generally share the same views on education, innovation and infrastructure.

Those views will appear in almost every economic strategy around Europe, so how can we get things to happen here? We are small, so we should be easily connected and able to get consensus quickly, yet so often we find that very hard to achieve. There is a fragmentation, not just politically, but in numbers of bodies and Departments. Rather than just get on with it, there is incessant negotiation about getting things done. We have an issue with looking outward.

My ambition for this region in 10 years’ time would be for it to look back on something similar to what Southern Ireland has seen in the past 10 to 15 years. We are on the same island, and our education system is just as good. Southern Ireland is stronger on the technical side, so we may have some work to do there, but we have a better infrastructure than it has, so why can we not mirror what it has done?

Its Government can form policies that suit the region; that, however, is missing in Northern Ireland because direct rule tends to impose UK solutions that do not fit our circumstances. It needs you guys and us to sit round a table like this to work out what we do tomorrow. However, we should not get too focused on policies; let us focus on action.

In 10 years’ time we need to be where Southern Ireland is now. That is not a political comment. The South has experienced an economic miracle: it used to be a banana republic — with a huge debt — that almost had to be rescued by the International Monetary Fund. Now all its debt has been paid off, it has a surplus, high employment and much better wealth for all its citizens, and economic growth extends to all sectors in its part of the island. We need the same here.

Dr Maguire: I will pick up on the need to manage transition space. We have talked before about the relative merits of the public versus the private sector. Those are the issues that we need to talk about. There is a risk of taking a twin-track approach: growing the private sector while looking at the public sector in isolation. The public sector here spends more than £8 billion, and that will have a huge impact on how the private sector develops. Any management of transition from one to the other will involve difficult decisions, and you, as elected representatives, will need a wide variety of views and opinions to allow you to make difficult decisions. Part of managing transition space is about how we work together with stakeholders to allow such decisions to be taken without being kicked for doing so.

We can figure out what we would like to see in 10 years’ time: difficult decisions will have been taken, and the right kind of support will have been galvanised around the taking of them. Taking decisions that will benefit the economy will mean people having to move from the positions that they have adopted.

Mr Kingon: We would have to negotiate with Europe on a wider base on issues such as state aids; and the EU Competitiveness Council would have to tick the box on any suggestions that you make on the fiscal side. In negotiating a package with the Treasury, failure to include the European dimension could be a block.

The Chairman (Mr Molloy): Time has beaten us, although important questions were asked and answered. Thank you very much, Gentlemen, for taking time out of your busy schedules to speak to us. We hope that our joint efforts will be of benefit.

Dr Dobbin: Thank you, Mr Chairman. May I make a final point. In the next week to 10 days we will let you have a written submission containing what we said today, including our answers, so that the subgroup will have an expanded version of our arguments.

The Chairman (Mr Molloy): It might be interesting to know what exactly the package would contain and how it would be used. That might be an issue for the subgroup’s terms of reference.

Informal break at 11.53 am.

On resuming —

11.55 am

The Chairman (Mr Molloy): Gentlemen, you are very welcome. I am sorry that the previous session overran, but I hope that some of the questions and answers were of benefit to you.

Mr John Friel (Federation of Small Businesses): Thank you, Mr Chairman and members of the subgroup, for allowing us to make a presentation today. My name is John Friel and I am Chairman of the Federation of Small Businesses (FSB) in Northern Ireland. My colleagues are parliamentary officer Glyn Roberts and deputy policy officer George Dorrian. George is with us in a supporting role.

I would like to apologise on behalf of Wilfred Mitchell who cannot be here due to prior engagements. I will be representing him today.

I will make a brief introduction to the presentation and will then hand over to Glyn, who will present the important details of some of our policy priorities. I believe the subgroup has been provided with a written copy of the presentation.

Northern Ireland is a small-business economy. Ninety-eight per cent of businesses are small and more than 89% employ fewer than 10 staff. The Federation of Small Businesses welcomes the establishment of this subgroup to develop all-party consensus on what needs to be done to address the problems and challenges that lie ahead and, hopefully, to form the basis for an the economic element of the Programme for Government for a future devolved Administration.

Much of our presentation gives practical policy suggestions. There is no doubt that having our own devolved Assembly with local and accountable Ministers is vital. Local Ministers can show real leadership and can reach a real understanding of what our economy needs to be sustainable and provide the future prosperity that Northern Ireland needs.

Developing our small-business sector is essential if Assembly Members are serious about growing our private sector. Developing a few indigenous small businesses that can use research and development (R&D) and export to new markets across the globe is the future of our economy.

We need a future Assembly Administration to hit the ground running with a radical economic programme, with ownership not just by the political parties in the Assembly, but by wider social partners in Northern Ireland.

My colleague, Glyn Roberts, will expand on our policy agenda and the subgroup’s three terms of reference.

Mr Glyn Roberts (Federation of Small Businesses): Thank you, Mr Chairman, for the opportunity to make a presentation today. The subgroup has received a detailed written presentation and I hope that there will be a number of questions, which we will try our best to answer.

I would like to touch on three or four main areas that we feel should be high on the subgroup’s agenda, given its terms of reference.

As you have heard from previous contributors, there is a lack of investment in R&D, particularly in the small-business sector. At one point, we had one of the lowest R&D spends in the European Union.

Many small businesses do not have the resources, financial or otherwise, to invest in R&D. The Federation of Small Businesses has always maintained that we must use the tax system to encourage more small businesses to use R&D. Obviously, we have the credit system but — as was pointed out during the previous session — take-up by small businesses is very small and we must simplify the system whereby small businesses get tax breaks to invest in R&D.

This is not brain surgery; it is very simple. Invest Northern Ireland and the Department of Enterprise, Trade and Investment could use as champions local, indigenous small businesses, which have successfully used R&D to expand their businesses and which have exported to developing markets across the globe. If we had such champions, small businesses could identify with them and that key connection would be made with the typical, grassroots small-business owners who perhaps do not think that R&D is a matter for them.

That would help change the, perhaps, very parochial nature of some of our business community.

12.00 noon

To underline some of the points that were made earlier, we can grow as a region only if our infra­structure goes through a radical programme of modernisation. There is no doubt that underinvestment has penalised us in the past.

I wish to home in on the work of the Strategic Investment Board, which I believe the subgroup is examining. The board has a huge role. Charged with implementing the Northern Ireland investment strategy, the board has real potential to create opportunities for existing businesses. Our concern is that, for a variety of reasons, existing businesses in Northern Ireland are not able to take advantage of the contracts that the SIB is creating. We must reconsider procurement policies and ensure that local businesses are fit for purpose and can take advantage of those contracts.

We believe that the board of the SIB needs to be looked at again. There is nobody from a small-business background on the board. Our colleagues in the trades unions would also feel that they do not have a role on that board. The SIB must sit back and realise that ours is a small-business economy and that it, along with Government Departments, has a role to ensure that business is able to step up to the mark.

We broadly support the Industrial Task Force’s position on corporation tax. I understand that the subgroup will hear from that body fairly soon about the harmonisation of corporation tax with the Republic of Ireland. However, in the field of practical politics, there is obviously strong concern from the Treasury that that would have implications for the fiscal union and would set a precedent for other parts of the UK. However, given that we are the only part of the UK that has a land border with another member state of the European Union and, given the legacy of the troubles, some form of special status is absolutely essential.

If we look at other member states of the European Union, such as Latvia, which has an extremely low corporation tax rate — even lower now than the Republic — we see that we have a huge amount of catching up to do.

On rating, as many members may know, we favour a small-business rates relief scheme, such as is already in operation in Scotland and England. Indeed, the Department of Finance and Personnel has indicated that it is studying the operation of those schemes. We believe that that is the right way to proceed, and that we could come up with a model that would address the concerns that members have heard from the manu­facturing sector and many other business that struggle with the problem of high rates.

We are currently consulting our members, principally, at this stage, those in manufacturing. We will then consult our broader membership on a model for Northern Ireland that would work and be appropriate, because it is important that we get the rates issue right. That issue has been kicking around for an immense number of years, and there is real concern about that. No small business should have to struggle with a rates bill, and we must ensure that we get that issue right and that small businesses have the capital to grow and expand.

We, along with colleagues in the Business Alliance, have been involved in various meetings on fiscal incentives with the Prime Minister, the Chancellor and, indeed, many people around this table. We have proposed that there must be an effective scoping study by the UK Government. Obviously, it is essential to hear the views of this subgroup on the options for additional fiscal powers for the Northern Ireland Assembly, looking at best practice in other parts of the UK, and other countries that have similar devolved structures.

Perhaps the big question that the subgroup is trying to tease out is what exactly an economic package and peace dividend should look like. It is important that we develop as much ownership of what that package should be — a consensus across the board, not just in the business community, but across other sectors. Obviously, approaching the Treasury with a single voice on what a package should be is absolutely essential.

We have over 6,000 members throughout every section of the community in Northern Ireland, and we have begun to ask grass-roots business owners what they would like to see in an economic package. It is important to recognise that so much of what politicians do and how the systems of government work goes on behind closed doors. We need to get the grass-roots views.

Clearly, the infrastructure deficit, the high cost of doing business and how we effectively use our taxation and rating systems to kick-start the private sector will all be essential elements in the economic package. The more we develop a consensus on that approach, the better it will be when negotiating with the Treasury.

FSB is clear on the need to look at other regions around the world, not just the Republic of Ireland, to see best practice and where the gaps in the market lie to ensure that local business successfully exploits those opportunities. Our paper suggests establishing a joint Government and business task force, which would obviously include Invest Northern Ireland and various other agencies. Putting business people, along with Government, in the driving seat is essential.

That is a brief overview of some of the points in our presentation. Our report, ‘Lifting the Barriers to Growth’, is quoted throughout our written presentation. It is a survey conducted every two years of our members not just in Northern Ireland, but in the United Kingdom. We also have the complete list of Northern Ireland figures, which have not yet been released, but which we hope can aid the subgroup. I realise that the subgroup has quite a tight timetable in which to produce its report. If we can do anything to be of any further help, we will be only too happy to do so.

Ms Ritchie: I wish to expand on infrastructure, which I discussed with the Northern Ireland Business Alliance earlier. Mr Roberts said that the infrastructure deficit, the high cost of doing business, and how we effectively use our taxation and rating systems will be essential elements of any economic regeneration package. Everybody says that there is a deficit in our infrastructure; on what basis does your organisation make that judgement?

We are aware of the roads and water infrastructures. How do you see that contributing to the economy overall? What are the essential elements of an infrastructure package that would contribute to an improvement in the economy?

Mr Roberts: First, we must be clear on what an infrastructure deficit is. We have heard many things that it could be, such as a motorway from Belfast to Derry or a train line to Fermanagh. The members here represent different constituencies, and will all have pet projects. We need to effectively scope what an infrastructure deficit is and reach a clear consensus on it. In relation to the price tag, we obviously need to be extremely clear about what we need to do.

How an infrastructure deficit is connected to economic development can be illustrated by Invest Northern Ireland’s recent report on how much spend it gives to business start-ups. In places such as Strabane, and throughout many border areas, there is very low investment in business start-ups by Invest Northern Ireland. Much of that is market-led, but because of the infrastructure, with poor roads in some areas, access can be difficult. That is why investment figures for south and east Belfast are very good: the infrastructure is there. There are fairly good roads and a proximity to Belfast City Airport and various Government Departments that act in a supply role.

Mr Friel: For people in Fermanagh or the north-west, roads are essential. I travel to Belfast three days a week, and many other people also travel. The journey can vary from an hour and three-quarters to two and a half hours, depending on the time of day and the volume of traffic.

The roads infrastructure is just not good enough. Back in the 1960s, there was a good road-building programme. The plan was to link the M1 and M2 motorways through to Omagh and Derry and back, with arterial routes to Coleraine and Enniskillen. That all came to a halt when the troubles started. However, the troubles had nothing to do with business people — especially manufacturers like me. We did not support the trouble, but all the money was diverted to security.

The Government should call a moratorium for two reasons: first, to halt all the increases in charges that they are imposing; and secondly, to put into our infrastructure the money that they have spent in any 10 years during those 35 years. They can start where they left off in the 1960s and give us our roads. They could also hold the rates and the water charges for 10 years to give companies a chance to recover and get back to where they should have been 30 years ago.

Ms Ritchie: Did your organisation research the types of infrastructure that need to be improved in order to contribute to our economy and, moreover, contribute to those areas that have been the location for neither foreign direct investment nor indigenous business? How have you seen the improvement of cross-border roads infrastructure contribute to the growth of small businesses?

Mr Roberts: In our consultation, we are trying to find out our members’ views, as their views as business owners will be essential. Obviously, when we get the data back, we will share it. I am not sure that we will have it back by 18 August, but we hope that it will be useful.

As Mr Friel said, roads and rail are essential. We also need a viable public transport network. We have always maintained that there will be difficulties unless the basics are right on roads and rail. Your point about the Republic of Ireland is well made. It used to be that we sniggered and looked down our noses at their roads, but now it is the other way around. We need to get real.

We are trying to listen to the grassroots, which are always an essential element of our policy making. We will listen to people from Fermanagh, Strabane, Antrim and Downpatrick — wherever people want to talk to us.

Mr McLaughlin: Public procurement is obviously a huge market in which there are significant opportunities for reform and savings and, perhaps, for more flexibility and innovation in the application of spending. However, you criticise the SIB’s method of bundling the contracts into megacontracts. At what specific level should those contracts be pitched — locally or sectorally, with small businesses in a particular sector coming together to form joint venture bids? How exactly would you, as opposed to the SIB, approach that?

Mr Roberts: On one side of the coin, the skills gap here is such a problem that many businesses are unable to tender for a lot of work. However, as a basic rule of thumb, the SIB should always try to create as much local business as possible; that is its purpose. In a recent eight-point plan, we put forward simple ideas such as the SIB putting a small-business representative on its board. The SIB has a rather toothless advisory council, and we must ensure that it maintains investment in local businesses and makes the process as transparent as possible.

At the same time, the Department of Employment and Learning, the Department of Education and other providers must have an opportunity to ensure that businesses and their staff have the right skills to tender for these contracts.

12.15 pm

Mr Friel: The big companies in Northern Ireland are nowhere near as big as those on the continent. The fear is that big companies from the continent will come here, overlook our companies and bring subcontracting companies with them. The bigger companies here, such as Gilbert-Ash and Farrens, should get together to tender for contracts to ensure that the work is spread among the subcontractors here, or they will lose out completely. We have a lot of subcontractors and they are very competent.

Mr Neeson: The Federation of Small Businesses has interacted well with elected representatives over the years.

Mr Friel rightly says that the small business sector is the backbone of the Northern Ireland economy. However, I wish to deal with the role of Invest Northern Ireland (INI) since the merger of IDB and LEDU. How does INI relate to the small business sector compared to LEDU? There is an urgent need for a review of the role of INI.

Mr Roberts: On a basic level, INI needs to communicate more effectively. There is still a misconception about what INI does. It needs to rationalise the services that it provides to new-start businesses and to indigenous businesses and how it can help them. There is great confusion about what INI does, judging from the volume of calls that our office receives from new-start businesses. So much of what INI must do comes down to simple communication. Many of our members were told that INI would have a honeymoon period, but that is long gone, and now we need results. There were concerns regarding the amount of start-up money that INI was giving to many border areas and other areas outside Belfast. For instance, south and east Belfast had more money than five or six constituencies put together along the border.

INI needs to connect with grassroots small businesses. The federation has put forward a policy proposal to INI for a small business touchstone group; active small business owners could form an advisory group to INI to ensure that its policies are user-friendly to existing and indigenous small businesses. There is no doubt that the “Go for It” campaign is welcome, but we need to see results. We need to find out how many of those businesses that signed up for the “Go For It” campaign are still there in years two, three and four.

The Chairman (Mr Molloy): I remind members and witnesses that mobile phones must be switched off, as they interfere with the sound system.

Mr Friel: There is not much difference between Invest Northern Ireland and LEDU. I never had any dealings with IDB, but I had a bad experience with LEDU. In 1988, it offered me £2,000 to employ two people, but I had to guarantee to keep them for two years. The amount of paperwork was unbelievable. After three weeks, the girl in the office asked me if it was all going to be worth it. She explained how many times she had to phone LEDU, and how many times the people whom we had employed also wanted to talk to LEDU. We would have had to pay tax on the grant that we would have received, so, after about three weeks, we decided to forget about it.

One of the problems that I have found in the inter­vening time is the lack of appropriate client executives. Most of them have no experience of business, and they do not know what we are talking about. They cannot relate to small businesses at all. In my experience, that has been the biggest problem. Others I talked to have had the same experience. As Mr Roberts said, the honeymoon period for INI is long over, but no one has told them, and they think they are still on it.

Dr Birnie: The question on SIB procurement has already been asked, but in wider policy terms, can you identify areas where, when there is trade-off between external and indigenous companies, the policy has been to favour external companies? One example hitherto has been planning and out-of-town shopping centres.

Secondly, can you confirm that you support a degree of maintenance of manufacturing derating, but targeted on smaller firms? Thirdly, and this is in your written submission, would you say something about the impact of crime, particularly organised crime, as an impediment or barrier to growth?

Mr Roberts: I will deal with your last point first. We released crime statistics as part of the ‘Lifting the Barriers to Growth’ survey that showed that Northern Ireland has the highest level of business crime in the UK, and that upwards of 40% of business owners are not reporting crime to the police.

There is no doubt that crime is up alongside insurance and energy costs and is a significant barrier. We took a delegation recently to meet the deputy chief constable. A member of the delegation owns a newsagent’s in east Belfast that has been robbed half a dozen times in the past four years, and it has cost his business £12,000. He has reported everything to the police, but he is concerned by the fact that he has only got a crime number: he has not recouped his losses.

We put forward a number of suggestions in our written proposals, for instance, tax relief for businesses that invest in items such as CCTV, and how the police record crime. The police say that crime is dropping, but that refers to recorded crime; it does not include the 40% of businesses that do not report crime. The PSNI and the Policing Board need to look at that. We are meeting a representative from the Policing Board later this week to see how that can be advanced. We have put forward nine points that we hope the NIO, the Policing Board and the PSNI will look at.

We need to get rates sorted out across the board for all businesses. Mr Friel is a manufacturer and he can give a better example of what is happening on the ground. We need a small business rates relief scheme that is appropriate to Northern Ireland. Importing the Scottish and English model will not work because, obviously, big businesses pay more. We want to ensure that manufacturers are protected. Other businesses are struggling with rates and that is an issue. There are other organisations that can best articulate the situation as regards big businesses, but we are primarily concerned with small manufacturers — and always have been. We want to see a strong manufacturing sector. The manufacturing industry has a big role to play in developing our future economy.

Mr Friel: In a recent survey we conducted, I met people and I concentrated on areas outside those in which I work. I visited a few small engineering companies. Most of them are run by men who set them up when their places of work were closed down. I went to one company that employs eight people. The owner told me that by the time he pays the rent, rates, electricity and telephone bills, wages and taxes, he struggles to take home a week’s pay. He maintains that he would be much better off working for someone else — if he could get a job within travelling distance of his home.

Our economy will not progress with that sort of company. There must be an incentive for such companies to progress, develop and expand. Providing incentives would increase employment and prevent other companies from closing down.

Dr Farren: My question follows on from two questions that were asked about procurement. If there is what might be described as the displacement of local businesses from the procurement process, I would like to see some hard evidence of that. The subgroup is going to hear from SIB, and it would be useful, therefore, to have any evidence that you can make available. SIB facilitates regular roadshows to ensure that local businesses are able to, either singly or in consortia of the kind that Mitchel McLaughlin referred to, come together to bid for a slice of some of the major contracts that SIB manages. Therefore, if there is evidence that local businesses are not availing of the opportunities that SIB is providing, SIB may have to fine-tune the opportunities for information to be made available.

Labour shortages in some major projects in the private sector — for which SIB has no responsibility — and to some extent in the public sector, have had to be met by recruiting overseas, particularly in eastern Europe. Businesses have to do that to ensure that projects can go ahead. However, if there is clear evidence that local firms are unable to bid for, or are precluded from bidding for, these contracts because of a lack of help, or that they are being sent a negative message, we must hear about that. To what extent are we engaged in hearsay, rather than actual evidence of the failure of local firms to avail of major contracts? The evidence would be critical, and if you could make it available, it would be of assistance to us. It would be important to hear that evidence.

Mr Roberts: One of my colleagues is working on that, and, hopefully, we will be able to share that information with the subgroup. We do not have it to hand today, as we did not have much notice of the meeting.

Dr Farren: I understand that.

Mr Roberts: The federation worked with SIB on a mini roadshow that was targeted particularly at the construction industry, and there was a fairly low turnout. When we analysed the turnout after the event, we discovered that there is little awareness of what SIB is and what it does or does not do. That is something for SIB to consider, but the federation wants to talk to SIB about how it can raise its game and communicate more effectively.

There remains a wide perception that local businesses are not availing of all opportunities, but we will get the research to the subgroup when it is completed — if it is completed by 18 August, so much the better.

Dr Farren: I hear frequently from the federation about the costs that follow from statutory requirements such as rates, etc. Rates obviously contribute to the provision of local services. If the burden is shifted from one sector, then unless the level of service is reduced, that burden must be shifted to another sector. Thus, if the burden is removed from the business sector, there is nowhere else for it to go but the domestic sector.

I am very interested to know whether the burden can be spread as evenly and equitably as possible. Various sectors have pleaded for relief here and there without understanding that, if they get more relief, I, as a homeowner, may have to carry an extra burden.

Have you any advice, based on experience elsewhere, on how we can ensure that the business sector carries a due burden and that the overall tax system — rates are another form of taxation — is equitable? If we achieve that, we will not have to constantly address the pleadings for special relief from whomever, whether they are ratepayers, householders or business owners.

12.30 pm

Mr Roberts: I am not saying that businesses should not pay rates — of course they should; businesses make a contribution, use services and so on. We want a fair rates system. There is real concern not only among manufacturers but across all sectors that the rates system is not fair. We must ensure that the rates and tax systems in Northern Ireland can be used to stimulate new business and expand existing business to ensure that they have the capital to grow.

This issue must be considered in context: Northern Ireland has the highest insurance costs, highest crime figures, highest energy costs and major infrastructure problems. On top of that, we pay rates and, in the future, water charges. One of our concerns about water charges is that small business owners will be hit twice — at home and at their place of work. Considering all those problems together, it is fair to say that the rates and tax systems should be adjusted to stimulate business growth.

We strongly believe that if the rating system is right and businesses have more capital, the revenue from the rating system will increase, which will benefit general service delivery. The Minister for Finance in the Republic, Brian Cowen, made a good point about corporation tax; he said that the Irish Exchequer brings in more money now that corporation tax is 12·5% than it ever did when the percentage was in the mid-twenties. That ensures that public services — education and health services and so on — continue to be funded. Given the problems faced by the business community and the high cost base here, the Government must ensure that the tax and rates systems do not push it over the edge. That is our concern.

Dr Farren: You are effectively saying that central Government should pick up more of the tab. Should we seek a 10-year rates relief package?

Mr Roberts: That is one option. As you know, we are consulting our members on what an economic package should entail, and that option has been outlined. How the system is used to stimulate economic growth is a key issue.

The high cost base here — as a result of the high insurance costs, energy costs and crime — is off-putting to small new-start businesses when they consider the huge amounts of money that they will pay in their first year. As a result of that high cost base, surviving to a second or third year could be a major problem.

I mentioned insurance, and there is no doubt that there is a degree of stability in the insurance market now.

Certainly, premiums are high, but there is stability. We have not seen the record increases of up to 500% that we saw a few years ago. That is still a problem to be resolved. Until we get a stable insurance market in Northern Ireland that provides cost-effective premiums to small business, in four or five years’ time we are going to be back to these huge hikes. This is something that we have worked on extensively, both with the insurance industry and with the Treasury, ensuring that our own members can address issues like health and safety so that premiums are cost-effective. We must address this burden of the high cost of doing business. That is one of the elements that a package would do. It would take some of that burden off the business community so that it can grow, expand and provide the jobs and investment that Northern Ireland needs to see.

Ms Gildernew: I, too, welcome you and thank you for your presentation. In rural areas what is done in support of small business is even more important, since we do not have the foreign direct investment, Civil Service or health jobs that cities and towns have. I am also concerned about the lack of investment, not just in roads, railways and technology, but in, for instance, the Ulster Canal. Development of that is the missing link with the rest of the inland waterway structures in Ireland. We can develop the tourist potential there.

I worked with Leslie Morrison of Invest Northern Ireland in a recent case. A company in Enniskillen planned to double its workforce from 30 to 60. It was looking for bigger premises in and around Enniskillen and had an offer from Carrick-on-Shannon, not only for purpose-built premises, but for an economic package to go along with that as well. It was very tempting, considering industrial derating and other matters, for that company to relocate. We worked hard to ensure that it did not and that it got the help that it needed. However, I find that Invest Northern Ireland is often not agile enough, not fluid or quick enough to deal with these things as they come. We deal with an economy in the twenty-six counties that is much more aggressive and has had an impact on my constituency.

I should declare an interest, because my family is involved in the engineering sector and, John, I understand fully what you were talking about. I feel that industrial derating is going to hit us very hard. Double that with the corporation tax rates, and we are going to lose. Companies like Powerscreen Inter­national Distribution Ltd have generated lots of small engineering firms around Tyrone that are dependent on them for employment. If we go down the route envisaged by the Treasury, engineering will go the way of textiles and food-processing.

I know what you are doing with the further education sector and of the initiative that you have taken with the ANIC. The skills deficit is important. What do we need to know? What recommendations do we make to ensure that we get people skilled and educated for the jobs that we need to create, particularly for the new growth sectors such as renewable energy and recycling? What can we ask of that sector to create skills to build the new economies for sustainable long-term employment?

Mr Roberts: On your point about education and skills training, 25% of school leavers have poor numeracy and literacy skills. That is a major handicap for any wannabe successful economy. A recent Northern Ireland Audit Report showed that over £40 million has been spent, yet we have seen no real improvement in young people’s numeracy and literacy skills. This is one of the main reasons why the Jobskills programme failed. Many of the Jobskills providers had to make up the gap because young people did not acquire those skills at school.

We work hard to build relationships with further education colleges. The scheme that we work on with the Association of Northern Ireland Colleges (ANIC) is a simple one. It is an awards scheme, but one that increases links, not just between further education lecturers and businesses in our five local branches, but also connects students with businesses and our branch members. We put our money where our mouth is with that relationship.

In respect of universities, we must be very clear. Looking at the whole gamut of education, we have a very academic focus in Northern Ireland. That obviously suits some people, but so much more must be done on the vocational side. We have to look at degrees to see whether they have a vocational element, or an opportunity for work placement. Many degrees do not have that. I occasionally lecture on the University of Ulster’s communications, advertising and marketing courses, which now, in the first year of study, have an entre­preneurship module, enabling many graduating students to consider self-employment as a consultant. That brings us to the wider notion that careers advice must start selling self-employment as a realistic career option.

Universities and further education colleges must provide those basics. By comparison, further education colleges are in one respect ahead of universities. Most colleges now have some sort of liaison person who can connect with the local business community. I know that the University of Ulster has made such an appointment.

One of the difficulties that small businesses face, if they have a research and development idea connected to the universities, is where to start. Queen’s University and the University of Ulster have huge departments. In response to the universities’ seven-year review, we asked them to keep things simple. There should be one point of contact for a business approaching with an idea, so that they can be pointed in the right direction, encouraged and supported, rather than just looking at a mass of departments and wondering where to begin.

Perhaps John will say something about cross-border business.

Mr Friel: There is not much to say, but someone has already mentioned cross-border co-operation on education in general, which would be a good thing. Years ago, the South was lacking, and suffered by comparison. It was not so good, whether the subject was education or roads or whatever. Everything has turned around now. The education system is rated as one of the best in Europe.

Mr Roberts: One of the things that our barriers to growth survey discovered was that staff training in small businesses was difficult. When the Employment Bill went through the Assembly, and when we gave evidence to Dr Birnie when he was chair of the Committee for Employment and Learning in this very room, we pointed out that much of European employ­ment law is based on big businesses with human resources departments and perhaps 200 or 300 employees. That does not help small businesses that do not have human resources departments and that are already overburdened with paperwork. It becomes more difficult to facilitate staff training.

It is fine if you have a business with 400 staff — you can be flexible. If you have a staff of four and one of them is out, that cuts your workforce by a quarter. Businesses have to get their staff trained, but we need a training strategy that helps small businesses. One of the statistics about clearing barriers to growth revealed that 65% of our members are willing to undertake staff training if more funding and support were available. The will is there: it is how practically business owners can find the time and discover that training enhances their business rather than hinders it.

Ms Gildernew: I was on that Committee for a short while after the birth of my first son. While I fully appreciate the difficulties that maternity rights cause for small businesses, we must also look at the barriers to women entering the workforce, such as flexibility of maternity leave and family-friendly working hours.

To what extent do you feel that the lack of affordable, quality childcare, particularly in rural areas, prevents women from getting back into the workplace?

12.45 pm

Mr Roberts: It is not only a matter for employees, but for business owners as well. It is a problem across the board.

The key thing is that there is a different relationship between small-business owners and their employees and that of big-business owners and theirs. There is more one-to-one treatment. Often we feel that, rather than legislate for a family-friendly business environment, the small-business owner should sit down with the employee and find the best way to accommodate them, ensure that their job is protected and manage business needs too.

We are concerned that some employment legislation discourages employers from taking women of child-bearing age. No one wants that situation. We were leapt on by a former Member of the Assembly — who is now in a very distinguished position — who could not understand that we were not advocating that. Rather, we were warning that unscrupulous employers would see the legislation as a pretext to discriminate.

Mr McNarry: Thank you for reminding me; when I started up in business as a 26-year old it was with great gusto and entrepreneurial spirit, and it only became difficult when it became bigger. We are in danger of losing entrepreneurial spirit. It used to be big in Northern Ireland, and those who used it well left here but have now come back. Too many are in business in that sense but are self-employed, so they earn a wage like their employees but carry all the responsibility. When I read that 89% of businesses employ fewer than ten employees, I understand the implications of that. What is stopping small businesses from growing? That statistic is very high, but it represents a small number of employees. We might look at how to address obstacles to growth in the workforce.

What percentage of your members own their premises? That figure is crucial to any business analysis. Getting young people into work, and into sustainable employment in particular, is a key issue. It was highlighted by the first deputation. Government must wrestle with this, because it carries all sorts of implications for society.

What specific ideas do your members have which would encourage more apprentices? What field of apprenticeships could your members point to that look like having sustainable employment gains? I mean apprenticeships that do not result in being out of work in three or four years. If you are to encourage schools to promote them, and Government must back this up, you must be able to promise a good chance of sustainable employment. It is not a case of getting on your bike, as Tebbit said. It is too small a place to cycle anywhere to find the work that is needed.

Mr Friel: If people get on their bikes, no matter where they go, they will encounter the same situation. We return to the same old story: it is manageable for people in business on their own to employ six, seven or eight people, but if their business is offered good contracts and they attempt to expand, they must decide whether they can cope with those contracts and whether people are available for employment, and when those contracts have been fulfilled, whether there will still be a job for those people.

The same situation applies to apprentices. There is no point in small businesses taking on apprentices if they cannot guarantee that they will be in business in 12 months. Together with tax, rates and the cost of energy, as Glyn has pointed out, water charges are proposed and regulations are coming from Brussels and London.

In the past two years, I have laid off about five people, because we had to invest more in equipment than in people. That is just the way that it is; we could do nothing about that. It would be nice if I could say that I was going to employ five more people, but that will not happen unless something is done about the raft of regulations and unless proposed water charges are dropped and the rates left as they are. Much can be done. A hold can be put on their implementation for whatever period you as an Assembly can negotiate with the British Government, but we want to give businesses a chance, not only to progress but to stay put. There are many businesses that employ nine or 10 people who will not be here this time next year if they are burdened with all of those costs.

Mr McNarry: There must be a recce on the cost of unemployment as it relates to people employed by small businesses. We must discover many facts and figures. If 100 people are made unemployed, how much does that cost? Conversely, how much does it cost to employ 100 people? It may be helpful, if you have the resources, to come up with those figures, because that is an argument that small businesses must make.

Having sat in your place, I know that there is a sense out there that you are always moaning, bellyaching and crying. You are bit like the farmers about whom people unfairly say: “Look at the four-wheel drives that they have.” When that representation is made to people who are potentially preparing to go into government, you must turn things around so that, whatever your lobby is, it will help reach solutions for sustaining what you have. Where is the entrepreneurial spirit? Is it all to be found in Korea and Japan? Must we import everything? When we look back on our history, we see that we made things. We produced and designed them, and the world then took them and sold them. There is bound to be something of that still there, and I hope that you could show us a glimmer of hope for how we recover that.

Mr Roberts: First, we must address our high cost base. If we can address much of the broader policy issues that John mentioned — the regulations and red tape — there is absolutely no doubt that small businesses would take on more staff.

The problem lies in a perception that we hear about all the time. A large section of our membership is made up of people who are self-employed. They have enough resources and they prefer to stay at that point and not expand, because if they expand, they must take on more staff, and they see that as additional paperwork. We desperately need to get away from the situation in which small businesses think that it is better to cap the number of employees or not employ anyone at all.

We proposed a range of suggestions in our evidence to you today, but the only way that we can address the cost base issue is to place entrepreneurship on the education curriculum from whatever stage possible.

We need to move away from a solely academic focus. When the Federation of Small Businesses advertised basic administration jobs, a large number of the applicants for them had Masters degrees of every hue. That is unacceptable. No one who takes the time and trouble to go to university should have to apply for an administrative position. We have to ensure that we have jobs for graduates.

However, when steering graduates into career development we must let them know that self-employment is an option. We need to ensure that entrepreneurship is on the curriculum as early as possible and that all university courses have some vocational training and practical application. Some people come out of university with very little experience of the world of work, which can be a problem for employers as they do not see university graduates having a grounding in workplace needs.

Mr Poots: The entrepreneurial spirit is alive and kicking in Northern Ireland, but perhaps it can be found more in those who go into traditional businesses: welders and joiners are setting up business because they have no other option. Those who go to university tend, perhaps, to take relatively well-paid jobs with a pension. Perhaps they are unwilling to take the risk of going into the market and establishing their own businesses.

You mentioned crime, and I see the article in your submission on fuel duty. Do you believe that now is an opportune time to challenge the Chancellor and the Government on fuel duty? There are three prongs to launching such a challenge. First, the Irish Republic has said that it will increase fuel duty in response to environmental concerns that the European Union raised. That may reduce the variation in the price of fuel between Northern Ireland the Republic.

Secondly, a decrease in fuel duty would increase the revenue to the Northern Ireland tax budget, and Seán Farren raised that issue earlier. Many of the proposals that we are discussing would reduce tax revenue, but the proposal to reduce fuel tax would increase tax revenue for the Treasury.

Thirdly, there are people at this table who represent an organisation that is up to its eyeballs in fuel smuggling, and we will not achieve devolution in Northern Ireland while that goes on. If the Government are serious about delivering devolution in Northern Ireland, they have to deal with crime. Although the Assets Recovery Agency has gone after some people, many of the big hitters have not been touched.

The Government benefits three ways: environmentally, in increased tax revenue, and in the achieving of devolution.

Mr Roberts: Perhaps John can illustrate my point with a case study, but the federation has twice suggested to the Northern Ireland Select Affairs Committee that fuel duty in Northern Ireland should be equalised with that of the Republic. Prof Goldstock’s report, which came by the Northern Ireland Office, came to the same conclusion. Until we deal with the difference in fuel duty, we will not solve the problem. We have to remove fuel smuggling by removing the smugglers’ incentive.

Many filling station forecourts on this side of the border no longer exist — they cannot exist. The Northern Ireland Office has ducked and dived on this issue for too long, as has the Treasury. The work of the Organised Crime Task Force and the Assets Recovery Agency will amount to nothing while the difference in fuel duty exists on the island.

Mr Friel: I do not know the solution. I have a business across the border as well as one on this side of it. We had an account with two filling stations, one in Lifford and one in Strabane. The owner of the filling station in Strabane hung on for as long as he could — at one point we were his only customer — before he had to pack it in.

Twenty years ago, there were seven filling stations in Strabane. Three years ago they were down to just that particular one, which shows how many have gone. Twenty years ago petrol would have been much more expensive in the Republic, and people were coming in droves from Donegal, from Gweedore in busloads on Saturdays, and then it became cheap for them to come in cars and fill them up. That has turned around.

1.00 pm

There used to be three filling stations in Lifford, and now there is only one, and it almost closed too. The only people who supported it were the customs officers and guards who bought fuel there. When you go over there now you have to join a queue. It is open 24 hours a day. There is no talk about a filling station in Strabane, and there probably never will be one there again.

Mr Roberts: There is a double benefit. It is not just about the fuel duty, there is also the job creation that would happen as a result. You would be creating legitimate jobs as a result of which people would be paying taxes as opposed to having people behaving illegitimately in the black market.

Mr Friel: The small shops and car washes with filling stations have all gone.

The Chairman (Mr Molloy): Time is going against us. One thing I spoke to Invest Northern Ireland about was what stops a small family business from getting into the export market. Is there a mechanism whereby the Government guarantee assistance that could help small businesses to expand into the export market? Obviously, the risk factor would be high, and sometimes family businesses are quite content to operate at a certain level and be managed and controlled, as John said, at that level.

Mr Friel: There would have to be Government guarantees. Most people, when businesses reach a manageable level, are inclined to stay there. Although business and turnover might increase rapidly, the bottom line might stay the same at the end of the year. Therefore why take the chance and the hassle? There is not a lot of support from Invest Northern Ireland or the banks. Most banks will not work with the Government guarantee scheme, and that is the way things are. Differences between banks now as regards borrowing large sums of money are practically nil, and you would need a large sum of money, and a lot of help from Invest Northern Ireland, if you were going to go into the export business. That help is not forthcoming.

Mr Roberts: A lot of this is not necessarily about high-level trade delegations; it can be very simple. We have air links with places such as Prague — and the Czech Republic has a very similar economy to ours: small businesses and rural based. However, we have not used that air link effectively; we have not used it as a sort of economic corridor to bring entrepreneurs and small business owners from Prague and put them in a room with small business owners here. A lot of it is as simple as that. All small business owners are compulsive networkers, and much should be done at that basic level. The easier it is to facilitate that, the better.

There is no doubt that we need to find new markets and develop products that we can export. It is a big job, and we are acutely aware of it and have made a suggestion in our report to the subgroup.

The Chairman (Mr Molloy): Thank you for coming along. You have given us a lot of information. If you have any further information would you provide it to the subgroup within 10 days so that it can be processed by the Clerk? A copy of the Hansard report of this session will be available within 24 hours for you to check, and I would ask you to respond to the subgroup on that. We will break for 20 minutes. Sandwiches are available, and you are welcome to stay for those.

The subgroup was suspended at 1.04 pm.

On resuming —

1.32 pm

The Chairman (Mr Molloy): We shall let Mr Nellis begin.

Mr Liam Nellis (InterTradeIreland): First, I wish to thank members for giving me the opportunity to make a presentation. The subgroup is engaged in a very important piece of work, and it is important to every­one to get the Assembly system up and running again.

The subgroup is examining the economic challenges facing Northern Ireland. Owing to our remit, we in InterTradeIreland speak from a certain perspective. Our role and remit clearly come from legislation such as the British-Irish Agreement Act 1999. That role and remit are clearly all-island in nature, and I will talk from that perspective. However, first, we wish to identify the major impediments to the development of the Northern Ireland economy. That is what you have asked InterTradeIreland to do, as well as to consider other matters, including how a possible peace dividend and economic package might be delivered.

I will not go too far into the question of fiscal incentives, because that is really an issue for the UK Government. If members wish me to make personal comments on that, I can, but in an all-island context, it would not be right for me to talk about that.

InterTradeIreland’s strategic remit puts us in a reasonable position to talk about issues facing businesses across the island. We have delivered value to more than 9,500 companies in the six years that we have been around.

The impediments that we have identified are not ours but come from examination of various sets of analyses. I am sure that, this morning, members will have heard many of the points that I will make. Members will hear those points again over the next few weeks as they meet other people.

It is quite clear that there is a set of impediments to the development of the Northern Ireland economy. Those impediments have been identified by the Department of Enterprise, Trade and Investment, by the Economic Development Forum, by the Business Alliance and by the Federation of Small Businesses. I will talk members through InterTradeIreland’s analysis of those impediments, and then I hope to talk about how all-island collaboration can contribute to economic regeneration as part of the wider economic package.

To set the context, we believe that the Northern Ireland economy has been performing well in recent years. Wealth has increased — the statistics support that. Gross value added per capita more than doubled in Northern Ireland between 1990 and 2003. Job numbers have increased, mainly due to growth in the services sector. Unemployment has quite clearly decreased. Those are very positive indicators.

However, that apparently strong performance masks long-term and imbedded structural weaknesses in the economy. There are two real core metrics of that, which will come as no surprise to anyone around the table. I could state the first one in two ways: the economy is overly dependent on the public sector; or the economy has a very small private-sector base. Public expenditure as a share of GDP is now 71.3%, compared to only 43% in the UK and 31% in Ireland. Northern Ireland’s public sector share of employment is 32%, and the annual subvention from the UK Exchequer is approximately £6 billion.

That public-private imbalance has two main implications: first, an obvious vulnerability to public spending decisions that are largely taken at national Government level; secondly, the private sector lacks the critical mass to generate the step change in economic performance that we have all been discussing.

People seem to think that, by reducing the public sector, all of a sudden green shoots will grow and a very healthy private sector will fill that void. Obviously, I do not believe that, and I am sure that nobody here does either. Serious steps will need to be taken in order to help during that transition.

The second core metric is the persistent wealth gap between Northern Ireland and the rest of the UK. Per capita, the gross value added is 20% lower in Northern Ireland than in the rest of the UK, and very little progress has been made in closing that wealth gap.

A number of key challenges that we must all meet roll from those two main structural weaknesses. The first is to increase productivity — again, that is nothing new. Labour productivity has fallen by eight percentage points against the UK average. Northern Ireland productivity is the lowest in the UK.

Productivity can be boosted by increasing capital investment, growth in the labour force and other factors that affect total productivity, such as technological advances, better organisation of business, better redistribution of resources from low-productivity sectors into high-growth sectors and, importantly, institutional and political stability.

The challenges that I will refer to are all related to the achievement of higher productivity. Most have been identified by the Economic Development Forum and others under the objective of ‘Economic Vision for Northern Ireland’, with which you will all be familiar. That identifies innovation, entrepreneurship, skills and infrastructure as the key drivers of future economic competitiveness and wealth. We will focus on those areas.

We need to increase economic activity. The figures have already been mentioned: there are 289,000 economically inactive people in Northern Ireland, which equates to 27·4% of the working-age population. That is the highest level of any region in the UK.

Northern Ireland is ranked ninth out of 12 regions in the UK for entrepreneurship. Our rate of entrepreneurship is half that of the United States of America, and there are reasons for that. Another significant factor is that Northern Ireland has an unexpectedly low level of female entrepreneurship, and we must understand why.

We need to increase skills within the labour market through initial skilling, reskilling or upskilling. Some 24% of the working population have no qualifications. That lack of qualifications impacts on wealth creation, because higher-level educational achievement has a bearing on earning capacity.

The map we have provided shows that low-level educational achievement is a particular problem in border areas, especially to the west, which highlights an imbalance. It is also reflected in the next map, which illustrates lower earnings. The further away someone is from Belfast, the less money he is capable of earning.

Another big issue for us is the creation of R&D and science and technology innovation. Northern Ireland R&D expenditure continues to lag way behind that of the UK and Europe. Northern Ireland is sitting at 1·19% of gross value added; in the EU, it is 1·93% and even within the UK as a whole it is 1·86%. Clearly, we need to up our game if we want to be in any way competitive.

Before we move to questions, I will outline how we see all-island cross-border collaboration helping to contribute to economic regeneration. As the pace and intensity of global competitiveness increases, the search for competitive advantage becomes ever more complex and rigorous. In other parts of the world, greater economic co-operation between regions has been found to create gains in trade and investment.

Figures for cross-border trade in 2005 have just been released, and it is encouraging to know that cross-border trade is up by 5·5%, reflecting an almost 9% increase in North-to-South trade, as opposed to 3% South-to-North. At the moment, Northern Ireland is doing considerably better from North/South trade than the Republic. That makes sense, because the Southern market is more important to Northern Ireland than vice versa. Therefore, Northern Ireland gains more.

Greater economies of scale can be gained through the administrative pooling of resources, which delivers more efficient and effective services. Several people talked about infrastructure, and there are already positive signs with the Strategic Investment Board and its sister agency in the Republic, the National Development and Finance Agency (NDFA), which is headed by Anne Counihan. Both agencies are already talking about collaborating on R&D infrastructure.

We recently published a report called ‘Spatial Strategies on the Island of Ireland’, which has come from the International Centre for Local and Regional Development. That document contains the analysis that was asked about; there is an analysis of spatial planning and the importance of a joined-up approach to it. That approach could address questions such as where domestic houses are built, where waste resources are sited and how roads are developed. It makes so much more sense for neighbours to work together than separately.

We can promote the wider economic benefits of knowledge transfer by using networks and clusters. Some people get hung up on that terminology, asking what is, and what is not, a cluster. The important thing is to get people collaborating to mutual benefit across the island. With that, everybody wins.

Early in InterTradeIreland’s life we conducted a detailed analysis, with a roadshow that went to four locations on the island. We talked to 1,500 large, medium and small companies across the island. It was expected that people would talk about impediments such as the old traditional accepted truths about poor infrastructure and volatility of the currency, which, at that time, was the punt.

From that analysis, the biggest issues that emerged were the softer issues. Business relationships were lacking, and people did not know the players. To do business, trust is a prerequisite. If those relationships are not there, you do not do business. Therefore, much of our work goes into improving that area.

Lack of information is the other big issue. Many companies, particularly small ones, have told us that they can find information about gross domestic product (GDP), good manufacturing practice (GMP) and gross value added (GVA), but they have no idea who makes farm gates in County Cork, how many are made, what it costs and where raw materials are from. All that information was not available.

That has led us to direct much of our resources to creating new knowledge about the island economy, disseminating that and getting people to work together and build relationships. Those are every bit as critical as the hard infrastructure. We must get people plugged in together.

Enhanced co-operation can create a larger domestic market. In a global environment, it makes absolute sense for a market of one and a half million people and a market of three and a bit million people to form a market of over five million people. It is a no-brainer. Everybody gains, and we can create new business opportunities. We are not saying that it is an either/or situation; Northern Ireland’s major market is clearly still the rest of the UK. Nobody is saying that our attention should be deflected from that.

There is another way to look at it. You can have it both ways, and we should encourage businesses to develop the North/South all-island dimension every bit as energetically as they have east-west relationships. Again, everybody wins. Helping to create a large and more dynamic private sector is a key stage in helping to get that leap forward in economic performance.

During InterTradeIreland’s initial years, we conducted tests and pilots to get some ideas and companies working together. However, we are now at the point where our programmes are mature enough and our thinking is evidence-based. We feel that the way to get more international attraction for this island is much closer collaboration between businesses across the island. That comes in so many different forms.

Our corporate plan stated that we wanted to develop all-island businesses and networks. In the first year of that plan, we established 19 such networks.

Some of them are sector-specific, particularly in the area of biotechnology. We brought together Bio Northern Ireland with the Irish Medical Devices Association and the Irish Bioindustry Association. They are all working well in the life science area.

InterTradeIreland is also working with information technology, with Momentum — the Northern trade association — and the Irish Software Association, which is affiliated to the Irish Business Employers’ Confederation and ICT Ireland. It is not about getting together for a beer or playing a game of golf; it is about serious engagement. On the software side, InterTradeIreland has supported those organisations in developing a feasibility study to create an all-island wireless test bed. Many new wireless companies across the island have to test their products off the island, because there is insufficient scale on the island, but we have been working with those companies to provide that scale, as it makes more sense to develop the test bed on the island.

1.45 pm

InterTradeIreland has supported the North West Science and Technology Partnership. We work in what we call “communities of interest” with microenterprises, which are companies that fall below the radar of Invest Northern Ireland and Enterprise Ireland, as they have 10 employees or fewer. Quite often, those companies are too small to attract the attention of organisations with portfolios, but we have brought together the county enterprise boards and the city enterprise boards in the South with the local enterprise agencies in the North, and we regularly hold all-island events. Every county brings at least five or six companies to those events, so linkages and relationships develop across the island.

Some companies are involved in areas of excellence that InterTradeIreland has created. One area is bench­marking. We have set up the Irish Benchmarking Forum. When InterTradeIreland was set up, LEDU, IDB, Enterprise Ireland, Shannon Development and Foras na Gaeilge were all considering different ways of benchmarking their organisations. Some used the European business model, some used the CAM Bench­marking model, and some used the world-class cluster model. We got them all to agree a set of core metrics, and now they work together on an all-island basis, and everyone knows what each other is talking about.

InterTradeIreland is doing a lot of work on equity finance across the island. We have an all-island seedcorn competition, which encourages potentially high-growth businesses to get involved and to make their pitch for investment. Our approach is to get more active collaboration across a range of sectors and issues and move that forward.

Science, technology and innovation are key areas for InterTradeIreland, as are sales and marketing and business capability improvement. We are delivering a range of initiatives, but I will not go into detail as members have had a long morning. In science, technology and innovation, for example, the fusion technology transfer programme works effectively. The model is that we find a company in one jurisdiction that has a product or process development need, and match it up with a university or knowledge centre in the other jurisdiction that can help it. Then we put a graduate in between the two. We were supposed to do 20 projects in the pilot exercise. At that time, I reported directly to Sir Reg Empey and Mary Harney. They liked it so much that we did 63 projects in the pilot, and we have now rolled out another 120.

InterTradeIreland also has a collaborative programme called Innova, which supports R&D co-operation between companies North and South, and that is working well. We have an all-island research portal where researchers in any university on the island can publish a brief. More than £50 million of direct business development value has been created in the past three years through the various programmes that InterTradeIreland has been involved with.

Finally, all-Ireland collaboration is a potentially lucrative source of competitive advantage for Northern Ireland, and we strive to address the key structural impediments outlined. Such collaboration offers opportunities for the private sector to become more competitive and provides opportunities for the public sector to be more efficient and effective in delivering services. It should be an integral part of any future economic development strategy for Northern Ireland. The areas of science, technology and innovation offer the most scope for mutual beneficial collaboration, and we should invest any windfall coming from the peace dividend in those areas, as they are critical for us all moving forward.

We need to move from being investment-driven to being innovation-led, and that comes from both economies. We need greater concentration on an all-island approach to labour market skills development. We need to be more joined up on infrastructure. The key vehicle for moving forward is all-island collaboration for everybody’s benefit and all-island business networks.

Ms Gildernew: If the map on page 9 of InterTradeIreland’s submission were superimposed on a map of Ireland that showed motorways and dual carriageways, it would be obvious that the high earners live near the best roads. The west will always be disadvantaged. My constituency, and those of West Tyrone and Foyle, do very badly. The border is an obvious impediment to economic growth and stability.

What more can be done? Mr Nellis has given us a very comprehensive description of the work in which he has been involved over the years, but what else must be done to turn things around? The lack of political stability has had a major impact on the Six Counties. It is mind-boggling. We must turn that around if we are to have any kind of future and if we are to ensure that people stay in areas such as Fermanagh and Tyrone.

Mr Nellis: We are not looking at either jurisdiction; we are looking at the island, and we are the first organisation to take that island view. The European programmes that involved INTERREG and the Peace programmes stopped at the border counties of the Republic and the six counties of Northern Ireland. The International Fund for Ireland did exactly the same. There is an imaginary line drawn across the island and nobody goes beyond that line. As a result, there has been a turning of the backs of the two economies over what some people say is 30 years. It is not; it is 80 years, or since partition.

The de Valera Governments imposed tariffs on trading with the North. The big slogan in Dublin business circles after partition was: “Burn anything British but their coal.” The issue is much bigger than the past 30 years. We are trying to redress a structural fracture between the two economies that is much more deep-seated than that.

In answer to Michelle’s question, we must move more from involvement and accept that there are advantages to be had by collaborating across the island to mutual benefit. We must engage seriously on issues and start building infrastructure together, rather than just talking about it. That is only one example. There are R&D funds in the North and South. Why not genuinely open up the R&D funds in the South to companies from the North, and vice versa? I could provide many other examples.

The South stands to gain as much as the North over time. While the South is way up there now, it recognises that for it to keep pace and stay in that position it must be much more innovation-led. We would argue for much closer collaboration on innovation, R&D and competitiveness.

Mr Aidan Gough (InterTradeIreland): It is very clear that both Governments would benefit from collaboration on strategies to solve the issues pertaining to border areas. The north-west is a problem for the Irish Government, as it is for the Administration here. Every indicator shows that County Donegal is at the bottom of the table in the Irish Republic. Instead of the two Governments developing separate strategies for border regions, it would make sense for them to develop their strategies with a cohesive approach to spatial planning, economic development, education and health. Both sides of the border would benefit. The border will not be addressed within one context or the other, as there are economic problems in the border areas.

Dr Farren: I cannot help but make the political point that the party that so constantly reminds itself that it is the largest party in Northern Ireland is absent from this session. I find it difficult to believe that it could not provide participants, not least because its spokespersons so frequently throw cold water or scepticism over the issues and the way that they are addressed by bodies such as InterTradeIreland.

I trust that the submission will be read by the DUP’s representatives on the Preparation for Government Committee, and that the lessons that we are trying to extract from the submission for the way forward will be obvious.

I do not expect either of our visitors to comment on those remarks.

Dr Birnie: You are being mischievous.

Mr McNarry: You just wanted to make them, Seán. Are you making them for Hansard?

Dr Farren: It is regrettable that the DUP is not able to participate and put its point of view to our colleagues from InterTradeIreland. I have a number of questions to ask, so I will have to restrict myself. Mr Nellis made a point about business being innovation-led. I have been a strong proponent of some kind of all-island research strategic alliance, which would involve the business sector, public sector and the centres where research is undertaken — mainly, of course, in the universities. I would like to see the establishment of new funds targeted at sectors in which economic growth could be expected and better use made of existing funds. The South has moved ahead with the all-island Science Foundation Ireland, and Northern universities have access to UK sources of funding as well as some other specific sources.

We are in what could be described as a back-to-back situation, or one in which some bilateral arrangements — or maybe trilateral — on an ad hoc, project-by-project basis can emerge, but there is not the strategic overview that might drive a common approach. After listening to the remarks of InterTradeIreland’s representatives, I would like to think that the establish­ment of an over-arching strategic alliance — such as that I have suggested — supported by, possibly, an allocation of existing funds or the creation of new funds, would contribute significantly. That does not preclude the involvement of institutions outside of Ireland, North and South. There is a clear imperative to do that, because while Northern universities gain access to UK funds and have their own, they are on the periphery and there is much interchange at other levels among the universities on these islands. There are only nine universities, plus the colleges — or the institutes of technology — where research takes place. Therefore, it is not a huge constituency.

I would have thought that with the prompting of InterTradeIreland, the two Administrations — together with the universities and other institutes where research is taking place — could come together with the private sector in the ways that I am trying to hint at. There would be considerable potential in that, with nobody being exposed politically.

Mr Nellis: I agree with you 100%, Seán. Some very good stuff is already happening in that area. I will give you two or three examples of those, but I am sure that there are more.

2.00 pm

We are involved in providing the secretariat for the United States-Ireland R&D Partnership, which started its journey in October 2002 at the United States-Ireland Business Summit in Washington. The Secretary of Health and Human Services in the United States, Tommy G. Thompson, became interested in a cancer oncology project that was then under way. Prof Paddy Johnston was involved in that, and he used his links in the National Institutes of Health and National Cancer Institute in the United States to bring in colleagues from the South and develop a tripartite approach to cancer research. That research is going strong to this day.

That model encouraged us to look at other areas, including R&D. It was excruciating: trying to get two jurisdictions to agree to something is difficult enough on a day-to-day basis, but getting three to agree was so hard that several times we almost gave up. However, the United States-Ireland R&D Partnership is now up and running. Researchers are working on multiple sclerosis, diabetes, avian flu, sensors and nanotechnology. That means that there is active collaboration across the pond and on a North/South basis.

The partnership worked out how to release the funding. I was at the residence of the American Ambassador to Ireland for the partnership’s recent launch, at which Aideen McGinley announced that additional money would be made available for the northern elements of the project. That is very encouraging.

The British-Irish Intergovernmental Conference is looking carefully at that development. It is meeting today, and it will consider, among other things, providing a new impetus to R&D collaboration. That could be achieved by perhaps getting the two Governments to work together, with an international partner, to access the European Union framework programmes on R&D. Those programmes provide lots of funding, which has been just sitting there. The funding is similar to penalty kicks that have been available for the taking for quite a long time but no one has gone near them. With a bit of imagination we could really get in there and score some big things for the island.

The nine universities in Ireland were mentioned. I sit on a panel of Universities Ireland, which brings together the nine university presidents, provosts and vice-chancellors. Again, that group is not just a talking shop. InterTradeIreland has been working with Universities Ireland on the collaborative commercial­isation of university research. We gave the group a report on that, which it will adopt at next month’s meeting.

A lot of good stuff is already happening. I am not saying that there is a vacuum, but a much more strategic and co-ordinated approach, with the pace set by the two Governments rather than bilaterally by two Departments, would move this to a level that will benefit everyone.

Mr McNarry: Chairman, I am not quite sure what Sean Neeson and Liam Nellis were having a cosy chat about.

Dr Farren: Seán Farren.

Mr McNarry: Seán Farren; I am sorry. What did I call you?

Dr Farren: Sean Neeson.

Mr Ford: Sean Neeson will not sue.

Mr McNarry: Perhaps they were hatching an economic R&D unitary state under some other guise, but we have been alerted to that and must keep a careful eye on it.

Dr Farren: I do not know what you are on about.

Mr McNarry: That is the problem. It is not for me to defend a certain party’s absence from this meeting, but I share its cynicism, which I am not repudiating. Perhaps one should give cognisance to unionists’ feelings. However, had certain members participated in this discussion, they, like me, would have learnt from it. I found the meeting beneficial, and I am grateful for what I have heard up to now.

Continuing to be sceptical, I have three questions for Liam and Aidan. Is there a bias in cross-border trade? Do barriers remain to be broken? Do we still live with the nationalist preference for buying Irish and the unionist preference for buying British? Is that still noticeable not just in the marketing but in the purchasing of products?

The discussion on collaboration was very intriguing and interesting. There are bound to be red-tape compli­cations with it, so will you explain a couple of them?

Are many businesses selling to or buying from each separate jurisdiction, whether that is manufacturing, retail or marketing?

Mr Nellis: I will answer your questions in the order in which they were asked. There are still barriers; some actual, some virtual, some psychological. There is still a chill factor that works both North/South and South/North. Fifteen years into the Celtic tiger, there is still a widely held perception among Northern businesses not to do business with those fellows down there, because they cannot get money out of them.

Mr McNarry: Is that not true? [Laughter.]

Mr Nellis: I do not know. My experience over the last five years is that that is not true.

Mr Gough: There is some basis in fact for that. Payment for debts in the North is typically 30 days, whereas it is 60 to 90 days in the South. It is just a difference in culture.

Mr Nellis: InterTradeIreland’s Chairman, Martin Naughton, who deals with the business community in the South, says of some of the senior Dublin business community that their knuckles turn white when they pass Balbriggan. There are factors, and we are addressing them.

Any programme stands or falls on the demand for it. All our programmes are seriously oversubscribed, and we are much more selective now than we were at the outset. That is a very strong indicator. That is not to say that there are not inherent biases in some people’s buying patterns. I have not done any analysis of that, but I have heard evidence from both sides.

Irish Breeze Limited, a Drogheda company that makes cosmetic products, said that found it difficult to penetrate the Northern market until its name was changed. I am responding to the question; it is an impressionistic response. We have done no detailed analysis, but it is something that we might consider.

I can give you any number of examples of collaboration and red tape. Exchequer money cannot flow from one jurisdiction to the other. We cannot get researchers to collaborate on R&D — there is a barrier there. We are trying to set up an all-island business angels network; people with a few quid, high-wealth individuals to help, support, mentor and invest in other businesses.

Mr McNarry: Would they take on redundant MLAs in November? [Laughter.]

Mr Nellis: If you have the wealth.

Mr McNarry: We would be looking for the money.

Dr Farren: We could invest any pay-off that we get.

Mr Nellis: One of the big issues is that, under financial regulations both North and South, we cannot set up an all-island network of business angels. There must be a Southern network and a Northern network.

Mr McNarry: Quite right too.

Mr Nellis: There are structural, statutory and regulatory impediments all along the way. We have been trying to address some of those issues with telecom providers. We have pressured them in respect of all-island tariffs and roaming charges, and we have made progress on both those fronts.

That is not to say that there is not more to do. When we came on the scene, there was not one flight from Belfast to any other part of this island. We wrote a strong research paper that encouraged Aer Arann to try the Belfast to Cork route. That service now regularly runs at a load factor of 70%. There is now a flight service between Belfast and Galway.

People asked why we supported the Belfast to Cork route, when it was tried in 1972 by Dan-Air Services Ltd and did not work. However, we are now in a completely new dimension. Since peace has come our way over the last ten years, people are much more open to moving across the island. They do not have the same fears, and we need to capitalise on that changed mindset.

Mr McNarry: What about the buying?

Mr Nellis: Again, we have not done any detailed research. We are talking to the Chambers of Commerce, because they are seen as a neutral vehicle. However, we tend to subscribe to the school of thought that says that it is simply about finding the money to set up an all-island business brokerage service.

Many business professionals such as PricewaterhouseCoopers and Deloitte know of companies that want to sell, but they keep their arms around them because they are their own. We want to open up that market on an all-island basis and have genuine opportunities for people to find out what businesses are for sale and the surrounding issues.

Last week, I had a meeting with P Elliott & Co Ltd, property developers from County Cavan. The company is a big player and had a £400 million turnover last year. It has never done business in the North, yet the owner lives less than a mile from the border. He has now made the decision to open a Belfast office. We hear about that sort of thing more and more. A man with whom I play golf is the managing director of a Belfast printing company, which has bought a printing company in Dublin. There is much more going on than what might first appear, but I do not have the detailed figures.

Ms Ritchie: Liam and Aidan, you are very welcome.

I would like to put on record my congratulations to InterTradeIreland for the work that it has done to break down the barriers between North/South trade and between thinking on the island of Ireland. I note that you commissioned the International Centre for Local and Regional Development, which has links with Harvard University, to undertake a joined-up study of spatial planning on the island. It not only examined problems in the border areas, but it examined problems on the entire island and how joined-up thinking could contribute to better economic regeneration and a better wealth economy for all. After all, we want to create a better way of life for everybody.

Does InterTradeIreland think that a collaborative approach on spatial planning, with all the economic opportunities that it presents, points the way to joined-up thinking on infrastructure?

What additional joined-up thinking on infrastructure is required? The Republic has Transport 21, but there is no evidence that we in the North are trying to dovetail with Transport 21 or to provide the required infrastructure to improve our roads and railways. Sectoral work has been done by Translink and Iarnród Éireann on the Belfast-Dublin railway, but I have not seen much further evidence of that.

How long do you think that it will take to implement the recommendations of that spatial planning collaborative approach?

Mr Nellis: The International Centre for Local and Regional Development is a collaboration of several universities on and off this island. It brings together the University of Ulster, the National University of Ireland at Maynooth and Harvard University. However, a key ingredient in developing that combined approach to thinking about spatial planning in an all-island context for the first time was the involvement of the Northern and Southern Environment Departments. That was a major step forward, and the spatial planning professionals recognised that it made sense.

We will do whatever we can to encourage that as it moves forward. Since the findings were published, I have spoken at a couple of major conferences. There was a conference on infrastructure in Dundalk about six months ago at which David Gavaghan, Lord Rooker and Dermot Ahern spoke about the importance of closer co-operation on North/South infrastructure. Recently, I spoke at a conference in Omagh on infra­structure collaboration in the north-west. The National Roads Authority and the Department for Regional Development were talking the same language of collaboration.

2.15 pm

The principle has been accepted, but the political impetus that people such as you can bring to bear is required to make it happen and progress. Any work that we have been doing on this issue has been positive. The Enterprise rail service between Belfast and Dublin is supposed to be the flagship transport project on the island, but it pales into insignificance when one examines what is happening across the world. I go to Spain occasionally to play golf, and a 200-metre-high motorway has been built since I was last there six months ago; it takes us four and a half years to sort out the Westlink.

The Enterprise train is going downhill, so to speak. I have spoken to both Iarnród Éireann and Translink over the years, and I think they accept that. There was supposed to be significant investment from Brussels to speed up that track and provide new rolling stock; I do not see much evidence of it. I travel on it a lot because of my job, and quite often there is no coffee because no one has turned up to provide it.

Mr McLaughlin: Our trains do not turn up at all, and you are worried about coffee! [Laughter.]

Ms Ritchie: That gives us further food for thought. We could explore at a later stage how to push the transport organisations to plan in an all-island approach and maximise the contribution to the economy.

Mr Gough: To open up infrastructure is to open up new markets and new business opportunities. Liam mentioned air travel. Through our intervention and the research and reports that we wrote, there is now a direct flight between Belfast and Cork. That has a 70% load factor: business people travelling back and forth who would not previously have done so. I know that one company that has units in Belfast and Cork contemplated closing the Belfast unit because of travel difficulties before the flight was put on. Infrastructure opens business opportunities.

Mr McLaughlin: On page 4 you discuss the persistent wealth gap. I am interested in the statement that almost all progress made took place before 1997, a period that coincides with the negotiation of the Good Friday Agreement. What factors changed? Was it the haemorrhaging of manufacturing jobs, the increased profile of service jobs within employment? Are those the key determinants?

Mr Nellis: Can I talk to my economist colleague?

Mr McLaughlin: I will come back to it. It was an intriguing statement, because I would have thought that if we were making progress, it really should have been in the period after the Good Friday Agreement.

InterTradeIreland has been a success story, and one if its successes is that it is much less controversial across the local political spectrum in that it has demonstrated the benefits of collaboration and creating critical mass and maximising potential and opportunity. I want to thank you for that, first of all.

As regards your progress, has InterTradeIreland identified to both Governments additional areas of potential? To what extent do the current care and maintenance arrangements impede progress? That has signficance for both the so-called “Plan A” and “Plan B” scenarios.

To what extent are current budgetary and resource levels a limiting factor to the work that InterTradeIreland could do?

Mr Nellis: I will leave the detailed point that came up until the end, as I need to consult.

We have been working closely with both Govern­ments. Over the last few months we have done a major piece of work. There was a joint statement by the Secretary of State and Dermot Ahern after the British-Irish Intergovernmental Conference (BIIGC) to call on officials to be much more imaginative and challenging on how they take forward North/South economic collaboration. They asked for a review of the whole territory: what was, was not, and could be done.

We have been providing the secretariat for that piece of work for a number of months now. The final shape of the paper is beginning to emerge, and it contains some significant ideas. I do not want to go into the detail of those today, because involved in the discussions are OFMDFM, the Taoiseach’s office, the Department for Foreign Affairs, DETI etc. All those partners are crafting the paper.

However, they are saying: “Let’s not have any more taboos”, and they are asking: “What is good for everyone?” Joined-up trade missions make sense, which was proven when, earlier this year, the Taoiseach offered Northern Ireland companies the chance to go to India. Invest Northern Ireland and the Northern Ireland firms thought that that was a tremendous opportunity. The two Governments are now considering further joined-up trade missions.

We also concentrated on R&D. Massive funds are available for that, but it is very difficult to move Exchequer money from one jurisdiction to another. Aidan, is the budget of the Science Foundation Ireland €6 billion?

Mr Gough: No. There is a total investment of €9 billion for research and development to back the new strategy that has been launched in the Republic. That sum is double previous budgets.

Mr Nellis: There is no reason why, with a bit of imagination, that investment should not be open to Northern Ireland companies. All it takes is some political involvement; it is not rocket science.

Mr Gough: Centres of excellence are crucial for science and technology. Will there really be two world-class centres of excellence 60 miles apart? Universities and the Governments have opportunities to collaborate and create one genuine centre of excellence. Again, that requires more imaginative thinking about how funds cross borders.

Mr Nellis: The care and maintenance regime has now lasted for two and a half years, and we have just got on with it. Our remit was clearly set out before direct rule resumed in October 2003, and at that time we agreed a programme with Ministers. The two Governments approve our annual business plan. Since 2003 we have agreed our programme in writing through OFMDFM and the Department for Foreign Affairs in Dublin. That slows the process up a little, but it has not caused us much grief.

We have run into difficulty regarding the reappointment of board members. All organisations want a top-quality board, but they also want the board’s membership to revolve sensibly so that everybody does not walk out the door one morning leaving no board the next. Current circumstances mean that no one has addressed the board membership of the cross-border bodies. As a result, all of our board members are likely to walk out in December. That is not a good way to run anything. Therefore some issues on the margins cause us concern.

However, we have remained focused on the business agenda. The remit that we have been given within the annexes of the legislation is quite broad, and all that we have been doing, from supply chain to equity, is included in that remit. Therefore the care and maintenance regime has not really got in the way.

As for budgetary and resource access, comments had been made that InterTradeIreland kept having to give back money because it could not spend it. I worked for the IDB until December 1999. In the middle of 1999 I was approached by Gerry Loughran, who was then head of the Civil Service. He said that there was talk about North/South bodies being set up under the Good Friday Agreement and that, if that happened, it would happen very quickly. He asked me whether I would be prepared to go out as interim chief executive to set up a trade body.

Since the suggestion was from Gerry Loughran, I knew that he was not asking me whether I was interested but rather telling me that I was the man. I went on holiday in December 1999 and came back to find that I had lost my nice office on the fifth floor of IDB House. I had an empty room across the road in Londonderry House. I had no staff and £9 million to spend. Obviously, I gave money back in the first, second and third years while we built the organisation in a very controlled way. We had to move from secondees at the start to recruiting our own employees. Over five years we built the organisation to a point at which our capacity is such that we are more than able to spend our budget in a sensible, coherent way.

We also have inescapable commitments that run through our programme from one year to the next. Of our budget of £9 million, probably £6·5 million to £7 million is programme money, and of that, probably more than half is committed before we start the year in rollovers from one- to two-year programmes. Our room at the margins for getting involved in programmes is narrow; we have to make hard choices. Either we stop doing some programmes or change their shape so that they do not cost so much — or we get more money.

Something has to give along the way. We are at our full staff complement of 42 and new things come at us all the time. There is the question of infrastructure and there has been talk of our getting involved in an approach to waste management. That is another big infrastructure issue that nobody is dealing with. Such issues are constantly coming up, and we must be much more selective about what we take on. In the early days, we had enough money to do everything that we wanted to, but those days have passed.

Mr Ford: Thank you for your presentation, which was positive, at least in some parts. You have good news to tell us. However, I want to return to some of the earlier parts of your submission — the bad news bits.

You highlighted the fact that in the first half of the nineties there was a significant increase in gross value added per capita compared to the UK, yet gross value added per employee — productivity — is in long-term decline. I presume that that was simply because more people were got into what was possibly the wrong kind of employment. You also highlight service industries, retailing and call centres. Should we have learnt lessons from the way that the Republic developed its economy over a similar timescale? It appears that its definition of services was of higher-quality jobs than the services into which we put people.

Mr Nellis: You raise several issues. Much of the employment that was created was service-based, and, as you saw from some of the other analyses, such employment is often not well paid and therefore it creates less wealth in the local economy. However, we are where we are.

I worked in IDB in the 1990s and have been in the Civil Service for 34 years. The story was very different in Northern Ireland as regards going for mobile investment than it was in the South: we could not afford to be so choosy about the jobs that we brought in. The South could, through the Celtic tiger, be much more selective and could even say to companies that they would get nothing for coming to Dublin; that they had to go to the border regions. The Northern Ireland system could not begin to do that. We still need to build a base of top-quality mobile investment in the knowledge-based sectors. The playing field is slightly different.

Northern Ireland has come up significantly, but it still does not enjoy the selectivity that the South enjoys. I still do not think that a company will get money for coming to Dublin.

Mr Ford: If we are to build on the knowledge-based sectors, should we target foreign direct investment (FDI) or should we develop indigenous businesses? We have talked about both at different stages, but we have not worked out where we need to target the major effort.

2.30 pm

Mr Nellis: I am not an economist, but analysis that I have seen shows that both North and South must move away from being investment-driven to being innovation-led. We need to grow our own.

Mr Gough: It is right to highlight the decline in productivity. If the performance of the economy is to change, it will have to be based on improvements in productivity. It is the key economic metric — I would usually defer to Dr Birnie on issues such as this — and has been identified by the Chancellor and by the Government in the South. Turning this decline around will require a host of factors. There is no one answer. To get capital investment right, you must identify the correct industries. It cannot be targeted at either FDI or indigenous; it must be directed at both because, as we have seen in the South, FDI can benefit growth in the indigenous sector.

There are many issues around driving up productivity, and our key message is that because the private sector in the North is so small, it lacks the critical mass to make a step change in performance. That is why we support the creation of networks, and not just with the South. With our remit, networks will be particularly important to the expansion of the resources that are available to the private sector in the North. Networks would help the private sector to grow and to make the necessary step change in economic performance.

Mr Ford: That leads to my other point. In your presentation, you said that the key points in partnerships concern softer issues rather than harder issues, such as fiscal matters, which we discussed for quite a while earlier. You referred to the areas for mutual collaborative action. A few minutes ago, you spoke about InterTradeIreland’s budget. Short of recommending that your budget and staff numbers should be tripled, do you have any practical suggestions on how collaboration and networking could be developed? Is there a role for more specific encouragement for universities or the private sector? How do we handle it, or do we have to rely on you?

Mr Nellis: No. I like to believe that InterTradeIreland is at the forefront of this. Our corporate plan is in its second year and is based on all-island collaborative networks. Since then, Enterprise Ireland and Invest Northern Ireland have published major policy papers that say that the answer is networks.

We are developing our range of networks; Invest Northern Ireland is involved in the development of some of its networks; and Enterprise Ireland is developing some of its networks. We are talking to both organisations, but it would make much more sense for all those who think that networks are a good thing to work together. We must move to that point and discuss the possibilities with our colleagues.

I thank Mr McLaughlin for the compliment that InterTradeIreland has, to some extent, proved its worth. From day one, it has been involved and has put its money where its mouth is. Everything it does is based on collaboration and partnership. The steering groups for each of its programmes include repre­sentatives from bodies such as Enterprise Ireland; Invest Northern Ireland; Forfás; the Irish Business Employers’ Confederation; and the CBI.

InterTradeIreland brings people in and moves them along. It is not going to change the world; it consists of 42 people who are based in Newry and does not have the wherewithal to take on all the issues. However, InterTradeIreland is happy to help and facilitate other people. That is what it does best.

Mr McLaughlin: Would InterTradeIreland welcome the other organisations taking that concept and practicing it?

Mr Nellis: The fusion technology transfer programme is very costly. Why is InterTradeIreland taking the full hit on it? The consensus is that one of the critical elements of the development of an innovation-led economy, North and South, is technology transfer. How can technology be moved from universities to businesses? There is a perfect model, which has been proven to work. However, because of its budget, InterTradeIreland has had to be very selective about the number of projects that it puts on the fusion programme. Those are the sorts of things that must be considered.

Dr Birnie: I have three questions. First, does Northern Ireland continue to have a trade deficit with the Republic? You said that Northern Ireland’s exports south of the border are growing more rapidly than its imports. What is the explanation for that?

Secondly, in practice, to what extent are the authorities in Dublin committed to many of those issues? In 2003, the Department of Enterprise, Trade and Employment in the South commissioned an inquiry, and ‘Ahead of the Curve: Ireland’s Place in the Global Economy’ was published in July 2004. That report is a business enterprise strategy for the Republic. It is over 100 pages long, and from memory, only two paragraphs deal with North/South linkages. I wondered why there was so little about that.

Mr Nellis: It deals with collaborative networks and infrastructure.

Dr Birnie: Thirdly, you list the areas for action at the end of your statement. Public procurement is not listed, but it might be important. After all, it generates billions of pounds both here and south of the border. To what extent is public procurement genuinely open to firms in either direction that bid for Government contracts?

Mr Nellis: I will take a lead on that and then let Aidan Gough come in.

These figures, which were compiled in our office, are hot off the press, and you are welcome to a copy of them. Cross-border trade in manufacturing from North to South in 2004 was €933 million; from South to North it was €1,125 million. The total was just over €2 billion. That grew a little in 2005 when it was €1,013 million North to South and €1,158 million South to North. However, the percentage change was 8·55% for North to South and 2·88% for South to North. At the moment, Northern Ireland is benefiting more from the trade relationship.

On the question of commitment, our organisation often has to walk on eggshells in many areas. When we came into this territory five or six years ago, there were many turf issues that were not political but territorial. People were asking who we were, what our job was, and similar questions. We can lobby and push and talk, but we have no sanction. You referred to Eoin O’Driscoll’s report, ‘Ahead of the Curve’, and Aidan Gough and I were blue in the face when we were in consultation. We spent a full afternoon with Eoin O’Driscoll and his senior team. We met him several times, and we talked to the Department that was signing off the final report. Sometimes I think that the Department was not sure that there should not have been a much greater emphasis.

I do not think that that lack of co-ordination is in any way deliberate. Today I have sat through two presentations by senior business organisations in Northern Ireland. Perhaps I missed it, but there was little talk of North/South collaboration, or perhaps it is not their job to consider co-operation. It is certainly my job, and I have to examine it. Therefore, one has to remind people constantly, North and South, that there is a mutual benefit with collaboration. Sometimes the North falls down a bit, sometimes the South falls down a bit, and nobody is a paragon.

Early on, we identified the fact that public procurement was a big issue for us. There is a €13 billion spend on public procurement on this island, North/South and South/North. We have addressed that in a number of ways. We have the ‘Go Tender’ initiative, which brings in 14 or 15 small and medium-sized enterprises (SMEs) from one jurisdiction and trains them on how to pitch into the other jurisdiction. It tells them about all the pitfalls and issues that are involved.

Procurement in the North and South operate quite differently: in the North, the central procurement directorate co-ordinates procurement, whereas in the South most utilities handle their own.

There are some tremendously successful examples. I do not want to break a confidence, but there is a company around south Derry, broadly involved in the Health Service, that had never done business in the South. Within months of learning how to tender in the South, it won a contract for nearly €1 million from the health service there — simply by opening its eyes to the opportunity.

To answer your question, Esmond, there is not as much openness and transparency from North to South as from South to North, but much of that is down to the fact that people do not even bother looking to the South.

InterTradeIreland has now moved away from granting trade and business awards. However, one of the companies that won an award was John Graham (Dromore) Ltd, a construction company that, until 10 years ago, had done little or no business in the South. Colin Graham, who is the third generation of the family, came out of university going to kill dead things. He started tramping the corridors around Dublin, and within a very short time, the company had constructed the Dunleer-Dundalk bypass and rebuilt Connolly station. The company is currently building the Department of Education headquarters in Dublin. The share of its business coming from the South grew from something like 2% to 40% within five years.

No one will hand business to companies, but if they look, it is possible to find it.

Dr Farren: My first question relates to the walking-on-eggshells image that you invoked a moment ago, Liam. Someone looking from without would say that Enterprise Ireland, the Industrial Development Agency, Invest Northern Ireland and InterTradeIreland are all similarly involved in growing business. I join Mitchel in complimenting InterTradeIreland, and I recall the early days when I enjoyed the privilege of holding a ministerial position and attended meetings at which the Fusion scheme, Acumen programme, etc, were being conceived.

In the light of your experience, is InterTradeIreland dovetailing satisfactorily with the other agencies? When it is said that InterTradeIreland must finance or provide other forms of support for any North/South business and that that is not a matter for INI or Enterprise Ireland or whatever, are you working on protocols to address satisfactorily the needs of those in business, so that if a company approaches one agency that cannot help, it will be pointed in the direction of another?

If I picked you up correctly, was there a sense of resentment that your budget was being pointed to as the source of finance when you thought that other budgets should also be contributing in particular circumstances? Looking at this strategically, how do we, as taxpayers, ensure that we get the best bang for our buck from the work of the different agencies?

It has been claimed that operating costs in the North are significantly higher in some respects. However, I get the impression that, leaving aside taxation, a number of operating costs in the South are rocketing, not least labour costs, property taxes and transport — notwithstanding the low fuel prices that Irish commuters pay.

Are you able to make sense of the different operating costs in a way that gives advantage, or would show people that there will be advantages by doing business in the North as opposed to the South, or in the South as opposed to the North?

2.45 pm

The Chairman (Mr Molloy): We do not have a quorum and have to close the meeting. Perhaps Mr Nellis will reply to that in writing.

The Committee Clerk: The next meeting will be on Thursday at the same time. I have drafted a press release. It is totally non-controversial: it simply states that we took evidence from various groups.

The Chairman (Mr Molloy): Thank you for coming along, Mr Nellis. I apologise for the sudden end.

Adjourned at 2.46 pm.

< previous / next >