SUBGROUP ON THE ECONOMIC CHALLENGES
FACING NORTHERN IRELAND

Tuesday 1 August 2006

Members in attendance for all or part of proceedings:
The Chairmen, Mr Francie Molloy and Mr Jim Wells
Dr Esmond Birnie
Mr John Dallat
Mr David Ford
Ms Michelle Gildernew
Mr Nelson McCausland
Dr Alasdair McDonnell
Mr Barry McElduff
Mr David McNarry
Mr Sean Neeson
Mr Peter Weir

Witnesses:
Mr John Simpson, Economist
Mr Wilfie Hamilton, Department of Enterprise, Trade and Investment
Dr Graeme Hutchinson, Department of Enterprise, Trade and Investment
Mr Stephen Quinn, Department of Enterprise, Trade and Investment
Mrs Ann McGregor, Enterprise Northern Ireland
Mr Ken Nelson, Enterprise Northern Ireland
Dr Nicholas O’Shiel, Enterprise Northern Ireland

The subgroup met at 10.07 am.

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

The Chairman (Mr Wells): The meeting is now open.

Mr McElduff: I am replacing Mitchel McLaughlin.

The Chairman (Mr Wells): Is there a second SDLP representative?

Mr Dallat: Alasdair McDonnell is the second SDLP representative.

The Chairman (Mr Wells): Are members content with the draft minutes of the meeting held on 27 July 2006?

Mr McNarry: I must make an important phone call around 11.00 am. I am worried that the subgroup will become inquorate. I will be absent for only five minutes, so perhaps we could adjourn or have a comfort break at that time.

Mr Weir: Must you make the phone call at 11.00 am exactly or around 11.00 am?

Mr McNarry: Around 11.00 am.

Mr Weir: It may make sense to take a five-minute break between John Simpson’s evidence and the session with the Department of Enterprise, Trade and Investment.

Mr McNarry: May I have two minutes to make a call to say that I will phone back around 11.15 am?

The Chairman (Mr Wells): Could a member of the Committee staff make the phone call on your behalf?

The other Deputy Speaker has arrived, but unfortunately that does not affect the quorum. We are now off the record.

The subgroup was suspended at 10.09 am.

On resuming —

10.10 am

The Chairman (Mr Wells): We are back on the record. Are members happy to agree the minutes?

Members indicated assent.

There are several matters to consider. Among members’ papers is a copy of a letter to the Secretary of State, which I signed. We are not awfully pleased with MPs who take all August off and are not available to meet us. I am glad to say that the MPs who are members of this subgroup have a different attitude. However, we have given the Secretary of State a very clear message as to what we feel he should do.

We have also flagged up an issue that Mr McNarry raised, at this subgroup and at the Preparation for Government Committee, about the Secretary of State’s making announcements that could cut across, contradict or cause difficulties to the subgroup. That letter has been sent, and members have copies for reference.

I have also received a letter from the Northern Ireland Tourist Board (NITB) that indicates that, unfortunately, because of prior commitments, it will not be able to provide any oral evidence. However, it has agreed to submit a written presentation.

The Committee Clerk: Mr Chairman, we hope that we can slot the NITB into the 10 August meeting. Mivan cannot appear before the subgroup because of international commitments but has agreed to provide written evidence. We hope that the NITB can fit into that slot, and the indications are that it will be able to do that.

The Chairman (Mr Wells): Good. That meeting is delayed rather than cancelled.

Mr Weir: Mr Chairman, it is fair enough to use the excuse that there is no one to give evidence, if that relates to an individual. If John Simpson, or whoever, cannot attend a meeting on a particular date, that is fair enough. The Northern Ireland Tourist Board is a large organisation, and it would not have been acceptable if it had said that there was no one at all in the NITB who could come anywhere near the subgroup. That would not have been acceptable.

The Chairman (Mr Wells): The NITB wanted a witness at the level of chief executive or chairman to come before the subgroup. The problem is that neither of those individuals were immediately available. We would accept a deputy chief executive, but the NITB took a different view on that.

Papers have been tabled for information. As we receive written evidence, we will table it to members as quickly as possible. I hope that members will read the evidence as we proceed.

The Hansard report of the 27 July meeting has been tabled. Members have already received the draft of that report. As usual, we expect members to let us know within 24 hours whether there are any difficulties. I wish to pay tribute to the Hansard staff, who are listening to this as I speak. They have — for this subgroup and for the Preparation for Government Committee — been turning reports around remarkably quickly, given the extra work that we have imposed on them during the summer holidays. We are extremely grateful for their diligence.

I know that members have read the Hansard report avidly, and we have not received any corrections. Most of the report consisted of evidence from the Strategic Investment Board (SIB) and Invest Northern Ireland, so there is not much scope for controversy.

The Committee Clerk: Mr Chairman, the only comments that we received were from InterTradeIreland, which was fairly innocuous stuff. Hansard has accepted a fair number of amendments. If witnesses said some­thing on the tape, they said it. However, it is entirely non-controversial.

The Chairman (Mr Wells): Did you mean Invest Northern Ireland?

The Committee Clerk: No, InterTradeIreland.

The Chairman (Mr Wells): I see. From the previous meeting?

The Committee Clerk: Yes.

The Chairman (Mr Wells): I have received my copy of the 27 July report. Have members received that?

Ms Gildernew: Just now.

The Chairman (Mr Wells): The same principle applies. Members should try to turn the transcript around in 24 hours. Again, it consists of witness sessions.

Mr McElduff: Mr Chairman, is it the practice for attendees only to receive the Hansard reports, as distinct from those who are involved with the Preparation for Government Committee?

The Committee Clerk: Only attendees can comment on the report.

The Chairman (Mr Wells): All Hansard reports will be published on the Assembly website.

The Committee Clerk: Once a report has been cleared, it will appear on the website.

The Chairman (Mr Wells): It is interesting that when the reports were not published on the website and were leaked, the press devoured them with great interest. Now that the reports are available, the press could not care less. That is definitely a case of stolen apples tasting best. Everything we do will be in the public domain, once it has been passed for Hansard.

We must make arrangements for the meeting on emerging themes. We did not get a chance to discuss that at the last meeting due to time constraints, and it has been scheduled for 3.30 pm on Thursday. I will chair that meeting, although I think that the other Chairman will also attend because we have been alternating the chairmanship. Confirmation of attendance has been received from some of the parties, including Dr Birnie and Mr McNarry from the Ulster Unionist Party Assembly Group. Mr Ford and Mr Neeson are not here, but I assume they are coming.

Mr Ford: Pardon, Mr Chairman?

The Chairman (Mr Wells): Oh, sorry. I have a fixed image of the Alliance party always sitting at the top of the table. I just cannot get that out of my head.

Mr Ford: I am delighted that you see it in such a way, Mr Chairman.

The Chairman (Mr Wells): I presume that Mr Neeson will be coming to that meeting.

Mr Ford: One of us will attend, but I am not quite sure who it will be.

Ms Gildernew: The meeting is at 3.30 pm?

The Chairman (Mr Wells): It is at 3.30 pm on 3 August.

The Committee Clerk: At the moment, eight members are on the list to attend the meeting. We need seven members for a quorum. I have David and Sean down to attend, as well as Alasdair McDonnell, John Dallat and Michelle Gildernew. Members cannot afford to drop out as that will mean that the meeting may have to be cancelled.

10.15 am

The Chairman (Mr Wells): Peter Weir is to attend for the DUP. Do Sinn Féin or the DUP have a second nomination?

Mr McElduff: I made it clear to the secretariat yesterday that I was going to attend.

The Chairman (Mr Wells): All we need is the second DUP name.

Is everyone happy enough? We need to meet for a good hour because we have not really had time to think, given the amount of material that we have been dealing with.

The next issue is the revised work programme, which is at tabs 6 and 7 of the papers. It is very much a moving feast; it is constantly changing, with some witnesses being pulled out and others being slotted in. This is meeting number four in week commencing 31 July. The fifth meeting, which Mr Molloy will chair on Thursday 3 August, is with the Industrial Task Force, the Northern Ireland Committee of the Irish Congress of Trade Unions (NIC.ICTU) — a nifty little title — the Department of Education and the Department for Employment and Learning. Are members content to look at that and return to the issue of the time constraints later?

John Simpson was extraordinarily helpful to the Enterprise, Trade and Investment Committee when it was in session, and he was perhaps one of our best expert witnesses. Do feel free to make maximum use of John’s hour with the subgroup this morning, particularly as regards the big issues that have been raised to date, such as corporation tax, industrial derating and reduction in fuel duty. Feel free to take the opportunity to quiz him as he is extremely helpful in providing information on those subjects. I do not want to lead the questions, but it would be a pity to get bogged down in general discussion when someone of his ability is at our disposal.

The Committee Clerk: One of the key issues for the subgroup in compiling its report is whether corporation tax should be reduced to a certain level or tax credits increased. It must explore the arguments for and against both approaches and try to find a balance. The subgroup can discover much from witnesses and should take advantage of the presence of people like John Simpson and the officials from the Department of Enterprise, Trade and Investment. Members should press them for answers to key questions — for example, why we do such and such and what the likely results would be.

The Chairman (Mr Wells): This could be one of the most valuable evidence sessions in the entire process.

Are members content? Unfortunately, we have had to leave this in the hands of the Clerks because there has been so much toing and froing, but I think that we have a reasonably good balance from the various sectors. We will have to leave it to the Committee staff to keep matters moving along.

Mr McElduff: Mr Chairman, I would have liked to hear evidence from the Department of Education and Science in Dublin to find out how it has contributed to the skills strategy. If I could be assured that a research paper was being commissioned towards that end, that might suffice.

The Chairman (Mr Wells): We will table that schedule. Do not be surprised if it is changed by the next meeting; that is simply the nature of the beast. However, I am content that we are getting a good spread of folk.

The Committee Clerk: They are nearly all confirmed, apart from the Northern Ireland Tourist Board (NITB) on 10 August. The subgroup should be content that it has had in excess of a 95% response rate in a short time frame. Witnesses are keen to come.

Dr Birnie: With NITB not coming, I suggest that we let the three groups that are coming on 10 August expand their presentations. In particular, the Economic Research Institute of Northern Ireland might need more than 45 minutes.

The Chairman (Mr Wells): NITB is coming, just not in the original slot. We have shunted them into that slot.

Mr Dallat: As a mere substitute, I have to relate to what Mr Weir said earlier. I cannot see how we can work these things out adequately without some input from tourism. If NITB is not available, perhaps someone from Tourism Ireland, based in Coleraine, might be a very good substitute.

The Chairman (Mr Wells): There is a slight misunderstanding. NITB is not available on the date that we asked for. It is coming, but later than we had hoped. It is important to emphasise that. It looks certain that it is going to be there.

The Committee Clerk: We are not absolutely certain at this stage, but we have been given an indication that it will be available on 10 August, so we hope to slot it in.

The Chairman (Mr Wells): The subgroup is gaining momentum as we go on. It will be difficult, in my view and in that of the staff, to get it all done in time. We are considering writing to the Preparation for Government Committee to seek a one-week extension, which will be at its discretion. We need to do that formally. It could turn down the request. It will be practically impossible to get all this done in the time allocated.

Mr McNarry: I propose that we do so. I think it is important.

The Chairman (Mr Wells): Do we have a consensus?

Members indicated assent.

The Committee Clerk: I will get a request to the Preparation for Government Committee tomorrow, seeking an extension until 25 August.

The Chairman (Mr Wells): I am chairing that meeting, so I am writing to myself to ask for that extension.

Dr McDonnell: Tell them that Mr McElduff has joined us and that he is keeping us back.

Mr McElduff: I do not think so.

The Chairman (Mr Wells): That completes the preliminaries. Is Mr Simpson here?

The Committee Clerk: I have just been advised that Alan Clarke has confirmed 10 August for NITB.

The Chairman (Mr Wells): We are making good progress. Ask Mr Simpson to come in. We have agreed that these meetings are open, and if your parties have whizz-kids on economic development or financial issues they are welcome to come in, listen and pass notes to members. People were killing themselves to get in before we made the meetings open, and now no one is turning up.

Mr McNarry: How many questions are we allowed today?

The Chairman (Mr Wells): Three, though last week one member managed to make that into six.

Mr McNarry: That is why I ask. Three questions, and no rhetoric?

The Chairman (Mr Wells): Keep it to three if you can. We want to maximise the opportunity of getting information from witnesses.

Mr McNarry: I agree with you.

The Chairman (Mr Wells): Mr Simpson, you are most welcome. You appeared before the Committee for Enterprise, Trade and Investment many times, and we found the information you provided invaluable. We are pleased that you could come here this morning at short notice to give evidence on this issue. We have indicated to you the three main issues on which we are trying to gather information. I suggest that you make whatever opening comments you think necessary, and then I will throw it open for questions. We would like to take one hour for this session. You have been down this road many times, so I am sure you are experienced at giving evidence.

Mr John Simpson (Economist): Thank you for the invitation. Were I being facetious, I would say that it was a good excuse for not going on holiday. Members have a copy of my paper, and may wish to read the headings as I review it.

Let me try to set the scene. Inevitably, in a discussion of this kind, there is a tendency to pick on weaknesses or on comments on which one has a different view. We do not spend 50% of our time congratulating ourselves on the acceptable things. We tend to focus on things that we would like to change.

Consequently, the discussion that I am likely to engender might, on reflection, appear more negative than positive. That is a natural bias when producing a set of questions relating to economic challenges. Inevitably, I am drawn to say that we are not tackling them very well. That is not to say that there are not issues on which, if I was to sit in an audience outside Northern Ireland, I would say: “Just a minute, take account of these good things as well as the critical ones.”

With that understanding between us I will briefly review the paper that I submitted. I do not need to enhance further the personal introduction. It is only there to let you know that I have had a misspent youth doing several things that occasionally come back to haunt me. Even when I recall the days in this Building when we argued about the Matthew plan, who was to say that 44 years later we would be sitting here discussing whether or not we got it right and asking: “Where are we now?” However, I am not going to dwell on the background.

It was necessary to include a second section on the current state of the regional economy. Members will recognise the various symptoms that are readily picked on. By the standards of employment and, indeed, average lifestyles, we are better off than we have been at any time in our lifetime. Judged by where we normally have been in comparison with regions in Great Britain, we have caught up a bit, but not a lot.

Unemployment is now the lowest it has ever been in our lifetime. If we look around and say: “What features of that should we be careful about?”, the first thing that comes to mind is that we still have a significant amount of underemployment — the inactivity rate, as it is often described. It is partly a consequence of a higher proportion of the population living in rural areas. There will always be a higher inactivity rate where it is not so convenient for the second or third person in a family to get employment. The main occupation will determine where the breadwinning takes place.

Where are we on the issues of employment, unemploy­ment and living standards? The situation has been built and improved for all sorts of market reasons in ways that I now would consider fragile. The unemployment problem has not been solved to the extent that we need not worry about it any more. If unemployment were to re-emerge in western Europe on any significant scale, we could not expect to be the last area to be adversely influenced. It is fragile, and it is dependent on a great deal of employment in low-skill and low value-added occupations.

In concluding my review of where the economy is now, I will talk about two other features, the first being migration. I first came across an estimate of the level of net inward migration in the past year from a reasonably reliable publication. It seems as though we may have had an inflow of about 14,000 people in one year. That is against a background in which, 25 or 30 years ago, we would have expected an annual net outflow of 4,000, 5,000 or 6,000 people a year.

10.30 am

The Government are forecasting that the flow of people into Northern Ireland will be less than a couple of thousand a year, that that will fall further, and that we will then return to a small level of net outward migration. However, I do not agree with that forecast. The Government’s prediction will have an important knock-on effect, as they will have to consider the economy over the next three to five years — for example, where the population will be, what jobs it will seek, what demands it will place on social infrastructure and housing. There are all sorts of knock-on effects, and they could be quite serious. However, we still have a GDP (gross domestic product), or GVA (gross value added), per head of 80% of the UK average, which is about 74% of the Republic’s average, and the Republic is now ahead of the UK average.

Business profitability in Northern Ireland has improved, in a situation where a fragile economy is attracting inward migration for interesting reasons, but it is still not prospering at the level that we would like. There are examples of firms that are losing money and that are unlikely to survive another winter, but, in general, business profitability in the past four, five and six years has improved. The business community, however, would say that it has not improved enough.

I added a cautionary note regarding the question on major impediments. It states:

“Beware of any dramatic single solution to all impediments”.

There is no dramatically different solution waiting to be pulled off the shelf. Even if the policy made a big difference, and over time we could repay the costs, that could be deceptive. I will move on, but the relevance of that comes later.

We have all grown up with conventional arguments about the impediments in Northern Ireland: it is a peripheral location with poor natural resources; we have extra transport costs; it is a small local marketplace on an island divided into two economies. However, those issues are less of an impediment than they were. Location and poor natural resources were fundamental features, but they are less significant now due to a knowledge-based western European economy and a marketplace that has better access to larger markets.

It has been argued that the manufacturing sector is weak or fading away, but manufacturing output is not down. It continues to edge up, but the level of employment in the manufacturing industry is down. The bad news is that people are losing jobs; the good news is that those who are still employed are producing more per person, so it cannot be all bad. We should not write off manufacturing as if it is going down the proverbial drain.

It has been argued that we have a weak private sector. When people say that, they mean that there is not much inward investment in manufacturing, yet the private sector has been the source of the major expansion in employment in the past 10 years in services, in retailing and in wholesaling. The private sector has done more to expand employment in Northern Ireland in the past decade than the public sector. We have an overlarge public sector. Some 33% of people are employed in the public sector, compared to a GB average of around 23%. Those figures do not compare. Members’ mathematics will allow them to wonder whether it is because 33% is too high, or 67% is too low. If we compare the proportions, the public sector seems large, because the private sector, relative to other areas, seems low.

I shall provide one correction on the usual view of this matter, which surprised me. The number of people employed in the public sector in Northern Ireland as a proportion of the entire population, not just relative to employment, is, within a fraction of a decimal point, the same as that for Wales. That number is a little more than a fraction of a decimal point lower than that for Scotland. We may simply believe that we have too many public sector employees — and we need to think about that — but, sometimes, we get the perspective a little out of focus.

We have a large public sector, which has an impact on the labour market. The public sector pays, on average, rather more than the private sector for the same skills, and that is a problem.

We have, in many senses, a branch plant economy. We use those words almost as though they were derogatory. I do not mind having branch plants if they achieve what we want. In the manufacturing sector, we ask how much expenditure goes to research and development. The answer is that that figure tends to be relatively low, and that is because we have production units, not research headquarters units. That makes it a harder battle. No one would decry the value of more research and development spending, innovation spending, and so on, but it is almost natural that that would be lower in a regional economy like ours.

I turn to less conventional theses, which are often understated. If I had invented the phrase, I would say that the impact of political instability “has not gone away”. However, you may recognise that someone beat me to it. Was that a reference to political instability?

Another eminent figure described Northern Ireland as having an unsustainable economy. There is an argu­ment that we are not seen as a conventional, progressive, modern, western European region, and we cannot get away from that. People tend to discuss how Northern Ireland compares with Cyprus, the Basque region, or even with the way in which Catalonia is changing. Those are sensible comparisons, and they highlight that the framework in which we operate is important.

There are failures of delivery in public-sector administration, on which I shall make two points. The first concerns policy setting and delivery within the public sector. Obviously, but not solely, I wish to refer to town and country planning. I criticise not so much the regional development strategy, although it has vulnerable points, as the absence of a Belfast metropolitan area plan. The real significance of its absence concerns infrastructure plans and their delivery of electricity, water, waste water, roads, transport and ports.

Members will have had different reactions to the announcement this week of the proposed £400 million to be spent on roads. If members liked it, they will have agreed that the right schemes were picked. If members disagreed, they will have thought that the wrong schemes were picked. However, I criticise the announcement on different grounds. I am interested in the way in which the strategic investment programme is evolving. I welcome the fact that it exists, but I have criticisms. If members read yesterday’s press statement, they would have seen the paragraph that stated:

“The Government’s Investment Strategy envisages that this additional roads funding will be available to us towards the end of the 2015 period.”

Are we living in a society in which it takes 10 years to move from conception to delivery? Those who have followed the history of the Westlink upgrade would say that that is nothing new, as that is exactly what has happened to date. The Westlink upgrade that is being built will be inadequate for purpose, and one of the suggestions in my presentation will solve one of the knock-on problems.

The delivery of a better economy requires a better idea of how the public sector should perform. The performance of the public sector has been inadequate on town and country planning, infrastructure planning, scale and standards of education and training, and urban regeneration. If Government Departments are criticised because they are failing to deliver, that means that there is a real debate, because adequate delivery in those areas is important.

A slightly different failure of the public sector relates to public services. People in Northern Ireland accept second-rate standards of delivery. For example, the single energy market on the island will not be ready on time. How often do we hear that the original timetable has slipped in relation to the public sector in Northern Ireland? The business sector would not operate that way; it would say that if the timetable demanded completion by a certain date, it would try to deliver — unless it is rebuilding Wembley Stadium. There is too much emphasis on vision statements and not enough on operational delivery. There is no real debate about options, and sanctions are not applied when the public sector fails to deliver.

Any new fiscal incentives would be welcomed, particularly by businesses that would have to pay less. Those who received their new rates demand in the last few days can join in a vote of sympathy with those of us whose rates will almost double. I do not need to talk about the North/South comparisons on fiscal issues, such as company taxation and excise duties etc, because those are well known. There is a long history of searching for variations in fiscal policy. Few here will remember the 1962 debate on the Hall Report and the alleviation of National Insurance charges in Northern Ireland. I am looking around the table to find the guilty parties who can remember that.

Suggestions have been made that have come to nothing. I shall not dwell on the one exception, but Esmond Birnie will know about it. The current topics for debate relate to whether corporation tax, industrial rating, domestic rates and water charges should be different. Everyone knows that the Treasury’s view is that those who expect parity in spending must expect parity in taxation according to their means, so that those with lower incomes pay less.

What are the options? There must be a debate on fiscal incentives and an attempt to persuade the Treasury that that debate is meaningful. Let us take the Treasury as the starting point, so that people pay according to means and receive according to needs. To diverge from parity would result in the same debate as the one that has been taking place in Scotland. Are those who want the right to a lower rate of tax prepared to take a lower transfer through the Barnett formula? As far as I know, the Scots have not decided to exercise that right, and the argument continues.

The third option is to go for a one-off time-limited exception and tell all relevant taxpayers that they will be beneficiaries. However, if it were decided that, from today and for the next two years, corporation tax would be 12·5%, the main beneficiaries in absolute terms would be the four Northern Ireland banks.

The degree to which it would lead to extra investment is uncertain, and I will not put it any higher than that. Corporation tax at a rate of 12·5% would also attract the attention of the European Competition Authorities (ECA), but if we were strong enough about the issue, and the British Government were strong enough about it, it might be persuaded.

10.45 am

We could have a one-off time-limited exception for all new businesses. The problem with that is in defining what is new. If I am told that I can have a tax holiday if I set up a new business, will I be prevented from closing my old business and setting up a new one around the corner? Of course, it is much more subtle than that. The alternative is to change the fiscal impact by saying that we will allow differences in spending. That idea has been floated, so you will all have heard of it. For tax purposes in Northern Ireland, businesses’ marketing expenditure, training expenditure, research and development (R&D) expenditure and other development expenditure could be made tax-deductible from their profitability by a factor of three or four. If we make the figure big enough to work, it could be done.

For the benefit of those who want to think laterally, my final point on fiscal incentives is that, in order for there to be the same fiscal treatment throughout this island, agreement would be needed on company and excise taxes being harmonised. If that agreement were reached, however, the Treasury would not stand idly by. It would make the Irish Sea and the North Channel into a fiscal frontier.

I shall now speak about other measures that would contribute to economic regeneration. We can do much for ourselves. The reinvestment and reform initiative (RRI) has given scope for a stronger investment programme. Unfortunately, the Strategic Investment Board (SIB) is not delivering as effectively as I would like it to deliver. You suggest that a peace dividend could add to progress, but I would argue that that should not be used as a substitute for improved local performance.

Therefore, what are the possible foci? Latin scholars will tell me whether there should be a double “i” in “foci” — although looking around the room, I do not think that the skills are in evidence. In your position, have you considered new institutional arrangements for major regeneration plans, led by the right institutions, in the cities of Belfast and Derry? That is high on my list of preferences.

Have you considered extra provision for enhanced levels of skills, vocational training and higher advanced qualifications for up to several thousand more young people each year? Have you thought of the enhanced provision that is necessary for education in the New TSN areas? I have visited some primary schools recently, not 15 miles from here. I will not say to which board a particular school belongs, but it is well funded by the present system, has more applications for enrolment that it can cope with and has more than 600 pupils. The atmosphere and the end result at that school are everything that anyone would wish for. Not 15 miles away, I could take you to primary schools that receive the same funding but will never achieve the same results, because they operate in a milieu that does not allow it. Those schools tell me — and they would tell you — that, by the time that those children are five, six or seven years of age, their behavioural patterns are no longer appropriate for an educational environment. You may say that if schools receive the same funding per pupil, it should be left to the teachers, but I would disagree. Resources must be proportionate to the social need, and we are not doing that.

We can look at extra communications investment, particularly for roads, on which an announcement was made yesterday.

It is fascinating that we have a very poor roads infrastructure. Why? Because we have not given it enough priority. We have to improve our roads structure either by crossing the border, which we did not use to say; or by going to any of the other development areas in Britain. It is not good enough to have a roads system such as ours. Yet there are lobbyists who say that we spend too much on roads. Apart from investment in human beings, no infrastructure investment is more important than roads. Roads infrastructure investment will enhance our reputation elsewhere.

We might have a new approach to the integration of urban and rural needs. I worry that there is something called “rural policy” that stands alone. I know no rural community that stands alone from its urban hinterland or vice versa. We need a much more integrated policy for the many small areas that are more than 15 miles from an urban catchment area.

We need stronger incentives to innovation, research and development and marketing.

My conclusion is that there are challenges that can be met if we harness our local talent. The case for fiscal incentives can be sustained if a wide range of impediments is tackled constructively. Beware the argument that a tax change alone will boost our economy. There is no intrinsic reason that Northern Ireland should lag behind other regions. I am sorry, Mr Chairman, to have taken so long.

The Chairman (Mr Wells): Thank you very much, Mr Simpson. I am not remotely surprised that your contribution was entirely on target and extremely interesting and helpful: that has been your track record in Assembly Committees. It seems as though every member of the subgroup wants to question you on your contribution. Can we make our questions sharp and snappy, folks? Time is running against us.

Mr Simpson: Do nothing for a moment, Mr Chairman: my infrastructure has collapsed.

The Chairman (Mr Wells): I see that you are referring to your hearing aid.

Mr Simpson: It has come together again.

The Chairman (Mr Wells): Can you hear us, Mr Simpson?

Mr Simpson: Mm?

The Chairman (Mr Wells): Can you — [Laughter.]

Mr Simpson: When I worked for the Health Service I had a hearing aid, and you all knew that I had a hearing aid, because you could see it. When I began to travel to Brussels, the Germans asked me: “What is that ugly attachment?” They said that I should get one of the hearing aids that I have now. I had to pay for it.

Dr McDonnell: Is Mr Simpson aware that there have perhaps been times when it was official to be slightly deaf?

The Chairman (Mr Wells): Perhaps we can get a move on, folks. We will start with Mr McNarry, followed by Mr Weir, Dr Birnie, Ms Gildernew and Mr Neeson. That covers all the parties. We will try to keep it as quick as possible.

Mr McNarry: John, sometimes negativity can be a wake-up call, and I thank you for that, as there was much in what you said that wakened me up. I have three questions. What does the high rise in house prices along with the high increase in the repossession of homes say about our economy?

If a mixed ability group of 15-year-olds asked you what sustainable employment they should consider, how would you answer? Can schools do more than they apparently do at present to help young people with decisions about their future employment?

How important is tourism to our economy? How do you rate its performance? How could a devolved Government help to improve it?

Mr Simpson: House prices are a bête noire of mine. Part of the reason for house prices in Northern Ireland getting out of line with those of neighbouring areas has been explained to me by builders and developers: the cost of new house building on greenfield sites has rocketed because so few are available. It is a beautiful example of the failure of the regional development strategy: it boasted that 60% of houses would be built on brownfield sites, but it is achieving 70%. That is not success; that is failure.

We have a green and pleasant land. I am not inclined to the view that we should allow much more rural housing in isolated units; that would not necessarily be popular. However, I do realise that we are not short of space. We are trying to confine, particularly the Belfast community area, to a population that is lower than that to be housed. Do not be surprised when house prices do what they have done; it is Government policy to push up house prices here. Unfortunately the town planners do not accept that argument. My shorthand response for dealing with this is: “Send for Kate Barker.” Those of you who have read the ‘Barker Review of Housing Supply’ will see that she has brought a fresh mind to the subject.

The second question was about 15-year-olds.

Mr McNarry: John, what about the comparison of house prices and the increase in repossessions?

Mr Simpson: The repossession rate is at its highest for several years. At the rate of 656 per quarter, this means there are 2,500 repossessions per year in a situation where there are around 35,000 housing transactions per year. Repossessions are on the high side, and this is where the planners do have a point. People expect to be able to afford houses from their income, but they bid too high and become overstretched. Therefore, it would not be appropriate to say that this is all the Government’s fault — it is mainly the Government’s fault.

As regards 15-year-olds, you can never tell them what is best for them. However, a large proportion of 15-year-olds, particularly those in inner city areas, are treating the education system as something to be coped with rather than as an advantage.

Every 15-year-old should be told to maximise his talents and go as far as he can. I fall out with those responsible for training arrangements in Northern Ireland when they say to me that there has to be adequate training so that there will be more skilled people to cope with an advancing economy. My question to them is: “Why are you so modest in your ambitions?” The education and training system is not for today’s employers, it is for tomorrow’s employers, and it is not only for employment that is within a stone’s throw of where you go to school. Would you wish to deny anyone who grows up near you or me the right to the full education and training benefits he can absorb even if they take it and use it elsewhere, in places such as France, Bosnia or India?

We have a system that is geared to the needs of today’s employers. Let us just look around. I cannot answer the question in respect of individuals.

As regards tourism, we do not deserve to have tourists because of the way our infrastructure has been geared up. How many members of the subgroup have subscribed to and have applauded — as a magnificent development — the Titanic Signature Project for the Titanic Quarter? How many of you think that it will fulfil our ambitions so that tourist liners will tie up to the new berth that is being built and the new facilities that will be provided? The answer is that we have such modesty in our proposals and such slowness in their development that we will be celebrating the Titanic 150 years after it sank rather than 100 years after it sank.

As regards the Giant’s Causeway project — how long has it been since the facilities burned down?

The Chairman (Mr Wells): It was in 1999.

Mr Simpson: Have you seen the replacement? Is it not wonderful?

The Chairman (Mr Wells): It is not there.

11.00 am

Mr Simpson: It is not there yet. Did it really take that long? Have you seen the draft plans for the Giant’s Causeway in comparison to Glenveagh in Donegal or any other tourist area?

You will smile at this: for my sins, I recently visited the scene of the Battle of Waterloo — no, not on the River Boyne — the Battle of Waterloo. A huge, superb site has been created to attract tourists. Why do we not look for role models for what we should be doing? Yes, we have natural assets, but we are not enhancing them.

Mr McNarry: Hear, hear.

Mr Simpson: If all the questions take as long to answer as that one, you will be here until lunchtime.

The Chairman (Mr Wells): Yes, that is a good point.

Mr McNarry: The questions did not take very long; the answers were the problem. [Laughter.]

Mr Weir: Thank you for your presentation. It was very useful in not only identifying the issues but helping to put them into a degree of perspective.

I wish to ask three questions. You mentioned high levels of economic inactivity as opposed to high levels of unemployment, which is mentioned quite often. All my questions are principally concerned with solutions to problems. First, what actions could the Government take or what changes in regime would lead to a reduction in economic inactivity?

Secondly, I was struck by the slowness of public sector delivery. You mentioned roads as one example. I recently met the Minister of Education, who explained away last year’s £69 million underspend by saying that £40 million of that figure was for capital projects. Instead of making some great excuse, the Department of Education — as is symptomatic of many Departments — was not processing its activities or contracts quickly enough to enable schools to be built. What can be done to improve slow public sector delivery?

Thirdly, you mentioned yesterday’s roads infra­structure announcement. Leaving aside whether a particular road should have been built, have the right broad structural priorities for roads been identified? If not, where should the focus be? Are stronger economic corridors required? Is the focus on too few single projects or should the overall roads infrastructure be built upon?

I seek your advice on those three points.

Mr Simpson: If we behaved more like other regions, around 6% more of the population would be in the labour market. In households of two or three people, some can choose to be inactive in the labour market. Part of the answer to your question is that the degree of imposed economic inactivity, as opposed to voluntary inactivity, is important.

The short answer is that surveys suggest that a significant proportion, but not a majority, of those who are economically inactive would, given the right circumstances, seek to be in the labour market. By and large, those are people on second incomes. It used to be the case that a high proportion of those people would be single parents, for whom the mixture of benefits and their ability to work was loaded against them.

What should the Government do about that? It is difficult to have a policy to encourage those who are inactive into the labour market unless the system handicaps them. Single parents were handicapped by their situation. There is a problem for rural households that are remote from urban areas, but I cannot go further than that.

Your second question was about infrastructure timing. We must begin to say that, for the last x number of years in Northern Ireland politics, five major political parties have been in Opposition to the Government that is in charge. They have got off remarkably lightly and have not been criticised — or perhaps they have been criticised, but they have not heard it.

The third question was about roads. Various appendices, with information on the roads network, were attached to yesterday’s press statement. The strategy for roads infrastructure lacks coherence. The policy seems to be one of build them here, here, here and here. The important thing is that commercial and private users should be able to drive along the transport corridors at a decent speed.

In some places, such as Newry and beyond, what are called “higher quality A1s” are being built; in other places, they are called “expressways”, because each significant junction is covered by a flyover. What is wrong? Could it not be that people could commute from Newry to Belfast and from Coleraine to Derry on roads that are of the same standard as those from — dare one say it? — Dublin to the same polar points? I am not saying that the Republic does it better and that Northern Ireland should copy it. However, that is the standard that road users should be able to expect.

Of course, odd bits of development are needed, and those members who travel to Belfast from the north of the Province will have noticed the biggest current development scheme. There is to be a Westlink/York Street flyover to provide a grade-separated junction at the last remaining part of the Westlink that has a traffic signal. That is going to be a complicated project. Those involved need to design the York Street junction so that the traffic can flow in numerous directions. This problem was inevitable since the day on which the Westlink was conceived. Inevitably, a much worse problem will be created when the improvements to the Westlink go as far as Divis Street and stop. The motorway must stop at Divis Street because if it flowed on at those speeds, the York Street junction would not be able to cope. There is no coherence. I hope that I am agreeing with Mr Weir when I say that.

Mr Weir: Yes.

The Chairman (Mr Wells): Are you happy enough, Mr Weir.

Mr Weir: Very much so.

Dr Birnie: Over the past 50 years, we in Northern Ireland seem to have become good at producing lengthy economic strategies and analyses of problems — indeed, in your background paper, you refer to the part that you played in two such reports in the 1960s. However, the strategies and analyses do not seem to be fully implemented or adequately evaluated. Why is that? Secondly, the subgroup has taken evidence from a range of witnesses, and, on fiscal incentives, it is being torn in two directions. Some witnesses argued for the lower headline rate of corporation tax, while others argued for the higher tax credits that you mention in your helpful paper. As a professional economist, which do you think would have the greater impact on private sector investment?

Mr Simpson: I shall answer your first question while I think about the answer to your second one. The easy answer to your first question is “Yes”. I remember when we were asked to write what became the ‘Task Forces for West Belfast and the Greater Shankill’ report. One of the councillors at the initial meeting said that his fear was that we would prepare a volume that would either sit heavily on a shelf or would be useful as a doorstop. I am still living with the consequences of that.

The short answer is that there are a lot of people in the public sector who think that, once they have written a strategy paper or a vision paper, whether on general economic progress, innovation, R&D, or training, somebody else will deliver it. We have lost the challenge to senior public servants to deliver policy as well as developing it. There are a lot of examples — I will not use any, in case it gets back to those concerned — of people who, faced with converting policy into operation, make it into a consultancy project. The consultants get called in. If you are going to be one of these high-grade civil servants and cannot convert policy into operational delivery, someone around you should be challenging you, and you should not be left there, if that is your weakness.

Your other point was about fiscal systems. I daresay some of you will agree that the best recent public relations campaign in fiscal events has been the degree to which the Northern Ireland Manufacturing Focus Group has sent out its message. It is horribly flawed, but persuasive.

Mr McNarry: Sounds like DUP policy.

Mr Simpson: They are faced with a choice. Should we have lower company taxes? Would that be more effective than some of these other things? The short answer is that, as long as no one does anything else that is nasty, of the choice that they give I would prefer corporation tax to be lower. However, it is a hypo­thetical question, because that is not the choice that is open to us.

I know that influence is being exerted on the Chancellor of the Exchequer to try to get him to take a softer view of these things. I was told two years ago to forget about it, as it would never happen. In more recent months I have been told that it might happen. Would you consider it a success if you got the Assembly up and running, with devolved responsibility for planning the economic future, and for a defined period were allowed, as a concession, to have a corporate tax rate of 10%, 12% or 14% — anything but 12·5%?

A Member: The rate in the Republic.

Mr Simpson: It would be difficult to do, but at the moment it is being held out — and this is what I was referring to when I said not to go for the single solution — as if it were the single solution. It is not. In fact, if it were given to us as a community, and we were not doing any of these other things, we would quickly be asking what had gone wrong.

The Chairman (Mr Wells): That is very useful. I have been entranced by what you have said.

Mr Neeson: John, you and I share an interest in energy policy, but I am not going to deal with that this morning. You represent Northern Ireland on the European Union’s Economic and Social Committee —

Mr Simpson: For another six weeks.

Mr Neeson: What opportunities for, and threats to, the Northern Ireland economy do you see with the enlargement of the European Union? Conversely, with the development of the global economy, is Europe still as important as it has been?

Mr Simpson: To the second question, the answer is “Yes”. The amount of trade in goods, services and people can only increase. If we do not take part in it, that will be to our disadvantage. If we do not develop a more articulate group of people who can speak several European languages, we will lose out. I am guilty myself, but it is a bit late for me to start.

As for your first question, if you raise Northern Ireland issues at the Economic and Social Committee — and, I daresay, at the Committee of the Regions — they will listen politely, then yawn and tell you to go back home and sort it out for yourself. The Peace programme is there; you are not allowed to say “nearly unique”, so let us say it has been “unusual”. We have not exploited it to full advantage, but nonetheless it has been useful.

I do not think that Europe will do any more than open up opportunities to us; it will not come along carrying a bag of goodies that will somehow solve the problems about which I have been trying to convince you. In fact, the problems that I have been talking about are within our own disposition. Therefore, we have got to be there.

11.15 am

I am worried about the expansion of Europe. There are all sorts of signs about eastern Europe and concerns about what expansion is doing to the relocation of certain sectors of industry and to labour migration. Members may have heard the discussion at the weekend about what will happen should Britain become the main immigration point for eastern European migrants who have an entitlement. A very difficult social situation could be created. Who would have thought that Northern Ireland would have been part of the receiving area? If you had told me 10 years ago that Latvians, Poles and Lithuanians would be in either Dungannon or Newry, I would have said that they had a lot more sense. However, they are there.

The Chairman (Mr Wells): I will concentrate on those panellists who are sitting on my left, so Ms Gildernew may ask a question.

Ms Gildernew: Mr Simpson, you are very welcome, and thank you for coming.

Given that the Assembly and the institutions that were envisaged in the Good Friday Agreement are not functioning, to what extent is the lack of political stability hampering our economy?

Your points about education were pertinent, given that a quarter of children here live in poverty. Your comment about behavioural patterns making young children no longer suitable for educational requirements was staggering. How much of that comes from the self-fulfilling prophecy of those communities that do not feel that they have the confidence to move away from such attitudes? How much of that is tied into an economy that has been described as dysfunctional?

When I was on the Committee for Social Develop­ment, I heard a lot about parity legislation. However, sometimes it is like groundhog day; we have had this conversation with so many British Secretaries of State. Projects such as Sure Start and Home-Start receive mainstream funding in England, Scotland and Wales. We fund projects such as those differently. We need those kinds of projects to lift communities out of the depression in which they find themselves. We lag far behind England, Scotland and Wales on pretty much everything — university places, healthcare provision and roads. We are repeatedly told that we do not pay as much and that there has been a lack of investment in this place over the past 30 years. It would be more realistic to say that that has been the case over the past 80 years. Our circumstances are unique, and we need to catch up.

I would like to tease out how you think that the peace dividend could contribute to that and what you think about security budgets not being spent on infrastructure in areas that were hardest hit by the conflict.

Mr Simpson: You started with the general point about political instability, and then moved on to education. I am talking to this audience, so you do not need me to say it, but people outside Northern Ireland think that we are a very odd group of people and that we have —

Mr Weir: I noticed that you looked at me when you said that. [Laughter.]

Ms Gildernew: I thought that that look was very well placed.

Dr McDonnell: People can understand why Jim Wells is in the DUP, but nobody can understand why Peter and Nelson joined.

Mr Weir: We cannot understand why Jim Wells is in the DUP.

Mr Simpson: Chairman, do they treat you like this all the time?

The Chairman (Mr Wells): Yes. It is because I am on the green wing of the DUP.

Dr McDonnell: These johnny-come-latelys are uppity.

Mr Simpson: We are not regarded as a settled, stable western European community, and that is a handicap. If a company were planning a major manufacturing investment — which is rare nowadays — and contemplating coming to Northern Ireland, it would ask how one could be sure that the country has settled. After all, there have been 30 or 34 years of trouble — more, if you want to take it from the Linenhall Street student sit-down, which I missed by a day. There is no getting away from that, and people sitting with you must encourage you to find answers to the questions that we are not discussing this morning.

We must talk about educational priorities and motivation in areas of need, and I have mouthed that many times in recent years. I spent a morning with a group of school principals from the Shankill area in preparation for the other paper that came out recently. It would be wrong to say that those principals are demotivated, but they no longer expect to be dealing with young people who are motivated to achieve. The teachers in the classroom feel that they cannot remonstrate with wee Johnny — or, for neutrality, wee Seamus — because his da will come up to the school and tell the teacher to leave his son alone. A common complaint from teachers in the classroom is that they can no longer expect back-up with regard to their delivery mechanisms.

One cannot get round that by saying that they have the same money per pupil as the affluent school down the road. That is not an answer. Those of you who have experience of education and library boards — they will be gone soon, will they not? — will know that the issue is there, and has been for a whole generation.

I have every admiration for one or two of those principals. I did not think that those sorts of problems existed in primary schools. I thought that they existed only in secondary schools. However, the primary school principals told me that I did not need to go to secondary schools to see them — the problems set in at an earlier stage. It is unbelievably important that something be done about that. We put it heavily in the West Belfast and Shankill reports, and to the best of my knowledge it has not made a button of difference.

Mr McCausland: I cannot argue with that.

Ms Gildernew: Do you see the peace dividend, then, being spent not just on big capital projects but on investment in people?

Mr Simpson: For the first time, Northern Ireland has sources of capital way beyond the imagination of those who were in Government here in the 1960s. If you had told them that they could borrow capital over 20 to 25 years or that they could opt for PFI, they would not have believed you. Their money had to come out of a conventional budget.

The figures that you are criticising show that capital expenditure by Northern Ireland Departments has broken £1,000 million for the first time ever. I have been watching it for the past two or three years. It was slow to take off, but it has now taken off. We have proven to my satisfaction — and perhaps to yours — that the building industry has the capacity to build up this capital programme. The civil servants’ initial answer was that the building industry would not do it; its throughput could not be increased by 50%. The short answer is that it was possible.

The same thing happened in the Republic of Ireland — I was going to say in Dublin — where building output was increased by 50% and is still growing. In the Republic 60,000 houses are built a year; we are building 14,000 a year. Has it four times the population? What do you think? Spending on capital is important; but, ironically, it does not go down well with the Treasury and the Department of Finance and Personnel. I would like some of the peace dividend spent on staffing and professional input, not all on bricks and mortar.

The Chairman (Mr Wells): Mr McElduff is not here, so I will move on to Dr McDonnell.

Dr McDonnell: John, thank you very much. As the Chairman said, your presentation was electric, and it covered most bases.

I am not much good at theoretical concepts, but I am interested in outcomes. I would like to focus briefly on whether there are opportunities in, and how they can be focused on, the areas of R&D, new technology and university pull-out. How do we get that right? It is half working — or quarter working — for us at the moment. My simple view is that unless one or two more flagships like Andor Technology are established, we will not break through. We can work on the economy in general terms, but it is the champions that make the difference.

To go from the sublime to the ridiculous, from the new text of R&D to food, are there opportunities for us in food production?

Mr Simpson: I will start with your point about R&D and flagships. The more companies like Andor Technology that we find the better. Nobody would object to that sort of “university spin-out into industry” structure. It is creating more and more tension, particularly in the main English universities — and perhaps the Scottish ones as well. We must exploit what is there.

However, I would be a little bit modest because we have only two universities — some would say that we have three; forgive me, I am not being rude to the Open University. With such a large range of issues involved, those two universities cannot be the answer, nor can they be the equivalent of the University of Birmingham or the University of Warwick, so do not expect too much from them. On the other hand, do not leave such a development to happen of its own accord. It must be encouraged.

The arrival of Prof Gregson at Queen’s University has been interesting. He developed his expertise in university deployment into industrial development, R&D and science parks at the University of Southampton. He is a force worth having.

Unfortunately, there was a period when the two universities played selfishly, one against the other, in this exercise. I would have thought that as new vice chancellors have been appointed at both the University of Ulster and Queen’s University the time has come to encourage them to do a bit more. They should not be shy if the net result is that they take up alliances with some departments and universities outside Northern Ireland. This is a more complicated set of arrange­ments than simply finding the man involved in electrical engineering at Queen’s University who can give his technology to a company such as Andor Technology. We must encourage it, and we must demonstrate success stories.

What was your second point?

Dr McDonnell: Do you think that the competition between the two universities is as intense as it was?

Mr Simpson: I do not think that it will be.

Dr McDonnell: Is that not maturing?

Mr Simpson: Some sort of competition between academics — “I am better than you” — is no bad thing, but competition as to what will happen in which facility is a bit of a waste.

Dr McDonnell: The other question was about food.

Mr Simpson: I noted with interest the study on the food industry led by Dan Flinter.

The scope does not seem to exist, or if it does, they have not found it. We are a commodity food producer. We work one step down the processing line. If you ask the dairy industry and the milk processors what more they can do to add value and gain an international market, they have great difficulty in telling you where their ambition lies. The dairy industry is under serious threat. Dairy farmers believe that they are getting very low prices at the moment, and they are right. The reasons for that are that partly due to European policy, which is partly offset by single farm payments, so that it is not entirely a one-way ticket.

11.30 am

We need greater success in dairy farming and in red meat farming. During the hassle of recent years, the red meat industry did not lose money. It was never under the same threat as the dairy processors. It seems to me that there is scope for success in that sector. The old story that we were taught as children says that we are good at growing grass. In the next 10 years, as the climate changes, Scotland and Ireland — the whole of the island — may have the advantage of having some of the best grass-growing areas of Europe. We may become a good grass-growing area with a plentiful supply of rain. Did you ever think that you would hear that that was our advantage?

The Chairman (Mr Wells): We will allocate another five minutes for this discussion. Mr McElduff is not back in his place, so Mr Dallat is next, then Mr McElduff and Mr Ford. I try to give every party a fair crack of the whip. This is fascinating stuff; I could sit here until midnight and still not be bored. However, the difficulty is that the Department is waiting to come in. Can we try to get through this as quickly as possible?

Mr Dallat: There is an argument that tax breaks and fiscal incentives are really a reward to existing businesses, rather than something that might encourage new initiatives. That applies particularly to small businesses. What advice would you give to a new Assembly to address that issue?

Mr Simpson: The starting proposition is correct. The main benefit of a tax change normally applies to existing businesses, which are certainties. It will apply to people who are not there, provided they come. Will that make a difference so that more of them come? The short answer is that there will not be more of those businesses coming to Northern Ireland if the infra­structure, skills and other problems that are on the table are not solved. We have to solve those problems.

As for small businesses, the tax system is already loaded so as to hit small firms more lightly. If the Assembly existed, you might want to consider how you could make that lighter still. I am not sure how you would do that. In theory, when you get round to reviewing rating policy as it applies to businesses — and I mean rating policy for all businesses, not just manufacturing — it might be within your discretion to take into account variables such as size and location. That is worth thinking about. The basic question that you have to answer is: if you want to abolish corporation tax — which will cost £200 million — on what will you not spend £200 million?

Some people think that efficiency savings are easily made, but it is not so. It may be necessary to change the structure of Government, but that will not be because great efficiency savings have been made.

The Chairman (Mr Wells): To keep within our time, I ask Mr Ford, Mr McElduff and Mr McCausland to restrict themselves to one question, and then Mr Simpson can finish by answering them.

Mr McElduff: I am interested in your views on the education and skills strategy. You said that it was about the needs of tomorrow’s employers.

Mr Simpson: As well as today’s.

Mr McElduff: In relation to the South, how has the education and skills strategy contributed to the success of the economy?

Mr Simpson: Do you want me to stack that one?

The Chairman (Mr Wells): Yes, and then Mr Ford and Mr McCausland.

Mr Ford: You said that we do not deserve tourists. Is that the fault of the public sector or the private sector? Who should be addressing it?

Mr McCausland: It was said earlier that there were issues around scale and speed of delivery in relation to major signature projects. How do we address that? Where does the problem lie, and how do we put it right?

Mr Simpson: Questions two and three run together.

With regard to Mr McElduff’s question about the skills strategy, one of the models many of us have watched with interest has been the development of the regional institutes in the Republic. The young up-and-coming economist Garret Fitzgerald and I share the view that the regional institutes have made a significant impact. I recently heard Garret expound that argument to an audience of Northern businesspeople.

We have been, and are, too slow. We now have a strategy paper for the further education (FE) colleges. I believe it is called ‘FE means business’. How are we going to embody this? The number of FE colleges is to be reduced from 16 to six. Is that cause and effect? I do not follow. It may be that the six is desirable. Who is going to give the new momentum to the FE colleges? I am involved in a small way with the skills group, so I have to plead interest.

The short answer is that the FE colleges still, to a large extent, determine for themselves what they offer. That cannot be right. It is almost as bad as the universities doing the same thing.

Mr Dallat: Or the schools.

Mr Simpson: The FE sector has chosen the six key vocational areas that the colleges should concentrate on. I have seen the list; it is impressive, and in roughly the right areas. One would not dispute it much. They told me that the six areas had been successful. I looked at the figures, and five of the six have not gone up. One has gone up quite significantly. That, for me, shows the degree to which there is no adequate challenge to make sure that improvements happen.

Moving on to tourism, and whether to blame the public or the private sector: I listen to every major policy statement made by the Tourist Board. I read their documents carefully, and know to use the phrase “signature project”. However, I do not have a feeling of coherence — that there is a group who are giving leadership.

It so happened that we picked on the Giant’s Causeway. I would also pick on the Titanic project. The one example that is under-exploited, but moving nonetheless, is the city of Derry, which has the potential to be drowned by tourists. It is a walled city that has developed some of its cultural institutions and buildings, such as the Fifth Province heritage centre. They have shown imagination.

It is not simply a question of public sector versus private. Where the public sector is needed, are we encouraging it and doing it the right way?

With regard to tourism and the Titanic Quarter, members should see the berth at which cruise ships tie up in Belfast harbour. Would you take your aged aunt to visit that berth? Not a chance! When tourists dock there, the first thing that they probably want to do is get on a bus and leave. That is not the way in which a tourism industry should be run. The blame lies with all the institutions, both public and private. We are allowing market forces to increase tourism, which is about right. However, market forces are not integrating public assets and policy with the private sector. I am not trying to make another million-pound capital gain for Billy Hastings or any other hotel owner.

The Chairman (Mr Wells): Thank you for a fascinating presentation.

Mr Simpson: Please do not tell the Department of Enterprise, Trade and Industry (DETI) that I was here.

The Chairman (Mr Wells): I am sorry; we neglected to tell you that representatives from it slipped in about 40 minutes ago.

Mr Simpson: Did they? Of all the dirty tricks!

The Chairman (Mr Wells): You will receive a Hansard report of your presentation, which you can check. Once again, we appreciate all your help.

We are running over time, but it has been justified. I can chair only the first two sessions, but Mr Molloy has agreed to chair the third, so I will slip out when DETI has finished giving its evidence.

I welcome Wilfie Hamilton, Graeme Hutchinson and Stephen Quinn. Mr Quinn moved to DETI from the Department of the Environment (DOE), via the Department for Regional Development (DRD) — a less complex Department than the DOE, if I may say so. You will have received our terms of reference. As you saw with Mr Simpson, there will be an opening presentation and then there will be an opportunity for members to ask questions. That should last one hour. We are grateful to you for coming at such short notice to provide evidence to the subgroup.

Mr Stephen Quinn (Department of Enterprise, Trade and Investment): Thank you for the invitation. Wilfie Hamilton is the deputy secretary on the policy side of the Department; and Graeme Hutchinson is the head of the economics division. We will address the three elements of the terms of reference, as requested. However, first, we thought that we would offer a high-level overview of the Northern Ireland economy, starting with slide 4 of the presentation.

The slide shows some of the positive trends that we have observed. There have been improvements in economic growth, employment and manufacturing output. The growth in employment and output in private services is particularly striking. That has resulted in some welcome convergence towards the UK average gross value added per capita. However, that figure should carry a health warning: it is heavily skewed by the performance of London, the south-east and the east of England, which are areas of high economic growth. If we were to remove that element from the UK average figures, Northern Ireland’s performance would be seen in a more positive and realistic light.

Similarly, in the Republic of Ireland, one assumes that levels of economic growth in greater Dublin are more rapid than in counties Leitrim, Roscommon, Donegal, and so forth.

11.45 am

The bottom line is that Northern Ireland no longer sits at the very bottom of the UK regional economic league, although it is towards the bottom. Northern Ireland is now about third from the bottom, just above Wales and the north-east of England.

The subgroup’s terms of reference highlight the fact that difficulties and impediments to local economic growth exist. Slide 7 focuses on the relatively low productivity in the private sector. While the Department attaches particular importance to that issue, that is not a criticism of the private sector or an attempt to deflect attention away from the public sector.

The main reason for low productivity is that Northern Ireland is not well represented in the highest-value-added sectors of the economy. I emphasise that point because some public debate on the Northern Ireland economy suggests that, if the politicians were to reach a political settlement and Ministers and Departments were to sort out public policy, everything would simply fall into place. The business sector has a dynamic role to play, which, coincidentally, is reflected in an article in today’s ‘News Letter’ by Frank Bryan, Chairman of the Institute of Directors, where he balanced the three legs of the stool very well. Business also has a job to do.

The problem with our economic structure is illustrated in slide 8; the slide is a little complicated, but the basic message is clear. Northern Ireland is under-represented in business services, in the finance and communications sectors, which, typically, deliver high-value-added and high productivity. Conversely, Northern Ireland is over-represented in construction, agriculture and public services, which is why the rate of economic growth and GDP per capita is not as high as we would like it to be.

Slide 9 demonstrates another problem, which was mentioned by John Simpson. Northern Ireland has a disproportionately high level of economic inactivity in the working-age population. Indeed, we cannot even hide behind the UK average. When the UK is disaggregated into its constituent regions, Northern Ireland has, by some degree, the highest levels of economic inactivity. Not only does that impose significant costs on the economy through the social security system, but it represents a potential loss of productive capacity. Some people could contribute more actively to output, especially at a time when the labour market is tight. During John Simpson’s evidence session, the subgroup touched on the fact that Northern Ireland imports foreign labour for tourism and the construction industry.

The subgroup’s terms of reference also refer to fiscal incentives being used to encourage foreign direct investment (FDI) and indigenous development. The key points are shown in slide 11. FDI firms in Northern Ireland have higher productivity rates than indigenous firms. That is not a criticism of indigenous firms or their employees: FDI firms are larger, invest more heavily in technology and have management practices that are more advanced by virtue of their size and sophistication.

Also, when FDI firms come to Northern Ireland, they tend to operate in sectors with higher value added and which have the most going for them.

Invest Northern Ireland (INI), which attracts criticism from time to time — and I know that Leslie Morrison has been a witness for this subgroup — has been relatively successful in attracting FDI to Northern Ireland. That success is because INI seeks to do its job professionally and because Northern Ireland has been, and is still, permitted to offer slightly higher rates of support to FDI firms.

As the subgroup will know, Northern Ireland and Invest Northern Ireland inevitably tend to suffer in comparison to the Republic of Ireland. However, the same could be said about virtually every region of the European Union. The Republic of Ireland has been uniquely successful in attracting foreign direct investment. The comparison between Northern Ireland and the Republic of Ireland is relevant but can be harsh given the differences between the two jurisdictions.

The debate on fiscal incentives has focused largely, but not exclusively, on corporation tax and particularly on the comparison of the headline rate with the Republic of Ireland. It is worth noting that although the UK’s headline rate of corporation tax is 30%, SMEs pay the 19% rate, and John Simpson hinted at that earlier. The vast majority, somewhere in excess of 70%, of firms indigenous to Northern Ireland fall into that category and therefore pay corporation tax at 19%. Looking at the headline rate comparison does not tell the full story. When effective rate comparisons and all relevant considerations are taken into account, the gap still advantages the Republic of Ireland. However, the gap is not as wide as when simply looking at the two headline corporation tax rates.

R&D tax credits are already available throughout the United Kingdom. The Economic Development Forum (EDF) commissioned research on whether higher rates of tax credits would have a significantly positive impact on the Northern Ireland economy. It is fair to say that the results were interesting but not over­whelmingly positive. There is some evidence that small firms in particular are simply not attracted to the application process for tax credits, which they find slightly intimidating. There is, therefore, still a preference for grants over tax credits, even for R&D firms. It was, therefore, not obvious that even if higher tax credits were available in Northern Ireland, they would have a major transformational impact on the economy. The Department of Finance and Personnel (DFP) is still in discussion with the Treasury on that matter. The research has been made available to DFP, and it is exploring the potential of tax credits with the Treasury.

Slide 13 of the presentation relates to the third element of the subgroup’s terms of reference: a positive economic package and how that might be delivered. I place particular emphasis on the second part of that sentence. This subgroup has already taken evidence from the Northern Ireland Business Alliance, is due to hear from the Industrial Task Force and has probed John Simpson on fiscal incentives etc. DETI has also been talking to those agencies, which are either collectively or individually represented on the Economic Development Forum.

It is worth reflecting on the context in which an economic package would be proposed, if that is what the subgroup is going to do. First, to make an obvious point, Northern Ireland is part of a unified taxation and public expenditure system, with only local taxation subject to variation.

Secondly, Northern Ireland public expenditure remains relatively high compared to the UK average. Our argument has always been, and will continue to be, that that reflects higher levels of social and economic need in Northern Ireland. Therefore, the higher level of per capita expenditure can be objectively justified.

It is worth reminding ourselves, however, that we are no longer at the very bottom of the UK regional economic league; we are third from bottom. Those factors are likely to shape the UK Government’s view — from a London perspective — of any proposals that are made.

Finally, at the session at which Leslie Morrison gave evidence, Mitchel McLaughlin may have made the point that, if regional tax variations are being contem­plated, there may be an EU state aid hurdle to surmount. I think that there was a similar case in the Azores, but I am not intimate with the detail.

I laboured those points a little, because when you read the third criterion in the subgroup’s terms of reference, the issue is not only how a package might be structured but how it might be delivered. There is both a political test and a technical test to be met. You must clear a political hurdle with the UK Government when you argue that Northern Ireland should be in the unique position within the UK of being granted such a package. You might also need to look at technical issues. If variations in corporation-tax rates are granted, how do you stop people from relocating from one part of the UK to this part of the UK, simply to avoid tax?

Assuming that those hurdles can be overcome, we would like to see the package constructed around the four key economic drivers that were identified in ‘Economic Vision for Northern Ireland’: innovation; enterprise; skills; and infrastructure. Members are obviously familiar with their importance. Therefore, the greatest benefit to the Northern Ireland regional economy would be for any package to be built explicitly around those four drivers.

The final slide is a bit narrow, in that it focuses exclusively on DETI interests. As part of any wider package that might focus on the four drivers, DETI will promote high-quality investment through Invest Northern Ireland, improve telecommunications, develop the energy market and invest in tourism, particularly in product development. They are services that would be of some value.

I just wish to emphasise that that is not the Department’s final word on the subject, or even its most important word. If an economic package for Northern Ireland is to be developed, it should be broader than what is outlined in the last slide and should identify, for example, the components that relate to skills and economic infrastructure. The former falls more into DEL’s remit and the latter more into DRD’s remit.

I have given a very broad and quick response to your terms of reference, Chairman. I hope that it has been of some help. We will do our best to assist the subgroup further by answering its questions.

The Chairman (Mr Wells): It is also a very well targeted response. The subgroup appreciates that you have homed in on its three criteria. Various members have asked to speak, but I will give priority to the left-hand side of the room, which asked the tail end of the questions to the previous witness.

Ms Gildernew: I am not fixated with FDI. That may be due to the fact that I represent Fermanagh and South Tyrone, where we have not seen an awful lot of it. It is important that we see more support for indigenous companies that provide sustainable employment. Mr Quinn, you glossed over the fact that FDI does not tend to stick around for ever. That fact needs to be acknowledged.

How are you engaging with other Departments in the North, such as the Department of Education and the Department for Employment and Learning, and with Departments in the South to try to turn around economic inactivity? The fact that we have the highest levels of economic inactivity is a damning indictment of us all. Some of that may be down to areas such as Strabane, which was considered an economic black spot, but there are many economically inactive people in areas where there is employment.

The Strategic Investment Board’s investment delivery framework states that one of its priorities is a society based on partnership, equality, inclusion, regional balance and mutual respect. To what extent does that factor into your work?

Your tourism slide referred to investment in signature projects. Has the Ulster Canal made it onto your list of signature projects? As a cross-border infrastructure investment that will eventually link Coleraine with Limerick through our inland waterways, it is a huge project. What is your thinking on that?

12.00 noon

Mr Quinn: I will kick off and my colleagues will come in as necessary. I would like to make a point about economic inactivity. One of the reasons that Northern Ireland has a high number of economically inactive people is that many of our people are in full-time education. It is not all bad news. Nonetheless, I agree with you that it is a significant problem for us as a regional economy.

Ms Gildernew: You also heard John Simpson speak about children in primaries 1, 2 and 3 who were already showing signs of being economically inactive. That needs to be addressed. We cannot gloss over the huge problems in our education system and in our communities that lead to such economic inactivity.

Mr Quinn: You asked what we do to connect with other Departments. You probably realise that the Department for Employment and Learning has the policy lead in this issue and that it has its hands on most of the policy levers. The Department for Employment and Learning, Invest Northern Ireland and the Department of Enterprise, Trade and Invest­ment have standing liaison meetings. At our meeting last week we considered the supply of people with information and communication technology (ICT) skills to the Northern Ireland labour market, although I realise that that may not be germane to your question. I am glad to say that we received a very positive, practical, problem-solving response from the Department for Employment and Learning.

There is at least a mechanism to ensure that policy and service delivery connections exist across the board.

Mr Wilfie Hamilton (Department of Enterprise, Trade and Investment): You are absolutely right to say that we need to do much better. So much of our economic inactivity is related to a lack of skills and education — many people do not seem to have the skills to get into the labour market. That is why the economic vision refers to going back to the primary education curriculum and building up from there. We need a coherent approach; if we do not have one, we will fail.

Through measures such as exchanges between the Department of Enterprise, Trade and Investment, the Department of Education and the Department for Employment and Learning, we have tried to build a sense of economic enterprise into the curriculum. That is our focus. As part of our work on North/South economic co-operation, we have examined the issue with the Department for Employment and Learning and the Department of Enterprise, Trade and Employment in Dublin. There are important lessons to be learnt, because there are serious skills shortages in our economy across the board, North and South.

That is why economic inactivity is highlighted along with low productivity as being the two big curses that hold back the economy and why tackling economic inactivity is central to the economic vision. The economic vision centres on the work of several Departments, because we need a coherent approach.

Mr Quinn: I have two quick points. Some of Invest Northern Ireland’s programmes reach directly into schools. Invest Northern Ireland’s annual business and corporate plans also set testing targets for locating investment in New TSN areas. At 50%, 60% or 70%, the targets are high. There has been, and continues to be, a significant attempt to ensure that investment is spread in a balanced way. Think back to last December, for instance, when the Secretary of State announced a substantial industrial investment in Derry, of more than £20 million in Seagate Technology (Ireland) Ltd.

There has been an attempt to spread investment, but I take your point — recently a factory closed in Lisnaskea in your constituency. That is obviously a cause for concern.

Ms Gildernew: What are your signature projects in tourism?

Mr Quinn: The direct and candid answer to your question is that the Ulster Canal is not among the six listed signature projects; there would have to be a change of policy in the classification to include it.

The Ulster Canal would involve a significant capital investment, which could be upwards of £60 million, perhaps even into three figures. That would be an extensive capital project, and even if the policy classification were changed, there would still be the issue of budget affordability.

Mr Hamilton: The Ulster Canal has been on the agenda for several years on a cross-departmental basis. The figure that I have seen was much higher than £60 million. It depends on how you approach the project — a start could be made and the project could be tackled on a modular basis. It is being talked about, but it has not been included in the tourism signature project.

In spite of what John Simpson may have suggested earlier, the tourism programme is a genuine attempt to produce a coherent framework. We have said that Northern Ireland has not invested in its tourism product for a very long time, for obvious reasons. In situations where European funding has been available for projects, private promoters have not come forward, have withdrawn after having come forward, or have not met the timescales that they said they would meet because it is still a high-risk business. There is still a high degree of market failure. It is therefore important for us to promote tourism. However, the signature projects were a way of creating a ring of projects around Northern Ireland in order to make it attractive to the visitor, and they were developed as part of a coherent approach.

Dr Graeme Hutchinson (Department of Enterprise, Trade and Investment): A point was made initially about competitiveness and foreign direct investment. If FDI is coming to Northern Ireland on the basis of cost, firms will be footloose and will move quickly when costs rise, which will be to our disadvantage.

Evidence points to the fact that if companies are locating in Northern Ireland or in any other region with a good skills base and where they can tap into local supply chains, the embedment in the local regional economy is much stronger. That applies in situations where firms are locating not for costs, but for skills and other wider value-added purposes.

Ms Gildernew: That is the reason for the impact on the textiles industry. Firms can find skills elsewhere if costs reduce on a global scale.

Mr McNarry: You are very welcome, Mr Quinn. I found your overview of particular interest. Conforming to the Chairman’s rule about three questions, I wish to raise a point of curiosity. In recent years, has a direct rule Minister ever asked you to prepare a response to similar issues such as those that this subgroup has put to you?

Mr Quinn: As I only arrived at the Department in January, I am ill equipped to answer that question, which is perhaps a crafty way of passing it to Mr Hamilton.

Mr Hamilton: Each time a Minister wishes to talk about a policy initiative or wishes to do something different, we have a situation such as this. Certainly, when it comes to budgetary responses, Ministers ask us for suggestions that we can put forward to the national budgetary debate. This situation is a very concerted form of that. The context is slightly different in that in this situation, there may be arguably a unique window of opportunity for politicians to come together and say, “We think that this would help Northern Ireland to make the transition from where we are now to where we want to be.”

Mr McNarry: I am conscious that this may be unique, but I would have thought that a Minister would be doing the obvious in addressing similar points. Therefore, in light of what Mr Hamilton has said, is it possible that the subgroup could see some papers on your responses to the Minister’s questions similar to the ones we are asking? The reason that I ask that is that we rely on a Minister to bat for us in the Budget. I do not believe that direct rule Ministers do bat for us, but I am open to seeing the evidence that they have done so.

Moving on from that, if a Minister were to have asked you to address the three issues, would you have given the same presentation that you have given to the Committee? This is a terrible presentation, and you have not backed it up. The arguments that would be valuable to this subgroup seem to be very weak.

This subgroup is charged with reporting to the Preparation for Government Committee, which is likely to encourage an Assembly debate as a result of that report. Is it possible — and I am sure that it is — for you to present some written arguments, particularly on terms of reference 2 and 3, that would helpfully contribute to the subgroup’s report to the Committee? That would be valuable for any Assembly debate.

Written arguments would assist the subgroup in making its report, which will be recognised and, it is hoped, adopted in potential negotiations between the parties, individually and perhaps collectively, and the Government. Those negotiations will particularly focus, as I am, on extracting an economic package that will benefit Northern Ireland.

I would have hoped that you could have backed up your arguments. Your presentation addressed terms of reference 1 and 2 in relation to the economic package. I appreciate that you have only been with the Depart­ment for a short while, Mr Quinn, but your predecessors would have assisted Ministers in negotiating budget allocations for years. I would have hoped that your presentation would have reflected that and that you would have given the subgroup some idea of the argu­ments that departmental officials have made to Ministers.

The Chairman (Mr Wells): I am having difficulty in identifying your question.

Mr McNarry: The question is whether the Department can present arguments, particularly on terms of reference 2 and 3, that would be useful in extracting an economic package to benefit Northern Ireland.

Mr Quinn: I do not want to duck the question simply because I arrived at the Department in January. Looking back over my longer career in the Northern Ireland Civil Service, when I worked in the Department of Finance and Personnel, I regarded it as part of my job, quite frankly, to extract moneys from the Treasury over and above the product of the Barnett formula. We were successful in that for years, so there was never any lack of willingness.

The Peace programme benefited from 100% additionality from the European Union, including the co-funding element from the UK Government, and the Chancellor’s package of 1998 provided capital allowances, et cetera. I am afraid that I must take issue with Mr McNarry about there being a lack of enthusiasm.

Mr McNarry: I did not suggest that there was a lack of enthusiasm; I do not see the arguments — that is what I am seeking.

Mr Quinn: We are in a slightly awkward constitutional position, in that we work for Ministers, and you are asking for arguments that will be put to Ministers.

The Chairman (Mr Wells): To be fair to the Department, it cannot be seen to be a cheerleader for a change in policy, which is what you are asking them to do, Mr McNarry.

Mr McNarry: With due respect, I am asking the Department to present some evidence where a Minister has been the cheerleader for Northern Ireland in extracting finance and making arguments for Northern Ireland. I think that the public will support me when I say that there is no evidence of that, but, if there were, they would like to see it.

Mr Hamilton: We normally deal with public expenditure through spending reviews. In that situation, Northern Ireland Ministers negotiate, as Stephen said, for the best deal possible for Northern Ireland. That is what we are talking about, and that is the context in which the Department works. We continually negotiate financial packages every year. That is part of the normal process and that is how it works everywhere — everybody is doing the same thing.

As far as this case is concerned, when the Northern Ireland Business Alliance and the parties met the Department to talk about a package, it was a different scenario in that the package recognised the circumstances of Northern Ireland and what might be done to help Northern Ireland establish itself and go forward. The difference was that this was not the normal spending review process.

The Secretary of State has said that he wants to hear the views of the political parties, and the Chancellor has offered to engage on the issues. That is where the slight difficulty lies for the Department in constructing an agenda that is taken up with London. The Department is happy to assist the work of the subgroup in whatever way it can, but it would be slightly awkward for the Department to create the agenda.

Mr Quinn: The subgroup has done the right thing by inviting the Northern Ireland Business Alliance, the Industrial Task Force and people such as John Simpson for their views, because they are in a position to give you advice, whereas we are constitutionally constrained. I am sorry about that, Mr McNarry; it is certainly not a lack of co-operation.

Mr McNarry: I understand your position fully. However, if the subgroup could see some evidence of what the Minister asked when dealing with the same questions, it would be helpful in constructing a process for the future.

12.15 pm

Dr McDonnell: I hope that I can be quick. I am returning to the question that I asked John Simpson, which concerned funding for R&D and the development of new technologies. I believe that value-added, high-wage jobs will come from the universities in those areas. Which Department is responsible for funding and promoting R&D? Is it DETI or DEL? Which Department is responsible for working with organisations such as QUBIS Ltd and UUTech Ltd? Does their funding come from DETI or DEL? In other words, where does the rubber hit the road, because I am deeply disappointed that Government are not investing in QUBIS Ltd or, to a lesser extent, in UUTech Ltd? They are starved of funding. Government can pay all the lip service they like to the need for more R&D, but those are the flagship R&D bodies operating at the cutting edge. If they are dying or withering or not working, nothing else will work.

Mr Quinn: I agree absolutely that Northern Ireland could do with more companies such as Andor Technology Ltd. It is a flagship company, and DETI would like to see many more like it. It is worthwhile recording the point that business expenditure on R&D tends to have a more direct and positive impact on the regional economy than university R&D. That is not to decry university R&D, but it tends to be further away from the market.

Dr McDonnell: We quite agree with you.

Mr Quinn: I made those two observations by way of background.

Mr Hamilton: You are absolutely right to say that this is a rich area for change. Northern Ireland needs to do better. Every region in the world feels that it should be doing better, so the question is how can distinctive change be brought about in Northern Ireland. It goes back to what we said earlier about the need to be more coherent. It is all to do with how science and similar subjects are approached in schools and universities, and how university research is taken forward. Are there enough PhD students? Are there enough researchers in universities? How can that research be commercialised? How can things be improved? Is additional funding needed to make it possible to develop more companies such as Andor Technology Ltd?

Funding is split between a number of sources. DETI and DEL have a role in it, but other Departments fund research also. For example, the Department of Health, Social Services and Public Safety funds research into health technology. I suspect that it would be easy to make a case for additional funding for R&D. Of course, there may be limits — it must be sensible funding. DETI is involved in the US/Ireland concordat for research, which is an important development. It is in its infancy. Where is it going to go?

There is both a qualitative and quantitative dimension. Dr McDonnell is right to highlight the issue, and I suspect that if DETI were to bring forward new suggestions, research and funding would be an area on which we would want us to focus.

Mr Quinn: Invest Northern Ireland’s budget for innovation, which includes provision for R&D, is approximately £40 million. That might be an area where more could be done. However, realistic figures are in the tens of millions, not double or treble that. There is always the risk of money chasing projects, which can lead to compromised quality.

Mr Hamilton: Changes such as those would be important to the R&D sector, where DETI has been spending approximately £9 million or £10 million on the Higher Education Innovation Fund (HEIF) and approximately £5 million on the Proof of Concept programme. Even if that were doubled, it would not be a huge amount of money, but it is hugely important in this context. As I say, it is all relative to public expenditure priorities.

Dr Hutchinson: The problem is quite easy to under­stand. I concur that R&D and innovation are the most important drivers for value-added activity. The problem is that Northern Ireland has so few firms conducting R&D. The Department carries out an R&D survey and receives little more than 300 returns. That is the number of firms that are serious about R&D. We must widen the base and encourage those firms that are already carrying out R&D to do more. We are working with the Economic Development Forum, and collaboration seems to be an issue. Northern Ireland is an SME economy. We need to hook up with further education rather than higher education and try to get commercial­isation of R&D to the marketplace.

Dr McDonnell: If all those things were to be done, there is still the eye of the needle — that is, we are not investing in the narrow alleyway from university out to the street. QUBIS and UUTech are not high enough priorities. They are like the tails of the universities.

Mr Hamilton: There is no doubt that funding is an issue. If funding were to be increased, we could probably do more across the board, not only in the Department of Enterprise, Trade and Investment. Pre-seed funding and such matters that are related to the early stages of a process are particularly tricky.

Dr McDonnell: I am talking about core funding for QUBIS rather than funding per project. Does core funding come from DETI?

Mr Quinn: Core funding for universities comes from the Department for Employment and Learning.

Dr Hutchinson: Higher education R&D is higher in Northern Ireland than in other parts of the UK, and indeed Europe. Business expenditure on R&D is lower in Northern Ireland than anywhere else.

Mr Hamilton: The economic vision wants the business community and the political parties to sit down with Government and tell us what we are doing well with skills or innovation, where the gaps are, and how those matters sit in relation to one another. Northern Ireland is a small region, and that is a key issue. If you had representatives from the two universities, from two or three Departments and two or three key individuals from the private sector, you could identify your policy gaps and take action. The fact that the region is small should be decisive in relation to our responsiveness.

Mr Ford: I want to follow the R&D point slightly further. You have highlighted the low uptake of tax credits on R&D, which is a function of our SME economy. Whose duty is it to build networks that will promote collaboration and encourage small businesses? If we assume that there is not much footloose FDI floating around that is available to us — other witnesses have told us that we must grow our existing firms — one option must be to grow at the micro level.

Mr Quinn: Invest Northern Ireland is the leading agent on that issue. R&D programmes such as Compete are designed to encourage the quantity and quality of R&D in Northern Ireland. It is an uphill struggle because of our SME structure. SMEs see R&D as a cost rather than an investment, and they are reluctant to become involved. Smaller firms are reluctant to engage in the bureaucracy and red tape of applying for a tax credit. Northern Ireland firms are more grant-oriented than tax-credit-oriented.

Mr Hamilton: That consideration is not unique to Northern Ireland. It is a complex process. We tend to talk about R&D or innovation on that side of the spectrum. Michelle spoke about our indigenous businesses, and process innovation is hugely important. It may well be that we need to make small companies work better, help them to change their processes and see market opportunities.

Therefore it is important that we do both in the spectrum of innovation. Research and development and process innovation are necessary to make them better companies.

Mr Ford: May I ask a further question, since I did so badly last time.

You said that the employment structure, specifically in agriculture, is a low value added, but significant, section of Northern Ireland’s economy. The advantages that we have in certain aspects of agriculture may be crucial in Europe in future — John Simpson highlighted our ability to turn rain into grass. Obviously there is the question of adding value through microfarm diversification, but significant work is also necessary to add value to agricultural produce at the macrolevel. Whose function is it to carry that through, and what ideas does the Department have?

Mr Quinn: The interest in and locus of that subject cross departmental boundaries. Invest Northern Ireland and DETI have an interest in the food sector, as does the Department of Agriculture and Rural Development (DARD). Some time ago DETI and DARD set up the Food Strategy Implementation Partnership (FSIP), which has produced ideas about how best to develop the food sector. The Departments are thinking about those at the moment. However, improvements have been made in the meantime. There is a flow of support from Invest Northern Ireland to food sector companies in Northern Ireland.

Mr Ford: Can we expect the strategy to be implemented soon?

Mr Quinn: Yes. That was the bit of John’s presentation that raised my blood pressure a wee bit.

Mr Hamilton: A great deal of work has been done on the strategy. There is, of course, an organisational element to it, but many individual recommendations have been or are being implemented.

Mr Weir: Mr McNarry mentioned the patchy performance of some direct rule Ministers. Does the lack of priority given to economic activity and develop­ment in Northern Ireland go deeper than those performances? I do not mean to criticise our devolved Ministers, but when direct rule Ministers or Northern Ireland Executive Ministers get additional money through a block grant or some other means, it is inevitable that healthcare, education and infrastructure proportionately become top priorities. I suspect that the same might happen under a new Executive. In the previous devolved Administration, DETI received a decreased percentage share of the Northern Ireland budget, principally because more money went elsewhere. In that case, will we have to give greater priority in our own minds to economic activity?

In answering my questions, perhaps you could produce figures or graphs for us later rather than give on-the-spot answers now. You gave us the regional inactivity rates; however, if we wanted to compare Northern Ireland with other regions, it would be useful to have regional comparative statistics between working-age populations — who are an essential pool of people — as a percentage of the population as a whole. Do we have a larger ageing population than other areas to support or do we have a larger school-age population? Such statistics would be helpful, because they would give us a snapshot of the overall pressures.

You gave figures on economic inactivity. The previous speaker mentioned a gap of about 6%. Sixty per cent of that gap comprises the high percentage of people who are on incapacity benefit.

You have identified one of the other factors — proportionately higher numbers in full-time education — but have not given statistics for it. I do not expect it today, but can you provide an estimate of what the gap is? If 20% of the lack of skills base is because of full-time education, we will not be particularly worried, but I would appreciate the statistics.

12.30 pm

You mentioned liaison with DEL. Partly provoked by John Simpson, I wonder to what extent there is joined-up thinking and joined-up activity within the Government on economic matters. There is a tendency — or at least this is the impression that is given to the outside — for Government Departments to operate with a silo mentality, wary of too much contact with other Departments, because they do not want to appear to be empire building. However, there is a range of issues that have strong economic development impacts on other Departments. You mentioned that with regard to the skills base.

John Simpson mentioned one other implication of that. He was critical of the roads announcement, on a broad level, because he did not see a co-ordinated economic approach in it. What level of input did DETI have into decisions, for instance, on the economic impact of regional infrastructure? Perhaps you could outline the levels of structured liaison and joined-up thinking on economic matters between Government Departments, outside ministerial level.

Mr Quinn: I agree with your first and most general point. Many of you will have experience of budget management from the time of the Assembly. Health and education are massive numbers and massive weights, and if they are given priority it is very difficult to look after everything else. You are right.

One consequence of that — whether it is attributable to direct rule or devolution — is that the proportion of the Northern Ireland total budget allocated to DETI was reduced. There was a particular impact on the Invest Northern Ireland budget, which was reduced by £40 million or £50 million. Alongside that was the concordat arrangement, which allows Invest Northern Ireland to come to DETI — and we then go to DFP, and they go to Ministers — to see if we can rectify or adjust the budget reallocation on an in-year basis.

You are absolutely right; there may well need to be a positive strategic decision taken about the priority to be given to economic development. In service of this particular set of direct rule Ministers, DETI was one of the Departments that did not have to offer options for reductions in the last budget round. DETI did not have to put its allocations at risk to the extent that some other Departments did.

Dr Hutchinson: The point on inactivity is well made in terms of giving a breakdown to see what is causing the high levels of economic inactivity. We can give data on people receiving sickness benefits, disabled people, students, the proportion that are retired, and the proportion that are raising families and staying at home rather than going into the workforce. We can provide data for Northern Ireland vis-à-vis the UK as well.

Northern Ireland’s working-age population as a proportion of the total is higher than elsewhere in the UK, and that partly reflects the fact that we have got plenty of students flowing into the labour market. Therefore, the message about economic inactivity is not all bad: 25% of the economic inactivity is due to the fact that we have a higher proportion of students.

Mr Quinn: With regard to economic co-ordination, John Simpson had something to say about the roads announcement. However, I look back three or four years to when the regional transportation strategy was being devised — that was during the time of the devolved Assembly. That was a heavily consulted strategy, and the political parties, Departments and the business stakeholders all had an opportunity to influence that.

That set up the essential anatomy of Northern Ireland’s roads programme. The investment strategy for Northern Ireland pushed the resources envelope out a bit for that, and some things got added in such as the dual carriageway between Derry and Dungiven. Yesterday the envelope may well have opened a little bit further. I noticed the mention of a bypass for Enniskillen, my home town.

Mr McNarry: And Strangford was taken out.

Mr Quinn: It is quite important to remember that these things are being dealt with within a pre-determined strategic framework. It is not a matter of making free-standing decisions.

Mr Hamilton: In my view co-ordination has been better since the Assembly because it has been on genuine issues. Co-ordination for the sake of it does not work, but if it is genuine and with common cause it does work. Engagement between the Economic Development Forum (EDF), political parties, business leaders, various stakeholders and the Government, saying what works and what does not is hugely important. I do not think that stakeholders understand the nature of that. In a sense they have complete access to everything that the Government do just as we have access to what the private sector does.

I understand what John Simpson was saying about strategies, people talking about what the strategies are to be, and all the focus being on creation. The focus around the vision is about moving away from creation and taking it on to actions. Through the EDF subgroups, groups led by external stakeholders will be working out the three or four things that they need to do on innovation in the next six months to make things better.

Once those are done the groups can bank them and move on to the next lot. This is very much a rolling process around actions. Political parties attend every other meeting to keep them involved in the process. There is a fair degree of transparency and partnership in that, and that is because we want to make Northern Ireland responsive. The focus is not on some strategy that is sitting on a shelf. We are long past that; we need action.

Mr Dallat: Leading on from the talk about co-ordination and so on, the disjointed way in which Committees worked was very obvious in the last Assembly. It was difficult to reference crosscutting issues. Only if you were on every Committee would you have discovered that everything was bogged down in the subject of literacy and numeracy. The Public Accounts Committee was bogged down in it as were the Department of Enterprise, Trade and Investment and others. There did not seem to be any clear mechanism to deal with it.

Then there were more basic problems: the Department of Agriculture and Rural Development was heavily involved in promoting business in rural areas while the Planning Service was killing it off. A local Assembly should have some mechanism to enable it to pick up on such issues and get to work on them quickly. Otherwise there will be no obvious advantage in having a regional Assembly.

What help, materials or research we could have from officials on that point? Strategies and masterplans are fine, but until local politicians sit around a table and hammer them out —

Mr Hamilton: That is the point. Strategies could have had a blunderbuss approach with forty or fifty things in them, all with the same priority level. We need to break through that. Taking the EDF innovation subgroup as an example; it is chaired by David Dobbin, and he is in the business community. David is looking across everything that is happening in innovation and wants to identify six things that must happen soon. We then have to put a named person against each of those things with responsibility for delivering them.

Alongside that we have gone very public on research. As a result of the change and since the Assembly and Invest Northern Ireland, DETI is trying to be much more representative of the whole economy rather than just, for example, the sectors in which LEDU or the IDB operated. We did not obviously support all sectors. We are trying to commission research that is of genuine importance across the board. We are trawling on the research that we should do and terms of reference for it through the EDF. For example, we need to understand what is happening in manufacturing, and we need to understand how to move through private services.

We are therefore trying to focus on an agenda. As you say, Mr Dallat, we must create the right agenda, one that will include all the items that stakeholders believe are important. For example, the Skills Strategy, which covers a very big and diverse area, is just one of the strategies that must be examined most closely in the next six months to see if progress is being made. We must do that across the board.

Mr Dallat: Chairman, I am sorry for frustrating you, but I will be brief. The problem has been compounded by the number of workers who have come to the Province and whose skills are totally mismatched to their jobs. Some of them have extremely good academic qualifications but are doing jobs that do not require such qualifications. That is certainly not benefiting the economy, so the problem has become a little bit more international.

The Chairman (Mr Wells): Two qualified doctors from Slovenia are gutting fish in Kilkeel, so that gives some indication of the situation.

Three members would like to ask questions. Mr McElduff was brought in at end of the last question-and-answer session, so I will allow him his two questions. However, I will ask Mr Neeson and Dr Birnie to do a double act — each of them can ask the Permanent Secretary one question. This is all good stuff and it is relevant, but we are running very tight against our deadline.

Mr McElduff: Thank you, Chairman.

First, I would like the departmental officials to comment on the extent and character of current North/South activity in economic development.

Secondly, is there any real commitment to balanced regional development in economic development? Slide 11 of the presentation lists the number of inward investment projects secured in 2005-06, and the number of contestable FDI projects that came here in 2004-05. Of those projects, how many have been located in Counties Tyrone and Fermanagh?

Mr Quinn: I will answer your question on North/South co-operation first, and then ask Mr Hamilton to elaborate. My experience is that North/South economic co-operation is already very extensive. One example is physical economic infrastructure; in particular, roads. The Roads Service and Louth County Council have a joint contract to build the Newry-Dundalk element of the Belfast-to-Dublin road. Thus a project will be undertaken if there is a clear business reason for it and if it will mutually benefit the two areas. A second example, of course, is the development of the City of Derry airport, which has been co-funded by the Northern Ireland budget and the Republic of Ireland Government. Both projects are direct, concrete examples of active economic co-operation.

A third example is the trade delegation to India, which was led by the Taoiseach and on which Northern Ireland firms were represented. The Secretary of State travelled to India subsequent to that visit and he repeated the offer, but it was just a little bit too soon after the Taoiseach’s visit, so he was not able to get a positive response. Such activity, which enables people to extract direct positive business benefits from co-operation, is being carried out.

I will ask Wilfie Hamilton to speak next; he deals with his counterparts in Dublin on the elaboration of North/South economic co-operation, under the auspices of the British-Irish Intergovernmental Council.

Mr Hamilton: A huge amount of work is under way, even in new areas. The key, of course, is mutual benefit. There is absolutely no point in co-operation if it is not for mutual benefit. Irish colleagues would certainly agree with that and it lies at the heart of everything that we are doing. The British-Irish Intergovernmental Conference communiqué identified a number of areas in which Ministers have already agreed to take forward further co-operation. Stephen mentioned trade missions. It is sometimes hard for countries to undertake such missions on their own, so a joint visit is often more economically credible and viable. We have discussed sharing offices in countries overseas where Northern Ireland has no representation: Northern Ireland business people could go to such countries and use the Irish facilities. Other marketing aspects have also been considered. The proposals identified in the communiqué are really only the first fruits of that work. The idea is to work towards the publication of a full report in October.

In addition to an overseeing group comprising officials from both jurisdictions, there are seven businesspeople, including the two joint chairpersons of the North/South Round Table, the two joint chairpersons of the Confederation of British Industry/Irish Business and Employers’ Confederation Joint Business Council, and the chairperson and deputy chairperson of InterTradeIreland. Sir George Quigley is also on that committee.

In this respect, we encounter some of the difficulties that we discussed with Mr McNarry. Whereas officials and agencies can look at all the things we do, there may be issues that the business community wants to look at but which lie outside our remit, because they are reserved matters or whatever. Consultants have been appointed to help with the final report in October. The areas outlined are in the communiqué from the last BIIC. We are working towards a fuller report in October, but it is extensive.

12.45 pm

Mr Quinn: May I pick up on Mr McElduff’s regional development point? I do not know the answer to his question about Fermanagh and Tyrone, but we will ask Invest Northern Ireland whether they can advise us on that. To generalise, and it is a point that I made earlier, the Invest Northern Ireland business plan targets include a commitment to put a high proportion of industrial investments in New TSN areas. Those targets are routinely hit. I do not want to anticipate the answer on Fermanagh and Tyrone, but I doubt if it will be as impressive as the answer might have been had you asked about Derry or somewhere else.

Mr Hamilton: By and large, businessmen have to want to invest. You cannot deal with them if they do not want to invest there.

The Chairman (Mr Wells): Finally, a question each from Dr Birnie and Mr Neeson.

Dr Birnie: On the issue of tax credits versus corporation tax, you mentioned some research on low uptake among small firms. What ongoing or additional research are you doing on this? It is a crucial question. Are you confident that private sector investment will be responsive to these incentives? There has long been a debate as to whether businesses here are out to maximise profits, or whether they stop growing when they reach a target profit. If the latter, they will not respond readily to a change in their net profitability.

Mr Neeson: It is apparent this morning that there are too many Government Departments in Northern Ireland. That is not a criticism of co-operation between you and the other Departments.

I want to deal with fiscal incentives. For a long time we have been trying to deal with the grant culture; is that still an issue, and to what extent have other major incentives replaced that?

Dr Hutchinson: The research found that the prospect of tax credits was having limited impact on increasing levels of R&D. That is only one element of the research; we are completing other research directly on FDI. We are looking at modelling the impact on the economy of creating 3,000 high-quality jobs per annum until 2015. We are forecasting where those jobs should be located and the impact on wages and on wider productivity. A wider FDI research project looks at the changing nature of FDI. It is not just manufacturing, it is becoming more orientated towards the service sector, which is not capital intensive. So there are issues for the Government support package for non-capital-intensive FDI.

Dr Birnie’s other question on enterprise is critically important. Northern Ireland has low rates of business start-up, and low rates of business growth. There seems to be a ceiling for business growth. They service the local economy, but do not look for foreign markets to export and penetrate. We are looking at the reasons for that and what can be done by Government to make businesses grow more.

Mr Quinn: A PricewaterhouseCoopers (PWC) report, which was reported in one of the local papers today, made exactly that point. Northern Ireland firms tend to regard themselves as mature when others would say that there was still potential room for growth, so they may well settle for certain levels of productivity and profitability.

Mr Neeson’s point about too many Departments echoes the words of the Secretary of State in the middle of July; to paraphrase him, there is unfinished business after the review of public administration (RPA), and the effects of the RPA will have implications for the departmental structure. Ministers will start to work their way through that as we go forward.

Mr Hamilton: The grant situation has changed dramatically, if we look at the average interventions and the range available. I suspect, however, that some would say that there is unfinished business; that there is still too much of that in Northern Ireland — people wanting to do something only if they get a grant for it.

Grants may well be necessary, and that is why we fought to have continued access to regional aid, which we were successful in securing until 2013. The key is that they must be the right grants in the right sectors for the right businesses. There is no point in getting just any investment. It must address what we need, add value in the right sectors, build clusters, or whatever.

We have also been pressing Invest Northern Ireland to diversify the range of products that it offers, to take more loans, and to take more equity. INI has told us that it would rather take a portfolio approach, and be able to look at investments across a range of activities. There are obvious difficulties with that because the public sector quite properly expects every single investment to work. Invest Northern Ireland would like to have dialogue about that to see if there was an approach that was more in line with our needs.

There is no easy answer to Sean Neeson’ s query. A great deal more needs to be done to help companies to help themselves and to internationalise, including export trade. We are making efforts to do more in that direction, again with our colleagues in the South, who face the same sorts of problems in many areas.

The Chairman (Mr Wells): Ladies and gentlemen, thank you. Having listened to the complexities of Mr Quinn’s comprehensive list, I should withdraw my comment that this matter is less complex than for DoE or DRD. It is clearly a complex and difficult Department to run.

Mr Dallat has to be away for 1.30 pm. Is everyone else available to complete the third session? Does anyone have any pressing engagements?

Mr McNarry: I have a problem.

The Chairman (Mr Wells): I wanted to make sure that we had at least seven members left.

Mr Weir: Could we finish at 1.30 pm?

The Chairman (Mr Wells): It will more likely be 1.45 pm.

Mr McElduff: The Sinn Féin commitment is to the end.

Mr McNarry: To the end of what, Barry?

Dr McDonnell: You are just new, and you are a troublemaker. [Laughter.]

The Chairman (Mr Wells): It looks as though we will be OK.

Mr Weir: Is David Ford coming back?

The Chairman (Mr Wells): No, he is not.

Mr Quinn: Before we conclude, I would like to leave you with a brief postscript. I have known John Simpson for many years, and I love him like a brother. [Laughter.]

The Chairman (Mr Wells): But —

Mr Quinn: He made a point about implementing strategies, and I agree with that. I have worked in several Northern Ireland Departments, and I am aware of the physical development that has taken place in this region in places such as Strabane, Limavady, the Comber and the Toome by-passes, on the Belfast to Dublin road and on the Westlink. There has been an explosion of investment in water and sewerage over the past two or three years, most if it, of course, resource-driven.

Coming back to DETI’s remit, the fact that Northern Ireland led the UK and perhaps even Europe in achieving 100% broadband access is an implementation achievement.

I take John’s point that it has taken too long to get the visitor’s centre at the Giant’s Causeway moving, but what got it moving was the personal commitment and endeavour of a senior civil servant. That person is not represented in this room this morning, so I am not claiming credit for it myself, but the Civil Service and Departments have some implementation achievements to point to.

Mr Hamilton: Those of you around the table who are former members of the Committee for Enterprise, Trade and Investment will know how difficult that was.

The Chairman (Mr Wells): We remember it well.

The Committee Clerk: You have undertaken to provide information on businesses in Fermanagh and Tyrone and on the demographics of inactivity rates and verification rates. You are also conducting research on the economic impact of FDI in different regions and on tax credits versus corporation tax. The subgroup would welcome an insight into that, within the time frame, if possible.

Mr Hamilton: We should have a chat about that, but we could drown you with paper.

Mr Quinn: We will take that request away and meet again to discuss it.

The Chairman (Mr Wells): Thank you, gentlemen. We are grateful for that useful presentation.

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

The Chairman (Mr Molloy): Good afternoon. I welcome Enterprise Northern Ireland (ENI) and thank you for attending at such short notice. After your short presentation, members will ask questions.

Mrs Ann McGregor (Enterprise Northern Ireland): I am the chief executive of ENI, and I have been with the organisation since its formation in 2000. Ken Nelson is the chairman, and he is also chief executive of LEDCOM, which is our local enterprise agency in Larne. Dr Nicholas O’Shiel is the vice-chairman, and he heads our policy group. He is also chief executive of Omagh Enterprise Co Ltd. I will provide a brief background to ENI and then talk about the important issues for the Northern Ireland economy.

ENI is an economic development agency. We focus on entrepreneurship, business start and business development across all sectors, and act as an umbrella organisation for 32 members. We lobby on their behalf and act as a policy voice for those agencies and for small businesses. There are over 5,000 tenants in enterprise agencies. Our objectives are to develop a cohesive organisation across Northern Ireland, delivering high-quality consistent services to small businesses. We also want to ensure that we can sustain that service at a local level.

ENI’s role is to increase the business birth rate. Northern Ireland has the second-lowest business birth rate in Europe, and that is a high priority. We want to sustain and develop those locally focused businesses that are developed through the sector.

We welcome the opportunity to contribute to the work of the subgroup. We will comment on all elements of your terms of reference, but the Northern Ireland economy is our key area of expertise and development, so we will probably focus most on it, if that is OK.

As I said earlier, our network consists of 32 independent enterprise agencies, and we are led by 330 voluntary directors, along with key influencers from local communities. Many representatives around this table have had interactions with enterprise agencies in the past as well.

1.00 pm

Enterprise Northern Ireland has a network of 200 staff, and all of its business advisers are independently professionally accredited, and have expertise in small business development. We have 2 million sq ft of property, including training and IT suites so that we can deliver a service at the front door. Local enterprise agencies are not core funded. Enterprise Northern Ireland pays for its own activities, and it also tenders for public service contracts and is paid on an output basis. Its funding does not come from the public purse as such, although much of its funding comes from Government Departments such as Invest Northern Ireland.

Enterprise Northern Ireland is the main mechanism for support at a local level. We work closely with Invest Northern Ireland, but we have an independent view and a specific focus on micro businesses. As well as representing that sector, we deliver programmes such as the Start a Business programme, which involves Northern Ireland-wide access to start-up support.

Enterprise Northern Ireland runs the Tradelinks and MicroTrade programmes, which we run on a cross-border and all-island basis. The MicroTrade programme runs in partnership with InterTradeIreland and the city and county enterprise boards, where we try to encourage cross-border linkages and trade.

The Tradelinks programme is more significant, supporting 600 small businesses to trade on an all-island basis, to increase their capacity and to grow as micro businesses. There is no Northern Ireland-wide programme to support existing micro businesses, so we are doing it on an ad hoc basis through those other programmes.

Enterprise Northern Ireland also has a loan fund and a social entrepreneurship programme. I will not go into the details of each of those programmes. We are also working to help micro businesses trade on an inter­national basis through a trade bridge programme supported by OFMDFM.

Enterprise Northern Ireland’s key area of success over the past few years has been the Start a Business programme, which has supported, through funding from Invest Northern Ireland and local councils, the delivery of 8,520 businesses in a four-year period, compared to its original target of 6,270. That is due to the centralised cohesiveness of the network, good systems and processes and good management information systems.

More than 36,000 people have participated in that programme, so if they did not go on to start a business, they did at least increase their capacity through training and networking with other individuals.

The programme has been reviewed independently and has come across as highly valued by participants. We believe that there should be an ongoing commitment to volume start-up, because, even taking dead weight into account — where people say that they would have started anyway — 2,000 new businesses have started with the creation of about 2,000 additional jobs. The impact on the community has been a turnover of between £70 million and £113 million. Each of those micro businesses created in the local community has an annual turnover of at least £60,000, and they are important.

Enterprise Northern Ireland is not saying that the Start a Business programme is perfect. It could be changed and developed to make it more flexible. At the minute, it is a standard programme with the same product offered to everyone. It could be redesigned to include more on exploring enterprise and developing businesses. Help such as grants could be skewed towards those who live in areas of neighbourhood renewal or in targeting social need areas. However, all in all, it is an important programme.

Enterprise Northern Ireland’s concern about the Northern Ireland economy is the fact that Invest Northern Ireland has a major focus on inward investment and support for technology-based business. That is laudable and important, but we do not believe that that provides a total solution to the Northern Ireland economy in terms of employability, peripheral areas or disadvantaged communities.

ENI is concerned that neither DETI nor Invest Northern Ireland have statutory responsibility for locally focused businesses. In an environment of budget cuts, it seems natural that this area may be given reduced priority and value.

In the Republic of Ireland, for example, the city and county enterprise boards have statutory responsibility for such businesses and a core delivery budget to support them. That situation simply does not exist in Northern Ireland. ENI strongly disagrees with the view that locally focused businesses will happen anyway and do not need support.

Mr Ken Nelson (Enterprise Northern Ireland): Thank you, Chairman and members, for the opportunity to be here today. ENI strongly emphasises that local business is an important part of the economy and is concerned that the priority given to support for local business may reduce. There is a fair amount of change in the offing, as all members know. There is the review of public administration and the implications of the change to seven, 11, or however many super councils.

Invest Northern Ireland is also changing its policies and has indicated that it may move away from supporting local businesses. The social entrepreneurship programme that Invest Northern Ireland has just announced will run for only two years. Although the social economy receives much attention and many column inches, tangible support given to the social enterprise programme and to social entrepreneurs is limited — and it is time limited. ENI is worried about where the policy vacuum will leave local businesses and social enterprises.

I noted and acknowledge Wilfie Hamilton’s comments about trying to encourage micro-enterprises to engage more in international trade. However, there is a big job to be done in building the capacity of local businesses before they can do that, and this is where local solutions and local support are needed. The networks and programmes in which ENI is involved can provide that support. We want such support to remain at the heart of the policy agenda on the local economy.

Dr Nicholas O’Shiel (Enterprise Northern Ireland): Thank you for inviting us here today. Following on from what Ken said, ENI wants to get across what it would like to achieve in Northern Ireland over the next 10 years and to stress the contribution that small businesses can make to developing the economy over the longer period of 10 or 20 years.

We were interested in some of DETI’s comments. Undoubtedly, Northern Ireland has the necessary Departments, organisations and strategies, but ENI can pick up on their implementation. We see ourselves as being on the ground and able to implement policies and strategies locally. The challenge over the next 10 years will be to get the Northern Ireland economy to where we all presumably want it to be.

Mrs McGregor: There is a strategy for accelerating entrepreneurship in Northern Ireland. However, our concern is that the strategy is not cross-departmental either in budget or in focus — and it should be. All Departments approved the strategy in principle but, from an ENI perspective, it feels as though they are still operating in silos and that Invest Northern Ireland is taking the lead in that area. DEL and DARD have a role to play, and the challenge is to integrate budgets and people to ensure that the approach is co-ordinated and that people are not cutting across one other.

ENI simply cannot figure out why no one has statutory responsibility for this sector and would encourage the Assembly to ensure that a Department is given such responsibility. ENI welcomes the transfer of power to local councils. However, we fear that because of the lack of transitional arrangements there will appear to be seven, or 13, or however many, approaches to entrepreneurship unless one Department has the overarching responsibility that will ensure a common approach to enterprise across Northern Ireland. ENI is also concerned that although power may transfer, the budget may not. How will local councils fund and support locally focused businesses as they go forward?

ENI is asking DETI to put a framework in place for entrepreneurship, which will be implemented by councils working in partnership with ENI and other providers.

We should be accountable to the Assembly for any agreed targets, and there should be common corporate provision. As I said earlier, 10 years ago there was an inconsistent approach to small-business support. A person who lived in Limavady might have received a grant of £500 but no training, a person who lived in Larne might have received £5,000 and training, and a person who lived in another area might have received only training. At some point, that scenario resulted in Northern Ireland having the lowest business start-up rate in Europe. We now have the second lowest, so we have made some progress. We are at least moving in the right direction. Our concern with the RPA agenda is that that momentum will be lost.

Mr Nelson: The DETI officials commented on the low business start-up rate. Although that has been a challenge for us all, it is important to note that businesses that do start up in Northern Ireland stay in business longer. The survival rate of business start-ups in Northern Ireland is much higher than in the rest of the UK. That is important to note, because it says something about the support that is in place for those starting a business. The challenge is to introduce more people to the enterprise culture, to help them to set up a business and to help that business to grow.

Mr Neeson: I wish to declare an interest. I am a member of the board of Carrickfergus Enterprise Agency Ltd.

Mrs McGregor: That ties in with my earlier comment. John, did you not have some connection to Coleraine Enterprise Agency at some point. No? [Laughter.]

Mr Dallat: Chairman, I want to ask a question.

Mr Neeson: First, I wish to congratulate Enterprise Northern Ireland on the success of its business programme. I am just concerned about the programme’s future. What will happen to it?

Secondly, you raised concerns about the loss of continuity of support in the run-up to the RPA. How can those concerns be dealt with?

Mrs McGregor: Somebody must have statutory responsibility for it, as I keep saying. We need to recognise the value of our locally focused businesses and to ring-fence some form of budget that will provide support. At present, support is of a stop-start, ad hoc nature. Consistent support and a consistent budget are needed. DETI, or someone else, must be responsible for an overarching policy framework and for ensuring that we produce good annual research through the Global Entrepreneurship Monitor (GEM) and that we go up the scale rather than down it.

Mr Nelson: Greater engagement is also required. Enterprise Northern Ireland has seen no evidence to date that the local economy is high up the agenda in either the work that is being done in the RPA process or in the preparation work for the launch of the RPA in 2008-09. Those who are preparing for the RPA should engage with ENI or others to ensure that local businesses get that support. I make that point to ensure that it is on the agenda at this stage, because surely a great deal of planning work and engagement are under way at some level. The economy should be part of that engagement.

Mrs McGregor: In our engagement with organ­isations such as the Society of Local Authority Chief Executives (SOLACE) and the Northern Ireland Local Government Association (NILGA), we noticed that there appears to be a great deal of focus on legislation and on its implementation in areas for which councils do not have power, even though they already have local economic-development powers. Therefore it appears that the issue is on the back burner. Suddenly 2009 will arrive, and we will be saying: “What are we doing about small-business support?”

Mr Neeson: It is important for you to know, Chairman, that there will be a shadow period. It is more likely that elections to the new councils will take place in 2008.

Dr O’Shiel: On the same point, we are concerned that, without statutory responsibility and without a commitment to and a profile of small businesses, budgets and resources for small businesses might get squeezed.

Moreover, if there is a transition of responsibility from Invest Northern Ireland to local councils, will adequate resources also be transferred? Will there be a time lag between the handover and the assuming of responsibility so that resources can be allocated and put in place? Small and local businesses would suffer if that happened.

1.15 pm

Mr McCausland: This is a very important sector. You mentioned the 32 local enterprise agencies across Northern Ireland and their engagement with local communities. There seems to be quite a variation across the local enterprise agencies in their engagement with local communities, their transparency and openness, and their contact with local politicians. Could more be done to encourage those aspects? Some local enterprise agencies are very good at engaging with their communities; in other areas, engagement does not happen at any significant level.

If we are to maximise the benefit of the local enterprise agencies for communities, we need engagement with the stakeholders in a community.

Mr Nelson: That is an interesting observation. I have just taken on the chairmanship of the organisation, and Nick has been vice-chairman for a couple of years. We have been working on quality development, which includes corporate governance and raising the quality capacity in each member. We have a programme of continuing professional development for all staff. We have a strategic process that engages all the directors. Part of that is recognising that there is a wide group of stakeholders with whom it is important to work closely. Our members are taking that message on board and are responding to the new circumstances.

The fact that we are here today shows that stakeholders recognise the value of Enterprise Northern Ireland and its members. That feeds back to our members, who respond accordingly. That is a challenge for us, but we are engaged in it.

Dr McDonnell: You said that you have about 5,000 tenants across 32 agencies.

Mrs McGregor: That was at the most recent count; it could be higher now.

Dr McDonnell: How long does a tenant stay with you?

Dr O’Shiel: It varies. Our initial remit is to attract tenants into a centre and then give them the support that they need. There is no fixed number of years — three years or five years, for example — after which a tenant must move out. We have about 40 businesses in the centre of Omagh, and in any given year of the past three to four years about eight of them would move out and eight would move in. There is a turnover, or a “churn” as we call it, although I cannot tell you specifically how long each tenant might stay.

There are several reasons for tenants leaving; they might outgrow us, for example. Although some of the centres are quite large, we do not supply 10,000 sq ft or 20,000 sq ft to people. Therefore somebody who has been with us for two or three years may outgrow us and want to buy or develop their own premises. There is no hard and fast rule. The enterprise centres provide a start-up, incubation role: when a company expands or develops it will have to go somewhere else to find space. Of the 40 businesses that we have, the average employment level is about four or five persons.

Dr McDonnell: In the past, the accusation was made, perhaps wrongly, that it was hardly worth starting up a business in some local enterprise agencies. All that happened was that existing small businesses treated the local enterprise centre as a source of low rent. Is there any credibility in such claims?

Dr O’Shiel: We do not say that all our tenants stay for three years and then move on; some tenants stay longer than others. To my knowledge, at least in Omagh, our rents are commercial. A potential tenant will ask about rents, and we will tell them where other spaces are available in the area. The tenant will make his or her own decision. If a tenant comes to us it is for business reasons, not because we are perceived as being cheaper. We are not necessarily cheaper.

In fact, in some cases, someone across the road who has premises that have been lying vacant for a while might offer it at a reduced rent. We do not see ourselves as discount renters; we rent space at the market or commercial rate. Other factors such as space and the support we provide will determine whether firms come.

Dr McDonnell: What is your overall budget and how do you derive it?

Mrs McGregor: Our budget has grown annually. In the first year, our budget was £1 million. It is currently £6 million, which includes a loan fund pot of approx­imately £2 million. Each of our 32 members contributes to the core to enable it to run. We also tender to organisations such as Invest Northern Ireland and councils for programmes such as Start a Business. The annual budget for that is £4·5 million but as regards fees to Enterprise Northern Ireland it would be worth about £1.5 million. We manage larger budgets than we actually gain fees for.

Dr McDonnell: How much would each member contribute?

Mrs McGregor: Each of our 32 members contributes £1,500 a year. When Enterprise Northern Ireland was formed, Invest Northern Ireland supported it and provided three years’ funding. We raised £30,000, Invest Northern Ireland gave us £30,000 and the International Fund for Ireland gave us £30,000. That was the situation for the first three years. That funding has now ceased so we are effectively self-sustaining.

Mr Nelson: It is important to recognise that although Mrs McGregor has described funding in terms of the core organisation; we are a member-led organisation. In each individual local enterprise area (LEA) one third to one half of the income comes from the rental of property, and the remainder comes from services delivered — payment on outputs. I would re-emphasise that no LEA receives core funding. This is a different situation from that which prevails in the Republic of Ireland where there are county enterprise boards that provide core funding for staff costs.

Each board must ensure that an LEA is self-financing, can pay its bills, and is paid only on outputs.

Mrs McGregor: I administer the Start a Business programme on behalf of Invest Northern Ireland. An LEA would deliver a lead-in assessment, which would comprise a training session perhaps, and their fees would go on to a management information system and would be paid to them every year. That is why the figure for the centre seems high. The LEAs would be paid £55 for a lead-in assessment and £175 for eight training programmes. The subgroup will realise that we were talking earlier about dealing with 36,000 clients and 8,500 businesses over four years. It is a case of money in, money out.

The Chairman (Mr Molloy): I draw members’ attention to the submission and the response to the terms of reference so that we can relate those two issues together.

Ms Gildernew: Further to Dr McDonnell’s question, I am very familiar with the areas within my constituency, and to me it is not a bit strange that once companies get through the incubation period there is a reluctance to move out. There are a number of reasons for this. It is not that rent is cheaper, but there is an infrastructure in and around them that they rely on and in which they support one another. If companies staying within enterprise centres is not a problem then we need to increase capacity in order to encourage new firms to take up occupancy alongside those established firms. We need to ensure that they have the support that they are relying on each other for as much as they are relying on Enterprise Northern Ireland. In Dungannon, rent is not cheap. Companies are there because the resources they rely on are around them.

As regards business starts — and forgive me for being parochial — Fermanagh may have a good level of business starts but it has a very poor level post-start up. There is a lack of sustainability within that sector.

Our neighbour is County Monaghan where there is a wonderful entrepreneurial spirit. When you travel around that county you see signs for shoe factories, or furniture or kitchen stores along every road. There seems to be far more of that indigenous entrepreneurial spirit there, and it is only a stone’s throw away from us.

Is it a lack of core funding and statutory responsibility that gives companies a few miles down the road a head start? What do we need to do to encourage more business start-ups and sustainability?

I am a firm believer in supporting indigenous investment. Foreign direct investment is not the answer in a rural constituency. ENI supports indigenous investment, and it is one of the few successes that has not been hampered by the lack of infrastructure to the same extent as other sectors.

In relation to the subgroup’s terms of reference, what does your sector need to grow and to give more support to small businesses to maintain them as an alternative to bigger foreign direct investment enterprises?

Dr O’Shiel: I have a couple of points. Long-term structure is the big answer. The last 10 years of enterprise support have been like a tap that has been turned on and off. Any enterprise agency of the 32 that comprise ENI could simplistically say that, as Ken said, 40% to 45% of their income comes from property and 55% to 60% comes from programmes.

Since European money has come to Northern Ireland over the last number of years, the subgroup will be aware that there have been many programmes to support and develop businesses. Our programmes run from between three and 18 months, but any programme, by definition, will come to an end. The longest running is probably the Start A Business programme, but, in itself, that is run in three-year cycles, and there have been times when, two and a half years through a cycle, there have been intensive discussions on whether there will be another.

Once the hurdle of whether there will be another programme cycle has been cleared, our big challenge in recent years has been to secure resources. On each occasion — and this is not a complaint; simply a fact — the resources have been squeezed and squeezed.

One of the major arguments that ENI wants to communicate to the subgroup is that if small businesses were given policy priority, it would not be bidding for programme resources in an ad hoc manner every six months or three years. It would not be in a situation where its resources are the easiest to cut. A balance must be struck between local small businesses and foreign direct investment. Without going into too much detail, ENI knows that that is not the answer for the more rural areas.

A couple of years ago, Invest NI commissioned a good report at great expense, which said that foreign direct investment would largely be concentrated in Belfast, although some may go to the west and to Derry. That is not a criticism of Invest NI or its report.

Foreign direct investment has moved from the manufacturing sector to more service-based sectors. What do foreign investors want? They want young people. What do young people want? They want a centre of population, somewhere to live, culture, nightlife, and so on.

Considering global foreign direct investment over the next 10 years, competition is one reason that many foreign investors will look elsewhere. Any foreign investors that come to Northern Ireland will be small but perfectly formed and will probably locate in population centres. It is very unlikely that they will locate in rural areas, which highlights the importance of small businesses.

That is probably a long-winded answer to your question, but structure is the key factor. It is important that someone has long-term responsibility to ensure that local business support is a priority. We all say that it is important; it should be made important and the resources should be attached to it.

Mrs McGregor: There should also be some continuum of support. Through the standardised Start a Business programme, ENI has proved that an impact can be made. However, to stimulate entrepreneurship and encourage people to become self-employed rather than staying unemployed or working in the public sector, serious resources must be applied at education level and to the long-term unemployed.

With the new neighbourhood renewal targets especially, ENI is trying to reach those people who are still economically inactive. There is no Northern Ireland-wide programme or resource applied to that — it is stop-start and ad hoc, with different agencies involved.

Effectively, when people complete the Start a Business programme, they are abandoned. Unless they are directed to other programmes, such as Tradelinks, there are no resources to continue supporting them. Two years ago, ENI piloted the successful Develop a Business programme, and Invest Northern Ireland acknowledged that it generated good added value to review a business one or two years after its creation to see whether it had the potential to grow and to encourage it to develop.

Sometimes, even after two years, businesses are afraid to take risks and to go outside their local communities to develop cross-border trade or to employ more people. The micro-business sector is effectively abandoned. Therefore, a continuum of support is critical.

1.30 pm

Mr Nelson: Another factor to bear in mind is that small business owners and owner-managers often face a lot of confusion. There are so many things out there that they can find the whole picture of economic intervention confusing, and help is needed to get them through that maze.

Nick and I have worked in this field for about 15 years. In my experience, the best results have often come when we have acted as account managers, being seen as the point of contact for a business and guiding it through the range of options that are available. The businesses see us as local people to whom they can turn, and they expect us to be able to inform them of opportunities for funding or training and to direct them through those processes. Often, the businesses are busy doing what they should be doing, and their staff do not have the time to attend all the seminars and gather all the relevant information. They want someone to present it to them. That local focus and account management role is important. Confusion is widespread among small business owners.

Mr Dallat: My congratulations to ENI. Perhaps, in the interests of honesty and fair play, I should state that I am a former member of a local enterprise agency. [Laughter.]

We have spoken at length about the culture of enterprise. Would it be useful for a new Assembly to encourage the education sector, from primary school up, to develop the basic skills that young people need? I am thinking about money management, budgeting, marketing and research. My experience is that many people with good skills in making products lack the basic skills that they need to get started. I recognise the work of Young Enterprise Northern Ireland (YENI) and people like that, but my impression is that such support is erratic and that the priority given to enterprise depends on the ethos of individual schools. What are ENI’s views on that? Is involving the education sector critical? Should the Assembly consider lobbying the examination boards and the Departments?

The Chairman (Mr Molloy): It could be part of the curriculum.

Mr Nelson: Yes, in an ideal world, enterprise activities would take place at education level, start-up level, and business-development level. ENI works in those areas and with YENI, but the thing that would make the most difference in the next few years would be the introduction of funding other than ad hoc project funding. ENI could do useful work in schools. It interacts with schools, but that is limited and is always as part of a programme. In ENI’s ideal world, enterprise would be introduced in schools, furthered in the start-up sector, and developed, as our colleagues said earlier, through training on export markets, innovation and R&D.

Mr McElduff: Earlier, John Simpson acknowledged the key role of regional institutes in the developing success of the Celtic tiger economy in the Twenty-six Counties. Does ENI have any comments on a future further education strategy and how it might feed into the economy?

Mrs McGregor: Through the Association of Northern Ireland Colleges (ANIC), ENI works closely with the further education colleges and believes that there is a role for both organisations in the development of the Northern Ireland economy. To show members how that might operate in practice, I shall ask Nick to outline how he works with Omagh College of Further Education.

Dr O’Shiel: For the past four years, ENI, Omagh College of Further Education and Omagh District Council have had a formal arrangement with the University of Ulster, which is called the Omagh University Partnership.

We found it difficult to get the university to interact with local businesses, partly because of their size and needs. Local small businesses do not see innovation and research and development as being for them. Omagh College, the university and the enterprise agency have links with the companies and can deal with them, and we introduce them, through Omagh College, to lecturers, depending on their skills. We also reach outside the college to the university, and that cycle continues. That is one example of how it can work.

Mr Weir: I apologise for being outside for part of your presentation. From what I heard, there were two points that resonated strongly with me. I was struck by what you said about the lack of co-ordination between Departments and agencies. Clearly a wide range of Government activities impacts on economic development and on the organisations that you have been working with. Do you have input into, or are you consulted in any way on, Government policies and strategies in skills issues in the Department for Employment and Learning or infrastructure priorities in the Department for Regional Development (DRD)? Earlier, John Simpson criticised DRD for not co-ordinating the roads infrastructure to cater for the needs of the economy. You also mentioned the rate of duty on fuel. Is there any co-ordination or consultation with you on that?

You raised concerns about the Review of Public Administration. You said, and I think that it is true, that the focus is on legislation. I declare an interest through my involvement with the Northern Ireland Local Government Association (NILGA). You mentioned both NILGA and the Society of Local Authority Chief Executives (SOLACE). To be fair, the pressure to focus on legislation is not coming from any of the local government organisations; it is coming from the Department of the Environment, whose attitude is “Let’s get the legislation in place and then we will try to forget about everything”. Legislation is only 10% of the review, at most. What is important is what happens to implementation and delivery after that. At times, we felt as if we were trying to push the Government through treacle. If any of the political parties can be of any help to you in getting those issues focused, we would be keen to hear from you, particularly on resourcing.

What contact has there been between your organ­isation and the DOE on transferred services? Several us are concerned that there has not been enough focus on transferred services, of which you are part. Finally, on resourcing again, some of us are concerned that some of the functions that are being transferred to local government are not bringing with them the necessary resources. The budgets for the Planning Service and the Roads Service have been reduced.

One of the criticisms of yesterday’s announcement was that it concentrated on big projects, but that there was very little investment in roads that will be handled by local government. It would raise concerns, both from local government and economic development points of view, if you thought that your budget would not be adequately resourced in local government. Apart from the lack of reassurances, is there anything specific that you can draw to our attention that you feel indicates that your budget will be squeezed before going into local government?

Mrs McGregor: We are pushing for consultation with the DOE and other Departments; coincidentally, I meet DOE representatives tomorrow. I was to meet them a few months ago, but the meeting was postponed because they were busy talking to councils. We are driving that initiative; no one is coming for us.

Mr Weir: Most councils have not noticed that the DOE has been talking to them. That may be the excuse with which the DOE fobbed you off.

Mrs McGregor: We want to talk to the DOE tomorrow about how it is handling transition.

I know that we keep harping on, but what will Invest Northern Ireland transfer if no one there officially has statutory responsibility for locally focused businesses and it has pressures on its own budget for inward investment? Will it transfer its current £6 million entrepreneurship budget? That is being reduced year on year — it used to be £10 million. I do not know what will be left to transfer by 2009.

Mr Nelson: Consultation has been ad hoc. We have pursued consultation opportunities, so we would welcome anything that you can do to ensure that we are more widely consulted. We have a valuable input to make. All the points that you mentioned, such as the skills issue, are critical to business. We would like to have more input into that.

We have costed solutions, and, if it helped, we could give you further information and return to it. We do not have that today, but we can show you the interventions that we feel could be made at pre, post, and start-up level and the budget figures that are needed. You could then assess whether the economic development budget allows for it.

Mrs McGregor: It would be important to understand how councils plan to deliver local economic develop­ment. Do they plan to be responsible for the local economic development strategy and build on the existing resources and infrastructures through local education authorities, further education colleges and other organisations? There may be concerns that councils would set themselves up as delivery arms and that the infrastructure that has been built up would be ignored. For the sake of all local providers, we would be keen to ensure that that did not happen.

Dr Birnie: Thank you, Chairman. I thank the witnesses from Enterprise Northern Ireland for coming. Compared to the inward investment route, do the number of jobs that your agencies create and the cost of each job that is created provide good value?

Secondly, repeating the question that I asked at the end of the DETI evidence session, to what extent do small business start-ups or small business owners and managers pursue growth? Do most of them reach a certain level of income and then stop growing? Years ago, commentators used to say, pejoratively, “Once you get your BMW in the garage, you stop investing.” Or do they try to maximise their profits and aim at, say, 50 employees?

Mrs McGregor: The total cost per participant through the start-up business programme is £1,055. That includes a grant of about £450, which used to be £750. Enterprise Northern Ireland’s input is about £600 per client. That includes a lead-in assessment, six training sessions in marketing, IT and management, plus some post-start up mentoring and a web package.

Taking the “dead wood” argument, even if you aggregate that sum up, the cost is about £8,000 per job. The dead wood in a programme is no more or less than in any standard Government intervention, so we are not performing better or worse than any Government-supported organisation.

Mr Nelson: The picture is probably patchy, and it is hard to get a clear answer across the board. I suspect that the red tape against which many businesses come up is a factor. Therefore profit maximisation is not the only issue. Businesses must consider whether they want the hassle that is involved in expanding, because an adequate return is perhaps all that they need for their families. Therefore reducing the red tape and making it easier for such businesses to expand is a factor.

1.45 pm

The Chairman (Mr Molloy): We asked this question of Invest Northern Ireland: how does a successful family business become an export business? Are grants and Government guarantees in particular available to help them move out of their comfort zones?

Mr Nelson: Are you asking whether there are incentives that will encourage them to do more trading outside?

The Chairman (Mr Molloy): Yes.

Mr Nelson: Yes, a lot could be done. If there was an inbuilt incentive, perhaps capital allowances could be applied to exporting or international trade. I do not have a solution for you today, but we could come back to you on that.

Dr O’Shiel: That is a valid point, and there is no doubt that a comfort factor exists. However, global­isation will probably challenge that comfort factor over the next number of years, even though some people will be happy making a comfortable living locally. We are in a changing world, and that must be considered.

About two years ago, Enterprise Northern Ireland proposed an add-on to the sort of problem that you raised when you discussed business development. We suggested targets and said that we would address every 10 businesses that were in this comfort zone, and perhaps three to four of those would go on to export. Without harping on about it too much, that project was a victim of a budget cut. Eighteen months ago, Enterprise Northern Ireland tendered for the Start a Business programme, and we had to develop a business section for it. We won that contract as a collective organisation, but in the period between winning it and signing up to agree it, the £1·5 million for it went.

Mrs McGregor: Chairman, I will send you some written comments on encouraging family businesses to export. We could also give you examples of what has worked in other programmes.

The Chairman (Mr Molloy): Thank you for your presentation, which was useful. With regard to the transfer of councils’ powers, it is important to continue to work with councils so that we do not get into a quango/council situation.

Mrs McGregor: I agree. Thank you for the opportunity to give evidence; it was much appreciated.

The Committee Clerk: Chairman, a substantive draft press release is being circulated. I have included some quotations from the various submissions. Members may make amendments, and I will issue it when you are content.

The Chairman (Mr Molloy): Have members read it?

Mr McElduff: I suggest that, because of the subgroup’s ongoing work, the phrase “continues to” take evidence be included in the heading. It would also be helpful if the press release stated that John Simpson is an economist.

I also concede to Alasdair McDonnell that he is a recently elected MP, which should be shown in the list of attendees.

Dr Birnie: My first name has been misspelt.

Ms Gildernew: Enterprise Northern Ireland made the important point about how the lack of statutory responsibility impedes its work. That should be included in the press release.

Could the paragraph on John Simpson’s presentation be expanded to include some of his comments? It was very informative, and the press release does not reflect the volume of his contribution.

The Chairman (Mr Molloy): I remind members that the minutes have to be corrected and that those who make presentations have the opportunity to make amendments.

The Committee Clerk: We will consider any suggestions that you may have, Michelle.

The Chairman (Mr Molloy): Stephen Quinn should also be given his title.

Do members have any other points?

Mr Weir: John Simpson’s contribution was particularly helpful. Could he provide a short follow-up document?

The Committee Clerk: We could try to ring him.

Mr Weir: In the interests of having a balanced picture, it would be useful to have even a short paragraph on what he said. It would be better to contact John Simpson because I am always very reluctant to précis somebody else’s work. Given that the contributions of DETI and Enterprise Northern Ireland were highlighted to a reasonable degree, it would be useful to highlight John Simpson’s work, which I found useful.

The Committee Clerk: I will also add a sentence about the statutory responsibility that Enterprise Northern Ireland mentioned. I will enquire whether John Simpson wants to provide a few additional lines.

The next item is the date of the next meeting. The subgroup will have two meetings on Thursday. One or two members have yet to confirm their attendance. We ought to have a quorum. The meeting will last about an hour. I will try to compile summary document of emerging issues, and have them ready by close of play tomorrow.

Mr Weir: We are endeavouring to find a second party member to attend the later meeting.

The Committee Clerk: There has not been time to discuss what has happened at previous meetings, so that will be an hour well spent. If the subgroup is given an extra week to finalise its report, members who also sit on the Preparation for Government Committee should bear that in mind.

Dr McDonnell: When is the extra meeting?

The Committee Clerk: The extra meeting is at 3.30 pm on Thursday. There will be a meeting at 10.00 am as normal, and a one-hour session on emerging issues in the afternoon. We will need to have a quorum. Hansard will provide an official report, but proceedings will not be in public.

The Chairman (Mr Molloy): It would be useful if members arrived early to get business under way.

Adjourned at 1.52 pm.

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