SUBGROUP ON THE ECONOMIC CHALLENGES Thursday 10 August 2006 Members in attendance for all or part of proceedings: Witnesses: The subgroup met at 10.06 am. (The Chairperson (Mrs Long) in the Chair.) The Chairperson (Mrs Long): I remind members to turn off their mobile telephones, as, even in silent mode, they interfere with the recording system. Apologies have been received from Peter Weir; Lord Morrow attends as his substitute; Barry McElduff is the substitute for Mitchel McLaughlin; Robin Newton is the substitute for Ian Paisley Jnr and Kieran McCarthy is the substitute for David Ford. Sean Neeson has indicated that he will be late. Are members content with the draft minutes of the meeting of 8 August? Members indicated assent. The next item on the agenda is matters arising. The first issue relates to the infrastructure package. The Strategic Investment Board (SIB) has provided a breakdown of the £16 billion infrastructure package The Committee Clerk: Members received that yesterday. The Chairperson (Mrs Long): The next matter arising concerns procedural advice. Formal procedural advice has been sought from the Preparation for Government (PFG) Committee on substitute members, chairing future meetings of the subgroup and whether members of the PFG Committee, who also sit on the subgroup, may nominate a substitute for the subgroup in order that they may attend the PFG Committee. The response is in line with advice given by the Principal Clerk at the last meeting. The PFG Committee has no difficulty with substitutes attending the subgroup in place of members of the PFG Committee or with substitutes chairing subsequent subgroup meetings. That takes into consideration the need for substitute members to cover holiday arrangements. Are members content? Members indicated assent. The third matter is evidence. As agreed at the last meeting, Dr Graham Gudgin has agreed to produce a written submission to the subgroup by the middle of next week. As previously discussed, the Clerk contacted the Youth Council for Northern Ireland with a view to its giving evidence. He was referred to the Northern Ireland Youth Forum. Several attempts have been made to follow this up, but no response has been received, as all the major players on the forum are currently on leave. I suspect that we cannot progress this matter. Mr McNarry: That is disappointing. I understand, and accept, that holidays will have an effect. It is unfortunate that we cannot hear the voice of young people whose futures we are discussing. We would get into trouble if we approached some schools but left out others. Could the subgroup do some further head-scratching to find a way to hear a legitimate voice that represents young people? The consensus is that that would be useful. However, I fully understand the difficulties. The Chairperson (Mrs Long): I would welcome any alternative suggestions that members may have at this stage so that we can proceed Lord Morrow: Will Graham Gudgin be submitting a paper instead of making a presentation in person? Why is he submitting a paper rather than appearing in front of the subgroup? The Committee Clerk: His contribution was a late addition to the agenda, and a written submission was the only viable option. He is on leave at the moment, but he was able to take an hour to prepare the paper. I have asked for it by Wednesday of next week, if that is possible. Lord Morrow: He was not to come here to make a presentation? The Committee Clerk: No, that was never formally required of him. I tried to contact the Youth Forum several times, and I received a written response from its chief executive, David Guilfoyle, but, to be frank, it did not cover the issues. Ms Gildernew: Chairperson, there is a Fermanagh Shadow Youth Council, based in Enniskillen. I know it is short notice, but contacting it may be an option. The Chairperson (Mrs Long): There is also a shadow youth council in Belfast, but the difficulty is that many of the members of those groups are on leave from school and difficult to contact. It is more the timing that is the issue, rather than their interest in the subject matter. The Committee Clerk: I was advised by David Guilfoyle that some young people had been involved in holding a mock Assembly plenary as part of the education process. They would certainly have been interested if time had permitted, but, regrettably, it did not. The Chairperson (Mrs Long): The third issue in relation to evidence is — Mr McNarry: Sorry, but I have just had a thought. As regards the timing, the subgroup has been granted a week’s extension, so the schools may be back by then. There would be no gap. The Committee Clerk: The extension gives us only until 25 August to prepare our report. Today’s session will be the last oral evidence session. On Tuesday there will be a great deal of written evidence. Mr McNarry: May I make a suggestion rather than a proposal? This matter could be referred to the PFG Committee, which will consider the subgroup’s report. As it has some extra time available to it, it may think it worthwhile to hear a young person’s perspective. The Committee Clerk: Although a vote was not taken, members have said that they would be interested in extending the work of the subgroup, subject to the PFG Committee being content and a work programme being agreed. The subgroup could well consider this after 25 August, if it so wished. It is for the subgroup to determine whether it wants to work beyond the dates on the current agenda and to ask the PFG Committee to agree that. There is certainly scope to do that. Mr McNarry: If the subgroup’s report is to be debated in the Assembly, it would only be correct for young people’s views to be represented in some way. I would be grateful if some room could be created, by any means — even through the PFG Committee — to hear their voice. Mr McElduff: I just want to clarify that it will be the PFG Committee, rather than the subgroup, that will deliberate on whether an Assembly debate will be held. The Chairperson (Mrs Long): Mr McNarry, are you making a formal proposal that the matter of youth representation should be referred to the PFG Committee? The Committee Clerk: Chairperson, the difficulty is that the Secretary of State has set the PFG Committee a deadline for the debate. The subgroup was granted an extension because the PFG Committee was granted a one-week extension for that debate. There is no further scope, unless the Secretary of State is prepared to delay the debate, which is intended to take place in the week beginning 11 September. Mr McNarry: Barry McElduff is technically right in that all the reports have to be endorsed and agreed, submitted to the Business Committee and then referred to the Secretary of State to let him know the matters on which we would like a debate. The Committee has been granted an extension — the first plenary sitting will now be on 11 September — so I am trying to factor that in. Our report will, in effect, come under the ownership of the PFG Committee. If there is an opportunity to hear the voice of young people, we should strive to do that, through the PFG Committee if necessary. 10.15 am The Committee Clerk: We are content to speak to anyone in that area, if we can get contact details, and to obtain written submissions from them. The difficulty is producing the report in the time frame. We are open to suggestions, and we will facilitate that, wherever possible. The Chairperson (Mrs Long): Perhaps members should give that some thought. Formal proposals could be made at the next meeting on how to take that forward Mr McNarry: I propose that we seek advice from the PFG Committee on how to deal with that, with a view to hearing the voice of the young people, which would enhance the completion of the report. Mr McCarthy: I second that; it is important. The Chairperson (Mrs Long): Is there agreement on that? Members indicated assent. The Chairperson (Mrs Long): We have three sets of witnesses today, and we have allocated approximately 45 minutes for each set, rather than one hour. That will allow Dr Gilleece to present his research paper, which has been tabled for the end of today’s evidence sessions. We have received additional information, requested by the subgroup, from witnesses who have recently given evidence. That includes: the Industrial Task Force’s submission on regional tax variations in EU countries; further papers from the SIB on investment delivery framework, roads package 2, slippage in capital projects, and estimated savings in SIB-supported projects — copies of SIB’s recently published annual reports and accounts are also included for reference; an outline of the Department of Enterprise, Trade and Investment’s (DETI) foreign direct investment (FDI) research project; a summary of research findings from the project assessing the case for enhanced research and development (R&D) tax credits in Northern Ireland; and an assessment of the economic impact of changes in the levels of inward investment. Mr McNarry: Ivan McCabrey’s submission from Mivan has not been included under the heading of “Written Submissions”. The Committee Clerk: I received it late last night. Mr McNarry: Are members being asked to accept it? The Committee Clerk: The subgroup requested the submission. Mr McNarry: Yes, but are members being asked to accept Mivan’s submission on this agenda? The Committee Clerk: Yes. Mr McNarry: I read the submission quickly. Mr McCabrey makes a point about what the Chancellor said during his visit to Belfast on 19 June. He says that he invited the Northern Ireland Business Alliance and elected politicians to produce a submission in respect of the challenges facing the economy. He went on to say that he has concerns about what we are doing. Perhaps the subgroup should tease that out, as Ivan McCabrey is nobody’s fool. He has identified a couple of weaknesses in what we are doing, and we should address those. At our next meeting, we should examine his concerns in detail, because he has gone to the trouble of stating them in his letter. The Chairperson (Mrs Long): The meeting of the economic subgroup on Tuesday 15 August has been set aside for the consideration of written evidence. All written evidence, including that letter, will be probed in more detail at that meeting. If we can move on, item 5 of the agenda is written evidence, so it follows on from the discussion we are having. Additional written evidence has been submitted by the International Centre for Local and Regional Development, the office for innovation and enterprise at the University of Ulster, UUTech LTD, the Planning Service, Northbrook Technologies and Action Renewables. Mivan’s submission has been tabled today, and the University of Ulster has referred to a report named ‘The economic impact of UK higher education institutions’, which has also been tabled for members’ information. Both QUBIS and the Association of Northern Ireland Colleges have indicated that they cannot meet the initial deadline but may submit written views later in the month. A response from Tourism Ireland is expected later today. Analysis of these submissions will be undertaken at next Tuesday’s meeting, and in that respect it is important that members reread all the written evidence that has been submitted to date so that they are au fait with the issues and can enter into detailed discussion. Do members wish Tuesday’s meeting to be held in open or in closed session? The subgroup has already agreed to have an open session where possible. Perhaps members can indicate whether they are content for that to be the case on Tuesday. Mr McElduff: I propose that we have an open session. Ms Ritchie: I second that. The Chairperson (Mrs Long): Is that agreed? Members indicated assent. The Committee Clerk: If members are sending substitutes to the written evidence session, please make sure that they are provided with all the necessary papers. I have asked Paul Moore to present a paper on the written submissions which will summarise them and draw out the links with oral evidence. As Mr McNarry points out, written evidence is equally important, and it would be easy for us to ignore it because it is a paper hidden in a file. The Chairperson (Mrs Long): Item 6 on the agenda is press cuttings. Recent press articles relevant to the subgroup’s terms of reference are included for members’ consideration. Item 7 is this morning’s evidence session. Before I call the witnesses in, I remind members that we are now going into open session. There are three sets of witnesses, and each set is allocated 45 minutes. It would be helpful if members could keep their questions to witnesses brief and focused on the terms of reference. On behalf of the subgroup, I welcome the witnesses from the Northern Ireland Tourist Board (NITB). Thank you for agreeing to attend at rather short notice. Please ensure that your mobile phones are turned off — even in silent mode they can interfere with the recording equipment. We have 45 minutes for this session. Please keep your initial presentation to the subgroup as brief as possible, at around 10 minutes, without taking anything away from your evidence. That will allow for questions and answers at the end. Alan Clarke, Tom McGrath and Sue Ward, I invite you to begin your presentation. Mr Tom McGrath (Northern Ireland Tourist Board): I am Tom McGrath, chairman of NITB. I am very pleased to have this opportunity to present and discuss, and we hope to be able to answer your questions. In the interests of the economy of time, I will pass you over to Alan Clarke. Mr Alan Clarke (Northern Ireland Tourist Board): Thank you very much for this opportunity to address the subgroup. Members have copies of our presentation, which is in PowerPoint format. I shall go through that presentation within our allotted 10 minutes. We have divided our presentation into three areas. First, I shall give an overview of the tourism sector’s performance — how that sector is currently doing. Secondly, I shall turn to key issues, which I hope will address the first two points of the subgroup’s terms of reference. Thirdly, I shall make some concluding remarks, which I hope will address the third point of the subgroup’s terms of reference. Turning first to performance, slide 2 of the presentation shows the numbers of visitors to Northern Ireland. The overall trend is pretty healthy; there has been a rise from 1·5 million visitors in 1995 — which was a peak period because of the peace dividend in that year — to just short of 2 million visitors in 2005. The third slide shows tourism revenue from visitors between 1994 and 2005. That spending creates wealth in the economy. Again, the picture is very healthy. There has been a rise from about £180 million in 1994 to £357 million in 2005. Those figures reflect out-of-state spend. We have doubled our revenue within that 12-year period. The NITB’s emphasis is now on revenue. Slide 4 shows some of the tourism performance highlights in 2005. Out-of-state spend was £357 million. Domestic spend by Northern Ireland people holidaying within the Province was £146 million, making a total spend from tourism of more than £500 million. The estimated number of jobs in the Northern Ireland tourism and leisure sector is 51,000, which is just short of 8% of all employment. Slide 5 shows some of the key trends during 2004-05. I shall highlight some of those trends as I go through the presentation. The Great Britain market fell by 7%, and the Republic of Ireland market rose by 6%. There was very high growth in both the European and North American market, reflecting improved direct-air access. However, those markets rose from an obviously much lower base. The bottom of slide 5 shows passenger-carrying figures. I should alert the subgroup that the passenger-carrying figures are for traffic both in and out of Northern Ireland. As part of an overall trend, that area is doing well, although sea traffic is doing less well than air traffic. That has been a trend over the last five years. The sixth slide shows the key trends for 2004-05 in the accommodation sectors. The hotel sector is particularly buoyant at the moment. In 2005, we sold 1·4 million non-resident bed spaces, representing a rise of 13%, year on year. Six months during 2005 attained record hotel occupancies since we began keeping records in 1973. Members should bear in mind that the capacity of that sector has doubled during that time. Slide 7 continues the commentary on the hotel sector. Hotel occupancy numbers are not the only important factor; profitability must also be considered. Results from ASM Horwath show that profit before tax and funding in the hotel sector is now bettered only by Dublin hotels. Increasing the yield, as well as the occupancy numbers, is vital. Confidence in the hotel sector is very high at the moment. Conversely, slide 8 shows that the guesthouse and bed and breakfast (B&B) sector overall has declined over the last several years. That trend is not specific to Northern Ireland; it is also evident in the Republic and in Great Britain. That is a long-term trend. The self-catering sector is doing reasonably well, but it is less buoyant than the hotel sector. Our indications for the current year are that the accommodation sector is doing well. There is much optimism in the industry. We carried out a tourism barometer survey in June, and confidence in the industry is very high at the moment. I shall address some of the key issues facing the tourism sector. Slide 9 identifies seven issues, which I will address quickly, in view of the subgroup’s time. I shall address one or two points on each key issue. Slide 10 concerns strategic leadership in the tourism sector. That sector is very fragmented. Seven Government Departments have a prime interest in tourism, as do the 26 local councils. Getting everyone to focus on tourism priorities is not always easy. Our acid test is whether we can get people to focus on the signature projects that I will address in a few moments. Resourcing is important. The subgroup is no doubt aware that the tourism sector has lost Peace II funding. The last round of European funding ended on 31 March. Less money is likely to be made available during the new round of European funding. The International Fund for Ireland (IFI), which has been very supportive of the tourism sector, has now switched its priorities towards the social economy. Tourism is on the rise, and now is the time for long-term investment. It is much better to invest when on a growth curve than beginning to invest when the industry may be on a decreasing curve. Slide 10 mentions planning and sustainability. I will talk in more depth later about sustainability, but we must see the emergence of a new issue on how planning copes with the growth of tourism. I understand the constraints on the Planning Service, but we want it to proceed with the development of Planning Policy Statement 16 on tourism. As tourism grows, it is important for that work to be done in order to react to where growth is coming from. 10.30 am Private sector engagement is also important. Compared to the Republic, Northern Ireland tourism is a fairly immature industry. However, as the industry matures, it is important that the private sector has more ownership so that tourism can be driven forward. Slide 11 deals with global competitiveness and innovation. Over the past three years, there has been a growth in low-cost air access, which brings people into Northern Ireland and also takes people out. Since the accession states joined the European Union, we are trading in a much more competitive environment. There are immense choices in our major markets, whether that be Great Britain or the Republic of Ireland, where consumers can go for short breaks, longer holidays or to conferences. The industry must start to think about that competitive world and global trading, especially where standards are concerned and in sales and marketing activities. The NITB advocates that the sector needs tourism-specific capability support. For example, our competitors in the Republic and in Scotland have specific programmes that support the tourism sector. That is a priority for Northern Ireland. Slide 12 deals with signature projects. The subgroup is aware that the NITB has five such projects. Those capital projects are important in driving long-term tourism growth. Air access to Northern Ireland has improved dramatically over the past two years. However, that must be backed up with improved public transport because people flying in on low-cost airlines will want to use public transport. Cities in Northern need to examine their conference facilities for the long term. Over the past five to 10 years, conference business in Belfast has been especially good. It is a high-spend business that usually happens out of season. However, in four to five years’ time, new venues will come on-stream in Dublin, and Belfast will no longer be as competitive. Increasingly, conference organisers want exhibition facilities to be close to conference venues. With regard to the rural economy, golf could achieve international standout for Northern Ireland. There is a strong private-sector interest in developing golf resorts. NITB research findings state that we should have an aspirational approach to golf tourism. Some of those projects must be realised over the next three to four years. Slide 13 deals with skills. Although skills are not directly part of NITB’s remit, we need to drive that element forward. Skills provision is hugely fragmented. Organisations and agencies such as the NITB, Invest Northern Ireland and the Department for Employment and Learning (DEL) are the prime drivers of skills development. The new UK-wide sector skills council, People 1st, is working on a human resource development strategy for the industry. It is important that those soft elements of tourism growth are given due attention and resources. Immense progress has been made with Northern Ireland’s international image. That requires more work to move Northern Ireland from its current status as a discovery destination; that status can exist only for so long. Signature projects are vital to achieving a long-term brand position. Slide 14 deals with our closer-to-home markets, which are important to Northern Ireland tourism. The Great Britain market is important, but it is very fragile at the moment because people there have the option of low-cost air access. The market in the Republic is also important, and it is probably our sleeping giant. If the NITB had the resources, much more could be done with the Republic of Ireland market. Sustainability is a key issue. The NITB has developed the signature projects on the basis of authenticity. Northern Ireland went through a period of plastic heritage, and the NITB is now concentrating on real heritage, which future customers will want. The Titanic/Maritime Heritage project, the Giant’s Causeway, the walled city of Derry and our Christian heritage/St Patrick are centred on authenticity. Northern Ireland can achieve international standout with those projects. The environment is a key asset in driving tourism forward. Tourism can give the economy more organic, long-term growth; it will not be here today and gone tomorrow. The growth will be slower, but long-term investment will give a long-term return. Slide 15 deals with point 3 of the subgroup’s terms of reference — an economic package/peace dividend. We have had five years of strong growth, and now is the time for long-term investment. Tourism requires investment to allow that growth curve to continue in an upward spiral. For tourism, the peace dividend has already kicked in, but there is further potential and more opportunities to be realised. In the short term, tourism projects will not always give the same direct return as other sectors of the economy. Tourism projects must be looked at in the long term. Their wider economic benefits must be considered. The criteria by which economic projects are assessed need to have a long-term perspective. Tourism’s role in economic growth is gradually being realised, but we probably still lack the focus on tourism’s contribution to the economy that they have in the Republic of Ireland, or Scotland. For example, Scotland has identified six industry groups, of which tourism is one, that will drive the future of the Scottish economy. In Northern Ireland, we do not yet have that degree of focus to identify the key industrial sectors, including tourism, that will grow the economy. We have put most of our effort into developing infrastructure and skills. There will still be a need for direct financial intervention in the event of market failure, but if we can get the infrastructure right through our signature projects and get the skills base right, we can drive tourism growth here. One of the signature projects that has been a success has been the walled city of Derry project. That was partly because we had dedicated funding; we were able to bid for funding from the integrated development fund to get that project up and running. We have had to put together a cocktail of funding for most of the other projects, and that takes time. I would advocate programme funding — not necessarily tourism programme funding, but economic programme funding — so that good-quality tourism projects can bid for it and get their projects moving to a much higher degree. The Chairperson (Mrs Long): I ask members to be as concise as possible, in order to allow for the maximum exchange of information. Dr Birnie: I have three quick questions. First, you said that profitability was improving, but still lower than in Dublin. Given our interest in corporation-tax rates, can you amplify those comments? Secondly, it is an oft-made comparison that our tourism industry contributes perhaps 2% to our gross domestic product (GDP), compared with 6% or 7% in Scotland and the Republic of Ireland. Can you confirm the accuracy of those figures? Finally, how is responsibility for promoting the Province as a tourist destination divided between NITB and Tourism Ireland Ltd? How does the relationship between the two organisations work? Is there duplication? Mr A Clarke: Hotel profitability has improved in the last three years. The figures that I have given you are from the ASM Horwath annual report on the hotel sector in Northern Ireland and the Republic. Three years ago, hotel profitability was about 16%; it has since risen to 19%. We have improved our position on the island of Ireland. Three or four years ago, hotels were only interested in getting bums on beds. They are still interested in that, but now they are interested in getting the right rate as well. They have been able to lever their rates for a mix of leisure and business tourism. In Belfast especially, conference and business tourism have been secured at a higher rate. Therefore, hotels have improved their profitability in that time. It is a sign of the industry’s maturing that it focuses more on yield than on numbers. We no longer use GDP. We went through a stage of using gross value added (GVA), and we are now doing some work on tourism satellite accounts. That work will be completed in the next couple of months. When we did use GDP, tourism’s contribution to the economy was about 1·82% in Northern Ireland, about 4·4% in the Republic, about 5% in Scotland and about 7% in Wales. Tourism Ireland’s role, as set out in the Good Friday Agreement, is to market the island of Ireland, including Northern Ireland, in Great Britain and overseas. It has become the international marketing organisation for the island, so where NITB previously had overseas offices in, for example, Frankfurt and New York, Tourism Ireland now runs those offices. We have tried to switch our role much more towards complementing Tourism Ireland by getting the product right. In simple terms, NITB’s role is twofold: it markets Northern Ireland on the island of Ireland, and it is geared more towards visitor experience and getting the product right. Dr Birnie: Who markets Northern Ireland in Great Britain? Mr A Clarke: Tourism Ireland markets Northern Ireland in Great Britain and overseas. The Chairperson (Mrs Long): I know I have been stressing brevity and conciseness, but would you mind speaking slightly more slowly, in order for Hansard to ensure that everything is included in the evidence that is collected? Ms Ritchie: My constituency of South Down is home to two of the five signature projects in NITB’s strategic framework for action: Christian Heritage/St Patrick and the Mournes National Park. I realise the importance of tourism as a principal industry in the area and the need to drive further growth in tourism, and I note Mr Clarke’s reference to the need for economic programme funds. What discussions have taken place with central Government, and what further discussions are planned? What was the outcome of any discussions that have taken place on the possibility of further economic development and a regeneration package? Mr A Clarke: In a way, no direct discussions have taken place. The five signature projects are vital to driving the long-term growth of tourism. As they are priorities, the signature projects require capital investment. To go back to the last question: when our product is marketed internationally in an all-Ireland context, it is vital that visitors to Ireland be given reasons to travel to Northern Ireland. The five projects are designed very much to make Northern Ireland stand out internationally. An advantage that Northern Ireland has is that the five signature projects, which could be world-class, are situated within a reasonably small geographical area. Therefore, for people who come to Northern Ireland on short holidays or to attend conferences, there are five major draws, and, on top of that, there are real reasons for visitors to spend more time and money. Funding for the Mournes National Park and Christian Heritage/St Patrick was mentioned. NITB is seeking funding in two ways: the comprehensive spending review and European programme funds. Our initial case to the comprehensive spending review was that the tourism sector requires more investment. It has long-term growth potential, and the five signature projects are vital to achieving that. NITB believes that more money from the comprehensive spending review needs to be directed at tourism. NITB has had a first cut at identifying the resource requirements for each of the five signature projects. Our submission to Government outlined what, at this stage, we believe to be the resource requirements for each of the five signature projects. The next round of European programme funds for 2007-13 probably links more to the Mournes National Park than to Christian Heritage/St Patrick. Obviously, through its links with the Cooley peninsula, the Mournes National Park has cross-border potential. Therefore, in its capacity to drive sustainable tourism and to develop cross-border links, NITB would like the Mournes National Park to be one of the priorities in the 2007-13 round. Mr McNarry: These questions are on a need-to-know basis. People are concerned that the all-Ireland approach to tourism has led to Northern Ireland’s losing its marketing importance. Is that approach an impediment to developing our economy? What constitutes a visitor to Northern Ireland’s attractions? I was taken by the interest that you expressed in golf tourism in rural communities. Do you mean specific courses for tourists, developed by public authorities? Mr McGrath: As regards the marketing of tourism in Northern Ireland, NITB has some concerns about Great Britain, which is a different type of market in that it tends to be segmented. Tourists from Great Britain are very aware that there are two pieces to Ireland. Sometimes NITB feels that generic marketing of the island of Ireland may not help the Northern Ireland tourism market. Mr Clarke and I sit on the board of Tourism Ireland, and we have made those comments at its meetings. The Great Britain market is vital to Northern Ireland. Tourism Ireland’s marketing strategies seem to have more success the further they are targeted from these islands. We worry, as do our colleagues in Fáilte Ireland, that only people from distinct areas of Great Britain tend to visit either Northern Ireland or the Republic. Northern Ireland successfully attracts visitors from Scotland and the north of England, while people from Birmingham, Manchester and the London area tend to visit the Republic. Mr McNarry: There is evidence that offices in the United States do not employ people from Northern Ireland and that potential tourists who are looking for a holiday in Northern Ireland are only told about the Republic of Ireland. There is a bias, and I wonder if it has been addressed. 10.45 am Mr McGrath: We cannot address that point, Mr McNarry. If what you are saying is true then only Tourism Ireland Ltd can address it, because it has representatives in the United States. We have no representatives there. The Chairperson (Mrs Long): Mr Clarke, would you pick up on what constitutes a visitor, and then on golf tourism? Mr A Clarke: There are a couple of definitions. First, a “visitor” is someone who comes to Northern Ireland for any purpose. Secondly, we have three categories of “tourists” — and they must include an overnight stay. The first comprises people who are engaged in leisure — largely holiday and recreation visitors. The second comprises people who are engaged in business — and the bulk of our interest, as I said earlier, is in the conference and meetings market. The third comprises the “visiting friends and relatives” market. The last group is very important to Northern Ireland tourism; it makes up over 40% of our visitors. Ten years ago, people whom we would term “visiting friends and relatives” did not use accommodation. Increasingly, they are now doing so, and they are spending money in restaurants and in retail outlets. They are an important sector in our economy, and they are being driven by low-cost air access. The sector is quite buoyant. We did some work a year or so ago looking at the future of golf tourism in Northern Ireland. The top-line conclusion was that if we wanted to pursue an aspirational golf tourism strategy, we would have to realise two or three golf resorts. They would be very much geared to the visitor, and we would be likely to increase our numbers much more substantially than by trying to negotiate with golf clubs, which have to service their members as well as visitors. Experience in Scotland, Wales and the Republic of Ireland shows that Northern Ireland has a much lower proportion of golf resort developments with good-quality golf courses. Our thrust has been to try to achieve three or four of those. We have got one across the line this year, which is Castle Hume in County Fermanagh, a new hotel with a new adjoining golf course. We would like to get another one across the line — certainly through the planning and financial commitment stages — this year. Mr McNarry: Could I recommend somewhere in Strangford? Mr A Clarke: I am sure you could, especially if you have an investor tied to it. Mr McNarry: We will have to work on that, Kieran. Mr McCarthy: Ballygowan, or the Ards Peninsula. Mr McElduff: Go raibh maith agat, a Chathaoirligh. Are there any positives accruing from Tourism Ireland’s marketing of the island as one entity? There has been a lot of emphasis on competition and on things not working out. I would like to hear whether there are any positives. If there were to be a special economic package, or peace dividend, how would it contribute to a growth in tourism and how could it be delivered? Mr A Clarke: It has not been our intention to be negative about Tourism Ireland. It has given Northern Ireland a greater presence overseas, with regard to the number of offices. One of the biggest successes has been what we call “destination public relations”, which involves getting travel writers to come here. Ms Sue Ward (Northern Ireland Tourist Board): We work very closely with Tourism Ireland to identify travel writers and tour operators. One of the most important aspects of delivering a positive reputation for Northern Ireland is getting it into print in the travel magazines. Last year, that delivered a PR equivalent value of £10 million to Northern Ireland. It is very much a combined effort between Tourism Ireland, which gets travel writers and journalists into Northern Ireland and covers their travel costs, and NITB, which picks up the cost of looking after them on the ground and making arrangements for them while they are here. We work really closely together on that, and it is delivering very positively for us. Mr A Clarke: Our answer on the economic package goes back to my comments on infrastructure and skills, which I feel are the two key areas. On infrastructure, it would useful to have an economic programme to which tourism could bid for capital projects. Scottish Enterprise already operates such a programme. That would be very beneficial. The second area on which to focus is that of skills, which, as I said, are quite fragmented. If we are to develop tourism, it is vital that we improve the skills and capabilities of our industry. We feel that we need more emphasis on tourism-specific skills and capability development. Offering a marketing programme to both tourism and people who produce widgets does not always bring the best benefits, in my view. The experiences of the Council for Education, Recruitment and Training and of Fáilte Ireland in the Republic, and of Scottish Enterprise, show that if tailored support is made available for the sector, much more growth is likely to be generated. Mr McGrath: Another important point is that we must watch for the positive and keep the negative at bay. For example, there is a suggestion that a bed tax might be introduced in the United Kingdom. That is a worrying prospect, and it would certainly make us uncompetitive. Ms Gildernew: I shall try to avoid being parochial, but — Mr McNarry: That will make a change; I think that that will be a first. Mr McElduff: You are guilty of that already. [Laughter.] Ms Gildernew: To what extent does the lack of political stability and the fact that the institutions are not up and running impede your attempts to boost tourism? To what extent do the lack of roads and bed spaces impede attempts to encourage tourists into the west? Mr McGrath: In many cases, tourists do not know about the lack of political structures. Providing that there is peace, instability does not seem to affect them. If the more sophisticated hoteliers are thinking of opening new premises, they might be influenced by a particular event or headline. However, events such as the Assembly closing — and it was not open for very long — do not make much difference, particularly if there is no violence and the peace continues. Mr Clarke mentioned the importance of transport, and we can cite many examples of tourists who have had difficulties getting around. They might have wanted to see a number of sites in different towns, but public transport is poor and the infrastructure needs to be improved. We concur with that idea. Mr A Clarke: We conduct visitor attitude studies every couple of years, and the main negatives that come out of those — and they are small negatives in the overall satisfaction levels — are public transport, the evening and Sunday economies, and food. As I have already said, public transport will become more important because people taking low-cost flights require good public transport links. The evening and Sunday economies are negative issues for visitors, who mention the lack of things to do in the evenings and on Sundays. Food is also listed as a negative — not so much its quality, but information about where to get local food. Those are the three main negatives. I am talking about the visitors who come here, but the other side of the coin is people who are thinking about coming. Sue will tell you a little about the brand work that is done in the marketplace. Ms Ward: Northern Ireland’s international reputation still faces a challenge when it comes to political stability. As much as we feel that we have come a long way, our international reputation is only as good as our last newspaper headline. Every two years we carry out brand tracking in the key markets with Tourism Ireland, looking at elements such as what inspires people to go on holiday and how important those factors are to those visitors. We compare Northern Ireland to the Republic, France, Germany, the US and Canada. Northern Ireland does very well on elements such as visitors being made to feel welcome, having plenty to see and do, and the quality of attractions and scenery. The one area where we are really left-field in comparison with everybody else is visitors’ confidence in their safety and security when they get here. The destination public relations that I talked about earlier is helping to change that, but we still have a much bigger barrier than we thought we would have by this point. In Washington DC this summer, when I mentioned to taxi drivers that I live in Northern Ireland, they said: “I do not know how you can live there with those bombs going off all the time”. They still have the image of Northern Ireland as it was perhaps 10 years ago. Therefore, we have a lot of work to do. Every peaceful summer, and every year that we go through that is more stable, helps Northern Ireland to catch up with its competitors. Dr McDonnell: Have we got the product right? What are we selling? How dependent is Northern Ireland on low-cost airlines? Have they made any difference? What happens if low-cost airlines disappear? With fuel prices through the roof, I do not envisage airlines remaining low-cost for much longer. One of NITB’s major projects is the Giant’s Causeway/Antrim and Causeway Coast. I wonder about the inclusion of Antrim in that project. My impression is that the Giant’s Causeway gets about 65% of the focus and the Causeway Coast about 40%, leaving 5% for Larne to Ballycastle. Ms Gildernew: That is 105%, Alasdair. Your numbers do not add up. Dr McDonnell: Sorry. [Laughter.] Those figures should have been 65%, 30% and 5% respectively. There does not seem to be any significant focus on the coastal stretch from Larne to Ballycastle. Is that because it has no potential, or is there another factor? Mr McGrath: I am glad that you raised that. I am a ratepayer in Newtownabbey, and Newtownabbey Borough Council contributes to the Causeway Coast and the Glens of Antrim. I wonder when they will come south of Larne. Mr A Clarke: The Causeway signature project has three elements: the new visitors’ centre at the Causeway; a world heritage site management plan for the UNESCO-designated site, including the stones; and the master plan. A key thrust of the master plan is the Causeway coastal route, which runs from Belfast to Derry/Londonderry. The intention is to reinvent the Antrim coast road to run the whole way between the two cities, making the Giant’s Causeway the focal point. Brown-and-white tourist information signs are being erected, but that is not enough. Facilities must be improved, including everything from more tea shops in main centres such as Carnlough or Cushendall to better lay-bys, picnic areas and accommodation across the entire route. It was encouraging when, about four months ago, ‘The Guardian’ identified that coastal route as one of the five best drives in the world. It could be right up with the best in the world, if we get the product right. We are seeking funding for benchmarking with the Garden Route in South Africa to learn best practice and bring that back to the Causeway. The intention is not to focus solely on the Causeway. We have been discussing the interpretative thrust of the new visitors’ centre. It is NITB’s view that, rather than simply promoting the immediate area, the centre should promote the wider area, to encourage people to go to Whitepark Bay, Carrick‑a-Rede and the Glens of Antrim. By doing that, we will encourage people to stay longer and spend more. Ms Ward: We recognise that low-cost airlines can be a double-edged sword, because they bring people out of, as well as into, Northern Ireland. However, they are working, and working well. Of the five new European routes launched by Continental Airlines last year, the Belfast route has been performing best. Earlier this summer, Continental celebrated the fact that 100,000 people had flown that route. Continental expects that, by mid-September, 50,000 Americans will have flown into Belfast. The percentage of inbound passengers from the United States is 42%, which we are pleased with. Airlines generally consider Belfast to be the weak link in comparison with Paris, Geneva or Rome. EasyJet, which has a European perspective, wants to build the percentage of inbound passengers to 30% over three years. That target has already been achieved for some routes: Geneva, Berlin and Paris have an inbound passenger percentage of 31%; Nice and Rome are not as high, but we are working to improve those figures. As regards long-term sustainability, Continental Airlines is pleased with its route so far. Belfast International Airport is now EasyJet’s biggest airport outside London. Average employment figures have risen. The retail sector in Belfast International Airport has greatly increased in the past two years, mainly as a result of improved international access. Airlines and airports are positive about that. Low-cost airlines do deliver. They may bring more people out of Northern Ireland, but they open up Northern Ireland to so many more destinations. In the past, people would not consider Northern Ireland as a possible short-break destination because it took half a day, and two flights, to get here. We are really pleased to have that excellent opening. Remember that last year our European visitor numbers increased by 32%, and our US numbers by 20%. That is a positive factor. Mr A Clarke: You asked about what NITB is selling and whether the product is right. Under our framework, we have five winning themes. The first is short breaks — short-stay visits now make up much more of our market; the second is business tourism, which involves business conferences and meetings; the third is activities; the fourth is culture and heritage; and, finally, events. Culture and heritage is one of our most distinctive attractors, and all five signature projects are culture and heritage projects. NITB’s involvement in the Smithsonian Folklife Festival 2007 in Washington DC is a big opportunity for us. The five themes are not separate; they are interlinked in many ways. For example, people on a short break often want to explore the culture and heritage of the area that they are visiting, or they may be visiting to attend a particular event. Therefore, the interlinking and integration of those five themes work to create the product that we sell. Has NITB got the product right? Our visitor attitude surveys show that there are high levels of visitor satisfaction. I have already outlined the negative areas, so obviously the product is not right. However, it is important to be aware that the international marketplace is fast changing, and we must keep ahead of customer demands. Work must be undertaken to develop the evening economy, to create better-quality accommodation, and to ensure that it is easy and convenient to book trips to Northern Ireland. We must get those things right in order to move forward. 11.00 am Mr Newton: The skills issue was skipped over very quickly this morning, although you later commented that it was a vital area. If the industry does not have the right skills, it may attract first-time visitors, but they will not come back again. The comment was made that NITB does not necessarily have responsibility for that area, and I accept that. However, someone must grab this issue and adopt a holistic approach that includes both educational and vocational skills. Some kind of strategy must be devised. I would welcome your comments on that. Mr A Clarke: That is a very perceptive question, if I may say so. Skills is a vital issue. In many ways, the skills issue has the potential to become tourism’s Achilles heel. It is pointless putting hard investment into the signature projects unless we have the necessary customer service and skills to support them. NITB does not have lead responsibility for skills; it is the responsibility of the Department for Employment and Learning (DEL). That responsibility was initially exercised through Tourism Training Trust Northern Ireland. Its funding ran out at the end of July 2006, and People 1st has now taken it on. People 1st is a new UK-wide sector skills council for tourism, travel and hospitality. However, there must be a merging of the future plans of People 1st, the Tourist Board, Invest NI and the private sector. To answer the question, People 1st is an opportunity that must be made to work, and that requires proper resourcing from DEL and proper delivery mechanisms. The first stage is to get the strategy under way, to get people to agree on it, and, most importantly, to get the industry to buy into it so that it actually meets its needs and requirements. However, further resources will also be needed for the delivery of the final strategy. Mr Newton: People 1st is a very undermanned organisation, and it receives project funding, as opposed to core funding, from Government. A strategy needs to be driven by an organisation that is properly funded and resourced, otherwise it will not be effective. Mr A Clarke: That is absolutely right. A strategy must be driven by a properly resourced lead organisation — it does not really matter whether that organisation is People 1st or NITB, as long as the organisation that takes ownership of the issue is properly resourced to deliver on it. That is a crucial point. Lord Morrow: I would like to ask about a few issues that I am slightly concerned that I did not hear mentioned, although I may have just missed any reference to them. Fermanagh is perceived to be the tourism county of Northern Ireland, but I am unaware of any long- or short-term venture there. Is there potential for further exploitation and development in Fermanagh? That county is the gateway from the Irish Republic to Northern Ireland, and tourism from the Irish Republic has increased by 6%. Ms Ward said that when she goes to New York, the first question that people ask is how she can live in such an awful place with bombs exploding every day. However, tourism from America has increased by 20%, while the number of tourists from the Irish Republic, where people know that bombs are no longer going off, has increased by only 6%. That is a contradiction. Fermanagh has the best fishing potential in Europe. Fishing is the largest participation sport in the United Kingdom. There are two fishermen for every football fan who attends a match on a Saturday, and that has not been exploited to its full potential. Tom, I think that you said that no one noticed whether the Assembly was up and running, but I may have accidentally misquoted you. Will you comment on that? I am sure that you will agree that the scenes in Newry this week will not make your job much easier. In fact, they will make it infinitely more difficult. We can well do without those sorts of problems. Do you have any figures for tourists visiting Northern Ireland from destinations such as Malaga and Nice? Mr McGrath: Tourists from outside Ireland are unaware of the political situation in Northern Ireland, unless reports of violence appear in the national and international press. That is when people have a reaction to Northern Ireland. Tourists may not understand our institutions, but they understand the reports of violence when the international press picks up on them. I attended the prize distribution at an international angling competition in Fermanagh this year, so I can confirm that there is a wealth of interest in fishing. There was great attendance, and folk from many parts of Europe participated, particularly from Great Britain. Mr Clarke: Tourism in Fermanagh has gone through a difficult period in the past five years. Fermanagh remained fairly static while tourism in Northern Ireland increased by 44%. Angling has not increased in recent years because there is now more competition. Cruising was heavily reliant on the German and Swiss markets, but they have gone through a difficult period economically. However, in recent months, the Tourist Board has worked with the local council and the private sector to create a new strategy entitled ‘Destination Fermanagh — A new vision for tourism in Fermanagh’ to try to take Fermanagh’s tourism forward. It is a wide-ranging document, which examines not only the promotion of Fermanagh and product development, but the infrastructure required to succeed. The Tourist Board submitted resource bids during the comprehensive spending review and during the new round of European funding for ‘Destination Fermanagh’, because it needs that new approach to which you referred. Ms Ward: We do not pay much attention to the figures for Malaga and Alicante, because they are mainly outbound holiday routes. However, I will read our estimated figures from graphs for the routes that we support through air-route development. Forgive me if they are not 100% accurate. An average of 4,000 people a month fly into Northern Ireland from Paris. They have booked their flights in Paris, so that figure does not include outbound passengers. About 1,700 people per month fly into Northern Ireland from Berlin; 1,800 from Nice; 2,000 from Rome; and 2,000 from Geneva. The Berlin route delivers good inbound percentages, but there are only four flights per week. NITB is pushing Easyjet on that, and the airline is considering increasing the number of flights to seven per week. The figures that I have just given are the numbers of inbound tourists per month from those destinations. Lord Morrow: If New Yorkers are asking how you can live in such a dreadful place, why is the number of Americans visiting Northern Ireland up by 20%, while the number of visitors from the Republic of Ireland is only up by 6%? Ms Ward: That 20% increase demonstrates the potential of the United States. Tourism Ireland is doing good work for us in New York, and the introduction of direct flights has made a big difference. NITB recognises that the Republic of Ireland market provides a challenge. One of the things that we are doing this year — and terms of reference will be with us in two weeks’ time — is a review of our marketing in the Republic of Ireland, where there is huge potential. There is huge competition for visitors from the Republic of Ireland, as they have a huge number of flights available to them. There are 16,000 seats on flights to Northern Ireland on sale in Europe, whereas the Republic of Ireland has 20,000 seats on the Poland-Dublin route alone — more than to Northern Ireland from the whole of Europe. There is huge competition for the Republic of Ireland euro, but we are investigating and reviewing what we need to do to change that. We realise that we are only hitting the tip of the iceberg in relation to visitors from the Republic of Ireland. Mr McCarthy: We have been all around Northern Ireland, so it would be remiss of me not to draw attention to one of the best assets in Northern Ireland, Strangford Lough, which is in my constituency. NITB does not seem to have much planned for Strangford Lough. Fishing was mentioned earlier, but can you suggest anything to the subgroup to rectify or improve the situation in the wider area of Strangford Lough and the Irish Sea coast and to bring some prosperity to it? Dr McDonnell: I thought that Mr McCarthy was one of the assets. Lord Morrow: I thought that he was the asset. Mr Clarke: The Christian Heritage/St Patrick signature project spills into the Ards Peninsula, and it will be included in that overall initiative. We are trying to develop the Causeway coastal route, which was mentioned earlier, to link with the St Patrick route and, in due course, into the Mournes. We are looking at a programme of strategic routes throughout Northern Ireland to integrate the signature projects and link them all together. There is a working group around Strangford, which we feed into, but our main vehicle in the area is the Armagh Down Tourism Partnership, which has developed a business plan for tourism. Again, the key issue in taking that forward is to ensure that the resources are available to implement the plan. The Chairperson (Mrs Long): Do you have any views on fiscal incentives that might help to develop tourism within Northern Ireland? Mr Clarke: Accommodation grants are currently administered through Invest Northern Ireland. NITB has an annual budget of about £1·5 million for visitor amenities. We have tried to use that money to create momentum for the signature projects. For example, this year a sizeable chunk of the tourism development scheme budget will go into the Thompson Dock development to create some momentum on the Titanic project. In relation to market failure, NITB is beginning to examine what public-sector intervention is required to take tourism forward. Direct intervention in certain locations will still be needed. Those locations may differ from the current priorities, but the largest fiscal incentives must relate to programme budgeting for the major capital projects such as Titanic, the Giant’s Causeway and the coastal route. Also, picking up on Mr Newton’s point, there must be more investment in the skills side, and that requires proper resourcing. The key infrastructure and skills must be right in order to give the private sector a much better playing field on which to compete. Mr McGrath: Fiscal incentives might help the indigenous population to be a bit more entrepreneurial and the folk who are already in the tourist industry to expand their businesses. I have often felt that if some advantage were given, some folk might advance. The feeling is that people come in from abroad and get the grants; that point has been made to us by a number of people in the hospitality trade. They would like some special incentive to help them increase their facilities. The Chairperson (Mrs Long): Thank you for your very detailed and useful presentation. Mr Clarke: Thank you. 11.15 am The Chairperson (Mrs Long): The next submission will be from Mr Victor Hewitt of the Economic Research Institute of Northern Ireland (ERINI). Thank you, Mr Hewitt, for attending at short notice. I must remind everyone to completely turn off mobile phones, as they interfere with the recording equipment. We have about 45 minutes; normally we allow 10 minutes for the presentation and the remainder for questions from members. We would appreciate it if you could be brief, without detracting from the evidence you present. Mr Victor Hewitt (Economic Research Institute of Northern Ireland): Thank you. I appreciate the opportunity to speak to the subgroup. I preface my remarks by saying that the ERINI board has not met to discuss this, so my remarks should not be taken to reflect the views of every board member. You have posed three questions: what are the obstacles to economic growth; what are the opportunities for, and effects of, fiscal incentives; and what might a financial package involve? I will try to structure my submission around those questions. I am sure that you have heard a lot of information about the economy, so I will not labour the basics. On the surface, the economy has been doing quite well since the 1990s. We have had fairly steady growth, as measured by gross value added per head. Employment has reached an all-time high with the creation of well over 100,000 jobs. Unemployment on the official measure has dropped below the radar compared to that of previous decades. On the downside, economic inactivity remains a significant issue. It is ahead of any other region of the UK by at least seven percentage points; that, due to ill health, is 50% higher than in the rest of the UK and 300% higher than in the Republic of Ireland. That is the surface picture. I have tried to probe beneath that to explore how the economy works in Northern Ireland. The obvious starting point is to think of the economy as a miniature national economy. That is not an appropriate vehicle, however. Instead I have focused on a balance-of-payments approach to the regional economy. That is not normally brought out, but if you consider the economy in those terms, it is fairly clear that Northern Ireland has a standard of living considerably in advance of what the market economy can sustain. In other words, we import a great deal more than we generate in exports to pay for those imports. If this were an independent country, a number of things would follow from that. First would be rapid depreciation of the exchange rate to bring the trade balance into line. That cannot happen, because Northern Ireland is part of the monetary union of the UK — and potentially that of the European Union — so the exchange rate is more or less fixed. Secondly, if prices could not be adjusted, unemployment would rise very rapidly in order to reduce the amount of consumption in the economy. That is not happening because a mechanism is available to finance the balance-of-payments deficit — to pay for the excess of imports over exports. That mechanism is, of course, fiscal transfers, which support wages and jobs in the public sector and sometimes support direct transfers to individuals through the benefits system. Those transfers are then used to support the purchases of goods and services, including imports. As long as that fiscal-transfer mechanism is available, the balance of payments will be financed and we can continue as normal. A question arises about the effect of fiscal transfer on economic activity. There is also an interesting question about the relative size of the public sector, which is very large in Northern Ireland. I have tried to raise a matter that is not often addressed, namely that it is not only the amount of public expenditure that is important, but where that expenditure goes. Public expenditure can be thought of as supporting a spectrum of spending. At one end is consumption For example, benefits are paid to recipients that support their standard of living. Likewise, the payment of wages to public servants supports their standard of living. Investment lies at the other end of the spectrum. Obvious areas for investment include roads, etc, but some expenditure has a dual character. For example, the payment of teachers supports their level of consumption and standard of living. However, the product of teachers is education, which is an investment in the future. Given the existence of that spectrum in public expenditure, what is the balance within that spectrum that is best for the future development of the economy? The evidence on that is quite interesting, and it does not come from Northern Ireland, but from Italy, where the south of that country has remained very poor for generations in comparison with the north. That situation also applies to Sicily, to take an island situation. Until the 1970s, the investment from the north of Italy to the south went into investment, supporting the building of infrastructure, etc. That investment then began to shift towards supporting incomes. Until that happened, evidence appears to show that the south was closing the gap with the north. Since income support took over from investment, that gap has more or less remained unchanged. A similar phenomenon occurred when East and West Germany reunified. After the Berlin Wall came down, the German Government made a conscious decision to support incomes in the east, rather than investment. The east has lagged considerably behind the west ever since. That shows an important issue concerning the use of the funds obtained by the Government. Productivity is at the centre of the performance of the economy. The evidence on that is a bit discouraging. I said that we had created more than 100,000 jobs, which is a much bigger rise, proportionately, than anywhere else in the UK. Did the creation of those jobs close the gross-value-added-per-head gap with the rest of the UK? The answer is no. While we have increased the level of employment, the jobs that we have created have, on average, probably had a lower gross-value-added level than jobs that were created elsewhere in the UK. Therefore, the gap has not been closing. That gap was closing between 1990 and 1996, but, thereafter, it has remained static. That raises concern because the stated policy of the Government was: “To encourage the development of a high value added, innovative, enterprising and competitive economy leading to greater wealth creation and job opportunities for all.” Job opportunities have been created, and some of those policy objectives have been met, but we have actually been creating relatively low-value-added, low-productivity and relatively low-skilled jobs. That is what an examination of overall productivity appears to indicate. Why is productivity different? There are a number of matters to consider, the first of which is industrial structure. If there are many industries that are traditionally relatively low in productivity, that will pull the productivity average down. That appears to be the case in Northern Ireland, where productivity is pulled down by about 3·5%. Another important question is whether the national economy — the one to which the local economy is most closely attached — is growing. That is a very important factor. If we had had the same economic structure as the UK average, we would have grown by 14% from 1995 to 2002. There are other catch-all factors, which can be attributed to local characteristics, such as location, transport costs etc. There is also what the Department of Finance and Personnel (DFP) describes as the “four drivers”, factors such as skills and R&D innovation. Also, the size of the public sector in Northern Ireland is unique. Once those factors are taken into consideration, it is only the growth of the UK and world economies that can push up productivity. Structural factors and other issues pull back productivity. When these other factors are taken into account, the 14% national growth factor comes down to a productivity increase of about 6%. Over the years, Northern Ireland has made enormous efforts to push up indigenous productivity by spending billions of pounds. From a historical perspective, that is a long, slow process. I shall use an analogy: an orchard can be grown from planting a handful of seeds, but there will not be a harvest for a very long time. Are there any short cuts? The obvious answer is yes. Instead of growing the trees from seeds, the trees are brought in and planted so that the harvest comes sooner. In my analogy, the trees being brought in equals FDI. Northern Ireland has been trying to do that since the early 1960s. We were relatively successful in the early years, but then FDI tailed off; our local difficulties did not make that situation any easier. The reason that FDI should be brought in is neatly encapsulated by a simple figure: productivity rates in foreign-owned firms are about twice the productivity rates of indigenously owned firms. In the Republic the figure is 4:1, but that is inflated somewhat by an accounting methodology in which profits are moved around to take advantage of the Republic’s incentive structure, which is corporation tax. A-list companies that have high productivity rates are tremendous catches. They usually embed themselves in the local economy, establish supply chains and have R&D departments. Those A-list companies drive up productivity simply by pushing up the average, and they also drive up the productivity of firms working with them. Even if C-list companies come in, they at least capture the gross value added, which represents the wage payments to the employees, even if they have no R&D facilities or do not make connections with the rest of the economy. When consideration is being given to bringing these firms in, this ratio is useful: how much will be paid in grants relative to what might be returned? With regard to C-list firms, if the grants amount to a high proportion of the wages bill, it is a less attractive proposition. As far as fiscal incentives are concerned, Northern Ireland has traditionally used grants and, sometimes, loans and shares. Grants have been awarded through selective financial assistance schemes and other schemes such as the company development scheme, which supplements selective financial assistance. Elsewhere, tax breaks are used, but there is a fundamental difference between those two instruments. Grants can change companies’ input behaviours. Grants are given for capital so that companies invest more. Grants are given for training so that companies do more training. Grants are awarded because there is a belief that the firms are not investing and training enough and that if they did more, they would increase their output. Tax breaks can be used for that purpose; the R&D tax credit is used in that way. However, the main instrument is corporation tax, which is a different animal because it dangles a carrot in front of firms. The companies are not being told what to do and how to do it; instead they are told that if they succeed and are profitable, they will keep more of their profit than they would elsewhere. That is the game that the Republic has played for a very long time. Low corporation tax did not start in the 1990s; it goes back to the 1950s. At that time, corporation tax of 10% was levied on the profits of exporting firms. The European Commission ruled that that was illegal and that tax was extended to all firms eventually, but the Republic has been at that business for a long time. 11.30 am The Republic of Ireland is probably embedded with companies to a greater degree than we are, and, as a result, it has focused on what really is important to companies — the bottom line. Companies tell us all sorts of stories, but what they are really interested in is making profit. If one has the mindset to understand how they make profit, one has a head start when it comes to trying to encourage them. Corporation tax is an important instrument. To try to reduce it in Northern Ireland throws up many practical difficulties. None of those difficulties is insuperable, but, equally, none of them is without cost. An ideal situation for Northern Ireland would be for the Chancellor to agree to Northern Ireland having a different corporation-tax regime, with everything else remaining the same. That is probably overly optimistic. The Chancellor is unlikely to allow Northern Ireland to have a grant regime alongside a tax-break regime, which, at the same time, is disruptive for the rest of the UK. A more likely scenario is that corporation tax will become a localised tax in Northern Ireland, as is the case with rates. We would keep the proceeds from the corporation tax, but the price that we might have to pay for that up front would be that the initial proceeds from the corporation tax would be taken off the block grant. If £500 million were paid in corporation tax in Northern Ireland, we would lose £500 million from the block grant straight away, and year after year. In return, we would keep whatever was raised from corporation tax. The gamble is that, by reducing corporation tax, we would encourage companies to pay more in the longer term than we are losing from the block grant up front. That is one scenario, and a likely one. One would like to think that other options are possible, but, based on our experience of the Treasury while working in the DFP, it is never that simple. I have mentioned, among other things, effective marginal tax rates and effective average tax rates, and I am happy to talk about those. What puzzles me most was the financial package. The size of the financial package is non-specified, but I am sure that members want a lump sum to be divided among various activities. We have received a number of financial packages. In 1998, the Chancellor unveiled a package, the Chancellor’s initiative, which was worth £315 million. That put money into, for example, first-year capital allowances and the science park, and it paid for training programmes. Unfortunately, however, I can find no overall analysis of the Chancellor’s initiative. Those projects were all carried out individually, but no one appears to have looked at the overall impact of how that money was spent. If one does not know what happened with the money that one received previously, one’s case for asking for more is rather weakened. There are two elements to the reinvestment and reform initiative (RRI) that was launched in 2002. First, I do not count that as a financial package, because the Northern Ireland ratepayers must pay back what was borrowed, with interest. In fact, the borrowing mechanism is a method of trying to close the gap between what is paid by council-tax payers in the rest of the UK and ratepayers in Northern Ireland. Borrowing can only be accessed if that gap is closed. That is possibly not well known. Secondly, the control of security sites was transferred. Some of those sites were made available to be sold off for housing. Some of them have been taken on as investment opportunities. Ilex, the urban regeneration company in Derry, is attempting to develop the various barracks there. There are developments at the former sites of the Maze Prison and Crumlin Road Prison. Projects, however, have been quite slow to get off the ground from what I can see, and, in some instances, there have been serious internal difficulties. Therefore, the jury is still out on the RRI. If a financial package were allocated, on what could it be spent? My suggestion is that some of it could, in effect, be used to oil the wheels of change in the public expenditure system. If funding is taken from one programme and given to another, there are howls of protest. However, if that process could be smoothed to make the transition more orderly, it could potentially multiply the power of any additional funding. The second issue is to focus more on investment than consumption. If the consumption route is chosen, it creates a constituency for resource, and when the resource runs out, the constituency remains, which generates a lot of pressure. The European peace programme is a classic example of that. Its funding allocations were quite large to begin with; they are becoming quite small. However, in the meantime, infrastructures have been created, which are being inherited. I have probably talked for long enough, so I am happy to take questions. The Chairperson (Mrs Long): Thank you. Members have submitted a long list of questions, so I remind them to be as concise as possible to allow all members to ask their questions. Mr Newton: There are three issues on which I would like you to comment, the first of which is the impediments to the economy. On page 8 of your submission you refer to Prof Harris’s research on R&D, saying that: “The basic problem is traced to the low R&D base among firms in the region and hence a fundamental lack of capacity to undertake such work.” The Northern Ireland economy has a strong SME base and, as I understand it, the manufacturing sector has declined to approximately 90,000 people. Without proper R&D and the development of higher-value-added products, it is likely to decline even further. How can we encourage more indigenous companies to invest in R&D? Secondly, the failure of DEL’s Jobskills strategy was mentioned. If my reading is right, its potential replacement will be delivered heavily through what are being referred to as sector skills councils, none of which have core funding. They are dependent on project funding and are fairly low-level resourced bodies. The third issue is the disparate nature of the Northern Ireland Departments. For example, Invest Northern Ireland has its responsibilities, DEL has its responsibilities and so on. There is a lack of synergy and joined-up thinking between the Departments. I welcome your comments on those three areas. Mr Hewitt: I will try to be brief. I have a copy of Prof Harris’s report, which I will leave for members to peruse at their leisure. It is a technical report, but the essential message is that R&D activity would be increased if the relevant tax credits were doubled or tripled. However, R&D takes a long time to feed its way through and can be relatively modest in its overall effect. The reason for that is that very few companies commission R&D. In Northern Ireland, there are only five, or even fewer, major players in the R&D market. I will not mention names, but it is not difficult to identify them. In smaller companies, R&D often means redesigning a milk bottle every five years. That is not a serious assault on R&D. I am sceptical about heavy grant regimes for R&D. Probably the most effective way to involve companies in R&D is to get them to engage with people who can show them its benefits, be that other companies or, more specifically, local universities. One reason why I suggested that a financial package could be used to boost the university sector is that, although higher education R&D is relatively healthy in Northern Ireland, it is not expanding as much as it could. Carrots such as grants and tax credits can certainly be offered. Interestingly, the survey shows that local companies are much more interested in grants than tax credits, because they are paid up front and remove some of the risk. Tax credits are only available if profit is made or expenditure is incurred. I am not particularly specialised in the Jobskills programme. However, ERINI is heavily engaged with DEL in supporting research on the skills base for the economy. Those structures have yet to bed down. We reflect the situation in England, which is not always necessarily a good thing. It would sometimes be better to strike out on our own and tailor things to our requirements. I do not have much to say on that, although I can provide the subgroup with a supplementary note. Politics plays a large role. The number of Departments was increased from six to eleven, not for efficiency reasons but for political reasons, which led to some very difficult co-ordination issues. For example, the Department of Finance and Personnel (DFP) was undisputedly the primary finance Department under direct rule. After devolution, DFP was effectively shadowed by the Office of the First Minister and the Deputy First Minister (OFMDFM), with a joint approach to budgeting and so on during those years. That was not a particularly efficient use of resources, but it was politically necessary. I am most worried about the lack of a co-ordinating mechanism within Government for economic issues. The Economic Development Forum (EDF) does good work but, to be frank, policy cannot be discussed and developed in a quasi-public forum. Some matters must be discussed within Government, and there is no mechanism for that at the moment. The economic steering group was a co-ordinating mechanism for under-secretaries and permanent secretaries of Departments with an economic interest. That was quite a useful vehicle, because new initiatives could be discussed without the immediate assumption that they would happen, which tends to be the case when things are placed in the public domain. That group became moribund. A corresponding social steering group was also very active and helpful, but, again, that group became moribund. It might not be a bad idea to re-establish some of those co-ordinating vehicles within Government. Dr McDonnell: Could I just tease that out? The Chairperson (Mrs Long): You will have to be brief, because we have a long list of questions. Dr McDonnell: Surely the role of OFMDFM was to do exactly what you were talking about. Mr Hewitt: The economic policy unit within OFMDFM was established at the outset of devolution. Its remit was to stand back from the day-to-day business of Government to concentrate on longer-term thinking and co-ordination, especially in relation to the economy. However, the unit tended to pick up work on which other sections did not have a particular handle. 11.45 am Much business was transacted through the economic policy unit, which involved, in the short term, answering questions from your good selves in the Assembly, rather than concentrating on the long-term development of the economy. The economic policy unit was also the principal vehicle shadowing DFP on finance. Mr Newton: I would welcome the supplementary paper to which Mr Hewitt referred. The Chairperson (Mrs Long): I have added it to the list of matters to be addressed in the summing up. Lord Morrow: Mr Hewitt, in your submission you said that: “DETI has the objective ‘to encourage the development of a high value added, innovative, enterprising and competitive economy leading to greater wealth creation and job opportunities for all’.” That is a noble and commendable mission statement. However, you paint a very gloomy picture of economic inactivity: “Part of the explanation for this is the higher proportion of students in Northern Ireland … Very much more worrying, however, is the proportion of the inactive due to sickness or disability … The Northern Ireland figure is 50 per cent higher than for the UK as a whole and an astonishing 300 per cent higher than in the Republic of Ireland.” Those are some frightening figures. That obviously must be tackled if we are to have a thriving and competitive economy. Do you have any ideas about how to do that? Do you have any ideas as to why there are more sick people in Northern Ireland than in the Irish Republic or in the rest of the United Kingdom? Is that sickness confined to one area of Northern Ireland — are more people sick in the east than in the west, or vice versa? If so, something must be going on in those regions that we do not know about. Dr McDonnell: It is you they are sick of. [Laughter.] Ms Gildernew: Hear, hear. Lord Morrow: I will ignore Alasdair McDonnell’s remarks. You also said that: “The first thing to note is that the standard of living in Northern Ireland far exceeds what the market sector of the economy could alone sustain.” You are obviously telling us that we are living far above our means. That must be frightening because, if I read the situation correctly, the bubble will burst one day, and our dilemma will be worse than ever. Furthermore, you tell us that: “Since 1996 over 110,000 new jobs have been created, an increase of almost 20 per cent compared to 12 per cent for the UK. Employment at approximately 700,000 is at an all time high.” Yet, our sickness rate is the highest in the UK and is 300% higher than in the Republic of Ireland. Is there a contradiction in that? Mr Hewitt: Economic inactivity is a concern. I mentioned that unemployment rates have dropped. Long-term unemployment, which means being unemployed for longer than one year, is a dimension of joblessness that has always been higher here. To some extent, the long-term unemployed have migrated to receiving disability payments of one sort or another. Indeed, there was a policy, although I would not call it deliberate, that, at least for presentational purposes, during some phases people were encouraged to move off certain registers and on to receiving other benefits. I am not particularly concerned about the student element of economic inactivity, because I hope that students are an investment in the future and will get a job at some stage in their lives — I certainly hope that for my own. However, the sickness element is a considerable concern. If the overall general health of the population is increasing, why are we experiencing an outbreak of disability? At some stages, 1,000 people a week were becoming disabled. That is partly due to migration from one benefit to another. Jobseeker’s allowance is a difficult benefit to get and sustain, because there are a lot of things for recipients to do and applications for them to fill in. They are seen regularly, and there is every incentive for them to get off that benefit and get on to one that is a bit more stable, where they are seen once a month or every three months rather than once a fortnight. Therefore, there is a combination of incentives. Immigration into Northern Ireland, especially from eastern Europe, is an interesting phenomenon that has not been commented on much. Anecdotal evidence that can be gathered by simply going round stores and restaurants and so on shows that a lot of people from eastern Europe are coming in and taking jobs that are at the bottom end of the market — filling supermarket shelves, working as waiters, working in the food factories in mid-Ulster. Why are those people coming here and taking those jobs? Why are local people who are coming off disability living allowance or jobseeker’s allowance not filling those posts? The answer is that the difference between what people can claim in benefits and what they can earn in employment is a considerable disincentive to employment. Those benefits are not available to people who come from eastern Europe, at least for their first year here. Therefore, a labour-market experiment is going on, which we should study carefully and learn lessons from. Lord Morrow: Do you think that the medical profession has a role to play? Mr Hewitt: That may be so. I do not wish to cast aspersions on that profession. [Laughter.] Dr McDonnell: Good man. Mr Hewitt: However, I am sure that others who are better qualified will speak on that matter. Many GPs come under pressure from their patients. Dr McDonnell: The medical profession will have a role in extracting some of the poison and vitriol out of the political system. Lord Morrow: They have not been very successful to date. [Laughter.] Mr Neeson: I am interested in your remarks about the jobs that have been created in recent years, and the fact that they are not creating more gross value added. Is that a criticism of the development of jobs in the service sector, which seems to be growing at present? Why do you think productivity is greater in foreign firms than in indigenous firms? Mr Hewitt: Overall figures show that jobs that have been created are creating added gross value. However, they do not create as much as jobs in the rest of the UK. The productivity gap between Northern Ireland and the rest of the UK is now static. It rose from about 75% per capita to about 81% or 82%, but thereafter it has been static. I do not denigrate those jobs in any way, but they are not the type of jobs that are capable of closing that gap, if that is an objective. Many of those jobs are in the retail sector. The companies that have come into the retailing sector are big, and they are adept in their labour practices. When supermarkets hire employees, they tend not to provide full-time jobs. They provide part-time jobs, up to a certain number of hours in a period. The reason for that is that if they employ a person for more than a set number of hours, they incur National Insurance costs. They are clever about balancing their books. Jobs are being created, but not necessarily full-time jobs. We are talking about headcounts. One would like to see new jobs that generate above-average gross-value-added levels and close the gap between Northern Ireland and the rest of the UK. Those jobs do, at least, provide employment for people, but they are not the way forward, and do not promote dramatic growth in the Northern Ireland economy. Mr Neeson: Why is productivity greater for foreign companies rather than for indigenous firms? Mr Hewitt: That is not surprising. Foreign-owned companies tend to be engaged in exports. They operate in a competitive environment and there are competitive pressures on them all the time. They survive in those competitive export markets only by becoming efficient. Local firms are often not export-orientated, and their markets are local. Local firms are not subjected to the same competitive pressures. Mr Neeson: Large indigenous companies, such as Wrightbus Ltd, depend on exports. William Wright appeared before the subgroup on Tuesday 8 August. Mr Hewitt: Not all indigenous companies are of below average competitiveness. It is a numbers game. There will be some, but there are not enough of them. It is the tail that falls below the average that tends to pull the average down. Those are the smaller companies that are probably not engaging in as much competition with their peers as would be desirable. Dr Birnie: I have two questions. First, we are faced with a choice between tax credits and corporation tax. At least, we can choose what to ask for; the decision on whether to grant either lies with others. Can you expand on the arguments for and against those two fiscal instruments? My second question is about the negative effects of the subvention. If we allow that they do exist, do you agree that there is a transition problem? If it is true that those sort of soft budget constraints lead to efficiency problems arising as a result of the bias towards spending for consumption rather than for investment, then the policy recommendation is not necessarily clear. Cutting consumption will create a negative demand effect in the short run, which will reduce income and employment. So we are on the horns of a dilemma. How do you make the transition? Mr Hewitt: I will deal first with the question about corporation tax and the tax credits for various activities. I try to make a distinction between incentives that target inputs into firms’ production processes — such as R&D, skills, marketing strategies, capital investment, and so on — and other incentives. The so-called market failure argument is that a firm, left to its own devices, will not engage in as much of those sorts of activities as is socially optimal. From the firm’s perspective, it might be doing exactly what it thinks it should be doing. It often thinks that it is taking the right approach and making sufficient investments, so it is difficult to persuade it that, from society’s point of view, it is not doing enough. It is not isolated, so its actions cause a spillover. Putting that argument across to firms can be quite difficult. It asks them to do things that, from their perspective, are suboptimal, but which, from society’s point of view, are optimal — in other words, they are being asked to spend more than they normally would. I will use the analogy of pushing on a piece of string. Pressure is being placed on the end of the string in the hope that the front will advance. More emphasis is being placed on the inputs. Firms are employing more people and carrying out more R&D. They are not doing that for its own sake; they are doing that so that additional output will flow at the other end. The corporation tax is, in a sense, the reverse of that. It is pulling the string from the other end. It dangles a carrot in front of businesses and says: “You make the profit; you keep it.” It does not tell businesses how to make a profit, simply that if they do make it, instead of paying 30% tax, they will pay just 12·5%. That is a big incentive for companies to increase their output. However, I need to introduce a caveat. The corporation tax is not just about encouraging companies to produce more. As I said, companies are clever entities. They will obviously attempt to move as much of their profit as possible from wherever it is in the world to the area with the lowest tax rate. That is, of course, what is happening in the Republic. Some colleagues would call that economic development by tax scam. Companies will attempt, through various transfer-pricing mechanisms, to make it appear that they are making most of their profits in the Republic. They pay 12·5% corporation tax there, whereas if they paid tax in the countries in which they were really making profits, they might be paying 30% or more. 12.00 noon The other factor is that this is not just a matter of the tax system in the country that is giving the incentives; it is also a matter of the tax system in the company’s country of origin. The United States tax system allows companies not to pay corporation tax until they repatriate monies to the United States from earnings made around the world. However, companies do not repatriate those monies — they attempt to use them for further investment outside the United States. There was an amnesty on that, and so much money, which had been held outside the United States, flowed back that it has probably held up the dollar for the past few years. Tax is a difficult issue. You are hunting big game, and you need the correct instruments to hunt big game, because they have sharp teeth. We can have almost ideological discussions about the public sector: public sector good, private sector bad, or vice versa. However, that takes our eyes off the ball. The private sector is not growing fast enough, but, if it did, it would generate income and wealth, and taxes would be paid on that. As a result, the fiscal deficit would automatically reduce. Dr Birnie asked whether the large public sector is a drag on the private sector and how resources can be transferred from the public sector to the private sector. That is a difficult question, because public expenditure and resources tend to have a ratchet effect — once you move up, it is difficult to move back down. An obvious solution is to limit the growth of, rather than cut, the public sector. That will happen in the next spending review. Public expenditure has been outstripping the growth in the economy, and it cannot continue at that pace. Some things will happen automatically, and others will require a rethink about public expenditure priorities and what we really want for Northern Ireland. Currently, a confused morass of priorities is packaged together, with a spin put on it that it is a coherent package. The investment strategy is an example of that. The Republic wants its current success to continue and will do things to reinforce that success. Here, an amalgamation of Departments’ wish lists is packaged together as a strategy. The Chairperson (Mrs Long): Thank you. We have kept to time thus far, with the exception of the closed session at the beginning. However, we are now running into the time allotted for the Northern Ireland Council for Voluntary Action (NICVA). Are members willing to extend this evidence session to allow the last four questions to be taken, if they are brief? Will members be available after this session, so that we do not lose our quorum for the NICVA presentation? Members indicated assent. Mr McNarry: I welcome what you have said and written. You have brought an important perspective to our deliberations, and I thank you for that. I have nine questions, but I will only ask two. On page 11 of your submission you say that the low achievement of school-leavers borders on a scandal, and I agree with that. You suggest that a limited financial package would assist low achievers. Can you elaborate on that limited financial package? If your reply is extensive, perhaps you could provide it in writing. Secondly, what role will renewables play in our economy? Mr Hewitt: Low achievement among school-leavers has been a problem for some time and must be seriously addressed. I do not wish to get into a debate about the 11-plus, but, at the top end, there are some high-quality students. However, at the bottom end, the record is dismal. It is improving, but it is still not good enough. It is not satisfactory that people spend 12 years at school and leave with no qualifications — they attempt to get a job and are found to have no basic reading or numeracy skills. Money must be spent on remedial action in this area before such people can hope to gain employment. Mr McNarry: Does a lack of skills contribute to the sickness levels that you mentioned? Mr Hewitt: It may, but I am not aware of any detailed research on that. One can easily understand that if people find it difficult to get jobs because they have no skills or qualifications, they may become dispirited. They may feel that the easy way out is to be classified as disabled in some way and go on to long-term benefits. That is fatal, particularly for younger people. A lot of money goes into education. The structure of the education system has been inherited. Five systems of education run simultaneously, which is not efficient. When I served on the board of governors of a good grammar school, I was struck by how many incentives for teachers are based on nothing to do with teaching. The incentives are to accumulate management allowances for doing almost anything other than teach. As a result of those incentives, the best teachers tend to spend relatively few hours teaching. Incentive mechanisms within schools ought to be examined. More analysis is required on a financial package to assist low achievers. We need answers to basic questions. Who is failing? Where are they failing? Why are they failing? We must then assemble a mechanism to address those matters. To some extent, that would probably have to be done by skewing some of the existing baselines and moving resources either from other parts of the education system or from other parts of the public sector to the education sector in order to finance that specific package. A financial package could ease such transitions. The analogy that most comes to mind is the Making Belfast Work initiative of many years ago, which members may recall. An investigation in various areas of Belfast produced quite shocking results. However, at least a positive mechanism was put in place. That was criticised but nonetheless did a reasonable job of focusing on achieving a particular goal. Similarly, achieving the goal of raising the educational attainment of low achievers would be worthwhile for both society and the economy. Renewables present quite a challenge. There is not time to examine the energy issues here, but the world has got itself into a bit of a mess over the years. I do not blame anyone in particular for that: it is a difficult area. Renewables are a means of addressing some energy issues, but nothing comes free. There are relatively high upfront costs that it is hoped can be recouped over long periods of time. Renewables make a useful contribution, but I do not consider them as playing a central role in the economy. However, if expertise in renewables and associated technology could be developed, that could be used to create a niche in the economy, which would be very useful. Ms Gildernew: You are most welcome, Victor. Evidently, there are many problems. Several contributors have talked about one such problem being a small private sector, as opposed as to an overly large public sector and, given the percentages, that could be the case. There is also the difficulty of duplication right across this island: 5 million people need healthcare, education, etc, and there is duplication everywhere. As for foreign direct investment versus indigenous industry, it is true that an American company can set up here and move its profits, on paper, to where it pays low corporation tax, and that has been the case in the South. I want to see a package or some type of financial incentives to help the small- and- medium-sized-enterprise (SME) sector, because there is a high level of dependence on SMEs, particularly outside Belfast. What is the best way to sustain indigenous companies to enable them to compete? Mr Hewitt: We have not really talked about the SMEs. Economists use the rather ugly term “lack of churn” to characterise that sector. Firms here have a relatively low birth rate but an equally low death rate — in other words, some firms tend to last quite a long time. That may be considered to be good, but firms in dynamic economies tend to have a high birth rate, yet also a high death rate. In other words, that high turnover drives the SME sector. We have done quite a lot of research utilising the global entrepreneurship monitor, which is a large-scale survey. People go into business for different reasons; some for opportunity, others for necessity. Interestingly, in the west of the Province, necessity drives people to set up businesses, whereas opportunity is a driver in the east. The ERINI went through a phase of providing grants, but that has died off. A universal small package is now available for those who want to start a business. The real secret is that people here do not have the skills to run businesses — they certainly do not have the skills to engage with the global economy. The best thing that we can do for small businesses is to increase our support for building managerial skills and equipping SMEs for the realities of dealing with the wider world. The Chairperson (Mrs Long): Members should be conscious that Hansard is recording, and other conversations at the table may interfere with that. Ms Ritchie: In Northern Ireland, there is a problem with fiscal deficits, and subsidies have focused on maintaining income. What do you perceive to be the solution? The final paragraphs of your submission state that there is an urgent need to embrace an economic strategy. What does the ERINI perceive to be the essential components of that strategy? Your answer will assist us in formulating our interim report. Mr Hewitt: In relation to the fiscal deficit, the distribution of public expenditure is heavily weighted towards what might be termed “social programmes”, such as education; social housing, to an extent; and health, which alone consumes well over £3 billion of the available departmental expenditure limit. Investment in public expenditure has fallen away in relative terms; roads and bridges are not being built, and ports and access routes are not being developed as much as they should. The cutting-edge budget for economic development now looks extremely miserly. It is asking much of a Department such as DETI, which has a limited range of responsibilities, to carry the full burden of economic development on an upfront budget of £150 million, if that. Most of the remainder of the budget pays staff salaries. Serious consideration must be given to refocusing our efforts in relation to investment. A strategy is being prepared, of which many members will have seen a draft. As the principal Department for economic strategy, DFP is developing that with contributions from DETI. The strategy reflected typical DFP concerns; it is a finance-driven document rather than an economic document. Strategies need central vision — something that drives the activity. To engage with the global economy, one must connect and communicate within it. 12.15 pm Connectivity is important and can be translated into a range of actions. It can mean physical connections — ports, airports and factors such as the development grant system, which was a good, effective scheme. Connectivity can mean networks and telecoms. It can also mean people, because people need skills in order to engage with the world economy. Connectivity can mean foreign direct investment, with Northern Ireland being seen as an attractive location to bring in and engage with international companies. We need a theme that threads through all Departments so that Departments can ask themselves whether their work improves their ability to connect with the global economy. Some Departments will respond that they are working to improve standards of public service for the indigenous population. However, many Departments identify with issues such as that. Dr McDonnell: Thank you very much, Victor, for your presentation. It was stimulating and far-reaching. I have a couple of points that I want to probe. Michelle spoke about small companies. Does anyone in the economic world think that small-company loans are more beneficial than packages or grants? Such loans are successful in the United States. I feel strongly about R&D and pull-out technology companies, but I think that we are strong on the “R” and not so strong on the “D”. What can be done to encourage company spin-out from universities? I may be wrong and unfair about this, but much university research appears to be semi-academic or academic-oriented. Research seems to be undertaken for the sake of intellectual fulfilment rather than for the development of a viable company or a commercial product. Perhaps you could comment on those two points? Mr Hewitt: Loans are an alternative to grants. Companies must think carefully before taking a loan, so they may engage more fully. They must ask themselves whether a company’s activities will enable the loan to be repaid. Companies do not have that concern about grants, because they are not directly repayable. The issue of loans could be further explored. You asked about research and development and the universities. We have come some distance from a time when Alfred, Lord Whitehead said: “Here’s to mathematics. May we never find a use for it.” That sums up the academic approach to life. An incentive mechanism is imposed on universities — research assessment exercises — that rewards academic research. That is certainly the case in my subject area, where theoretical research is rewarded over applied research. Articles in journals about game theory, and so forth, will score better in the research exercise than a tedious piece of work on something practical on the applied side. However, we have subscribed to those national schemes. We should consider whether we need to follow UK national schemes slavishly. I mentioned that it might be sensible to make a serious effort to upgrade our universities beyond the level that they are likely to reach in the future, given the existing funding. The universities here have established companies of one sort of another to roll out the products of their research. Queen’s has spun off a number of rather successful companies. However, academic entrepreneurs tends to look at whether they can get a company up and running and established to a point at which somebody will take it over and buy them out, so that they can make a few bob from it. There is nothing wrong with that, but we do not really incentivise our academics to pursue that path. The Chairperson (Mrs Long): Thank you. I wish to put two other brief questions to you. First, you refer to the potential for the financial package to be used to oil the wheels of transition within general funding. Can you provide examples of where that has been the case in other economies or where it may be the case in our economy? Secondly, would you recommend harmonisation with the Republic of Ireland’s rate of corporation tax? Mr Hewitt: I shall take the second question first. The subgroup is probably aware that ERINI was approached to undertake a study of the effect of harmonising the two corporation-tax regimes. That study is under way. We work on the basis that we go where the evidence takes us. I do not want to pre-empt the results of that study, which we hope to have in the autumn. We have involved teams of academics from Northern Ireland, the Republic and the rest of the UK to work together on that. Many of the issues are quite complex. I wish to make clear that the project is not about the practicalities; it is not about how we harmonise the two systems. It is about the size of the prize. If we are to do this, what is the potential prize for Northern Ireland? Other recommendations will flow from the answer to that question. If the prize were relatively small, the effort to try to introduce harmonisation would be less urgent. If the prize were large, the effort would be greater. At present, I hesitate to endorse absolutely the corporation-tax route as the way in which to go, but it is the only big idea in town that I have seen. If something that dramatically changes the trajectory is not introduced, it will be a case of more of the same, and we have had much of the same over the years. Off the top of my head, I cannot give you any local examples of where cash injections have been used to smooth a path. From my experience of working with public expenditure in DFP, the injection of relatively small amounts of money in Budget rounds produced results. Members will recall the Budget rounds. Those cash injections enabled disputes to be resolved and progress to be made. In a sense, that money was high-powered money, because it produced results way out of proportion with the actual amount provided. The Chairperson (Mrs Long): Thank you for those answers. On behalf of the subgroup, I thank you for your presentation and for subjecting yourself to what was a lengthy and detailed question-and-answer session. It has been of great benefit to the subgroup’s deliberations. Finally, a supplementary note on the Jobskills programme would be useful, if possible. Mr Hewitt: I shall leave this copy of the R&D report with the subgroup. The Chairperson (Mrs Long): The next submission is from Seamus McAleavey and Frances McCandless of the Northern Ireland Council for Voluntary Action (NICVA). NICVA has provided a written submission, which is included in the loose papers that members received at the start. You are both welcome. I must apologise because the previous presentation overran. I appreciate your patience. If you have mobile phones, I ask you to switch them off, rather than simply put them on silent mode, as they interfere with the recording equipment. There are 45 minutes available for the presentation. If you keep your initial comments as brief as possible, to 10 minutes, it will allow for the maximum number of questions and answers. Mr Seamus McAleavey (Northern Ireland Council for Voluntary Action): Thank you for inviting NICVA to make a submission to the subgroup. We will be as concise as possible. NICVA is the representative body for voluntary and community organisations, much like the Confederation of British Industry is for businesses. There are approximately 4,500 voluntary and community groups in Northern Ireland. As with the private sector, they cover a broad range of areas, stretching from small groups to multinational organisations such as Save the Children. The voluntary and community sector here employs about 30,000 people and accounts for approximately 4·5% of the GDP. Its income comes from a broad range of sources. It receives public money for the delivery of public services, and members of the public and charitable trusts raise money for it. As some members know, NICVA is involved in the Economic Development Forum (EDF). In general, social partnership, through the engagement of the Government, the private sector, unions, farmers and organisations such as NICVA, is a good idea. EDF is the closest thing to that, even though it is an advisory body to the Minister, rather than one that makes decisions. NICVA would like that engagement to be properly developed in future. The subgroup’s terms of reference include impediments to economic growth in Northern Ireland. An obvious impediment is political instability, and if a sustained and stable Executive were in place, that would send out a strong message to investors around the world. A vision for Northern Ireland, which tells people what it is trying to achieve, must be developed. NICVA supports, and is involved in, DETI’s ‘Economic Vision for Northern Ireland’. However, one of NICVA’s big fears is that it may be seen as DETI’s vision: although DETI’s strategy mirrors the priorities and budgets, it is important that a much more encompassing vision be developed. The Executive’s work on the Programme for Government was good. It began to set out an all-encompassing vision for Northern Ireland that took account of political, social and economic development. NICVA believes that investors around the world would really want to see that. NICVA thinks that it is obvious — and I am sure that members will be focusing on this — that Northern Ireland is stuck between a rock and a hard place with the economy of the Republic of Ireland and that of the United Kingdom, which is dominated by the south-east of England. That has a huge impact on business development in Northern Ireland. NICVA has often said that merely talking about creating more entrepreneurs, or exhorting them, does not make increased entrepreneurship more likely. Subvention here amounts to around £5·5 billion. Approximately 66% of GDP goes through the public sector. That is unlikely to change. I am a member of EDF’s enterprise subgroup. At its meetings, major business people have said that the smart career move is to go into the public sector, so to encourage entrepreneurs, wider options than fiscal incentives must be considered. The Republic casts a huge economic shadow over Northern Ireland, and Northern Ireland could more easily prosper if a common economic area were developed. For example, in future, the only way that petrol retailers who own petrol stations in border towns will be able to safeguard their risk will be to buy a station on both sides of the border. As tax rates change, they will get hammered on one side and then the other. We have seen that shift take place. 12.30 pm Much mention has been made of the reliance on the public sector. That is unlikely to change. Therefore, the private sector is not seen as a smart career option — there is a feeling of prosperity at the moment and private-sector jobs have increased. I agree with Victor Hewitt’s earlier comment that, as public expenditure tightens, Northern Ireland will take the rap. There is general consensus that the private sector is too small. There is little doubt about that. NICVA recognises that manufacturing industries have gone to other places in the world and that we cannot compete with them as regards unit costs and so on. We must look to the new knowledge-based industries, which some economic commentators refer to as the “creative economy”. In our submission, we highlight the views of Prof Richard Florida. Regions will attract investment based on the entire range of benefits that they can offer. Simply providing grant support, for example, is unlikely to attract investors who want talent and skills. Providing grant support will not compensate for investing in the wrong place. There is a fair deal of merit in the views that have been expounded by Richard Florida. NICVA agrees with promoting enterprise and taking risks. Like many members, we think that Northern Ireland has become very risk-averse and that there is a culture of risk-aversion. The Government can do something about that. If there is to be a new Executive, members might want to think about how bodies such as the Public Accounts Committee (PAC) are used. The reason there is a lot of risk-aversion is that people get punished for failure, which is often tantamount to public humiliation. Something must be done about that because it will thwart Ministers who want to deliver programmes and make changes. Many people will tell someone that they cannot do something and give 49 reasons. Our culture of risk-aversion goes across the public, private and voluntary sectors. Everyone blames each another. The Government can take the lead in trying to change that culture, and the PAC would play an important role in that. Unless Northern Ireland has the skills required by new industries, talent will not be attracted here. We must be able to attract talent from other places, as the United States has done in the past and the Republic is doing now. There are people much better placed than we to comment on fiscal incentives. However, reducing corporation tax on its own is unlikely to be a magic bullet. If corporation tax were changed tomorrow, investment would not flow in. It would have an impact, but a whole raft of other things needs to happen as well. Everyone, including the EDF, knows that incremental change will not make a difference. From the research that has been put before the EDF, we know that, if current policy interventions continue, not much will change in the next five or 10 years. There will be a flat-line development and, from some indicators, things will actually get worse. A radical change is necessary. The subgroup will probably have heard from DETI about the EDF’s work on draft scenarios in which it can see whether specific actions will have greater impact in the future. That work has yet to come to fruition. Returning to Prof Florida’s views, tolerance is important. One thing that modern investors will look for is a tolerant society that can cope with a range of people — Prof Florida refers to people working in the new software and hardware industries as being fairly Bohemian. The cities that he sees as doing well are quite tolerant. The policy document ‘A Shared Future’ might address that. Developing cities and regions is important, but we must achieve a balance by developing Northern Ireland as a whole. As a result of conversations that we have had with others about many different issues, our sector is keen that regional development should be balanced. It should not be Belfast-based, with the west being left behind. Women are likely to be a big driver in the employment market. However, we need to think about that because we are very far behind with childcare provision and so forth. NICVA believes that the education system has failed Northern Ireland and that there are real problems; I am sure that members know the statistics. Obviously, there are different arguments about how we should go forward, but radical change is needed. If 25% of people in a modern knowledge-based economy have major literacy problems, they are simply written off. That is a waste to the economy. We worry about the figures on economic inactivity, and we cannot get our heads around those. Unemployment is decreasing, and there is a real feeling in areas that have experienced high unemployment that there are job opportunities — there is no doubt about that. However, something strange is happening in regard to people who are hidden in those figures. We are not quite sure what is going on with the 20,000 migrant workers who have come into Northern Ireland; that point will need further explanation. We have had our 10 minutes, so we are happy to take any questions. Ms Ritchie: What does NICVA perceive to be the financial instruments that would provide for a sustainable economy and for new growth in that economy? Mr McAleavey: There is a real problem with the amount of public expenditure that comes into Northern Ireland. Therefore, rebalancing the economy will be difficult. Focusing on one aspect of the economy, such as corporation tax, is unlikely to do the trick. Earlier today you heard Victor Hewitt say that tax is a difficult issue because it is like hunting the big beast. The Treasury is not keen on Northern Ireland looking for what it considers to be handouts. You will have to negotiate a package that begins to set out how you would reduce the £5·5 billion subvention. You need to show how, if certain things were done here, that could make a return for the UK as a whole. A broad range of financial instruments would probably be included in that package. Ms Frances McCandless (Northern Ireland Council for Voluntary Action): We would also like to see any public investment that is part of the package being used to lever in massively increased private investment. We want to see attempts at serious regeneration. We want someone to stand up and say that north Belfast needs an overall facelift. Now that the Crumlin Road site is opening up, there are opportunities to develop major arterial routes, businesses, shops and leisure facilities — housing is being tackled already. However, if such work is done in dribs and drabs, the projects cannot always be connected. We want to see a massive project of the type that public funding alone could probably not deliver. We have seen models in the United States in which public and private funding streams are used together. Those projects return market rates to investors and provide sustainable income streams for communities. The communities have a say in how the regeneration of their areas should look. We would like to see some kind of investment being used to channel that sort of change into some of our most deprived areas. Dr McDonnell: The high levels of underemployment and disability have jumped out at us. Someone said this morning that disability levels here were 50% higher than the UK average and 300% higher than the figure for the Irish Republic. Do you have any idea why we are stuck there? What are the components of those statistics? How should we unlock the potential that is buried there? Mr McAleavey: Some people think that the population is entrepreneurial when it comes to claiming benefits. It is said that difficulties placed upon the unemployed by jobseeker’s allowance caused a flight to other benefits, and that that was the smart option for claimants. It is noticeable that the numbers are much higher here than in the Republic, and that is why there is a need for a closer look at the economically inactive. It is wrong to leave people stuck in a mould and left behind in terms of economic development. We are unsure of what is happening, but we think that it is related to opportunity and perception of wage levels. People north of the border are not seeing the opportunities that people see down south. That must explain the huge variation in numbers. Ms McCandless: It is also important to look at the structures of worklessness. We have many workless households in which there are two potential earners, neither of whom are working, and both possibly on sickness or disability benefits. As soon as one of them steps into the labour market, the benefits disappear. Unless both of them can find jobs concurrently, it is not worth either of them working. We need to look at the income structures of individual families. Those are the hard cases. New Deal has dealt with the easy cases and we are down now to the cases that are very difficult. Mr McAleavey: Some years ago in the Republic, transition periods were created, during which people could hold onto benefits as they moved into employment. That let people make the leap into employment. Ms McCandless: Mentoring schemes were also used very successfully south of the border. For someone who has been long-term sick or disabled, getting up every morning and going in to work is extremely difficult. They might be able to do it for a month, and then they stop and they are back at the start of the road again. Lord Morrow: I have read a substantial part of your paper and I would like you to clarify some things. You said that we were between a rock and a hard place. I think you said that, economically, we are stuck. Mr Hewitt said earlier that there had been a 20% increase in jobs in Northern Ireland, as compared to 12% in the UK. That, on the face of it, is good news, but perhaps when we delve deeper we learn more. I agree that the private sector is too small and has to expand. We keep knocking our education system. All we hear is that it has failed. Tell us what needs to be done to turn it from failure to success, so that it will better serve the people, the community, our children and generations to come. I am glad that you touched on migrant workers. I believe that the issue must be explored. I come from Dungannon, where we see this phenomenon at first hand. There must be reasons why thousands of migrant workers are coming in, and we must learn what those reasons are. I believe that no in-depth study has been made to try to find out the reasons for that. I am concerned by what you say in your submission about the Celtic tiger: “A host of other factors in the Republic have played their part like: reform of the education system and creation of regional colleges; creation of a Social Partnership in 1988; targeting of investment in pharmaceuticals, computer software and hardware; attracting corporate European headquarters to Ireland; clustering effect”. Please help me to understand that. Your submission also says that: “NICVA believes that fairer, more equal societies are more desirable [and] more economically stable”. What is your definition of a fair and equal society? You mentioned the petrol filling stations along the border. You are correct to say that many of them have closed, but it was not for tax purposes alone. Although that was a factor, there is another issue: racketeering and smuggling. We are trying to get on to a level playing field. How can that happen and how can it be encouraged? 12.45 pm The Chairperson (Mrs Long): There are a lot of issues to cover: schools and how the education system can be adapted; migrant workers; how a fair and equitable society can contribute to economic growth; the European headquarters and clustering effect; and the impact of racketeering on the economy. Ms McCandless: First, as we have said in many places, NICVA would like to see the removal of selection. Two years of “teaching to the test” could be removed and two years of education could be put back into the education system. Selection does not advantage any of the kids in the system. NICVA would like smaller class sizes and the link to be broken between where a child starts out and what their educational attainment is likely to be. In Denmark, there is absolutely no statistical likelihood that a child who comes from a disadvantaged background will have a poor educational attainment. In the UK, there is quite a strong link between those two factors. We would like that link to be broken because, for the economy, it means wasted potential. We would like to see some other changes in the education field, and we have put many of those proposals in writing in recent months. Of course, we would also like to see less waste and duplication in the system; we do not really want there to be five education systems. Investment should be much more strategically targeted at giving kids a better outcome. NICVA welcomes the new curriculum because it allows young people the flexibility to make choices at different stages in their educational career. Thus, if they find they are not on the right path at age 11 or 15, they still have time to make new choices and to adjust. Lord Morrow: I hear what you are saying, but it is at variance with every survey that has been carried out. Ms McCandless: It is not, actually; I have various analyses that I could send you of all the different surveys. Surveys often ask two similar questions. We will not go into this in detail now, but, for example, if you are referring to the ‘Belfast Telegraph’ surveys, people may say one aspirational thing in one answer — they may perhaps say that they want an end to selection — and on another question, if they are asked whether they think selection is fair, they will say that it is not. The survey evidence has been used quite selectively, shall we say, in some of these debates, but I do not think that we need to go into that here. Turning to what we mean by a fair and equal society, in Northern Ireland income differentials between the richest and the poorest are still slightly increasing. In the UK as a whole they increased hugely during the 1980s and then stabilised a bit, but they are still massive. NICVA looks at regions such as Scandinavia, as do many others — including the UK Government — and notes that where the gaps between the rich and the poor are smaller, the economies are much more vibrant and stable. They have stable political systems and civic institutions, strong trade unions, and extremely open and competitive economies. Sweden’s economy is more open, in global terms, than the Republic of Ireland’s economy. Sweden is now number one, and the Republic of Ireland number two, in terms of inward and outward investment flows. Therefore, we do not believe that equality and economic success are mutually exclusive. The Chairperson (Mrs Long): The other three issues were: migrant workers and how they affect economic inactivity; the clustering effect of European headquarters; and racketeering. Mr McAleavey: NICVA has highlighted the issue of migrant workers. I am very conscious of Lord Morrow’s remarks about his area, where 10% of the workforce are migrants, yet there are still a large number of economically inactive people. Are people here missing out for a particular reason? The meat plants in places such as Dungannon try to attract migrant workers because they do not appear to be able to find workers locally. That is a huge issue. Lord Morrow is right that we do not know enough about the exact reasons for that. Migrants are very attractive to the economy as they bring in new skills, and better skills as regards the knowledge economy, and so forth. They have been very important to other places. NICVA is not in the least anti-migrant. As regards European headquarters, the South has a policy of trying to attract companies that will establish headquarters there. About four years ago I attended a talk by Ketan Patel, who was then head of strategy at Goldman Sachs. He highlighted economic hotspots and noted that Ireland was the base for the European headquarters of big companies such as Intel. A peripheral island is increasingly placing itself at the centre of some of the current economic development. We must consider how we can benefit from that. Racketeering has a desperate effect along the border. The political parties made representations to the Chancellor to cut fuel duties, recognising that we are losing — or he is losing — £500 million in duty, and that it was fuelling illegal activity along the border. Racketeering is the downstream activity that comes about as a result of the differences along the border. Petrol stations in Newry used to be extremely busy, but now it is those on the other side of the border. A legitimate business on the border can be wiped out on one side or the other, and we must find ways to deal with that. The Chancellor would not cut tax in Northern Ireland, because that would upset constituents in England. One way to cure racketeering is to cut tax: if there were no incentive, there would be no racketeering. Mr Neeson: I recognise the important role that NICVA plays in the EDF; one of its recent meetings was held at NICVA headquarters. I am pleased that you highlighted the importance of the development of a shared future. Do you think that enough is being done, through Government policy, to develop that? Secondly, what could social partnership contribute to developing the economy of Northern Ireland? Mr McAleavey: A shared future takes a long time, like many things, but it is a prerequisite to economic development. On the day after 9/11, the EDF met in the Ramada Hotel and discussed the impact of the Holy Cross dispute in north Belfast. That had a massive negative impact on attempts to attract investment to Northern Ireland. Investors are attracted to stable, tolerant places, and the reverse of that is unappealing, because there are easier places in which to invest. That is NICVA’s basic premise on the economy. The social partnership model is important, because there is benefit in getting the Government, the private sector, unions, the voluntary sector and others to try to agree a shared position on the future of the economy, but we do not really have that. Take renewables, for example: I raised the issue of wind farms at the EDF and asked if it would be possible to get a joint position on it, but many people backed off and said that it could cause trouble. They asked me to square it with my members, but our members have differences of opinion. Some voluntary organisations totally oppose it, and others think that it is great. Unless we sit down, try to thrash these things out and get a body of opinion which is shared by the Government and the other sectors, we will be unable to make step changes. The issues that we have to deal with will be difficult and painful, so it would be a good idea to try to get agreement on them. Ms Gildernew: Your submission showed common sense and was succinct, which is always good for a subgroup that is buried in paperwork. Last week, the economist John Simpson said that school representatives had told him that children’s behavioural patterns were no longer appropriate for an educational environment by the time that children had reached the ages of five, six or seven. That is an indictment of us, of the education system, and of the communities that have that level of difficulty in them. What does NICVA — and the groups affiliated to it in the voluntary and community sector — think we could recommend or do to try to tackle that? If four- and five-year-olds cannot benefit in an educational environment, they cannot benefit in an economic environment. Your submission mentions women in the workforce. I know many women who have great skills and qualities, for whom it is not economically viable to work after they have had three or four children, because they would be working to pay the childminder. What possible incentives or measures could be put in place to encourage women into the workforce? The third part of my question is about regional growth: what can be done to ensure that any economic growth is not solely centred around Belfast and that the west does not get left behind? Ms McCandless: Part of what I said in answer to Lord Morrow’s question is relevant here too. Investing in children is part of the key to turning the economy around, and it is too late when they are four or five years old. A great deal of statistical evidence from child psychologists and child development experts shows that children learn to learn from the ages of 0 to 3 years: that is when they learn to socialise and interact with others and develop all the skills that they will use for the rest of their lives. There are kids at that age who, if they are looked after at all, are being looked after by 16-year-olds with an NVQ. In other parts of the world, you need a university degree before you can go anywhere near young children in a developmental setting. Much more investment should be going into those early years, so that before young children even get to school, they have had the kind of investment in their learning and developmental capacity to enable them to take advantage of what the education system can then offer. Programmes such as Sure Start have been running for a while. Head Start has been running in the United States for about 20 years. There was a great fuss about the evaluation of the UK’s Sure Start programme, because it was not entirely positive. However, it is early days to evaluate a programme that is intended to be as long term as Sure Start. Only now, some 20 years on, are meaningful evaluations being done in the States: did those kids get decent jobs, did they achieve decent levels of educational attainment? NICVA’s response would be to beef up the investment in early years. There is no better place to spend money than on the first three years of a child’s life: it is better than spending money on a university education, because by that stage it is far too late and middle-class kids are most likely to benefit. That answer is also relevant to the question about women moving into the workforce — and to lone parents who are not women — who are the sole carers for their families and have no other options. Universal, accessible, high-quality childcare, as is available in other countries, would potentially release a huge pool of labour into the workforce, much of which is already skilled and equipped, but not currently being utilised. Mr McAleavey: Regional growth is a big issue. In discussions with the Advisory Council on Infrastructure Investment and the Strategic Investment Board (SIB), NICVA has said that good communication and transport systems in Northern Ireland are critical to achieving balanced regional development. Having good communication and transport systems means that the workforce can move around relatively freely, or does not have to move, and provides the opportunity for companies to locate in different areas, particularly in the west. Without them, Northern Ireland will experience the same problems that develop everywhere, such as in Dublin, where everything gets increasingly sucked into the one area in which incoming investment wants to cluster. It must be made attractive for investors to locate in different parts of Northern Ireland. Mr McElduff: There is plenty of evidence that the border impacts negatively on our economic opportunities, and there was a reference to pressure on petrol retailers along the border. I know that Maurice Morrow understands that well, because DUP members are often in the queue in front of me in Emyvale and Lifford. [Laughter.] I will not name them, because I do not want them to be investigated by their party. Will you elaborate on the suggestion in your submission of a joint economic area? Mr McAleavey: NICVA recognises that there are social and economic difficulties in border areas everywhere. The European Union has been running the INTERREG programme for donkey’s years, so we all know that many border areas have problems, some of which relate to peripherality itself. It is not specifically a Northern Ireland/Republic of Ireland problem, but where the disparities are greater, the difficulties increase. The view of NICVA and the EDF is that the economy in the South casts a big shadow, and has done so for the past 15 years. Much of the discussion at the EDF concerns the Southern economy and its impact on the North. 1.00 pm We must find a way to harmonise with the South, or its economy will obliterate ours. That is not a political view; from an economic viewpoint, the North would not be an attractive place in which to invest. In the UK, businesses cluster in the south-east of England. There are problems in Great Britain in connecting with the north of England and north of the border. However, motorway development has allowed some business to move north. It is critical that we find a way to give us a fair opportunity to compete with the economy in the South. Mr Newton: I want to concentrate on skills. At paragraph 1.7 of your submission, you say that: “The [skills] strategy would be far more effective and powerful if it had greater focus on the ‘customers’ — the people who need training — rather than on those who may wish to employ them.” I want you to explain that sentence to me. As I understand it, the Jobskills initiative, which received extremely bad publicity and was regarded as a £500 million fiasco, dealt with the perceived needs of customers and in many cases ignored the needs of future employers. Training was being done for the sake of training. At the end of the training period, trainees were hugely frustrated when they discovered that there were no jobs for them. Many trainees felt that they had been used as cheap labour and that they did not even get a worthwhile qualification that would enable them to get another job. NICVA seems to be advocating a return to that situation and a move away from a philosophy of supply and demand. I tend to favour the latter option. Training that aims at meeting the needs of employers results in high placement levels and securing of jobs at the end of the training period — around 80% in that context, as I understand it, against 12% where training is being done for the sake of training. Ms McCandless: NICVA does not dispute what you are saying; we agree with you. Paragraph 1.7 of our submission is linked to paragraphs 3.2 and 3.7. NICVA is not saying that customers’ perceived needs have not been dealt with, but that customers’ real needs have not been dealt with. People are given inappropriate training, or training that they never fully access because they may need additional help or support. Paragraph 3.7 of our submission lists the factors that prevent people from taking up, or fully benefiting from, training that has been offered to them. The balance must be addressed between what employers think they need today, what people think they can access and benefit from, and — the third leg of the stool — what the economy needs tomorrow. Paragraph 3.2 of our submission deals with that issue. The supply side must be dealt with. Perhaps there is an element of: “If you build it, they will come”. If Northern Ireland were stuffed full of skilled engineers and graduates in bioscience, biotechnology and nanotechnology, would employers come here? Possibly they would. Supply and demand must be catered for. NICVA does not advocate swinging the balance entirely towards the customer. The balance must be redressed slightly, and the needs of the future economy, rather than the needs of employers today, must be factored in. Mr Newton: Also in paragraph 1.7, you say that NICVA advocates moving away from employers because they have no idea how to motivate low-skilled people. Ms McCandless: We say that we should move away from employers leading the training process. Employers should participate, but an undue emphasis has been placed on employers leading the strategy based on current needs. There are two elements missing from that: what skills people can absorb and use; and what employers or the economy will strategically need tomorrow. What employers will need tomorrow is not the same as what they need today. The Chairperson (Mrs Long): I take this opportunity to thank you both on behalf of the subgroup for providing us with your presentation at relatively short notice and for the question-and-answer session. Your contributions have given us an important perspective on the community and voluntary sector’s point of view. Your input has been very valuable. Mr McAleavey: Thank you, Chairperson, and thank you to the subgroup. The Chairperson (Mrs Long): Members, we are now in closed session, and the next item on the subgroup’s agenda is “Any other business”. We have the research presentation from Dr Peter Gilleece to discuss, but, before we deal with that, we shall consider the draft of the subgroup’s press release. The Committee Clerk: We had not received the presentations before today’s meeting, so we could not write the press release before the meeting. I have had to write down notes as we have gone along. The question-and-answer sessions were so good that I have had to leave out a great deal. I shall now read my notes — minus the topping and tailing, which is standard — on the evidence sessions, to see whether members are content. In his presentation, the chief executive of the Northern Ireland Tourist Board, Alan Clarke, described the trends in tourism performance. Those trends indicated a generally positive and improving position on visitor numbers and spend. Mr Clarke emphasised the importance of developing effective planning strategies to support sustainability and the importance of promoting better joined-up government to provide the strategic leadership that is needed to grow the industry and to move it from a discovery destination to a long-term-brand position. NITB has identified to the Government the funding requirements for five key signature projects and recognises the importance of securing adequate public and private investment for capital projects. Mr McGrath noted the importance of avoiding an increase in tax initiatives, such as a bed tax, which could make the Northern Ireland tourist industry uncompetitive. He stressed the strategic importance of having an effective roads infrastructure so that Northern Ireland can take full advantage of increased visitor figures, which have come about as a result of people’s benefiting from cheaper air travel. Mr Clarke noted the need to merge the efforts of NITB, People First and Invest Northern Ireland to ensure that the tourist industry has an adequate supply of appropriately skilled staff. On earnings, Victor Hewitt noted that the economy has been performing quite well: unemployment has been reduced and gross value-added has improved. He added, however, that, when considered from a different perspective, Northern Ireland had not performed so well. It has higher rates of economic inactivity, and there is a large trade deficit between its exports and imports. That deficit is financed by the fiscal transfer from the United Kingdom Exchequer of some £6 billion per annum. Mr Hewitt said that Northern Ireland’s lower productivity rate reflects the traditional industrial structure and its bias towards low productivity industries, the rate of growth in the United Kingdom economy and a range of supply-side factors that can influence productivity performance. Key among those are the so-called drivers of productivity: innovation, especially R&D; enterprise; and skills in the workforce. Improvements in those areas will give long-term economic benefits. Mr Hewitt noted the low R&D base in Northern Ireland companies and emphasised the importance of linking business to universities to identify R&D opportunities. He noted also the advantage of developing networks and collaboration between businesses to maximise R&D activity. He noted the importance that FDI attached to a low rate of corporation tax, both in Northern Ireland and in the source economy. He added that some care should be taken to ensure that tax incentives such as corporation tax were structured to maximise future investment in the economy. He emphasised the importance of developing a coherent public-expenditure strategy that focuses on a central theme and encourages economic growth and genuine productivity gain. I know that this summary is proving to be a bit long, but they are key points, and I will pare them down in the final version. When speaking about impediments to economic growth, Seamus McAleavey from NICVA noted the importance of political stability and a devolved Assembly. Although NICVA supports DETI’s ‘Economic Vision for Northern Ireland’, Mr McAleavey recognised the need to develop a wider vision that would create a politically, socially and economically attractive society. NICVA would like to see action to encourage entrepreneurship to address the risk-averse culture that pervades the public and private sectors. NICVA is not convinced that, on its own, a reduction in corporation tax would be sufficient to create the fiscal environment needed to stimulate business and investment. Mr McAleavey said that regional imbalances in Northern Ireland must be addressed to encourage a wider spread of economic opportunities across rural and urban areas. NICVA recognises that, on its own, public expenditure would not be sufficient to address adequately the structural problems facing, for example, north Belfast, and that a joint public and private sector investment package, similar to approaches taken in the USA, is required to regenerate such areas. I have tried to capture issues that have been raised by the witnesses from, if you like, both sides of the house. If members are content with those — Mr McCarthy: Should we publicise the comments that the representatives of NITB made about the possible introduction of a bed tax? Doing so might plant a seed in somebody’s mind to introduce it. The Committee Clerk: The seed has been planted. The bed tax might grab media attention, so perhaps we should not publicise it. The Chairperson (Mrs Long): Are members content with the press release? Lord Morrow: There is one thing that I think should be included. No mention is made of the fact that members contributed to the meetings by asking questions. The press release refers only to the witnesses’ presentations, and I am not sure that that will give members of the public the right impression. The Committee Clerk: Lord Morrow, the beginning of the press release states that the initial presentations were followed by extensive question-and-answer sessions. Ms Gildernew: The members who attended the meetings are named at the end of the press release. Lord Morrow: Victor Hewitt and NICVA said that they are concerned about the number of people who are economically inactive. I too am concerned about that, as, I am sure, are other members. It must be addressed. The Committee Clerk: I will add a line on that. Lord Morrow: Yes. It should be included. Ms Ritchie: That issue must be addressed. Ms Gildernew: Another theme that arose frequently was investment in education. The reference need not be elaborate, but we should include it as the issue was referred to in most of the presentations. The Chairperson (Mrs Long): Members would like references to economic inactivity and investment in education to be included. On that basis, are members content with the press release? Dr McDonnell: The investment needs to be targeted at the correct education sector. A fair amount is invested in education, but some of it needs to be better focused. The Committee Clerk: Do you mean tailored investment? Dr McDonnell: Yes, because the places that need the investment most are sometimes skimmed over and ignored. Mr McNarry: I am happy enough with the press release. However, the subgroup has received few facts on the level of economic inactivity. Could the subgroup get some more detailed facts on how major a problem it is? The Committee Clerk: If the subgroup has identified any specific areas on which it would like more facts, I will ask the relevant organisations for them. The DETI submission listed some of the reasons for economic inactivity. They included sickness and other areas that I cannot remember off the top of my head. There are four or five reasons, and the DETI publication gives the percentage split for them. Are there any other areas on which members would like further information? Ms Ritchie: Perhaps the Social Security Agency (SSA) could be asked to provide information on the number of applicants and approvals that there have been for the various disability benefits over the past 10 years? Such information would show whether there have been increases and whether there are regional variations. Perhaps, also, we could ask for an assessment of why those increases have taken place. 1.15 pm Mr McNarry: There are many genuine and deserving cases, and we must not be seen to be intruding on them. There is also the scam element, which is difficult to prove. The Committee Clerk: Perhaps we should have someone to talk about fraud figures. Mr McNarry: There is a lot of fraud, but is it an impediment to economic growth in Northern Ireland? Lord Morrow: I think it has an impact, David. Mr McNarry: It has an impact on people’s mentality. Many people ask: “Why am I working my butt off when there is a malingerer or waster sitting in the pub, playing cards and doing nothing when he is meant to be sick or receiving disability living allowance?” It would help to find out how large the problem is. The Chairperson (Mrs Long): Three questions have arisen. We need to clarify how we want to deal with them. The first one is what constitutes economic inactivity, and how the figures are broken down. It seems that this has been dealt with in the report from DETI. If members are satisfied that — Mr McNarry: It has not been dealt with in the DETI report. As usual, anything coming from these Departments is all waffle and piffle and does not give a direct answer. The Chairperson (Mrs Long): So you want additional information. Is there a seconder for that proposal? Ms Ritchie: Yes. The Chairperson (Mrs Long): Do we have agreement? Members indicated assent. The Chairperson (Mrs Long): The second issue is Ms Ritchie’s proposal that we seek information from the Department for Social Development on the profile of people receiving the various benefits within the area of economic inactivity over the last 10 years, and any changes that have occurred. Lord Morrow: And the regions? Ms Ritchie: And the regional variations, including age profiles. The Chairperson (Mrs Long): Is there a seconder for that proposal? Mr McNarry: Yes. The Chairperson (Mrs Long): Is that also agreed? Members indicated assent. The Chairperson (Mrs Long): The third issue is in relation to fraud levels. Could we clarify that? It came from Mr McNarry. Are we talking about statistics for fraud over the same ten-year period? Mr McNarry: I think so. We need to address the impediments to the economy. We could get into paramilitary activity, but we need to know it. The Chairperson (Mrs Long): Do we have a seconder? Lord Morrow: Yes. The Chairperson (Mrs Long): Is that agreed? Ms Gildernew: I am a bit concerned that you are talking about benefit fraud, David. When I was on the Social Development Committee, it was made clear to us that the amount of money lost to the Department for Social Development through fraud was less than the amount of benefits not taken up by those who were entitled to them. That is a higher figure. Mr McNarry: We could link the two. We could look at the balance between fraud and the absence of people taking up entitlements. That is a valid point. The Chairperson (Mrs Long): Are proposer and seconder content with that addition to the proposal? Mr McNarry: Yes. Lord Morrow: Yes. The Chairperson (Mrs Long): Dr McDonnell has been waiting to speak. Dr McDonnell: I want to make the point that Michelle has made. It would be very wrong for the subgroup to suggest that a handful of people fraudulently claiming benefits was having a major impact. There may be fraud, but it is a very small factor. The subgroup needs to understand the various benefits that are available. As a result of our economic circumstances and of attempts to massage unemployment figures, people who had anything wrong with them were moved sideways on to benefits. Once people are on benefits, they presume that they will have them for life. There is a presumption that once you are disabled, you are disabled for life. We should look at the problem creatively and positively and ask the Department for Social Development and others to devise a programme to get people back to work. That could copy the model in the Irish Republic and allow the disabled to receive benefits for six months or a year, or it could create transitional programmes. From experience, I know that once people get into a benefit trap, it can be extremely difficult for them to get out of it. Frances McCandless described a situation in which two people in a house are long-term unemployed; if one goes for a job, they both lose their benefits. If we are concerned about fraud, I will get down to brass tacks so that colleagues understand. Sometimes Joe Bloggs cannot judge very well whether someone is mentally ill. Even if someone can do a, b or c, he may still be incapacitated mentally. Indeed, he may have a severe mental illness that is not physically obvious. A spectrum of factors needs to be considered. Although I have no statistical evidence to back it up, I suggest that a lot of the increase in benefit claims hinges on mental illness. The numbers of mentally ill people have seriously increased here as a result of 30 years of madness. They have not had that experience in England or the Irish Republic, so — Mr McNarry: I do not disagree with a word of what Alasdair has just said. The Chairperson (Mrs Long): Mr McNarry, I am sorry; Lord Morrow indicated that he wanted to come in on this point. I will come back to you after that. At that point we will have to decide whether to go for this research, because Dr Gilleece has still to present his report. Lord Morrow: Again, David has taken the words right out of my mouth. I do not disagree with anything that Alasdair has said. However, if we are to have a fit economy, we must look at all the issues, and this is one of them. I want to know why the figure for Northern Ireland is 50% higher than in the rest of the UK and 300% higher than in the Irish Republic. I regularly represent people at tribunals, because they are genuinely entitled to that service. I defend those people and appeal their cases. I already know about the genuine people, so I am not talking about them when I ask what is behind those figures. I support the people whom Alasdair has mentioned, and I have a social conscience. However, I want to know how we get our economy fit for purpose. That is important, and those figures are startling. Mr McNarry: I share the views of Lord Morrow and Dr McDonnell. It is not a question of our sitting here trying to damage anyone. However, there are few facts and figures to back up some of the things that people say. We need to find those facts and figures to see how big the problem is. We have a substantial black economy in Northern Ireland, and nobody ever talks about it. Part of it involves people who are on benefits “doing the double”, as it is called. People fraudulently hold down jobs with employers who fraudulently engage them. I do not know how widespread that is, but if it is an impediment to our economy it is within our remit. This is the sort of thing that people talk about in the pub. People talk about the guy down the road. I would not like to think that anyone would talk derogatively about someone who has a mental incapacity. The Chairperson (Mrs Long): The proposal is that we ask for additional information on the levels of fraudulent claims in the past 10 years and on the lack of take-up of benefits in the same period. Is that agreed? Members indicated assent. The Chairperson (Mrs Long): We will move on to Dr Gilleece’s presentation. Dr Peter Gilleece (Senior Research Officer, Northern Ireland Assembly): I will run through a summary of the paper and then move on to some of the concluding remarks. Mr McNarry: This is the report about the Republic of Ireland? Dr Gilleece: It is. The contribution of formal education to economic growth in the Republic of Ireland is of enormous significance. Ireland was one of the first European countries to grasp the economic importance of education. Economists suggest that this up-skilling of the labour force accounts for almost 1% per annum of additional national output over the last decade. Key components of this development are outlined in the paper. Institutes of technology, for which there is no UK model, arose during the 1970s. Regional technical colleges evolved from innovative policy developments recommended by the OECD in the 1960s. A link was forged between higher education and the market. The Manpower Consultative Committee, established in 1978, was a forum for dialogue between the Industrial Development Authority and the education system. It recommended an urgent programme of expansion to alleviate shortages and to increase output to meet projected demand. Irish education now has an explicitly vocational component that did not exist 30 years ago. The view of Government agencies is more likely to lead to new course initiatives or pump-priming by the Department of Education and Science or the Higher Education Authority than any other force. Participation in upper secondary and tertiary education has risen phenomenally over the last four decades. In 1995 the Republic of Ireland had an above-average ratio of graduates to population and a higher number of persons with science-related qualifications, relative to the size of the young labour force, than all other OECD countries including Japan. In addition, between 1990 and 1995 public spending in tertiary education institutions and on financial aid for students rose by 33%. More significantly, in view of comments heard today on future development, it has been argued that the most important factor determining the contribution of the education system to economic progress within developed countries is the emphasis it places on sustaining a high level of performance on the part of the bottom half of the ability range. The Republic of Ireland lags behind OECD countries in this respect. The Irish economy has strategically placed itself as a knowledge-based economy. Successive surveys of foreign-owned firms reveal that two of the important determinants of the decision to locate in Ireland are the availability of skilled labour and the specific skills of the workforce. However, the growth in wealth has not been spread evenly, and overcoming economic and social disadvantage remains a significant issue. In 2003 the Department of Education and Science invited the OECD Secretariat to undertake a review of higher education to evaluate performance of the sector and recommend how it might better meet Ireland’s strategic objectives. The report identifies new challenges that will have to be overcome if the Government’s ambitions are to be realised. The report makes a series of recommendations that call for significant structural change. To move from being a technology-importing, low-cost economy to an innovation-based technology-generating society requires that Irish tertiary education and research, and innovative indigenous enterprises, have to become the new drivers of economic development and of the country’s international competitiveness. There is a growing phenomenon of technology sourcing FDI, which sees firms seeking access to resources that are only available in the overseas locations targeted. Increasingly, multinational firms are setting up overseas R&D facilities where local conditions are such as to increase the likelihood of innovations emerging. The likelihood of that happening depends upon the local innovations system; the process by which public and private sector institutions, firms and national policies interact and coalesce to generate innovation. In information and communication technology alone over the last few years, a number of significant developments have been registered under this new strategy. For example, and it is one of many given in the paper, IBM has announced further significant investment in its Irish R&D software facility in Dublin. A director of the company explains that its decision was influenced by the availability of the necessary skills, the strong support of the Industrial Development Agency and the growing emphasis on scientific research by the Science Foundation of Ireland. The key issues emerging are: building a strong education system; maximising investment in R&D; and developing a local innovation system. All are key to developing the capacity necessary to add value for indigenous interest, and in the longer term to be attractive to technology sourcing FDI. 1.30 pm I will move to the concluding remarks on page 14. Investment in education is fundamental to the growth of economies whether the approach is to provide the skills and intellectual capital base to attract foreign direct investment as in the Republic of Ireland, or a model of building the educational base to support indigenous interests. In the case of the Republic of Ireland a very strong enabling environment, with skilled labour and specific skills of the workforce, was in place to complement the low level of corporation tax. A number of key milestones have been identified over a period of forty years, which, under the right conditions, conspired to produce a highly successful economy. Some key lessons may be learnt from that. I now turn to the education system. A consistent feature of this evolution has been the objective assessment of government policy. For example, at key junctures the Republic of Ireland have invited analysis of their education policy by the OECD. The OECD reports of 1964 and 1965 have been described as landmarks. In 2003, at a key crossroads in the development of the education system, the OECD were again invited to review higher education policy. This strategic approach has in the past ensured that there was a sound basis for the growth of economy. The subgroup has heard criticism of the divide between policy development and implementation in Northern Ireland. There has also been criticism of our system of educational provision. Victor Hewitt spoke earlier about the amalgamation of Departments’ policy wish lists versus the greater focus in the Republic of Ireland. I shall turn to participation in education. It has been argued that the most important factor determining the contribution of the education system to economic success within developed countries is the strength of the emphasis on encouraging those in the lower ability range. The subgroup has also heard evidence of the failings of education in economically disadvantaged areas. On the knowledge-based economy, my paper says: “It may be the case that the foundations upon which we hope to build the knowledge economy in Northern Ireland are appropriate, however there is no certainty and evidence would suggest that, based on delivery to date, there are failings in the system. Perhaps consideration should be given to an ambitious, targeted and comprehensive review of educational policy with specific reference to its impact on economic development, at all levels in Northern Ireland, similar to the objective scrutiny that the Republic of Ireland has invited.” I move on to the section on higher education and the market. In the Republic of Ireland the interchange between higher education and the market is to a considerable extent mediated through government agencies. Irish education has now an explicitly vocational component. Robin Newton mentioned apprenticeships and training schemes. The UK is unique from the rest of Europe in that training is not matched to real jobs. Appendix 1 of the paper contains a critique of apprenticeship schemes. The paper also highlights that, in the Republic of Ireland, the change centred around the non-university sector, and the universities themselves ultimately adapted to the vocational imperatives which had become part of the climate. My paper goes on to state: “Consideration may be given to the adoption of a model similar to the Manpower Consultative Committee, as a forum for dialogue between Invest Northern Ireland and the education system.” And, looking ahead to the challenges: “The next stage of development for the economy in the Republic of Ireland will place greater emphasis on research and innovative indigenous enterprises as the new drivers of economic development. In Northern Ireland there is a need therefore to address the barriers to business investment in universities, improve the current financial and fiscal mechanisms of support for R&D activity” — primarily within universities — “and reconsider our attitude to risk in the support of R&D activity.” Technology-sourcing foreign direct investment represents a significant change in strategy, dependent on a strong local innovation system. My paper states: “Moving towards foreign direct investment with a reduction in corporation tax may be considered a longer term goal, perhaps over 5 to 10 years. There may be a need to ensure that there is sufficient capacity to take full advantage of any new corporate tax regime.” The change in emphasis to technology-sourcing FDI may be particularly irrelevant in the light of the gamble scenario described by Victor Hewitt. The Chairperson (Mrs Long): Thank you, Dr Gilleece, for your presentation. Ms Gildernew: That was an excellent paper, Peter. The reports that the Twenty-six Counties invited the OECD to write in 1964 and 1965 predated its corporation tax regime and many of the factors identified as drivers of economic growth. As a result of that, the subgroup must strongly recommend that we invest in education from birth right through, as Ms McCandless said. Rolls are declining, and schools are being closed down left, right and centre. There may need to be some rationalisation, but here is a unique opportunity to turn those smaller classes around, to improve the pupil-teacher ratio by getting more one-on-one teaching, and to support schools, rather than close them down willy-nilly across the Six Counties without taking that into consideration. We may also have to consider seriously the amount of money spent on arts degree courses in universities, as opposed to vocational training in further and higher education. This is thought-provoking and proves that incentives are one thing, but the education and skills of our young people are paramount — that is probably the most fundamental factor in ensuring the future growth of the economy. Fair play to you, Dr Gilleece, it is an excellent paper. Mr Newton: There is a great deal in this paper, and it is worth a detailed read. I have only two comments. I am concerned that the word “education” is only seen in the academic sense: it should also be seen in the vocational sense. Dr Gilleece: Education and skills; training. Mr Newton: Yes. I would have thought that the development of an entrepreneurial ethos would have been mentioned in the Lisbon strategy. Entrepreneurship should be delivered as a core subject from primary education, so that it feeds into the higher echelons of education. Ms Ritchie: I thank Dr Gilleece for his in-depth paper and for the analysis that he has carried out into the system that pertains in the South of Ireland. There is a need for a re-examination of educational attainment in Northern Ireland. When we think of education — and perhaps I am thinking similarly to Robin Newton — people focus on academic education. Twenty-five years ago, people did concentrate on vocational education, but in the pursuit of academic qualifications they forgot about the vocational side; they were anxious to obtain O levels, A levels and a university education. They forgot about vocational skills, and they forgot about those children who did not have the capacity to pursue an academic line and who would have been better suited to apprenticeships or working in the likes of the mechanical and construction fields. We must consider the recommendations made by the Construction Employers Federation about the nature of apprenticeships: they should be pursued by 15- and 16-year-olds in secondary education, and there should be a transition to the factory floor or to the construction industry. We must examine why there has been a dearth of entrepreneurial spirit in the North of Ireland and why there is a regional variation in that. In an area such as Kilkeel there is considerable entrepreneurial spirit, not solely in the fishing industry, but also in response to the downturn in that industry, and people have used their skills in other industries. We should consider case studies to determine how certain areas have built on that entrepreneurial spirit. The subgroup should recommend that the OECD examine what has been done in the area of educational attainment, both generally and more specifically in relation to vocational skills, and assess why there has been a downturn in the number of people who have felt inclined to go into vocational training. Parents who force children into academic education rather than ensuring that children’s education is geared specifically to their abilities play a large part in that. A great deal of research needs to be carried out on that. Dr Gilleece’s report shows how the Republic of Ireland has been able to move from an agrarian economy in the 1960s to one able to attract FDI and concentrate on technological industries. However, I know from friends who have worked in the technology industry in the Republic that some have had to relocate to lower-cost economies, and we must be mindful of that need and be aware of the difficulties. We must also examine what our universities are doing in the technological field and whether they are training people to apply their knowledge to the appropriate skills. As Michelle said earlier, those of us who left university equipped with degrees in the arts that were of little value to employers need to encourage people to challenge themselves to train vocationally. Dr Birnie: I thank Dr Gilleece for his excellent summary. I have two questions, or perhaps observations. First, ideally the subgroup would like some sort of tabulation, to include both Northern Ireland and the Republic of Ireland, showing European continental comparisons of the percentage of the labour force that is qualified to each of the five educational levels. I know that that is a difficult task, because I tried to do it about 15 years ago, and statistics are never set out on a comparable basis. My second observation is designed to inject a little scepticism, or perhaps realism, with regard to the contribution of education to economic growth. Some of it is a product of timing, as I sense was implied in Dr Gilleece’s paper. The big burst in public spending investment in post-11 education in Northern Ireland occurred after the Education Act 1944, and the benefits to economic growth came about 16 or 18 years later, after people had moved through the education system. In the Irish Republic, as has been pointed out, a similar wave of investment in secondary — and later tertiary — education began much later than elsewhere in north-west Europe, from the mid-1960s onwards. Sixteen years on brings us to the mid-1980s, and the Celtic tiger economy began in the late 1980s. Therefore, economic growth is a product that comes some years after the investment starts. Educationalists and economists still debate whether investing in education has a permanent effect on an economic growth rate. Those who believe that it does can be optimistic and say that the South’s investment in education will lead to economic growth remaining high for the foreseeable future. There is an alternative view that diminishing returns will set in, and that you cannot keep increasing the percentage of graduates in your labour force. Once it gets above 50% — as is the case in Northern Ireland — arguably the benefits to the economy decrease. I am just introducing some necessary scepticism or realism. Simply putting money into the education system does not necessarily produce extra percentages of economic growth at the other end of the pipe. Ms Gildernew: Esmond, are you talking about types of education? A person may be very well-educated person, perhaps an expert on ancient Greece, but no good for the economy. Dr Birnie: We need to reflect on that debate. I heard Margaret almost apologising for doing an arts subject. We need to be very careful. If a degree helps you to think, it will have produced a benefit generally for whatever career you end up in. Ms Ritchie: Flattery will get you nowhere. [Laughter.] 1.45 pm Dr Birnie: I think we need to be very careful about sticking everyone into technology courses. We might teach people in the technologies of today, which may not be the ones that are around in 10 years’ time. We must try to strike a balance. The Committee Clerk: Could I ask Dr Gilleece — The Chairperson (Mrs Long): Dr Gilleece will sum up at the end. He is taking on board the questions that are being asked. Mr Neeson: To me, in drawing direct links between the economy and the educational system the main issue is that the system in Northern Ireland is wrong. Departments do not work together, and there is no joined-up government. That has become evident in several evidence sessions. Looking at Ivan McCabrey’s letter to us today, and coming from a teaching background as I do, I recognise the weaknesses in the system. It is important that our report reflect Michael Maguire’s comments on responsive education from primary level up. Education in Northern Ireland is about to be reformed, and it is important that we get it right and address it as an Assembly. I do not agree with the 11-plus, but I certainly do not agree with the proposed replacements. The relationship between the needs of the economy and society as a whole is vital if we are to achieve the 140,000 jobs that the Northern Ireland Business Alliance has targeted. Lord Morrow: It is a pity that we did not have Dr Gilleece’s paper before the meeting. That is no one’s fault; it is just the way things are. A key issue is building a strong educational system, which no one can gainsay. The technical colleges argued that they should be afforded university status. Are we trying to find the highest common denominator, or the lowest? An economy should always reach for the highest. “Most findings from studies of the relationship between labour market earnings and initial education conclude that an additional year of schooling is likely to yield an annual ‘rate of return’ for individuals of 8-10%.” That is very significant and very telling. That issue must be “got out there”, as the saying goes, and really demonstrated. “Similarly positive results emerge from macro-economic growth studies on the impact of additional schooling on long-term growth in GDP.” That is of great relevance. I would like to hear Dr Gilleece elaborate on that a wee bit. I have other points to make, but I will stop now. I can see that everyone is getting hungry. The Chairperson (Mrs Long): We can ask Dr Gilleece to deal with that during his summing-up. Dr McDonnell: Chairperson, I do not want to come between colleagues and their lunch. Most of the points that I wanted to make have been covered already. I am delighted that colleagues have recognised Dr Gilleece for the gem that Sean Neeson and I encountered some years back on the Committee for Enterprise, Trade and Investment. Lord Morrow: Did you find him? Dr McDonnell: Sean and I invented him. Mr Neeson: We groomed him. Dr McDonnell: Yes, we groomed him. Dr Gilleece was an excellent resource and an excellent support to us back then. Rather than compliment him on yet another gem of a paper, I will leave it at that, Chairperson, because there is no point in my repeating what others have already said. Mr McElduff: I want to express my appreciation to Dr Gilleece for his presentation. There would have been real value in having a formal submission after which we could have asked questions, but, given the time constraints, that was not to be. I agree with Robin Newton, who said that the briefing paper requires detailed reading. We could perhaps revisit the paper when we come to consider the written evidence. The Committee Clerk: We will be doing that. Mr McElduff: The convergence of some of Victor Hewitt’s points about the historical context for Ireland’s success and Dr Gilleece’s reference to T K Whittaker’s ‘Economic Development’ paper of the late 1950s is interesting. The Chairperson (Mrs Long): Esmond Birnie has proposed that further research is required into the percentage of the population that is qualified to each of the five levels, compared with the Republic of Ireland, Great Britain and other European countries. That may be something on which members need to agree first. Before we do that, I invite Dr Gilleece to sum up. The Committee Clerk: I can ask the Department for Employment and Learning for that information, but what do you mean by “the five levels”? Are you talking about Key Stages 1, 2, 3, and so forth? Dr Birnie: Dr Gilleece can elaborate on this. Level 5, I think, refers to a PhD, level 4 to a degree, level 3 to a HND or technical qualification, level 2 to an apprenticeship and level 1 to GCSEs. It is something like that. We are not talking about Key Stage qualifications. It is the level of so-called paper qualification that a person has attained. Dr Gilleece: I think that I managed to catch all the comments. I would like to quickly respond to some of them. Dr Birnie mentioned that he is sceptical of education’s contribution to economic growth and of the benefits of producing graduates. Robin Newton mentioned the former point as well. It is about education as a whole — the skills, the vocational training, and all the rest. I refer in my briefing paper to the successful economies in the Nordic countries, which have superb educational systems. As Frances McCandless said, people in those countries from socially deprived backgrounds are experiencing no educational disadvantages whatsoever. The opposite happens to be true in Northern Ireland. Equally, there is the same problem in the Republic of Ireland. Education seems to be the means of helping people become more economically active. The Scandinavian countries have a superb educational system. The whole philosophy there is not about the process of education, but about education as a fundamental right. Pupils there are encouraged to progress right through the educational system. There is an ethos of high tax and strong social welfare in Scandinavia. Also, among the EU countries, they account for the highest R&D spend as a percentage of GDP and, as a result, their economies are very successful. That success seems to be due to their investment in education, R&D and innovation. I agree with Sean Neeson. We are on a treadmill of producing strategies and policies with no real opportunity to evaluate their success objectively. In researching this subject, one of the things that struck me — I mentioned it in the paper that I presented on 3 August — is the ability of civil servants and politicians to sit back, open the doors and ask people to tell them what they think of what they are doing and whether they are doing it wrong. When the Republic of Ireland took that approach, particularly in the 1960s, it opened itself up to ridicule. The 2004 OECD examiner’s report, ‘Review of National Policies for Education: Review of Higher Education in Ireland’, is significant because it proposed a change in direction. Barry McElduff mentioned T K Whittaker. An interesting point, which touches on the paper that I presented last week, is that T K Whittaker was a civil servant who, at the age of 39, was promoted to the position of permanent secretary. Seán Lemass sponsored him and gave him the opportunity. He was innovative and creative, and he was given the opportunity to record his thoughts and work outside the rigid Civil Service system. T K Whittaker was an important catalyst for the changes to the system in the Republic of Ireland. He was originally from Rostrevor. The Chairperson (Mrs Long): I thank Dr Gilleece for the contribution that he has made to the subgroup with the paper and the answers to members’ questions. There will be an opportunity to explore the paper in more detail during the sessions set aside to consider written evidence. Dr Birnie has proposed further research. Does anyone wish to second that proposal? Ms Ritchie: I second it. The Chairperson (Mrs Long): Do members agree? Members indicated assent. The Committee Clerk: Peter is on holiday next week. Therefore, he will not be available on 15 August to answer any questions that arise from his paper. I can ask the Department for Employment and Learning to provide the additional statistics. Dr Gilleece, do you have access to those? Dr Gilleece: Not in the time available, but I can gather them when I come back from leave. I will probably be on leave for most of the following week as well, but when I come back, I will address that issue if it is still relevant. As Dr Birnie said, without the statistics, it is difficult to compare like with like. The Chairperson (Mrs Long): OK. That will be noted. Do members have any other items of business that they wish to raise? Some Members: No. The Chairperson (Mrs Long): Good. The next meeting will be held at 10.00 am on 15 August, when the subgroup will consider written submissions. Members have been provided with a draft agenda. To repeat what I said earlier, it would be helpful if those members who are going to attend that session are given advance access to the written evidence to give them the opportunity to study it. Adjourned at 1.59 pm. < previous / next > |