SUBGROUP ON THE ECONOMIC CHALLENGES
FACING NORTHERN IRELAND

Thursday 21 September 2006

Members in attendance for all or part of proceedings:
The Chairmen, Mr David McClarty and Mr Francie Molloy
Mr Roy Beggs
Dr Esmond Birnie
Mr Wilson Clyde
Mr John Dallat
Mr David Ford
Ms Michelle Gildernew
Mr Fra McCann
Mr Kieran McCarthy
Mr David McNarry
Mr Ian Paisley Jnr
Ms Margaret Ritchie
Ms Kathy Stanton
Mr Peter Weir

Economic adviser to the subgroup:
Mr Mike Smyth

Witnesses:
Dr David Dobbin, Economic Development Forum
Dr Michael Maguire, Economic Development Forum
Mr Seamus McAleavey, Economic Development Forum
Mr John Simpson, Economist

The subgroup met at 10.10 am.

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

The Chairman (Mr McClarty): The meeting is now quorate and we can begin. I thank members for attending in good time despite the inclement weather.

I have received apologies from Dr Alasdair McDonnell, who will be replaced by John Dallat. Sean Neeson will be replaced by Kieran McCarthy. Ian Paisley Jnr has to leave about noon, and he will be replaced by Wilson Clyde. Peter Weir will not arrive until about 11.00 am. Roy Beggs is substitute for David McNarry. Francie Molloy will chair the afternoon session, which begins at 1.15 pm. Are members aware of any other apologies or changes?

Ms Stanton: Michelle Gildernew is on her way; she has been caught in traffic.

The Chairman (Mr McClarty): Members have the draft minutes of the meeting of 14 September in front of them. Once agreed, they will be placed on the Assembly website. Are members content that they are an accurate record of proceedings?

Members indicated assent.

The Chairman (Mr McClarty): Item 3 on the agenda is matters arising. At its first meeting in July, the subgroup agreed that Hansard should record all subgroup meetings in their entirety. That has been done to date, aside from meetings when the subgroup has been considering its draft report.

The suggestion is that Hansard should commence recording at the start of the open session, omitting the administrative business conducted in the closed session at the start of each meeting. What are the members’ views? Any decision reached in that part of the meeting would be recorded as usual in the minutes of proceedings. Today’s meeting will be recorded in full, but if members agree to the suggestion, it will be implemented from the next meeting.

Mr Beggs: That was normal practice in previous Assembly Committee meetings. It would save unnecessary work.

The Chairman (Mr McClarty): Are members content that this meeting will be recorded in full, but that for future meetings the business part at the start will not be recorded?

Members indicated assent.

The Chairman (Mr McClarty): I have received a number of pieces of correspondence. Recent corres­pondence with the Preparation for Government (PFG) Committee is included in the members’ pack. As agreed last week, the subgroup wrote to the PFG Committee regarding its quorum and also to request a written ministerial response to its first report. The subgroup requested that its quorum be reduced from seven, excluding the Chairperson, to five, excluding the Chairperson, with the proviso that a representative from each party is present. The PFG Committee has approved our request.

Mr Beggs: If members from one party are absent, the Committee cannot meet. It is a restrictive require­ment. The onus is on members to attend, but I wish to highlight that potential difficulty.

The Chairman (Mr McClarty): That has not occurred this morning, thankfully.

Mr Beggs: At one stage this morning five members were present, and we had to wait until others arrived.

The Chairman (Mr McClarty): It can cause a difficulty.

Mr Ford: It has been the practice, both in the PFG Committee and in the subgroup that meetings do not start in the absence of any of the five main parties. Therefore this formalises that practice.

The Chairman (Mr McClarty): I do not think anyone was getting at you, David, for your late arrival this morning. [Laughter.]

Mr Ford: I thought Roy was getting at Esmond, after what David was saying about Esmond.

10.15 am

Ms Gildernew: I am not normally last. Sorry for being late.

Mr Ford: It is me he is getting at, Michelle, not you.

The Chairman (Mr McClarty): Thank you for your attendance, Michelle.

With respect to a response to the first report, the PFG Committee did have time, at its last meeting, to consider our request that it urge the Secretary of State and his Ministers to respond promptly to the first report.

A request was made for this to be considered at the next PFG Committee meeting on Monday 25 September.

Last week, David Ford raised the issue of the distri­bution of press releases agreed by the PFG Committee. We checked with the Assembly’s Information Office staff, who told us that all press releases issued by Assembly Committees and subgroups are faxed to approximately 85 newspapers, journalists, TV and radio stations in Northern Ireland, the Republic of Ireland and Great Britain. They are also e-mailed to several local journalists and to the Press Association. If members want individual journalists to be added to the list, secretariat staff will raise that with the Information Office.

It was agreed last week that a letter to the Secretary of State requesting a full report on North/South economic collaboration through the British-Irish Intergovernmental Conference would be issued. A copy of the letter is available for members to note.

Information requested from Minister David Hanson on the industrial derating working group is included for members’ attention. Mr Hanson will chair the group, which includes representatives from the Northern Ireland Manufacturing Focus Group (NIMFG), Amicus and departmental officials. The draft terms of reference for the group are attached. These will allow the group to reach conclusions by late November 2006.

Ms Ritchie: Do we know anything about the timings and frequency of those meetings?

The Committee Clerk: We have not been briefed on that as yet.

Ms Ritchie: Can we obtain the details? We are entitled to know.

The Chairman (Mr McClarty): OK, Margaret. We will take that on board and try to find out.

Dr Birnie: My point is similar to Margaret’s. The industrial derating working group says that it is to reach conclusions by late November, but has it reached any interim conclusions at this point? After all, the group does something similar to what we are doing.

The Chairman (Mr McClarty): We will make enquiries, Esmond.

We move to the evidence from the Department of Enterprise, Trade and Investment (DETI). Departmental officials were invited to give further evidence on the new terms of reference, including priorities for public expenditure to support economic growth; how an economic package might best be deployed; the potential costs and benefits of various fiscal measures; additional information on the case for corporation tax variation; and any legal advice that the Department would be willing to share.

We have received a reply from the Secretary of State; a copy of his correspondence is included for members’ information. In summary, DETI officials cannot attend, as to do so:

“potentially breaches the relationship between them and the Government Ministers they advise; and in effect might cause them to anticipate conclusions which only Ministers could reach.”

The Secretary of State explains that he is seeking the Assembly’s views on how the impediments to the economy should be addressed in policy terms. If officials were to give evidence on the said matters, the independent advice that Ministers receive could be compromised. He also points out that DETI was being asked to address excepted matters such as Government fiscal policy, which is the responsibility of the Treasury.

The Secretary of State also explains that DETI cannot undertake the specific research envisaged by the subgroup, but will:

“do all they can in the areas where factual information or analysis may be available”.

Have members views on that response?

Mr Paisley Jnr: Is that a guarded “no”?

The Chairman (Mr McClarty): How do members wish to take that forward?

Ms Ritchie: That response is a follow-up to the question that I put to Maria Eagle, when I asked her what the Government considered to be the contents of an economic package or dividend. She blankly refused to answer in an obvious attempt to redirect the question to us. We need some idea of what Ministers may be thinking. If they can provide us with information, could we get around it that way?

The Committee Clerk: The decision could have implications for the subgroup’s new terms of reference. In its first report, at recommendation 16, bullet points 2 and 3, the subgroup recommended that DETI should commission an independent study of the benefits and strengths of the fiscal incentives. Part of the new terms of reference is to consider the results of that research, and also Victor Hewitt’s research on corporation tax. Clarification may be required on that issue.

Mr Smyth: Is there inconsistency? The subgroup has already taken evidence from the Department of Finance and Personnel (DFP) on those issues. In my reading of the minutes there was no issue of our terms of reference being compromised. What is the difference between DETI and DFP?

The Committee Clerk: From my reading of Hansard, I recall that DETI officials expressed concern about constitutional constraints. We have drafted a response from members to the Secretary of State. Has that letter been tabled?

The Chairman (Mr McClarty): We will circulate the draft response.

Mr Paisley Jnr: You could be kind about the Secretary of State’s letter and describe it as froth, but I am not in the mood for being kind.

Ms Ritchie: Are you ever?

Mr Paisley Jnr: The letter is evasive and does not address the issues that we raised with the Secretary of State. It is patronising; it kicks the ball into the long grass so that the subgroup does not put agreed decisions to the Secretary of State on which he would have to act. The worst thing that could happen to the Secretary of State would be the subgroup’s agreeing something that he would be forced to act on. We should keep that in mind when looking at the issues.

Dr Birnie: I agree with Ian that the response is disappointing. I note that in his letter of 18 September, Mr Molloy asked specifically about further information on DETI’s understanding of the implications of the Azores judgement on corporation tax. However, the Secretary of State has not dealt with that. The Azores judgement is a separate issue to which we may have to return later in the meeting. Further research may be needed, and although it is a lengthy judgement, it would be helpful if we all could have a copy of it.

The Chairman (Mr McClarty): Have members been given the draft response?

The Committee Clerk: No. It can be read out and then tabled.

The Chairman (Mr McClarty): This is the draft response to the Secretary of State:

“Dear Secretary of State,

I am writing in response to your letter of 18 September 2006 to Mr Jim Wells MLA, in relation to the sub-group’s request for further evidence from DETI officials. Your letter was considered by the sub-group at its meeting on 21 September 2006. Members welcomed your positive comments in relation to the work of the sub-group but were disappointed that DETI officials were unable to attend to give evidence.

In issuing the invitation the sub-group had hoped that scope would exist whereby the DETI officials could provide further evidence which would inform the sub-group’s work on its new terms of reference. Whilst noting the constraints on officials, as described in your letter, the sub-group has asked me to write to you to seek clarification on the following:

whether the recommendation in the sub-group’s first report to the Committee on the Preparation for Government, namely that DETI commission an independent study into the costs and benefits of the various fiscal incentives, can be met by DETI;

whether DETI can provide the sub-group with any factual information which it may have on the benefits and costs of the various fiscal incentives; and

whether DETI can provide the sub-group with the results of the research which it is undertaking on the issue of Foreign Direct Investment.

The sub-group would welcome early clarification on these matters.”

Mr Beggs: That is a very reasonable response.

The Chairman (Mr McClarty): Are members happy to accept that?

Mr Paisley Jnr: I think that it is too reasoned.

Look at what the Secretary of State says in the last paragraph on the second page of his letter:

“I trust that you and your colleagues on the Sub-group recognise my dilemma and accept that I remain committed to a successful outcome to your important work, and to giving your analysis full and careful consideration.”

That is some patronising stuff. We are not here to provide an analysis for the Secretary of State; that is not what we have been tasked to do. Yet he expects us somehow be sympathetic to his dilemma. We should send a fairly robust response to the Secretary of State asking him if we are wasting our time. Does the Secretary of State think that we are here to provide him with an analysis that he can then set aside? He should be asked to recognise the dilemma that he has caused us by his refusal to allow us to probe officials on the issues, as we consider necessary, to enable us to put forward a demand for a financial package. We should be more robust with the Secretary of State.

Mr Ford: The tenor of the letter might reflect the precise constitutional niceties had we been asking for advice given by Treasury officials to the Chancellor, or something of that nature. However, this is a subgroup of the Committee for the Preparation for Government, established by the Secretary of State and with a remit to explore economic issues in depth; it is completely ridiculous that he is not prepared to allow officials to meet us.

I have no doubt that if the officials were to attend, they might have to apologise for not being able to answer some questions, or say that certain matters were currently under consideration. However, to refuse to allow them to attend meetings at all is ridiculous, particularly when we have asked specific questions. “What is your understanding of the Azores judgement?” is a perfectly reasonable question to ask in any circum­stances, and the Secretary of State ignores it in his letter. Our letter to him needs to be slightly beefed up.

Ms Gildernew: I agree that in normal circumstances the letter would be grand, but not in the current situation. I sense a general grumpiness around the table this morning, and that should be conveyed to Peter Hain.

I was in the Senate Chamber on Monday morning when the Secretary of State said that within reason, the PFG Committee had his full support and that of his ministerial team. Obviously, permitting officials to attend meetings of this subgroup is not considered to be within reason. The letter should be a bit crankier; we should let the Secretary of State know that we are not happy with his response.

The Chairman (Mr McClarty): Going by the comments that have been made, the Committee Clerk will have to take a leaf out of Ian’s book and not be so kind in future.

Ms Gildernew: There is no need to go that far. The Clerk is a lovely fellow. [Laughter.]

Mr Paisley Jnr: I advise everyone to avoid reading a book called, ‘How to Win Friends and Influence People’.

The Committee Clerk: I will draft a slightly more robust letter.

The Chairman (Mr McClarty): New evidence has been received from the Industrial Task Force following last week’s evidence session. There is also a further written submission from UUTech Ltd. A minute outlining legal advice from Assembly Legal Services in relation to the scope for varying corporation tax in Northern Ireland has also been tabled. I ask members simply to note the new evidence at this stage, as it will be discussed later today.

Ms Gildernew: I would like some clarification of George Quigley’s paper on behalf of the Industrial Task Force. At present we come under the UK tax system, and the UK corporation tax rate is shown here as 30%. However, for small and medium-sized enterprises, the rate is 19%. If there are two different tax rates, we need the fuller picture in order to make a proper comparison.

Mr Smyth: The effective average tax rate (EATR) is a weighted average of the two rates and reflects the fact that in Northern Ireland more than 96% of businesses employ fewer than 100 people. In Britain, the figure is 91%, which is similar. Therefore, there is a heavy weighting towards the top rate of 30%. We will return to that issue throughout the day.

Mr Paisley Jnr: Are you saying that that is the effect on the ground?

Mr Smyth: Yes. For purposes of comparison, you need to look at the EATR, in the right-hand column of the table.

The Chairman (Mr McClarty): Additional information from Victor Hewitt of the Economic Research Institute of Northern Ireland (ERINI) has also been tabled.

Mr Paisley Jnr: Before we leave Sir George Quigley’s evidence, I want to point out that the heavily weighted figures that he provided must be recognised. Perhaps we will get a chance to discuss them later. He lays down some heavy markers with regard to the economic package, tourism and other headline issues. I want to put a lot of emphasis on those points.

10.30 am

The Chairman (Mr McClarty): I must correct myself: the economic subgroup has not received that information from Victor Hewitt as yet. It is hoped that members will have received it by this afternoon. The legal advice that the subgroup has received has been passed around.

All organisations and individuals who gave oral evidence and sent written submissions for the first report have been contacted in order to determine whether they wish to make further submissions. Apart from those who were present last week, and those who are here today to give oral evidence, only UUTech Ltd has sent further information.

I remind members that as we are now in open session, the discussion will be recorded.

Good morning, gentlemen. You are extremely welcome.

Dr David Dobbin, Mr Seamus McAleavey and Dr Michael Maguire represent the Economic Development Forum (EDF). They have been allocated one hour. They did not provide a written submission in advance, but I believe that they have brought a paper with them.

The three witnesses are the outgoing chairpersons of three of the four EDF vision subgroups, namely the innovation, skills and enterprise subgroups. In discussing our terms of reference, they are likely to refer to the work of their respective subgroups. I ask members to keep their questions brief and focused on the terms of reference that have been included at the front of members’ packs.

Mr Seamus McAleavey (Economic Development Forum): Thank you for the invitation to the meeting of the economic subgroup. We are non-governmental members of EDF. Some of the economic subgroup’s members will have experience of EDF. On Tuesday, EDF held a meeting at which party representatives were present.

We have been to meetings of the economic subgroup with our own organisations: I have been here with the Northern Ireland Council for Voluntary Action (NICVA), David Dobbin attended with the Confed­eration of British Industry (CBI) and Michael Maguire represented the Institute of Directors (IoD). Today, we will deal with matters from an EDF perspective and from that of the subgroups in which we are involved.

I chair the medium-term strategic priorities subgroup, which developed the seven medium-term strategic priorities that EDF set. Those priorities are outlined in our document ‘Working Together for a Stronger Economy’, copies of which I have provided for members in case they are not familiar with them. I am sure that some members will be.

David chairs the innovation subgroup, and Michael chairs the skills subgroup. I have also been involved in the enterprise subgroup. Lord Rana, its chairperson, could not be present today, and, in the time available, we were not able to rustle up the chairperson of the infrastructure subgroup.

The strategy document was created before the ‘Economic Vision for Northern Ireland’, which built on it. We laid out a series of strategic priorities, and then set high-level targets or indicators for them — there was also a secondary set of indicators — to look at the interventions that could make real progress with the economy in Northern Ireland. We have begun to monitor those indicators and to examine how the economy has performed.

Over the past year, Regional Forecasts, which is led by Graham Gudgin, has been carrying out work for us on those indicators. Some members here may have been present at a meeting a year ago when the EDF received a report that said that if Northern Ireland continued with its current policy interventions, there would be flat-line development on almost all those indicators up to 2010 and further to 2015, and, on some indicators, the situation would get worse. If we continue as we are, there will not be much improvement. That appears to be the empirical evidence, and that is our forecast.

The EDF has been trying to consider possible Government interventions that could make a difference. We have started setting up and testing scenarios but, unfortunately, we do not have the results of that yet. We have a first draft, but the medium-term strategic priorities subgroup has only begun to consider that. It would have been great if the results had been available for the economic subgroup. The areas that we are examining relate to employees in tradable services. For example, if employment in those services were to increase to 5% of total employment by 2015, what realistic difference would that make?

Other scenarios being considered and modelled are total value-added-tax (VAT) registrations per 10,000 businesses. If that were to increase to the UK level by 2015, what would be the likely impact? What if, by 2015, the number of jobs created through inward investment were to increase to 3,000 per annum; business expenditure on R&D, as a percentage of gross value added, were to increase to 70% of the UK level; or the percentage of the working-age population qualified to at least level 4 were to increase to 30%?

The model is unlikely to produce a set of results that will show where all the policy interventions should be made. There will be a lot of debate and nuance around that. However, we hope to find some evidence to suggest what changes Northern Ireland could make that would make a difference.

The main issues that have arisen on the enterprise subgroup, of which Lord Rana is the chairman, concern the low level of exports from Northern Ireland. Only about 10 serious companies are involved in major exports. The majority of exporting from this region is to the Republic of Ireland and Great Britain, although Mr Smyth might consider goods sold to Great Britain not to be exports at all. A great deal of work needs to be done on that.

The enterprise subgroup has also considered the problem of the low enterprise culture in Northern Ireland. That issue has been around since the discussions on ‘Strategy 2010’. It is not a question of simply telling the private sector that it should be more enterprising and entrepreneurial: the public and voluntary sectors also need to be more enterprising. We need to think more innovatively — that is the challenge. The enterprise subgroup believes that the public sector must take the lead, because it is such a big player in Northern Ireland. We need to change the culture of enterprise in that sector. When I gave evidence to the subgroup on behalf of NICVA, I drew on some of the conversations from the enterprise subgroup.

Therefore a future Northern Ireland Executive will have to consider how it uses its Public Accounts Committee (PAC). It will also have to examine the performance management structures of the Northern Ireland public services and how people are recognised and rewarded for being enterprising and innovative towards change. Dr Dobbin will now talk about innovation.

The Chairman (Mr McClarty): Before we continue, I remind members to switch off their mobile phones because, even in silent mode, they interfere with the recording equipment.

Dr David Dobbin (Economic Development Forum): The vision document that was published a while back, and was launched by the Minister, was worked on by all the stakeholders. It addressed the four main drivers — innovation, skills, infrastructure and enterprise — that are required for the development of a private-sector economy. Four subgroups relating to the four main drivers were set up by EDF in addition to the original medium-term strategic priorities subgroup. Each of those subgroups examined what could be done better or differently in the four key areas. They examined new initiatives that could make a difference or enhance what was already happening.

I have a handout that summarises what I am going to say, but I will give members a synopsis of the work to date and the status of the innovation subgroup’s work. The Government talk about the importance of more R&D spend. At the outset, we want to differentiate between innovation and R&D. Innovation is concerned with the commercial side, where ideas can be turned into a product or service that can be sold and on which money can be made.

R&D is about discovery and creating new knowledge; innovation is about exploiting that knowledge in product and services. Innovation is nearer to the market, and it has a much more economic relevance than R&D. That is not to say that R&D is not important, because, ultimately, innovation flows from R&D. However, businesses can have innovation without R&D. The innovation subgroup is focusing on innovation — the creation of wealth from the exploitation of knowledge.

To date, the innovation subgroup has focused on nine key issues: tradable services; nanotechnology and key technology areas; collaboration between business and higher and further education; research centres of excellence; the regional science-industry council; clustering; innovation skills; innovation metrics or measurement; and foresight. One of the key areas on which the innovation subgroup has focused is tradable services. Most commentators believe that progressive western economies will grow in tradable services and decline in manufacturing and that manufacturing will move to lower-wage economies.

Tradable services are services that can be sold across frontiers and that can be exported, as opposed to services that are provided only in the domestic market. Tradable services include IT-related services, R&D, market research, architecture and engineering, technical support, advertising and creative entertainment, etc. They cover services that can be worked on locally but sold globally. Northern Ireland’s economy is under-represented in that sector. We have just over half the level of tradable services activity of the UK economy.

There is a big drive to expand the tradable services sector. However, there is a fear that we will attract tradable services that are low in added value. For example, some call centres — which are technically tradable services — are competing with low-cost call centres in China and elsewhere. In my previous evidence to the subgroup on the subject of call centres, I made an analogy with battery hens. We want to avoid those types of tradable service jobs, although they are better than no jobs. We want to create jobs that require higher skills and command higher fees for the service, and therefore provide more wealth for Northern Ireland.

The good thing about tradable services is that they generally create high employment. They are employment-concentrated, unlike manufacturing, which is asset-centred.

10.45 am

We are exploring ways to address this issue, and the view is that we must look at innovation and more novel tradable services, as opposed to those that already exist. We have therefore considered what innovation could bring to tradable services. We have commissioned DETI’s research unit to prepare a report, which will be ready shortly, to analyse where the value and growth is in tradable services and to identify the areas in which innovation plays a bigger role. We can then start to encourage Government and business to invest in R&D and innovation in tradable services — at the moment, investment in R&D and innovation tends to be focused more on technology and science.

One of the key technology areas that is emerging globally is nanotechnology. Nanotechnology has commercial applications in almost every industrial sector: food; pharmaceuticals; engineering; electronics; and so on. We already have quite good research strength in nanotechnology, and we could become strong in that area if we can get in on the ground floor. We have discussed how that can be achieved. The universities believe that more investment is needed in PhD-level capability in universities. That would support research and, ultimately, feed skilled students out into industry.

That discussion led to a wider debate. Five key technology areas have been identified in the vision: agrifood; aerospace; ICT; life sciences; and nanotech­nology. Progress in those areas will be important for the economy. Our work was extended from nanotech­nology into all those areas. We talked to universities, and others, about how we could do more. The talk was generally about how capacity could be created through additional PhDs. A couple of years ago, the Department for Employment and Learning (DEL) cut its funding for higher degrees as part of a reduction in spending. The universities said that that was foolhardy. Northern Ireland has one of the lower levels of PhD students in the UK, yet it has a very good graduate output.

That has led to the innovation subgroup challenging the two universities. They continue to say that they want money for various bits of research and PhDs; we have said that it would be better for the universities to put their heads together and say: “If we had more resources, these are the outputs and outcomes that we could offer the economy.” As a result of the innovation subgroup’s work, the universities are now preparing an economic strategy and development plan outlining what they can do for the economy and what they need to be given to enable them to do it. That will be a very valuable contribution for the economic subgroup to consider. In the past, the economy was built around labour or natural resources; in the future, most people will regard universities as being key economic centres in the creation of knowledge that can feed out into jobs and wider economic activity. It is essential that we push the universities to be more economically aware. They are receiving huge amounts of taxpayers’ money, and we want to see more bang for our buck.

We have also explored how small businesses can become more active in innovation and R&D. We have a small-business economy, and small businesses generally find it hard to interface with universities or to get involved with research, either because of a lack of resources or a lack of sophistication. DEL has come up with a higher education/further education collaboration fund, and the Minister has now approved £3 million over the next three years. That fund is to be used to encourage small and medium-sized companies to interface with colleges and universities so that business can avail of some of their intellectual expertise. We call that technology transfer.

There is a bit of wrestling going on between the innovation subgroup and DEL. We think that the resources should be directed at people in further education colleges who face towards businesses, so that they can visit businesses, build links with them, try to understand their problems and enable them to access the expertise in colleges and universities. DEL and the universities want the money to go into general university budgets. The matter is currently out for consultation, and DEL is reviewing how it will spend the money.

The idea is good, but we must ensure that its execution delivers the objective.

Over the past number of years, there has been significant spend, funded by European Peace II and Invest Northern Ireland (INI), on R&D centres of excellence. We asked INI for a report on how well the centres of excellence are performing; whether they are generating commercially exploitable output; whether they are helping the economy; and, indeed, whether they are active. We have received a stage-one report, although it is not quite finished. The results are a mixed bag. Some of the R&D centres are doing very well; others are not. We want to identify those centres that have the legs to be world-class and to drive research, innovation and the economy. We have commissioned INI to look specifically at those centres that could become internationally competitive in research.

We asked INI to look at the island as a whole, because some local companies feed off research from Southern Ireland institutions. INI is to determine what else is happening on the island and gauge whether we could lock into R&D centres in the South, and, indeed, in the Great Britain and world markets. Work is being done on the island of Ireland, globally and nationally to see how we can tap into the knowledge generated by other markets.

An initiative designed to help with that is the formation of a regional science industry council. Most other regions in the UK have a group of, if you like, wise men.

Ms Gildernew: And women.

Dr Dobbin: They are mainly people from industry and academia who advise Government on what research should be carried out, whether current research spend is in the right shape and what technological advances should be pursued. We are forming a regional science industry council in Northern Ireland that should hit the road in October. Its job will be to consider areas of R&D and technology in the Province, stimulate technology transfer and encourage the development of R&D.

We have also considered foresight. That means creating a vision of where technology will go in the future so that companies have a roadmap of the ideas and knowledge that they should be acquiring. The results of that work have been a mixed bag. Some of the foresight exercises in the five key areas, which include agrifood and aerospace, have been excellent; others have been weak.

One of the weak foresight exercises was the agrifood industry. Northern Ireland has a strong agrifood industry cluster, but weak foresight. As a result, we commissioned, through the Northern Ireland Food Strategy Group, a report from a team chaired by John Gilliland. It has just produced its findings that show where the agrifood sector could go and how it could move from a commodity-focused basis to generating products that could create great wealth and secure the future of the industry. It is an encouraging report. The regional science industry council will take such work forward.

There are two other areas, the first of which is measurement. At the moment, as part of an EU survey, we measure innovation activity only once every three years. We have recommended that it be measured every year so that activity can be tracked and a watch can be kept on whether policies to stimulate innovation are working. Measuring innovation only once every three years creates too long a feedback loop to know whether an approach is working. Therefore we instituted the yearly survey for Northern Ireland, the first of which will be published in spring 2007.

The second area, which is skills, might lead into Michael Maguire’s contribution. It is vital that we build innovation into the curricula for schools and further and higher education colleges. We must create in our young people the skills to innovate and an awareness of the need to innovate. Therefore, through Michael Maguire’s group, we have been working on how we can embed those skills in the curriculum, particularly through the new learning for life and work element.

Dr Michael Maguire (Economic Development Forum): As with David Dobbin’s innovation subgroup, the skills subgroup took as its starting point the skills issue that was identified in the ‘Economic Vision for Northern Ireland’. One of the four drivers is to ensure that our people have the right skills for future employment opportunities. The subgroup’s first task was to decide the priorities of such a broad area.

There are four areas on which we felt we could focus. The first is to consider how to increase the literacy and numeracy skills and qualifications of the workforce. The second is to use labour market information provided by employers to clarify what skills Northern Ireland industry will need in the future. The third is to survey managers to gauge their capacity, competence and capability to lead innovation and economic development. The fourth is to review careers information, advice and guidance for all levels of the population.

The subgroup of which I am chairman comprises deputy chairmen from the trade unions, representatives of the voluntary sector, members of the business community and civil servants. In just over a year, the subgroup met approximately nine times. When deciding the subgroup’s remit, members agreed on a number of issues around which to cluster discussions. In the beginning, the view was that the subgroup should not try to reinvent the wheel. The subgroup was aware of the fact that DEL was due to publish a skills strategy that would act as the blueprint for future skills develop­ment in Northern Ireland. Therefore in the early stages of the subgroup’s work, members spent a lot of time with civil servants from DEL, as they produced and refined the skills strategy. As it developed into an implementation plan, the subgroup used the strategy to offer advice and to challenge the issues that were coming forward. As that discussion evolved, a number of points emerged.

As I have said at previous meetings, the skills strategy is good. It sets out objectively what we should be trying to achieve with FDI, such as encouraging SMEs and entrepreneurial growth in the local economy and enhancing literacy and numeracy, so that individuals have the skills that they need to enhance their employ­ability and that employers have the necessary skills to develop their businesses. Having considered the strategy’s aims, the subgroup’s starting point was to agree that, in the main, that was the direction in which it should go.

I shall highlight two issues that emerged from the subgroup’s discussions. The first is that we need to accelerate work on the future skill needs in Northern Ireland, and the subgroup strongly encouraged DEL to establish the expert skills group on future skills needs, the objective of which is to map out where the economy is going and what kinds of skills will be needed to put it where we want it to be.

The second issue links with some of the points that Mr McAleavey made. Performance management, particularly that of outcomes, is extremely important. Compared to DEL’s aims, that area was quite weak. Therefore the subgroup encouraged the establishment of a project to consider specifically how the strategy’s outcomes would be measured.

The subgroup presented the strategy to EDF, and there was general consensus that that was the correct way forward. Having set out the strategy, I asked for a breakdown of the funding for the four main themes associated with its delivery. At that point, several issues emerged. Members will have seen my EDF report, which raised questions about the focus of the money and the fact that it was concentrated on one particular theme. That led people to question whether some areas are not funded adequately and whether we have ensured the maximum return from the areas that receive block funding.

The subgroup also considered careers information and advice. Its view was that the concerns go right through the value chain. As young people go through school, their perceptions and career aspirations are shaped by the advice that they are given. The subgroup had concerns about the quality, independence and objectivity of that information and advice. In that context, the subgroup asked for a series of presentations from DEL and the Department of Education (DE) to find out what needs to be done in that area, where the weaknesses are, and what needs to be addressed.

An outcome of those presentations was a three-day conference with DEL, which brought together stake­holders to address what are we trying to fix and identify the problem. At the last EDF meeting, the subgroup presented a series of recommendations from that process, which gave a much clearer view of what is needed from a careers information and advice service.

The next question — although I will not be around to ask it — is: what will the remodel look like? It is not just about retaining the service in the schools or giving the teacher another qualification; it is about objectifying and providing an independent service to a broad range of young people in Northern Ireland. The question is: how do we move forward?

11.00 am

The next issue that we looked at was management development and leadership. It is not too trite to say that everybody believes that the quality of Northern Ireland managers is critical to the development of the economy. Therefore we invited presentations from the Management and Leadership Network, DEL and others to talk about what is happening in management and leadership.

The first thing that strikes one is that a huge number of people are involved in the delivery of management development initiatives. That raises many questions. What we are trying to achieve? Are the relationships joined up? Is there a context in which all this work takes place? We welcome the work of the Management and Leadership Network, which tried to set out a policy on management development. It looked at the private sector, the voluntary sector and the public service to map out the competencies that are required to improve our management capability.

There were many strengths in that respect. At one meeting we had a large number of representatives from the universities, Departments and private companies who felt that that approach was a good way of addressing management development. We in Northern Ireland are very good at strategising; however, the question is what to do about it. Will there be funding to allow appropriate implementation?

The next issue that we addressed was the development of links between further education colleges and schools. We spoke to the Department of Education and to others about curriculum development and about the options that are open to young people. It is our view that a focus on a particular form of academic education — which is very good in its own right, and I am not suggesting that we touch it — can limit those options. Not everyone is an academic, and there must be other routes into employment. One way is to move the debate beyond the schools to bring in further education colleges to examine the wider range of options that are available. People who may benefit from a non-academic approach could avail of other options through their school career. That is very much part of curriculum development in the Department of Education.

We took presentations about the vocational enhancement programme, the objective of which is to build strong links between further education colleges and schools. We were very impressed by how the programme has grown, albeit in the face of some resistance from schools with regard to broadening the curriculum. Moreover — and this issue has emerged elsewhere — one bumps up against a perception of the value of what used to be called “vocational education”. The proper term now is “professional and technical skills”. There is more to the education system than doing an A level in English; there are other things that we need to do. We were impressed by the vocational enhance­ment programme’s attempts to build the relationship between schools and further education colleges.

The vision is in place, and we have tried to align with DEL’s delivery of it. We need to look at the other key players. One of them is the Department of Education. A year or 18 months into the process we began to talk to the Department about the economic intent of the education process and about the Department’s economic intent. As it set out its stall on school performance, curriculum development and improved levels of literacy and numeracy, it became clear that there is a strong economic dimension to education; it is not education for its own sake. I shall come back to that point.

In considering the role of further education, we were impressed by the work that has been done in North Carolina on the role of community colleges in foreign direct investment. We asked for discussions with DEL and Invest Northern Ireland about the links between Invest Northern Ireland and the further education sector, and between it and DETI more generally. The impression that emerges is that there is activity, but it appears to be ad hoc and fragmented. There is no strong awareness of the capability, the value and the relevance of the further education sector in professional and technical skills development. It is either a way of encouraging current employers to develop their in-house training or, equally important, it is a vehicle for part of the package for foreign direct investment. We learned from North Carolina that its community colleges are strongly linked up with foreign direct investment and that they provide an in-house training service to companies that want to locate in the area.

It is about tying the education and training infrastructure into a more economic focus.

Those are the general issues that we examined. I reflected on the economic challenges subgroup’s terms of reference to see what themes were emerging. I want to draw a number of points to your attention.

First, Northern Ireland is good on strategy, but it cannot escape implementation. If you focus on the expenditure profile of DEL and question the funds available for the delivery of some issues on the education side, the presentations raised some questions for me, and certainly for the EDF skills subgroup, about the Departments’ abilities to deliver on their agendas. We can all sign up to those agendas, but will there be follow-through, and is the necessary funding available? In the economic challenges subgroup’s report, I referred to the fact that there is a tendency for funding to be based on historical allocations rather than on a planned approach based on the implementation of strategies. We are caught up in past funding decisions rather than working on the basis of present needs.

Secondly, cross-departmental collaboration is critical. The issues that we have already discussed — careers, management development, links with further education colleges and schools, and economic develop­ment — cannot be taken forward if Departments are working in isolation. There must be strong links between DEL, the Department of Education (DE) and the economic development agencies in order to progress the relevant and appropriate aims. In the absence of those links, departmental silos might override our common objectives.

Thirdly, we need to examine the education infra­structure; David Dobbin has already mentioned this issue, on which we have a shared view. Higher education receives an allocation of £230 million; further education receives an allocation of £163 million. The extent of DEL’s influence in this sector is variable. Universities in Northern Ireland operate under charters, and they can decide what they want to do. David Dobbin has already spoken about the important issue of reaching agreement on the economic contribution of universities.

I asked for a profile of students in further education — whether they were full-time or part-time students and what they were studying. An interesting point emerged. In that, in 1999, priority skills areas were identified to help the FE sector to move forward. Currently, only 30% of students are studying in priority areas; 64% of students are studying general vocational skills; and the rest are in the hobbies and lifestyles category. No one questions whether a child can do A-level English or A-level chemistry. It is a question of supply and demand. For maximum benefit, we need to join the dots between the FE sector, the universities and the economic development agencies.

The fourth theme to emerge from our research was the approach taken to professional and technical skills. People often have outdated perceptions about the nature of vocational training and the quality of FE provision. The EDF skills subgroup’s view is that further education is critical in widening the options available to young people. An increase in the number of smaller colleges would help to crystallise and develop that sector. However, we need a different mindset about vocational professional and technical, skills, because they can be undervalued.

Expenditure on skills development could be driven by a GB initiative. Why does Northern Ireland, with a population of one and a half million, have 13 sector training councils and 25 licensed sector skills councils? The reason is that England and Wales have that number of councils, and that is not necessarily the best logic to use in trying to develop a training infrastructure in Northern Ireland. Departmental officials did not agree with us on that issue. We must focus on the needs of our local economy.

Finally, it is important to set some parameters that will establish, as Dr Dobbin has been doing in his area, where the future skill needs are. The work that the Department has started in that area is important in the context of the expert skills group.

I have a written paper, which I shall leave with members when we are finished.

The Chairman (Mr McClarty): I thank Mr McAleavey, Dr Maguire and Dr Dobbin for those interesting and informative presentations. No doubt they have generated a number of questions in members’ minds.

Ms Ritchie: Thank you for coming along today. We seem to have met on various occasions now.

Dr Dobbin, in your submission, which follows on from last week’s, you say that we need more PhD students in five specified technology areas. Do you think that that is an area in which some of the economic package could be invested? What do you see as the benefits and costs of those initiatives?

You also referred to the fact that our two universities are developing an economic development plan. When will they have that ready? It could inform some of our work, given the limited nature of our timescale.

Dr Dobbin: The costs will be part of the report that the two universities are working on, to some extent. The subgroup could contact Prof Gerry McCormac at Queen’s. He is working with both universities, and he presented the draft report. I could contact him and ask him to get in touch with the subgroup.

When we talked initially about nanotechnology, the universities said that £1 million a year would make a big difference. I do not know whether that figure would scale up, meaning that the five sectors would need £5 million. Some of the sectors have currently more PhDs students than others. We have asked that, rather than come along with ad hoc requests, the universities give us a proposal across the economy. It may well be that some of the money might come from the redirection of existing spending. For nanotechnology, they are talking about £1 million per annum making a big difference and taking us from under-provision to being well provided for. I am assuming that the sort of spending levels that they are talking about across all the sectors would be £3 million to £5 million. However, the universities are looking for money for other things as well. We have not asked them to tell us what they want but how much they want, what we would get for it, and how it would make a difference.

Mr Paisley Jnr: Thank you for the informative presentation. I have a couple of quick questions and one substantial one.

When will John Gilliland’s report on agrifoods, and the universities’ report, be ready? Can we have access to them?

Dr Dobbin: John Gilliland’s report on the food foresight exercise is complete and documented, and he presented it at an EDF meeting this week. I can contact him and get him to forward the report to you. It is now in the public domain. The agrifood sector is now looking at how to take the report forward, based on the recommendations that it contains on what areas should be looked at and what we should be doing. That report is available.

We can get you a draft of the universities’ report. I will contact Gerry McCormac today, if the subgroup will tell me whom he should get in touch with.

The Chairman (Mr McClarty): The Committee Clerk.

Dr Dobbin: If somebody will contact me —

Mr Paisley Jnr: We can do that in the margins of the meeting.

To liken the Northern Ireland economy to a car, it is driving along reasonably well. There are some structural problems; a bit of rust on the chassis; it might need some new wheels and a couple of go-faster stripes. Generally, it is moving along, but it wants to be in the fast lane and to take off.

Based on what you gentlemen have told us, there are a couple of things that we can do. We can pull over and do a restoration job from the ground up, which will cost money that we might not have. Alternatively, we can pull over, open the bonnet and stick a turbo­charger in, and get out into the fast lane. Bits might still fall off, and it might eventually need to make a pit stop at some future point.

What would the turbocharger look like? What do we need to put in to really make the Northern Ireland economy take off into the fast lane?

Mr McAleavey: That is a hard one. That is what we are trying to find out.

There is much argument on the subject. We do not know what the cost would be if we decided to pursue the outcome of one or all of the five or six scenarios that we are talking about creating.

We have all examined the issues and considered what form a quick fix might take. The subgroup has focused on matters such as fiscal incentives. We have discussed matters such as corporation tax, but none of us believes that one measure alone will fix it or make the difference. We have all come to the conclusion that we need a number of measures in place, such as foreign direct investment, skills, infrastructure, R&D, and innovation.

11.15 am

Dr Maguire: To use Mr Paisley Jnr’s analogy, we have a car that is moving forward. There are times when different people are steering, working the gears, and working the foot pedals. It would be nice if we all worked in unison so that we could all go in the same direction.

As for the skills agenda, the medium-term issue is to ensure that what we are doing is bound up in a manner that places investment in areas in which it is needed, so that we can build and raise the skills levels in areas of need.

There are two answers to the question of where those skills are needed. First, we must set out our stall and state precisely the areas on which we wish to focus. The expert skills group will be examining, in a manner that has not yet been decided.

Secondly, one must examine the DEL skills strategy in deciding the areas that require more funds. If one examines the profile of DEL expenditure on manage­ment development, one sees that that is quite low — something of the order of £1·3 million. Let us not forget that there are many others occupying that sector. The universities do management development work, as does the private sector. We must consider how to bring that together so that the sum total is bigger than the individual parts.

We must also consider the skills that are provided to those in employment and how we can maximise and up-skill what people do in the workplace. Raising skills levels can contribute to the longer-term objective of creating a more attractive economy.

Mr Paisley Jnr: I certainly agree that, in the immediate term, we must seek a united voice on what we want the future of the economy to look like in order to get us to our destination. We need that united political voice, but we also need a united business voice that can inform us. We certainly do not have a united voice at a political level, but that does not exist at business level either. We must get to the point at which we really can agree on the issues and move forward.

There will be negotiations in the next few weeks with the British Government. All the parties represented here will attend those negotiations. Others who have come before this subgroup have told us not to sign up to anything until we secure a financial package. They told us that we have optimum strength before we sign. In the next few weeks, what demands of the British Government should be on our blank sheet of paper? What demands must be fulfilled before we sign on the dotted line?

Dr Dobbin: One of the difficulties that we have in answering that question is that we are here today to represent the EDF. I gave evidence last week as to what the business sector would do. If we were to ask that question to the EDF, there would be a different answer, because it includes stakeholders from trades unions and the voluntary sector.

There has been general agreement within the EDF on the four key drivers that we have discussed today: infrastructure; skills; enterprise; and innovation. Besides those drivers, there is the issue of fiscal incentives, on which there is no unified consensus, particularly when one considers the trades unions’ views. There is no consensus on whether fiscal incentives alone will be the big weapon or the silver bullet.

In my opinion, leadership is the big dimension that would make a difference. I do not wish to be controversial, Ian, but I do not think that anything will happen until we have local politicians who are accountable to the electorate; who have Northern Ireland’s best interests as their top priority; who are listening to local stake­holders; who are agile; and who can override the wheels of government and the bureaucracy of our Departments. The car is hardly out of the garage — no one wants to drive it fast or take a chance in case they crash or run out of petrol. We must get the car out and put the foot down. It takes leadership to do that.

Civil servants will persuade you that, if you take the car out onto the road, you might get a puncture; so they will pack a puncture repair kit. The car might run out of fuel; so they will pack a can of fuel. By the time that the car is loaded down with all the anti-risk provisions, it has not moved. Political leadership is required.

The Southern Irish economy is different from that in Northern Ireland in that the public sector works with elected representatives and business to get things done. Here, the public sector has almost become the Depart­ment of sales prevention. One reason for that is our culture. There are good people in the Civil Service who want Northern Ireland to do well, but the system is built on stability and preventing things from happening quickly. A political hammer is needed to break that; we need devolved Government.

I must leave as I have another appointment, but I have started quite a row. [Laughter.]

Mr Paisley Jnr: Chuck a grenade and run.

Dr Dobbin: Everyone is so encouraged by the work of the subgroup. A wide range of stakeholders — not simply people from the business community — could sign up to the subgroup’s report. It would also be largely accepted by trades unions and the voluntary sector. There may be areas that they would like to see more or less of, but it would be generally accepted. Those sectors are very enthusiastic about how people with different constitutional viewpoints can come together to put economic benefit first.

To summarise my answer: we need leadership and intervention. We need Ministers to tell civil servants when something is not good enough and to encourage them to find a way to make things happen — to proactively attempt to find a cute way round the problem. Our guys will analyse a problem to death, and that is the difference. We know what must happen; we just cannot make it happen. You guys could, so we need to get your car out of the garage and into the fast lane. [Laughter.]

I accept that there are all sorts of reasons that devolution cannot happen: there are constitutional hurdles; criminality hurdles; policing hurdles. You guys could spend the whole day telling me those reasons. When I get up in the morning, I do not think about those things first. I talk to my kids, my wife and my friends; we do not talk about those things first.

Let us try to build a better way. None of you will argue against building a better way of life for our citizens. To do that, a clever way of boxing the constitutional issues needs to be found, allowing those issues to be dealt with in time, and another way needs to be found to open the box of things that we all want to get our hands on: a better way of life; jobs for our young people; secure homes for our older people; better hospital treatment; better schools; and better roads. We need all those things.

The DUP could sign up to it; Sinn Féin could sign up to it. Indeed, all the parties could sign up to it, but yet we cannot get the car out of the garage. Leadership is a vital ingredient to make those things happen, and leadership will drive forward the subgroup’s ideas.

With that, Chairman, I must leave. I hope that I am not attacked on the way out. [Laughter.]

The Chairman (Mr McClarty): Thank you very much, David. What are you doing on 11, 12 and 13 October in St Andrews? [Laughter.]

Mr Weir: For a moment, I thought that you were going to say July.

Mr Paisley Jnr: He is playing golf.

Mr McAleavey: David enjoys doing that. However, the EDF is in full agreement on his point about leadership. The big issue for the forum concerns how priorities are set. The ambivalent situation that has existed for so long means that things move very conservatively. The risk-averse culture has really taken hold and it needs to be broken; only the political leadership of a Government can do that.

Mr Paisley Jnr: What will happen if the leadership is constrained in an apparatus within a framework? Before the rubber hits the road, we need to get a signed-up deal on finance with the Government. What would be on the blank page of that deal? We must identify the critical issues so that, when we do put our foot on the pedal, the car goes in the direction that we want it to go.

Dr Maguire: At this stage, we know the range of activities in which we need to be involved. They are presented in the subgroup’s report. As the report is being refined, what needs to be done is becoming clearer. It comes back to the issue of leadership.

Taking the skills agenda as an example, you can invest more money in developing skills. You can invest more money in management development or training for adults. However, unless you are in the driving seat in order to ensure that the dots are joined up, you will either under-deliver or the money will not be spent as intended. You cannot divorce the two; throwing money at this problem will not solve it. Money is part of the package, and you need to put that package together.

In a small way, one benefit of the EDF has been to bring together cross-departmental views and to challenge the silo-based approach. If that happened at ministerial level, things would get done.

Dr Birnie: Thank you for coming to the subgroup. I have two questions.

First, most experts think businesses must network, cluster and work together more. How can that be promoted?

Secondly, I want to ask something with particular respect to Michael’s contribution about independent careers advice. John Dallat, Roy Beggs and I feel a sense of déjà vu about that issue. It has been going on for some time, and we thought that we had dealt with it five years ago through the Committee for Employment and Learning. How will independent careers advice be undertaken? Clearly, you are right.

Dr Maguire: I shall deal with your second question, and Seamus McAleavey will answer the first.

I was struck by a conversation that I had with a grammar school headmaster at a conference that we held on careers advice. I asked him how careers advice was undertaken in his school. He told me his teachers’ hierarchy of duties: their subject came first, followed by departmental administrative work, followed by careers advice. He reckoned that he could improve the school’s careers service were he allowed to appoint a qualified teacher to dispense careers advice.

My response was to advise him not to do that, because those who give careers advice to young people often have a vested interest. The careers advice that is given to young people often contains a lot of misinformation. Take, for example, the training shortage that now exists in the ICT sector. A number of years ago, people were advised not to enter that sector, so it is now experiencing a lag in recruitment.

Moreover, not everybody requires the same degree of support, advice and independence when it comes to careers advice. That is why the model that should be proposed must be first examined closely. I would not be in favour of simply throwing more money at schools in order to increase the number of careers teachers.

Dr Birnie asked how an objective, independent careers service could be put in place. My personal view is that it should be sited outside the schools system entirely. A range of information from a variety of different sources could then be accessed. Those young people who need a more intensive and supportive approach to careers advice can obtain that either through what currently happens in schools or through independent careers teachers.

The delivery model is important. One benefit of the conference that I attended was that recommendations on professional independence, and so on, came out of it. Therefore, it is a case of so far, so good. The next question to ask, however, is what an independent careers service will look like. My view is that an independent delivery mechanism is needed, because I am not convinced that the schools would be best placed to deliver it.

Mr McAleavey: Roy and David were in attendance when the permanent secretary of DEL reported to the EDF meeting on Tuesday that an independent careers advice service would be put in place for us all — from school onwards.

Apparently, many people are saying that the incentive for schools is to keep kids in the schools that they are already in. The FE colleges make that point very strongly.

Mr Ford: As the husband of an FE lecturer, I should probably declare an interest.

Unfortunately, David Dobbin has disappeared. I specifically wanted to follow up on a number of his points. However, I shall ask instead about the broad theme that arose from Ian’s questioning. Michael Maguire, in effect, said that the DEL skills strategy is a good thing but then questioned Departments’ ability to deliver.

David talked about the foresight exercises and, specifically, the weakness in the agrifood industry. That was highlighted in John Gilliland’s presentation at Tuesday’s EDF meeting. The one problem that I had with his presentation was that he said that we need a champion; it is unclear to me where the champion for the agrifood industry will come from.

Seamus McAleavey made the interesting suggestion that we suffer from a lack of enterprise culture. He included the public and voluntary sectors in that. Ian had a point when he said that we must know how much money we shall demand for what from Governments as part of a settlement. How do we build the capacity to deliver that involves government, including MLAs; the business community; the voluntary sector, and trades unions?

How much has the success in the Republic been down to its having a much better partnership model than we have seen here? How much do you think that the working of the EDF could help that become a realistic achievement rather than its simply being an exercise in starting to bring people together?

11.30 am

Mr McAleavey: I have been a member of the EDF for quite a while, and it is far from the partnership agreements that they have in the Republic, because the EDF is an advisory body to the Minister. We have not reached the stage where differences are well aired and argued over before agreement is reached. The EDF must get to that point, because that would add something.

Everyone agrees that we have a problem with enterprise and in creating a more enterprising people. Risk aversion is the dominant force in the public sector economy of Northern Ireland. That is therefore where political leadership is needed, and much also depends on performance management. Michael Maguire knows more about that, because his company has carried out such work in the South, where there seems to have been a cultural change to a “can do” attitude in public service. Presumably, people are rewarded — and not just financially — to encourage them to do things quickly, take risks and be measured in the round. We do not have that in the North.

Mr Ford: Do we need to scrap the Public Accounts Committee ? Sorry, John.

Mr Dallat: That was my question.

Mr Ford: Is there a problem with our risk-aversion culture?

Mr McAleavey: It is a matter of how it is used. Public servants are sometimes measured on one issue; that does not happen in the private sector, where judgement of performance is much more in the round.

Ms Ritchie: No PAC. [Laughter.]

Mr Dallat: I am glad that we have dropped the analogy of the car and innovation. At one stage I thought we were going to develop straight-through exhausts for raising turkeys. We could have greased nipples for frogs as well.

Perhaps we could pick up on the last point, because it is important. How would you change the Public Accounts Committee to ensure that there was still accountability and that the level of service to the public was maintained? Any new Assembly — and certainly my party — will address that issue, but let us hear what was wrong.

Dr Maguire: No one questions the fundamental importance of the Public Accounts Committee. It is important in holding the public sector to account and in ensuring probity in public finance. No one disagrees with that.

However, there has been too great an emphasis on compliance, and I have no doubt that that has led to a risk-aversion culture in the Civil Service.

I remember the media hype around the situation in New York concerning the Northern Ireland Tourist Board and expensive bottles of wine.

Mr Dallat: Which was a scandal.

Dr Maguire: Perhaps you were involved in that. That missed the point. At that time I was working with another tourist body in New York, and I can tell you that unless people from the industry were brought to a good restaurant and looked after well, they would not even entertain you, because Northern Ireland is such a small place. The question is not so much what was spent on a bottle of wine, but how many people came from North America to Northern Ireland?

One area in which the PAC could develop its thinking is in examining outcomes, without always focusing on inputs. One of the difficulties of a compliance report that simply looks at inputs is that it makes people risk-averse. No one wants to be caught out; no one wants to be brought before a Committee and told off for what they are doing.

Compliance reports are important, but I am not sure that we examine outcomes enough, and that is an issue.

Mr Dallat: I am sure that all those suggestions could be taken on board. It was not the bottle of wine that bothered me, but the spa services.

My next question is more important. Until a few years ago, it was common for some teachers to tell pupils who had not done their homework that, if they were not careful, they would end up working in a factory. I am sure that that does not happen now.

There is still a problem with vocational education, so much so that it is now called “professional and technical skills”. I do not agree with that; vocational education is highly honourable.

Links between schools and colleges of further education are very welcome, though, as you say, they are not evenly spread. I know that it works extremely well in Limavady. Outside of that, I do not know.

Is it not time to look at the overall education system, which vigorously promotes academia, but classifies 75% of students as failures? Is there anything to learn from models in the Republic, where community schools were developed in the 1970s? Is there a parallel between the community schools in the Republic and the community colleges in North Carolina?

Dr Maguire: Those are interesting questions. Previously, I was asked about A levels. My view is that they are important. Employers understand A levels, and they provide a good route for those who want an academic education. Good schools in Northern Ireland produce good students at A level who go on to university.

I do not want to get into a debate about the Costello Report, but it focused on specific issues, two of which were selection and grammar schools. I am nervous lest, through the education reform process — and I am not speaking now on behalf of EDF — we break up what is good in the education system. The grammar school system is good, and so is the A-level qualification. However, it is not right for everyone. Therefore we need to broaden the range of options that are available to young people.

I agree with you that professional and technical skills, as they exist in some FE colleges, are top class. However, there is a perception and baggage associated with that. The EDF has a role to play in encouraging the wider community to value that sector. I have raised that with the EDF. It could help to end the perception that it is a failure to be in the FE sector and to not do A levels.

That does not mean that we should stop doing what is good in the education system; it means that we must broaden the options. That is one of the benefits of what the Department of Education is trying to do, and it needs to be encouraged. However, quite often it focuses on the wrong things. The debate about education reform has led to discussion about curriculum development, broadening options and school performance. My personal view is that if schools are not doing well, they should be closed. Let us improve those parts of the education system that are bad, rather than simply attack what is good.

Mr Beggs: You have said that only 30% of students are in the high-priority skill areas. That is a dreadful situation. Presumably, those are areas in which there are job opportunities and likely vacancies. There is a need to address the needs of the economy. Independent careers advice is progressing very slowly. That is another indication of the slow pace of change. An Assembly Committee identified that as an issue in a report five years ago. Other than changing the careers advice that is available to students or pupils in schools, what other mechanisms need to change so that our FE and higher education colleges reflect the needs of the economy?

You said that there is a collaboration fund of about £3 million, and you expressed a preference for that money to be spent in FE rather than HE, in order to improve links between small companies and educational establishments. The HE sector is remote from most small companies, whereas the FE sector is more spread out throughout Northern Ireland, and has better contacts with small firms. What reasons have you for preferring the money to be spent in FE as opposed to HE?

Dr Maguire: You have made several points, Roy. Good local links exist between employers and the FE sector to assist in developing the curriculum and courses that are specific to employers’ needs. There are some very good examples of good practice in that area, and that needs to be encouraged.

However, the risk of using that approach on its own is that it can be a short-term exercise. Employers will look at what they need this month, next month or this year, and that can drive the curriculum. We need to complement that — and, to be fair, this is what the Department wants to do — with a top-down view that there are two or three areas, either in the development of generic skills or in particular areas such as nanotech­nology, that we want to get involved in. In the main, the FE sector is probably closer to employers because of the nature of the local links. It has a much greater capacity to influence the shape of provision.

My point about the 30% of students in high priority skills areas was that getting more students to take those priority subjects was as difficult as turning a tanker. We can set out our stall and list the areas in which we are going to work, but when a student turns up at a college to decide what course they are going to do, that is their choice. How do we measure that individual choice? It can be done through the funding mechanism or by strengthening links with employers. That comes back to careers education, because people can be told that if they do one thing they can get a job but if they do something else they will not. Young people will vote according to where they need to go. That is what pushes us in that direction. Dr Dobbin and I have spoken about this before. The economic alignment, for want of a better word, of the work that is coming out of the universities will be important, because it will begin to crystallise the contribution of the universities to economic development. However, the links with the FE sector are closer.

Mr McAleavey: The FE sector can make links with small businesses more easily. Northern Ireland is a small-business community, and the vast majority of people are employed in small companies. Many of them would see themselves as being way down the food chain from the universities. The FE colleges believe that they can do something in the way of local R&D for those people, and there are some good examples, such as the Greenshoots-Newry Ltd incubator units in Newry and Kilkeel Institute of Further and Higher Education. That needs to be enhanced.

Ms Stanton: It was good to hear your presentation on the integrated approach. When we talk about opportunities for all, we really have to believe it ourselves and break down the old system. Although we are talking about colleges, A levels and universities, we have to talk about a younger age group. As a parent who has one child at Queen’s University, one at college and three at grammar school, I believe that we have to look at the individual needs of every child. If we do not change that old system in which the academic path is more highly valued than skills education, the economy will not progress at all. We are not identifying the needs of the individual, and there will not be opportunities for all. The brain drain out of the Six Counties will continue unless we recognise that situation and underpin it. Only then will the economy be successful.

Mr McAleavey: There is an argument that greater intervention in a child’s early years would have the biggest payoff. The work that we have done in Northern Ireland is limited and has depended on specialist funds. The best example is the Urban Community Initiative on the Shankill Road. European money was put into a resource to work with children under five years old. That was because the situation with the 11-plus failure rate was so dire. The local community, voluntary organisations and others got together to run that. Usually, once those special funds run out, they are gone. We have not had a co-ordinated approach to deal with that issue.

Ms Stanton: Young people have their own individual qualities that appear in different ways. It is about recognising that and breaking the status quo. Otherwise, nothing will move forward.

Dr Maguire: I am coming to the view that if you build it, they will come, so to speak. Investment in education will result in a pay-off for the economy. We do not need to be too prescriptive; there needs to be some consequence in where we invest in education, but giving people the opportunity to progress, whether through an academic or a professional and technical route would pay off in the long term.

It is a very small anecdote, but a senior civil servant in the Republic of Ireland told me about one of the major multinationals that had located in the Dublin area. After it had gone through all the financial packages and spoken to various universities, it actually spoke to local schools and was very impressed by the quality of people in the local school system.

11.45 am

Ms Stanton: Research has shown that a child’s birth order in the family can have an effect on his or her future. There should be an integrated approach so that everyone has the same opportunities.

Dr Maguire: One of the themes to emerge from the work of the skills subgroup is the need to champion and value professional and technical skills, as well as an academic education.

Mr McAleavey: The big argument in the United States at the moment is that investment should be focused on the knowledge economy, or the creative economy. It follows the talent; it no longer follows grant support. The leaders of the new technology industries will not just place their investment where the Government give them extra money to do so — they cannot afford to. They will not be bought to invest their money in the wrong place. The important issue for us is how to develop the talent.

Mr Smyth: I have one question, one observation and one point of information.

You talked about building knowledge transfer between business and higher education. One thing that you should be aware of, and which did not come out in your evidence, is that knowledge transfer has a very low priority in higher education. The real emphasis — wrongly in my view — is on research and the Research Assessment Exercise (RAE), and no real progress will be made on knowledge transfer until that issue is addressed.

With regard to the agrifood foresight report by John Gilliland, I did some work on a similar exercise with Teagasc, the Irish Agriculture and Food Development Authority in the Republic. I wonder whether Mr Gilliland is aware of that or whether he has dipped into it. It was a comprehensive exercise, completed about nine months ago, and it may have some relevance.

To help the subgroup to meet its terms of reference, could we have some clarity on the Economic Develop­ment Forum’s analysis of Northern Ireland’s key problem? Do you agree that that problem is low productivity and the need to tackle it and close the living standards gap?

Several witnesses have suggested that — although it is not a silver bullet — the sufficient condition for closing the productivity gap, to use a mathematician’s language, is a corporation-tax break. All the other measures dealing with skills and so on are important and necessary conditions, but they are not sufficient to be used on their own within any kind of reasonable timescale.

Dr Maguire: I refer the subgroup to EDF’s booklet ‘Working Together for a Stronger Economy’. As Dr Dobbin said, the EDF, as a coherent body, has not expressed a view on corporation tax because of the variety of different stakeholders in the organisation. If you asked me that question when I was wearing my Business Alliance hat — which I am not — my response would be the same as the previous time that we met, which was that there is a menu of options and that is one of them. However, going for that option on its own is risky. The EDF has not discussed whether corporation tax is the solution.

Mr McAleavey: Our position in the voluntary sector is similar. We do not think that a corporation-tax break would work on its own. If it were introduced tomorrow morning, I do not think that it would change everything — it is not magic. Our trade union colleagues on the EDF have a strong view that they do not want to race to the bottom. They also believe that the economic changes that took place in the South started to happen before the corporation-tax cuts kicked in. They believe that it was not the key factor.

The Chairman (Mr McClarty): Seamus and Michael, thank you very much for your evidence. I am sure that members found it extremely helpful, and it will add to the debate.

Mr McAleavey: Thank you. We will leave a copy of ‘Working Together for a Stronger Economy’ for members. It is fairly straightforward and easy to go through. Some members may have already received copies.

Dr Maguire: I have hard copies of my presentation.

The Chairman (Mr McClarty): That session overran slightly, but it was important to give as much time as possible to those giving the presentations.

Michael Smyth, who has collaborated with Graham Gudgin, will now review the evidence to date. Copies of Michael’s papers are contained in the members’ packs for today.

Mr Smyth: The papers that I have submitted are, respectively, a summary of my understanding of the evidence to date and a framework for considering the issues that we must confront. My presentation today is slightly more developed, and I will talk members through it.

This is rather embarrassing: the presentation is on my other laptop. In essence, the key issue on which we must reach some consensus — and Graham Gudgin agrees — is holding the line in relation to the “dismal science”. I look to Esmond Birnie to support me on that.

We must be clear on whether the subgroup agrees on the nature of the economic problem that faces Northern Ireland. One consideration is the legacy of conflict: our economy was produced by circumstances unique in the United Kingdom. Over the past 40 years, public expenditure has been used, with the best possible motives, as a surrogate or substitute for private sector investment. That has produced the economy that we have today and, sadly, the distortions that were discussed in evidence. Two slides from my presentation, which I am unfortunately unable to show to members, demonstrate one of the main distortions apropos the evidence that we have just heard: the average non-manual earnings in the public sector are a degree above the average non-manual earnings in the private sector. In a normal economy, it should be the other way round.

The second slide shows the situation in Great Britain. Not only does it show that average private-sector earnings are higher than those in the public sector, but it shows that the gap is widening, as one would expect, because of development. The opposite is true of Northern Ireland, and, during the past decade, there has been no sign that that earnings gap is narrowing.

That is a product of the pervasive influence of the public sector here, which has happened for the best of reasons. Coupled with that, Northern Ireland — compared with its nearest neighbour, the South, and the United Kingdom — has had a relative dearth of value-added foreign direct investment. There has been some, but the consensus view is that it has not been of the right type. As a result, Northern Ireland is a lower-wage, low-productivity economy.

The evidence given thus far has shown that the key economic problems in Northern Ireland are low productivity and the low-wage levels that go with that. The challenge is to determine how to boost productivity levels in Northern Ireland within a meaningful timescale, and, in doing so, close the gap in average living standards with the rest of the United Kingdom. The time constraint has been understated. Evidence from Victor Hewitt of the Economic Research Institute for Northern Ireland states:

“It is clear that on present performance there is no prospect of the Northern Ireland economy making significant progress in converging with the average in the UK never mind the Republic of Ireland in the lifetime of anyone now present.”

Furthermore:

“Continuing to do what we have always done will by and large produce the results that we have always achieved.”

The question is whether we are prepared to accept that.

In his evidence to the subgroup, Sir George Quigley said that the challenge was to find ways to develop and implement a new model that delivers a high-value-added, export-driven and well-balanced economy. He highlighted that that would close the persistent wealth gap and the growing productivity gap between Great Britain and Northern Ireland, and still more between the Republic and Northern Ireland. Sir George cautioned that only a highly productive economy is capable of remaining competitive and, therefore, sustainable.

My strictly economic interpretation of the evidence so far is that there seems to be consensus that a corporation-tax break would form a large part of the solution to the economic problem. However, it is not a silver bullet. Why is it so important? Victor Hewitt suggests that new instruments, of a different order of magnitude than have existed hitherto, are needed.

The proof, or exemplar, of the power of low corporation tax is on our very doorstep, in the Republic of Ireland. Victor Hewitt also said that no other big ideas are floating around. In my examination of the evidence, I have not found any other big ideas floating around. I am minded of Mrs Thatcher’s famous, exasperated TINA words — “there is no alternative”. Frankly, Graham Gudgin and I believe that there is no alternative.

Why is the focus on corporation tax? Time and again, we have heard about the simplicity of a lower corporation-tax rate versus other fiscal incentives such as enhanced capital allowances or R&D tax credits.

The evidence on R&D tax credits shows that, in the short term, they will have relatively little impact on the Northern Ireland economy. They take a long time to kick in, and, in the meantime, things move on.

12.00 noon

One may ask how the productivity gap will be closed. Consensus on that is unambiguous. Foreign direct investment will lead to higher productivity and will drive up wages and living standards; that is unambiguous. FDI jobs pay between two and four times the average earnings in the Republic of Ireland, and the working hypothesis of the Economic Research Institute of Northern Ireland’s (ERINI) research is that the average FDI job is factored in at twice the average earnings. The subgroup should bear that in mind. It may be more, but that is the assumption that ERINI is making.

Evidence from the economist intelligence unit, which is provided in today’s written evidence from the Industrial Task Force, shows that global FDI flows will continue to increase, particularly on a transatlantic basis between North America and Europe. Furthermore, until 2010, the Republic of Ireland will capture 1·58% of those global FDI flows. That is the equivalent of almost $5,000 per head, and if that were applied pro rata to Northern Ireland, it would be the equivalent of £4 billion per annum. That would be greater than the amount of FDI that Northern Ireland has had, per annum, over the past decade.

My next question — if you accept my interpretation of the evidence, and you might not — is how long might corporation tax and the subsequent FDI flows take to close the productivity gap? We might have our first insight into the answer to that question in Victor Hewitt’s paper that is tabled for today; I have not seen it yet. He is trying — independently of David Greenaway and Frank Barry — to produce for the subgroup a flash estimate of the scale of FDI that we might expect and how long that would cross over with the shortfall in tax revenue. I do not know what the business case is, so I do not know how long it would take to close the productivity gap.

I will move away from corporation tax soon, but first I will consider how the modalities of the corporation-tax break for Northern Ireland might work and how they might come about. The Azores case, which I have read several times, points up three qualifying conditions that Northern Ireland must meet. If Northern Ireland meets those three conditions, it is my understanding that a corporation-tax rate in Northern Ireland that is lower than the UK average would not contravene EU state aid rules.

The first condition is that Northern Ireland must be politically and administratively autonomous within the UK, which means that there should be a devolved Government in place. The second condition is that the Northern Ireland Government must unilaterally decide to introduce the differential corporation-tax regime, without reference to central Government. That means that the devolved Government should have tax-varying powers. The third condition is that any tax revenue shortfall, resulting from the corporation-tax derogation, should not be made up by a fiscal transfer or grant from the national Government, but from within the existing fiscal arrangements. Northern Ireland would, therefore, have to take the hit and make up the tax shortfall from within its own public expenditure resources. Those are facts, and I am giving no views on them.

Witnesses have brought forward a number of points in relation to persuading Her Majesty’s Government to agree to the corporation-tax break. First, there are the political arguments that are yet to happen, and I will say no more than that. However, I have pulled some evidence together on the economic arguments. I remind the subgroup of Northern Ireland’s asymmetrical position within the United Kingdom. Northern Ireland is the only region of the United Kingdom that has a land frontier with the euro zone. That land frontier is the Republic of Ireland, which has undergone an economic transformation in the past 15 years. Comparisons are odious, but we keep making them.

Thirdly, there are the distortions caused by the differing fiscal positions on either side of the border, which go to the heart of the Azores decision. The key criterion for the European Commission is that a subregional derogation of tax must not create tax distortion. We are already dealing with huge fiscal tax distortions. Is anyone in any doubt about the effects that the distortion in the corporation-tax differential has had here? I also remind the subgroup of the differential in excise duties, from which, I take it, we are all guilty of benefiting. Then there are the distortions created by the VAT differences, and our struggle to get a coherent response from Her Majesty’s Treasury on the landfill and aggregates tax. Thus, we are the victims of fiscal distortions of an unprecedented scale in the United Kingdom, and that is an important argument.

Furthermore, Northern Ireland’s legacy of political violence has long been recognised by our Government, by the Southern Government, and, more importantly, by the European Commission. The EU Special Support Programme for Peace and Reconciliation in Northern Ireland — the Delors programme — explicitly recognised that, and was followed by the Peace II programme. For many decades, we have successfully pleaded a special case for additional resources from Her Majesty’s Treasury. We cannot do that any longer, but the precedent exists.

There are other issues, such as double taxation and the displacement effects in the rest of the United Kingdom of a derogation on corporation tax here. Would Northern Ireland suck away investment from the rest of the UK if businesses took advantage of a tax break here? What would the Southern Government’s attitude be to a tax break here? Those are very real issues.

That is my broad summary of the big issues from the evidence thus far.

I now turn to the rest of the economic package. I had a severe case of déjà vu this morning. Last week, the Business Alliance urged a ring-fencing of spending in key areas of public policy for what it termed “a honeymoon period”. In particular, it urged that the industrial development budget be ring-fenced in the context of increased foreign direct investment flows.

As expected, there was consensus in the Business Alliance that the £30 million energy package — previously agreed with Ian Pearson, Minister of State with responsibility for the economy — that was deemed to violate state aid rules should somehow be used to offset the impacts of derating and other cost pressures on the manufacturing industry because that would be within state aid rules.

Furthermore, the Business Alliance urged further education colleges and universities to play a more proactive role in economic development, and that view was echoed here this morning. Some plans on that are forthcoming. It called for evidence-based policies, prioritised by ease of implementation, economic impact and other criteria.

The Business Alliance urged us to look seriously at prioritisation in the skills agenda. We have the necessary skills strategies, but we may not be prioritising and funding them effectively. It emphasised the importance of finding routes into worthwhile jobs for those with zero or low qualifications. It raised the fundamental “top and bottom” issues, or vocational education: how to retain our best and brightest, but also how to find worthwhile careers for those with few, or no, qualifications. There was some development of those arguments this morning.

The Industrial Task Force, in addition to its evidence on corporation tax, put forward a human resources agenda aimed at tackling underachievement in primary and secondary schools and strengthening the role of further education colleges to enable them to respond more effectively to the needs of their locality, especially in the context of foreign direct investment. It cited the US community college model, on which the research is encouraging.

The Industrial Task Force (ITF) urges that the output of higher education should be moulded to better fit the changing profile of our economy — perhaps that echoes an earlier point — and that measures to tackle adult literacy and numeracy, which are seen as serious barriers to getting on the lifelong-learning ladder, be introduced.

The Industrial Task Force stresses the importance of measures to address economic inactivity. I discussed this with Graham Gudgin; it is a bit like motherhood and apple pie: it is a big, big issue. Legislation and policies are forthcoming on it. We need to consider that issue in more detail when we discuss item 3 in the subgroup’s terms of reference. Furthermore, the ITF urged the establishment of a unit in the Executive to co-ordinate the human resources agenda in its totality.

Turning to innovation, the ITF called for innovation-oriented, multifaceted policies. Logistics, products and processes, business models and marketing: all of these are capable of innovation. The ITF raised the question of whether INI, as it is presently constituted, is not quite fit for purpose, which raises serious implications for INI.

The ITF called for the establishment of a technology sector to help businesses to benchmark and reposition themselves within their sectors. Work on that is taking place, but the ITF urged that it be systematic.

The ITF also called, as did EDF, for more PhDs in the areas of life sciences and engineering, etc.

According to the ITF, tourism, which was for so long the Cinderella industry in Northern Ireland, holds the potential for a more even spread of employment opportunities. Evidence provided shows that Northern Ireland might not be exploiting its existing tourism assets effectively. That theory could be developed during this afternoon’s focus group.

InterTradeIreland referred to North/South opportunities. Graham Gudgin and I agree that the rationale for policy co-ordination on a North/South basis must be underpinned by the identification of market failures. It must be shown that the two jurisdictions, acting in partnership, can give a more cost effective solution to market failure than when they act independently. To that end, there are four broad areas where North/South collaboration on policy co-ordination is possible. They are: science, technology and innovation; labour market skills formation; trade and investment promotion; and enterprise and business development. That is purely private-sector activity. For wider economic co-operation, there are opportunities for the joint supply of public goods, such as health and education services, transport provision, waste manage­ment facilities, and environmental services.

To meet its terms of reference, the subgroup must come to a balanced view on the key problem facing the Northern Ireland economy. The majority of the evidence suggests that the main problem is low productivity, which is leading to low wages, low skills formation and lower living standards. If that is correct, the solutions will be found by determining the necessary condition and the sufficient condition. Is corporation tax the sufficient condition? Are measures such as higher levels of public expenditure, ring-fencing invest­ment in skills and training, reform of the secondary and further and higher education systems necessary, but not sufficient?

I hope to be able to help members to come to a conclusion on those issues in this afternoon’s session.

The Chairman (Mr McClarty): As the first session overran, we asked Michael to tailor his presentation to the time available. Therefore, in just 20 minutes or so, he has given us the microwave-oven version. I thank him for that.

Members may wish to ask questions. There will be an opportunity to do so over lunch or at the focus group this afternoon.

12.15 pm

Mr Weir: I do not want to restrict anyone who wants to ask questions, but if we are having a focus group session, it may be more appropriate to ask them then rather than the slightly disjointed approach of asking some now and going back to them again.

The Chairman (Mr McClarty): Well, everyone has to have lunch, and it would be unfair to some if they had to ask or answer questions during the lunch break.

May I impress upon members the importance of a quorum this afternoon. The session will begin again at 1.15 pm with presentations from the parties. That will be followed by a presentation from John Simpson. Please be here so that those sessions continue at the scheduled times.

Mr Weir: I will be here until about 3.30 pm, but I will have to leave then.

The Chairman (Mr McClarty): Members, thank you.

The subgroup was suspended at 12.16 pm.

On resuming —

1.23 pm

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

The Chairman (Mr Molloy): I remind members to switch off their mobile phones, as they interfere with the Hansard recording system.

The next item of business is the parties’ position papers. Some have been produced already; others have still to be submitted. Each party will have 15 minutes to make its presentation and to take questions. The Alliance Party will lead off.

Mr Ford: Is every party making a presentation this afternoon? I assume that all the papers we have just received will be spoken to, but there appears to be one missing. May I ask Sinn Féin what its position is?

Ms Stanton: Dr Dara O’Hagan, who is our economic spokesperson, is preparing a shorter version of our paper. It will be submitted.

Mr Ford: So it is not just our policy staff who write papers that are too long.

There is no point in reading through the paper. I intend simply to highlight a few points, in the expectation that there will either be some discussion on those or that the wider discussion later may inform views. The first part sets out the key points, which are largely a summary of what has been said before. One point has been queried by some witnesses this week: the need to direct investment towards redressing the needs for capital investment in infrastructure, both human and physical. We believe that that must be included. We cannot say that the infrastructure will look after itself. We must ensure that the infrastructure is in place to underpin economic development.

Corporation tax is a key, but unresolved, issue. We have to wait for the results of the research that is being conducted on that issue.

We must be careful about establishing our position correctly with the Treasury. This morning, Mike Smyth informed us of the European Court’s decision on the Azores, which gives us some hope for movement — subject to devolution, which is still, of course, undetermined. If adjustments are made to corporation tax, we must ensure that that encourages innovation and foreign direct investment (FDI) and is not merely a reward for those people who are already comfortably off, in that they will pay less tax. It may be difficult to make that judgement. The benefits of FDI — which will consist of large companies investing in Northern Ireland and paying the higher rate of corporation tax — will be in direct opposition to our encouragement of existing small and medium-sized enterprises (SMEs), where there might be some benefit in reducing the profit threshold of £300,000.

There is a case for R&D tax credits, although that idea is not generally accepted. Over a long timescale, R&D tax credits could be beneficial in promoting the high-value-added businesses that we want to develop. However, the associated bureaucracy would be a major problem, especially for SMEs. Northern Ireland has suffered from a grants culture over the past 30-odd years, and tax credits, as opposed to grants, would send out a more positive message.

A case can be made for maintaining the cap on industrial rating at about 25%. That could be important if we run into problems with corporation tax, because it has been established that that is acceptable under European state aid rules.

The subgroup has had general discussions on social exclusion, and I am not sure how specific we will be. We should concentrate on establishing measures that directly help individuals in areas of social need into profitable and worthwhile employment. Our discussion paper refers to one or two peripheral issues.

We must examine cross-border incentives, particularly clustering and co-operation. This morning, we talked about the co-operation model in the Republic. We must find a similar model, because SMEs in Northern Ireland have many problems.

There are real issues surrounding the drive toward public-private partnerships (PPPs). The Alliance Party has no objection to PPPs as such, but even witnesses from the business community have said that there is a danger when the proportion of public expenditure committed to PPPs is seen against the potential fall in public expenditure. That could lock in certain operations and create little opportunity for growth and innovation. One witness said that if we received an economic package, we should pay off the mortgage rather than extending it. We could then use further incentives for export-based growth and the creation of wealth. Increased household taxation, in the form of higher domestic rates bills, the proposed water tax, and so forth, will reduce economic activity.

Without labouring the point, I repeat that the Alliance Party has estimated that £1 billion a year of public expenditure is wasted on dealing with the direct and indirect costs of segregation. Government research is being conducted that may be more specific on that figure, but I can give one obvious example: we have 50,000 empty school places, and in a few years that will grow to 80,000. A modest investment would ensure that the existing facilities are better used. Similarly, we need to develop a culture of shared civic space to enable wider access to the jobs market; that will benefit both those seeking employment and those running businesses. It is crucial that economic development be conducted in line with the Government’s policy document, ‘A Shared Future’.

As I said earlier, we should examine the social partnership model in the Republic. We must have sufficient resources to ensure that the strategy for private-sector growth gets off the ground and that we develop the social capital to allow that to happen.

My party has referred to tax-varying powers, and in particular to our belief that we should abolish the regional rate and replace it with local income tax. I shall not embarrass Mr Smyth by referring to what he said at lunchtime, but there are real issues about ensuring that we get the best possible taxation system and are no any longer in the current position, where the money to fund RRI is being raised through the second most unfair tax possible: the regional rate. The only thing worse would be a poll tax.

1.30 pm

Transport is a key area where investment is needed. A lot of road development — for example, the Westlink — is being driven by business considerations yet, because we have not had sufficient investment in public transport, those roads are clogged up by commuter traffic. The Enterprise express train and the Metro buses show how investment in public transport can free up roads and have major benefits in reducing pollution and for the local economic situation.

The subgroup has not considered tourism in sufficient depth thus far. Rates relief is an issue, because some aspects of tourism are relatively capital intensive in comparison to the service industries, which are more labour intensive.

Alliance has highlighted the need to ensure adequate childcare support. In recent years, there have been a number of problems with the dependence of childcare support on European funding from the Peace programmes and, on occasion, that system’s having failed. Similarly, this morning has highlighted the need to look to education policies to enhance collaboration between schools and colleges and to develop the enterprise culture at secondary and tertiary level.

Our final point is on sustainable development. We have seen significant innovations in Northern Ireland, not just on the obvious things like biomass energy, where Northern Ireland has a significant natural advantage, but in firms that make equipment for solar panels, and so on. However, there are bureaucratic hurdles in the way of using those natural resources for domestic energy, and we have not yet provided adequate support for those who wish to develop alternative energy systems as an industry. That is an area where Northern Ireland has the potential to be a major leader on the world stage. In part, it is already a leader, and we must work on that.

Mr Weir: Like the Alliance Party, we have submitted a paper. There is no point in going through it word for word; I will pick out the key points. I regret that the paper has only recently arrived with members. It is hot off the press.

In accordance with the remit of the subgroup, we have tried to divide the issues into various sections. All the parties will agree that the economic package is inextricably linked to the idea of fiscal incentives. Fiscal options play a vital role in any economic package. Other parties will refer to corporation tax, although it could be argued that that should come under the heading of “Fiscal Incentives”.

We support strongly a wide-ranging financial package for Northern Ireland. That is not pleading for special treatment; there must be some recognition of the unique situation in which Northern Ireland has found itself over the past 35 years and the damage that has been done to our economy by the troubles.

Any economic package must be properly targeted. It must be directed at actions that will benefit Northern Ireland as a whole, and, in particular, at measures that are sustainable and will benefit business. If we were simply to seek a dividend of additional resources for the public sector, many of the problems that have been identified in the imbalance between the public and private sectors would be perpetuated.

Public-sector spending must be protected at its current levels.

On that basis, we do not believe in any rolling back of public-sector expenditure in an effort to rebalance the economy. Instead, we believe that money, in the form of an economic package, should go into measures that we hope and believe will boost growth in the private sector. Our view — and we hope that of all the parties — is not that the public sector is too big, but that the private sector is too small. That is the thrust of our paper.

Northern Ireland is in a unique situation, not simply because of the economic outcome of the events of the past 30 years, but because of our geographical situation: we are the only part of the United Kingdom with a land border. Owing to what we have suffered over the years, there have been huge obstacles in attracting outside investment and in retaining indigenous firms. Our location on the periphery of the UK and Europe has placed additional costs on industry here.

Our proposals state that a very large infrastructure gap has been created over the past 30 years, largely as a result of the need for public funds to go into the security budget. That has created a distinct disadvantage. An infrastructure fund must be targeted at roads, rail, air, ports, water, sewerage and telecommunications. That fund should not simply be focused on existing infrastructure, but could be used to lever funding from outside, for example, from Europe.

Our principal focus — which many others have mentioned — is on the need for a range of measures, although there is no silver bullet to solve every problem. However, we strongly support Sir George Quigley’s view on corporation tax. We believe that fiscal measures, particularly on corporation tax, are, as Sir George said, an “indispensable element”. We echo remarks drawing a distinction between necessary actions that must be taken and sufficient actions that can lead to changes in the economy.

I am loath to quote from any exponent of the dismal science, and I know that — as with all issues of economics — one will not necessarily get consensus among economists. I am reminded of the remark that was once made of economists: that if every economist were stretched around the equator, end to end, they still would not reach a conclusion. Despite that, there is as much consensus on corporation tax among economists as one will get. We believe that there are compelling arguments for that measure. As Sir George Quigley said, although there will be political difficulty in convincing the Treasury, our best option is to dig in on this matter. We can apply pressure.

We favour a headline corporation-tax rate of 10%. That would be the biggest single action that we could take on fiscal measures. However, we would also look at measures that would affect fuel duty and aggregates tax. Again, the land border has created problems in those areas.

We concur with others that, at this difficult time, if we are trying to rebalance the Northern Ireland economy, the last thing that it and business need are additional financial burdens. In particular, we have concerns about the removal of industrial derating.

The DUP welcomes the fact that the Government have agreed to set up a working group on this matter, albeit under a degree of pressure. However, we believe that industrial rates should be capped at the current rate of 25%. We also believe that the Government should address Northern Ireland’s disproportionate insurance and energy costs.

In our paper, we identify a couple of areas in the community that have directly suffered as a result of the terrorist campaigns and others that have been left to lag behind as regards a peace dividend. We propose a fund for isolated Protestant communities in border areas, which have been particularly targeted by terrorism. We propose targeted investment in deprived unionist areas that have been left behind.

The DUP supports action on rural poverty, and while we support the principles of RRI, some of the terms negotiated for it were punitive. It is important that those terms are renegotiated in a way that will lead to reform in the public and private sectors, rather than simply requiring higher taxes. Going down the road of higher taxation will be self-defeating.

Although the DUP appreciates the points made about the conditions that could be applied to corporation tax, we are highly sceptical that Northern Ireland should have much in the way of tax-varying powers. There are concerns that, if there were opportunities to vary the rate of income tax, the Treasury would use that as a device for saying: “You have the option to add an extra 5p to the rate of income tax; we assume that you are using that extra finance, and we will cut the block grant accordingly.” The DUP believes that a lot of care should be taken before we go down the general route of tax variation, because that would lead to unfortunate consequences.

The DUP supports the need for targeted resources in the form of enterprise zones. There is also an inherent unfairness in the rating system. For obvious reasons, changes to the rating system have focused on the effect on domestic consumers. However, there are also implications for business rates. That matter needs to be re-examined.

Our paper highlights our concerns about water charges. I believe that there would be consensus on that matter.

Finally, I turn to the last two points in our paper: if we sell significant assets and if there are savings to be made from the Review of Public Administration (RPA) — and I use the word “if” advisedly, because many of us are sceptical about that — those savings must be made available to reduce the rates burden, rather than simply allowing them to be swallowed up by the Treasury.

It is important that there is flexibility on any Barnett consequentials and that there is an opportunity to use those consequentials to contribute to the general grant factor and potentially keep rates down. The DUP believes, at the broad level, that if we can keep to a reasonably low-tax economy, that will provide a degree of incentives.

That is where the DUP is coming from. I have covered most of the points in our paper.

Ms Ritchie: Chairman and members, you have been given a copy of the SDLP paper. Like other members, I will highlight the main points and emphasise what should be in an economic dividend or package.

Suffice it to say that the SDLP believes that the unique circumstances and history of the North of Ireland merit particular consideration and support as regards the rebuilding of our society and economy.

With the Budget heavily skewed for so long towards security spending, our economy is suffering as a result of the direct consequences of the conflict itself since partition and of the indirect consequences of the infrastructure deficit. Those are some of the challenges that we must address.

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The focus of our proposals is on levering additional support and enough headroom from the Treasury to ensure and enable significant capital investment in hard and soft infrastructure while protecting our householders from the punitive effects of rate charges and protecting our capacity to maintain and enhance public-service delivery, on which our future depends.

It is important that the subgroup tries to achieve an agreed approach and negotiating position in order to secure the best response from the Treasury. It would be detrimental to our case to adopt a fractured approach, because the Treasury could see Dutch auction emerging and decide to back off on the issue.

We acknowledge the point that successive direct-rule Ministers have made about the need to rebalance our economy. Various parties in Northern Ireland and social partners make that point regularly. Our economy can be rebalanced only in the context of positive investment in private-sector growth. I accept Peter Weir’s point that we have a weak private sector. However, we should not attack the public sector. There is a need for both to be pump-primed and operating in parallel. As a result of the unique circumstances to which Mike has already referred, such as the history of the conflict and the nature of our historical development, we have a weak private sector.

We seek long-term strategic capital investment, even if the funds are ring-fenced for such purposes. Obviously, that must be additional investment. We seek the fiscal latitude to adjust taxes that affect our competitiveness and inhibit the growth of our private sector. If the Government are serious about promoting growth, they must be serious about tackling the barriers to it so that we can protect and nurture it.

We want to see investment in research and develop­ment and in promoting a culture of entrepreneurship. Those issues have already been raised in the various submissions. Investment is also required to address the barriers to business growth and to help innovation and competition.

We want to tackle urban and rural poverty and disadvantage. Deprivation indicators highlight the range of challenges that our economy faces and the imbalance in opportunities across the North. With our dispersed, rural population, we shall probably face higher costs for using public services.

On that basis, we want funding, and we want the economic dividend to be concentrated on infrastructure and balanced regional development. To address those regional disparities will mean major investment in roads, rail and public transport across the North of Ireland, tackling areas of underdevelopment in order to deliver long-term growth in public transport, particularly in disadvantaged areas, and looking at the issue of telecommunications, because roaming charges have yet to be addressed on a North/South basis.

There must be investment in our ports, taking on board the fact that the majority of trust ports want their status declassified, so that they will be better able to trade. Although it is mentioned in the Strategic Road Improvement Programme, which is currently subject to consultation by the Roads Service and the Department for Regional Development (DRD), the upgrading of the Belfast to Derry road has been earmarked, from memory, for 2015. That road and other areas highlighted in that programme that require infrastructural development must be fast-tracked. There should be investment and resources made available.

Investment in the North/South rail network, particularly between Dublin and Belfast, must be secured in order to shorten journey times and to improve and contribute to the economy. The same applies to the Belfast to Derry routes.

An all-Ireland transport and infrastructure body must be created. The results of the collaborative strategy on both spatial planning strategies must be looked at, because that was supposed to help to address the infrastructure and economic deficits that partition caused. Support must be given to the creation of sustainable and balanced economic, commercial and employment opportunities. We also require investment in order to implement the Regional Transportation Strategy.

Investment in renewable energy and support measures to eradicate fuel poverty are needed. We must make good the underinvestment in water and sewerage infrastructure.

That does not mean that we should double-tax the people of Northern Ireland — financial measures should be put in place.

The SDLP believes that job creation is another factor for consideration. Tax relief and rate relief should be introduced to offset spending on research and development. A new enterprise growth fund should be created, comprising loan and equity funds to work together to increase the number of business start-ups, promote the social economy enterprises — in rural areas — and to enhance the all-island business co-operation model.

A menu of reliefs should be established for businesses facing the end of industrial de-rating, which was mentioned by previous contributors.

There should be investment in a North/South strategy to maximise overseas investment, building on such trade missions as the recent one to India and the other one that was to take place.

We should implement the 20 key actions of the Irish Business and Employers Confederation (IBEC)-CBI joint business council.

An all-Ireland research fund should be set up to develop capacity in target areas. The Business Alliance referred to that last week, and the EDF talked about it this morning.

We would welcome an all-island special programme for university research (SPUR) to capitalise on available innovation.

Economic and social dividends for the whole community would be generated by the release of under-utilised public land and assets and the further release of military bases.

Investment in our tourism industry is necessary, as is the establishment of properly funded further education colleges and training schemes.

Moreover, several all-Ireland funds could be created. That said, the SDLP believes that there must be a political imperative from the Irish Government to partly fund many projects.

My colleague Mr Attwood referred to that matter in the House earlier this week as regards the police college. The Irish Government have already provided part-funding for the City of Derry Airport; however, there must be a political imperative to do so on their part. We must move from talking to doing.

In that respect, there is a need for strategic capital funds to support infrastructure and capital spending.

Furthermore, there should be services, community and enterprise funds, and a common fiscal platform. A single all-Ireland corporation-tax rate of 12·5% should be created.

As well as North/South funds, British-Irish funds should be established to enable the island’s different Administrations to come together to promote innovation and support pilot projects.

The SDLP wants to see concentration applied to soft infrastructure and the barriers to growth. Capital investment in health and education is essential for the general well-being of the economy and of our population.

With rapidly diminishing housing stock and growing lists for public and social housing — particularly in certain geographical areas — and severe pressure on first-time buyers, there is a need for major investment in social housing programmes.

We must develop accessible and affordable childcare and support integrated early-years care.

We need to examine the Skills Strategy for Northern Ireland and programmes that address the skills of the unemployed and the economically inactive.

Additional financial support must be secured to widen the access to education for many of those who have been unable, unwilling, or reluctant — perhaps because there was no incentive or impetus — to pursue it. Specific extra funding should be dedicated for mature students, disabled students and students with dependents, with the express intention of growing our economy and ensuring that we emerge from the dependency culture. For so long, that ability has been denied to us.

Dr Birnie: I am very happy to make this presentation on behalf of the Ulster Unionist Party. Our ultimate objectives of prosperity, fairness and sustainability in the Northern Ireland economy and in society can, and should, be obtained through promoting the competitive­ness of that economy and the cohesion of our society.

An important point is that an economic package, whatever its size, will not be sufficient to solve all our economic and social problems. However, although it may not bring that good outcome, it is very probably necessary. An interesting parallel can be drawn with what could be considered the greatest peacetime economic package in global history: the Marshall Plan of the late 1940s. It contributed to the economic recovery of countries that were ravaged by the Second World War, such as Germany, France, Italy, etc. However, almost certainly, it was not the ultimate explanation for the rapid growth in those countries in the 1950s and 1960s.

The package should centre on three broad types of investment: in skills; in infrastructure; and in promoting the cohesion, or equity, of our society. Investment in skills is discussed in our submission. With respect to adult essential skills, it is a human and social tragedy that an estimated 250,000 adults in Northern Ireland lack the basic abilities to read and count. Since 2002, there has been an essential skills strategy. That is welcome, but it has dealt with not much more than 10% of that 250,000. We suggest that more needs to be done in that respect.

There is an obvious need for more higher education places. That is evidenced by the continued substantial migration of young people from Northern Ireland at age 18. Some go willingly, and to that there is no objection. However, we suspect that a large percentage are unwilling migrants and, therefore, are unlikely to contribute to our economy and society in the future. Our submission also highlights the role of the further education sector.

With respect to R&D, the submission emphasises public-sector investment. Evidence suggests a continued shortfall, particularly in spending on the universities. Public-health investment is interesting. In many of the public-health league tables, which list cases of obesity, stroke, heart disease and certain types of cancer, Northern Ireland is at the bottom, not just in a British Isles context, but in a western-world context. Surely, if we could prioritise preventative and public health, we could transform Northern Ireland’s position on those tables in some of the areas of chronic ill health. That would be a major contribution to human and social well-being. It would also be economically beneficial. The subgroup has heard how much higher Northern Ireland’s rates of sickness and long-term-illness-related economic inactivity are, compared not just to Great Britain, but, even more so, to those of the Irish Republic. Some of the social and economic costs of the various illnesses are outlined in the submission.

Further investment in railways is important to tackle a problem that was highlighted in the media earlier this week: congestion. Congestion has a major impact on many of our lives. The average worker in the Greater Belfast area might spend between one and two hours each day travelling to work. Congestion affects other parts of the Province too. That has an effect on everyone’s well-being and has a broader impact on pollution levels, carbon levels and global warming. Therefore investment in more fuel-efficient transport is needed to encourage the shift from the private car to public transport. Some form of rapid transit system within the Greater Belfast area — out to Newtown­abbey, Lisburn and Bangor, for example — would assist that. Upgrading the rail and public transport networks is also desirable.

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We have all seen the horrendous figures on the shortfall in water and sewerage investment that has built up in the direct-rule period. Perhaps £3 billion of capital spending will be required to address that. There is a strong case, in equity terms, for making an approach to the Treasury. After all, when the English water service was privatised in the late 1980s, it got a green dowry to wipe out the costs of making necessary environmental improvements. Why should we be treated differently? Why should private households have that burden put on them?

There is a strong economic and environmental case for investment in energy efficiency.

In the area of investment in social cohesion, special needs education — given the hammering that that sector received in recent budget stringency — is an important priority, as are literacy and numeracy. We must try to prevent that tragedy from replicating itself in future generations. Spreading IT literacy, and ensuring free personal care for the elderly — following the Scottish Executive’s example — are also essential.

In conclusion, any economic package must be additional to the Northern Ireland budget. There is no point in the London Government giving with one hand and taking with the other. We have not said much about incentives, because we know that we will be working on a separate paper dealing with that matter, but there is a sense in which some of the economic package may be used to pay for some of those incentives. As a witness to the subgroup suggested, perhaps the money that would have been spent on the Ian Pearson electricity price reduction for industry — which, of course, never happened — should be used to cap industrial rating at the current level of 25% rather than allow it to increase, with all the subsequent damage, to 100%.

We also note that, due to the Strategic Investment Board, the Northern Ireland Investment Strategy and public-private partnerships, Northern Ireland is gradually building up what will become an increasingly onerous mortgage, which we will be paying off over the next quarter of a century. If additional moneys can be secured from the Treasury, some could be used to control and reverse the growth of public-sector debt.

The Chairman (Mr Molloy): Perhaps Mike would like to present a summary. Do parties have any questions at this stage?

Mr Weir: I appreciate what Esmond has said about a separate document dealing with fiscal incentives, given the structure of our papers. However, each party has touched on the issue of corporation tax and linked that to an economic package. I know that Esmond has reserved his position on the basis that that subject will come up later.

Dr Birnie: It is sub judice.

Mr Weir: Is it possible for Esmond to clarify on behalf of the Ulster Unionists its position on corporation tax and whether it sees that as part of an economic package?

Dr Birnie: As I said in the Assembly debate — though we are still collecting evidence — at this time it looks as though the balance of the economic evidence suggests that a corporation-tax reduction would have more impact than tax credits and allowances. However, we must distinguish the question of what is theoretically best from what we are most likely to get from the Treasury. We also have to bear in mind the implications of the Azores case on our public spending block.

Mr Weir: I am not trying to score points but, in the wake of the debate, some newspapers placed a slightly different emphasis on that matter. When you say that the balance of evidence suggests that a corporation-tax reduction would be more attractive, is that an Ulster Unionist view, your personal view as an economist, or both?

Dr Birnie: I hope that my view is compatible with the general party view.

Ms Ritchie: I am mindful of David McNarry’s proposition last week about North/South collaboration. What are the DUP and UUP views on that? I do not expect one member to answer for both parties.

Mr Weir: I could make an attempt at that. [Laughter.]

Ms Ritchie: I am sure that you could. I am not seeking to embarrass anyone. What are your views of North/South economic co-operation and collaboration, and where do you see us going from here, since — as Mr Smyth said earlier — we have a land border with the euro zone? From a pragmatic point of view, how do we capitalise on the various things that could unite us? We are trying to get rid of the problems of the past and to improve the economy for everybody.

Mr Weir: Broadly speaking, the DUP tries to take a reasonably pragmatic approach on economic co-operation. Perhaps, in the past, some people on the unionist side would have described it as collaboration rather than co-operation — I am just quoting the member opposite.

Mr Beggs: Which party background are you referring to?

Mr Weir: From a pragmatic view, we are keen and happy to see co-operation in matters of mutual economic benefit. The DUP believes that it should be looked at on a case-by-case basis.

Ms Ritchie: Or a project-by-project basis.

Mr Weir: Or a project-by-project basis. It is not necessarily a one-size-fits-all situation. First of all, is there a case for co-operation? There are certain aspects of the economy that will be in competition, and therefore it may not be appropriate. The DUP also believes that it should be pragmatically andeconomically driven, rather than being done for political purposes. Any benefit might come from co-operation on an all-island basis, or it might be more localised, such as co-operation between businesses, sectors or regions. The DUP would take that on a case-by-case basis. It is not a one-size-fits-all situation.

Dr Birnie: Like Mr Weir, I will clarify which party I am speaking on behalf of: given something that was said on ‘Good Morning Ulster’, which I did not hear, I want to emphasise that this is the view of the Ulster Unionist Party and not the Conservative Party for Northern Ireland.

Co-operation is a good thing, subject to two qualifications: it should be accountable to locally elected politicians, and it should be for mutual benefit. Companies act in a global market, and they seek profits. The UUP does not have a problem with Northern Ireland companies exporting to the Irish Republic or buying inputs or sourcing labour from the South. Those matters are usually governed by the normal working of the market economy.

However, the UUP would have reservations if it felt that policy interventions — which might or might not be designed to correct “market failures” of North/South activity, to use one of Mr Smyth’s phrases from this morning — might sometimes, if excessively driven by primarily political considerations, actually run counter to what makes most sense for the market. There is a danger that we could be promoting North/South trade and economic activity at the expense of promoting it with Great Britain, continental Europe, the United States or the Far East. The proportion of Northern Ireland manufacturing output going to the Irish Republic is already around 11%, and probably rising.

I am not sure whether that proportion can be rationally increased by much, given that the Irish Republic has a market of only 4 million people, whereas the combined population of the 25 countries in the European Union is 450 million. North/South co-operation is a good thing, subject to those qualifications.

Peter mentioned the DUP’s pragmatic approach to economic co-operation: the UUP takes a similarly pragmatic line.

Ms Ritchie: My question is to both Peter and Esmond. I take on board what you said and thank you both for your answers and for your pragmatic approach. Does either of you see a case for factoring in some level of pragmatic co-operation, given the potential economic dividend?

Mr Weir: Do you mean receiving or giving?

Ms Ritchie: It could apply to both.

Mr Weir: There could be a case for pragmatic co-operation on certain projects: for instance, the DUP envisages a fund for investment in infrastructure, some of the money for which could come from Europe. There could also be pragmatic co-operation on cross-border projects.

However, as we are trying to make a strong case, most of the money will probably come from the Treasury. I would be surprised, to put it mildly, if the Irish Exchequer were keen to provide a great deal of money. You may have more sources of information on that than I; However I believe financial co-operation may reach a ceiling fairly quickly.

The Irish Government may want to invest in certain projects, perhaps in order to demonstrate some commit­ment. However, in practice, the amount of money that could be levered into the economy here would be extremely small. Seeking investment from the South could distract from our case to the Treasury for an economic package. I am a bit sceptical, to put it mildly.

Ms Ritchie: Chairman, I am mindful that I am begging your indulgence, but I have a point of inform­ation: the Irish Government have already provided funds for the City of Derry Airport. They did so for mutual advantage and demonstrated a pragmatic approach.

Mr Beggs: It is a loss-making airport.

Mr Weir: I am not aware of that specific example. However, certain cross-border projects may attract funding from both the British and Irish Governments. The same principle applies to cross-border projects in Europe. I suspect, being utterly cynical, that the Irish Government would consider whether a project benefitted their citizens before contributing to it. That is perhaps what happened in the City of Derry Airport, which is near the border.

However, as we are giving practical consideration to economic measures and the money needed to finance them, only a small proportion of that is likely to come from the South. Should the Irish Government want to support a certain cross-border project, the DUP has no principled objection.

If we were to request a large amount of funding from the Irish Exchequer for a project — leaving aside the concerns or principled objections that unionists would have about approaching the Irish Government — it would not result in a significant amount of money and would, consequently, be something of a distraction.

Whatever fiscal measures we take or whatever economic package we seek, it is better to concentrate our efforts on the Treasury. At the end of the day, it will be the source of funding. Any international funding — although there is probably a case to be made about some level of European funding —whether from down South, America or wherever will have limited practical value.

2.15 pm

Mr Ford: Peter and Esmond referred to tax variation. I could parody their argument by saying, “Do not raise the issue or the wicked Treasury will dump on us”. It seems that the Treasury has already dumped on us through the reinvestment and reform initiative. The Executive, through their implementation of increases in the regional rate that were significantly higher than inflation, accepted that. I want to know how much of a danger they believe that to be. That point was made by a spokesperson for the SDLP.

I suspect that the Treasury has got it in for us anyway. Regardless of the mechanism it uses, it will ensure that it gets the money out of us in years to come. A move towards alternative taxes would, therefore, be less dangerous. We consider alternative taxes to be fairer than you suggest.

Dr Birnie: It seems that all the parties, to some extent, are moving towards tax-varying powers on business taxes. However, the difficulty is that we would not have powers to vary personal and income taxes but, rather, to increase them. Do we really want such powers?

With respect, I question the Alliance Party’s position that we rely not on a domestic rate based on capital value but on local income taxes. Has any assessment been done of the effect that would have on the average-income family who are on a standard rate of income tax? That has been done in Great Britain with regard to the Liberal Democrats’ proposals. What would be the effect if conventional income tax were combined with the new property-related income tax? Given that Northern Ireland has the fundamental problem of a lack of entrepreneurship and business enterprise, do we want to become the highest income tax region in the UK and, indeed, have a rate that is higher than that of the Irish Republic?

Mr Weir: I share some of Esmond’s concerns. There may be some truth in Mr Ford’s claim that the Treasury is out to get us. Occasionally, it seems as if the Secretary of State pushes a particular line not because of a political imperative, but because he follows Treasury logic.

If someone wants to hang you, you do not stick your head in the noose to assist them. A case for corporation tax has been made with regard to business, although certain conditions must be applied to enable Northern Ireland to qualify. I have grave reservations about Northern Ireland ending up with a high-tax economy, which would not be of benefit to us. I agree with Edmond on that issue.

Outside the qualified position with regard to corporation tax, a move towards regional variations on income tax would break parity. When Northern Ireland no longer has parity with the UK on income tax, there is no guarantee that there will be parity on social security benefits or any form of public spending. That would open a Pandora’s box.

As the leader of the SDLP said, there is a problem with having tax-varying powers on income tax. Even if those powers were not used, the Treasury would have an excuse to say, “You can raise an extra £200 million” — or whatever the figure may be — “as we are going to cut the block grant by that much. If you want to complain, you can do so.” Additionality comes into that. I have grave concerns about the Alliance Party’s position.

The Chairman (Mr Molloy): We must move on quickly.

Mr Ford: May I make a quick riposte, Chairman? I seem to be being ganged up on. [Laughter.]

Dr Birnie: You asked the question.

Mr Weir: If you see a couple of sleeping dogs, do not throw a stick at them.

Mr Ford: I believe that, under the RRI, the previous Executive put our head in the noose.

Mr Weir: As David indicated, at the time, we both felt that the RRI had not been properly negotiated.

Mr Ford: I could not remember what party you belonged to at the time, Peter. [Laughter.]

Mr Weir: That assumes that any remark I made was a party remark.

Mr McNarry: You still assume that.

Mr Ford: The issue of a local or regional income tax should not necessarily be seen as conflating the general income tax position, if we are considering not paying tax on property as an alternative, as there are significant issues of fairness.

Furthermore, I am not sure that the Treasury is using the Scottish tax-varying powers as an excuse for cutting back on funding to Scotland. There is probably several weeks’ debate on that.

Mr Weir: The fact that there are around 50 Labour MPs from Scotland, on whom the Government are highly dependent, may be a greater incentive for the Treasury to take that line.

Mr Ford: That may well be a factor.

Ms Stanton: This is only the second time that I have attended the subgroup. From those meetings, I have gathered that there was a recognition that border areas suffer the greatest deprivation. There was common ground on the fact that that must be tackled on a cross-border basis and that structures must be put in place.

We have talked about the need for 142,000 jobs to be created over the next 10 years. In the 1990s — said to be the golden years of the Six Counties —only 82,000 jobs could be created. We must move in a different direction, but is a radical change in thinking required?

Notwithstanding members taking offence at the existence of North/South bodies, they do exist and they are a way of creating jobs. We all have families in the Twenty-six Counties, and Sinn Féin is an all-Ireland party. We must move forward on that basis.

It is recognised that border areas are the most deprived. The Committee on the Administration of Justice report published last weekend, ‘Equality in Northern Ireland: The Rhetoric and the Reality’, cannot be contradicted. I do not want to play the bat-and-ball game again, but the research is there, the reality is there, and it must be faced.

Mr McCann: Republicans, and Sinn Féin, have never run away from the fact that deprivation exists in unionist areas. It was a bit disingenuous of the DUP to say that republicans have denied that. It would have been much better for the DUP to talk about dealing with deprivation across the board, rather than to sectarianise it in a small sentence in its presentation. That hides, and goes against, all available statistics.

The Chairman (Mr Molloy): Mike, do you want to come in on this point? We are pushed for time, as John Simpson will appear before the subgroup soon.

Mr Smyth: I will concentrate my summary on the parties’ presentations and the subgroup’s three terms of reference. The common ground in all the presentations was an agreement that a financial package should achieve sustainable outcomes and measures with a reasonable prospect of addressing fundamental issues, which I shall cover later.

The DUP was pretty unambiguous in its approach to corporation tax, in what is a very pro-business policy statement.

The Alliance Party was slightly more sceptical about the impact of FDI. Indeed, David Ford posed the question of whether FDI works. There seemed to be concerns about the distributional aspect of FDI — the rich getting richer, and so forth. However, the subgroup has not yet considered that.

The SDLP did not come to a clear definitive position on corporation tax but seemed to express a preference for additional financial support. However, Margaret Ritchie mentioned tax measures to accelerate business growth in the private sector.

Ms Ritchie: This is perhaps not specific, but I suggested the creation of a single, all-Ireland corporation tax regime at 12·5%. Such an investment in the economy would pay for itself within 10 years in returns to the Treasury.

Mr Smyth: So that is de facto support for corporation tax. That is excellent. That is one fewer issue to finalise.

The Ulster Unionist Party placed most of its emphasis on investment — that is, spending. Its presentation contained some proposals for fairly radical policy reform.

Only the SDLP mentioned the North/South dimension, emphasising the need for a higher priority to be given to better North/South co-ordination.

All parties need to prioritise their spending plans and policy reforms. Such prioritisation is lacking in all presentations. The subgroup’s terms of reference demand some kind of explicit prioritisation, if possible.

Parties need to determine whether they all agree with the analysis of the fundamental economic challenge, which is low productivity, which, in turn, creates low wages and relatively low living standards. If it can be clarified whether all parties agree with our analysis, we can move on to considering the timescale in which an economic package would make an impact. That will, in turn, dictate the nature of the package. To produce an impact in the medium term, by definition, a fairly radical package is required.

I liked Esmond Birnie’s analogy with the Marshall Plan — the necessary and insufficient condition. He seemed to argue that the Marshall Plan was a necessary condition for the regeneration of post-war continental Europe, but that it was not a sufficient condition. By the same token, we must clarify whether members view the spending plans as a necessary condition for the economic regeneration of Northern Ireland, and the tax break — however defined — as a sufficient condition.

One point that no party has touched on requires urgent consideration. The subgroup is meeting in the context of the expected comprehensive spending review next June. We need as much clarity as possible from the Department of Finance and Personnel on the likely time path of Northern Ireland’s public expenditure allocations. The Department will need to be as specific as possible with regard to the likely nominal and real increases beyond 2008 and 2009. Figures that I have seen suggest that the increase will be just ahead of inflation, accepting inflation at 2·5%. I can interpret that as a real resource cut. That will affect the subgroup in respect of the choices that it must make.

Mr Weir: I appreciate that it is useful to ask DFP questions of that nature. However, the officials may be risk-averse to the suggestion that you have just made, and DFP may be likely to bat it back to us, with the explanation that that is the departmental view of the current environment and that any final decision will rest with the Treasury. I wonder how definitive the Department’s answer will be; it could merely be some vague background information. I am not against asking the question, but there may be limitations in the quality of the Department’s response.

Mr Smyth: I have seen some figures off the record. The Department is using working assumptions.

Mr Weir: Would DFP be willing to put any of those figures on the record?

The Chairman (Mr Molloy): The subgroup could perhaps write to the Department and ask for further information.

Mr Smyth: I was going to suggest that, Chairman.

Ms Ritchie: Mike said that the parties must be more explicit about their priorities. Could you define what you mean by that? I have had difficulty in getting my head round that, in discussions with the Committee Clerk and various officials. It would be helpful if we could try to understand what we should be doing.

Mr Smyth: It is difficult for me to do that without being slightly rude.

The Chairman (Mr Molloy): You can be rude for today.

Mr Smyth: From the presentations that I have received — and I imagine that, had Sinn Féin submitted one, it would have been as long, if not longer than the others — there is a tale in the measures that have been proposed. I could perhaps give the paper some coherence and group those measures under subheadings.

The subgroup’s second term of reference deals with the measures that we must take in the areas of skills formation and education. As well as the overall package, that is a particular priority that the subgroup has been given. Therefore, I suggest that that issue be addressed as part of skills formation and education.

2.30 pm

Ms Ritchie: It is therefore a matter of what needs to be done to address that in terms of a financial package.

Mr Smyth: It must also be addressed in terms of policy reform within our terms of reference.

Ms Stanton: Perhaps I am speaking out of turn, but this is only the second time that I have attended a subgroup meeting. The subgroup looked at levels of corporation tax here, in the South and elsewhere, and the widening of the gap between the rich and the poor was mentioned. I would like more information on that before I could reach any decision.

Mr Smyth: If everyone in Northern Ireland had his income doubled right now, everyone would have twice as much money. The distribution would not change at all, but the gap would actually get wider. That is what has happened in the Republic. From an economic welfare point of view, is the situation in the Republic now better than it was 15 years ago? Yes, it is. Most parties mentioned the need to grow the private sector as opposed to cutting the public sector. However — although there are deviations from this — in the Republic about one third more people are employed in the public service now than in 1988, but more than twice the number of people are employed in the private sector. That exemplar is indicative of the route we must go down.

Mr Dallat: I am not sure how relevant my point will be, but I am sure that Mike will keep me right. I am being extremely positive and assuming that we will have responsibility for our economic future on 25 November. That will leave only a few days within which to produce a draft budget. I raised that issue at the Business Committee meeting last week, which, if I remember correctly, referred it back to the Preparation for Government Committee. I am not sure whether the matter will eventually formulate into a motion for debate, but would that be useful in helping us to set out our priorities — assuming, of course, that we get the inheritance back on 25 November?

Mr Smyth: It may be useful if it could bring clarity to the overall package. I am very conscious that the main people scrutinising our report will be the economists in Her Majesty’s Treasury. I will try, as far as I can, to tie any suggestions that the subgroup makes into a theoretical economic framework. Prioritising public expenditure and policy reform is the format and structure that we must follow, and I will try to keep the subgroup within that structure.

Mr McNarry: I am sorry that I missed this morning’s session. Just before lunch, I listened to some comments from the Secretary of State. In case the subgroup is interested, he still likes his residence at Hillsborough as much as he likes the option of looking for another mansion should he become the Deputy Prime Minister. His mind is clearly on the property market rather than focusing on Northern Ireland, but no matter.

He made an interesting comment — and he said it no greater than this — that if we make the case for a lower corporation tax, he is prepared to take it to the Chancellor. There was a sense of challenge in his remark too — he was talking about the CBI. He was clearly on a charm offensive, but it is not clear who he was trying to charm or whether he succeeded — he certainly did not succeed with me, anyhow.

Mr Weir: I am not sure that you were the target audience.

Mr McNarry: I think that the politicians were the audience. He referred to the number of us who were there — and the member’s absence was noted, by the way.

Mr Ford: Prioritisation.

Mr McNarry: We have a bigger team to choose from than you.

Ms Stanton: That is below the belt.

Mr Ford: I noticed that senior members of the Ulster Unionist Party were here earlier.

Ms Ritchie: David the Rottweiler.

The Chairman (Mr Molloy): Do you have a question?

Mr McNarry: I picked up on what Mr Smyth said about prioritisation. We all knew that the subgroup would hit a patch where it would have to address the question that he has put to it. If we are being honest, we will admit that we all knew that because of other circumstances and other timetables we were probably going to dodge it. It is too close to the Ulster-Scots wingding that we have all been invited to at St Andrews for our party to divulge negotiating priorities at a subgroup that has no negotiating status. If that status were changed, we would be very happy to negotiate here, but we are not, and therein is a major difficulty for Mr Smyth.

The difficulty for us all is that we do not know what is going to happen after 24 November. It may be that we, as MLAs, will be redundant and irrelevant; however, the report should not be. I sympathise with what Mr Smyth is saying. We could be more helpful if the negotiations were over, because if I had a clear idea that devolved Government was going to be restored, we could really apply ourselves. However, I am not certain of that. If devolved Government is not restored, it will be a matter of who places himself in a position with the ability to pressurise direct rule. If the rug is pulled from under our feet, we revert to Westminster and councils. None of those bodies will have the clout to deliver a report that they did not write.

We have been given date — 4 October — and we should look for a greater understanding of the fact that Ulster Unionist hands, at least, are tied and that we cannot be as specific as people would want. We still do not know how the Government will respond. We are talking about a devolved Government responding to this, but we have no odds-on bet that a devolved Government would ever be in a position to respond to it.

Finally, I am still looking for costings, and I hope that we all are. We do not have any costings, and I say that with all due respect. I am not putting the onus back on to Mr Smyth and the officials, but even if he pitched us some costings in the air, there would be difficulties. Let us not go to the auction arena, but, to pluck the issue of special needs out of the report, I am damned if anyone can get a costing for that out of the Department of Education. How do we repair something if we do not know what it is going to cost? That is like going to a dodgy builder.

The Chairman (Mr Molloy): This is still the Preparation for Government Committee. It is important that we put a paper together that stands up for whoever is in Government later. Different Governments will respond in different ways, as you say.

Mike’s job is to put together a credible paper, whatever the circumstances after 24 November 2006. He will prepare it with as much clarity and information as possible from the political parties, on the understanding that no one is going to negotiate with the subgroup. It is important that that paper is credible, and that is the whole emphasis in coming back to this. It is preparation for Government in the sense that it is what the parties would want if, on 24 November, the institutions were up and running again. That is all that Mike can do at this stage. Perhaps he could carry on working with the parties to create the vision.

Mr McNarry: I agree with that, Mr Chairman. I was not disagreeing. Credibility is important — but so is honesty. I am being honest when I say that where we are is holding back full credibility.

Mr Weir: I do not want to curtail the debate on this. However, John Simpson has been here for a while, and it would be rude to keep him waiting any longer. We can continue the discussion on those valid points later.

Mr McNarry: I did not see John there.

The Chairman (Mr Molloy): John, you are welcome to this afternoon’s meeting.

Members have in their packs a copy of John’s ‘Belfast Telegraph’ article and a copy of the paper that he has prepared. He will give a short introduction and then take questions on the issue of corporation-tax variation and so on.

Mr John Simpson (Economist): Thank you, Mr Chairman, for inviting me back. It is the same room, although some of the faces have changed. The quality has obviously gone up.

I have taken the liberty of preparing a short submission, Mr Chairman, and you will be pleased to know that I do not intend to read it in full. Indeed, I shall jump to the section that, it could be argued, contains some of the conclusions.

The subgroup is searching for a framework whereby it can make a submission that is coherent and persuasive with regard to the economy. I will do my best to help in that. As we commence this discussion, I want to register that it will require some agreement on the prescription, that is, on what you want to do. The diagnosis of where there are problems takes us into the area of appropriate policies and setting priorities. A weakness is that we tend to regard everything as a priority, which means that nothing is a priority. We need to consider what implementation arrangements there are in Northern Ireland. I join the club that believes that while there are many admirable mechanisms in place, there are some that I would describe as less than optimum.

That brings me to the institutions and the personnel in post. You will note that the word “personnel” ends in “el” and not “al”. I remember that the last time I was here that there was an important debate about whether a certain word had one “p” or two.

I come to the issue of applying the framework and relating it to the questions that members have asked. I hope that they will agree that the three questions that they posed, or that have been posed for them, overlap significantly. It would not be possible to answer the third question on the economic package without making some acknowledgement of the questions on fiscal options and the integrated skills and education strategy. Whatever comes out of this, they must be part of the package rather than be left for another day.

Let me make a distinction about the word “package”. What do we mean by the terms “economic package” and “peace dividend”?

Members must consider how they would set that out. I will give them a choice that might influence their thinking. Are they talking about a financial package or an economic package? Some elements of an economic package might not cost anything; they would go through a Budget. A financial package would come out of the overall Budget balance, whether it is current expenditure or capital expenditure. I could make suggestions about an economic package that will not add to the Budget for Northern Ireland but that will simply do things in a different way. They might give members some food for thought.

2.45 pm

The subgroup wants to focus today on the economic package. First, I want to comment on the issue of fiscal options. Mr Chairman, you were kind enough to refer to the recent scribblings of a modest author in a local small-circulation newspaper. If you have had the opportunity to read the article and were still awake at the end of it, I offer you my congratulations. I do have a serious intent.

It is apposite that the judgement from the European Court was issued less than a fortnight ago; people had been anticipating its ruling. I was surprised to learn that officials in many Departments were unaware that that case was going through the system. However, the British Government — I presume that means the Treasury — enjoined the court case. They were allowed an audience at the court and argued that the Portuguese Government were within their rights and that the tax advantage for the Azores that was written into Portuguese legislation should be sustained. At the European Court, the British Government were supporting the Azores position on lower rates of corporation tax, which is the issue that we have been discussing.

Some people might argue that, as part of a national agreement, we could introduce a different rate of corporation tax. However, the European Court has given a flat “no” to Portugal. Lawyers will continue to tease out the issue. The fact that the European Court has said “no” means that we could think about going down a different route. We might find out what other options could achieve the same result. This is an accident of European legislation, and presumably other countries have frontiers, and businesses may choose to locate on the far side of those frontiers where different corporation taxes apply.

It is significant that the British Government also recently lost a case at the European Court. The British Government thought that they were losing tax revenue, so they wanted to introduce tax laws that stated that if someone locates a business in another country to minimise taxes, but not to do business, the British Government could collect taxes from that person. The European Court said “no” to that suggested legislation. For example, if someone sets up a genuine business in Dublin, the London authorities cannot tax that person at British rates because the business has been set up in Dublin to take advantage of lower tax rates. Therefore the European Court has been moving on two fronts.

That gives us reason to be somewhat ingenious or to seek some level of initiative in this matter. I wished to draw that to members’ attention.

Chairman, I had the privilege of reading the four volumes that you and your friends must have sat late into the night preparing from the first report of the subgroup’s work. Lest you got tired before you got to volume 3, I commend the submission from the Economic Research Institute of Northern Ireland. One of the most fundamental pieces of thinking contained in those four volumes is the argument deployed by Victor Hewitt in the ERINI presentation. He is leading a study on the potential impact of corporate tax changes. Obviously, he cannot produce a report tomorrow, but he is, nevertheless, one of the best people around to do that work. If that idea is to be taken further, I suspect that Mr Hewitt will be a very relevant contributor to the debate.

I shall leave that matter for a moment, because members may ask questions on it. I shall move on to the second paragraph on the third page of my submission, where I refer to the integrated skills and education strategy.

I should first declare an interest: the Department for Employment and Learning, in its wisdom, has asked me to sit on the expert skills group, which is trying to identify areas where the skills that are available in Northern Ireland should be further developed. I do not wish to detract from the ability to take part in — or from the merits of — that particular approach. However, I still wish the subgroup to register my opinion that we are playing with the problems amid a complete lack of urgency. We have the ambition to improve Northern Ireland’s performance in integrated skills and education, but we are not delivering.

In a minor illustration of a matter that is related to that, some members will be aware that DEL is encouraging the further education colleges to increase enrolments and the efforts on six key vocational areas. DEL has been doing that for two or three years. I was able to ask for the figures and whether that strategy was working. When one examines the six key areas, one sees that there have been worthwhile increases over roughly five years. However, when one breaks down the figures into each of the six key areas, one discovers that the real increase is in only one of the six areas. The other five key areas are pretty much doing, year after year, as they did the previous year. That allows me to say that my ambition, which I commend to the subgroup, is that further education colleges be given firmer guidelines on how they achieve their objectives.

I am concerned that further education colleges are still, essentially, free agents that can decide where they place their effort, year after year. As regards a skills and education strategy, we should state that we do not wish to interfere in the operational details of each college, but that, as a society, we have a view on the type of things that they should be doing. Save for the presence of the subgroup’s adviser, we could say the same for a couple of universities. That would not go amiss.

In general, the structure of current work on integrated skills and education answers the question of whether we have the ambition. Has a diagnosis been made? Yes. Do policies exist? Yes. Are policies being implemented adequately? No. That is a theme that I wish to repeat on a couple of the other matters that I will put to the subgroup.

The importance of the strategy for skills and education is critical. We cannot have a package for the social and economic improvement of Northern Ireland unless we address what we are doing for an up-and-coming generation and perhaps some of the adults who will come back to continuous learning. We need a strategy that is operational and becomes quantified. We must have key performance indicators and ask questions every year. We must ask whether the work has been done and, if it has not, there must be some discipline in the system that states that that is not good enough.

I shall move from education to other items that should be included in a peace dividend.

On page four of my paper, I draw the subgroup’s attention to five headings. Members might wish to consider how each of those could contribute to an economic package. My definition of economic package would include the phrase “any scope for the improved application of current policies”.

Over the past three years, the development of RRI has been a new feature on the economic landscape. I am among those who say that it is overdue and welcome, and that it means that there are new financial arrange­ments to be developed. The Treasury has moved significantly to allow that to happen. I do not know why it did not happen many years ago, but it has happened now.

However, my concern is that the Strategic Investment Board (SIB) is the mechanism through which RRI is being delivered. That begs the question of whether SIB is making decisions about our capital programme. The answer is no: it does not have the authority to make decisions about our capital programme. Is the Northern Ireland public sector capital programme prioritised in one institution that has responsibility for ensuring that the programme is delivered? The answer to that is, at best, ambiguous — and it may be worse.

My point is that SIB is not part of the Department of Finance and Personnel (DFP), which is the budgeting Department; it stands to one side. It is a non-departmental public body (NDPB), but it has no authority to commit or spend money; it has only the leverage to offer advice. SIB must be tightened up. We should be absolutely clear about its role, and we should be able to monitor its activities.

The improved functional role of SIB calls not only for the identification of a long list of projects — and SIB would agree with that — but for that list to be prioritised, and for an associated timetable to be drawn up. We have a 10-year strategic investment programme, involving approximately £16 billion. However, we do not have a set of priorities that tells us which elements in which functional areas are most urgent.

It is interesting that, in his first paper to the subgroup, Victor Hewitt made the point that it is easy to sell the idea that RRI should make a major contribution to the school-building programme. I do not want to take away from that idea because, for economic change, we may need to enhance the school-building programme and increase work on our hospitals. However, we need to focus on how to improve the economy, and it may be that that should be given a higher priority.

I suggest that SIB should be committed to a series of signature projects, provided that they are developed in short order, rather than taken over a lifetime. Some members will recognise the phrase “signature projects”, because it has been used recently in one or two parts of Northern Ireland to attract commendable publicity. I have suggested a few such projects in my paper.

I suggest that the SIB — or whoever is responsible — should have a single-energy market functioning on this island by January 2009. There must be no more going around the houses on that matter.

3.00 pm

There is no reason why we now need to have round after round of inter-ministerial meetings and discussions about where we should string the wires in order to build the second cross-border loop. If this were a business, people would be out there today putting up the pylons and hanging the wires on them, yet we are told that that will not happen until much later.

To aid vocational skills, I venture to suggest that it would not be a bad idea were we to say that the new Belfast Institute of Further and Higher Education (BIFHE) buildings should be up and opened by September 2009. The original intention was for the University of Ulster to expand on to the site of the Millennium Community Outreach Centre on the Springfield Road. We know what happened, but none of us could agree that it was a good idea to have spent so long seeking something that did not occur. If we are to improve further and higher education facilities, let us get serious.

Not to please some of the subgroup members, but because I think that it is important, we need to reach a stage at which we are setting dates by which certain infrastructure will be completed. I do not carry the clout, but members might. I would be very happy to say to the SIB that I would like to see a commitment that the Belfast to Dundalk dual carriageway — at least a dual carriageway — should be finished by 2010. Four more years is a heck of a long time in which to do a bit of hard-core infilling and to build a few bridges. Alternatively, lest I divide the subgroup, I add that the dual carriageway from Belfast to Derry city should be finished by 2012. That is not really a bad idea, is it?

Mr McNarry: Not a bit.

Mr J Simpson: I shall outline one further Belfast-oriented idea. I would like to see the Westlink expanded to three lanes — from the M1 to the M2 or the M3 — by 2012. At present, the best prospect for that happening is that it will be considered in 2015. Are we serious about developing our economy? Are we serious about good communications and ease of movement playing their part in that growing economy? If we are, something must happen.

To prove that I have learnt where the north coast is, I add a supplementary point. At the Giant’s Causeway, we should have an enlarged interpretative centre that serves an educational purpose. It should be large enough to accommodate one million visitors a year. It could also cater for 30,000 school pupils a year, which would mean that every pupil would get to visit it eventually. Could that not be finished by 2008? After all, the original little visitors’ centre was burnt down a while back.

Where is the imagination? There has already been a waiting time of four or five years for that project. Nothing on any scale has yet been built. Chairman, I know that this may upset you, so I apologise in advance. Look at the cross-border example of Glenveagh National Park in Donegal. Is there any reason why what will be built at the Giant’s Causeway should not be even more impressive, given its history? Do we even acknowledge that that we should build something on that scale?

I have said enough on the investment programme, so I shall move on. The operational framework for urban regeneration needs to be improved, and the institutions must be in place to ensure that that happens. I am one of those people who would be very critical of the lack of an adequate regeneration programme for the Belfast city region.

I use the words “city region”, because that is the economic unit. Frankly, what is happening is inadequate.

I shall use a comparison that some of you may have heard before. There is no way in which the plan for the Belfast region to have a population of just under 700,000 in 2015 will accommodate our current population growth. We must be more flexible, because, with the arrival of people from other countries, the population is growing much more quickly than we expected. It would be at least desirable to plan for the upper, rather than the lower, side of the possibilities, and we should therefore consider a Belfast city region that will accommodate up to 800,000 people. The other city region would have a similar read-across.

I make a point of principle and I have no reason to hesitate when I suggest that Belfast needs the equivalent of either Derry’s Ilex Urban Regeneration Company or, for a significant part of the city, a transfer of the Laganside concept. Both point in the same direction — choose whichever you think sets a role model.

Currently, we have no adequate urban regeneration programme for Belfast, and, as a consequence, the economy will be frustrated. Does any of us believe that the Belfast Metropolitan Area Plan is adequate for the purpose? That is the physical baseline in planning.

I read the evidence from the Planning Service, and I looked, in vain, for either defence or advocacy of the Belfast Metropolitan Area Plan. Neither was there. How can the Planning Service comment on the needs of the economy to groups such as this without mentioning the biggest institutional feature on the agenda?

Finally, I recognise that it cannot all be done simply by improving public infrastructure. Account must be taken of spending on incentives for innovation, R&D, knowledge transfers and the endowment of research specialisms. We should ask our DEL to consider how further and higher education institutions can make a bigger contribution. Currently, the game is that the money is allocated in proportion to what happened elsewhere in the UK. That is an implicit restraint on the way in which this economy can develop, and I wish it were otherwise.

The thesis running through all I have said is that we have the ideas. For some years I have watched those ideas, but I am increasingly aware that they are not converted into operational delivery. If I have any criticism of the public sector — hence the reference to personnel and institutions — it is that statements of good intent are inadequate to meet the problem.

The Chairman (Mr Molloy): Thank you very much, John. One of the problems is perhaps that planners spend more time in trying to close down rural development through Planning Policy Statement (PPS) 14.

Ms Ritchie: John, you are welcome. Our terms of reference — and our economic adviser — set some tall orders. How do you suggest that we address the economically inactive through the integrated skills and education strategy?

You mentioned the need to tighten up the Strategic Investment Board (SIB), which some say acts as a lever for the Treasury in Northern Ireland. How do you suggest that that should be done?

I do not criticise any of the projects in your list, although I am a little surprised that you have not listed any in the south-east; perhaps that is parochial of me.

The Chairman (Mr Molloy): You cannot win, Mr Simpson.

Ms Ritchie: Perhaps, Mr Simpson, you could speak of your experience.

Mr J Simpson: I will first answer your question on the skills and education strategy, and link it to the issue of the economically inactive.

The subgroup acknowledges, as does everyone, that Northern Ireland has high rates of economic inactivity. We have no full explanation of the reasons for that. However, insofar as it is caused by a lack of opportunities to gain skills, we should be tackling it. Much economic inactivity is voluntary; some of it will be involuntary. The involuntary element is what we ought to be dealing with. Some of the involuntary element is due to the nature of society. A relatively high proportion of the population lives in rural areas. One reason for the high rate of economic inactivity there is that in a proportion of that population, the ratio of incomes per household is lower because a second person stays in the household. Sometimes the second person is the unpaid, economically inactive partner of someone who works in agriculture.

Your question becomes that of where to focus the skills and education strategy. Part of the answer must be that everyone should have basic literacy, numeracy and IT skills. Northern Ireland is inadequate in that respect, and submissions to the subgroup demonstrate that. Part of the answer must also be that Northern Ireland should have more specialisms in higher and tertiary education. However, once we identify those who are inactive because of lack of opportunities, we must ask, ‘what incentives would be necessary to make them economically active’ whether facilities are available and whether the people concerned have the right incentives to use the facilities That is a difficult question that can only be attempted case by case. Therefore I do not have a ready answer.

Your second question was about —

Ms Ritchie: The Strategic Investment Board and the reinvestment and reform initiative; and how to make them much tighter.

Mr J Simpson: Did you say “exciting”?

Ms Ritchie: No. I said “tighter” in my County Down accent.

A Member: It could be the same thing.

Ms Ritchie: It depends which word you want to use.

Mr J Simpson: I draw a distinction, and I emphasise it again, between RRI and SIB. RRI is a concept to which none of us would object. However, when we talk of the SIB, we mean delivery mechanisms. I do not know what the SIB was playing at. I listened to how it presented its argument; I read its annual report, which did not meet the targets that I had hoped it would; and I read the submission that it made to the subgroup. The SIB does not have operational accountability at the right level. If it continues — and I have no difficulty with it doing so — I would like it to be the capital programming body for the public sector in Northern Ireland. Full stop.

At the moment, however, the SIB does not even make an input into those elements of the capital programme for which it has not shaped the contracts. The SIB will tell you how much it has helped the contractual system for the two big roads contracts. It will tell you — and it is true — how it has developed the formula for dealing with schools. However, it is not a comprehensive body, and if Northern Ireland lacks anything, it is a comprehensive capital programming arrangement, where priorities are set and timetabled. My little illustrations attempt to show the need to do both.

The subgroup might set different priorities. One of the difficulties for you, Chairman, and your colleagues in the Chamber downstairs, is that if the subgroup attempted to prioritise all the elements in the £16 billion capital programme, it would not necessarily reach consensus. You might have to report that some members of subgroup think that certain elements should be higher.

At the end of the day you have to find a mechanism to resolve that, but unless you have an agreed set of priorities into which you build compromises, there is a danger that you will be doing things all over the place.

I am pleased to say that what has happened to date has avoided some of my worst fears. However, the danger with the SIB is that we might have developed, in this ad hoc manner, a string of contracts that we are sending out to the building and civil engineering industry. In the worst situation they arrive as a dollop on day one, and then there might be nothing for a long while. It needs to be prioritised and put in order. Victor Hewitt takes credit for putting it succinctly in his paper, and I will take credit for saying it to you.

3.15 pm

Mr Ford: If we are going to be parochial, I should point out that the road from Belfast to Derry passes through south Antrim. No doubt, Mr Chairman, since you are constrained by what you can say, we also ought to regret that Fermanagh and Tyrone are not mentioned. I am sure that that will get me a brownie point with Michelle.

When you were talking about the role of the SIB, John, I thought you were almost going to suggest that it be scrapped. It seemed to me that you were setting up a role for the SIB, which is actually round the Executive table in room 21 downstairs. That should be where the priorities are set.

In clarifying or reshaping the role of the SIB, where does it fit in? You have highlighted the fact that it has limited powers to ensure that things happen. It seems that much of what you highlight should be driven collectively by the Executive to ensure coherence across the Departments in an overall package. Do you think that it is necessary for us, in setting out a requirement for a package, to specify both the areas on which we would wish to make expenditure and how we would receive it?

Mr J Simpson: I would want you, if you could, to incorporate some of these issues about procedures. If you just present it as a costed list, you are not sending the full message to the public administration in Northern Ireland. In recent years, for all sorts of reasons, the public administration has been full of statements of good intent, but no one has tied it down to operational delivery by given dates for major issues.

How often have you heard someone say that he hoped that something would be done by March 2006 but that the timetable has slipped, and it is now going to be later? There are examples of that in every organisation, but I would like to persuade you to formalise a statement so that slippage is acknowledged.

As a group of MLAs, you were understandably quick to comment when the Department of Finance and Personnel announced the underspend. Would you like to know where the underspend was and what it was that was late? It did not get approval to spend X in the financial year in order to end up with Y as a surplus deliberately. There was a scheme in there, but did it get everything right? I see that the Minister has now employed consultants to review the way in which we set public expenditure planning. I have no doubt that the subgroup will be very interested in seeing the full, unedited report.

Dr Birnie: Can I go back to what you said about the Azores judgement? I hope that I have got this right. You said that the judgement might show us a different route to the same end. Could you elaborate on what that different route might look like in the light of the judgement?

Mr J Simpson: I shall try. The most obvious alternative route is to say that if the Azores had had its own tax-setting powers, completely separate from the metropolitan Portuguese powers, there would not have been a question, provided that if the Azores lowered their corporate tax, the Government in Lisbon did not say: “You will be short of a couple of hundred million Euro, we will supplement your budget”.

It must be an independent decision. It could be said that Northern Ireland already has a tax of that kind: local rates are a devolved responsibility, and if, as a public sector Administration, the Assembly was to choose to lower the rates, it would have to live with less revenue, and there would be all sorts of knock-on effects.

To follow through on Dr Birnie’s question, that is the obvious conclusion to draw from the Portuguese judgement. Have corporation tax as a devolved matter, and the Scots might want it as well. However, it must be asked whether that would produce silliness within the European Union that should be challenged. Challenged is a strong word, but there must be few other areas in the European Union where a population of 1·7 million is situated next to a population of around 4 million, creating a tax frontier.

It is conceivable that the equivalent of a peace package might be to ask the European Union for derogation on the issue for some years. That is already happening for the aggregates levy, and the climate-change levy, as it affects natural gas. That was mentioned in some of the subgroup’s earlier papers. That argument could be made, but it would be a hard argument to win. However, if soundings were taken with the commissioner responsible for competition policy, it might be worth trying. An option might be to make a back-door presentation to gauge the likelihood of derogation. If it were regarded as a package to build on the peace process in Northern Ireland, a period of 10 years might be required. It must be a significant period. It would be waste of time to encourage investors if the low tax was to be available for just one year.

Human ingenuity is such that, knowing the rules, we could apply ourselves to developing alternatives.

Ms Stanton: I want to address sectarianism and the economy. In the past, investment should have been based on the areas of greatest objective need. That would have cut out the arguments of who gets what, and of this side gets more than that side. Should that approach not be implemented throughout all the structures of any policy or economic package?

Mr J Simpson: Forgive me for asking, but could you develop your question one step further, so that I can understand the implications of your proposal?

Ms Stanton: My question relates to sectarianism and the economy. I am from north Belfast, where sectarianism has stood in the way of investment and jobs. The emphasis for any economic package from Govern­ment should be based on the greatest objective need.

Mr J Simpson: I see where you are going. I will overlap your question with the issue of urban regeneration. I am involved in the Greater Shankill and West Belfast Task Forces. It is no secret that the task forces are having significant difficulty with the government machine in getting an adequate response to implementation for those areas, which would obviously have spillover effects on other parts of inner Belfast. In recent meetings, the task forces argued that the priorities of the areas of social deprivation must be met by an urban development framework — or corporation — that would take account of social and economic needs, and would have some of the authority and leverage of the Laganside Corporation.

Such a framework may require further financial packages, but I acknowledge the need for one.

Members will have heard this morning’s announce­ment of the development of an eight-acre site in east Belfast. I am sure that that will be a useful development, but the picture in inner Belfast is of patchwork rather than coherent development. Members will find, or perhaps already know, that Belfast City Council is interested in exploring further the concept of a city region, a concept that is now being studied more closely at a European level. Even Gordon Brown has issued a White Paper — or is it a Green Paper — on cities. There is, therefore, some current thinking that would address Ms Stanton’s question; and the subgroup may wish to consider embracing that thinking in relation to Belfast and Derry. I apologise to those who have travelled from Armagh, but the scale of the problem is most visible in those two cities.

Mr Weir: I was worried for a second that North Down had fallen off the map.

To be fair, I was struck by what you said about corporation tax and about the problems with imple­mentation, particularly with regard to capital projects. The fundamental problem with the mindset in Govern­ment with regard to capital projects can be illustrated by what happened when some of us met the Minister and Department of Education officials to discuss the funding crisis in the South Eastern Education and Library Board. That meeting took place shortly after the revelations about the underspend within the Department: I cannot remember the exact figure, but it was about £69 million.

One of the excuses that was offered to us was that £69 million was not a real figure because about £40 million of the money that had not been spent was for capital projects. The board had not got round to spending money, had not implemented things quickly enough and had not been able to progress capital projects at the intended time. The mindset in Government was that there was, quite frankly, nothing wrong with that, as it simply meant that the board could spend the money later — and what applies to the Department of Education applies throughout Departments. As you highlighted, there is a fundamental difficulty with that mindset.

I appreciate that you have identified at least two or three components of a solution: greater co-ordination in decision-making; prioritisation of projects; and the targeting of specific dates. Is there anything that you have not mentioned that you can recommend to have some impact on changing the mindset of Government on implementation?

Mr McCarthy: What about a bridge over Strangford Lough?

Mr McNarry: From Killinchy to Newtownards.

Mr J Simpson: Should the subgroup be persuaded to go in that direction, I suggest taking a sequence of steps. It is important that those steps be kept short, sharp and to the point. State the issues clearly: say that you want priorities identified, dates set and disciplined implementation. Simply telling Government what you want is enough for now: if they deliver on those three issues, we can then consider what the next level should be.

Mr McCann: What has been said about the sequence of events and the time frame was interesting. Both are important in most things that we do.

However, to return to the question about Belfast, I know that the task forces have done some excellent work. The question is how that work progresses from here.

Belfast is a city of two halves: parts of the north and west lie derelict, while the east and the south seem to prosper. That fact is not lost on the people who live in the north and the west of the city. In those areas, or in any deprived area where there has been long-term unemployment, particularly among the young, there are no schemes or projects to enable young people to find work.

Several years ago, when schemes such as Action for Community Employment (ACE) were introduced, the communities that I represent considered them to be an asset that would lift people out of unemployment. Some argued that they should be extended to three or four years and have skills training attached to them, so that people could come out at the other end with recognised skills. Is there a recommendation that the Assembly consider a scheme that could enable people in areas of severe deprivation to gain skills?

3.30 pm

Mr J Simpson: We are dealing with areas that have multi-dimensional problems. Part of my criticism is that we have been tackling those problems as though they were one-dimensional and sat one beside the other.

Members may remember a book written in the late 1970s by Ron Wiener, ‘The Rape and Plunder of the Shankill’. It was not written because the Shankill had any particular community association. It was a commentary on urban redevelopment. We have struggled for years to find a way forward for urban redevelopment. Members may remember the application of housing action areas. They will all be familiar with the Belfast Regeneration Office and the Making Belfast Work initative. Those ideas are praiseworthy. However, they have not come together to form a coherent approach.

For example, I had two priorities coming out of the Shankill task force. The priorities for the Shankill and west Belfast are different, for good reasons. We have learnt from each other. One of my priorities is when action is going to be taken to underpin the schooling system in the Shankill and to remedy its tragic weaknesses, not just at secondary level, but also at primary level and below. I have said repeatedly that I will judge what the Government has done for the Shankill when there is a major shift in emphasis towards what happens to the children in its schools.

Yesterday, Maria Eagle met school principals from the Shankill. I have spoken to my colleague about the impact of that meeting. The message that I have received is that the Minister is now better informed. Part of the discussion at the meeting was about why extra resources had not been put towards the Shankill in response to the integrated development fund. The explanation that was given by a civil servant was that the money had been sent to the board. The Minister enquired as to when the money would be reallocated. That is a serious question.

My other concern for the Shankill relates to this business of the rape of the Shankill. If no action is taken to improve the built urban infrastructure from Peter’s Hill to Woodvale — the same applies to the Crumlin Road and the Falls Road, although I will not speak for my colleagues there — and a plan is not made for major regeneration of those arterial roads, they will, almost literally, fall down.

For businesses on either side of the Shankill Road, there is no incentive to modernise or regenerate their buildings. Traffic management is appalling. The idea of bus lanes exists, but it is at the bottom of Translink’s priorities.

The Chairman (Mr Molloy): I must stop you there, Mr Simpson, as we are pushed for time. John Dallat will ask the next question, or else we could end up with a Belfast-oriented debate.

Mr Dallat: Peter Weir has already addressed part of my question.

With the best will in the world, if a financial package were available tomorrow, there is enough bureaucracy in the Civil Service to make sure that it is not progressed. We can all play games, meet Ministers and all that, and get kudos for moving something up a step. By its very nature, a peace package suggests something that is urgent. I do not disagree that the achievable aspects should be realised.

Moving the discussion outside Belfast — that will please you, Chairman —

The Chairman (Mr Molloy): I welcome that.

Mr Dallat: There are thousands of farmers who have no income. When they try to get involved in diversification schemes, the planners come down on them like a ton of bricks. In fact, dozens of enforcement officers hound farmers about schemes that have been in existence for years. Farmers dare not put a sign out on the road — that is a criminal offence. Yet, if there were renewed confidence in the economy and someone lodged an application for a hotel in Coleraine, for example —

Mr J Simpson: As there was recently.

Mr Dallat: — and somebody else had lodged an application to build a pigeon loft, the pigeon loft would get priority because of equality laws.

Ms Ritchie: About pigeons?

Mr Dallat: No, but all planning applications must be taken in turn.

The Chairman is being very good in allowing me to develop my point. How do we develop a co-ordinated approach to delivery?

Mr J Simpson: We must first recognise the problem. Until now, one of the tokens of faith in this part of the world has been that we are well served by the public sector. In general, we are. However, the message about the need for a discipline for implementation has not been sent down the line.

Whether it be you, ladies and gentlemen, as elected representatives who will form the Executive, or someone else, a message must be sent that the present quality of implementation is inadequate. That is not to say that there is significant dishonesty or malicious dereliction of duty; it is simply about indicating where we want to focus. That is happening in Dublin.

The Chairman (Mr Molloy): John will remain for the next session, which Mike will introduce and in which the subgroup will focus on the key themes. It is important that the wider discussion, and the questions that are asked of John and Mike, deals with those. We are trying to reach conclusions, so it is important that the parties have an input.

Mr Smyth: John, do you have a copy of the focus group structure?

Mr J Simpson: I do not think so.

Mr Smyth: There are four broad headings on which we need to try to make some progress.

Mr J Simpson: Are we still being recorded?

The Chairman (Mr Molloy): Yes. As a public session, it is being recorded.

Dr Birnie: Do we all have that bit of paper?

The Chairman (Mr Molloy): I do not think so; I think that only I, as Chairman, have it. It should be in the members’ pack, in some form. Do all members have the focus group structure?

Mr McCarthy: Is it in our packs?

Ms Ritchie: Which one?

The Committee Clerk: Members do not have a copy of the focus group structure, as it was agreed just this morning after discussions between Mike and me. Mike will read out the structure for members’ benefit.

Mr Smyth: We should try to structure our discussion around the following four main subject areas.

First, the subgroup should try to move towards a definitive statement on the problems facing the Northern Ireland economy, including issues that must be addressed and the case or rationale for an economic package.

Secondly, bearing in mind David McNarry’s point in the last session, we should aim to develop an interim position on the optimum, and most realistic, mix of fiscal incentives.

Thirdly, we should move towards some kind of list of specific initiatives or projects that members feel might make a tangible difference to the economy, presumably in a reasonable time frame.

Fourthly, we should consider non-financial and non-fiscal measures, policy reforms and some of the other issues that we have been discussing.

Implementation is a recurring issue, which all the witnesses over the past two weeks have emphasised that the subgroup must address.

The Chairman (Mr Molloy): We will give members copies of those questions.

Mr Smyth: In my review of the evidence to date, I put it to the subgroup that it must understand why we are examining those issues now. The background is that, for historical and institutional reasons, our economy is unbalanced. That creates a number of spillover effects or distortions that economists believe make it difficult to get back some sense of equilibrium.

One of the distortions that I mentioned this morning was the almost permanent difference here in average non-manual earnings between the public and private sectors. In any normal economy, average non-manual earnings in the private sector would be above those in the public sector, and the gap between the two would be widening. That causes different calculations to be made by economic agents, such as households and businesses. Economists talk about rent-seeking and all sorts of other terms.

However, a number of structures flow from where we are now. Low productivity is at the core. As Victor Hewitt reminded us, low productivity equates to low wages and low living standards. Is that correct? Is that the perception of all parties?

Ms Ritchie: Yes, I think so. It goes back to historical issues and the legacy of the conflict, which resulted in emphasis being placed on the public sector — the brakes were placed on private-sector development, and there were many barriers to attracting FDI.

The Chairman (Mr Molloy): I take it that the subgroup agrees to Mike’s proposal? Is there consensus?

Members indicated assent.

Mr Smyth: We now move tentatively towards identifying those issues that go the heart of the productivity conundrum. I remind the subgroup of Victor Hewitt’s remark that continuing to do what we have always done will, by and large, produce the results that we have always produced. He also said that, on the basis of present policies, we would be dead, our children would be dead, and our grandchildren would be well on by the time that Northern Ireland’s gross domestic product (GDP) per head converged with the UK average, let alone with that of the Republic of Ireland.

Following on from that, the Industrial Task Force argued that some kind of new model or dispensation and radical structural measures are needed.

Is there an agreed timescale for getting results on the ground? Whether devolved Government is restored or direct rule continued, when do we expect socio-economic regeneration to really start to happen here and when do we expect some convergence with the rest of the UK?

The Chairman (Mr Molloy): Is there a target for that?

Mr Smyth: We will hear evidence from the Economic Research Institute on the corporation-tax argument, which will inject a break-even analysis. It will show that, at some point in the not-to-distant future, the cost of any tax break here would be offset by the economic benefits. I have heard a range of values, ranging from 20 years to 10 years. The subgroup needs to think about that.

3.45 pm

Mr J Simpson: Can I enquire as to when the report from ERINI is expected, Chairman? Will it influence what the subgroup is writing?

The Chairman (Mr Molloy): Victor Hewitt provided an update.

The Committee Clerk: We are working on the report on an economic package, which must be drafted by today week and must be before the Committee on the Preparation for Government by 4 October. Victor Hewitt’s research will not be completed in time for that, although the third report, which will include fiscal incentives and occupational skills, will. He has provided an update on his research, which is included in today’s members’ pack. I can summarise it for you.

Mr J Simpson: No. It is on the agenda.

Mr Smyth: I detect some residual reservations among members about the efficacy of corporation tax to stimulate foreign direct investment. There are some reservations over whether even foreign direct investment can close the gap in any meaningful time frame. Can we discuss those those two issues?

Mr Ford: I think that Mike is referring to my views on the efficacy of that tax. It is not whether a reduction in corporation tax will attract FDI — the evidence from the Republic shows that it will. The question is whether the benefits will substantially attract more FDI or whether they will make an already comfortable life more comfortable for some indigenous small businesses that do not make any major effort to increase. How might potential fiscal changes be targeted to ensure that FDI is attracted or that expansion is encouraged? We do not want to encourage a continuation of the current situation.

Ms Ritchie: As a very puerile individual, I must suggest that it also depends on where FDI is located. If it is located in areas where industry has always been located, that will not address disadvantaged areas, whether they be in the west or the south-east, that have not generally been associated with manufacturing, business or commerce. There is a need to address that, and there must be an incentive to get people there.

The Chairman (Mr Molloy): In the South, the expansion of business in general was able to get everybody working. That led to an increased number of migrant workers, and that increased the tax base and helped the economy.

Mr J Simpson: Following on from Ms Ritchie’s point, if an advantageous fiscal arrangement is gained, one difficulty would be trying to apply it if Northern Ireland were to be broken into sections. The answer to Ms Ritchie’s question is that if there is the right infra­structure, the right education and skills and the right supportive arrangements, they must be loaded, distorted or biased in order to target the areas of disadvantage.

Ms Ritchie: I did not disagree; in fact, I agree. However, the issue is how that is achieved.

Mr J Simpson: If I were writing the report — and I am not, thank goodness — I would place the tax paragraph at the end. I would add all the other suggestions above it, so that the tax would be an obvious derivative.

Ms Stanton: Before we take any decisions on that, especially if we are to consider all the winners and losers in this, it would be important to have all the information and evidence.

Mr Smyth: Accepting that the productivity gap is at the heart of our economic problem, the question is how we go about closing it. There is consensus in the subgroup that wherever FDI is located, it has a major role to play in closing the productivity gap. Research has shown, inter alia, that FDI jobs pay somewhere between two and four times average earnings. FDI meets the criteria, it creates employment and, through multiplier effects, it stimulates tradable and non-tradable service jobs elsewhere. It increases the tax take.

The Chairman (Mr Molloy): Are there opportunities for the unemployed and the less well off?

Mr Smyth: There is evidence to show that it has a spillover on the pool of management competence and skills that we talked about.

Mr J Simpson: People who are interested in developing management skills will readily subscribe to the view that at present our organised contribution to management skills is inadequate. Gone are the days when either one of the two universities claimed to have a business or management school. Some people bear the scars for what went wrong. However, it is worth noting that DEL is currently consulting on how to improve management delivery, and that could be on a list of things that it was asked to sharpen up.

On the issue of FDI, we are still playing the game. Any discussion that I have had recently has been around the argument that any new, expanded level of FDI at the levels of higher value added requires that the rest of society also adjusts. The argument that was put to me earlier today was — and I shall take out the phrase with which I was asked to preface this remark. — that if we do not develop clusters of expertise at the highest international level, probably related to the two universities and probably in quite defined areas, we will be pitching in the wind to get FDI but we will not have sufficient focus. R&D and the academic-excellence argument is an important precursor — or whatever the word is that makes a precursor into what happens today.

The Chairman (Mr Molloy): Do you have a specific question, Mr McNarry?

Mr McNarry: We are getting a good deal of economic analysis; however, there is also the practical side to consider. With all due respect, I hear what Ms Ritchie says, and she is thinking of her constituency —

Ms Ritchie: We have had a dearth of manufacturing —

The Chairman (Mr Molloy): Let Mr McNarry continue, please.

Ms Ritchie: Sorry.

Mr McNarry: I understand that. I could say the same about my constituency. Where there are manu­facturing jobs, people are housed in a unit. Once the workforce reaches a certain size, the company needs bigger premises, and it leaves. It does not go further afield; it moves closer to Belfast — and we are pretty close to Belfast. It is difficult to crystal-ball gaze, but we asked ourselves some time ago: what will we tell young folk to study in order to get a job in 10 years’ time? We are not identifying the types of jobs that people will do. Ms Stanton talked about deprivation, and that is respected; however, we do not really have a problem with unemployment here.

Ms Ritchie: It is not a problem now, but it used to be.

Mr McNarry: We have problems with poverty and deprivation, but when we ask people to produce the figures, they tell us that we do really have a problem. Why then do we need all these migrant workers? In his evidence the man from Moy Park Ltd said that there are not enough people in Dungannon and that locals do not want to work. That is why the company has had to bring in these people.

I was talking to a meat packager today in the same area who said that his business could not survive without migrant workers. He was concerned about what happens if all of those workers want to go home. Our children are not being trained to replace those workers, nor do they want to do those jobs.

The Chairman (Mr Molloy): It has been said that everyone in Dungannon has been through the Moy Park factory, sometimes twice.

Mr McNarry: I will not enter into any type of racist argument — far from it — but I now see white people brushing the streets of London where I did not see them before. The attitude toward so-called menial jobs is: “We are not going to do that type of thing.” That will be an ongoing problem. It would be helpful if we could, somewhere down the line, identify what type of jobs we are seeking to create. Can we live up to the promise of the financial packages? Can we use them wisely?

We have a habit In Northern Ireland of throwing money away. That has been the case with direct rule, but also with devolved Governments, for which, in many cases, people from my community were responsible. We do not have slush funds; we just have mountains of money that we throw at stupid ideas, all in the hope that that will have a quick effect. That does not work, and it is a terrible waste. People are used to getting handouts for nonsensical projects.

Allow me to digress. There used to be a fellow named Brian Faulkner, who was one of my heroes because he was Minister of Commerce. He built a reputation as the guy who went to America and every­where else and brought back jobs, created factories, etc. What would that guy do today? Where would he go? Who would he see? What would he look for?

Citibank recently established a presence in Northern Ireland. That firm creates different types of jobs in big money and financial services. Is that what we are seeking? John Simpson asked about the measures that we are seeking to include in a financial package. We must ask for how much longer we are going to rely on selling cheese and milk, or Cookstown sausages, etc. Who are we selling them to? What are we doing about our farmers’ future? What type of jobs are we seeking to create?

I would like to be able to say that we have a timescale of 20 years to work these matters out, but we need some answers tomorrow.

The Chairman (Mr Molloy): Can I bring the discussion back to a focus on the issues, because we are trying to —

Mr McNarry: I am trying to focus on the reality and practicality of this matter.

The Chairman (Mr Molloy): Michael is seeking agreement on the specific issues before us. I would like us to focus on that.

Mr Smyth: If the Republic of Ireland had not been outperforming its competitors over the past 15 years, would we be having this discussion, and would the time constraints be so pressing? I think not.

Following that line of argument, why, inter alia, has the Republic of Ireland outperformed its competitors? There is no getting away from the fact that the Republic has had a huge bottom-line advantage over us in attracting high-value-added producers and multinational businesses.

Aside from FDI and corporation tax, we have looked at fiscal incentives such as enhanced capital allowances or tax credits. The evidence on those measures is fairly mixed; they can have an effect, but it will take a very long time for them to start to make a difference. That takes us back to the issue of a timescale. What is the realistic timescale within which we expect this package to have an impact?

4.00 pm

Dr Birnie: I agree with everything that Mike said, but I would like to qualify it. The Republic’s performance from around 1990 has been very impressive. Almost certainly, that has been partly due to its rate of corporation tax, and that is why we are looking at that urgently and in the belief that we can do something quickly to bring about a step change in growth.

The qualification is that the Republic has had that low rate of corporation tax since 1958 — I tried to put that question to Sir George Quigley. Unfortunately, although all of us, as politicians, want immediate returns, I recall the old saying that the difference between a politician and a statesman is that the politician thinks about the next election and the statesman — or stateswoman — thinks about the next generation.

We would like — and people need — to see a return within five years. However, the full effect of the package will be felt only over a generation or two. Economic history shows us that things change slowly.

Ms Ritchie: The SDLP agrees. Although we all might want results within five years for this generation, we would like to see long-term benefits for the next.

Mr McNarry: In political terms, we want the freedom to be able to do this work ourselves. We must keep running. There is no buy-in with the Treasury in setting our own rate of corporation tax. There must be a responsibility to our membership of the United Kingdom. If reducing corporation tax is such a good idea, why is it not happening in England, Scotland and Wales? Why is it not UK policy? Those regions are competing too. Who else are we competing with?

The Chairman (Mr Molloy): Esmond made the point that the South had a lower rate of corporation tax for a long time before it became beneficial. Is it possible that we can gain benefits within a shorter period because we are a neighbouring area of economic growth?

Mr McNarry: Only if we are properly equipped. Once we make ourselves that competitive, we must be competitive on the production line as well.

The Chairman (Mr Molloy): I have talked to American economists who have said that, when they are looking at the island as one entity, they are looking for the part that is of most advantage to them. If the same tax system exists across the island, perhaps there is an advantage and we can catch up more quickly.

Mr Ford: If, for example, the International Financial Services Centre in Dublin became overheated, there would be the potential for development in Belfast. However, it would have to be in Belfast; that is not something that could be done in Newry, Downpatrick or even Dungannon.

Mr McNarry: It could be done in Newtownards.

The Chairman (Mr Molloy): The centre of the world. [Laughter.]

Mr Smyth: Can I take John Simpson’s excellent suggestion that we put the tax matter towards the end of our report?

Mr J Simpson: Putting it at the end does not make it a small issue; it shows the sequence.

Mr Smyth: That is the best way forward. We can move on to the next issue, which is the consideration of a realistic mix of financial incentives to form the core of the package. Disregarding corporation tax, R&D-tax credits and capital allowances — which can be put into the same basket — the evidence that we have received has placed emphasis on measures to stimulate knowledge transfer from our higher education institutions to the business community. That applies to: research and development; innovation at all levels in business, such as business models, processes, products, marketing, logistics etc; and enterprise. Could members leave it to me to draw something up on that?

The Chairman (Mr Molloy): John Simpson also made the point about meeting targets.

Mr Smyth: Yes.

Ms Stanton: Incentives for people to come out of the poverty trap and benefit trap were also included.

Mr McNarry: Rather than saying “measures”, will you say what the actual measures are?

Mr Smyth: I shall run over the main ones. The proposals for R&D centred on the use of fiscal measures to stimulate the uptake of existing measures from the Department of Trade and Industry (DTI) and DETI.

With regard to innovation, it was suggested that a unit be set up to encourage all small and medium-sized enterprises in receipt of financial support to benchmark themselves internationally against their particular product or segment of the industry. That becomes an absolute prerequisite for financial assistance.

There were suggestions about zoning in metro­politan areas, but they did not expand beyond that broad idea. I am always conscious that state aid rules apply. With regard to zoning, we could perhaps consider rate relief for specific underdeveloped areas.

Mr J Simpson: I heard someone say, “excluding Coleraine.” I am sure that that is offensive. [Laughter.]

Dr Birnie: Coleraine is overdeveloped.

Mr J Simpson: As Mike mentioned zoning, the concept of enterprise zones occurred to me. Those would include differential rates and planning concessions.

Of the suggestions that the subgroup is considering, R&D and innovation is at the top end of the spectrum, in the sense of higher value added. One can play around with R&D and tax credits. One possibility that could be considered is reinforcing the SPUR initiative. I wonder whether there is enough knowledge around the table to put that together. The input of the two universities needs to be enhanced. They do not have a big pool of ideas waiting to slip across to industry — they need to be fed, encouraged and grown. The SPUR initiative is an example of how that might be done, without playing around with the tax system.

Ms Ritchie: Could we capitalise on investment in all university research on the island?

With regard to enterprise zones, could we push for an enterprise growth fund or would that be a disincentive? I ask John from an economist’s point of view; there are always advantages and disadvantages.

Mr J Simpson: While Mike is thinking of a good answer to that, I shall give you a bad one. What could such a fund do that Invest Northern Ireland could not do if it so wished?

Mr Smyth: There is evidence of gaps in provision of development finance for businesses, but the record in trying to plug those gaps is not great. For example, venture capital is problematic here and, as John said, not only in universities. That is because there is no deal flow, and no scale of that deal flow to make it worthwhile for many national venture capitalists to invest. There is a possible argument for an all-island approach.

The Chairman (Mr Molloy): One of the overall aims is to reduce the bureaucracy in this area. The Civil Service will give 101 reasons why something cannot be done, but seldom one reason why something can be done.

Mr Smyth: Again, we must have evidence of market failure that the market cannot provide itself. That should be a guiding principle for all the subgroup’s proposals.

Mr McNarry: It would help to have an innovative Minister. There is no big seller here; nobody is going out to sell the product. We heard what Margaret said. We have now embarked on selling Northern Ireland on an all-Ireland basis. We tried to do that with tourism, and it flopped. The Northern Ireland Tourist Board told us that it had flopped and, if I understood correctly, that it wanted to get out of its Tourism Ireland.

Mr Dallat: Well, it would say that.

Mr McNarry: But the Tourist Board is the body that markets Northern Ireland.

Mr Dallat: It was the biggest flop of all time.

Mr McNarry: That is my point.

Mr Smyth: Once you take away the headline grabbers of corporation tax and R&D tax credits, there is not an awful lot —

Mr McNarry: It is a natural progression that businessmen will want the rate of corporation tax reduced. We have listened to their pitch, which is to compete with the Republic of Ireland, as though that were the only country that Northern Ireland business competes with, or as though it is China on our doorstep. Of course it is not. Once you give businessmen a reduction of corporation tax, they will want more, and we have to be sure that the rewards will be there.

I have spoken to businessmen from across the border, and I find that they are already at the stage where they have banked corporation tax and now want a review of capital gains tax. Why cannot we anticipate that and look at capital gains tax? Reducing capital gains tax would be attractive to a board of directors. Our Southern colleagues are going to have to face it: there will be a push to have a review of capital gains tax.

Mr J Simpson: I am interested in the relative choice between corporation tax and capital gains tax. Clearly there is a case. It would be persuasive, and the Treasury would be mean not to recognise it, if the subgroup had assembled cases for, say, nine steps out of 10, with a reduction in tax as the tenth step.

The last time I heard Garrett Fitzgerald speak — and he is still extremely articulate — he had a lesson for us. He wanted to give priority to developing the Irish education system and put changes to the tax system into second place. We have not really grasped that point. When you think of how the Republic’s Institutes of Technology have linked into the economic spectrum, there is a lesson there to be learned. It is happening just across the border.

The Chairman (Mr Molloy): Government training centres, which were started some years back, failed to take the next step of providing a skills base. Industry now brings in its own trainers, because further education colleges are not providing —

Mr J Simpson: May I add to Mr McNarry’s comments on education, values and individuals? He asked what we are educating and training people for. My view is that we should be encouraging people to achieve and develop their talents as far as is possible, without particular regard to whether they are going to be road sweepers, brickies or whatever it might be.

Occasionally, I ask people to tell me what skill has ever become redundant, rather than being the base for someone to enhance their career over time. To date the only answer I have received was when someone asked me what riveters are doing today, compared to what they were doing 30 years ago. All other skills are still relevant.

As regards the skills strategy, I would like to see it accepted explicitly that our tendency to say that we must generate people with the right skills for the needs of today’s employers in Northern Ireland is wrong. We should be generating people with the skills for tomorrow to work wherever they choose. Northern Ireland will attract people, and people will also leave, because we are part of a western European environment.

DEL are inclined to ask employers what skills they need. I do not object to that approach, but I do not want that to be the only answer.

Mr Smyth: John is saying that we should be looking at those softer measures.

Mr J Simpson: They are not softer. They are harder.

Ms Ritchie: The evidence submitted, along with Dr Peter Gilleece’s research paper, proved beyond doubt that the Republic’s success lay in its investment in education and skills.

Mr McNarry: We have fallen into the trap of talking down our education system. This Government is tearing it apart, and we are allowing them to do it. We are talking it down as if it is secondary that we are producing good people. We are talking about the problem of the people at the bottom as if they are useless.

4.15 pm

Mr Smyth: I shall move on to the third section:

“List of specific initiatives/projects where a one-off investment could make a tangible difference to the economy.”

We could find examples of those in John’s list of projects. The usual suspects are: physical infrastructure projects; initiatives to boost skills formation, and copperfastening vocational education.

It concerns me that a few years ago, though it did not do it very well, Northern Ireland, under Classroom 2000, boasted that it had a lead over the rest of the world, because it was the only place on earth in which children aged four to 18 had broadband Internet access supporting the national curriculum in every school in the Province.

It cost £300 million, but has fallen on its face. That is something that the subgroup really needs to look at. The hardware is not fit to accommodate the learning environment, and the firewalls protecting young people from paedophiles also prevent e-mails and simple communication. The hardware is of a vintage that cannot support some of the new multi-media balanced learning environments. Worst of all, the teachers have no idea how to make it work. Only a few million out of the £300 million was spent on preparing the gatekeepers who were to run it.

That goes to the heart of the issue of implementation. As I understand it, it is not too late.

The Chairman (Mr Molloy): One of the items on John’s list of projects is staring us in the face; it is waste management. We need to examine that.

Mr McNarry: Is that an inquiry into the Civil Service? [Laughter.]

Mr Smyth: I am open to suggestions about one-off projects and initiatives.

Mr J Simpson: May I put a controversial proposal? As a layman, I ask our professional politicians to come to a consensus view on the biggest single project that might impact on the economy. It is the redevelopment of the Maze site, which is sitting in limbo. If it has support, then it needs to be carried through with conviction. If it does not have support, we should not be wasting resources in ways that are becoming obvious, as people argue for alternatives. You may wish to park that issue, Chairman, until you have a meeting in the pub on Saturday.

The Chairman (Mr Molloy): I will leave that one to Mike.

Mr Smyth: It is noted, as are the qualifying conditions.

Mr McNarry: It is a very interesting point in terms of expectations. I thought that the Maze could give Northern Ireland an international marketing piece. I am very keen on sport; and we would have a stadium that we could internationalise because it would have visitors from other countries.

We have to pay attention to Belfast, because it is the capital. What can we legitimately describe as attractions? What makes Belfast more attractive than, or as attractive as any other place in which to work, go to school or enjoy oneself?

Leisure facilities in Belfast are appalling. Belfast submitted an unsuccessful bid to be the European Capital of Culture. We should not give up on such initiatives, but we should strive to make something happen in Belfast — or wherever members like, but let us concentrate on Belfast — that internationalises Northern Ireland. Huge numbers of people pay 19 quid to jump on planes to go to other cities in Europe. We need to work towards a situation in which, in those cities, there are people who want to come to Belfast and, after their first visits, they want to come back.

The Chairman (Mr Molloy): Can we list the Maze site as one of those issues?

Ms Ritchie: Mindful that we are trying to pump-prime our economy, and that Translink and the Department for Regional Development are working with Iarnród Éireann on developing the Belfast to Dublin railway, it is important, from a practical point of view, that the length of time it takes to travel between the two principal cities on the island is decreased. Therefore, we should consider a project to improve both the rolling stock and the rail network.

The Chairman (Mr Molloy): That would be similar to the Trans-European Networks (TENs).

Ms Ritchie: Yes; it would be equivalent to TENs.

Mr McCarthy: The failure of tourism has been mentioned on a number of occasions. Mr Simpson referred to the Giant’s Causeway, but what about the Northern Ireland Aquarium — Exploris — in Portaferry?

Mr J Simpson: My only answer to that is that Northern Ireland needs iconic attractions; we cannot have too many of them. The tourist industry has signature projects — that is where I picked up the phrase. Northern Ireland could do with some signature projects for the economy. If one of those were to link with tourism, so much the better.

Mr Ford: To go back to the Maze site, which is a dangerous place — [Laughter.]

That ties in perfectly with John’s earlier remarks. We are still engaged in an endless debate as to whether the proposed national stadium should be sited at the Maze. That is a classic example of our complete failure to make a decision and proceed wholeheartedly, either with the Maze site or with a project in Belfast, etc. If we cannot reach the point where there is enough joined-up government to have a period of consultation, take a decision and get on with a project — as opposed to having a period of consultation, announcing the decision, and continuing to debate its merits for the next five years — we will be in some difficulties.

Discussion of the Maze brings me to a point that I made on which I did not hear any other comments, for or against. I mentioned the cost of segregation and the need to invest in a way that enables people to move forward in society together. I refer specifically to issues such as shared space to ensure that people can take available jobs and employers have a wider market, and to the issue of wasted public and private expenditure.

Mr McNarry: Can the roads be shared spaces for orangemen as well?

Mr Smyth: Do members have any suggestions on skills needs? We have talked about adult literacy and numeracy. Can we get into the specifics of that? For example, how can those issues be tackled in inner-city Belfast?

Mr McNarry: We have talked about training and apprenticeships, but one issue that particularly strikes me is that so many people are self-employed. Small owner-run companies are damaged by insurance costs. That limits, particularly in the construction industry, their ability to bring young people in for training. I do not know how we could get over that problem. Somebody mentioned training colleges, but that means that the young people are taken from a school environment and placed on a building site almost overnight. Those young people will not make it and they have to pay their way to become employed.

The insurance is a killer. So is the training. A self-employed plasterer does not have the time to train an apprentice. Perhaps a package could be introduced that would equip those young people with more than just knowledge but practical experience as well, which would be an incentive for employment. There is a shortage of skills in the construction industry. Part of the reason is that not enough young people come forward.

Mr Dallat: A better way to match skills with work is needed. Many people who have been educated in the grammar system are haemorrhaging out onto building sites. Those are the people who could be the leaders of tomorrow.

Those who do not drift onto building sites — and there is absolutely nothing wrong with doing that — are being poached by the Republic of Ireland and England.

Michael talked about the 250,000 unskilled people who become “the unemployables” because they fall prey to drugs, alcoholism and all the other evils that confront them. We must break the generation gap in learning, because once a parent has some ability to help and encourage their child with homework, that cycle can be broken. Otherwise, European funding will be thrown, as it has been for the past 20 years, at courses that do not deliver.

Mr McNarry: I have noticed that what happens in England — and it will happen here — is that the Government award prime building contracts to major construction companies. Skilled workers are brought in from elsewhere and there is, therefore, no incentive on the part of the construction company or of the Govern­ment to provide on-site training for young people. There is a blockade. Should there be a stipulation that any major construction firm that takes on a Government building contract must also provide employment and training for a number of young people?

Mr Dallat: Yes. The procurement procedure should include a commitment to develop the skills of the people whom they employ.

The Chairman (Mr Molloy): The European contract seems to be an impediment to that by having a local identity and local conditions attached to it.

Ms Stanton: Seamus, Michael and David have summed up that an integrated approach is needed throughout. Careers guidance people must specifically target individuals’ needs and help them to progress further in their chosen directions.

Mr McCann: Most people have touched on that during the discussion. We must start to think outside the box about how to develop strategies to deal with that. Many local people will tell you in conversation or discussions that the education system has failed young people rather than preparing them for employment and trades. Many schemes have also failed to bring young people through. There must be a focus on ensuring that young people are able to fill the types of posts that have been mentioned.

Ms Ritchie: I return to what William Wright said in the first meeting. He talked about the need for skills academies that would cater for the transfer of people who had just done GCSEs but did not want to pursue an academic route, and the need for such academies in various locations. They could provide necessary on-the-job training and ensure that people are not only literate and numerate, but are also equipped for the workplace with the necessary skills.

Mr McCann: Twenty or thirty years ago, young people went to Felden House in Belfast to receive training.

Mr McNarry: William Wright also said that of the 90 potential apprentices that his company interviews, around 30 could measure a room, and 30 could not until they were shown how to do so. The other 30 were discarded. The problem is that we do not know what happens to them.

Ms Ritchie: The needs of those 30 must also be addressed.

4.30 pm

The Chairman (Mr Molloy): Therefore, we are saying that issues such as incentives around training, impediments to learning, and insurance need to be dealt with. Are members agreed?

Members indicated assent.

The Chairman (Mr Molloy): The next topic for discussion relates to other potential elements in an economic package, which brings in a wider range of issues.

Mr McNarry: The UUP’s document identifies the requirement for investment in special needs education. We would like support for that, as it has been neglected and is in chaos. It is a highly sensitive area, but it relates to our society. A review of special needs education is ongoing, so the timing is right for investment in that area.

The Chairman (Mr Molloy): I think there would be agreement around the table on the issue.

Mr Dallat: There is agreement on all aspects of it. In my constituency, Sandalford School in Coleraine has been a model of perfection, but now it is over­crowded and can no longer deal with the junior classes. Adults attending the school have only children’s books to read. We could discuss the matter all day.

Ms Ritchie: I am conscious of the identification of non-fiscal measures such as changes to planning regulations. The Planning Service should set up an economic business unit to deal specifically with planning applications for businesses. Those applications could be fast-tracked, rather than being held up in the system for two to three years, which currently is the case. The business and manufacturing sectors need an incentive. There also needs to be a fillip from Government to help them along the way.

The Chairman (Mr Molloy): Therefore the proposal would be to facilitate the creation of such a unit.

Mr McCarthy: The Planning Service also needs to address the issue of rural diversification, because delays have been an impediment to that for a long time.

The Chairman (Mr Molloy): The Planning Service does not recognise that many good businesses are created out of the rural sheds for which it is now denying planning permission.

Mr Smyth: Everyone seems to agree on the thorny issue of implementation, and I wish to suggest a few dimensions to that. John Simpson said that there are institutional issues relating to implementation in the area of infrastructure. The Business Alliance and the Economic Development Forum have told the subgroup about their serious reservations regarding skills strategies and the fact that we do not know how to implement them. There are other major issues regarding our efficiency in delivering key services, such as health, and the Appleby Review highlights that. We would be derelict in our duty if we did not make some hard recommendations on those issues.

Dr Birnie: I agree with everything that Mr Smyth has said. An additional element came up in Dr Gilleece’s paper during a previous Committee meeting, which referred to the Public Accounts Committee. I do not want to decry its work, and I hope that Mr Dallat will forgive me, as that Committee has its proper place and role. However, we must define the types of public expenditure that should be subject to minute scrutiny on a case-by-case basis.

With public bodies, such as Invest Northern Ireland, it is almost a case of setting up a contract and a range of targets with those bodies, and their being measured on those targets. However, civil servants need to be assured that failure on one target will not lead to a public execution.

Mr Dallat: I wish to make two constructive comments. There are proposals in Westminster to bring the National Audit Office into centre stage to influence what happens in the Assembly. That is a positive step.

We must also consider an internal auditing system, which would stop the gravy train — if that is what it is — before it leaves the station. Those two proposals would overcome many problems.

I accept that the Public Accounts Committee was used as an instrument to attack the lack of decision making. The Public Accounts Committee got blamed for everything, although perhaps there were times that it did not get it quite right.

Mr Ford: Mike’s point takes me back to an earlier exchange between John Dallat and myself about the role of the SIB, and, specifically, which body should be given the strategic duties to drive this project forward. At the moment, we have not identified which body should have that responsibility, although I have suggested that it should be the Executive. Those are real issues.

We heard in this morning’s evidence about the excellent plans and wonderful strategies that have been drawn up to tackle the issues. However, those strategies are simply put on a shelf. It is a cliché, but there are real problems, and those strategies and plans must be implemented.

As regards the review of business regulations, if representatives of the Farmers’ Union were present, they would talk about gold-plating European regulations. We are not saying that there should be a bonfire of all regulations, but we must decide which regulations are appropriate and necessary.

The Committee Clerk: I scanned the parties’ submissions for the first report under the heading “Other potential elements”. Most of the issues have already been raised, but I will run through them to remind Members. They are: a comprehensive review of business-related regulations; the fast-tracking of economy-related planning applications; public expenditure commitments; the ring-fencing of economic development allocations; the retention of selective financial assistance after 2006; the development of a strategy for the manu­facturing sector; review of public procurement procedures to maximise opportunities for indigenous business; the release of under-utilised public land and assets; and the retention of income from the sale of such assets. Those were just a few issues that seemed to fit under that heading.

The Chairman (Mr Molloy): Members feel that a package should be used to delay, for a period, the implementation of industrial derating, the rates increase and the introduction of water charges? Perhaps it would not change the situation, but it could delay implementation.

Ms Ritchie: I would not be happy with those measures because they would be seen as an additional taxation burden. Chairman, what are you suggesting?

The Chairman (Mr Molloy): The package could alleviate those increases in taxation for a time, allowing more time to develop further measures. The Government say that they need to raise money through water taxation, double rates and so on. I am saying that we could use the package to alleviate that extra burden by delaying its implementation. I am not advocating that we support further taxation.

Mr Ford: It would allow us time to find a better way.

Mr McCarthy: That is right.

Mr Dallat: I want to return to Michael’s point about IT in schools and link that with youth enterprise. It would be useful to have help from John Simpson on this. By and large, the school curriculum does not encourage youth enterprise — that only happens if teachers in individual schools happen to have a flair for it. Michael was absolutely right to mention IT. I know of schools in Northern Ireland that are linked with schools in Africa, but when problems arise, the difficulties are here, not in Africa.

Furthermore, I have seen the enormous benefits that IT has given to children who live in what is probably the third poorest country in the world. I have seen the results. We have flipped over that vital point. IT made enormous differences in the Gaeltacht areas in Galway, even though one might not think it feasible to make change in such areas.

The Chairman (Mr Molloy): Are there any other matters? There are several issues there. Is there agree­ment that they should all be included in the package?

Dr Birnie: Is there any precedent in the Southern Irish experience — or anywhere else in the western world — of giving senior civil servants incentives to be risk takers rather than defend the status quo?

Mr Ford: Perhaps it is for Ministers to do the risk-taking and allow the permanent secretary to put on file that he suggested the customary caution.

Ms Ritchie: That goes back to the fact that we have not had stable Government.

The Chairman (Mr Molloy): OK. Are there any other issues? Is there any other business? I remind members who have not made a presentation that they must be submitted by close of play on Monday if they are to be included as part of the report.

Ms Ritchie: What time on Monday?

The Chairman (Mr Molloy): By 5.00 pm on Monday. The next meeting of the subgroup will be on Thursday 28 September in room 135.

Ms Ritchie: Will we consider the draft report in the morning?

The Committee Clerk: Yes. We have to have a draft report for next Thursday in order to meet the deadline of 4 October.

The Chairman (Mr Molloy): There is no other business. The subgroup will now adjourn.

Adjourned at 4.41pm.

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