COMMITTEE ON THE PROGRAMME FOR GOVERNMENT
Mr Francie Molloy MLA Room 339 Date: 3 January 2007 |
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The Rt Hon Gordon Brown MP |
Dear Chancellor
We are grateful for your offer of an economic package to accompany the St. Andrews proposals for the restoration of devolution in Northern Ireland, and for the efforts of Ray Shostak and his Treasury colleagues in coming to Belfast to explain the package and provide initial views on our proposals.
We have now had time to examine the detail of the proposals, which you outlined to us at 11 Downing St and in your subsequent letter of 13 November to the Secretary of State for Northern Ireland. While we appreciate your efforts to provide long term stability and financial certainty we take the view that the level of funding offered is not substantially in excess of that likely to be obtained under the Barnett rules within the current Comprehensive Spending Review. Although we fully understand that public expenditure in Northern Ireland is higher than in England, a ‘business as usual’ settlement at the level offered would leave a restored Executive with insufficient resources to close the wide gap in incomes and productivity between Northern Ireland and Great Britain nor would it address the many years of under investment in Northern Ireland’s infrastructure. As a result the shared aim of all Northern Ireland parties to reduce its dependence on a subvention from the Exchequer would remain beyond our grasp.
This leaves the parties represented on the Programme for Government Committee in a difficult position. The task of persuading electors to back an unprecedented and historic deal will be much more difficult without an ability to offer a new start for prosperity in Northern Ireland. For this reason the Committee has reached consensus on a set of counter proposals. These are appended to this letter and we hope that you will give them careful consideration. The proposals involve three strands. First is a proposal for fiscal reform, particularly a competitive rate of corporation tax in Northern Ireland. Second is an investment package to strengthen and rebalance the Northern Ireland economy, which the Committee regards as being of great importance. Thirdly, we propose a set of reforms to the funding arrangements for public expenditure in Northern Ireland to enable a restored Executive to focus fully on its key challenges.
Your officials have already outlined to us the considerable difficulties involved in moving to a competitive rate of corporation tax in Northern Ireland. We understand these difficulties and if there was any alternative for ending Northern Ireland’s long history as the UK’s poorest region we would not wish to put your department in this position. Since we know of no such alternative we continue to press for this important reform. However generous, it is clear that existing measures for business support and attraction of inward investment are ineffective in closing the wealth gap. This is probably also true for English regions but is certainly the case for Northern Ireland. In the context of the negotiations and the wider package, we would thus ask that a specific working group be established to explore whether difficulties, including potential EU objections, might be overcome.
The four parties represented on the Programme for Government Committee view the prospect of real prosperity, akin to that recently achieved in the Republic of Ireland, as an important means to the desired end of restoring devolved government. We hope that you will join us in realising this aim.
A copy of this letter goes to the Secretary of State for Northern Ireland.
Yours sincerely,
Francie Molloy MLA
Chairperson
Committee on the Programme for Government
APPENDIX
Alternative proposals for the consideration of the Chancellor
Having considered the Chancellor’s economic package, the Committee on the Programme for Government has concluded that the package fails to address the serious economic challenges facing Northern Ireland and contains little additional funding compared to what would otherwise likely have been available through the Comprehensive Spending Review. As such, the Committee has constructed a set of counter-proposals which it believes will transform the regional economy. These are based on the recommendations in the second report to the Preparation for Government Committee by the sub-group on the economic challenges facing Northern Ireland which can be found at http://archive.niassembly.gov.uk/theassembly/CPFG/CPFG_Reports/economic_challenges.pdf
The Case for an Economic Package
The Committee notes that Northern Ireland still has one of the United Kingdom’s least prosperous economies, with low productivity and low living standards being the key economic problems. In particular, household incomes are the lowest of any region. Although traditionally richer than the Republic of Ireland, the latter’s recent economic success means that there is now also a large north–south gap in prosperity. These persistent gaps exist despite high public expenditure and a generous regime of subsidies for industry, and despite a good record of job creation. The latest statistics, for GVA per head in 2005, published in December 2006, show that Northern Ireland has fallen back to 80% of the UK average. It is clear that on present performance there is no prospect of the Northern Ireland economy making significant progress in converging with the average per capita GVA in the United Kingdom, never mind with the Republic of Ireland, in the lifetime of anyone now present.
The challenge is to find ways to develop and implement a new model that delivers a high-value-added, export-driven, well-balanced economy and closes the persistent wealth gap, and the growing productivity gap, between Northern Ireland, and both Great Britain and the Republic of Ireland.
To address this, the Committee has considered what would be needed to bring Northern Ireland up to the average standards of prosperity enjoyed in Great Britain and in the Republic of Ireland. The Committee calls upon the Chancellor to agree the alternative proposals outlined below, which provide for an economic package comprising a mix of tax reforms, investments and other measures, to enable a step change in the performance of the Northern Ireland economy and lead to accelerated and sustainable economic growth.
As part of its alternative proposals the Committee calls upon the Chancellor to provide an economic package, which includes the following:
- Fiscal reform, particularly a competitive rate of corporation tax, in Northern Ireland to accelerate the flow of investment in high value-added sectors, and that a working group be established with HM Treasury to examine how to overcome the difficulties involved in such a change;
- Consideration be given to other fiscal reforms (including enhanced R&D tax credits, reduced fuel duties and a re-introduction of enhanced First Year Capital Allowances) as an adjunct to reduced corporation tax;
- Consideration to be given to a number of changes to the funding arrangements for public expenditure in Northern Ireland, including that:
- The United Kingdom Government should open an account for Northern Ireland with the European Investment Bank into which it will pay £16 billion on an agreed schedule over the next ten years;
- The terms for accessing borrowing under the Reinvestment and Reform Initiative should be simplified to reflect only the ability to service such loans from new income streams;
- Supporting expenditure to cover short-term restructuring costs in the current Reform Programme for the public services in Northern Ireland; and
- In the event of water reform not being deferred, the regulatory asset base for the proposed Government owned water and sewerage company (GoCo) should be set at £500 million (instead of £1billion) with a normal target rate of return for government investments (e.g. 3.5%) instead of the excessive current target of 5.8%;
- A 5-10 year investment programme over and above investments included within existing investment plans for Northern Ireland. These should be based on the following priorities;
- A 5 year road improvement programme (£472m pa);
- A 10 year rail development programme (£155m pa);
- Expansion of education in Northern Ireland (£70m pa);
- Tourism development initiatives (£34m pa);
- Funding for diversification and innovation in agriculture (£20m pa);
- Enterprise and Knowledge Transfer programmes (£11m pa);
- Funding to address the issues of the legacy costs of water reform (£1.5bn) together with the cost of deferral of water charges (£290m).