PRESS RELEASE

29 January 2007

PN 30/06

GOVERNMENT FAILING ON THE ECONOMY

The Committee on the Programme For Government met today and agreed a report from its sub-group on Economic Issues, which analyses the Government’s responses to key recommendations made by the former Committee on the Preparation for Government, on addressing the economic challenges facing Northern Ireland.

The Committee Chairperson, Jim Wells MLA, said, “The Committee is bitterly disappointed by the failure of Government to recognise and respond to the political consensus that exists on the need for a devolved administration to be adequately resourced to succeed in creating a more prosperous economy. The Committee agrees that the Government’s response to these earlier recommendations has been inadequate and unsatisfactory and represents a ‘more of the same’ approach to the economy, which would leave a future Executive lacking the resources to do more than maintain Northern Ireland’s current position as the United Kingdom’s poorest region. Much time and effort was expended in producing well researched and costed proposals for tackling the deep-seated structural weaknesses in the Northern Ireland economy, including low productivity and low living standards. The Committee is disappointed that it has not yet had a response to the proposals for an alternative economic package, which it sent to the Chancellor on 3 January 2007.

The Committee calls for genuine engagement from Government on Northern Ireland’s economic future, which takes account of the level of cross-party unanimity on this issue. This would equip a future Executive with the tools required to create real prosperity. The Committee considers that without a change in the Government’s approach there is a real danger that the Assembly will have been restored only to fail to deliver and this cannot be in the interests of Northern Ireland.”

The Committee agreed to publish the report and to issue an open letter to the Secretary of State, which is attached.

ENDS

COMMITTEE ON THE PROGRAMME FOR GOVERNMENT

Room 247
Parliament Buildings
BELFAST
BT4 3XX

29 January 2007

The Rt Hon Peter Hain MP
Secretary of State for Northern Ireland
Northern Ireland Office
Stormont Castle
Belfast
BT4 3TT

Dear Secretary of State

THE ECONOMIC CHALLENGES FACING NORTHERN IRELAND

Thank you for the Government’s responses to the three reports of the Assembly’s Committee on the Preparation for Government. The Committee on the Programme for Government considered these at its meeting today.

The Committee acknowledges the Chancellor’s offer of an early settlement for Northern Ireland as part of the Comprehensive Spending Review for 2008-11 and considers that this matter is of such fundamental significance for a restored Executive that it has agreed to issue this open letter to you.

As you know the Committee, and the former Committee on the Preparation for Government, have taken the view that a new start in economic prosperity should form an essential element of any package of additional resources and fiscal measures provided in preparation for the restoration of devolution in Northern Ireland. The high degree of consensus reached by all five political parties involved in compiling the three reports of the Committee on the Preparation for Government, demonstrates the parties’ common cause on this important matter.

The consensus included the strong view that Northern Ireland was most unlikely to be able to lift itself from the unenviable position as the UK’s poorest region, with what you have described as an unsustainable economy, without a radical change in current policies for economic development. Despite a relatively generous grant regime in the past, Northern Ireland has remained firmly wedged at the bottom of the UK league table of prosperity. The three reports argued for an integrated package to radically change this unacceptable position.

The Committee is grateful that you responded in detail to the proposals contained in the earlier three reports, but expresses a degree of disappointment that so many of the responses did little more than rehearse existing government policy. What were missing in its view were recognition of both Northern Ireland’s unfavourable economic position and the failure of current policies to change this position, as well as an imaginative approach to new policies.

Whilst the Committee recognises that it will be the Executive’s responsibility to design policy under a new devolved government, it also recognises that without adequate resources or a competitive tax regime, any Executive will lack the power to achieve reasonable levels of prosperity. Members regret the fact that the Chancellor’s offer, which was announced in November 2006, appears to involve little more than a continuation of existing trends in funding for public expenditure in Northern Ireland. Lacking these key capabilities, a restored Assembly will be constrained to do little more than maintain Northern Ireland as the United Kingdom’s least prosperous region and a poor relation of the Republic of Ireland. In these circumstances the danger is that the Assembly will have been restored, only to fail to deliver. This cannot be in the interests of Northern Ireland.

The proposed economic package which this Committee proposed to the Chancellor on 3 January 2007, is based on:

• Fiscal reforms, particularly a competitive rate of corporation tax, to enable Northern Ireland to emulate the spectacular economic success achieved in the Republic of Ireland.
• A major investment package to strengthen and rebalance the economy in support of fiscal reforms.
• Reforms to funding arrangements for public expenditure in Northern Ireland, including urgent substantial improvements to funding arrangements for the future of water provision.

The Committee calls on you to recognise the importance of improving Northern Ireland’s economic position within the United Kingdom and on matching the success of the Republic of Ireland. It asks you to explain the basis of your apparent belief that current policies can close the permanent prosperity gaps with the United Kingdom and Republic of Ireland, when they have not done so in the past. Finally the Committee asks that you acknowledge the economic and political importance of the integrated programme it has proposed and that you agree to meet the political parties represented on the Committee to discuss how this can be taken forward. The Committee welcomes the agreement of the Minister, David Hanson MP, to work with you in pressing the Chancellor to establish the joint working group on fiscal measures and the economic package, which was called for in the letter of 3 January 2007 to the Chancellor.

The Committee has agreed to recommend that the issue of an economic package should be debated in the Transitional Assembly as soon as possible.

Yours sincerely

Jim Wells MLA
Chairperson
Committee on the Programme for Government

NOTES TO THE EDITOR:

Information about today’s meeting can be obtained from the Information Officer -

Mr Paddy Price
Information Office
Room B2
Parliament Buildings
Belfast
028 90 521137

The report on the Government’s responses to the three reports on the economic challenges facing NI will be published shortly on the Transitional Assembly website.

http://archive.niassembly.gov.uk/transitional/pfg/pfg_home.htm

The full contents of the three reports on the economic challenges facing NI, from the Committee on the Preparation for Government between September and Novermber 2006, are available at the following website: http://archive.niassembly.gov.uk/theassembly/CPFG/cpfg_commpage.htm

The recommendations in the three reports are listed below.

Recommendations from First Report

1. The sub-group agreed to include all the submissions and presentations received in its report and recommends that PfG and the Secretary of State and his Ministers should study the evidence carefully. There is much quarry for further work in the material submitted.

2. That the current level of public expenditure should be protected during a transitional period agreed with Treasury to allow competitive fiscal incentives and targeted investment to rebalance the economy towards high value added Foreign Direct Investment (FDI) and indigenous companies.

3. That the Business Investment Programme budget is reviewed and additional resources made available to finance grant aid, targeted at businesses actively engaged in collaborative R&D activity with universities, multinationals and other partners.

4. That the role, structure and functions of Invest Northern Ireland (INI) be reviewed to determine if it is delivering effectively on its core objectives and is fit for purpose.

5. That investment in vocational training, skills and R&D activity in universities should be increased, an effective strategy developed to enhance knowledge transfer from applied R&D activity in commercially viable products, and that FE college curricula should be better integrated with the needs of business and focused on areas where skill shortages are hampering future economic growth. The aim should be to create an enterprise culture in schools, including the primary sector.

6. That a “Knowledge Bank” for business should be established modelled on the National Assembly for Wales strategy document “Wales: A Vibrant Economy”.

7. That a dedicated post should be created in the Department of Education for a person to take overall responsibility for driving improvement in science education.

8. That any savings that may be made from government efficiencies should be retained and used in Northern Ireland.

9. That PfG recommends the centralisation of government responsibility for economic matters within a single department or agency. That all government departments work to agree a common strategy and vision in support of promoting economic growth and social partnership that is accountable to a restored Executive.

10. That there should be a discussion with Ministers on alternative uses for the £30m set aside for an energy subsidy.

11. That detailed analysis is undertaken to identify economic opportunities through establishing effective clustering and collaboration with RoI on infrastructure development, R&D and skills training along designated economic corridors.

12. That the planning process is reviewed and adequately resourced and effectively managed to reduce delays and to provide an enabling culture and an appropriate balance between the needs of the economy and the requirements for consultation. That the planning process is streamlined by setting end dates for consultation and focusing priority on approving area plans.

13. That an implementation plan is developed and agreed across government departments and agencies, that coordinates the delivery of various economic strategies and monitors performance against rigorous completion targets.

14. That an urgent review should be undertaken of the most appropriate and effective structure for delivering urban and rural regeneration plans.

15. That serious action is taken to eradicate organised crime and criminality, particularly where it impacts on business and acts as a serious impediment to economic stability and growth.

16. The sub-group noted that from the current evidence it was clear that a low rate of corporation tax was a major driver in RoI economic success through promoting inward investment and that there have been problems in practice with the use of tax credits in Northern Ireland. The sub-group agrees that it would be appropriate to reflect on the outcome of the ERINI research detailed below and recommends that:

• The Economic Research Institute of Northern Ireland’s (ERINI) study on the impact of FDI should be copied to PfG and the economic sub-group to inform deliberations on fiscal options necessary to promote FDI and indigenous business;
• PfG requests that DETI commissions an independent study into the relative economic benefits and comparative costs of a range of fiscal measures including: reform of corporation tax to create a competitive headline rate; increased R&D tax credits based on the work of Professor Harris; improved grant aid, including a substantial increase in the Business Investment budget and the possible reintroduction of the Chancellor’s Initiative on capital grants; reformed fuel-duty levels to reduce the transport costs of business and undermine the smuggling of fuel that promotes crime and ultimately reduces tax revenue; and the capping of industrial rates and the introduction of a small business rate relief scheme. The study should examine the relative benefits and costs of each individual option and identify the combination that maximises FDI and indigenous business growth;
• The study, as a matter of urgency, should address the following questions:
  • Any costs in terms of revenue foregone?
  • Longer term impact on tax revenue as investment rises?
  • How far is investment in established firms sensitive to rates of post-tax profitability?
  • How far is the level of FDI determined by rates of business taxation and how far by other factors (such as availability of skilled labour, the science base, English language availability and extent of business regulation)?

17. PfG should set new terms of reference for the economic sub-group to:

• Consider the results of the ERINI research and the commissioned DETI study into the fiscal options to prepare a costed case for consideration by a restored Executive and the Treasury;

Consider and report on measures required to develop an integrated skills and education strategy capable of meeting the current and future needs of the economy and based on best practice elsewhere; and

Undertake further work on how an economic package/peace dividend could contribute to economic regeneration.

18. If an extended mandate for the sub-group is agreed by PfG, the sub-group recommends that approval should be given to temporarily contract an economist(s) as a special advisor to provide expert insight and advice on the sub-group’s work and to assist in the preparation of a further report to PfG.

19. The sub-group welcomes recent efforts by the Economic Development Forum (EDF) to consult with local political parties and recommends that this political interaction should continue and be expanded to include a wider spectrum of interested organisations with a stake in the future of the Northern Ireland economy.

20. The sub-group recommends that the unacceptable rate of economic inactivity could be targeted by increased return to work credits through DEL, informed by research to assess the level of credit required to take people out of benefits. This would require a reintroduction of the Chancellor’s Initiative Skills Fund.

21. The sub-group took into consideration the evidence submitted by witnesses and recommends that an economic package should focus on the following 4 key areas:

• Community regeneration (urban and rural);
• Infrastructure;
• Education and skills; and
• A cocktail of fiscal incentives capable of attracting FDI and encouraging the growth of high value-added indigenous companies.

Recommendations from Second Report

1. That as part of a political agreement to restore devolution in Northern Ireland, the government agrees to provide the new devolved administration with an economic package, comprising a mix of tax reforms, financial investments and other measures, which will enable a step change in the Northern Ireland economy and lead to sustainable economic growth.

2. That tax reforms are required to produce the necessary degree of economic uplift sufficient to raise Northern Ireland from its entrenched position as the UK’s poorest region and, as such, tax reforms must form the core element of an economic package.

3. That the government consider the evidence submitted by witnesses that establishes a strong case for Northern Ireland having a competitive rate of corporation tax and should take full account of imminent research reports by ERINI into FDI and corporation tax. The sub-group recommends that the government should engage with the political parties with a view to addressing this issue as part of an economic package.

4. That R&D tax credits should be given a lower priority in any package than reduced corporation tax, but if reduced corporation tax is unavailable then higher R&D credits should be tried. Reduced corporation tax may be more effective in bringing R&D intensive firms into Northern Ireland. If these arrive, means should be explored to increase the amount of R&D undertaken by those firms in Northern Ireland. One potential route is to explore a mixture of reduced corporation tax and R&D tax credits but the sub-group views reduced corporation tax as more important.

5. That fuel duties in Northern Ireland should be equivalent with the lower duties in the Republic of Ireland. An extensive study should be undertaken of what the net loss of revenue might be. This should take into account additional tax revenue flowing from any higher consumer spending that may accompany lower costs of fuel.

6. That, in order to offset the higher costs of energy, including the Climate Change Levy, the government should revisit its undertaking to contribute £30 million per annum to reduce energy costs. This undertaking was deemed to contravene state aid rules and the sub-group’s view is that the case should be examined for using this money to cap industrial rates.

7. That a study be undertaken on the impact of the Enterprise Zones previously established in Northern Ireland with an assessment of the potential for using Enterprise Zone incentives to aid regeneration in Belfast and other cities and towns throughout Northern Ireland.

8. That an economic package should include additional investment in a number of areas of importance in supporting a competitive economy. These are:

a. Transport Infrastructure:

• A number of key strategic routes are of particular importance and the whole of these routes should be brought up to dual carriageway standard. These priority routes are:
• Upgrading the remaining single-carriageway sections of the A8 Larne to Belfast road to dual-carriageway.
  o Upgrading the N2 - A5 road from Dublin to Derry/Londonderry to dual carriageway standard throughout in partnership with the Republic Ireland.
• Upgrading the A6 road from Toomebridge to Dungiven to dual carriageway. This proposal, taken with the plans to upgrade the road from Dungiven to Derry/ Londonderry, would bring the entire Belfast /Derry/Londonderry road up to dual carriageway and motorway standard.
• Upgrading the A4 route from the motorway to Enniskillen up to dual carriageway standard with further study to cost links at this standard to the southern road system at Sligo with the cooperation of the Republic of Ireland.
• Linking the M1 and the M2 via the International Airport with a dual carriageway.
• Establishing a strategic link between the South East and the Belfast/Dublin corridor.

The serious shortfall of approximately £40m in the current annual roads maintenance budget should be addressed as a matter of urgency.

A Belfast Area Rapid Transit system should be created and the services in key network routes throughout Northern Ireland should be upgraded.

A railway spur connecting Belfast International Airport to the existing network should be developed.

Investment is necessary in the rail network and infrastructure particularly the Dublin/Belfast, Belfast/Larne and Belfast/Derry/Londonderry rail routes with extensions to the Donegal and North West corridor.

b. Business Support Measures:

That a series of small scale challenge funds should be designed to conduct experiments in ways of advancing economic development among small and medium sized firms in manufacturing, tradable services and tourism.

• That there should be a package of measures to stimulate the export performance of Northern Ireland SMEs. This would include measures to increase awareness of export opportunities, consolidation of existing support programmes and a new suite of targeted support tools.
• That there should be an Enterprise Growth Fund comprising a loan fund and equity fund to work together to increase the number of business start-ups, promote social economy enterprises and also to enhance the all-island business co-operation model.

c. Technology and Knowledge Transfer:

• That the creation of a Knowledge Bank to aid in technology transfer should accompany increased public investment in the science base.
• That there should be support for the joint plan by the two universities to increase the number of PhDs in the 5 key technology areas of the Regional Innovation Strategy – 80 PhDs at a cost of £10 million.
• That Northern Ireland’s comparative strength in Broadband coverage should be enhanced by an upgrade in Broadband capacity to 8Mbps at an estimated cost of £8-10m.

d. Expansion in University Places:

• That further expansion of student places should take place.

e. Tourism:

• That the reconstruction of facilities around the Giants Causeway needs to be accelerated and extended. (£38 million)
• That the development of the Titanic Park in Belfast is an urgent priority that should help to attract the growing cruise-ship market. (£90 million)
• That there is a case for public support for the Walled City of Derry, Christian Heritage/St. Patrick and the Mournes National Park Area projects. (totalling £20 million)
• That studies should also be undertaken of the viability of other tourism projects. These include the renovation of the Ulster Canal to promote holidays afloat and the further development of golf infrastructure facilities to an international standard.
• That government assistance for the promotion of tourism events should be increased. Support has declined in recent years to £2m in 2005/6, and could be doubled, to enhance the attraction of major sports and cultural events.
• That further investment in tourism infrastructure needs to be encouraged.

f. Other Proposals:

• That the proceeds from the sale of underutilised public assets be retained in Northern Ireland.
• That an infrastructure fund should be established to overcome our infrastructural deficit.
• Subject to a transparent business/economic appraisal, there should be an acceleration of the redevelopment of the Maze prison site.
• That a Unit within Planning Service should be created to provide more in the way of tailored guidance for businesses in making their applications and for fast-tracking the processing of the applications.
• That an investment programme in energy conservation measures and technologies could lead to significant savings for local businesses.
• That there should be an extension of energy efficiency programmes and support measures to eradicate fuel poverty.
• That there should be provision of state-funded free personal care.
• That a review of special needs education provision across Northern Ireland should take place to identify opportunities for investment in increased provision to promote greater social cohesion.
• That there should be a more pro-active targeting of financial and business service companies with the view to locating in Northern Ireland, in recognition of the increasingly prominent role that financial and business services play in boosting productivity and wages.

9. That as part of an economic package, additional finance should be made available to facilitate some refocusing of priorities and resources in favour of economic development.

10. That a new devolved Executive makes provision for a centralised and structured approach to implementing the economic package and to co-ordinating and monitoring operational delivery across the various government strategies which impact on the economy.

Recommendations from Third Report

1. The sub-group recommends that PfG Committee should press the Secretary of State to make the Minister, Maria Eagle MP available at the earliest opportunity to meet with the sub-group to provide a comprehensive response to its three reports. The sub-group believes that this is essential to provide an opportunity to question the Minister on the Secretary of State’s response to its first report in his letter of 31 October 2006.

Fiscal and Financial Incentives

2. The sub-group recommends that the political parties consider the merits of the proposal from the Federation of Small Businesses for a ‘Rates Reinvestment Fund’ as part of the ongoing discussions with Treasury on an economic package.

ERINI Research on Corporation Tax

3. The sub-group recommends that PfG Committee and the Secretary of State take note of the ERINI research conclusions, which underscore the case for NI having a competitive rate of corporation tax, and that this key research should be used to inform discussions on the economic package.

Education and Skills

4. The sub-group recommends that there is a need for clarity over the future of education in NI. It further recommends that account should be taken of any strategic financial/policy implication which may arise out of the Bain Report.

5. The sub-group recommends that special attention should be given to science, technology and engineering as part of an integrated education and skills strategy.

6. The sub-group calls for greater urgency, recognition and action in NI to avoid a potential shortfall in the skills base needed to support a knowledge-based economy.

7. The sub-group concludes that key lessons can be learnt from the RoI approach to education and skills development focussed on the needs of the economy, and recommends that government departments and a restored Executive should seek to apply these lessons as appropriate to circumstances in NI.

8. The sub-group recognised the important contribution of Sector Skills Agreements to identifying skills requirements and improving the delivery of training and education through a partnership approach and collaborative action between employers and education/skills providers. The sub-group acknowledges and recommends the need to develop and adequately fund this approach as part of a flexible strategy linking the supply of skilled labour to the needs of business and economic growth.

9. The sub-group supports the proposals in the Association of Northern Ireland Colleges (ANIC) paper and recommends that the Department of Education (DE) urgently addresses poor literacy and numeracy skills among school leavers, and that Department of Employment and Learning (DEL) should develop creative approaches to life-long learning opportunities that allow less able school achievers to reach their full potential in skills attainment to find employment.

10. The sub-group recommends that, in the context of developing an integrated skills and education strategy to support economic development, the Government should give careful consideration to the proposals from the two universities for additional investments and related actions to maximise their potential contribution to the development of a sustainable knowledge-based economy in NI.

11. The sub-group concurs with much of the evidence from UUTech Ltd and recommends that Government and a restored Executive should carefully study the measures proposed by UUTech Ltd in its submission with a view to developing strategies to identify, resource and market university and FE college links to business both in NI and internationally.

Water Reform

12. The sub-group recommends that, as part of an economic package:

(a) The water reform legislation is deferred and dealt with as an NI Assembly matter.
(b) The public services funding gap caused by this deferment and the capital backlog, or at least a significant percentage of it, be paid for by Government as additional funding.

The sub-group further recommends that the Secretary of State commission an independent study to accurately review all aspects of the water reform proposals during the deferment period.