[Relevant documents: First Report from the Northern Ireland Affairs Committee, Corporation Tax in Northern Ireland, Session 2010-12, HC 558, and the Government response, HC 1767; and the Second Report from the Committee, Air Passenger Duty: Implications for Northern Ireland, HC1227.]
Motion made, and Question proposed, That the sitting be now adjourned.—(Mr Shailesh Vara.)
It is a pleasure to serve under your chairmanship today, Sir Alan. Usually, you and I jointly chair the all-party group on racing and bloodstock industries, so today’s debate is a diversion, but I am sure that it is extremely important, just as our other debates are.
It is a pleasure to open this debate on the Northern Ireland economy on St David’s day, and I am delighted to be doing so. I start by thanking all the members of the Northern Ireland Committee—both past and present—who have worked extremely hard in compiling the reports that we have produced, which I will refer to. I also thank the Committee staff, who work extremely hard.
This is a very important debate, as are all debates on the economy at this time. Just today, we have all seen bad unemployment figures throughout Europe. We hope that our own economy in the UK is starting to recover, but I think we all feel that there is a long way to go and that there will be some very difficult decisions to make, so, as I said, any debate on the economy is important. I am pleased to introduce this debate, which is about rebalancing the Northern Ireland economy.
As well as having the honour of chairing the Northern Ireland Committee, I have the privilege and pleasure of being joint chairman of the British-Irish Parliamentary Assembly. I am quite new to that role and I am the British chairman of the assembly. I mention that to demonstrate my friendship with the Republic of Ireland, given that I shall refer to that country in my remarks.
Of course, we are all aware of the difficulties that Northern Ireland has gone through. Most hon. Members would probably agree that those difficulties are due—at least largely and probably entirely—to the terrorism that existed in the Province for many years. There were 30 years of real, hard terrorism when people suffered terribly; lives have been shattered, and many lives were lost. If that was not bad enough, as a result prosperity in the Province has been a lot lower than it would and should have been otherwise. This debate is a contribution to the attempt to start turning that situation around.
When we discuss the economy in Northern Ireland, it is important to recognise that there are a number of bright spots. The unemployment rate is lower than in the rest of the UK and is falling, and there is a higher level of manufacturing production. Research and development investment in Northern Ireland increased by 6% last year, albeit from a low base. Belfast is the second most attractive city in the UK after London for foreign direct investment. For 16 to 18-year-olds in Northern Ireland, there are better educational outcomes than in the rest of the UK, although there is a lower level of qualification among those in the working age population. This year there are increased tourism opportunities, with the Titanic anniversary, and next year there will be celebrations with Londonderry being the city of culture. These are all bright spots, and there are others that I have not mentioned.
However, we would be derelict in our duty if we did not recognise that there are problems, and one of them is the size of the public sector. Let us just consider employment. Of those who are employed, 27.7% work in the public sector, as against an average of 20.6% in the rest of the UK, which makes Northern Ireland’s public sector the biggest of all the UK regions. Of course, that results in higher public spending, £10,706 per person in Northern Ireland as opposed to £8,845 in the rest of the UK—21% higher in Northern Ireland, which is a significant cost. There is no doubt in my mind that that increased cost is largely, if not entirely, due to the 30 years of the troubles.
If we look at the number of employed people, 67.9% of the working-age population in Northern Ireland are employed as opposed to 70.3% in the rest of the UK. That is another statistic that is not favourable for Northern Ireland. Productivity per job is only 85.3% of the UK average. If we look at gross value added, Northern Ireland, with GVA of £15,651, is again lower than the rest of the UK, which has GVA of £20,476. Indeed, Northern Ireland is the lowest region of the UK in terms of GVA, apart from Wales. The fall in GVA since the pre-recession peak has been more pronounced in Northern Ireland, and growth in Northern Ireland is projected to be slower than in the rest of the UK in the coming year.
There are a number of other problems. There will be a reduced rate of assistance from Europe from 2013, and there are also higher fuel and energy costs. Recently, the Select Committee visited the Coolkeeragh gas plant, which is just outside Londonderry. People at the plant highlighted a big problem that I hope the Minister will take on board; I have raised it in the Commons already. That problem is the carbon floor price. When it is added to the taxes and everything else coming from the EU, it could make Northern Ireland very uncompetitive in terms of energy production. I hope that the Treasury will take that point on board and consider what can be done to avoid penalising companies in Northern Ireland that are only doing the right things.
What do we need to do now? Obviously we must try to increase the prosperity of people in Northern Ireland, so that they are less dependent on taxpayers in the rest of the UK, and we need to do that not only to improve prosperity but to cement the peace that so many people have worked so hard to achieve. I am not for one moment suggesting that poverty is an excuse for violence or law-breaking of any kind—it certainly is not; but we must recognise that when people are unemployed, with time on their hands and nothing better to do, they are more likely to turn to activities that are not to be approved of. That is not an excuse, but we should recognise the fact that it is a likely outcome for some people. Increasing prosperity in the Province and giving people opportunities to work or to receive education and training will surely divert people who might just turn the wrong way. That is very important and it is one of the things that we have stressed in our reports.
What changes are needed to increase prosperity in Northern Ireland? I have a list of suggestions. We probably all accept that we need to reduce the size of the public sector and increase the size of the private sector. Again, that raises the question of how we do that. One of the things that the Select Committee has looked at is trying to make Northern Ireland more competitive, so as to attract more inward investment. I shall turn to the corporation tax proposals shortly, but there are a number of other issues that I want to discuss briefly.
A short while ago, the Select Committee carried out an inquiry, and produced a report on air passenger duty. One of our concerns at the time was that Continental Airlines, the one and only carrier from Belfast to New York, was in serious danger of pulling out and stopping those flights. That really was a threat to the economy in Northern Ireland. We conducted a short inquiry and came up with the proposal that the APD for long-haul flights should be reduced, and the Government responded by reducing it to £12 per flight, which is the APD for local flights. Before that it was £60. For a family of four flying to New York from Belfast, that was £240 in tax before they had even got on the plane. The airline was carrying that cost, which made it extremely uncompetitive, and was threatening to pull out. It was a serious threat, and we lobbied hard for the Secretary of State for Northern Ireland and indeed the Treasury to try to do something about it urgently. I congratulate Ministers and the Government on responding so quickly and reducing the tax. We hope that we can move forward in that respect.
We also suggested that the policy for setting the rate of air passenger duty for long-haul flights be devolved to the Assembly. I am pleased that that is now the Government’s policy and it will be enacted through the Finance Bill. I welcome that move, which is a step in the right direction.
We need to improve the planning situation in Northern Ireland. Again, that is a devolved issue, so I will not dwell on it too long. Everyone would accept that planning has to become more efficient. We have just heard of the new golf course near the Giant’s Causeway finally being given planning permission, but it took 10 years to get to that point. It is hardly an incentive for new businesses to try to do anything good when they face that type of planning process, although I am aware that there were several objections to the planning application.
The golf course is an important investment opportunity for Northern Ireland, and it does indeed turn the page for a part of the economy that has seen very dark days. Does the hon. Gentleman agree that the Government should encourage everyone in the public and private sectors, particularly the National Trust, which is a key stakeholder in the area, to get behind that tourism project in this year of tourism initiatives, and support a key investment in our locality?
I am grateful to the hon. Gentleman for his intervention. He is a very active member of the Select Committee. I entirely agree that the golf course is extremely important. It is a great investment and a great opportunity. I hope that Northern Ireland goes on to attract the Open Championship—not necessarily to that course, but to a course in Northern Ireland. It is important to move in that direction. I urge the Government to get behind the project. I know that it is a devolved matter, but there is great frustration with regard to the planning situation, as there probably is in most local authorities. There certainly is in mine, but it is particularly the case in Northern Ireland.
In about two weeks’ time, we shall publish our report on our inquiry into the smuggling of tobacco, alcohol and diesel. Obviously, I cannot go into detail at the moment, but I can reveal a couple of figures. Fuel fraud costs Northern Ireland £70 million and tobacco fraud costs £42 million, making a total of £112 million, which could be in the pockets of the health service or the education service. Indeed, it could help to reduce taxes in Northern Ireland. That is something that we are looking at. I cannot go into too much detail at the moment, but it is a real issue. Not only does smuggling cost the economy a lot of money, but it provides opportunities for paramilitaries, ex-paramilitaries and people who are up to no good to engage in activities that do the economy, Northern Ireland and the UK no good at all.
On creating a genuinely shared future and reducing the cost of division, we have made huge progress—let us not forget that—but we need to do more. Yesterday, I read a report on the BBC website that claimed that when the agreement was signed, there were 22 peace walls, but there are now 48. Segregation of housing and education is not only divisive in an area that needs to end division; it is costly as well. We need to find an affordable way of dealing effectively with the past. I do not want to get into a debate about what the Secretary of State calls costly and open-ended inquiries. This is not the time or the place, but we have to find a way of dealing with the past effectively and more affordably.
I turn to the corporation tax report that we produced. We spent a lot of time looking at corporation tax in Northern Ireland. To be fair to everybody concerned, I note that not every member of the Committee agreed with the proposals that were made. However, many members did agree.
Does the hon. Gentleman agree that perhaps one reason why there was not unanimity was because there was a cloud of judgment over exactly what the Treasury is asking for in terms of costs? It is essential that we get absolute top-desk clarity from the Treasury on what the measure is going to cost; we need to be clear about how it is going to make that calculation. It is important that it takes on board the fact that Northern Ireland will have increased income tax and increased national insurance contributions so as to make the cost less for us as an Executive.
Indeed, that was one of the points that we made in our report. We were astounded that the Treasury did not have a figure that we could use to assess the cost. I will explain the background. Because of the Azores judgment in Europe, it appears that if corporation tax is reduced for one area of a jurisdiction—not for all the jurisdiction—that part has to take the hit in terms of the outcome. In other words, if the tax take drops by, say, £100 million, it cannot be made up by Westminster. It has to be part of the block grant. We were astounded to find that the Treasury did not have that figure. Our report urges the Treasury to put a mechanism in place that will tell the Assembly—not so much us—what it will cost.
Corporation tax across the United Kingdom is on its way down. At the moment, it is 26%. In the Republic of Ireland, it is 12.5%. It is important to note that Northern Ireland is the only part of the United Kingdom to share a land border with another European Union state—the Republic, where there is a massive tax difference. The location of Northern Ireland is also important. It is an island off an island; it is peripheral. In my view, it certainly needs something that it can wave and advertise to attract inward investment, otherwise it may be easier to invest in other mainland areas or countries with lower tax rates. It is not immediately obvious why one should come to Northern Ireland, but it is easy to see why people go to the Republic of Ireland. It is possible that Google, Facebook and Twitter were attracted to Dublin because of the very low rate of corporation tax. Of course, inward investment is extremely important, but if a company is making a profit and paying a percentage of that in taxation, it has less money to actually spend on reinvestment.
As I said, not all Committee members agreed, but interestingly the Irish Government agree. The present Taoiseach has said publicly that he would approve of Northern Ireland reducing its corporation tax to 12.5%. That is an amazing situation to find ourselves in. We are competing with the Republic and we want to compete even more strongly, and they are in favour of that. Perhaps it is a mark of the progress that has been made in the incredibly good relations that exist between the Republic of Ireland and this country. It is certainly to be welcomed.
Does the hon. Gentleman also accept that perhaps the Irish Government are keen for the rate to be reduced in Northern Ireland because it gives them some defence when it comes to their argument with Europe about whether their rate of corporation tax should be increased?
I am sure the hon. Gentleman is right, and there may be political reasons why the Irish Government want the same rate. There may be political reasons why they want a lot of things the same across the island of Ireland. As the hon. Gentleman knows, I speak as a strong Unionist. However, the issue is bigger than any of those problems. The hon. Gentleman may be right in that case. He leads me to an important point.
I agree with the hon. Gentleman, who makes the point better than I did. The outcome is important.
It is significant that the hon. Member for East Antrim (Sammy Wilson) led me to Europe. When we received an application from Ireland for assistance last year, against all the pressure from Europe to increase its rate of corporation tax, Ireland resisted. No matter what else they had to do, the Irish Government knew that that was a crucial part of their economy. It was absolutely crucial in attracting foreign investment, and they clung, and are still clinging, to it. I wish them every success in doing so.
I said that the Irish Government agreed. Almost all the witnesses from whom we drew evidence also agreed. There were an awful lot of them, over a long period: the CBI, the Federation of Small Businesses, KPMG, PricewaterhouseCoopers and many others. They saw the proposal as an important step but they all stressed that there was not a silver bullet—there is not just one solution to transform the entire economy in Northern Ireland. Everyone said that. No one was pretending that corporation tax in itself is the complete answer, but they all saw it as a golden opportunity and felt that we had to go that way.
Because of the Azores ruling, we cannot change things here. Our Committee’s recommendation is for the Assembly to be given the authority to set its own rate of corporation tax. If it is given that authority, and if the Treasury comes up with the deal, the figures and everything else, it will be up to the Assembly to decide what it wants to do. The issue will be out of our hands here at Westminster. That is the proposal, which I fully support.
I have concentrated on the Northern Ireland economy. Many things happening across the UK will affect the economy there, for example creating growth, reducing the budget deficit and reforming benefits, but I have not touched on them, because I have tried to concentrate just on Northern Ireland.
It is important to recognise that Northern Ireland has come a long way, thanks to the politicians in Northern Ireland and some of the leading politicians in the UK generally. Particularly, however, it is due to the resolve, determination, steadfastness and decency of all the people of Northern Ireland. The current generation and the next deserve to live in a more prosperous and peaceful society than did the previous two generations. That is what this debate is about, what the work of the Northern Ireland Affairs Committee is about, and what the proposals that I have made today are about.
I welcome the opportunity to debate the rebalancing of the Northern Ireland economy here in Westminster today. The Chair of the Select Committee on Northern Ireland Affairs has already referred to the report on corporation tax in Northern Ireland and the Government’s response to it. The report, which was fairly far-reaching, set the course on which we should look again at our economy, to rebalance it between the public and private sectors. We fully accept that the public sector forms more than 70% of the Northern Ireland economy, but we also caution, from a party perspective, that we should not throw the baby out with the bath water. We are dealing with the legacy of conflict, and we must take all those various issues into account.
It is important to give an overview of the economic situation in Northern Ireland. According to research produced by the Northern bank, the economy’s growth rate will struggle to reach 1.1% this year, compared with the UK average of 1.7%. The Northern bank’s survey, which lowered the chances of falling back into a deeper recession, warned that growth and recovery were still fragile in Northern Ireland.
Seasonally adjusted data for Northern Ireland estimated that 784,000 people aged between 16 and 24 are in employment. That figure has increased by 2.9% in the past year and is now higher than the pre-recession employment level, recorded three years ago.
The research indicates that the unemployment rate in Northern Ireland is below the UK average and the fourth lowest rate among the twelve UK regions. The seasonally adjusted Northern Ireland unemployment rate showed a quarterly increase of 0.1%. However, the Northern Ireland rate, which is around 7.3%, remained below the UK average and was the fourth lowest of all UK regions. It is interesting to note the high youth unemployment, with some 18% of people aged 18 to 24 not in work. Northern Ireland is experiencing a sevenfold increase in long-term unemployment among 18 to 24-year-olds since the recession.
The economic inactivity rate for all people aged 16 to 64 is 2.3% lower than the rate some five years ago, but it remains the highest of all UK regions. A higher proportion of economically inactive persons aged 16 to 64 identify sickness or disability as their main reason for not wanting or not being able to work. Northern Ireland is ranked fourth highest among UK regions in terms of self-employment rates from April to June 2011. The average for the UK was 13.6%.
Those figures characterise and set the scene for the economic situation in Northern Ireland. With that economic backcloth, it is important that we discuss today the need to rebalance the economy in Northern Ireland and that we do so here, notwithstanding the devolution of governmental powers to the north, because many economic levers that can deliver a step change in our local economy remain in the hands of the Treasury in London. For that reason, I am pleased to see the Exchequer Secretary to the Treasury here to respond to the debate. He was involved with us in the early days of the corporation tax issue and came to Belfast around the end of last March to launch an important consultation document, for which there was cross-party support and subscription, for want of a better word.
Devolution has given us one significant economic lever: public expenditure, for which the hon. Member for East Antrim (Sammy Wilson) has ministerial responsibility in Northern Ireland; we have had certain tours de force at certain times in another place with him. We can now determine how to allocate within the block grant ourselves. We therefore have the capacity, even though we may not have properly used it yet, to target more resources at economic priorities.
Naturally, moving resources into priority areas, such as tourism and agri-food, which can yield the best returns for jobs and economic growth, comes at a cost to other areas. We have been cautious and perhaps even—dare I say?—unimaginative to date. I hope that that will change. That is why my party has produced a comprehensive plan, called “Partnership and Economic Recovery”, which sets out in considerable detail how we could target more economic stimulus at priority areas.
We were unique for a political party in Northern Ireland in that we identified where the extra money could be found without looking to the Exchequer. However, while preparing “Partnership and Economic Recovery”, we realised how many economic levers were still in the hands of Westminster. For example, despite being the only part of the UK with a land border with the eurozone, Northern Ireland’s Government are powerless to intervene in the numerous situations that place Northern Ireland at a unique economic disadvantage. One of them—the vastly differential corporation tax regimes north and south of the border, to the advantage of the south and the disadvantage of the north—has clearly caught the attention of London, for which we are grateful.
The Secretary of State for Northern Ireland deserves some credit for advancing our quest for corporation tax-varying powers—we realise that there are different views about that—albeit at a price. We hope that we are somewhere near a positive end of the journey. The Exchequer Secretary is well aware of the cross-party support for latitude on corporation tax. Perhaps he can provide us with an update on the ministerial working group on the issue and advise us whether he and his group, of which others here are also members, have reached any conclusions. If so, what might they be?
There is a strong belief that that one lever can bring about a significant step change in the growth of our private sector. However, corporation tax is only the tip of the iceberg, as is passenger duty and the differential application of the EU aggregates levy and its impact on our construction sector. I questioned the hon. Member for East Antrim in another place the other day on that issue, but perhaps the Exchequer Secretary will provide us with an update about the European Commission and where exactly those negotiations are at. That exemption is very important to our local industry and could act as an important stimulus to the construction industry.
We have no powers in Northern Ireland to depart from the overall UK position on all sorts of other matters that adversely affect our economy. We have long suffered the competitive disadvantage of a much more favourable agriculture and food regime south of the border, while we have been tied to a UK policy broadly hostile to the common agricultural policy. I hope that the eventual reform of the common agricultural policy will accommodate the needs of not only the local farming community in Northern Ireland, but the wider agri-food industry.
We have no power to vary indirect taxation or such things as excise duty on fuel, alcohol or tobacco. Excise duty anomalies alone have led to a wave of filling station closures in the north and the resurgent problem of cross-border smuggling. The Chair of the Northern Ireland Affairs Committee has already referred to the forthcoming report on fuel smuggling. We look forward to that report. There is no doubt that fuel smuggling is a vexatious issue that needs to be redressed and resolved on behalf of the wider community in Northern Ireland.
We are also tied to UK rates of motor taxation, which is something that stops us from doing more to help ourselves. I have not even mentioned the differential economic impacts of a UK welfare reform programme that is designed around perceived norms in the south-east of England.
It would be right in the context of arriving at the right solution on corporation tax to look at all the areas where the rigidity of the overall UK position prevents Northern Ireland from helping itself in its own economic development. We are not afraid of further devolution or further devolution of tax-varying powers, but we acknowledge that that could have implications for the block grant. Other hon. Members present today have already referred to that. We would like to know the consequences, although we accept the point that the Office for Budget Responsibility will have an overall remit to undertake such calculations.
Of course rebalancing the economy goes beyond the vital task of growing the private sector. As the Chair of the Select Committee has already mentioned, we also need to right-size the public sector and make it perform better. For decades, public sector workers maintained normality in Northern Ireland, and we owe those unsung heroes a debt of enormous gratitude. However, with peace, there is an opportunity to redesign a public sector aligned to the precise services that citizens now need. We are prepared to be radical on public sector reform. The Northern Ireland Executive can do much more good for themselves, but they will need the co-operation of Westminster in that reforming endeavour.
In that context, I should like to pay tribute to the Environment Minister in the north—his work has already been referred to by the Chair of the Select Committee—because he has responsibility for planning and local government reform. He has blazed a trail in prioritising timely decisions for major planning applications. For example, the decision on the golf course announced last week, which was mentioned by the Chair of the Select Committee and the hon. Member for North Antrim (Ian Paisley), will have a significant economic and job creation impact.
I thank the hon. Gentleman for his intervention. I am in no doubt that the planning application just approved, which took some 10 years to come to fruition, will have an economic impact on that part of North Antrim. I encourage my colleague the Environment Minister, who sits in another place, to try, subject to challenges and difficulties, to make similar decisions. It is important that all organisations act in the public interest for the people of Northern Ireland, so that there can be a sea change in terms of stimulants and economic development. There is no doubt that planning is playing its part as an improved public service that facilitates investment and growth. The tourist board can also make a contribution, as can Tourism Ireland.
Rebalancing the Northern Ireland economy is a necessary and worthwhile endeavour, but it will require a collective effort by not only the devolved Administration, but London, too. We need to develop an economic agenda that will empower rather than alienate our work force. Some of us might have different views about the degree to which corporation tax should be lowered to attract foreign direct investment. No doubt, the Scottish agenda and the English regional agenda will play their part in bringing influences to bear upon on the Treasury.
Small indigenous businesses must be encouraged as well to provide opportunities for all. Perhaps the Government should consider the establishment of another working group with the Northern Ireland Executive to examine other areas where Northern Ireland could profitably be released from the UK system to further rebalance the economy.
It would be remiss of me not to mention the high priority that I attach to tourism development in the overall task of rebalancing our economy and stimulating job creation. Two out of our five signature tourism projects in Northern Ireland—the Mournes and St Patrick’s—are centred in my constituency. Our open invitation to come to Downpatrick and walk in the footsteps of St Patrick is particularly relevant to both Britain and north America. In fact, the shadow Secretary of State, the hon. Member for Gedling (Vernon Coaker), will do just that next Friday. We very much welcome his visitation on that occasion.
That is why we were right to press for relief on the air transport duty issue. I note that that will be subject to provisions in the Finance Bill. We acknowledge that there will be reference to transatlantic flights and the Continental Airlines flight between Belfast International and Newark, New Jersey. What about flights that deal with the domestic market between Belfast City and Belfast International to airports in Britain?
To return to my original point about tourism development, I have often said that St Patrick was probably our greatest ever import and has the potential to be our greatest ever export. Our unique heritage can even help to rebalance our economy. May I say in the month of St Patrick’s festival that our invitation—and my invitation to all hon. Members—to visit St Patrick’s country remains open to all?
In conclusion, we very much welcome our participation in the debate today about rebalancing the Northern Ireland economy. We in the Social Democratic and Labour party want to play our part, along with the Government and the Northern Ireland Executive, to help to rebalance the economy. It is vital that we provide the necessary stimulus, seek to rebalance the economy and provide hope and expectation for this generation and future generations in Northern Ireland.
It is a pleasure to take part in the debate. As the leader of the Democratic Unionist party in Westminster, my hon. Friend the Member for North Antrim (Ian Paisley), said yesterday, all is not gloom and doom in the Northern Ireland economy; indeed, according to the Office for National Statistics, Northern Ireland is a happy place, and its people are the happiest in the whole United Kingdom. I do not know whether that is to do with the fact that my party is the biggest and therefore has control of the Executive.
She is happy because she has such a wonderful public representative.
We should take those figures with some scepticism. If we use the same criteria, we find that the person who is typically happiest is a white male with five children who works only part time, and I am not so sure we want that as a recipe for the work force in Northern Ireland.
However happy people in Northern Ireland might be, there is a need to rebalance the economy. I should, however, make one point to the hon. Member for Tewkesbury (Mr Robertson). He talked about reducing the size of the public sector and increasing the size of the private sector. The truth of the matter is that any economy needs—
Sitting suspended for a Division in the House.
I will not go back over the happy bit, because we have got that dispensed with, and I think we are all suitably happy.
My first point is that when we talk about rebalancing the Northern Ireland economy, there is a misconception that that means contracting the public sector and filling the gap with the private sector. If that is all we did we would be no better off. We would still have a cake the same size, but it would be divided differently. At present in Northern Ireland the public sector is too large relative to the private sector; but that is not a function of the public sector being too big. It is a function of the private sector being too small. If we are to improve the well-being of people in Northern Ireland we must grow the economy, but the part that must grow fastest is the private sector, because a certain level of provision for health, education, roads and so on, will always be required.
I agree with the hon. Gentleman on that point. Does he agree with me that if the public sector is cut too quickly, without growth in the private sector, much of the good work to try to get people into employment is undone, perversely? Also, more demand for the public sector is created, because people become reliant on benefits and other things that require servicing by the state.
That is correct. In the past three years when I have been Finance Minister in the Northern Ireland Executive we have cut spending on consultancy by 56%. That is a good result, as far as I am concerned, but of course many private sector consultancy firms do not see it as a good idea at all, because people have been laid off. That bears out the hon. Lady’s point.
I am not complacent about the relative size of the public sector vis-à-vis the private sector, but we must avoid a simplistic view of how to go about things. It should not be a case of squeezing out the public sector and filling the gap with the private sector. We should grow the private sector and use what we can, and the resources of the public sector, to encourage that.
I think that the hon. Gentleman would accept that my speech was based on the idea of growing the private sector. The Select Committee felt—not unanimously, but by and large—that cutting corporation tax to attract inward investment was a way of doing that. As a result of that the public sector would become a smaller percentage of the whole, without necessarily getting smaller.
I am glad that the hon. Gentleman has clarified that, because I noted down his remark about reducing the size of the public sector. If he was speaking relatively, we are both arguing on the same lines.
My second point is that Northern Ireland still has a strong entrepreneurial spirit, despite all the years of trouble and how that put off private investment, and even drove out some of what was there. Indeed, the hon. Member for South Down (Ms Ritchie) talked about the level of self-employment in Northern Ireland, which is higher than elsewhere in the United Kingdom. That strong entrepreneurial spirit is growing, and many firms have weathered the current recession. The Business Secretary has visited Northern Ireland to see the work of Bombardier. That is a leading firm, internationally, in carbon fibre use in aircraft production, and it is growing; it is one of our biggest manufacturing employers. In my constituency there is F. G. Wilson, which sends generators around the world for Caterpillar, and is now back to its 2008 production levels, and Schrader Electronics, which provides a high proportion of the computerised valves for high-value motor cars, which tell drivers the car pressure. All the steel work for the Shard, which is being built down the road from here, is supplied by a firm in the back of beyond in County Fermanagh. It takes the steel in and ships it out, and because of the excellence of its manufacturing and engineering skills it can still compete for high-prestige jobs such as those that we can see from this building. I could go on.
The news is not all bad, and despite the recession there are many firms that have looked for ways to keep their work force together. One of Northern Ireland’s big advantages is that by and large work forces tend to be very loyal, and employers recognise and try to reward that. For example, Creagh Concrete just outside Toomebridge lost 90% of its business in the Irish Republic and had to lay off half its work force. It started to look for new business and is now back practically to the same level of employment, despite being in the construction industry, by making prisons that are like Lego kits. In fact, when I visited, there was half a prison sitting out in the yard and the other half was being produced. It is then taken on site and put together with all of the facilities inside it. The firm is changing from low value to high value concrete products. I could go on—there are many other examples of the desire of firms in Northern Ireland to grow.
What I say to the Minister today, I say in that spirit. We do not come to this place pleading special cases for a basket case, or as fiscal Oliver Twists holding out our hands, always wanting more and not prepared to do anything to help ourselves. People in Northern Ireland, entrepreneurs in Northern Ireland, want to help themselves and want to grow the economy. However, certain matters, as was pointed out by the hon. Member for South Down, rest with the Government at Westminster and therefore need attention.
Of course, there are matters on which the Northern Ireland Executive can act. It is not my place here to talk about them, or to talk about how adequately or inadequately they have been done. However, I have to respond to the hon. Member for South Down, who somehow thinks that the money allocated to Northern Ireland is not sufficient, not well spent and could be easily added to. She mentioned the fantastic document that her party produced on how we might raise revenue. I know that her first name is Margaret, but when I read the document I thought it was Margaret Thatcher reincarnated in Northern Ireland—the iron lady, though in the hon. Lady’s case it might be more like the tin foil lady.
The document included a list of privatisations from which money could come. Let me just list some of them: the sale of allotments; the sale of the Speaker’s house—I do not think it is his personal house, but there is a house in the grounds of Stormont; the sale of an airport that we do not own; and money from developers who are not building anymore. I could go on. Not one of them stacked up. We get the easy answers.
No, I do not think I have adopted any of them. The only one that was adopted was then condemned; namely, that we could get some money from housing associations by cutting their grant and making them borrow more in the market. When that was adopted, the first party to condemn it was the party sitting to my left. Even when we adopt some of that party’s ideas, it suddenly decides that they are not good ideas.
Further to the point made by my hon. Friend the Member for Belfast South (Dr McDonnell), I make the simple point that it is my clear understanding that the budget review group that sits in another place in Belfast has adopted a lot of the proposals contained in the SDLP document, “Partnership and Economic Recovery”. Perhaps the hon. Member for East Antrim might like to comment on that fact, rather than being disparaging.
If I had anticipated the length of that intervention, I might have listed some of the things that had been adopted. I cannot think of too many, other than the one that has now been condemned by the party that first suggested it. I have to say that it is actually working quite well. We are getting more houses built for less money in the public sector, and of course that is a good idea.
No, I will not give way. This debate is not about the internecine warfare that goes on in the Northern Ireland Assembly, much as I enjoy it. I am sure that hon. Members do not want a rehash of the kind of budget debates we have in that other place. I will make one point, however, because there has been a call for more devolution of tax-varying powers in Northern Ireland. There seems to be a contradiction. On the one hand, the idea is that if we had tax-varying powers we could use them to spend more money on public sector projects. On the other hand, when we get those tax-varying powers it is not to put taxes up, but to bring taxes down. I do not know how we bring taxes down and spend more money as a result, but that is the equation put forward by the hon. Member for South Down, which I think is part of her party’s policy. More recently, we have been told that if motor tax were devolved to Northern Ireland, we would be able to avoid all the changes that we do not want to introduce in welfare reform. From the devolution of motor tax we could find—according to the SDLP’s erroneous figure—£600 million. I would not like to be a motorist in Northern Ireland if we had to raise £600 million extra from a motor tax.
There are many issues I do not run away from. The Executive and the Assembly in Northern Ireland cannot run away from their responsibility for the things that they have to do to try to help to rebalance the economy. Some things are done well, some things are not being done so well, and some things still have not even been started. Those are internal matters, and the Minister may make reference to them later on. However, we are well aware that where we have responsibility, that responsibility should be taken. However, certain matters reside here at Westminster, and they are important if we are to rebalance the economy in Northern Ireland.
The first matter is the debate on devolution of corporation tax and tax-varying powers in relation to corporation tax. I would be cautious about that. It is not that I would be opposed to it, but if it is devolved it must be devolved at a price that does not put further pressure on an already pressurised public sector budget in Northern Ireland. We have lived with the cuts. I am not one of those who believes that because of Northern Ireland’s special circumstances we ought to be exempt from all of the financial difficulties that have to be faced by the rest of the people in the United Kingdom. I do not take that stance. It is an unreasonable stance for people from Northern Ireland to take.
We have lived with a £4 billion reduction in our budget in the next four years—a 40% reduction in the capital budget for expenditure in Northern Ireland in the four years. We have sought to ameliorate that by looking at what sources of revenue we could raise, what assets we could sell, how we could switch expenditure around, and where we could make savings. If, on top of that, as a result of the devolution of corporation tax, we were then hit with an additional burden—a burden that the Treasury estimates could be anything up to £500 million—that would not be either fair or sustainable. Given that the price would be paid immediately and the benefits would only be experienced in the medium term, that price would not be affordable. Nor would it produce, even in the medium term, the desired result of rebalancing the economy.
Of course that is true, but there is no point in devolving corporation tax if we are not going to do something about the rate of corporation tax. The whole idea is to try to give us the same advantage as there is across the land border in the Irish Republic. The estimated cost so far is approximately £500 million. However, we will be meeting the Minister and other Ministers soon to discuss this matter. There are ways of alleviating the cost of it. Built into it are indirect costs, for example assumptions about profit movements that Europe does not expect the Government to build in at this stage and, indeed, says could be looked at retrospectively once we see what happens. That would bring the bill down considerably.
No consideration has been given to the secondary effects, which my hon. Friend the Member for North Antrim mentioned, such as increased VAT, national insurance contributions and income tax. I am not holding out the begging bowl, but those are legitimate things that the Government could consider if they wish to aid and abet those of us in Northern Ireland who believe that it is important to change the balance in our economy. We must become less dependent on the public sector, and our economy must be more balanced and able to grow because of a strong, healthy, vibrant private sector that is not disadvantaged by a tax rate that is different from the one in other parts of the island.
The hon. Member for Tewkesbury rightly mentioned energy costs, which shows that he and his Committee have good soundings on the ground in Northern Ireland. High energy users in Northern Ireland are finding that we have the highest energy costs of any part of the United Kingdom. I do not want to name the high energy users: many are well known. I do not wish in any way to raise alarm about the situations in which they find themselves, but many are at present looking hard at their operations because of the rising cost of energy in Northern Ireland, with the carbon price floor being set by the Government. We can argue about whether all this is necessary: I am not getting into that debate, because hon. Members know that I probably take a different stance on these issues from many others. We could debate all day whether setting a carbon price floor is necessary to save the world in 50 years. All I can say is that when it does not exist in the Republic of Ireland or in many of our competitor countries, we are placed at a grave disadvantage.
Hon. Members should not forget that the Government are encouraging us to consider export markets, which we are doing, which means opening ourselves up to competition and competing in markets with firms that do not face these additional costs. I am not the only one saying this. Representatives throughout the UK are saying that it is having the same impact in their constituencies.
Having two of the major power stations in my constituency, I know this already. They are considering what their investment will be in future. In a single electricity market and with that interconnection with the Irish Republic, of course, we could find ourselves increasingly at the mercy of what happens in another country, with all the difficulties that that causes. The Government should consider what can be done with energy costs, because that is important.
On devolution of other tax powers, there may be occasions when we look specifically to have control over some things. I want to put on the record my appreciation, and that of the Northern Ireland Executive, for the work done by the Government on air passenger duty, particularly on direct long-haul flights from Northern Ireland—especially to north America—which was going to have an impact on our economy. Hon. Members have mentioned the importance of tourism, but it was not just about that; it was much more about the impact on foreign direct investment and inward investment, which was worth an awful lot in respect of our economic strategy. Around summertime last year, Northern Ireland Office Ministers worked with Treasury Ministers in the middle of the recess to get this thing resolved. It would be churlish not to show our appreciation for that work and for the way that it will now go through. That was an important measure.
I am not a great fan of devolution of more fiscal powers to the Northern Ireland Executive, but there will be occasions when we perhaps need to consider specific issues. I hope that a response will be forthcoming.
It is important to mention that the banking structure in Northern Ireland is not the same as in any other part of the United Kingdom. Some 95% of banking in Northern Ireland is done through Irish banks, which are in a poor state, or through Ulster Bank, which is an annexe of RBS. Many of the other banks that people have access to in the rest of the UK do not operate in any significant way in Northern Ireland. As a result, all the surveys about how businesses are faring in respect of banking show that Northern Ireland falls well below other parts of the UK, in respect of the terms that are offered, the availability or restriction of credit, or calling in loans.
If anything will crush the ability of the private sector to grow in Northern Ireland, it will be the absence of liquidity. The Northern Ireland Executive have considered various things, including loan guarantee funds, which the Department of Enterprise, Trade and Investment operates. We are considering how we can attract equity funds and what we can do to put some money into equity funds to get venture capital, especially for start-up businesses in Northern Ireland.
It is important that the banking sector operates properly in Northern Ireland. For example, here are some things that the Government could do. Why do we not have regional figures for how well Project Merlin is operating? I suspect that, although banks are meeting their targets throughout the UK, proportionally those targets are not being met in Northern Ireland. Could the Government do something in respect of credit easing? What could the Government do to ensure that the liquidity, which is generally pumped into the banking system, is reflected in the liquidity available to banks in Northern Ireland and, therefore, available to customers?
The banks tell me how few people they turn down when applying for loans. However, the small businesses that say they cannot access finance say that they are dissuaded, at the first hurdle, from applying for loans and are told that, if they did, they probably would not get them. A circular argument develops, with banks saying no one is asking and small businesses saying no one is getting.
That is one reason why, when one looks at all the business surveys and the terms offered for loans, compared to the rest of the UK—I had the figures here somewhere, but I cannot dig them up at the moment—some 10% more businesses in Northern Ireland are saying that terms for loans have worsened between 2007 and 2011. Of course, on top of that many businesses have huge debts associated with property.
I listened to the chairman of RBS the other morning on Radio 4 saying how the bank had brought down its bad property debts. That is good from the point of view of the bank’s record, but I know what that means in places such as Northern Ireland: a good, strong business with a core operation, but with some bad land loan attached to it, is squeezed to bring down the debt on the land and, in doing so, people are being put out of work and businesses are finding it impossible to expand, even where they have good markets. The Government have to address the banking issue in the longer run.
I will mention only one more thing, so that other Members have a chance to get in, and that is VAT. I understand Government reluctance to reduce the rate when VAT brings in a lot of revenue, but to do so would of course have very beneficial effects in stimulating the economy. The Government do not have to reduce VAT rates generally; specific reductions in the tourist sector, as in the Irish Republic, or in the building sector, so that people could put extensions on their houses and so on, could stimulate a lot of labour-intensive employment not only in those particular industries but wider afield—I am not saying for Northern Ireland specifically. Come the Budget, the Government should look at that.
Does the hon. Gentleman agree that the forthcoming Budget on 21 March is an opportunity for the Government and the Treasury to look at VAT? We are not coming from Northern Ireland with a begging bowl, but we would like to see some mitigation of VAT on tourism or general products. If that were possible, we would be extremely grateful.
As I said, a reduction should be targeted, and not at Northern Ireland in particular. For example, we are looking to grow tourism in Northern Ireland; we have great opportunities to do so over the next number of years, because it is one of the growth areas we have identified, but any such VAT reduction could benefit the whole United Kingdom,
As someone who values the Union, I do not want to see lots of the fiscal ties broken. Equally, I understand and said earlier that, if the home nation is facing particular difficulties, we must face them along with the rest. Being part of the Union and the Union family, however, also means that there is an obligation on that family: if there are specific problems in a particular part of the kingdom and remedies are available, those remedies must be given serious consideration. As a Unionist and as someone who believes that the Union is stronger when specific problems are recognised and action taken, I hope that the Government will respond positively to some of the suggestions made by me and other contributors to this debate.
I am glad to participate in the debate because rebalancing the economy of Northern Ireland has been on the agenda of my party and of many other parties for a considerable time. It must be realised, however, that the current economic climate—the challenges presented to public expenditure, the availability of finance from banks to fund growth in the private sector, including that of small and medium enterprises—has added urgency to the debate in recent years.
Others have laid out many of the statistics and problems, so I shall avoid repeating and rehearsing those arguments. It does bear saying, however, that the imbalance between the size of the public and private sectors in Northern Ireland is well documented, and it is not in the interests of the people of Northern Ireland to sustain that imbalance. I agree with the hon. Member for East Antrim (Sammy Wilson) that action to address the imbalance has to be focused on both growing the private sector and reforming the public sector to make it efficient, effective and supportive of growth. There are some good reasons why it would be foolish to pursue a project simply involving public sector cuts which, alone, cannot be the emphasis for reducing the overall imbalance. For example, the Northern Ireland economy is around 70% public sector in terms of gross value added or of gross domestic product, but public sector employment is around 30% of all employment. I acknowledge the mix of indices, but it illustrates that a quite significant element of our economy—probably more than a third and perhaps up to 40%—is effectively the private sector doing work for the public sector. The hon. Member for East Antrim referred to the effect of public sector efficiency savings on the private sector, which must be borne in mind as we consider how to rebalance the economy, its timing and how we phase any approach.
In my constituency, I have been told how public sector cuts and efficiency savings could, perversely, force contraction in some of the private sector, at least in the short term. We have already seen an example, which only this afternoon I raised with the hon. Member for East Antrim, in his other capacity in Northern Ireland; Departments seeking to reduce their expenditure are using Government-only facilities for training and so on. The impact is that many of the private conferencing centres, which have developed good business models, are being squeezed out, not because they are not competitive but because the impetus is to use Government and therefore subsidised facilities for training.
Over-reliance on the public sector is not good for Northern Ireland, leaving us more exposed and more vulnerable when there are public expenditure cuts than we would want to be the case. It can also have a dampening effect on business innovation, and the dynamics risk the absorption into the public sector of many of the graduates with the skills and abilities to set up their own businesses, because they believe it to be the more stable opportunity. The size of our public sector in Northern Ireland, compared with our private sector, can also create a clientist culture generally in society. When so many people directly or indirectly depend on the Government for their employment, the normal robust challenge faced by the Government from the private sector and others on economic policy can be dampened or squashed. People are afraid to challenge, because they recognise that their own jobs could be affected.
It is not possible to have a proper debate about rebalancing the Northern Ireland economy unless we also look at the rebalancing of the UK economy more generally. Northern Ireland is dependent on economic subvention from the UK Treasury, but it is important to recognise that only three UK regions are net contributors to the Treasury. Northern Ireland is the most dependent of the other nine, and the imbalance and the reasons for it need to be scrutinised carefully. Clearly, a more active regional policy is needed by the Government, to promote a more even distribution of economic activity throughout the UK. It is not sufficient to concentrate wealth creation in the south-east and for the Treasury then to redistribute the proceeds among the other regions; to do that has considerable implications not only for the economic prospects of the regions and the individuals who live there, but for the health and well-being of those residing in less economically active regions. There is a correlation between the degree to which regions are contributors to the Treasury and their level of dependence on the public sector. For example, the regions most heavily dependent on subvention are the most acutely affected by cuts in public sector spending and by welfare reform.
Currently, the overall GVA of Northern Ireland is around 80% of the UK average. Successive Governments have nominally committed policy to regional convergence, but London and the south-east are still regarded as the main drivers of the UK economy. It appears that Governments have traditionally put a much higher premium on protecting and maintaining that position and then tolerating financial subsidy and dependence than on giving regions greater autonomy to become sustainable in their own right. Many of the levers to address the imbalance in the Northern Ireland economy are devolved, and other Members have already reflected that. While the Assembly and the Executive have rightly prioritised the economy in their work, it is worth noting that the Northern Ireland Assembly currently has no real financial incentive to deliver economic growth, as the level of the block grant is set independently of considerations of economic change.
Devolution of some tax-varying powers linked directly to economic growth should therefore be considered, because they would be not only positive in their own right, as with corporation tax or air passenger duty, but a positive step in developing a responsible and normalised system of government in Northern Ireland, under which the Executive can make decisions that influence economic outcomes and will benefit financially from making the right decisions. Greater access to those financial levers could encourage and facilitate creative local solutions for economic growth and prosperity, if implemented carefully. I take on board the caution expressed by the hon. Member for East Antrim about the risks attendant on devolution, and I understand the need for robust engagement with the Treasury to ensure that whatever price tag is attached is fair and reasonable and will not blight the economy in another way.
Alliance is therefore generally supportive of the devolution of corporation tax in Northern Ireland. Although we recognise fully that that alone is not a silver bullet for the challenges facing our economy, the Executive can make and implement many other interventions to co-ordinate with it and help it rebuild the economy. As other hon. Members have recognised, revenue lost in the short term due to the lower rate of taxation would have to be met from the Northern Ireland block grant, under the terms of the Azores ruling in the European Court of Justice.
However, I firmly believe that without a reduction in corporation tax, there is little scope for a step change in Northern Ireland’s economic condition. Despite more than 15 reviews of Government economic strategies since the mid-1950s, there has been no substantial reduction in the performance deficit between Northern Ireland and the UK. It is therefore important that the Treasury works closely with the Executive to consider the case in an open and transparent way, in order to ensure that it is affordable and to build the confidence necessary to deliver it.
As well as making the case for a reduction in corporation tax, we must ensure continued investment across policy areas in Northern Ireland that have a strong impact on economic growth: capital investment, energy infrastructure, education and skills and research and development. It is vital that all those policy levers are fit for purpose and can be shown to produce the desired outcomes when the correct environment is created.
[Mr Lee Scott in the Chair]
My party colleague, the Northern Ireland Minister for Employment and Learning, is also focused on ensuring that skills are prioritised and developed, and has been working closely with others to deliver the economic strategy. The information and communications technology working group, for example, is bringing together the Department for Employment and Learning, the Department of Enterprise, Trade and Investment, Invest NI, universities, further education and businesses to consider skills shortages and mismatches and find a plan to address them.
Reclassifying tourism as a priority skills area—I will return to tourism later—changes the funding formula and has been done in recognition of tourism’s hugely increased potential from 2012 onwards. Research on potential changed skills needs under a lower level of corporation tax is also hugely important, as the kinds of job created by that reduction will be different from those we currently attract.
It is also important to note that Northern Ireland has had its largest increase in higher education places since 2000, and that they are all in science, technology, engineering and maths subjects. The role of science and technology in developing the economy has been given due recognition, and it is important that the Executive continue to do that. I say that not only as someone who was an engineer before becoming a politician but because I genuinely believe that science and technology hold opportunities to help regrow our economy and build on our strong base.
The Government have also started to consider the issue of air passenger duty, and I give them huge credit for how they have handled it. Differential rates across the land border with the Republic of Ireland created challenges for us in maintaining our direct international link with the US. The Government’s timely intervention was hugely helpful not only in maintaining that link, which is important for both tourism and business, but in keeping a base on which we can build for the future. That is just as important as retaining the current link. Long-haul flights have been dealt with, and a proposal is being considered to devolve the matter to the Assembly in order to allow them to consider future issues involving rates.
That is welcome, but we must also recognise the impact on regional connectivity, for example with the south-east, which is still the largest economic driver in the UK. We live in a region where the only option for business travel is flying. We pay a premium to access the south-east of England. Others can at least consider alternative means of transport, but that is not open to us, and it has a direct impact on our ability to grow the private sector. That continues to be a significant challenge, and I hope that the Government will consider it with a degree of sympathy.
The hon. Gentleman is one step ahead of me, as always. I thank him for bringing that point to my attention. I was about to say that the opportunity to consider aviation as part of the Committee’s future studies is hugely important, because we can look at the interconnectedness of all aspects in terms of the economy and the ability to deliver new opportunities for Northern Ireland.
Another area in which Westminster has at least some control is banking, although, as the hon. Member for East Antrim indicated, that control is perhaps not as extensive as we would wish. Much has been said already that I do not wish to rehash. I will simply say that access to finance for growth continues to be a significant challenge for the private sector. Companies that are not just viable but extremely competitive, even in a difficult economic climate, and which wish to have liquidity in order to expand are finding it incredibly difficult. Even the figures that we can access in order to determine how well banks are distributing the money available are so opaque that it is difficult to hold banks to account. I mentioned in an intervention the circular argument being delivered. On one hand, banks say that money is available but that no one is applying; on the other hand, businesses say that they are being dissuaded even from applying. We need to cut through that and find out exactly what the situation is.
I will touch briefly on a couple of other economic issues. VAT has been mentioned. For a long time, my party has supported reducing VAT on renovations. We believe not only that it is environmentally sustainable but that it would help boost the local construction sector and create employment and jobs, allowing people to adapt their homes at a time when moving home is often not an option because they are trapped in negative equity. That option should be considered. I urge the Treasury to examine its potential impact carefully.
The differential rates of VAT between hotels in Northern Ireland and in the south must also be considered. Currently, VAT for hotel services is 20% in the UK, but about 9% in the Republic. The need to attract investment and encourage home-grown business is paramount to growing our economy and bringing opportunities for employment, and tourism is a hugely important part of that strategy for growth.
In my constituency, 2012 is an important year for tourism, with the centenary of the Titanic and the opening of the Titanic Belfast visitor centre. That is just one example of the opportunities out there. Many other Members are equally enthusiastic about the opportunities in their constituencies, and some have already exploited the opportunity in this debate to promote them with no shame. I do not blame them at all, because I wish to do the same for my constituency.
However, hotels in Northern Ireland, particularly those near the border, face a competitive disadvantage that makes life difficult. Given Northern Ireland’s extremely positive reviews as a destination and the success of our golfers on the international stage, among other things, investment and support in the tourism sector would bring tangible benefits. I have referred to the fact that it is a priority skills area, which has created a step change in preparing people for employment. However, a VAT reduction would even up the playing field, resulting in long-term tax gains and supporting the strategy being developed by the Executive to grow our tourism industry.
The hon. Member for South Down (Ms Ritchie) mentioned the aggregates levy and some other areas where the land border and direct competition affect Northern Ireland business. Flexibility on such issues is needed. We cannot expect to be treated differently on all occasions, but some issues are significantly different in Northern Ireland and need to be considered in that context.
Several Members mentioned energy costs. It is important to recognise their impact, particularly on large energy-reliant businesses. They also have a general dampening effect on the economy, as energy bills eat a lot of profit that could be reinvested in other growth within business. However, there are opportunities to create new jobs. Although I agree with the hon. Member for East Antrim about energy costs, I know that he is perhaps less enthusiastic than I am about the green agenda. However, I do not think that he opposes creating new jobs in renewables, given Northern Ireland’s rich natural resources and strong research and manufacturing base. As the environment is one of the economy’s fastest growing sectors, embracing green energy technology will bring jobs to Northern Ireland, whether in building wind turbines or in harnessing local tidal and wave technology.
Research and development of renewable energy is a lucrative sector in Northern Ireland, and can become even more so. Opportunities for close working between the Department of Enterprise, Trade and Investment, the Department for Employment in Northern Ireland, and the Department for Business, Innovation and Skills to try to develop that sector have real potential.
There are good news stories in the Northern Ireland economy. The hon. Member for East Antrim mentioned Bombardier.
Does the hon. Lady agree that it is encouraging that the Northern Ireland Executive have set out in their programme for the Assembly’s next term their aim to encourage industry to achieve 20% of electricity consumption from renewable sources? That is ambitious, and to be commended.
I certainly commend that. If one is ambitious, there is always the risk of failure, but if one is pessimistic and the bar is not set high enough, no one reaches out and there is often under-achievement. It is good that the Executive have set robust targets. It is good for the environment, and for the economy, and it is important for our local engineering base that we continue to do that. Harland and Wolff in my constituency invests quite a lot of time in renewables, and has reinvigorated a site that is providing sustainable employment for the future. That is a model that should go forward.
In my constituency, Bombardier’s work in creating employment during these challenging economic times has been impressive. The hon. Member for North Antrim (Ian Paisley) is still present, so I will name-check Wrightbus and its work with the Routemaster bus system, even here in London. It is novel to see a London bus being driven through County Antrim or County Down while it is being trialled, but it shows that Northern Ireland has something to contribute to the wider economy, and that is positive.
I want to close with an issue that is particularly close to my heart: the impact on the Northern Ireland economy of the sad reality that even so long after the Good Friday agreement and the St Andrew’s agreement, we still live in a deeply divided and segregated society. There has been huge progress and forward momentum in Northern Ireland in recent years through the political process, and I believe that we should celebrate and recognise that progress, because it holds great hope for the future.
Northern Ireland has been entirely transformed from the place where I grew up in the 1970s, but it would be wrong to gloss over or ignore the significant challenges that remain as a legacy of the past. The first Northern Ireland peace monitoring report was issued yesterday, and sets out the extent to which division and segregation still impact on society. It comments positively on the stability of the political institutions, the reduction in the general level of violence, and the emergence of what the report describes as
“a confident and neutral urban culture”,
typified by the number of people who identify their city centres as both safe and shared. However, sadly, it also highlighted the degree to which paramilitarism is still a threat, the lack of a strategy for reconciliation and dealing with the past and its legacy, and the degree to which Northern Ireland remains a divided society at every level.
Much of the responsibility for tackling that segregation is a devolved issue, but it is impossible to rebalance the Northern Ireland economy and to grow our private sector without looking at the degree to which segregation impacts on our economic competitiveness as a region. A divided society costs us in many ways. Divisions damage us at the human level, and limit people’s opportunities to mix with one another and to develop their social potential. They also hurt us socially; it is no accident that there is a high correlation between segregation and deprivation. We cannot ignore that if we are meaningfully to tackle social and economic deprivation. Divisions also hurt us environmentally. The Royal Institution of Chartered Surveyors argues that the divisions in Northern Ireland impact on our carbon footprint, which is one of the worst of any region of the UK, even those that also have significant rurality.
Divisions hurt us economically, hindering our labour market mobility, and acting as a deterrent to tourism and investment. They continue to limit somewhat our ability to attract and maintain the top talent. Finally and crucially, divisions cost us financially. My party, Alliance, estimated some time ago that the financial costs of division are around £1 billion per annum, and that figure was substantially validated by the Deloitte report in 2007, which suggested an upper estimate of £1.5 billion.
The costs of a divided society are apparent in a number of respects. There are direct costs for policing riots, civil disturbances and parades, as well as distortions to policing from the security threat, and costs for a wide range of agencies in repairing damaged buildings and facilities. Indirect costs include providing duplicate goods, facilities and services for separate sections of our community, either implicitly or explicitly, including a wide range of services such as schools, GPs surgeries, jobcentres, community centres, leisure centres and so on. Those costs are borne not just by the public sector, but by the private sector, and they act as a drag on development. Related to those indirect costs are hidden factors linked to divisions that impact upon the cost environment that Departments, agencies and businesses must respond to. There are opportunity costs of lost inward investment and tourism. The Northern Ireland economy has undoubtedly performed better in recent years, but it is still well below its potential capacity.
I believe strongly that there are moral and social imperatives for tackling sectarianism and segregation, but there are clearly also economic and financial imperatives. In the context of current financial pressures, the need for an overall strategy to look at government in Northern Ireland and to seek reform and efficiencies, not within existing divided structures, which could simply further balkanise the community, but in a way that increases sharing and co-operation, is a hugely important part of reinvigorating our economy, rebuilding our community, placing services on a more sustainable footing socially, environmentally and economically going forward, and making Northern Ireland a more attractive place in which to live, work and invest.
Those are primarily matters for the Executive, but the impact is significant in the context of this discussion. Any pressure and support from this place that can be brought to bear on the Executive in terms of delivering on that agenda will be hugely important. I believe that Northern Ireland has the potential to turn the economy round. I believe that the opportunity to rebalance it exists, and that now is the time to unlock that potential.
It is a pleasure to take part in this debate under your chairmanship, Mr Scott. I agree with much that has been said. There is great consensus among Northern Ireland Members on all sides. I welcome the Select Committee’s excellent work on air passenger duty and corporation tax, which is the context in which this debate is taking place. The reports have been helpful to the debate, and I commend the Select Committee’s Chair and members on what has been achieved so far.
It is right to begin by putting on the record and endorsing what my hon. Friend the Member for East Antrim (Sammy Wilson) said about the importance of the link between Northern Ireland and the rest of the United Kingdom, because the matter must be put into the context of the enormous advantages that Northern Ireland gains from being part of the United Kingdom. That comment may not receive total consensus in Northern Ireland, but given what we have seen of the eurozone crisis and the impact of the global financial situation, being part of a much bigger economy—the United Kingdom economy—and out of the eurozone has been of enormous benefit to the United Kingdom and Northern Ireland. I commend the Government on that and, indeed, a previous Government who decided to stay out of the eurozone—certain sections decided to stay out and the then Prime Minister had to go along with that. It is important to say that at the outset.
It is also important to put on the record the fact that many good things are happening in Northern Ireland’s economy. We have many advantages, and as a former Minister of Enterprise, Trade and Investment back in the early days of the restoration of devolution, I became well versed in repeating those advantages in meetings with potential investors and others. It is worth putting on the record the fact that Northern Ireland attracts the second highest amount of foreign direct investment of any region of the United Kingdom outside London and the south-east. That is a phenomenal achievement. Our population is 2.8% of that of the UK, but we receive 7% of the foreign direct investment that comes in to the United Kingdom. Invest Northern Ireland and those who work in the Department of Enterprise, Trade and Investment deserve credit for their work.
We have a relatively young, well-educated work force and, as has been mentioned, good competitive costs. We have a low rate of attrition in work force turnover; workers are loyal to their employers, and by and large, the infrastructure is good. I was delighted to hear the recent announcement about more investment in our roads. Northern Ireland is on the peripheries of the United Kingdom, but when looking at its own peripheral areas—indeed, those of any country—there is no doubt that the biggest single boost that can be given to the economy is investment in infrastructure. We will get people, particularly young people, to stay in those areas only if there are good transport links and it is easy for them to move freely, work in those areas and get their goods to market elsewhere.
The roll-out of superfast broadband is one of the Government’s priorities, and the situation in Northern Ireland is one of the best in the United Kingdom, with extremely good coverage across the Province. As the Secretary of State for Culture, Media and Sport said the other day in a response to my question on that issue, Northern Ireland is well ahead of other parts of the United Kingdom, which is a positive point.
Air links have been mentioned, and it is important to stress the significance of Northern Ireland’s dependence on the Heathrow link, given that we do not have alternatives such as rail. On the sale of BMI, the takeover bid has been launched, and I understand that International Airlines Group is the preferred bidder. A process is under way to look at that, and we need a meeting with the group’s chief executive and others to discuss the takeover. From both a tourism and business point of view, we must recognise Northern Ireland’s dependence on the maintenance of strong links between Belfast, Northern Ireland, and London, Heathrow, which is the still the main hub for long-haul business travel.
I do not mean to run down other air links involving low-cost airlines that fly to Gatwick, Stansted or Luton, because such links are important and serve different sectors of the market. However, if we want to ensure good links with business, we must maintain the connection with Heathrow. At the same time, we must develop direct long-haul routes out of Belfast, and I wish to put on the record our thanks to the Government and note the tremendous work that was done at local executive level in Northern Ireland and at Westminster—particularly in the Treasury—to deal with air passenger duty and maintain the link between Belfast and Newark, New Jersey.
The Northern Ireland Executive are committed to growing the private sector and supporting innovation, research and development, and creativity. They have set out plans to support £300 million of investment by business in R and D, to help 500 businesses to undertake R and D for the first time, and to support 200 projects through the creative industries innovation fund by 2015. That support has been set out in the programme for government and by the Department of Enterprise, Trade and Investment.
On skills and employability, the plans are to increase to 70% the proportion of young people who leave school having achieved at least five GCSEs at grade A to C, or the equivalent, including in English and maths; to deliver 210,000 qualifications at levels 2, 3, 4 and above by 2015, through further or higher education and essential skills training; to increase skills in subjects that are important to the Northern Ireland economy, such as science, technology, engineering and mathematics, and implement actions within the STEM strategy; and to improve support for companies and increase the number of people who gain skills in management and leadership. The Northern Ireland Executive have made important commitments to place growing the economy at the centre of the programme for government.
On business growth, the plans are to promote £330 million of investment and 6,300 jobs in locally owned companies—with 50% paying salaries above the private sector median—and a further 6,500 new jobs in new start-up businesses; to support projects that improve competitiveness, encourage diversification of the rural economy, improve the quality of life in rural areas and protect and enhance the environment, including through the introduction of national parks; and to invest in social enterprise growth.
I want to put on the record that in Northern Ireland, the Executive and political parties are working together to promote growth in the private sector and the economy. We do not come to this debate simply to set out the needs and challenges of Northern Ireland, although there are many. The hon. Member for Belfast East (Naomi Long) referred earlier to the division and segregation that continues to exist. Sadly, in many areas, such divisions will continue for the foreseeable future. We in Northern Ireland have come through difficult challenges and problems that cannot be dealt with or swept away in a matter of years or during the term of one Government, either in the Assembly or at Westminster. In many cases, those challenges will take generations to sort out.
The good thing, however, and the message that goes out from Northern Ireland is that although parties may be opposed on some of the details—we have seen a flavour of that today and with certain parties who do not take their seats in this place—and we are diametrically opposed on many issues, for the first time in generations, indeed decades, we are working together within the context of the locally elected Assembly to try to make life better for the people of Northern Ireland whom we represent.
Today, most of the debates that take place in the Assembly, or in this place, are on economic and social matters, rather than the issues that used to blight us—those of violence, terrorism and political uncertainty. Those issues have not entirely gone away, and we are conscious of the threat from dissident terrorists. The good work done by Invest Northern Ireland, Tourism Ireland and the Northern Ireland Tourist Board could be undermined by a bomb planted somewhere, or if some incident takes place and gets into the headlines. When people see such things on the news they believe that the entire area or Province is up in flames—far from it. That was not true even during the bad times and the troubles, but such incidents can do a lot to undermine confidence and deter visitors or investment.
We must bear down strongly on dissident terrorism, and I welcome the Government’s recognition that terrorism within Northern Ireland from dissident republicans should be viewed as a high priority in terms of the security threat. Although the focus, particularly during the run-up to the Olympics, is on the threat from extremist Islamists and others, there is still a threat within the United Kingdom from dissident republicans. However, that threat is being tackled, and the Treasury gave extra money—some £200 million—to the Northern Ireland Executive for that.
Does the right hon. Gentleman agree that the security response is a hugely important part of the response to paramilitarism? We also need an economic response to help people invest more in their communities and get better jobs, which they do not want to see destroyed. That would be another way to insulate communities against paramilitarism and protect young people from being drawn into paramilitary activity.
The hon. Lady is absolutely right. She represents the constituency of Belfast East, and I represent Belfast North, which has more of the so-called peace walls than any other constituency. She and I share many of the challenges that come with representing a Belfast constituency and inner city areas, and I totally agree with what she said.
I was talking about tourism and the impact that violence on our TV screens has on attracting visitors. I believe, however, that the tourism industry has great potential to help grow the private sector. When the troubles—the violence—started in the late 1960s, the number of visitors coming to Northern Ireland, which had been growing very much during the ’60s, dropped off massively overnight and stayed at that very low base for 30 to 40 years. There is massive potential to grow the numbers back to what they were previously. We are not even back to that point yet.
As the right hon. Gentleman says, there is further potential to be developed in relation to tourism. Does he agree that part of what is required is the development of the product assets themselves, as opposed to the marketing of them? If we develop the assets, we will ensure that marketing flows from that.
The hon. Lady has a point, but I think that it is a matter of doing both. We must have the product. That is why the number of signature projects that have been and are being developed in Northern Ireland is extremely important. Then, as everyone knows, we have to get out there and sell the product. We need a combination of both.
I congratulate the Executive on their aim to have, by the end of December 2013, 3.6 million visitors coming to Northern Ireland, with a revenue of £625 million. That will provide a major boost to employment. We are talking about investment in product. The Titanic signature project, which has been referred to and which opens on 31 March, is a very significant addition to the tourism product in Northern Ireland.
I am reflecting on the first meeting of the Northern Ireland Executive in 2007, after devolution was restored. The first item of major expenditure brought to the table was a proposal that I brought to invest and commit public funds, alongside private investment and European funds, to the Titanic signature project. I am delighted that that has come to fruition. Along with some other projects, it was derided, criticised and picked over at the time, but everyone now agrees that it will probably be the biggest tourist draw on the island of Ireland, apart from the natural attractions, such as the Giant’s Causeway. It will be a massive addition to the tourism product. That was a far-reaching and visionary decision of the Northern Ireland Executive, taken at one of their first meetings in 2007.
The right hon. Gentleman has been generous about taking interventions. Does he agree that, as is so often the case, there is still negativity, even about such important and positive projects, and that part of what we need to do is not just to market these things internationally to potential visitors, but to engage in some selling of confidence to local people that we can attract the tourist numbers required to sustain them? We need to build self-belief again in the people of Northern Ireland. We need to build the belief in them that it is a good place—a place worth visiting—so that they become ambassadors for the product that we have.
I agree. My hon. Friend the Member for East Antrim referred earlier to cynicism. I do not fault him for that. It is right to be cynical at times, especially when dealing with statistics, facts and figures coming from the Government and so on. It is right to interrogate people about that, but over the years there has been a tendency for cynicism to be almost the natural reaction to anything happening in Northern Ireland. To be frank, sometimes our local media do not help. There is a sense in which everything that happens is to be criticised and picked over, particularly in Northern Ireland. There is always someone there to do that.
With regard to the Titanic signature project, a report came out recently from the audit people saying, “We’re not quite sure how this will all work out. We’re not too sure, because we don’t know how many visitors are going to come.” Well, we could have told them that without doing all that work. Of course there are issues to be looked at, but we must take some risks in trying to develop the private sector. That is the key point. Sometimes people say, “Oh, you’ve wasted this money and wasted that money. You’ve invested too much money in this and put too much money into that.” Well, if we are to develop the private sector, we must encourage private investment, but sometimes we have to prime the pump. That will require some public investment, and it sometimes does not work out in exactly the way that we wish. That is part of the business of creating growth.
I am conscious that other hon. Members wish to speak. I will not take up too much more time, but I want to support the call, in the run-up to the Budget, for the Government here to help. I believe that there is a strong case, as the hon. Member for Belfast East said, for a VAT cut in relation to renovations, because the construction industry is a major employer in Northern Ireland. Proportionately, it is much more important there than it is elsewhere in the United Kingdom. In 2007, 46,800 people were employed in our construction sector. By September 2011, the number was down to 32,800.
Again, the Northern Ireland Executive have done their bit. The amount of capital investment that is going in now—that has been brought forward and speeded up—is significant. The recent announcement by the Minister of Finance and Personnel—my hon. Friend the Member for East Antrim—of an extra £600 million was significant. However, something such as a cut to the VAT rate on renovations would help us in Northern Ireland.
Also relevant are the effects of high energy prices and the high price of fuel and diesel in Northern Ireland on the economy locally. That is having a big impact on the haulage industry—on the private sector, never mind household budgets. The issue has been debated on a number of occasions recently and has also been raised at Prime Minister’s Question Time. The fact is that people and businesses in Northern Ireland are paying a higher price for petrol and diesel than people in any other region of the European Union. If we are talking about rebalancing the economy and growing the private sector in Northern Ireland, that must be examined. Something must be done about it. When we add to it the high cost of car insurance, which is well above what people in the rest of the United Kingdom pay, and the high cost of energy generally, we have a case for saying that if we are to rebalance the economy, those things need to be addressed.
The issue of the banks and access to finance has been raised. I will not go into more detail on that, but I will draw the attention of the House to a couple of cases in my constituency. Recently, a couple of business men have come to me in despair. One of the businesses has now gone out of business completely—it had to fold. The other is struggling on. In both cases, the bank, having agreed a lending regime with them—this was the Ulster bank, part of RBS—came to them and said, “Well, we have this arrangement in place. You’re servicing your debt. That’s all very well, but we now need you to reduce overall the amount of your overdraft by x hundred thousand pounds.” They were not massive figures in the scheme of things, but they were massive to those businesses. The bank said, “We now need you to reduce your overdraft by x hundred thousand pounds. We want that by the end of two months. If you don’t do it, we’re going to say, ‘That’s it. We’re not going to lend to you any more.’” Those business men came to me in despair—“How are we to get this money?” They gathered money from friends and relatives and from savings and selling things off. Then the bank came back to them and said, “Well, you’ve been able to do that. You can go a bit further. We’re now asking for an extra amount of money.”
As I said, a company in my constituency, right on one of the peace lines, in a very highly deprived area, employing some 25 people, was out of business as of last month. The guy who owned that business is now working as a sales rep for another company elsewhere. The banks have a very heavy responsibility in this, and it is all done to reduce their outlay. It is all driven at headquarters level. People meet the banks and they say, “We’re sorry. There’s nothing we can do. This is the policy. We’re told that we have to do it.” It is driving some businesses that are totally viable—they could trade away, work away and provide employment—out of business. That is a deplorable situation.
The Government have talked about the importance of rebalancing the economy. The Secretary of State for Northern Ireland has talked about that a lot. He has talked about the creation of an enterprise zone in Northern Ireland. I am delighted to see here the shadow Secretary of State, the hon. Member for Gedling (Vernon Coaker), and his deputy, the hon. Member for Ealing North (Stephen Pound). I note that neither the Secretary of State nor the Minister of State is here. I regret that, because the Secretary of State has talked a lot about—he has made it his priority—the creation of an enterprise zone for Northern Ireland. When we have queried what the creation of an enterprise zone actually means, it has appeared to mean Northern Ireland being open for business. It does not appear to amount to anything definite or concrete, other than his reliance on a cut in corporation tax.
In that context, let me raise the importance of regional aid in addressing the special circumstances in Northern Ireland. Currently, Northern Ireland has 100% assisted area status, but the Department for Business, Innovation and Skills is intent on removing that, while the Treasury is claiming that it is doing all that it can to rebalance the economy. BIS says that there is no longer an economic rationale to support Northern Ireland retaining its 100% assisted area status, but that fails to recognise the ongoing and unique situation in Northern Ireland, which has been outlined in great detail here today and is not experienced in any other region of the United Kingdom. It is particularly concerning that moves are being taken to remove our 100% assisted area status at a time when a consultation on rebalancing the economy is under way. It is inconceivable that while one part of the UK Government are seeking to rebalance the Northern Ireland economy, or grow our private sector, another part is taking steps that will have a significant detrimental effect on our ability to encourage private sector growth.
The potential loss of Northern Ireland’s 100% assisted area status impacts on our ability to progress the UK Government’s enterprise zone policy, particularly the capital allowance element, which is based on zones being within assisted areas for the five years from 2012. There are concerns, too, about proposals coming from the European Commission regarding assistance and regional aid being paid to large companies that are located in areas such as Northern Ireland. Any steps to remove regional aid for large companies would have a severe detrimental impact on Northern Ireland’s ability to support business competitiveness and to attract foreign direct investment. The Enterprise Minister in Northern Ireland is concerned about this matter and has been in regular contact with BIS, but if we are talking about rebalancing the economy and growing the private sector, all sections of the Government must do their bit. The Northern Ireland Assembly is, I believe, putting private sector growth at the heart of the programme for government. We will see in the forthcoming Budget what proposals come forward. Above all, though, BIS must do what it can to help.
I urge the Minister to work with his colleagues in BIS and the Northern Ireland Assembly to address the issues that have been outlined today, so that together we can grow the economy and make life better for all our people in Northern Ireland.
I welcome the chance to speak in this debate under your chairmanship, Mr Scott, and to put some of the challenges facing the Northern Ireland economy on the record of the House of Commons. I am very conscious of the time, so I will try to make my points without being quite as long-winded as some of my colleagues—[Interruption.] I am not talking about my hon. Friend the Member for South Down (Ms Ritchie)—[Interruption.] No. I was talking about the right hon. and hon. Gentlemen sitting to my right, who were eloquent but very long-winded.
The SDLP has long argued for—and indeed published—a series of constructive proposals and policies, which we believe go some way towards helping to build a reconciled, socially just and more prosperous society in Northern Ireland. Central to delivering sustained economic prosperity is the need for significant growth in the private sector. We are all agreed on that and I have not heard anyone here today saying anything different. However, as the hon. Member for East Antrim (Sammy Wilson) and the right hon. Member for Belfast North (Mr Dodds) have said, the banks are killing the private sector, and that includes Ulster bank, which is part of the RBS. Like others here, I get at least two or three problems a week relating to Ulster bank and RBS. Our private sector is shrinking.
One other issue that we need to consider—sometimes in the political context, this is difficult for some of my colleagues—is a much more proactive approach to building stronger business and trade links with business in the Irish Republic. We have not fully exploited every potential there or taken full advantage of every economic opportunity that exists in the island of Ireland as a whole. I want to see Northern business being able to take advantage of any market on the island. That does not preclude our belonging to the British market; the two things are not incompatible, but synergistic.
Achieving the growth in the private sector that we all so much desire is extremely challenging, particularly in the current financial climate, but it is a challenge that we must face and a problem that we must surmount. We cannot duck it, because it will not go away.
I am absolutely delighted to say that my friend, the hon. Member for East Antrim and the Minister for Finance at Stormont has complimented us on our fantastic documents—[Interruption.] Fantastic was the word he used. We appreciated it and we will return the favour in due course. Our documents, “New Priorities in Difficult Times” and “Partnership and Economic Recovery”—[Interruption.] No, no, the word was fantastic. The hon. Gentleman may have meant fantasist but he said fantastic. We are not looking for the negative; we are taking the positive. In those documents, the SDLP genuinely identified some of the tough choices and decisions that have to be made. We faced up to them and we should have been given credit for that rather than being abused for it. We pointed out the many opportunities for making public savings and how various types of jobs could be sustained and others could be created.
If we want to maximise the potential benefits that exist in the economy, we need to be ambitious and to exercise vision. In our document, we identified opportunities and potential for growth in education and skills training, finance, tourism and new technologies, including the biotech and nanotechnology areas.
The one area that I should like to bring to the Chamber’s attention is agrifood, which is a sector that we often forget about. It is an old industry. It is remarkable that the current Minister in the Irish Republic, Simon Coveney, has a plan, which he inherited from the previous Government when Brendan Smith was Minister for Agriculture, to double food exports within 10 years. There is no reason why we in Northern Ireland cannot take a leaf out of that book and do the same thing.
There are other aspects of the economy, such as renewable energy, which will help drive the expansion of the private sector. Others have already referred to the conversion of the old Harland and Wolff shipyard site in which many renewable energy machines, wind turbines, are being developed. That will not only reduce Northern Ireland’s dependence on fossil fuels, but put us in a stronger and more sustainable position economically in 10 or 15 years time.
If we are to attract greater foreign investment, we must invest in preparing our people, because that is the basic building block for rebalancing any economy. Others, particularly the hon. Member for Belfast East (Naomi Long), have also made reference to that. The key is the STEM subjects— science, technology, engineering and maths—in our schools, because they are our bridge to creating exciting and interesting careers for our young people. We also need to increase university places to stop the brain drain. At the moment, people are leaving; they go to England, Scotland, Wales or elsewhere to university and they never come back. We need whatever brainpower we have if we are going to lift ourselves out of the situation that we are in.
On that point, I appeal for a significant expansion of the Magee campus of the university of Ulster. That campus has worked very well, it is working well and it can work even better, providing an engine to drive forward the economy, particularly the economy west of the River Bann.
Huge opportunities for innovation exist in the renewable sector, which I will discuss briefly. Northern Ireland is perfectly placed to harness wind and wave energy, and biomass and biogas. And God knows, Mr Scott, that if you were in Stormont you would understand why an industrialist has a plan to harness all the hot air coming out of Stormont on Mondays and Tuesdays. There is a conviction that much renewable energy can be captured there, but I will leave that to the future.
I have never been afraid of hard work, and I can be wherever I am needed, whenever I am needed.
Maximising all that renewable energy will not only reduce our dependency on fossil fuels but it can be a key economic driver, and not just in Northern Ireland but on the island as a whole, where we have a single energy market. My hon. Friend the Member for South Down has talked about corporation tax; I will not delay proceedings by repeating the issues about corporation tax, but they are there. I took part in the Northern Ireland Committee when it discussed corporation tax and I commend the Chairman, the hon. Member for Tewkesbury (Mr Robertson), for his outstanding chairmanship and for delivering the report on corporation tax, as well as the report on air passenger duty. We produced the report on APD in a remarkably short time; I think that three or four weeks was all the time it took to produce it.
As I say, my hon. Friend the Member for South Down covered a lot of the points about corporation tax and the economic benefits, and I will not use the precious time left to me to repeat those points. APD is an area where the private sector is disproportionately hammered. Because a business happens to be in Northern Ireland, it should not be crucified in terms of the cost of transport links with the US and the continent.
Beyond corporation tax, the SDLP is keen to explore some possibility of creating bonds, and I certainly want to see a bond of £400 million or £500 million that could be used to pump-prime the construction industry in Northern Ireland. I have no doubt that there are ways and means by which that bond could be developed, but I will leave discussion of those ways and means until another day. Such a bond would allow our construction firms to get up off their knees and begin to build the schools, hospitals and the road infrastructure that we need. Yes, we would have to pay such a bond back, but it would be easier paying it back if we had the functioning infrastructure there in Northern Ireland. Such a bond would remove many of the bottlenecks that currently exist in our economy, allowing the dysfunctional parts of the economy to function again.
We have also been working with local companies, Invest Northern Ireland and the European Commission to find ways and means of successfully unlocking European research and development funds. Certainly framework 7, as it enters its last years, offers tremendous opportunities for research and development, and framework 8 will no doubt do the same. Unlocking funds for research and development would help to boost business links, the private sector and university spin-outs.
We need to grow the private sector rapidly, but I agree with the hon. Member for East Antrim that it is a question not of dismantling the public sector but of growing the private sector five-fold or six-fold. It is only by being ambitious and courageous in our thinking, our planning and our building of dynamic partnerships between business, Government and the education sector that we will become equipped to compete successfully in global markets in the future.
Before I end, I will repeat a point I made earlier, which was also made by a number of Members, particularly the hon. Member for East Antrim, regarding the banks. The banks are a disaster, and small businesses are being crucified and put out of business. Our single biggest challenge is a lack of liquidity in the banking system. I have experienced it myself—cheques are being bounced and companies are being driven into administration and bankruptcy. That is not good for the economy. In many cases, those companies are viable but they are being put to the wall. If anything can come out of this debate today, it is that we have to get some mechanism for tackling the banks.
I too will try to keep my remarks brief, to coincide with time as it runs out before us.
At the outset of my comments, I congratulate the hon. Member for Tewkesbury (Mr Robertson) on the very positive way that he introduced this debate. He did not put a foot wrong in making his comments about our economy. He also indicated that we are all signed up to these issues and that there are issues that we can find commonality upon and that we should be able to move forward on. If that is so, as I believe it is, we need to do that with haste and make progress. I welcome this debate on the economy and how we try to address some of the issues.
Many Members have referred to the fact that Northern Ireland is a happy region of the United Kingdom. Of course I agree with them, but I think that that actually says something about the potential of our country. The fact is that the political and constitutional issues that bestrode us for so long have been settled. We have a settled country now, and we have the ability to focus on our economic needs and the opportunity to flourish economically. We have an opportunity to seize the moment and take our country forward.
Those who talk down our economy should be dismissed. I do not say that lightly, but I believe that our First Minister was correct when he made the comment last week that we should not glibly talk down the economy and the advances that Northern Ireland has made. Northern Ireland has moved on in leaps and bounds, which are noticeable in our children and in economic terms. We should recognise and welcome that. I believe that we have a duty—nay, a responsibility—to realise and deliver the potential that Northern Ireland has, and constantly talking Northern Ireland down is bad for the economy. I believe that today is the day when we must stand up and be counted for Northern Ireland, and I hope that we can do so.
We must be honest in doing all that, however, and Members have said that there are difficulties, that there has been disadvantage and that we have a legacy of violence. Of course we have to build on the fact that Northern Ireland faced decades of under-investment because of that legacy of violence, and we must address that legacy. But we are turning the page.
I had the joy one night of trying to answer a question that my daughter put to me. She is a teenager and she said, “Daddy, what were the troubles?” What a question to be asked as someone who grew up in the troubles and who knew, as a 15-year-old, why soldiers were being killed and murdered on our streets, why businesses were being put out of business and why our country was being torn apart? Today, 15 or 16-year-olds ask, “What were the troubles?” The fact of the matter is that our violent history has now become a foreign country. That is a good thing, and we should see it as a building block and something that gives us the momentum to move forward. I hope that we can move forward.
We have a land border problem with the Republic of Ireland where there is competition, but again that is an opportunity that we should address. Many Members have talked about the energy costs that our country faces and about how they create major disadvantage. We know those things, and we have to work in the context of those things.
I am delighted that many Members have referred today to the economic and tourism initiatives in my constituency, which is the most tourist-friendly part of the entire United Kingdom.
The hon. Lady is crying “nonsense”, but she invited people to come to St Patrick’s country. In fact, the only place where St Patrick put his feet was on Slemish mountain, so I welcome her to come to North Antrim any time, and I also welcome those tourists who want to come to North Antrim.
The golf resort that has been mentioned fits in with our Department for Regional Development strategy, our tourism strategy and the various economic strategies that have been put in place. It offers vast potential, but it does so 10 years after that potential was first identified. It offers that potential at a time now with approvals, when the economic climate has changed quite dramatically. But I believe that people are up to meeting the challenge, and I hope that Government will encourage them.
Again, those people who would talk that project down and say, “Oh, it’s not the time for that type of proposal,” or, “It’s destructive of our natural environment,” really have to be put in their place by our national Government, who can say to the likes of those organisations that may be opposed to the project, “Look, do you want Northern Ireland to go forward? Are you on the side of Northern Ireland? Or do you want to be in that bank of people who talk the place down?” I hope that we can get a collective view, and I congratulate the SDLP Minister who was able to get the case over the line, but he addressed, and people must address, the fact that many misnomers have been identified.
Some people said, “Oh, this is being built on the Giant’s Causeway.” It is not. It is closer to Bushmills than to the Giant’s Causeway. A public representative today issued a statement that houses would be dotted all over the causeway. That is rubbish. They are being built in the curtilage of Bushmills village. The previous Environment Minister, my hon. Friend the Member for East Antrim (Sammy Wilson), made sure that that was in the proposal.
I agree that someone might identify that as hypocritical. I do not know whether my hon. Friend is calling the National Trust a hypocrite, but it has not yet publicly objected. There could be suggestions of an objection. That would set things back, and we must avoid that at all costs. I welcome the fact that there will be even more holy ground in the golf mecca of North Antrim.
The hon. Member for Belfast East (Naomi Long) rightly, and with pride, mentioned Wrightbus in my constituency. When I walk down Whitehall in the morning and I see dozens of bits of Ballymena passing by in bright red, it fills me with pride that that represents 1,000 jobs in Ulster. I hope that the Minister will go to Boris, the Mayor of London, and say, “Increase that order. Get the 200 buses out there. Make sure that those buses continue to roll off the production line in Northern Ireland and generate more jobs.” It fills me with pride.
A couple of years ago, I had the opportunity to visit Hong Kong, where I saw double-decker buses that were made in Northern Ireland. We were not importing from but exporting to Asia, and that is fantastic. That is the way in which we want to get our companies to work.
On the agri-sector, the hon. Member for Belfast South (Dr McDonnell) is right. It is the backbone of our economy. No matter which way we cut it, we are part of a £20 billion industry in food production across the United Kingdom. That is not to be sniffed at, but we have huge problems at a national level with regulation that unfortunately comes from Europe. Our Government must stand up to and address such regulation. I welcome some of the steps that are being taken by our Department for Environment, Food and Rural Affairs Ministers, but much more must be done to cut the red tape to allow our poultry and red meat industry and our value-added sector in food production to move forward and develop.
EU regulations, for example, on the number of fish that someone can land are destroying coastal jobs up and down the south and north Antrim coast of Ulster. That should be addressed at a national level. I hope that we will do more to help the 20,000 farm businesses in Northern Ireland. I hope that the Minister will join me to encourage our DEFRA Ministers to organise a round table discussion in Northern Ireland with all the agricultural stakeholders, so that we can put together a common agricultural policy reform plan that will help move our agri-economy forward.
We look forward to the national remedy that could be identified soon in our Select Committee report on fuel laundering and other forms of smuggling. For example, tobacco smuggling and fuel laundering in Northern Ireland accounts for some £200 million every year. That money could be far better spent by the Treasury in Northern Ireland or other parts of the UK if it was not stolen from the pockets of the people of this kingdom. We have a duty to ensure that those issues are addressed.
I hope that the Government will drop their White Paper suggestion and potential policy for plain paper wrapping on tobacco products, as it could destroy 1,000 jobs in my constituency. That is a national matter—it has to come from here. Such a proposal must be dumped, because it will be disastrous for local jobs. I hope that we can come up with some positive suggestions to address fuel laundering and recoup some of the money that is lost.
This week started badly for my constituency, with the loss of 50 jobs in the construction sector at Patton Homes. Construction and house building is a measure of economic confidence. Whenever it slows down or stops, it shows that confidence is waning. We have to make sure that we encourage our developers, our house builders and the construction industry in the ways that have been identified by my hon. Friend the Member for East Antrim and my right hon. Friend the Member for Belfast North (Mr Dodds). I hope that we can do that.
In conclusion, we should have the ability and the capacity to envision a better future for our economy and our country. We have a responsibility to do that. We should have the ability and the capacity as a country to cope with more than one major development project at a time. Sometimes, there is a view that we can deal with only one thing at a time. We must be able to adapt and show that we can deal with multiple, complex economic opportunities simultaneously.
As my hon. Friend the Member for East Antrim ably suggested today, we need to introduce significant reforms to our banking structure. I hope that in our next Select Committee report, after our aviation strategy, we will examine banking sector reform and consider whether the structure disadvantages Northern Ireland. If it does, as many of us believe, I hope that we can try to change it. Our economy has a chance. We are on the verge of writing a new chapter for our economy, but it will happen only if we are prepared to put our hands on the plough and drive it forward. The Democratic Unionist party will not be found wanting in that endeavour.
It is a pleasure to serve for the first time under your chairmanship, Mr Scott. I hope that Members here today and, perhaps more importantly, my constituents will forgive me, a Welshman, for speaking on St David’s day in a debate on Northern Ireland. I have seen colleagues speaking in the other Chamber, but I am delighted to be here speaking about Northern Ireland. Perhaps it will be recalled that I worked in Northern Ireland for several years as an adviser to the previous Government in a period when we did not have devolution in place in Northern Ireland, but when we were working towards delivering that.
Today’s debate has in many ways given us an insight into the radical changes that have taken place in Northern Ireland in the few short years between the period when I was working there and today. Of course, changes have taken place over a long period. The excellent, timely and passionate debate that we have had today on the economy of Northern Ireland is precisely the sort of debate we ought to be holding in this place and in the Stormont Assembly. It is not about security, policing or the latest atrocity, but about the things that are the bread and butter of any society in any body politic: the economy. The crucial issues are about how people earn their living, and the standard of living that they are able to enjoy because of that economy.
The Labour party played a tremendous role—I played a small part—and successive Governments have played a role in supporting the people of Northern Ireland to make the decisions that have allowed normalisation, as it is called, and allowed changes to come about. The Opposition will continue to play their part in standing shoulder to shoulder, as it were, with the people and the parties of Northern Ireland to try to further the cause of peace and normalisation, as well as the economic development of Northern Ireland. I know that Government Ministers will also want to do that, alongside—he ought to be right hon.—my hon. Friend the Member for Gedling (Vernon Coaker), who is the shadow Secretary of State for Northern Ireland, and my hon. Friend the Member for Ealing North (Stephen Pound), who is a shadow Minister. They will play their part in trying to take matters forward.
It is a disappointment and a surprise—I feel I must mention it, given that hon. Members from Northern Ireland have mentioned it—that we do not have with us today either the Secretary of State for Northern Ireland or his deputy. That will surprise people in Northern Ireland. Although this is a Treasury debate, it is a Northern Ireland debate, too. It is disappointing that they are not here today. It is a feather in the cap of my hon. Friend the Member for Gedling, the shadow Secretary of State, that he is present. [Interruption.] The Minister may laugh, but in Northern Ireland people will not necessarily be laughing: I think they might be slightly concerned that the Secretary of State did not see fit to have someone here today.
There are many areas in which there is much agreement between the Government and ourselves, not just on policing and security and constitutional developments in Northern Ireland, but on the economy. We agree that there is, for all sorts of understandable and historical reasons, over-dependence on the public sector in Northern Ireland, and that too great a proportion of gross domestic product is spent by and in the public sector. We accept that the economy must be rebalanced over the long period and that we should build a robust, vibrant and wealth-generating private sector in Northern Ireland, as we must do in the rest of the UK. That means both building the indigenous, domestic private sector and attracting foreign direct investment from across the world. However, on some aspects of the economy, there are disagreements on what a Labour Government would do if we were in power and what the current Government are doing.
Let me first address the base line for the economy in Northern Ireland. As we have heard in today’s debate, it is a complex picture—one cannot take a simple snapshot of Northern Ireland. The Northern Ireland economy has many great strengths, many of which were highlighted today by hon. Members. The right hon. Member for Belfast North (Mr Dodds), the hon. Member for Belfast East (Naomi Long) and my hon. Friend the Member for Belfast South (Dr McDonnell) all drew attention to the great strengths of the Northern Ireland economy. Northern Ireland attracted the second highest proportion of FDI out of all the regions in the UK.
I do not think anyone mentioned education. In my experience, Northern Ireland has a hugely educated work force, a hugely educated part of society and a young part of society. The transport and broadband infrastructure are crucial advantages. Lastly, the beauty and natural attractions of Northern Ireland—its people and topography—are wholly underexploited. We must do more to exploit the potential of tourism in Northern Ireland.
Of course, there are problems, just as there are in all parts of our economy. Gross value added per capita is lower in Northern Ireland than just about anywhere else in the UK—£15,000 or thereabouts per person versus £20,000 in England. Unemployment is a mixed picture. It is lower in Northern Ireland than in the UK—7.2% versus 8.2%. That is a legacy of the increase in employment in Northern Ireland, especially in retail and construction, which was part of the legacy of the ending of the troubles in the past decade. However, retail and construction are some areas that have suffered most in the economic downturn. Young people have also suffered in that period. My hon. Friend the Member for South Down (Ms Ritchie) highlighted that 18% of young people in Northern Ireland are unemployed, which is a price we should not be paying.
Of the people in work, we heard that around 30% of people working in Northern Ireland are in the public sector, versus 21% in the rest of the UK. We need to address that at some point. There is also a mixed picture for business in Northern Ireland, where indigenous, domestic start-up rates are low. FDI is, as we have heard, high, but its relative value is low, including the innovativeness of that FDI. On another metric—business expenditure on research and development—unfortunately the Province still does not fare well compared with the rest of the UK.
Many economic levers now sit with the Northern Ireland Executive, and that is absolutely right. Many of those levers are being pulled extremely effectively by the Northern Ireland Executive, but Westminster is still key. Under the current settlement, the Government in Westminster, whatever their complexion, still have to make critical decisions. What have the Government done since they took power in May 2010? The rhetoric has been extremely strong, and the volume of words produced about the Northern Ireland economy has been considerable. Notable, of course, is the document that many have referred to today, “Rebalancing the Northern Ireland economy”. The document talks about the need to reduce the deficit fairly while building enterprise.
Only this week, the Secretary of State for Northern Ireland returned to the theme and gave an interesting speech at Queen’s university Belfast. He said:
“I’ve said many times that re-balancing the economy here could take up to 25 years. But it has to be our priority…not by taking an axe to the public sector…but by creating the conditions that enable the private sector to grow.”
We would agree with him about that, but we would also suggest that he looks at the facts that pertain to Northern Ireland and what has happened to the economy on his watch. Crucially, as we have heard again today, overall spending in Northern Ireland is being reduced by £4 billion over the spending period. We are seeing a 40% reduction in capital expenditure. Regarding public sector jobs—the ones I presume the Secretary of State did not want to take an axe to—he should read the report by the Office for National Statistics that came out today, which shows that 9,000 public sector jobs have been lost in Northern Ireland since the second quarter of 2010, when his Government came to power. There are now 218,000 public sector jobs in Northern Ireland, compared with 227,000 when the Labour Government left office.
I have a question for the Exchequer Secretary. We now know that 710,000 public sector jobs will be lost on this Government’s watch over the spending review. We do not have regional breakdowns for that figure, but the Irish congress of trade unions suggests that job losses in Northern Ireland could be as much as 26,000. Would the Minister care to offer his view as to how many public sector jobs will be lost in Northern Ireland on his watch? If he cannot answer that, will he go away and look at the issue? It is crucial that we have a clear understanding of the impact of the changes.
Another set of changes that is at the forefront of many people’s minds in Northern Ireland as we approach the Budget and the start of a financial year is welfare cuts. They will affect thousands of families across this country, including in Northern Ireland. I suggest that Ministers look at what the impact will be for ordinary families. The Library suggests that in Northern Ireland 5,000 families with young children, in which the parents are in part-time work, may lose as much as £4,000 a year as a result of the changes to the welfare thresholds. That is a huge amount of money for relatively low-paid families to lose. That is a measure of the impact of the Government’s changes. Those facts do not reconcile terribly well with the statement made in “Rebalancing the Northern Ireland Economy” that the Government want their changes to be fair; they show that the Government are not being fair.
The hon. Gentleman will be aware that one of the indicators in Northern Ireland that is not as good as in the rest of the UK is the figure regarding the economically active. Given that the welfare cap will be £26,000, which one would have to earn £35,000 to bring home, is he aware that the median wage in the private sector in Northern Ireland is £20,000? That is a lot less than £35,000. What would be the incentive for people to go out to work if the cap were not to be there?
We need to make work pay—there is no doubt about that—and we need to make work attractive. However, the hon. Gentleman will know that while the unemployment rate may be relatively better than that of the rest of the UK, one of the blacker marks of the Northern Ireland economy is that the economic inactivity rate is worse—27% versus 23%. Such things are neither simple nor straightforward, and they will prove to be difficult. However, we need to ensure that we apply changes fairly and proportionately.
May I be clear about the two points the hon. Gentleman has raised on public sector employment and welfare cuts? Is he saying that if his party were in power, there would be no reduction in public sector jobs in Northern Ireland and no welfare cuts affecting Northern Ireland?
No, I did not say that for a minute. We have not at any point said that there would not be any cuts. We have said that there would be cuts, although they would be on a different trajectory. I suggest that we would not have seen the same volume of cuts over the same period, because Labour Members do not believe, despite what the Secretary of State said in his remarks to Queen’s university Belfast, that we can grow the private sector and liberate its surpluses by cutting the public sector. That is poor economics and it will not work. We also believe that such an approach has been demonstrated as not working by the facts on the ground. That is why we are borrowing an extra £158 billion in the current spending period: to pay for the failure to get the economy moving. That is the truth.
I hate to tell the Minister, but another area in which the Government are failing in Northern Ireland is in respect of enterprise and getting enterprise moving. When one turns the page in the “Rebalancing the Northern Ireland Economy” document from the section about fairness and enterprise, one comes to what the Government think are the principal measures required to strengthen the private sector and promote fairness in Northern Ireland. First among them is a scheme to help new businesses in countries and regions outside London, the east and the south. It will exempt new businesses from £5,000 of employer national insurance contribution payments. The document says that that will help up to 15,000 businesses in Northern Ireland. I hate to tell the Minister but that scheme has so far helped 461 businesses in Northern Ireland, according to the Government’s own figures. That is just 3% of the target that was originally intended. I put it to him that that is a woeful performance.
Clearly, the Minister needs to consider the targeting of that scheme and whether he needs to revise it. I suggest that the Minister reads the bit elsewhere in the document that talks about the possibility of changing the parameters of that scheme and revising its targeting to expand it to all companies with fewer than 10 employees, as the Labour party suggests, as opposed to concentrating simply on start-ups. If he did that, those businesses might be able to get some of the billions of pounds that are currently languishing in the Treasury not being spent on incentivising enterprise.
Of course, the Minister could consider other tax possibilities. The document is quite insightful in showing us where the Treasury is contemplating different measures for Northern Ireland. One area is in respect of the annual investment allowances. It is very interesting that the document suggests that those annual investment allowances, which are designed to help capital intensive companies, manufacturing and so on, have been cut from £100,000 a year to £25,000 a year across the UK. Those are the sorts of companies one would have thought should be incentivised if one were serious about rebalancing the economy away from financial services towards a productive economy. Apparently, in Northern Ireland, that allowance could go back up to £100,000. That is a very interesting idea and I urge the Minister to think about that, not only in Northern Ireland, but across the UK.
Of course, the corporation tax measure is the big bazooka that we are hearing about the Government rolling out. The document talks about driving down corporation tax in Northern Ireland to bring it in line with the 12.5% in the south, as Members here today have also mentioned. Labour places great faith in the fact that parties in Northern Ireland have expressed some support for that measure, as did some 75% of respondents to the document. During the debate, it has been instructive to hear hon. Members highlight the risks—
I thought I had another minute until 25 past.
We, too, would highlight those risks in relation to corporation tax. It is very unclear what the dynamic effects will be on taxation or what the degree of volatility will be around corporation tax. It is a notoriously volatile tax, and Ministers in Northern Ireland and in the Treasury ought to be very mindful of that before opening this particular Pandora’s box.
Such an approach is not a silver bullet or the only club in the Chancellor’s bag. There are other things he could do. He could expand the NICs holiday; he could consider VAT across the board; or he could consider VAT in respect of the construction industry. Those are all familiar measures to the Minister. He knows that they are part of Labour’s five-point plan. If he is to be a wise Treasury Minister, I suggest that he needs to look very hard at them and urge his colleague, the Chancellor, to think about changing course for the good of Northern Ireland and the rest of the UK by adopting some of them in the forthcoming Budget.
It is a great pleasure to serve under your chairmanship, Mr Scott. I welcome the opportunity to debate the Northern Ireland economy and I am very grateful for the contributions of all those who have participated in this important debate.
As hon. Members are aware, across the UK we face difficult economic conditions and a tough challenge to restore the UK to prosperity. Critical to achieving that ambition is tackling the record deficit that we inherited—not that one would have noticed that point from the speech made by the hon. Member for Pontypridd (Owen Smith)—and rebalancing our economy away from debt-fuelled consumption and public spending towards sustainable private sector growth.
The Northern Ireland economy faces similar challenges, but recent history also means that it faces a different set of circumstances compared with the rest of the UK. That point has been made by a number of speakers, including the Chair of the Northern Ireland Affairs Committee, my hon. Friend the Member for Tewkesbury (Mr Robertson). Although the years of peace following the Good Friday agreement have seen prosperity on the rise in Northern Ireland, it still faces a number of difficulties. The Government are concerned that employment in Northern Ireland is overly reliant on the public sector. Private sector employment in Northern Ireland lags considerably behind the rest of the UK. The latest figures from the Office for National Statistics show that whereas 61% of people aged 16 to 64 are employed in the private sector in England, only 45% are in the private sector in Northern Ireland.
However, I am optimistic about the future of Northern Ireland. As we have heard, Northern Ireland already attracts a large share of UK foreign direct investment, and that is generating new employment. The Government, and in particular the Secretary of State for Northern Ireland, have been tireless in promoting more opportunities for private sector growth and employment as part of our commitment to rebalance the Northern Ireland economy. I doubt if there have been many, if any, Secretaries of State for Northern Ireland who have shown the focus and energy that the current Secretary of State has on that point. Indeed, he made an important speech this week on that very subject.
I am sure the Secretary of State will enjoy reading this debate in Hansard. I do not think that a good test of a Secretary of State is whether they read the debate in Hansard or whether they sit mute during the course of a three-hour debate.
The Government have established a joint ministerial working group on rebalancing the Northern Ireland economy, consisting of Ministers of the UK Government and the Northern Ireland Executive, to consider issues raised by the consultation. We are committed to working with the Northern Ireland Executive to promote a more sustainable, private-sector led recovery in Northern Ireland. Of course, the issue of corporation tax is a key consideration when it comes to supporting private sector growth.
Analysis in the “Rebalancing the Northern Ireland Economy” consultation document shows that reducing the corporation tax rate in Northern Ireland has the potential to increase investment there. Furthermore, devolving any tax rate varying power must satisfy the Azores criteria, as a number of hon. Members pointed out. The Azores criteria are in the European Court of Justice judgment on Commission v. Portugal, which set out the conditions that need to be met to be compliant with EU law and, as noted in the Government’s consultation paper, it is expected that Northern Ireland would meet the Azores criteria of institutional, procedural and fiscal autonomy.
However, although strong support has been shown in favour of corporation tax devolution, it has not been unanimous. The process presents its own challenges in the form of administrative burdens on Her Majesty’s Revenue and Customs and businesses to ensure compliance. Designing a devolved regime is likely to be difficult and it will take time and involve extensive consultation with business. Bespoke rules are likely to be needed to cover a range of situations and forms of income, as well as a series of transitional rules. Furthermore, there are significant challenges in estimating the impact of corporation tax devolution on revenue, a point raised by a number of hon. Members, including the Chair of the Select Committee.
One issue with estimating total corporation tax revenue in Northern Ireland is that the only geographical data that companies currently provide is the address of the country where they are registered, which may have no relationship to where their activity is undertaken. My hon. Friend the Member for Tewkesbury raised that point both this afternoon and in the Select Committee’s report, questioning why HMRC and the Treasury do not have the figures. An accurate system would depend on companies operating in Northern Ireland supplying apportioned data on profits, losses, expenses and allowances. For some, that would be simple; for others it could be costly and administratively burdensome. At present, there is no need—indeed, no point—for them to do so. That is why the numbers are estimates, rather than based precisely on what profits can be attributed to Northern Ireland.
Further costs associated with a reduction in corporation tax rates for Northern Ireland include the behavioural effects that could arise from a difference in corporation tax rates between Northern Ireland and the rest of the UK; for instance, through profit shifting, where companies artificially manipulate transactions so that their taxable profits arise in low tax jurisdictions, or tax motivated incorporations, meaning that companies adopt incorporated status to reduce their tax liability. The impact of those behaviours has the potential to be significant. “Rebalancing the Northern Ireland Economy”, states that indirect tax effects could be considered when calculating the adjustment to the block grant, as long as doing so complied with the Azores criteria and the UK fiscal framework; the hon. Member for North Antrim (Ian Paisley) raised that specific point. As the report recognises, designing an appropriate mechanism presents a number of significant challenges, and considerable work is needed to consider the issues involved.
The Government agree that further work is required for forecasting the potential costs of implementing a reduction in the rate of corporation tax in Northern Ireland and the type of systems that could be introduced to allow it to be monitored. Possible mechanisms will be looked at by the working group that was set up by the UK Government and the Northern Ireland Executive. However, no decision has been taken on whether to allow such effects to be taken into account in the event that corporation tax is devolved and the rate reduced. The working group had a meeting in December and there is another meeting next Wednesday, 7 March. I look forward to seeing the Finance Minister once again at that meeting, and I hope we can make progress on working together to assess the costs in this area.
Several responses to the consultation pointed out that devolution of corporation tax responsibilities could pose risks to relatively deprived regions elsewhere in the UK. The Government will need to consider that before taking a decision on whether to devolve corporation tax powers to the Northern Ireland Assembly. For instance, the issue of how a lower Northern Ireland rate might be ring-fenced in a manner that balances protection from avoidance or manipulation against burdens on companies will be considered further as part of the work plan. Here, as in the other devolved Administrations, the Government are seeking to strike a balance. We want to ensure the empowerment of all devolved institutions. At the same time, however, we must maintain the success of the shared economy on which all countries of the UK depend. We need to ensure that any proposals support the competitiveness of the UK by maintaining incentives for businesses to trade, invest and be headquartered in the UK, while not imposing unreasonable burdens on them.
Air passenger duty was raised by a number of hon. Members. Last summer, the Northern Ireland Affairs Committee report into air passenger duty highlighted the unique geographical position of Northern Ireland, which of course shares a land border with the Republic of Ireland. It went on to note the serious effects of competition from substantially lower rates of duty in the Republic of Ireland, which threatened the viability of direct services between Belfast and the United States in particular. As the Committee observed, direct long-haul flights make an important contribution to the Northern Ireland economy, supporting trade and tourism.
The Government agree that direct long-haul services are vital to the future prosperity of Northern Ireland. In September, we took the decision to announce a cut in APD for direct long-haul flights from Northern Ireland. That change took effect from 1 November 2011. We have also reflected on the views expressed during the APD consultation, which ran until December last year. The Government of Northern Ireland are very clear in their desire for aspects of APD to be devolved, to provide a lasting solution to the unique challenges they face. In a direct response to that request, and in the unique circumstances that apply to Northern Ireland, on 21 February 2012, the Government announced that the power to set APD rates for direct long-haul flights departing from Northern Ireland will be devolved to the Northern Ireland Assembly, under the 2012 Finance Bill.
Additional points were made about scrapping APD on domestic flights. We have to bear in mind that we have a very big deficit. We have to be careful about reducing taxes. If we reduced or scrapped APD in such circumstances, it is difficult to see how it could apply for Northern Ireland only, and one has to take into account the overall cost. The Government response on APD is very clear. Devolution will allow the Northern Ireland Assembly to protect the crucial air link to the US, and offer a real chance for new long-haul services, which will support both business and tourism in Northern Ireland.
On other tax measures, in addition to corporation tax and APD, the Government will continue to consider the feasibility, legal constraints, potential timetable and impacts of other tax options. They include capital allowances, R and D tax credits and an employers’ national insurance holiday, all of which received support from some respondents to the consultation. Several suggestions were made about the administration of individual measures, which the Treasury and HMRC will consider alongside other submissions on those policy areas. The joint ministerial working group programme will also consider those alternative tax measures alongside its main focus on corporation tax.
Specific measures were referred to in the debate. On the aggregates levy, there are ongoing discussions with the Commission. We expect a European Court of Justice judgment later this month, but I assure hon. Members that the Government remain committed to finding a solution.
The carbon price floor is a UK issue, but I know that there are particular concerns in Northern Ireland. The Economic Secretary is working on those matters, including in the context of Northern Ireland. We heard a point about VAT—about targeted reductions for tourism, home renovations and so on. Both of those, if applied nationally—or, indeed, a general cut—would be very expensive. As has to be explained from time to time to the official Opposition, it would result in more borrowing, which the Government do not wish to see.
The Government have introduced a number of UK-wide measures that have benefited Northern Ireland. They include cuts in the headline rates of corporation tax, increases in the employers national insurance contribution thresholds, and increased R and D tax credits for small and medium-sized enterprises, as well as reforming the enterprise investment scheme and the venture capital trusts scheme to help provide access to finance. On the point about access to finance, we will say more in the Budget in a few weeks’ time, but I hear the comments made by a number of hon. Members.
I appreciate that we are running out of time. I have not been able to address every point that has been raised during the debate, but I stress that it is vital that the Westminster Government and the Northern Ireland Executive continue to work together to restore the entire UK economy to prosperity.
We are working with ministerial colleagues, and the whole Government are seeing what we can do. The right hon. Gentleman has made his points clear; they are on the record and we hear them.
The Government are working hard to rebalance the Northern Ireland economy. A ministerial working group is meeting next week to discuss many of the issues raised here today. We look forward to working together over the coming months to find the best way to meet hon. Members’ concerns.
I thank all hon. Members for taking part in a useful debate, and I thank the Minister for replying. I will be brief.
I know how the hon. Member for North Antrim (Ian Paisley) feels when he sees buses, bits of which were made in his constituency, going down Whitehall. I felt the same when I saw propellers, made by and large in my constituency, on various aeroplanes taking me to different parts of the world recently, including Hong Kong, Vietnam and Nigeria. That reinforces in me the idea that high-spend, high-tax economies are things of the past: if ever they had their day, they do not have it any more. We live in a competitive world. The only way that we will retain prosperity in the UK—in Northern Ireland and anywhere else—is by being competitive. That will not be achieved by spending more money than we earn.
Although the Minister has correctly outlined some of the difficulties in devolving the responsibility for corporation tax to Northern Ireland, I am convinced that they can be overcome. Nothing worth while is ever easy. The option, of course, would be to reduce the corporation tax rate in the UK to 12.5%, which would be acceptable and simple to do. In the absence of that policy in the Budget—I imagine—the Minister needs to consider seriously devolving to Northern Ireland the power to vary the corporation tax rate. The hon. Member for Pontypridd (Owen Smith), who spoke for the Opposition, is right. As I said, it is not a silver bullet, but it is a golden opportunity.
Sitting adjourned without Question put (Standing Order No. 10(11)).