My right honourable friend the Chancellor of the Exchequer (Alistair Darling) has made the following Written Statement.

Following representations by political parties in Northern Ireland, the Government commissioned Sir David Varney, in March 2007, to carry out a review of tax policy in Northern Ireland. The review was published in December 2007.

His report confirmed that the Northern Ireland economy was doing well under the devolution arrangements introduced a year ago. For example, Northern Ireland had the highest rate of economic growth of all UK regions outside London and the south-east between 1997 and 2006 and in 2007 it had the lowest rate of unemployment of any region. There are now more people in employment than ever before.

But Sir David Varney's review noted that the Northern Ireland economy still faced some demanding challenges. It has the lowest level of productivity and employment of any region in the UK and public spending as a percentage of GDP is around 70 per cent compared with 35 per cent in Ireland.

So the Government asked Sir David to undertake a second review of competitiveness in Northern Ireland. The terms of reference were:

“Building on Sir David's earlier analysis and agreement from all parties about the unique circumstances of Northern Ireland (in relation to the opportunities provided by the peace process, the need to strengthen the private sector, to create increased employment opportunities and to reform the public sector) this review will explore in more detail how to expand the private sector and to enhance Northern Ireland's competitiveness”.

The Government are today publishing Sir David Varney's report. Copies of the report have been deposited in the Libraries of both Houses. I am very grateful to Sir David Varney and his team, and to all those who submitted evidence to the review, for this comprehensive report. It provides a valuable assessment of how the opportunities and challenges facing the Northern Ireland Executive in developing their economic strategy might best be approached.

Sir David recognises the new opportunities that peace and stability in Northern Ireland provide for stronger and greater prosperity.

The main findings of the report are:

the Northern Ireland Executive's programme for government and the UK Government's May 2007 economic and financial package provide an excellent base for securing long-term transformational change in Northern Ireland;

the UK Government have a vital role to play in maintaining macroeconomic stability in a difficult world economic climate and maintaining the current competitive tax system;

there is scope for deepening and intensifying public-sector reform, in particular increasing the role of the private sector in the delivery of core public services and transferring non-core services to the private sector in order to help stimulate its growth;

there is scope for further asset disposals in order to release funds for extra investment in the Northern Ireland Executive's priorities;

there is scope to improve productivity by more intensive use of the main levers and drivers of productivity including skills, enterprise, competition, investment and innovation;

labour market and welfare reforms should be intensified to increase the employment rate; and

Northern Ireland can benefit from participating further in an all-island economy by implementing the measures identified in the October 2006 report on the all-island economy.

The Government's response

The Government welcome Sir David Varney's report and I look forward to discussing with Northern Ireland Executive Ministers how we can take forward the findings in the report together, while recognising that devolved policies are a matter for the Northern Ireland Executive and their departments.

I welcome the fact that the Northern Ireland Budget focused on those Northern Ireland departments that have a central role in helping the economy. The UK Government and the Northern Ireland Executive share the view that it is flexible and open economies that ultimately succeed, and that it is important to maximise Northern Ireland's export potential.

I also welcome the support which the Irish Government continue to provide in developing the all-island economy which directly benefits Northern Ireland through infrastructure and innovation investment, the assistance provided by the EU and the interest shown by the US, as can be seen in next week's US investment conference in Belfast.

In the 2008 Budget I announced a range of measures which will improve Northern Ireland's competitive position and strengthen the private sector including:

policies to maintain macroeconomic stability, with forecasts of continuing economic growth and low inflation;

policies to maintain a competitive tax system. From April 2008 the main rate of corporation tax is being reduced to 28 per cent, the lowest ever rate of corporation tax in the UK and the lowest in the G7;

policies to stimulate enterprise and improve access to finance for small and medium firms, including a temporary 20 per cent increase in the funds available through the small firms loans guarantee, additional enterprise capital funds, a new capital fund for female entrepreneurs, and an increase in the enterprise investment scheme. These measures are of particular benefit in Northern Ireland which has a higher than average concentration of SMEs;

measures to ensure better access to government procurement for small firms;

confirmation of a commitment to a reduction of 25 per cent in the administrative burden through regulation;

reform of incapacity benefits with the introduction of the employment and support allowance. Welfare reform is of particular benefit in Northern Ireland, which has the highest proportion of the population on incapacity benefit; and

£21 million additional DEL funding for the Northern Ireland Executive as a consequence of increases in spending on child poverty pilots and contributing to the costs of modernising the public sector.

I note the recommendations which Sir David Varney has made in his report. Many of these are for the Northern Ireland Executive to consider. The UK Government will respond to those that are directed to UK Ministers in due course.

Conclusion

The successful return of devolution to Northern Ireland, and the second stage envisaged in the St Andrews agreement, provides an opportunity for transformational change and inward investment which, if seized, has the opportunity to benefit all the people of Northern Ireland.