Northern Ireland Economy

Laurence Robertson Excerpts

Thursday 1st March 2012 Westminster Hall

[Mr Laurence Robertson (Tewkesbury) (Con)]

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.

[Ian Paisley (North Antrim) (DUP)]

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?

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[Mr Robertson]

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.

[Ian Paisley]

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.

[Mr Robertson]

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.

[Sammy Wilson (East Antrim) (DUP)]

rose—

[Mr Robertson]

I am happy to give way to the Minister.

[Sammy Wilson]

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?

[Mr Robertson]

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.

[Dr Alasdair McDonnell (Belfast South) (SDLP)]

Does the hon. Gentleman agree that the outcome, the product and the result are more important than any misgiving or misconception that there might be about the motivation?

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[Mr Robertson]

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.

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[Sammy Wilson]

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.

[Mr Laurence Robertson]

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.

[Sammy Wilson]

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.

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[Sammy Wilson]

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.

[Mr Laurence Robertson]

May I point out that devolving that power would cost absolutely nothing at all? The Select Committee’s proposal for it to be devolved costs nothing. The action that the hon. Gentleman’s Committee then takes is for him to judge.

[Sammy Wilson]

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.

[Mr Robertson]

Does the hon. Gentleman agree that, if the energy is not produced in Northern Ireland—and assuming demand stays the same—it will just be produced somewhere else?

[Sammy Wilson]

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?

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[Naomi Long (Belfast East) (Alliance)]

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.

[Mr Laurence Robertson]

The hon. Lady might mention at this point that it has been agreed that our next inquiry will be into aviation policy, for the reasons that she gave.

[Naomi Long]

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.

--- Later in debate ---

[Owen Smith (Pontypridd) (Lab)]

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.

[Mr Laurence Robertson]

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?

[Owen Smith]

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.

--- Later in debate ---

[Mr Laurence Robertson]

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.