Northern Ireland Economy

Lee Scott Excerpts

Thursday 1st March 2012 Westminster Hall

[Mr Dodds]

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.

[Mr Lee Scott (in the Chair)]

Before calling the next speaker, may I point out that because of the Division, we will start the wind-ups at 5.10? There are still two speakers left, so can they bear in mind the time?

--- Later in debate ---

[Owen Smith]

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—

[Mr Lee Scott (in the Chair)]

Order. May I politely remind the hon. Gentleman that I would like to give the Minister time to respond to this vital debate?

[Owen Smith]

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.