Northern Ireland: Economy

Lord Bew Excerpts

Wednesday 19th October 2011 Lords Chamber

[Lord Bew]

My Lords, I thank the noble Lord, Lord Lexden, for securing this important debate on the need to rebalance the Northern Ireland economy. I would also like thank him for his very kind words about me, but to say one thing: he misrepresents the flow of intellectual influence. When the noble Lord, Lord Lexden, was an academic at Queen’s University Belfast in the 1970s, he with Professor John Vincent wrote a book called Governing Passion. For my generation of graduate students, it was a powerful and exciting book that had a huge impact on the way we wrote about politics. I therefore put it on the record that the flow of intellectual influence went that way.

It is important not only to thank the noble Lord, Lord Lexden, for securing this debate but to draw attention to the fact that we have had, at least in the past year or so since the change of Government, a more intense debate about the Northern Ireland economy. Whatever the merits or demerits of the argument about corporation tax, to which I shall come in a minute, it is important that we have had the beginnings of a serious discussion. It has inevitably been delayed because of the whole question of the Troubles and the recovery from them, and the domination of public debate by the need to find a secure settlement.

When the issue of corporation tax first entered the public domain as a crucial subject, my own reaction was initially quite sceptical. I always thought that it was good that we were talking about it because at least we were talking about the need to rebalance the Northern Ireland economy, at least it was a new idea, and at least it was focusing public debate on an economic question. None the less, I was sceptical, and the noble Lord, Lord Lexden, has already referred to part of the reason for it: you could reasonably argue that unionism in the past century had one idea that really worked. That one idea was equality of taxation means equality of services and good things flowing from the London Treasury in return. This was Edward Carson’s idea. It is why, for example, before Irish independence he always supported vigorously in this House expenditure of money by the British state on the west of Ireland. Those of us who know the west of Ireland know that some of the public amenities that you can find there and in the ports are a product of decisions made by the British Treasury before 1916 and 1921. It has always been a logical idea that a unitary state implies a unitary taxation system and a unitary flow of benefits to the citizens in return throughout its regions. That was the ground for my scepticism.

Now that we exist in a different world with devolution in the United Kingdom, there is much conversation about the possibility of the devolved systems having different taxation regimes. It seems widely considered to be entirely compatible with the continuation of the union that one has taxation regimes that are not as simple and uniform as those with which I grew up. There is therefore an argument on that score that uniformity may not as be as important as many people considered it to be in the last century.

There is another simple point: Northern Ireland does not do too badly with foreign direct investment—it actually does better than the other regions of the United Kingdom. It has major problems with the productivity of workers and of the culture, which has been so admirably described in its historical evolution by the noble Lord, Lord Alderdice, but it does better than other regions of the United Kingdom for FDI.

I began to wonder even so whether it was right that we should talk so much about corporation tax. I looked at the companies that went to the Republic of Ireland, which is obviously Northern Ireland’s major competitor. Many companies, it is argued, go there primarily because of the low level of corporation tax, but most of those companies do not say that. They tend to put it low on their list of reasons for moving to the Republic of Ireland—there was recently a case of a company that was considering Derry but went to Kerry. Companies do not say that corporation tax is the reason; they tend to put it at about number five on their list of reasons. Being a credulous sort of person, I tend to believe them.

But this is where my mind begins to change on this topic; I have begun to rethink. I am not convinced that companies tell us the full truth about their decision-making in this matter. I give an example that has struck home to me in the past 18 months watching the public debate in the Irish Republic. It brings home some of the difficulties for Northern Ireland. Google along with a number of other American companies about 18 months ago began to criticise the educational system in the Irish Republic, saying, “It is not as good as you think it is and this is a problem for us”. The then Irish Minister of Education, Mr Batt O’Keeffe, immediately responded and took these criticisms quite seriously. The new Minister, Ruairi Quinn, has said in a memorable but graphic phrase, “We have been codding ourselves about the quality of our educational system”. The concerns of the American companies were highlighted by a number of international reports that seemed to show that Ireland was sliding down, particularly on the mathematical side. There are great concerns, for example, about the quality of maths in Irish schools now. This crisis has been brilliantly covered by Sean Flynn, the education correspondent of the Irish Times, in a series of magnificent articles. At the turn of the year, he described 2010 as a very bad year for Irish education.

However, in the past few weeks, Google, one of the leading companies making this criticism of the education system, has announced that it is going to Dublin and not to Belfast, which was also a bidder, for a major new investment. So it turns out that you can believe that a society has significant defects in its educational system that create problems for such American companies with what they are looking for in their workforce, but they still, oddly enough, end up in the place with the best tax regime. That is what has made me cynical about the reasons given by companies for acting as they do. Details of that sort enhance the case for corporation tax reform for the benefit of Northern Ireland.

I understand that it is possible that this issue may be stuck. The Treasury has objected, as have a number of very serious economists. There are complications around the issue that are nothing to do with Northern Ireland’s place in the United Kingdom but a lot to do with Scotland and what Scotland wants to do, as has already been alluded to by the noble Lord, Lord Alderdice. If the Treasury is going to say no and if the public argument is going to go against the case for corporation tax, which has been made eloquently by many Northern Irish politicians of all parties and by the Secretary of State, Owen Paterson, we have the problems as outlined by the noble Lord, Lord Alderdice. We have the problem of a dependency culture that relies on the state and the Treasury, for reasons that are not the fault of the people of Northern Ireland. What, then, is going to be done? There is perhaps one slight hope: that an unintended consequence of the changes in university fees and the system in operation in the United Kingdom might be that some of the talent that currently goes to English and Scottish universities will stay in Northern Ireland, which might in turn turn out to be a very useful development for the economy.

I understand and respect the arguments of the Treasury going back to the Varney report, which was a serious document, but if the answer is going to be no, the question must be: what else are we going to do? At this point, I am not hearing much else.