Northern Ireland Economy

Lord Dodds of Duncairn Excerpts

Thursday 1st March 2012 Westminster Hall

[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.

[Mr Nigel Dodds (Belfast North) (DUP)]

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.

[Naomi Long]

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.

[Mr Nigel Dodds (Belfast North) (DUP)]

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.

[Naomi Long]

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.

[Mr Dodds]

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.

[Ms Ritchie]

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.

[Mr Dodds]

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.

[Naomi Long]

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.

[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?

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[Sammy Wilson]

Most of it is recycled in the first place—[Laughter.]

[Mr Dodds]

Does the hon. Member for Belfast South have any intention of leaving Stormont and devoting himself full-time to Westminster?

[Dr McDonnell]

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.

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[Mr Gauke]

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.

[Mr Dodds]

Will the Minister address my point about regional aid and the consultation by the Department for Business, Innovation and Skills on assisted areas in Northern Ireland?

[Mr Gauke]

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.