Report on Invest NI: A Performance Review

Committee: Public Accounts

Session: 2012/2013

Date: Wednesday, 24 April 2013

Reference: Report on Invest NI: A Performance Review

ISBN: 978-0-339-60478-0

Mandate Report Number: Fourteenth Report

Together with the Minutes of Proceedings of the Committee relating to the Report, Minutes of Evidence, and Written Submissions

Powers

The Public Accounts Committee is a Standing Committee established in accordance with Standing Orders under Section 60(3) of the Northern Ireland Act 1998. It is the statutory function of the Public Accounts Committee to consider the accounts, and reports on accounts laid before the Assembly.

The Public Accounts Committee is appointed under Assembly Standing Order No. 56 of the Standing Orders for the Northern Ireland Assembly. It has the power to send for persons, papers and records and to report from time to time. Neither the Chairperson nor Deputy Chairperson of the Committee shall be a member of the same political party as the Minister of Finance and Personnel or of any junior minister appointed to the Department of Finance and Personnel.

The Committee has 11 members including a Chairperson and Deputy Chairperson and a quorum of 5.

Executive Summary

Introduction

1. Invest NI was established in April 2002 as Northern Ireland’s main economic development organisation. Between April 2002 and March 2011, Invest NI spent almost £1.5 billion, and it estimates that this has resulted in the promotion of 42,600 new jobs, safeguarding of 19,400 jobs and planned investment of £5.5 billion in the local economy.

2. Invest NI is a key influencer in developing the local economy, which is also the top priority of the Programme for Government (PfG). However, it is also the case that Invest NI operates in a challenging and competitive environment, and that measuring its performance is complex, due to the range of differing targets and indicators reported.

3. As well as measuring the extent to which these targets are achieved, the Committee is aware that a number of other factors must be considered to fully gauge the strength of Invest NI’s performance. Most significantly:

  • Invest NI’s performance for jobs, salaries and investment has, to date, been reported on the basis of initial promises made by investors at the start of a project. Invest NI has only recently established systems which will facilitate measurement of actual outcomes in the future;
  • Additionality (that is, paying the minimum assistance necessary to ensure that an investment project proceeds) and deadweight (that is, where a project would have occurred anyway without assistance) are key challenges for economic development organisations;
  • The extent to which new jobs created by Invest NI’s supported companies are counter-balanced by jobs lost, as well as the quality and duration of jobs secured are key value for money considerations; and
  • The degree to which Invest NI’s programmes are helping reduce the historic productivity gap between Northern Ireland and the rest of the United Kingdom.

Overall Conclusions

4. In its 2008-11 Corporate Plan period, Invest NI achieved all nine of its key performance indicators, which represented an improvement on previous performance against its targets. Performance was particularly strong in the areas of job quality and encouraging businesses to spend on Research and Development (R&D). The signs are that this improvement is being sustained in the current Corporate Plan period (2011-2015). This is encouraging, particularly as it has been achieved against the background of a severe economic downturn. However, before the Committee could give a more fulsome endorsement of Invest NI’s performance, long standing issues around target-setting and a lack of independent validation of performance data must be resolved.

5. The Committee was surprised that a key 2008-11 Programme for Government target to halve the productivity gap between Northern Ireland and the rest of the UK by 2015 was discontinued in the current Programme (2011-2015), seemingly because it was not on course for achievement. This is a measure which helps provide strong evidence that the work of Invest NI is having a meaningful impact on improving the local economy.

6. In 2000, the Westminster PAC recommended that IDB (Invest NI’s predecessor) reported figures for job creation and duration as standard. Although IDB implemented this recommendation, it was not sustained within Invest NI, which reported on jobs “promoted” instead (that is, those promised by the investor at the outset of a project). Performance reporting for job sustainability has been limited and fragmented. The Committee considers the fundamental test of Invest NI’s performance to be actual jobs on the ground, as well as how long these are sustained. While the Committee welcomes Invest NI’s assurance that it has recently implemented systems which will assist future tracking of jobs created, it will be some years yet before meaningful data becomes available. The Committee considers this progress to be very belated.

7. Since its establishment, some of Invest NI’s targets have been set at lower levels than previous performance achieved, and some have been significantly over-achieved. While the Committee welcomes positive outcomes, these can be under-mined if the perception is that targets are “soft”.

8. The Committee heard evidence from Invest NI on the beneficial impact which lower Corporation Tax would have on the Northern Ireland economy. The Committee endorses Invest NI’s view, and would urge the Executive to continue its efforts aimed at devolving Corporation Tax powers to the Assembly.

9. The Committee welcomes the fact that Invest NI established formal job quality targets in the 2008-11 period. Furthermore, performance in this area improved significantly in this period, with 75% of jobs promoted having salaries above the Northern Ireland private sector average, compared to earlier performance of only 50%. However, performance reporting in this area to date has been based on investors’ promises rather than actual outcomes.

10. In the future, Northern Ireland’s entitlement to 100% assisted area status could be withdrawn by the Westminster government, and the EU could also remove special Regional Aid status. These developments would curtail significantly Invest NI’s ability to offer assistance, particularly to larger companies. The Department and Invest NI have known for some time now that there may be changes on these fronts. The Committee is therefore concerned that there is little tangible evidence that they have been active in developing alternative strategies for promoting economic development.

11. From 2008-11, Invest NI comfortably over-achieved its target to encourage 70% of Foreign Direct Investment (FDI) projects to locate within 10 miles of a disadvantaged area (actual performance was 92%). However, the Committee considers this to be a weak target, particularly as it provides no measurement of how many people living in disadvantaged areas gain employment in supported projects.

12. The completeness and accuracy of Invest NI’s performance data is fundamental to demonstrating the value and impact of its activities. In response to the Barnett Review’s conclusion that no organisation should have primary responsibility for reporting on itself, the Department assumed responsibility for reporting Invest NI’s performance in 2011-12. However, the Committee has seen little evidence of meaningful independent validation of Invest NI’s performance data. This is a key weakness.

13. The Committee is a firm advocate of benchmarking, and considers this to be a key tool for driving improved performance. However, Invest NI has never undertaken a comprehensive or meaningful benchmarking exercise with other economic development agencies. Whilst somewhat belated, the Committee welcomes Invest NI’s plans to commence ongoing benchmarking of its efficiency and effectiveness in the near future.

Summary of Recommendations

Recommendation 1

Now that Invest NI has developed systems for measuring outcomes, the Committee recommends that formal targets are established for job creation, sustainability, job quality and funds invested. Performance should be reported annually from 2014-15 on the basis of actual outcomes.

Recommendation 2

The Committee recommends that Invest NI introduce a formal mid-term review process for its Corporate Plan targets, which would allow for these to be uplifted in circumstances where these have been achieved or substantially met at an early stage in the Corporate Plan period.

Recommendation 3

The Committee recommends that DETI should set a fair but challenging target which measures Invest NI’s contribution to improving local productivity. The Committee is also strongly of the view that a target for closing the productivity gap with the rest of the UK needs to be re-introduced into the next Programme for Government.

Recommendation 4

The Committee recommends that Invest NI works collaboratively with the Department and DEL to identify the growth sectors of the future which need to be targeted to help strengthen the local economy, and to make available appropriate training to skill the Northern Ireland workforce in these areas.

Recommendation 5

The Committee recommends that Invest NI measures and reports key quantitative outcomes achieved through the operations of its “virtual” small business unit, including jobs created and increases in sales and exports. This will help the Department and Invest NI assess whether current arrangements are meeting the needs of the sector, or whether a dedicated small business unit as envisaged by the Barnett report would better serve this purpose.

Recommendation 6

There is a real prospect of Northern Ireland losing both its 100% assisted area status in the future and its EU special Regional Aid status post 2013, and therefore being unable to offer assistance to large companies. In light of this, the Committee recommends that the Department and Invest NI develop clear alternative strategies and measures for promoting economic development in Northern Ireland as a matter of urgency.

Recommendation 7

The Committee considers that Invest NI’s current target for promoting inward investment in disadvantaged areas needs to be strengthened significantly. Notwithstanding difficulties in obtaining data, the Committee recommends that Invest NI sets a target which measures the number of people living in disadvantaged areas who obtain employment in assisted projects and reports performance on this basis.

Recommendation 8

The Committee recommends that Invest NI consider redressing the geographic imbalance in financial assistance offers made to investing companies. Invest NI should develop a dispersal strategy, working closely with stakeholders including local councils and the Planning Service to improve their propositions and infrastructures for potential investing companies.

Recommendation 9

The Committee recommends that the Department commissions independent validation of Invest NI’s performance data on an annual basis in order to provide assurance as to its completeness and accuracy.

Introduction

14. The Public Accounts Committee (the Committee) met on 13 February 2013 to consider the Comptroller and Auditor General’s report ’Invest NI: a performance review‘. The main witnesses were:

  • Mr David Sterling, Accounting Officer, Department of Enterprise, Trade and Development;
  • Mr Alastair Hamilton, Chief Executive, Invest NI;
  • Mr Mel Chittock, Head of Finance and Operations, Invest NI;
  • Mr Kieran Donnelly, Comptroller and Auditor General; and
  • Ms Fiona Hamill, Treasury Officer of Accounts.

15. Invest NI was established in April 2002 as Northern Ireland’s main economic development organisation. Between April 2002 and March 2011, Invest NI spent almost £1.5 billion on its various programmes to promote economic development. This significant spend highlights just how important it is for Invest NI to demonstrate strong value for money outcomes from its assistance programmes. Invest NI estimates that its work has resulted in the promotion of 42,600 new jobs, safeguarding of at least 19,400 jobs and planned investment of £5.5 billion in the local economy.

16. Invest NI is a key influencer in developing the local economy, which is also the top priority of the Programme for Government (PfG). However, the environment in which it operates is challenging and competitive. Measuring its performance is far from straightforward due to the range of differing targets and indicators reported. To date, Invest NI has measured its achievements through a framework of targets over three Corporate Plan periods (April 2002 - March 2005, April 2005 – March 2008 and April 2008 – March 2011).

17. As well as measuring the extent to which these targets are achieved, other important factors must be considered to reach an overall conclusion on the strength of Invest NI’s performance. For example, targets need to be stretching and challenging, and actual outcomes should also be measured. Steps must also be taken to ensure that levels of additionality (that is, paying the minimum assistance necessary to ensure that an investment project proceeds) are high and that deadweight (that is, where a project would have occurred anyway without assistance) is minimised. Other key indicators include the extent to which new jobs created by Invest NI’s supported companies are negated by jobs lost, as well as the quality and duration of jobs secured. Ultimately, the Committee considers one of the strongest measures of the impact of Invest NI’s programmes to be the extent to which these help reduce the historic productivity gap between Northern Ireland and the rest of the United Kingdom.

18. The Westminster Public Accounts Committee reported on the performance of the Industrial Development Board (IDB) (Invest NI’s predecessor) in securing inward investment into Northern Ireland in May 2000 1, and arrived at some important conclusions and recommendations, which included:

  • a substantial number of jobs promised were not actually created, and a significant proportion of those created were of limited duration. As IDB had to carry out a special exercise to calculate levels of job creation and duration, PAC recommended that performance in these areas be reported as standard in future; and
  • when assessing the impact of its inward investment programme on disadvantaged areas, it was not enough to record only the location of projects. Instead, the acid test was to measure the extent to which jobs were going to people who actually lived in these areas.

19. The Comptroller and Auditor General’s report assessed Invest NI’s performance against its targets from its establishment in 2002 to March 2011, as well as considering wider aspects of performance in areas including job creation, quality and sustainability; support for Research and Development (R&D); and the promotion of economic development in disadvantaged areas. The C&AG also benchmarked Invest NI’s performance with other economic development agencies up to 2008 and reviewed Invest NI’s change management programme.

20. In taking evidence, the Committee explored four broad themes:

  • performance against targets;
  • job quality, retention and sustainability;
  • addressing disadvantage and social mobility; and
  • performance validation and benchmarking.

Performance against targets

Invest NI’s performance has improved since 2008

21. In its 2008-11 Corporate Plan period, Invest NI achieved all nine of its key performance indicators. Performance was particularly good in respect of job quality (5,636 jobs with salaries above the Northern Ireland private sector average were promoted against a target of 5,500) and R&D (£327 million of business expenditure on R&D was secured compared to the target of £120 million). The Committee welcomes this performance, which has been achieved against the background of a severe economic downturn. This is a considerable improvement on the 2002-08 period, when a significant proportion of targets were not met. Evidence provided to the Committee suggests that a strong performance is being sustained in the latest Corporate Plan period (2011-15), particularly in respect of job quality, R&D investment by businesses, and in processing times for assistance applications.

Performance is still not measured on the basis of actual outcomes

22. Most of Invest NI’s key performance indicators have been reported on the basis of promises by investors or anticipated results at the start of projects, rather than actual outcomes achieved. This has been the case for jobs, investment secured and job quality. In addition, there has only been informal and fragmented performance measurement on job sustainability. This is a matter of concern to the Committee.

23. In 2000, the Public Accounts Committee in Westminster examined the performance of IDB (Invest NI’s predecessor) in promoting inward investment in Northern Ireland. The Westminster Committee concluded that a significant proportion of jobs promised at the outset of projects were not actually created, and recommended that performance for jobs created be reported as standard as future. Although this recommendation was implemented by IDB, it was not sustained by Invest NI after its establishment. Instead, Invest NI has reported on the basis of jobs “promoted” (those promised by the investor at the outset of a project). The Committee was unconvinced by the Department’s argument that Invest NI’s focus on productivity and wealth creation was the reason behind the lack of performance reporting and formal targets for jobs created. The Committee consider the fundamental test of Invest NI’s performance to be the delivery of sustainable jobs on the ground.

24. The Department accepted that it should be doing more to measure job creation and report on this important outcome. The Committee was told that Invest NI had implemented systems recently which will allow better measurement of job creation. However, the lag effect associated with economic development projects means that it will take several years before meaningful job creation data becomes available. The Committee considers it unacceptable that it has taken Invest NI over a decade to establish systems to measure actual outcomes. In the Committee’s view, this important element of performance measurement should have been given a much greater priority before now, especially given that Invest NI spent almost £520 million on Selective Financial Assistance grants between 2002 and 2011.

25. The systems being introduced should eventually bring much greater clarity on how many jobs “promoted” are actually created. Analysis in the C&AG’s reported suggested a 75% conversion rate, but also concluded that this is likely to be lower owing to some jobs not having been sustained. Evidence provided to the Committee indicated that of 2,400 jobs “promoted” under Invest NI’s Jobs Fund, 1,021 had been created (that is a 42.5% conversion rate). This reflects the fact that this programme is still in its early stages. The Committee expects Invest NI to report back on progress and hopes to see the conversion rate increase as time goes on.

Recommendation 1

Now that Invest NI has developed systems for measuring outcomes, the Committee recommends that formal targets are established for job creation, sustainability, job quality and funds invested. Performance should be reported annually from 2014-15 on the basis of actual outcomes.

Ongoing scrutiny is required to ensure that targets are stretching and challenging

26. Achieving targets can only be regarded as a successful outcome if they are set at appropriately challenging levels. A number of Invest NI’s early targets were over-achieved significantly, and in some instances, subsequent targets were set at lower levels than previous performance. In Invest NI’s 2008-11 Corporate Plan period, the target for 6,500 new “promoted” inward investment jobs, was 25% lower than the 8,692 jobs “promoted” between 2005 and 2008. Whilst this target was set against a difficult economic background, the Committee is unconvinced that it was sufficiently challenging.

27. The Committee was told of challenge processes, involving review by the Department and the Office of the First Minister and Deputy First Minister, which aims to ensure that Invest NI’s targets are stretching. As a result of this process, the Committee was informed that the proposed target for “promoted” jobs in the current Programme for Government (2011-15) was uplifted from 21,000 to 25,000. However, given the examples highlighted by the C&AG of insufficiently challenging targets which were ultimately adopted, the Committee is not convinced that this challenge process has been applied consistently. Invest NI told the Committee that there are currently no mid-term reviews which would permit Invest NI’s Corporate Plan targets to be uplifted should these have been achieved, or be on course for achievement at an early stage.

Recommendation 2

The Committee recommends that Invest NI introduce a formal mid-term review process for its Corporate Plan targets, which would allow for these to be uplifted in circumstances where these have been achieved or substantially met at an early stage in the Corporate Plan period.

There are currently no targets to measure Invest NI’s performance in narrowing the productivity gap between Northern Ireland and the rest of the UK

28. The Committee was told that an important goal from the 2008-11 Programme for Government of halving the productivity gap between Northern Ireland and the rest of the UK was not carried forward into the current PfG period. The Department explained that in view of the contraction of the local economy in recent years by around 11.4% (compared to 2.9% for the UK), a decision had been taken to re-direct the focus which was applied previously to improving productivity in favour of replacing the jobs which had been lost in the local economy.

29. In the Committee’s view, the extent to which productivity levels are improved is one of the strongest indicators that the work of Invest NI is having a meaningful impact on improving the local economy. The Committee accepts that Invest NI cannot be held solely responsible for closing the productivity gap with the rest of the UK, but given the significant budget allocated to it, it is a key influencer in this regard. Despite all the welcome individual successes from Invest NI’s work which were highlighted to the Committee, it is of great concern that the local economy has contracted by such a margin. Furthermore, the Committee does not accept the principle that a target should be abandoned because it is not on course for achievement.

Recommendation 3

The Committee recommends that DETI should set a fair but challenging target which measures Invest NI’s contribution to improving local productivity. The Committee is also strongly of the view that a target for closing the productivity gap with the rest of the UK needs to be re-introduced into the next Programme for Government.

Invest NI said the ability to vary Corporation Tax levels would boost the Northern Ireland economy

30. The Committee heard evidence from Invest NI that if the Assembly were able to lower Corporation Tax levels, this would assist significantly in bringing more jobs and higher quality investment projects to Northern Ireland. Invest NI told the Committee that the vast majority of projects that it attracts to Northern Ireland are “cost centre” projects, that is, they are not influenced by tax levels. Invest NI also acknowledged that currently, it is unable to compete for higher quality “profit centre” projects because it does not have the necessary Corporation Tax proposition for these. Invest NI informed the Committee that lowering Corporation Tax could help secure an additional 7,000 jobs annually for Northern Ireland from foreign investors.

31. The Committee endorses Invest NI’s view that the local Assembly having the power to lower Corporation Tax rates would be beneficial to the economy and urges the Executive to continue pursuing this matter with the UK Treasury.

Invest NI needs to learn lessons from past investments offers for projects which did not come to Northern Ireland

32. The Committee were keen to know how Invest NI learned lessons from projects which Invest NI had sought to bring to Northern Ireland, but which were ultimately not secured. However, Invest NI did not convince the Committee in its efforts to demonstrate that it takes this issue seriously. Learning lessons from past activities is a vital process for all organisations. In the Committee’s view, Invest NI must do more in this area.

Job quality, retention and sustainability

A review of Invest NI’s Selective Financial Assistance (SFA) programme is long overdue

33. The SFA programme is Invest NI’s main tool for attracting investment to Northern Ireland. Up to March 2011, £519 million had been spent on this programme. Despite the significant expenditure on this programme, the only evaluation of it occurred in 2004. This showed additionality 2 levels of 50%. In other words, 50% of the jobs from this programme would have been secured without the financial assistance which had been paid out by Invest NI. The Committee does not regard this as a good value for money outcome.

34. During the course of the C&AG’s examination, Invest NI commenced an updated review of its Selective Financial Assistance programme, including measurement of levels of additionality and deadweight 3 between 2004 and 2010. The Committee was told by the Department that this review would be completed by the end of March 2013. The Committee welcomes this review but considers it to be more than overdue. The Department acknowledges that it has not produced any estimates of additionality since those undertaken in 2004. In the Committee’s view, the performance of SFA should have been subject to much more detailed and regular scrutiny to determine whether it was delivering value for money, and whether performance in important indicators such as additionality and deadweight had improved.

Invest NI has not consistently measured jobs created and jobs lost

35. The Committee is concerned at the lack of clarity with regard to net job movement within Invest NI’s client companies (that is, the extent to which jobs created are counter-balanced by jobs lost). The C&AG’s report noted that total jobs increased by only 328 between 2002-03 and 2006-07 (28,873 jobs were gained and 28,545 lost). This was clearly a poor outcome, given that over £360 million was spent on SFA in this period. The Committee is also aware of unvalidated figures compiled by Invest NI, which showed net employment in assisted companies between 2007-08 and 2009-10 to have reduced by 5,800.

36. The Committee asked Invest NI for updated analysis of net job movement between 2002 and 2011. The figures indicated a net increase of 14,107 jobs between 2005 and 2011 (with 34,389 jobs created and 20,282 lost). However, these figures provide an incomplete picture of performance, as they take no account of projects supported prior to 2005, within which the Committee understands thousands of jobs were subsequently lost. The Committee considers that analysis of jobs created and lost within all client companies since 2002 would provide the best measurement for net job movement.

37. The Committee also asked for details of jobs created and lost within the five largest recipients of Invest NI assistance between 2002 and 2008 (which received a combined £144.5 million during this period). Invest NI could not supply figures for job losses within these companies during this period. Given the large amounts of grant aid provided to these projects, the Committee considers that tracking and measurement of such basic outcomes by Invest NI should have been much stronger.

38. The Committee has been critical of Invest NI’s limited use of clawback powers in the past when projects have not delivered the outcomes expected. Invest NI told the Committee that practically all offers of support now contained clawback provisions. Between 2008 and 2012 it initiated clawback proceedings in 260 cases and recovered nearly £25 million as a result. This is welcome. The Committee noted that Invest NI also wrote off more than £12 million of invoices for clawback as unrecoverable debts in this period. At 31 December 2012, another £16 million had yet to be recovered. In the Committee’s view, the proportion of this debt that has not been recovered is too high. The issue of clawback is an area that will require continued attention from Invest NI.

The quality of jobs promoted by Invest NI has improved in recent years

39. The Committee welcomes the marked improvement in the quality of jobs secured by Invest NI in recent years. Up to March 2008, only 50% of newly promoted jobs had salaries above the Northern Ireland private sector average, with a high proportion of jobs being in the low value “call centre” sector. In the 2008-11 period, when Invest NI became one of the first economic development agencies to introduce formal job quality targets, almost 75% of jobs promoted met this criteria and over 44% of jobs had salaries which were at least 25% above the Northern Ireland private sector average. However, the Committee is again aware that these results are on the basis of investors’ promises, rather than actual outcomes.

40. The duration of jobs is another key performance indicator for economic development agencies. Evidence provided to the Committee suggested that whilst Invest NI has monitored job duration at an individual project level, it has not yet formally measured or reported performance in this area. The Committee heard assurances that the new systems introduced recently to track actual outcomes will facilitate better measurement of job sustainability.

Invest NI needs to ensure the availability of appropriate skills to attract future growth sectors

41. The Committee was told that the Assured Skills Programme which was jointly developed by Invest NI and the Department for Employment and Learning (DEL) aims to provide an assurance to potential investors that if they locate in Northern Ireland, they will be provided with a workforce which has the skills set required for their particular project. The Committee regards this programme as a useful tool in assisting Invest NI’s efforts to secure inward investment. However, the Committee is not convinced that the Department, Invest NI and DEL have integrated fully in a concerted approach to economic development. It is the growth sectors of the future such as ICT, pharmaceuticals and the creative industries which must be targeted if the local economy is to make a decisive leap forward over the next 10 years, and any longer-term training and skills programmes will need to focus on these. Such a programme will be particularly relevant should powers on Corporation Tax be devolved to the Northern Ireland Assembly, as Invest NI will be better equipped to compete for more higher-value and higher-skilled projects.

Recommendation 4

The Committee recommends that Invest NI works collaboratively with the Department and DEL to identify the growth sectors of the future which need to be targeted to help strengthen the local economy, and to make available appropriate training to skill the Northern Ireland workforce in these areas.

The work of Invest NI’s “virtual small business unit” is not being measured effectively

42. The Committee welcomes Invest NI’s widening focus on all businesses in the economy rather than on a select client group. This inevitably requires a focus on small businesses which are the backbone of the Northern Ireland economy. The Committee is unconvinced that the establishment of a “virtual” small business unit by Invest NI will provide sufficient focus to this key business sector. While the Committee saw evidence that Invest NI has assisted a significant number of small businesses in some form, the extent of support provided, and the outcomes achieved from this were unclear. The Committee asked for a summary of the key performance indicators of the “virtual” small business unit, but was not provided with any evidence, or meaningful performance measurement in this area. The Committee considers that reporting of outcomes for small businesses assisted by Invest NI should be more transparent.

Recommendation 5

The Committee recommends that Invest NI measures and reports key quantitative outcomes achieved through the operations of its “virtual” small business unit, including jobs created and increases in sales and exports. This will help the Department and Invest NI assess whether current arrangements are meeting the needs of the sector, or whether a dedicated small business unit as envisaged by the Barnett report would better serve this purpose.

Addressing disadvantage and social mobility

DETI and Invest NI need to consider alternative economic development strategies in view of the potential loss of Northern Ireland’s special area status

43. Witnesses told of a number of issues which have the potential to impact significantly on Invest NI’s current assistance programmes:

  • Northern Ireland’s entitlement to 100% assisted area status may be withdrawn by the Westminster government;
  • the latest EU draft Regional Aid Guidelines could result in the region’s special status being removed post 2013; and
  • the latest EU guidelines may also result in the ability to offer any support to companies employing more than 250 employees being removed across Europe.

The Committee is mindful that such developments would significantly curtail Invest NI’s ability to offer Selective Financial Assistance, which has historically been its main means of promoting economic development in Northern Ireland.

44. The Department and Invest NI have known for some time now that there may be changes on these fronts. The Department has continued to lobby both the Westminster government and the EU for the retention of special status for Northern Ireland, but there are no guarantees that these efforts will be successful. The Committee is concerned that it has seen little tangible evidence that the Department and Invest NI have been working to develop alternative strategies for promoting economic development.

Recommendation 6

There is a real prospect of Northern Ireland losing both its 100% assisted area status in the future and its EU special Regional Aid status post 2013, and therefore being unable to offer assistance to large companies. In light of this, the Committee recommends that the Department and Invest NI develop clear alternative strategies and measures for promoting economic development in Northern Ireland as a matter of urgency.

Invest NI’s current target for promoting economic development in disadvantaged areas is weak

45. In its first two Corporate Plan periods, Invest NI came very close to meeting its target of locating 75% of Foreign Direct Investment projects in disadvantaged areas (performance achieved was 74.3% between 2002 and 2005, and 69% between 2005 and 2008). However, this target was subsequently changed to “encourage” 70% of FDI projects to be located “within ten miles” of a disadvantaged area. The Committee considers this to be a significant weakening of the target. Indeed, given the demographics of Northern Ireland, it is difficult to imagine how this target could fail to be achieved, and the ease with which it was met in the 2008-11 period strongly supports this conclusion (actual performance was 92%). The weakness of the measure is starkly illustrated by the fact that a project located in the North Down “Gold Coast” would contribute to meeting the target, as it is within 10 miles of disadvantaged areas in East Belfast.

46. While the Committee recognises that Invest NI cannot force investors to locate in particular areas, it considers the most meaningful performance measure in this area to be the extent to which people living in disadvantaged areas secure employment in Invest NI supported projects. The Committee is unconvinced by evidence presented to it that the gathering of such data is not feasible, due to data protection issues. In the Committee’s view, capturing this information will provide a tangible measure of success in promoting economic development in deprived areas.

Recommendation 7

The Committee considers that Invest NI’s current target for promoting inward investment in disadvantaged areas needs to be strengthened significantly. Notwithstanding difficulties in obtaining data, the Committee recommends that Invest NI sets a target which measures the number of people living in disadvantaged areas who obtain employment in assisted projects and reports performance on this basis.

The Department and Invest NI need to do more to assess the impact of welfare reform on disadvantage

47. The Department told the Committee that it had undertaken some work on the likely impact of welfare reform on levels of disadvantage in Northern Ireland. It was subsequently unable to provide any evidence of this. Instead, it merely highlighted that responsibility for the production of social deprivation statistics in Northern Ireland lay with the Northern Ireland Statistics and Research Agency (NISRA) and asserted that it is for that body to consider the impact of welfare reform on spatial deprivation. This is unacceptable. An understanding of the impact of welfare reform on the levels and patterns of deprivation in Northern Ireland will be important for Invest NI’s future plans to address this issue. In the Committee’s view, that planning should not wait, and it is now essential that the Department and Invest NI work closely with NISRA to take this forward.

Despite Invest NI’s efforts there remains an uneven distribution of investment across Northern Ireland

48. There is significant disparity between assistance levels received by individual district council areas (DCA’s). For example, excluding Belfast, the six DCA’s in receipt of the highest levels of assistance 4 by Invest NI between 2002-03 and 2010-11 were allocated £381 million, which was over nine times greater than the £41 million allocated to the six DCA’s with the lowest levels 5. Whilst the Committee accepts that the choice of location is largely driven by investors’ needs, it is concerned that the level of disparity is so marked. In its view, this highlights the need for a more joined up approach. Invest NI should work closely with stakeholders, in particular with local councils and with the Planning Service, to remove potential barriers to investment and develop the propositions that local areas can offer to investors.

Recommendation 8

The Committee recommends that Invest NI consider redressing the geographic imbalance in financial assistance offers made to investing companies. Invest NI should develop a dispersal strategy, working closely with stakeholders including local councils and the Planning Service to improve the propositions and infrastructures on offer to potential investors.

Performance validation and benchmarking

Invest NI’s performance data has not been subject to independent or external validation

49. The quality, completeness and accuracy of Invest NI’s performance data is fundamental to demonstrating the value and impact of its activities. In response to the Barnett 6 conclusion that no organisation should have primary responsibility for reporting on its own performance, the Department assumed responsibility for reporting Invest NI’s performance in 2011-12.

50. While the Committee welcomes this development, it considers that the process of self-assessment by Invest NI was permitted to continue for too long. The Committee is concerned that Invest NI’s performance data has been subject to little or no external validation. Northern Ireland Statistics and Research Agency statisticians and economists work in both the Department and Invest NI. The Committee welcomes this but does not consider that this provides the required level of assurance which would be gained from external and independent validation. The Committee cannot agree with the Department’s argument that it does not consider it necessary to commission independent consultants to validate outputs. Indeed, the Committee is of the view that the Department appears to be resisting independent validation of performance, which represents best practice.

Recommendation 9

The Committee recommends that the Department commissions independent validation of Invest NI’s performance data on an annual basis in order to provide assurance as to its completeness and accuracy.

Invest NI has not benchmarked its performance since its establishment, and has only recently committed to doing so

51. The Committee is a firm advocate of benchmarking, and considers that when undertaken properly it can be a key tool for driving improved performance. However, it is clear that Invest NI carried out little in the way of comprehensive or meaningful benchmarking of its performance against other economic development agencies prior to the publication of the C&AG’s report in March 2012. Instead, it was the C&AG’s review which took the initiative in this respect. The Committee is firmly of the view that Invest NI has primary responsibility for benchmarking its performance and considers it disappointing that it was not more pro-active in this regard, in view of the large sums of public money allocated to it.

52. The Committee welcomes Invest NI’s plans to commence ongoing benchmarking of its efficiency and effectiveness in the near future. However, the Committee also wishes to emphasise the importance of future benchmarking taking account of all key areas and indicators, including those in which Invest NI’s comparative performance is weak as well as strong. Indeed, it is through focusing on areas of weakness that benchmarking can provide the greatest value.

1 Eighteenth Report – The Industrial Development Board for Northern Ireland: Inward Investment (HC 66) 25 May 2000.

2 Additionality – The minimum financial assistance necessary to ensure that an investment project proceeds.

3 Deadweight – Where a project would have been occurred without assistance.

4 Craigavon, Derry, Antrim, Newry and Mourne, Newtonabbey and Lisburn.

5 Moyle, Ballymoney, Banbridge, Carrickfergus, Down and Omagh.

6 The `Barnett’ report or the Independent Review of Economic Performance was commissioned by the Minister for Enterprise, Trade and Investment and published in September 2009.

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