Official Report (Hansard)

Session: 2011/2012

Date: Wednesday, 17 June 2009

Members present for all or part of the proceedings:

Mr Molloy (Acting Chairperson) 
Mrs Naomi Long 
Ms Martina Anderson 
Mr Tom Elliott 
Mr Ian McCrea 
Mr Barry McElduff 
Mr Stephen Moutray 
Mr Jim Shannon

Witnesses:

Mr Bobby Clulow ) Office of the First Minister and deputy First Minister 
Mr Damian Prince

The Acting Chairperson (Mr Molloy):

Damian and Bobby, you are welcome. I apologise for the absence of the Chairperson; I am standing in for him. Perhaps you will make a short presentation, and members may then wish to ask questions.

Mr Damian Price (Office of the First Minister and deputy First Minister):

Thank you and good afternoon. Joining me is Mr Bobby Clulow, the departmental economist. Today I will provide the Committee with some information about the European economic recovery plan, but, more particularly, I would like to discuss with the Committee how the remedial actions that have been taken locally in response to the economic crisis correspond with recommendations from Europe.

Members have received a copy of the recovery plan, and will know that its strategic aims are to swiftly stimulate demand and boost consumer confidence; to lessen the human cost of the economic downturn; to help Europe to prepare to take advantage of growth when it returns, and to speed up the shift towards a low-carbon economy. The Commission has suggested a set of 10 measures, brigaded under the headings of its priority areas, which are: supporting people; supporting businesses, developing infrastructure and energy; and promoting research and innovation.

Throughout 2008, as the credit crunch and the economic downturn unfolded, the First Minister and deputy First Minister met with a series of local stakeholder groups to better understand how the crisis was affecting Northern Ireland. As a result of those meetings and engagement with Executive colleagues, Ministers were able to bring forward a package of measures on 15 December 2008 to support local people and business.

That package was brigaded round the themes of energy and fuel poverty; dealing with debt and unemployment; helping local people and households; supporting businesses; and supporting the housing and construction sector.

There is considerable agreement between the themes identified by Europe and our package. To illustrate that further, I will explain each of the 10 measures identified in the European recovery plan and illustrate how they have been dealt with in the Northern Ireland approach.

First, the Commission proposes that there be an employment support initiative. The European proposal is to reinforce the skills base and training opportunities, particularly for disadvantaged groups of workers. Public service agreement (PSA) 3 of our Programme for Government is dedicated to promoting skills. On 26 May 2009, Sir Reg Empey made a statement to the Assembly in which he set out proposals for the Skillsafe apprentice plan. That plan proposes the payment of a training allowance to apprentices who are working short-time hours and completing training, and it fits squarely with European recommendations in aiming to sustain our local skills base while helping those who are among the lowest paid.

The Department for Employment and Learning (DEL) has a range of schemes to protect and preserve employment and grow skills. They include the Bridge to Employment programme, business improvement training and work development forums. To mitigate the impact of unemployment and to enhance support for those people who are facing redundancy, the Department for Employment and Learning has also reinforced its employment advisory and support services.

Secondly, the EU proposes that a demand for labour be created, and it wants to reduce charges and costs of employment and to provide tax and VAT breaks for labour-intensive services. The issues described in that proposal focus on taxation and charges, such as National Insurance. They are reserved matters. Nevertheless, we have been able to provide some local response through using public expenditure to support employment activities. Furthermore, PSA 3 of the Programme for Government is focused on increasing local employment levels.

Thirdly, the Commission wants to improve access to financing for business. European proposals to enhance the support available from the European Investment Bank made more credit available for business, and the Commission also looked at streamlining its apparatus for clearing state-aid applications. The First Minister and deputy First Minister, along with their colleagues in the Department of Enterprise, Trade and Investment (DETI) and the Department of Finance and Personnel (DFP), have taken an active interest in talking to local banks to encourage them to support people and businesses in these difficult times. We have also taken a close interest in ensuring that we have ready access to the variety of banking schemes that are provided from Whitehall and Europe.

The Commission’s fourth proposal is to reduce the administrative burden that is on businesses and to promote entrepreneurship. The European proposals suggest a number of steps that could be taken to make it easier to set up new businesses and, in particular, to ensure that the public sector does its best to support businesses by paying invoices promptly. Invest Northern Ireland has a raft of measures to support local businesses and new businesses. The accelerated support programme is designed to help businesses through the particular difficulties arising from the credit crunch. Across the Northern Ireland Civil Service, we have implemented a 10-day prompt payment policy for the payment of invoices. That is a significant improvement on the previous 30-day payment policy.

The fifth proposal from the Commission is to step up investments to modernise Europe’s infrastructure. The European proposal centres on plans to increase spending on trans-European energy interconnections and to increase broadband rollout. Investing in local infrastructure is a central feature of the Programme for Government and the investment strategy. In the December package of measures, we identified a series of capital programmes to be used to strengthen our infrastructure as well as to support the local construction industry.

The Commission’s sixth proposal is to improve the energy efficiency of buildings. Beyond improving the energy efficiency of the fabric of the built environment, the Commission suggests that we should be imaginative when considering the financing models used for innovative energy programmes. Within our local package of measures, we included the warm homes scheme, and we have made significant steps to address fuel poverty by introducing fuel credit payment through the swift passage of the Financial Assistance Act ( Northern Ireland) 2009.

Over the summer, DETI is to consult on the strategic energy framework, among other things, as we look at the opportunities for increasing the use of renewable energy. PSA 12 in the Programme for Government is dedicated to promoting decent, energy-efficient housing and to regenerating disadvantaged areas and towns.

The seventh measure is to promote the rapid uptake of green products. The Commission’s principal suggestion is to offer tax breaks for green products. Obviously, taxation is a reserved matter, but locally we have promoted energy efficiency through renewables, and PSA 11 in the Programme for Government is dedicated to driving investment and sustainable development.

The eighth measure is to increase investments in R&D, innovation and education. The Commission encourages national Governments to consider ways of stimulating private-sector investment in research and development. In December 2008, DEL announced an allocation of £17·2 million to strengthen the all-island research base. That programme is scheduled to run until 2010-11. It will support research into a range of specialisms, from wireless technology to diet and nutrition and energy storage. PSA 1 of the Programme for Government sets targets for promoting R&D activity.

The ninth measure is to develop clean technologies for cars and construction. The European Commission’s proposal is to seek ways of growing European manufacturing, construction and automotive industries in a sustainable manner. Obviously, our investment strategy has economic, societal and environmental objectives, although DETI also has to hand the work of the local Matrix panel, which points the way towards areas in which we can use our existing talents to build opportunities for jobs and prosperity. Areas identified are life and health sciences; agri-food; advanced engineering; advanced materials and ICT.

Finally, the tenth measure is to provide high-speed Internet for all. The purpose of that final measure is to encourage Governments to work with stakeholders to develop broadband strategies to cover the full width of Europe. PSA 1 in the Programme for Government does, of course, contain local, and quite ambitious, targets for broadband access in Northern Ireland.

I hope that in my introduction I have managed to demonstrate that the local response to the credit crunch and the economic downturn is, in a large measure, in step with the proposals contained in the European economic recovery plan. It is not a perfect match, but it would be wrong if it was. The various areas of the European Union are starting from different economic positions. Moreover, some of the Commission’s recommendations are in relation to reserved matters, such as taxation. The Commission recognised that its proposals are not a one-size-fits-all plan, and President Barroso said:

“Everyone is suffering from this crisis, and everyone needs treatment, but not everyone needs the same pill.”

We have tried, and continue to try, to bring forward remedies that best suit our local circumstances.

The Acting Chairperson:

Bobby, would you like to add anything?

Mr Bobby Clulow (Office of the First Minister and deputy First Minister):

No.

Ms Anderson:

Thank you Damian, you offered a mind-full of information, and I am glad that it will be recorded in the Official Report, because I would not mind accessing it at a later stage to study it further.

The economic recovery plan refers to front-loading funds, and states that co-financing with member states will not be necessary in 2009-2010. It also mentions the European Investment Bank and partners, and the establishment of a new EU loan facility worth £500 million for microcredit facilities for those who would normally have difficulty accessing the kind of funds necessary to set up a business. How can the Executive tap into that? Can it be done directly, or will it have to go through the British Treasury? Which Department would have most responsibility for trying to access that fund? How can small and medium-sized enterprises and start-up businesses, or those who are thinking about starting up businesses, knowing that that fund will, hopefully, become available, benefit from that fund? I believe that the proposal will go before the European Council in a few days.

Mr Prince:

Thank you for the question. First, I must make it clear that I cannot represent myself as an expert on Europe and funding.

Ms Anderson:

You sounded like an expert.

Mr Prince:

Generally, DFP would take the lead on European matters in relation to funding and to setting the European budget and integrating that with our local Budget. The European Investment Bank has made funds available, and I believe that four local banks have drawn down money to make that available through their own lending procedures.

Mr Clulow:

Three local banks have drawn down an agreed total of £100 million each for loans to small and medium-sized enterprises. They are the Ulster Bank, First Trust and Bank of Ireland. The Northern Bank was in the process of applying, but I do not know how far that application has gone.

Ms Anderson:

I know that it is not your job to scrutinise or monitor how that money is spent, but once that money is secured, how do we know how it is processed and how many small and medium-sized enterprises are able to tap into it and avail themselves of it?

Mr Clulow:

The European Investment Bank gives the money through an agreement with local banks, and, immediately, it is drawn down to the banks for distribution to local businesses. It is for the island of Ireland, so banks in the North and South benefit. It is up to businesses to approach the banks to access the funds. I am not aware of the extent to which the banks have advertised that. I am conscious that they might not have spent a great deal of time doing that.

Mr Prince:

It would be fair to say that the Office of the First Minister and deputy First Minister (OFMDFM) still receives a considerable amount of correspondence from companies that say that they cannot get access to credit. They have good proposals, and we respond to each of those. Representatives

of the local banks were with the Committee for Finance and Personnel today to get a readout on how those funds are being handled and to discuss the local situation.

Our instinct is that there has been a sluggish response to the European Investment Bank funds and to the Department for Business, Enterprise and Regulatory Reform’s initiative, which was a GB scheme. The First Minister and the deputy First Minister have written to each of the four local banks and asked them for a detailed readout on how many people are applying for those loans, so that they can see how effectively they are being marketed, and how many are being turned down, so that they can consider whether the criteria are too difficult to achieve or whether the projects are simply not up to scratch.

Banks are always in a strange position. On the one hand, we have asked them to be more prudent in their lending and not to end up in the credit crunch situation and with the sub prime issues that caused the problem in the first place. At the same time, they are being asked to be sensible in how they deal with local people and local businesses and to ensure that money moves to help to grow the economy.

Mr Shannon:

Thank you for the presentation. As Martina said, it was a mountain of information. It is good to have a recovery plan, but the important issue for many people is to hold on to where they are. In your introduction, you mentioned apprenticeships and green policies, based on tax cuts or incentives. Will they come from Westminster?

Mr Prince:

A good deal of them come from Westminster, and in his pre-Budget report in December, the Chancellor outlined a series of measures that will have an effect here. For instance, he mentioned the reduction of the VAT rate and tax breaks for small businesses, such as the capacity to carry forward losses from businesses from one year to the next to offset against tax. At one stage, the argument was made that Northern Ireland had benefited from the breaks contained in the Chancellor’s pre-Budget report to the extent of about £600 million. On top of that, the package that we outlined in December comprised our own money to make things better for local people here. Through questions for oral and written answer, Ministers have outlined what they are doing on a raft of proposed measures. They have taken action on water charges, domestic rates and business rates, and they have staged interventions in bringing forward new construction projects, such as the farm nutrient scheme and other projects that have been signed up.

The investment strategy provides a tremendous boost to our hard-pressed construction industry. It is not easy, and the First Minister and deputy First Minister have said that there are limits to what they can do. However, that does not mean that the Office of the First Minister and deputy First Minister is helpless; it has been doing things. We present a report at every Executive meeting, which outlines how the December package is progressing. It outlines our view of how the crisis is developing, and it addresses comments that have been made about whether the crisis is over.

By definition, a crisis has a beginning and an end. At some stage, we will get back to a normal course of business in which we will be promoting the economy.

We were either strangely fortunate or farsighted in making the economy the priority in the Programme for Government. Therefore, many of our programmes were geared towards and firmly focused on growing the economy already. Those programmes were aimed at supporting an improvement in the skills base, helping people get away from economic inactivity, and improving our infrastructure. They covered all the things that would help us to become a more competitive, creative and innovative economy.

Therefore, we were facing in the right direction when the onslaught happened. You could say that we were in the lifeboat before the iceberg even appeared. Given the aims of those programmes, the Executive and OFMDFM help matters locally; however, Westminster takes a higher-altitude and broader look at the economy.

Mr Shannon:

You mentioned the farm nutrient scheme as an example of help that is given to the construction industry. To be fair there was a timescale for that scheme, and most of the tanks that were to be built as part of the scheme are probably nearly all completed. Surely the construction industry needs incentives for matters such as social housing, perhaps. Although the private market might not be as buoyant as it once was, the social housing issue still exists. Your submission mentioned the construction industry, but social housing is not mentioned specifically. Should social housing be included?

Mr Prince:

Social housing, and the need to invest in it, is a priority in the Programme for Government. When OFMDFM was considering the December package, it asked what could be done to put money into the construction sector quickly. However, as I understand it, a considerable social housing budget still exists for local investment.

If we are being honest, we could always do more, and more areas could be invested in. We are trying to see where to invest so that the best local improvement can be made. However, I take your point; the issue of social housing has been raised on a number of occasions, and it rings bells when investing in the construction industry and delivering social welfare issues through better homes is being discussed.

Mr Shannon:

I want to make one last point about apprenticeships. This is perhaps not the best time for businesses to be considering apprenticeships; times are harder, and a company’s turnover may be down, but its costs are still high. I am sorry; I may have missed any comment that you made on this, but were incentives offered to encourage manufacturers to employ apprentices?

Mr Prince:

DEL’s Skillsafe scheme, for example, encourages firms to keep apprentices on the books. As I understand it, as long as apprentices are undertaking training during the downtime that will benefit them as individuals and their companies, part of their wages will be offset. Therefore, the Skillsafe scheme encourages firms to keep apprentices employed and to let them complete their apprenticeships.

One threat to apprentices was local companies going out of business and apprentices having no one to sponsor them. DEL stepped in with a contingency plan that would allow the apprentices to finish their qualification, even if a local company went out of business. DEL is also working towards fostering apprentices whereby a different company could take an apprentice under its wing and keep them going.

We acknowledge that that creates difficulties for local firms that are trying to be as competitive as possible while training for the future. Those are the two edges of the DEL proposal — we can see an opportunity in the adversity that the downtime has created and take short-time working as a chance to train, look forward and move on to a new skills base.

Mr Shannon:

This is definitely my final question. The Assembly might feel that it could give immediate help with a problem that is specific to Northern Ireland. At the end of the day, if the Assembly were of that opinion, an economic recovery plan would still have to be ratified by Westminster. Is that correct? Westminster would really need to deliver on such a plan. Have I got that right?

Mr Prince:

An economic recovery plan for Northern Ireland would be in our gift, as long as we operate with our own money. Sanction from Westminster would be required if, for example, corporation tax rates were to be reduced, as was explored in the Varney proposals. In that case, we would need to engage with Westminster. However, how we spend our own money is our business.

Mr McElduff:

How satisfied is OFMDFM with the number of personnel who are assigned to take advantage of European opportunities? I hope that you can address that question. How does that workforce compare with that of other legislatures, Parliaments and Assemblies? To help a recovery plan, we must take advantage of every available opportunity. How well resourced are we? What personnel do we have in the right place? Is there a lot of work to do in that area?

Mr Prince:

In the Department?

Mr McElduff:

Yes.

Mr Prince:

I must be honest; that is not my area. The economic policy unit falls under John McMullan’s command, and another part of that is the Brussels office. I do not have a direct line of sight into that.

The Acting Chairperson:

Ronnie Hall and Mike Smyth, who appeared before the Committee previously, were critical of the lack of drawdown from the European Investment Bank. They seemed to indicate that more funds were available, but that the banks were blocking access to them. Is there any way that the Executive or Assembly can access those funds directly to help small businesses in particular, for example?

Mr Prince:

The European Investment Bank angle that I am familiar with is when money is drawn down to local banks and companies apply through local banks to see whether the loan is permissible. From my shallow knowledge of the subject, I think that other types of funding from Europe have to be negotiated through the overall structural funds and similar mechanisms. Even then, there would probably be many conditions attached to its use.

Ms Anderson:

That has triggered a thought about the economic globalisation fund. When the trade unions gave evidence to the Committee, they said that there were opportunities that the Executive or the relevant Minister did not take at the time when a massive number of people were made redundant at Seagate and elsewhere. I wonder whether lessons have been learned about opportunities that were missed during that time. Do we have the capacity now to tap into such opportunities? I hope that it does not happen but, given the way that things are going, we do not know whether we might be faced with redundancies on that massive scale again.

Mr Prince:

As I understand from my casual reading of the subject, neither the UK nor the Republic of Ireland has ever accessed that globalisation fund. The countries that have drawn down from it tend to be mostly eastern European. I think perhaps, searching my memory, Finland may have applied to it. Access to any of those funds would have to be directed through DFP and Whitehall to see whether funding could be drawn down locally.

Ms Anderson:

The trade unions said that Spain, Germany, Portugal and other countries had tapped into it and that more than just eastern European countries had applied. There were many opportunities. If we do not identify, tap into and maximise those opportunities, other countries will tap into it and we will miss out.

Mr Prince:

You could be right, Martina. I defer to your superior knowledge; it is not something that I deal with, to be honest.

The Acting Chairperson:

There are no other questions, so I thank you for your presentation.

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