In attendance: Mrs C White (Committee Clerk)
Mr M Anderson (Assistant Committee Clerk)
Miss J Presho (Executive Support)
Mr D Donaldson (Administrative Support)

1.1. The Minister and officials from the Department of Enterprise, Trade and Investment gave evidence, in public, to the Committee on the Department’s response to the Committee’s report on the Strategy 2010 Inquiry. The Minister and officials answered a number of questions put by the Committee.

Agreed – to publish the Department’s response to the Committee’s report on the Strategy 2010 Inquiry along with the Minutes of Evidence of the meeting on 4 July (am) and a response from the Department of Higher and Further Education, Training and Employment in respect of recommendation 16 as a Special Report.

The Committee ordered that the Special Report be printed.

1.

The Chairperson: Good morning, Minister. You and your officials are welcome. Do you wish to say something before we start?

2.

The Minister of Enterprise, Trade and Investment (Sir Reg Empey): Thank you again for the opportunity to appear before the Committee. There is not much point in wasting time telling Members what they already know. Clearly, the Committee has put a great deal of time and effort into the report, and we have tried to respond as best we can. Several strategic issues were raised in the report, and there are still areas — indeed differences — that we want to explore. Perhaps, we should focus on those and see whether we can nudge towards some kind of consensus.

3.

Generally speaking, the broad strategy is becoming clear, although it is always subject to more or less annual review. The Programme for Government can be reviewed annually. We must make the best attempt at any given time. We must be sufficiently flexible to change in the light of circumstances; we cannot simply set down our tramlines and stick rigidly to them. We must bear in mind what is going on in the outside world. Perhaps, we should concentrate on the questions and get into the main business.

4.

Dr O’Hagan: I want to turn first of all to the role and the function of the Economic Development Forum (EDF). The Committee and the Department would probably put a different emphasis on that. We would like to see a much stronger, expanded EDF with a more central role in how we bring economic development strategy forward. Your response said that the forum had recently been expanded, to include representatives from higher and further education. I understand that those are the only extra members. We still believe that there must be stronger representation across the board, particularly from the voluntary and community sectors, which are growing in importance. Stronger representation from local government is also needed. Are there any plans to address that?

5.

Sir Reg Empey: Following your report, I invited representatives of further and higher education to sit on the EDF, and they attended their first meeting in June. I consulted Dr Farren, who conducted a trawl and produced two names. I later wrote to the people concerned and invited them to join. I did that in response to your report.

6.

I have no difficulty in principle with local government representation, but the practical problem is that there is no universally supported local government organisation to which I can go to get two names. We would have to select people arbitrarily. There is no mechanism for local government itself to choose representatives. I have no objection to the idea of picking someone from local government and putting them on the EDF, but it would be my choice rather than theirs, and that could be a difficulty. There is a representative of the Society of Local Authority Chief Executives (SOLACE) — Mike McGuckin from Cookstown District Council. However, that is the only local government representation. It is a practical problem, rather than a problem of principle.

7.

The voluntary and community sector is strongly represented on the EDF, by people such as Seamus McAreevy. The organisation can hardly find a room to accommodate it, so large has it grown. Its purpose is to advise the Minister on economic matters in general. It meets quarterly, and we provide a secretarial function. Mr Gregory Campbell, the Minister for Regional Development, and Dr Farren, the Minister of Higher and Further Education, Training and Employment, are invited to the EDF. Dr Farren regularly attends and contributes, and I am chairman.

8.

The EDF’s role is advisory, but in my experience, no major body on it — representing trade unions, farmers, rural development or business — sees participation as meaning that it has abandoned the right to make its own representations directly to the Department. The problem is that members do not necessarily reach universally accepted collective positions, since employers’ organisations may take one view, while the trade union movement takes another. However, they are there to advise and share and put forward ideas. The Department puts a lot of effort into it, and Anne Conaty, a key official, has been liaising with the EDF. We work together and we have a good working relationship, but I feel that we should not create another vehicle that might confuse things.

9.

We must remember that the Civic Forum is specifically designed to be a sounding board for a range of social and economic matters. There is also this Committee, which has a primary role in helping the Department to formulate policy. The EDF predated the Civic Forum and the Committee, but its role cannot be anything other than advisory. The Economic Development Forum’s members do not want anything else, and they say privately to me that they reserve the right to bring their point of view directly to the Department. Getting a collective view from all those people would be an extremely ambitious project. That is my only reservation. There could be some confusion about the role of this Committee and confusion about the role of the Civic Forum, which was formed in such a way as to ensure that all the social partners were represented.

10.

I value the EDF. I have attended and chaired all its meetings in the past 18 months, and following ‘Strategy 2010’, it will have a role to play. I have accepted your suggestions for expanding it, and I have done that. Indeed, the representatives attended the last meeting. I have an open mind on local government representation. My only difficulty is that if I were to select somebody from local government, it would be an arbitrary choice, because there is no mechanism to get an agreed local government representative. However, I am prepared to do that, if the Committee feels that it would be advisable to persist.

11.

Dr O’Hagan: The last line of the third bullet point in your response to recommendation 15 states:

"It is expected that the results of this exercise" —

that is the index of deprivation and the work of Mike Nobel —

"will inform the geographic targeting of resources".

12.

What is meant by "geographic targeting"?

13.

Sir Reg Empey: Geographic targeting takes several forms. The designation of new targeting social need (TSN) areas is an attempt to decide where resources should be targeted. That designation has changed since the original ones were drawn up. Updating the New TSN action plans is a separate issue. If we get the information, we will cross-reference it with our current designations.

14.

A number of districts are unhappy that they have not been designated. In Belfast, for example, many people feel that the standard way in which wards are designated is unfair, because it omits significant pockets of deprivation. The Knock ward in Belfast includes areas such as the Clarawood estate; Upper Malone includes Taughmonagh. The broad statistics for those areas look OK, but the reality is not OK. We must be careful about those areas. Too rigid a position can lead to the omission of areas where people are in difficulty. The statistics of the ward as a whole are offset by, for example, the fact that a person may live in an area such as Upper Malone, which is apparently affluent. Individuals who might not live in a poverty-stricken area could still be suffering from poverty.

15.

We must be mindful of the need to review the policy continuously. If the policy is succeeding, some areas should drop out. No one is saying that the position that we have at the moment is universally accepted. We must always be able to change.

16.

Dr O’Hagan: Should the project be more focused?

17.

Sir Reg Empey: Yes. In Belfast — Dr McDonnell will know about this — there was a continuous stream of criticism about the way in which areas were designated. We eventually developed the idea of a shadow area. In other words, if someone lived in a ward that was not a designated area of deprivation but was next door to or on the edge of an area that was, the Government would take that into account when deciding whether a project should be supported.

18.

There is also concern that there is a lot of poverty in rural areas that does not show up because many of the properties in rural areas are owner-occupied. It is clear that in areas such as Fermanagh, there is a high concentration of unfit housing. However, the problem mostly affects privately owned property rather than local authority or Housing Executive properties. We must keep things constantly under review. We cannot adopt too rigid an attitude to the project or we will miss people out.

19.

Dr O’Hagan: In recommendation 16, the Committee made a reference to the FIT (‘Fastrack to IT’) programme, but there was no response to that. Did anyone in the Department consider the programme?

20.

Sir Reg Empey: I am not fully au fait with the matter.

21.

Mr McConnell: I am sorry that we did not cover that specifically. The FIT programme is based in the Republic, I think.

22.

Dr O’Hagan: Dublin and Scotland have that programme.

23.

The Chairperson: Scottish Enterprise told us that they had come across the programme in Dublin. They thought that it was one of the most useful programmes that they had ever seen. We investigated it and included it in our report.

24.

Mr McConnell: The programme was not mentioned in the response. Such a programme would be the responsibility of the Department of Higher and Further Education, Training and Employment. That Department takes the line that, although it is an interesting programme, it has a range of similar programmes to address the same problem here.

25.

The programme trains young unemployed people in IT through a fast-track process. I think that the Department of Higher and Further Education, Training and Employment would say that it covers that problem in different ways through their own schemes. We could ask that Department for a note about that.

26.

Sir Reg Empey: It would be best to get you a specific response on that matter. We will have to go to the Department of Higher and Further Education, Training and Employment to get that.

27.

The Chairperson: The key point that the Scottish Enterprise made was that the demand for such work was driven by the economy. The economy needed graduates for the IT sector, and the programme was developed because of that demand.

28.

Sir Reg Empey: A year ago, in the heady days when the telecoms companies were struggling to find staff, the Department of Higher and Further Education, Training and Employment set up special teams in some of the big companies. With the help of the colleges of further and higher education, the Department of Higher and Further Education, Training and Employment also ran courses tailored to specific companies. To be fair to Dr Farren’s colleagues, they delivered what was needed. They had a scheme for Nortel Networks, which is just concluding. They did a good job in upgrading. It was a fast track scheme. Staff went into the factory to determine the needs of the personnel staff. They had special programmes running in local colleges of further and higher education. I must admit that I am not sure what the scheme is called, but it allows them to react quickly.

29.

We will get a note from the Department of Higher and Further Education, Training and Employment — or the Department of Learning and Employment or whatever it is going to be called after today — and see whether they have the best scheme and whether there is something in this idea that can benefit us. I will do that as quickly as possible.

30.

Dr O’Hagan: In recommendation 17, several initiatives are mentioned in the response. Are there measurements in place to assess the effectiveness of those initiatives?

31.

Sir Reg Empey: That is also the responsibility of the Department for Higher and Further Education, Training and Employment. My understanding is that that Department is obliged to evaluate all the schemes that it runs. The departmental corporate plan of the Department of Higher and Further Education, Training and Employment commits that Department to monitoring all its programmes against certain benchmarks and targets. We do not run that scheme.

32.

The targets for work in that area in the Programme for Government are ambitious. They are subject to annual review, as is every other part of the Programme for Government. The Department of Higher and Further Education, Training and Employment will be judged on the effectiveness of its schemes, and we can judge that only when we get the evaluation reports for the various schemes.

33.

I have no reason at this stage to challenge or complain about how the Department of Higher and Further Education, Training and Employment deals with the matter, but it would be less than honest to say that I had a hands-on appreciation of each scheme; I do not. I do not have access to that sort of information; only the Minister, Dr Farren, does. We sent out to the relevant Departments requests that we felt were not for us. The Department of Higher and Further Education, Training and Employment deals with a number of them and gave us the information. It is not my assessment; it is their assessment of their own schemes. I have no reason to doubt the accuracy of what they have given us.

34.

We shall communicate with the Department of Higher and Further Education, Training and Employment on the FIT programme. If the Committee has specific complaints or concerns, we will take them up with that Department. However, there are clear commitments in their own departmental corporate plan, and there is also the over-arching commitment in the Programme for Government. Much effort has been put into dealing with social inclusion and poverty. All those things will be judged in that light. Certainly, we can raise specific concerns, but the response has come from the Department of Higher and Further Education, Training and Employment, and I can only assume that it is an accurate response.

35.

Mr McClarty: Recommendation 6 relates to tax exemption for creative industries. I am well aware that taxation is a reserved matter, but I would like to know whether the Department has assessed the comparative tax climates for creative industries in Northern Ireland and the Republic of Ireland? Have all possible measures been taken to address any tax differential?

36.

Sir Reg Empey: I am acutely aware of that fact; that point has been made to us on several occasions. Ten days ago, in conjunction with the Department of Higher and Further Education, Training and Employment, the Department of Education and the Department of Culture, Arts and Leisure, we launched the creative industry group at the Odyssey Centre with Prof Ken Robinson. Creative industry is a growing sector and has the potential to provide a lot of employment in Northern Ireland.

37.

I have written to Mr Durkan to draw his attention to the fact that the tax situation puts us at a competitive disadvantage to the Republic. My Department has raised a plethora of tax issues with him in recent months — quarry tax, corporation tax, climate change levy and others. His reply stated that he is invited annually to raise taxation issues that affect Northern Ireland with the Treasury, and he has given me an undertaking that he will do that.

38.

The Secretary of State met each departmental Minister about six weeks ago. As the Secretary of State is our representative in the Cabinet, I raised taxation issues with him. He has undertaken to form a group to press the Treasury, when it is introducing or reviewing taxes, to pay attention to the issues that may affect our region only. We drew particular attention to the quarry tax. Only a lunatic could have produced a tax that pays no attention to a land border; people need only drive over the border. Four thousand jobs in Northern Ireland are at risk — for nothing. Mr Durkan is acutely aware of that. I am not the only person who is getting at him about tax issues.

39.

The climate change levy was a huge battle with the Treasury. We have made some progress, but not as much as we would have liked. There is the ongoing taxation issue and the competitive disadvantage that that creates. The Committee is preaching to the converted on this issue. The only chink in the armour has been the way in which the Treasury has allowed us to treat capital allowances to give us a faster write-off. We won that concession from the Chancellor.

40.

The Republic has a big advantage in the tax treatment of the creative industries. We need something that is equivalent, whether it is some kind of write-off potential or the ability to treat the background and research work that people in that sector carry out as capital, so that we could get a write-off at an early stage. We can put forward those ideas, but the Department of Finance and Personnel is already fully aware of our views.

41.

Mr McClarty: My second question relates to recommendation 28. It is generally accepted that the commercialisation of new technologies offers huge potential for employment. In my constituency, there is a great degree of optimism about the establishment of the science park at the Coleraine campus. Have any measures been put in place to assess the performance of those initiatives?

42.

Sir Reg Empey: There is no doubt that recommendation 28 goes to the core of our economic development strategy. I raised the matter at Second Stage of the Industrial Development Bill. Dr McDonnell was involved in that debate.

43.

Our ability to translate the intellectual firepower of our individuals and universities into either industrial processes or services will distinguish us from the low-wage economies threatening our traditional industries. The degree to which we do that will determine our success or failure as an economy. At its core, ‘Strategy 2010’ sought to link research and development in the education sector with industry. That has been the main rationale for Dr Farren’s Department and mine. We work closely together, trying to get a joined-up approach. It is the key issue.

44.

You focused on the question of e-commerce, life- health sciences and so on; they are fundamental areas. Measurement is normal practice for any of those initiatives, some of which have European backing. There are specific requirements for evaluations to satisfy funders, whether it is our own Department, the European Union or both. All the projects are regularly assessed to find out whether we are getting value for money and to find out whether they are achieving their objectives. If not, they will be modified.

45.

There can be no doubt that this issue goes to the core of what we are doing. That is why we have taken the trouble to restructure the agencies and bring that type of issue centre stage. They are key recommendations. We will evaluate the success of the schemes. That determines whether our departmental objectives will be achieved.

46.

Ms Morrice: I have a specific interest in the single European currency. I will start with recommendation 5. Mike Smith will produce recommendations on how to offset any detrimental effects of the arrival of the single currency south of the border on 1 January 2002. Will you make money available to fund any of his recommendations, to help small business, especially those along the border, to accommodate the change?

47.

Sir Reg Empey: I must give you a Civil Service answer here, I am afraid. I cannot anticipate the recommendations or their implications at this stage. However, if there are specific recommendations, we shall take them seriously. We would not have commissioned the work if we did not think it worthwhile or necessary. We must be careful. We have run into the problem before — in the context of the petrol situation, for instance. Trying to see how we could help people around the border is an absolute nightmare.

48.

In one sense, it is self-evident that we are suffering from the currency differential. There is a huge differential — sometimes up to 30% — between the euro and the pound. On the other hand, there has been stability in the exchange rate between the dollar and the pound, which has allowed for huge growth in the rest-of-the-world section of our business activities, primarily the dollar zone and with Third-World countries. The growth in the European area last year was only 7%, and there was no growth the year before. This year, there has been some growth, despite the difficulties. To trade, companies must be extremely efficient. If the euro attains a more realistic value, our companies will be well placed.

49.

I cannot guarantee that we will accept and fund any recommendation from Mike Smith. However, we would not have commissioned the work if we had not thought that it was important. Nor will we dismiss any of the recommendations lightly. We are expecting the report in the autumn. I will keep the Committee posted. We will consider the recommendations and come to a judgement on what we will support, and whether what Mr Smith suggests has any financial implications. That is not quite the answer that you were looking for, but I cannot be any more up-front at the moment.

50.

Ms Morrice: You mentioned the decision to apply a tax to an area without taking account of a land border. We are about to apply the euro to an area without taking account of a land border. You said that when the euro is at a realistic value, it might be all right for our businesses. Can you expand on that? Will our businesses not be detrimentally affected?

51.

Sir Reg Empey: The problem is not that the pound is overvalued; the euro is undervalued. The relationship between the euro and the pound does not reflect the economic standards of either the euro or non-euro zones. All the statistics on the European economy suggest that the euro should be at a higher value.

52.

It would be suicidal to adopt the single European currency at the present rate of exchange, even if we wanted to; that differential would be round our neck forever. Apart from that, I am concerned that the euro zone has a centrally controlled interest rate. There is not sufficient convergence among the European economies: Germany requires lower interest rates, while the Republic requires higher interest rates. There is a fudge in the middle that is not helping either of them, leading to inflation in the Republic and stagnation in Germany.

53.

We are at the sharp end. There is a land border dimension with the euro and non-euro zones. Our growth in exports has been in the non-euro zone. As part of the European Union, we should expect a natural growth in trade over a prolonged period. That growth has slowed up to a large extent and is now in the dollar zone and the rest of the world, because we have had currency stability.

54.

Ms Morrice: That flies in the face of the whole ethos of the single European market.

55.

Sir Reg Empey: It is the antithesis of the single European market. Our growth should be in Europe. That is reflected in tourism figures. Although the Republic is still an important market, tourism from there has slowed up. The GB side has also slowed up, because the currency differential means that people can go further afield at comparatively cheap prices. We are sustaining a double dunt.

56.

Ms Morrice: Would you consider making the euro legal tender in Northern Ireland alongside sterling?

57.

Sir Reg Empey: That is heavy-duty stuff. We will be unable to decide that; it is not a devolved issue. Plans to introduce the euro are still ongoing. The forum preparing business for the euro is still working.

58.

Ms Morrice: It would be good for tourism. Could a shopkeeper in Newry refuse to accept a euro? Would it not be in their best interests to accept the euro and change it? That would be better for businesses dealing with tourists.

59.

Sir Reg Empey: People have been doing that with the punt.

60.

Ms Morrice: It was legal tender here in the 1980s.

61.

Sir Reg Empey: I am not sure about that. Shopkeepers have done pound-for-punt promotions, as have tourist businesses.

62.

Ms Morrice: That is unofficial. It would be more appropriate if it were to be made official.

63.

Sir Reg Empey: It is not a devolved matter. I do not know what the full implications would be. My experience of traders is that they are interested in any currency that is waved in front of them. The euro will become an actual note and coin in January 2003.

64.

Ms Morrice: That will happen in 2002.

65.

Sir Reg Empey: That will therefore happen in the natural flow of events. One can pay bills in euros at present. Companies can produce invoices in euros, although not many of them do. I am not au fait with the Treasury guidelines on when it will happen.

66.

Ms Morrice: It is a new idea to put to the Treasury.

67.

Recommendation 10 deals with clean, green production. How do we measure the effectiveness of the Industrial Research and Technology Unit (IRTU) in promoting best practice and offering financial incentives for environmental management and energy efficiency? Are the targets appropriate and could they be expanded? How can we raise the profile of those activities?

68.

Sir Reg Empey: The key is to prove to a company that there is an advantage for them. Often, there is an advantage. I have the same dilemma with health and safety, which is one of the Department of Enterprise, Trade and Investment’s responsibilities. We have been preaching to companies — particularly small companies — about the benefits that they can achieve by putting some resources into health and safety. If they do so, fewer of their employees will be off sick or injured, and the company will not have insurance claims or face loss of production. The Department has been trailing round the companies trying to get that message across. It works, because we can demonstrate to them that there is an economic advantage in it for them.

69.

We can preach to businesses about the benefits of clean and green production until we are blue in the face, but we must prove that it works — and it does. The Department of Enterprise, Trade and Investment has a number of initiatives at present. For instance, energy efficiency is inevitably related to clean, green production. We have recently acquired resources from the Carbon Trust, which is a national body set up by John Prescott. The IRTU has been given a further £900,000. We offer to companies a free assessment of their circumstances. If a company asks us to review its energy usage, we will send people from IRTU to survey the premises or their processes and recommend what can be done. We will provide grant-aid up to a certain percentage to help the company convert or alter. We hope that that will encourage companies to be more efficient. If they use less electricity, that will help the environment.

70.

There are major initiatives on waste. There was a television programme on last night about incineration processes in London. Waste is a huge problem. Local authorities do not throw rubbish on the streets or create waste — that is done by people. We are exceptionally careless in this country, and we leave stuff at our feet. We have proved to companies that they can alter their industrial practices and processes, and that they need not use much of the packaging materials that they do. The German Government is in the lead in the European Union on the matter; they have very strict rules. Each person has three waste bins at home, but we can hardly get stuff into one.

71.

Ms Morrice: What is stopping us moving faster on that?

72.

Sir Reg Empey: Several things stop us. The public is not yet as aware as it ought to be. Litter is a relatively small issue, compared to the huge volumes of waste produced by the commercial, industrial and other sectors. People in this country are careless about litter, compared with people in other European countries. We do not have the pride in our own communities that you see in other places. That is part of the problem.

73.

We are all good at producing nice glossy brochures, and I wonder whether that is necessary. The Government produce a lot of those, and this Committee can also produce a fair bit of material. Should we not use recycled materials even though it might not look well?

74.

Ms Morrice: Is it not up to the Committee and the Department of Enterprise, Trade and Investment to take the lead?

75.

Sir Reg Empey: That may be true. A journalist recently spoke to me about a glossy brochure that the Department had produced at the launch of the creative industries initiative. He said that it was probable that nobody would read it after the event. He also said that he was at a function for a report that had been produced on recycled paper. The producers of that report got a round of applause for what they had done. Perhaps, Chairman, you and I should set examples. The Department produces a huge amount of glossy reports, and I suspect that the Committee does the same. We could set an example. That is small, but it may be something to think about.

76.

On the commercial side, there are European targets to be met. I have had substantial correspondence with Michael Meacher, the Environment Minister in London, and through him with Sam Foster, the Minister of the Environment here. I know from my local government experience that we are quickly running out of places to put waste. We will have to make some tough decisions in a short time, otherwise people’s front gardens will fill with rubbish. That says something about the volume of material that we have to put away.

77.

Dr McDonnell: Mr McConnell is protecting his old bailiwick, the IRTU. How does the Department measure the cost benefit of research and development? Are research and development efforts sufficiently penetrating? Are they cross-cutting? In other words, do we have any analysis of R&D, and can we improve it?

78.

Sir Reg Empey: First, our R&D performance is below par. We are starting with a poor performance record. Approximately 0.5% of our gross domestic product goes into R&D. That level is below that of the Republic and the rest of the UK. One of the main reasons for that is that we do not have a sufficiently developed pharmaceutical sector. A lot of cash is spent on R&D in that sector. We spend a fair bit in the public sector — largely through the Department of Agriculture and Rural Development and the Department of Health, Social Services and Public Safety — but our R&D performance is below par.

79.

Dr Farren and I have agreed that part of the objectives of both our Departments is to raise the resources that go into R&D. Not only was that one of the reasons behind the formation of Invest Northern Ireland, but it was part of the results of the discussions between the Department of Higher and Further Education, Training and Employment and ourselves. Both Departments have a key role to play in that.

80.

Janet Trewsdale has given evidence to the Committee, and she has reported on the issue. The general consensus is that, although our performance is improving, it is doing so because a small number of highly motivated companies have improved their efforts. Many companies, particularly smaller companies, spend nothing on R&D. The major weaknesses lie there. We have targets to improve our R&D. When we sent round the memorandum, before the introduction of the Industrial Development Bill, Dr Farren made it clear to me that we had to ensure that the R&D spend improved.

81.

Mr McConnell is experienced in this area and can explain in detail how those projects are assessed. We have specific programmes that are designed to boost R&D. Those schemes are usually in pre-competitive and pre-market situations — I am thinking of START and similar projects.

82.

Mr McConnell: All the research shows that R&D is a good thing. R&D, along with investment in skills and capital investment, is a key driver of productivity growth. Research shows that countries with high investment in private and public sector R&D also have high rates of growth. Companies that have high relative rates of expenditure in R&D on average have a higher profitability than those with a low expenditure on R&D. The Northern Ireland Economic Council’s major report on publicly funded R&D produced a lot of research evidence that R&D was a good thing. That is our starting point.

83.

The Minister said that IRTU had run several schemes to promote R&D through the various phases from the pre-competitive research that is usually done in co-operation with the universities. As recently as six or seven years ago, the number of companies that did real collaborative research with the universities could be counted on the fingers of one hand. Today, the number is more like 60 or 70, but even that is not a large number. Pre-competitive research is possibly two to three years ahead of the market.

84.

IRTU also has a variety of schemes to help bring R&D closer to the market. The COMPETE scheme assists the development of products and processes. Six or seven years ago, only a couple of hundred companies were engaging in product and process development. Today, the figure might be more like 600 or 700. Real progress has been made.

85.

The Department conducts a survey of private sector expenditure on R&D every 2 to 3 years. It shows significantly higher growth levels in civil expenditure on R&D, compared with the rest of UK. However, Northern Ireland’s research and development expenditure as a percentage of GDP is between one half and one third lower than the rest of the UK

86.

The message is simple. We have done a lot; we have more generous schemes of assistance in this area than anyone else; we have made progress — but there is much more to do.

87.

Sir Reg Empey: R&D is one of the areas in which we are exhibiting a weakness, although it is an area in which we have great potential. It is only in the past 10 years that the universities have got their act together. There has been a huge change in the attitude of the two universities to R&D. Qubis Ltd has been running for a long time, but 10 years ago universities would have looked down their nose at any activity that was not pure academic research. Now they are focused on it. The two vice-chancellors are committed to R&D, and the Department meets them regularly. They are involved with the science park project. Both of them are excellent at that type of work. The two vice-chancellors and Gerry McKenna have done a lot at Magee and at Coleraine. They really go ahead; they are focused.

88.

I am optimistic that Northern Ireland will catch up. We are beginning to tie the institutions into the process. I hope that we can accelerate that with the changes that the Industrial Development Bill will make. We fully accept that we need to do it and that we are starting from a low base.

89.

Dr McDonnell: Is it all about R&D spending? I worry that we have ‘jargonised’ the matter and that R&D has become a panacea for all ills. I am concerned about R&D spending, overspending and wasteful spending. We are not spending money in the right places, and we are squandering money in the wrong areas. I will be specific. I am concerned about the R&D spending in the Department of Health, Social Services and Public Safety, which has a substantial budget — I will not go any further than that. I am not sure whether there are any outcomes. What is your connection with the R&D side of the Department of Health, Social Services and Public Safety?

90.

Sir Reg Empey: Two Government Departments contribute fairly heavily to the R&D spend — the Department of Health, Social Services and Public Safety and the Department of Agriculture and Rural Development. Far be it from me to be frank about the spend in other Departments, but the Department of Enterprise, Trade and Investment is aware that spend is not the only measure. There is a crude measure in place to look at the spend in Departments. The level of spend in the Department of Enterprise, Trade and Investment is so much lower than it should be that nobody is arguing with it. However, within any amount of spend there is always the potential to spend in the wrong place; you have made that case strongly. The Programme for Government has made spending an issue; the Executive have recognised its importance.

91.

In many cases, research is undertaken at commercial risk. Not all research will work; not every project that is researched comes to the market and makes money. The failure rate is high. As Committee members know, the lead-in time for biotechnology can be seven or eight years. The Department of Enterprise, Trade and Investment recently approved one or two major schemes through the Industrial Research and Technology Unit. There was a major scheme about six weeks ago, which was focused on a long-term research project, designed to bring products to the market in that area. It will take time. We are not fixated by the quantity of spend.

92.

You made a point about being under advisement from another Department and you have an interest in that. I do not feel that I can add anything.

93.

Mr McConnell: The Minister referred to the Programme for Government and in that there is a specific commitment to produce the regional innovation strategy. Our Department is leading in the production of that strategy, but other Departments, particularly the major spenders in research and development are involved. That arose out of an Northern Ireland Economic Council report which detailed concern about the lack of co-ordination in the Government’s overall expenditure in research and development. The Health and Agriculture Departments would say that their expenditure is in support of their own departmental objectives. From our point of view we would like to see them working in the context of a wider objective, the positive economic benefits. The regional innovation strategy is intended to pull this together and get a better, combined effect.

94.

Dr McDonnell: My concern is on the health side. Gerry McKenna and his friends did what they did in spite of, rather than as a result of research and development. They do not have massive support from the Department of Health, Services and Public Safety. Mr McConnell has touched upon this point. The other issue for me is that the Department would see the research and development as being in its own interests. Unfortunately those interests can be so narrow that it may not be relevant to anyone else.

95.

Sir Reg Empey: They are part of this review now.

96.

Dr McDonnell: I am perhaps riding a hobby horse but the reality is that many of our opportunities are in the biotechnical side and that research and development block is vital to the whole development.

97.

Mr Neeson: I extend my apologies for arriving late for the debate yesterday. It was not through a lack of interest.

98.

I will deal with our recommendations for considering the role of the banks and the question of loan guarantees. You have commissioned the Ulster Society of Chartered Accountants to carry out a review of the sources of funding for SMEs. We are all agreed that despite the other developments small businesses are the backbone of the Northern Ireland economy in the future. Have you had any feedback from that review?

99.

Sir Reg Empey: The review was launched at the Europa Hotel in June. The report made the fundamental point that a sufficient supply of reasonably priced capital was available. In the report they identified a number of deficiencies. I am not aware if the report has been circulated to the Committee and if not we can make copies available. We have been waiting for this report for quite some time as it has significant implications.

100.

It is a chicken and egg situation. The banks have the capital but the person with the idea cannot get that moved forward because he does not have the money, and cannot get the money because he does not have the assets to act as security and there is a catch 22 situation. The small firms loan guarantee scheme was designed to help bridge that gap. It is not working and the take-up is very low.

101.

We are actively examining that, for it was among the schemes extended during the foot-and-mouth crisis to help small businesses in the sector suffering because of the disease. It was thought it should be extended to the hospitality sector, and that duly happened. However, the take-up is generally low.

102.

You have been exposed to the American system, which has impressed us all. Two weeks ago I had a meeting in Washington with Aida Alvarez, who was formerly in charge of the Small Business Administration. Unfortunately no successor has yet been appointed, since the authorities have not even half the replacements in post. However, I was most interested in what we might do to promote this. The ideas are still very fresh in my mind, and I know the Committee was also very impressed by what it saw and heard. While there is no direct transposition, I feel there are still lessons to be learnt. It might be very valuable, Mr Chairman, if you ensured you were provided with copies of the report and had the opportunity to digest it.

103.

I am shortly to meet the banks. I naturally wrote to them all during the foot-and-mouth crisis, but now I shall convene with them for a more general meeting. While I feel the necessary capital is available, that availability does not automatically translate into action. There are one or two other important sources of finance. We have learned that a large number of American pension funds have been either obliged or persuaded to put a percentage of their resources back into their own communities. We do not have many pension funds, but there are one or two large players. We have now secured permission to proceed with the Viridian Growth Fund for Northern Ireland, which is for venture capital — a percentage of it is a pension fund, but that is a minute proportion of total assets.

104.

Pension funds operating here take money from local people to invest, and no one wishes to jeopardise that. However, Americans found their local pension funds and banks were reinvesting a percentage — perhaps 5%, which is not large enough to put a fund at risk — and so putting resources back into the community from which they had come. I do not believe we are doing that, and we must address the issue. Ultimately, the money banks hold belongs to the community, since individuals own and deposit it. It is only right that a certain amount rolls back to help generate further activity, but we are still some way from achieving that. Venture capital is becoming more available, but the report has identified certain gaps which we shall certainly follow up vigorously.

105.

However, the report was more positive than many of us would have expected. The problem is still that there are not enough start-ups or good projects coming forward; the issue is not simply lack of capital.

106.

Mr Neeson: Let us return to the American experience. In your Department’s response to us, you state that there is a different culture altogether in America, where businesses try to take advantage of loans instead of grants. We are moving away from grants, but how do we change the culture here? I feel that is an important issue.

107.

The number of women who got involved in business in the States impressed us. How do we change that culture in Northern Ireland? It is a major issue which we must address by taking advantage of the new development agency.

108.

Sir Reg Empey: You are talking to the converted on both those points, for I am acutely aware of the gender issue in business. Aida Alvarez pointed out that the engine for growth in the American economy was the small business. Their experience was that more than 50% of the movers and shakers in small business coming to them were women running their own businesses. We are not close to that; we are improving but are well off-centre regarding participation.

109.

I made the point, raised by Jane Morrice in the second reading debate yesterday, that the number of women who replied to the advertisement for people to join the board of the new investment agency, was very disappointing. We had a massive response, but women made up only about 6% or 7% of the applicants. Of 160 applicants, the number of women did not reach double figures. We have serious problems in that regard.

110.

How will that be cured? You may have noticed that we have tried to move away from grants. One area where we are expanding our activities is equity. Equity was only taken previously under the Industrial Development (Northern Ireland) Order 1982 as a last resort, but we are now more active in taking it as part of a package. That has been happening in the Republic for a number of years, and also more widely.

111.

Equity means that if a company is successful, the state will have a profit, in that it will get a return on its investment. If you give a grant to a company that succeeds, you do not get anything. If you give a grant to a company that fails, you have lost your money. If you take equity and the company does not succeed, then you are no worse off. If the company does succeed, then you can use an exit strategy in the future. That money can then be rolled over and help to generate new businesses.

112.

We will have to look closely at how to balance the package. The grant has been used, but most businesses want different forms of assistance. It is not a public expenditure-driven issue. Moving away from grants has become tied up with Thatcherite economics, which is not the rationale behind it.

113.

The rationale is something different. Simply providing money for people to buy new machines to increase capacity does not, of itself, do any good, because it does not increase the necessary capability of a business to market its product more efficiently. The company may be able to produce more, but if the product cannot be marketed then the company is no better off. We must look more holistically at those things.

114.

How can we help? There is a role for this Committee, for the Department and for the new investment agency. We must continually encourage business starts and to increase the respect with which business people in our culture are treated. I have made the point to the Committee before that this is a huge cultural problem here.

115.

People in business have sometimes been regarded as if they should come to the back door. The pecking order deems that a person in trade is somehow not as good as an accountant, a lawyer or a doctor. I have long been aware that some business people are not treated with the same esteem as other professional people. We all need accountants; they are important to society — but they are not any better or worse than someone who is in business.

116.

Take for example the Queen’s University of Belfast. To get into the law faculty, you need three grade As at A level. However you could apply to mechanical engineering or something like that and walk in with a couple of C grades. That says something about how society values various specialisations, and that is a long-term issue. We have a role to play as public representatives in trying to change that, but we must first recognise these problems.

117.

Mr Neeson: I want to take a different tack. In last night’s ‘Business Telegraph’ the regulator was very upbeat about the possibility of Natural Gas being extended to the north-west. The Committee and its members have been lobbied heavily over the past few weeks about the need for an urgent decision on that. Do you share the confidence and up-beat attitude of the regulator?

118.

Sir Reg Empey: I could not understand the lobby because they are lobbying at open doors; no one needs to be convinced of the merit of this development. There is no resistance from the system. It is working flat out to achieve the objective. No decision needs to be taken or changed. We are trying to get on with it.

119.

There are two separate issues. The regulator has a specific role, as has the Department; it is a shared issue. Application must be made to the regulator for a generating licence and to the Department for consent. The Executive accept the strategic value and importance of this project; they accept that it will not happen without a public resource, and are aware of the postalisation issue. This Committee has dealt with that. That will be an essential component part.

120.

An element of negotiation with my Dublin counterpart, Mary O’Rourke, is required. The Executive have formed a negotiating team consisting of officials from my Department, from the Department of Finance and Personnel and from the Economic Policy Unit. That team will meet today or tomorrow.

121.

The Executive have charged the team with carrying forward negotiations with the Irish Government and the applicants. I have been in correspondence, even in the last 24 hours, with the Electricity Supply Board Ireland, which is the potential operator of Coolkeeragh. We are working flat out to have our negotiations concluded by the autumn. There are certain critical time factors related to the ordering of the turbines; money would have to be paid in the next few months. We are acutely aware of that.

122.

No one requires convincing about any of this; that is why I cannot understand the lobbying. It seemed to me that they were lobbying against something that had already happened. I am personally committed to this project and to the entire link. However, it is not happening the way I wanted it to.

123.

You may wonder why we used to have this line in the papers about the south/north pipeline instead of the north/south. It is not because of any difference between orange and green gases; the fact was that I wanted it to happen in a different way. The Irish Government, for their own reasons, insisted on having a second Scotland/ Dublin pipeline, and that made the economics of the whole thing completely different. In my personal opinion there is no doubt — and I have made it clear to Mary O’Rourke that it was not my preferred option — that it is the more expensive option. That is not necessary, but they were afraid of the lights going out, and that is their priority and their decision.

124.

There will be advantages if we can link the network: a genuinely competitive market; reinforcement of supply; and access to a third source of gas through the Corrib field which otherwise we would not have had access too. We will have three pipelines across the Irish Sea, with the Corrib field feeding into the system. We will also get greater distribution. About another 20% of the Northern Ireland population will have access to gas, bringing us up near the 80% mark. Achieving that, and exploring the possibility of getting it to County Donegal, are matters that we must negotiate with the Irish Government. There are financial implications for them as well as for us. That team will be up and running from tomorrow, and conducting the negotiations.

125.

I am more hopeful than I have ever been that this project can be landed. However, until the ink is dry on the paper you can never be 100% sure. We are dealing with the private sector here — different parts of the private sector. While Bord Gáis and the American company Questar Corporation are a mixture of public and private interests, Electricity Supply Board International (ESBI), though at arms length from Government, will make commercial decisions.

126.

There is a big political push behind this initiative, and I hope and believe that it will carry long-term commercial advantages. There is a question of choice and people’s right to access what is considered to be a national asset, namely gas.

127.

Mr Wells: We made a social responsibility recommendation, number 23. We wanted incentives to encourage greater social responsibility in business industry on issues such as important practices, the local community, and the environment. The Department responded to the effect that this is an education matter rather than an incentive issue. The Department quoted those who have already taken the lead in this field, like Northern Ireland Electricity and Ulster Carpets. Our recommendation was not aimed at them: rather, it was aimed at those who do not regard their social responsibility as important. Education is a very long-term measure.

128.

Do you not think that this response was slightly weak? You said that we will educate children not to drop litter. Frankly, that is money down the drain as far as I can see, because they are dropping it even faster than they ever did. There are some rogue companies in Northern Ireland whom you could educate until you were blue in the face without their doing anything. In an earlier response you said that only if they see it as being something which will increase their bottom line will they start to take this seriously. Again, there are individuals out there who necessitate the carrot-and-stick approach, and they are so hard-nosed that you are not going to get any response from them. Do you think that you have been forthcoming in that response?

129.

Sir Reg Empey: I take your point. There may be an element of substance in what you are saying.

130.

Mr Wells: Construction companies will walk over anything that you try to change their minds on.

131.

Sir Reg Empey: I mentioned health and safety in my other answer, and I come back to it again — not because of construction, where it is a huge issue, but because the principle that we tried to get across to companies was that health and safety was in their bottom line interest. I believe that to be true. Similarly, the benefits to some companies have been considerable when social responsibility is involved. Their status as companies in the community rises, and that can have a marketing benefit for them. The support of their local community can help with industrial relations, with status as a company and as an employer, and it can generally benefit the way businesses are perceived in the wider arena. It can also benefit them financially.

132.

There are probably people living in the dark, satanic mill age, who do not care about their workers and see them merely as means to an end. They think that if they make a few quid at the end of the week, well and good, and if the workers have to work in bad conditions, then tough. No doubt such people still exist. However, there are fewer of them than there used to be.

133.

I think many employers today understand that they need to be socially responsible. This issue has been dealt with on a UK-wide basis. Indeed, my Department represents Northern Ireland on a UK-wide best-practice initiative and we wish to continue to do so. I accept that it is an area where we can improve our performance; we could be a bit more aggressive in trying to project that.

134.

However, in order to be sincere about social responsibility, people have to feel that they are taking up that responsibility because it is in their interest to do so, and not because they are being forced to. That is the best way to get something done. It is much better if a person does something because they believe it is the right thing to do, than because regulation x says you have to do it. Otherwise, people will adopt a minimalist attitude.

135.

Similarly, it is much better that companies can see that social responsibility is in their best interests, not only commercially, but also because it improves their status in the community.

136.

I am happy to look at the recommendation again to see if there is anything else we can bring to the table.

137.

Mr Wells: I would be reassured if I felt that it was only smokestack industries which needed to be dragged into the 21^st century. Are you happy with the approach taken by the call-centre companies?

138.

Sir Reg Empey: That point has been raised on a number of occasions. In any industry there are good and bad examples. Within the last few weeks, we went to the launch of the Halifax. It could be said that Halifax operates a best-practice policy anyway — nonetheless, it has an exceptionally good working environment. However, I do not doubt that some people work in unfit conditions, in places that are known as sweatshops.

139.

There are many misunderstandings about call centres. The term call centre is generic. There are huge variations in what different companies within the call-centre sector do. Some companies deal with very basic inward-call operations only, some with inward and outward calls. Some call centres are developing software and others developing packages, and some are starting to sell. There are a vast range of activities, and huge differences between the sophistication of different organisations. One call centre can be totally different from another. The pay rates and so on can be vastly different.

140.

A lesser proportion of our workforce is employed in this sector than is the case in the UK as a whole. Certainly, the percentage of workers employed in our call centres is well below the figure for many other countries. We are not at saturation point, or becoming dangerously dependent — that is another issue. I am satisfied that, by and large, the sector is aware of its image and of this criticism.

141.

In my experience, having gone round many call centres, there are some excellent companies out there. That does not mean that you will not be able to cite an example of a company with practices that are below par. There may be some such companies; however, we still have formal, basic health and safety and working practice directives to adhere to, so there are minimum standards below which companies should not fall. My experience is that most companies’ working practices are above those standards, not below them.

142.

Dr O’Hagan: In recommendation 21 the Committee recommended detailed study of a number of areas, one being "the working conditions of employees in the economy".

143.

In a sense, that is a monitoring exercise to ensure that the work coming through is proper work, and that people are getting proper wages and conditions. No specific comment has been made by the Department about that recommendation, so I would be interested on your views on that.

144.

Sir Reg Empey: You say there has been no specific response in relation to —

145.

Dr O’Hagan: Yes, on the bullet points.

146.

Sir Reg Empey: There was a subsequent —

147.

Mr McConnell: They have not got that. These are further thoughts.

148.

Sir Reg Empey: Basically, we have a response on those issues. First, our remit extends to working conditions and employees through health and safety, by way of the Northern Ireland Order 1978. The Department of Higher and Further Education, Training and Employment has a responsibility under the childcare strategy to promote the national work-life balance campaign within Northern Ireland. This business-led campaign encourages employees to consider the business benefit of organising work patterns so as to address the needs of employees.

149.

On the spatial impact, the Department’s New TSN action plan identifies in maps the most economically disadvantaged areas on the basis of the Robson index. This is supplemented by the most recent unemployment statistics.

150.

We have been working on the social economy in the last couple of months, and as you may recall, we held a briefing session for all Assembly Members. We discussed this yesterday, and our other deputy secretary was hoping to bring forward proposals by the end of the month, because we want to revise our strategy on the social economy. The Social Economy Agency in Londonderry, which is headed by Conal McFeely, is very active and was represented at the briefing. Colin Stutt was employed as a consultant to review this whole area. There is quite a lot happening on social economy issues at present, and we are about to pull that together.

151.

The Department will circulate the supplementary material to the Committee later on today to ensure that you have that response at your disposal.

152.

Dr O’Hagan: I envisaged some form of monitoring exercise put in place by the Department to assess actual jobs that have been created with the help of the Industrial Development Board (IDB), and the support for smaller firms from the Local Enterprise Development Unit (LEDU).

153.

I am sure that representations have been received from trade unions in relation to call centres; other jobs could also be included. Serious issues have been highlighted regarding conditions, wages and the hours that people are expected to work. Employers such as call centres are supported by Government agencies like the IDB, so some sort of monitoring exercise should be put in place to look at these issues.

154.

Sir Reg Empey: We cannot get involved in industrial negotiations with trade unions and employers. However, in letters of offer to companies, we often specify that the availability of grants or funding is linked to specific targets that can take people from Bridge to Employment or directly from the unemployment register and include the long-term unemployed. One cannot be over-rigid in enforcing the criteria because in certain circumstances employers could genuinely try, but not achieve it. It is up to IDB to satisfy itself that either the target is being achieved or that best efforts have been made to achieve it.

155.

An element of value judgement is involved. If the statistics are clear, there is no problem; but people could be working in inappropriate conditions, or the companies could be screwing them down. The industrial relations record of most of our client companies tends to be at the top end of the performance scale. The record for industrial relations here is exceptionally good; in fact it is one of our major marketing tools. If you compare it with other locations we have fewer days lost through industrial action here than anywhere else in these islands. There must be a reason for that.

156.

Mr Wells: They are scared.

157.

Dr O’Hagan: Their union rights have been eroded.

158.

Sir Reg Empey: Part of the reason might be that there are more people in urgent need of money. That argument might have more currency where there are high levels of unemployment but when your levels of unemployment are lower than they have ever been, it tends to suggest that workers are more content. There will always be cases where that is not true; it is the job of trade unions to represent their members and to negotiate, and the legal framework allows that to happen.

159.

Dr O’Hagan: Is it not also the job of Government to ensure that companies who declare an interest in coming here and who are supported by public funds have their outcomes monitored and recorded to ensure that proper working terms and conditions are put in place? We do not want to promote a low-wage economy; we need high-value jobs.

160.

Sir Reg Empey: That is undoubtedly the policy, but the company has to be checked out before it comes here because you need to look at how it performs in other markets.

161.

Dr O’Hagan: Can a monitoring exercise not be carried out when it comes in here?

162.

Sir Reg Empey: There is a framework of law which governs how businesses can function in regard to wages and health and safety. It is not a choice; all of those elements must be complied with.

163.

What are the measurements and what do we monitor? If a company is continuously hit by strikes and it is obvious that there is an industrial relations problem then that will emerge. If complaints are made to the Department about health and safety they will have to be dealt with. If there is evidence of flagrant abuses then we can prosecute in appropriate circumstances and so on.

164.

We cannot monitor every negotiation between trade union and employer; that is just not feasible. However, we will know in broad terms whether an employer is exceedingly bad or not. In my experience it is better to try and suss that out in advance. If we give a company our letter of offer and it complies with the offer terms — as regards, say, the size of the workforce or the production output or its sales target — we are bound to pay a resource to that company. That is the case provided that the company is not breaking the law in any particular circumstance.

165.

We really do not want to be scouring the globe for marginal or bad example employers; nor do we want to find that an indigenous employer falls into that category. Therefore when the client executives put their assessment to the IDB board, a monitoring team examines each case and reports to the board; it is not left to an individual. Finally, if it is a large case it comes to me for approval.

166.

The casework is comprehensive; it can cover all aspects of the company’s history. It outlines the company’s financial reports, press reports, how it is regarded in the market, what its plans are, the appraisal of those plans and its general history, background and performance. It also profiles the individual directors by listing who they are and what they do. All of those things are brought to the casework committee — as it is technically called — that examines the case at that stage.

167.

If a company has had a difficult reputation, that examination should filter out a lot of those difficulties. If I notice that a company has exceeded a certain limit, such as having received £1 million of Government assistance, its case must be referred to me. I will look through its file and if I have queries, I frequently send them back to the IDB with the explanation that I do not like a certain aspect of the case and I would like it to be explained. Therefore it is not simply a rubber-stamping exercise.

168.

I understand your concern, and we do not want to have the reputation for being a dumping ground for bad practice. However I do not think that we have that reputation. I am not conscious of a huge surge of complaints about the employers here being rubbish. There will be companies in any business that are better or worse than others. However there is a minimum threshold below which they cannot fall. The law dictates it, and we are not obliged to enter into an agreement with a company if we do not feel that it fits into our general economic strategy. Therefore we are not simply looking for the lowest common denominator; the company must add value.

169.

We spoke earlier about some of the previous recommendations that the Committee made. It was clear that we are not trying to encourage bargain basement companies. We are trying to encourage companies that we believe can add value. However I must make another point about the delicate balance that can arise. In areas of deprivation that have suffered and have significant numbers of unemployed people and very little opportunity, there are occasions when the pool of unemployed people is the source of attraction. There were one or two examples recently where we managed to get companies to set up in some of these areas, and it was not easy. You must find the balance. Are we genuinely giving the people in those areas the opportunity to get on the ladder and get themselves into the habit and practice of work at a reasonable rate of return? The rate of wage that the company will pay is one factor that is made available to the IDB before it is given a grant. The figures are averaged because the wage for every post cannot be indicated, but an indicative wage that enables us to assess the cost per job is given to us.

170.

To determine the amount of resources that we will put in, we calculate the amount of wages that will come back into the local economy. That information is used in the assessment and the appraisal before the letter of offer is signed. Therefore we have an opportunity to assess the company at that stage and to gauge what the wage level will be in comparison with that in the general area.

171.

The procedure is quite elaborate. I cannot say that mistakes are not made and that there are not companies out there which could perform better, but a fair bit of activity has gone into trying to ensure that we get the best deals that we can.

172.

Mr Neeson: I want to highlight another problem with the global companies. Many people left secure jobs to go into telecommunications, and have approached me in recent times. They were not told, or were not aware, that they were on temporary contracts. How do we deal with this, bearing in mind that under our present employment laws there are timescales for redundancy? If people take on a temporary contract, are there any safeguards we can give them?

173.

Sir Reg Empey: I know the cases you are referring to, because I have had a certain amount of traffic on it through my office. Unfortunately, there have been more of them recently. A lot of employers today do put people on temporary contracts — it is fairly common practice today.

174.

Mr Neeson: It has only recently come to Northern Ireland.

175.

Sir Reg Empey: It is more widely used, but there is a reason for that. These companies are setting up here and not in Belgium, for example, because Belgium is so bogged down in employment legislation that they could not take the commercial risk. We have a much more flexible labour market, which is one of the attractions. If you had a contract with a company which guaranteed that you could not be dismissed and you would be there in perpetuity, and the order book shrank by 90% overnight — which in some cases has happened — it is perfectly clear what that company would do.

176.

This is our dilemma. On the one hand we want to ensure that people have rights and are not exploited, which is only proper. On the other side of the coin there is the market turndown. I have seen the order books of some of those companies, and there have been huge drops in the space of weeks. On forward ordering, particularly for the cluster companies around them, they can lift the phone and say, "Your July production is cancelled, we do not want it". That happens commercially. Nobody can sit with a factory full of people being paid wages when there is no production.

177.

Mr Neeson: You are missing the point. I understand what you are saying, but my point is that there should now be awareness, not only on behalf of employers, but also, more importantly, on behalf of employees, that when they are taking on employment it is a risk for them also. It is something new in Northern Ireland, and needs to be addressed.

178.

Sir Reg Empey: I am not well enough up in employment law to know just how widespread this practice is, or how it has changed over the last few years. On a number of recent announcements, one has been surprised to find that so many hundreds of people can be on short-term contracts and not described as core workers, which is the differentiation we are trying to make here. Even a core worker can still be made redundant, and this has happened. The temporaries seem to take the hit first — last in, first out has been a practise here for many years anyway.

179.

The wider point you are making is true; it should be the job of trade unions, but then not every worker is in a trade union. I will take the point up with Dr Farren just to try and assess the extent of the problem. I am aware of it, but I could not point to statistical information to say what percentage of the workforce today is employed under those contracts compared with what it was five years ago.

180.

We all agree, however, that many more people are now in this situation. One or two cases of individuals who had left jobs were drawn to my attention. They were secure insofar as one could judge them, but it was suddenly discovered that they were out after six months. The Department of Higher and Further Education, Training and Employment put on special courses and went out of its way to accommodate them, but was left high and dry at the altar. I will take that up with Dr Farren.

181.

Dr O’Hagan: I shall very quickly ask questions on two separate issues. Recommendation 19 is that an expert group be appointed to examine a whole range of issues related to economic interaction with the South of Ireland. There was no real response to that. I am interested in your views on that.

182.

My absence from yesterday’s debate was not due to a lack of interest but to a family bereavement. With regard to recommendation 12 on development of the single agency, correspondence has stated that the purpose of this Bill does not concern functions and policy, but is to establish the agency and transfer powers to it. Will there be an opportunity for this Committee and Assembly Members to inform a future debate on specific issues of quality, regionalisation, policy and functions of the agency?

183.

Sir Reg Empey: I will take your latter point first. The Bill having passed its Second Stage now comes to the Committee. The primary purpose of the Bill is structural, and it does not represent major policy issues. Your fundamental point about its general strategy will be — and has been — informed by your work on ‘Strategy 2010’. In carrying out that exercise you were wearing your hat of contributing to policy information. That has been taken on board and we are trying to be as positive as possible about that.

184.

Clearly, when we sit down with the shadow board and when the agency gets going an operating plan must be in place. It will also have to have a three-tier corporate plan. Those are opportunities for the Department, this Committee, the Assembly and the wider community to set targets and objectives which the agency will have to achieve. That is very important, because the Department will still be responsible for the development of economic policy. That does not change. We have the opportunity to set the overriding instructions for that agency. That can be done annually and, as you will see from the Bill, the Department has the power to direct at any time. The accountability element is not diminished, and the ability to affect policy is still there. However, this Bill deals not with the policy but with the mechanism to implement it.

185.

Your unfettered right to have input on the policy continues, and none of the structures we suggest will diminish that. However, the way it is done will be more executive-led and business-led, in that it will be a non-departmental public body with an executive board et cetera. That said, it will still be accountable to the Assembly. Policy will still be made by the Department and this Committee will continue to produce input in the formation of that policy.

186.

I therefore feel your position is no less significant today than it will be when the Bill becomes law.

187.

There is currently a great deal of interaction with the Republic. I felt we were in danger of confusion since we already have the trade and business development body, InterTradeIreland, which has its own remit. It is a very active organisation and works very hard to build up trade across a range of issues such as mobility and co-operation across the board. The boards of the Industrial Development Board (IDB) and the Investment and Development Agency (IDA) have met twice, and a whole range of activity is going on. It was not immediately clear to me what further work we could do in the area. We have quite a list of targets to achieve, first among them a growth in trade.

188.

We have looked at training, and Dr Farren already has schemes going on the human as well as the business level. We have InterTradeIreland, which has a very strong and pro-active board. There is enough, and if we deliver even a modicum of what we have currently set out to achieve, we shall have done a good job. It is in everybody’s interest to help trade grow. The IDA and the IDB have started regular meetings whose basic rationale is to stop a Dutch auction taking place. They have simultaneously introduced protocols with other UK regions — which are presently under review — so that we are not involved in trying to outbid each other for schemes.

189.

Through the Confederation of British Industry (CBI) and the Irish Business and Employers’ Confederation (IBEC) we are examining the private sector. That very well-established link is going extremely well. InterTradeIreland has brought together bodies that have never sat down together before, representing a whole range of professional fields. We have held roadshows up and down the country. We have examined e-commerce, and we have brought exemplars from the United States to seminars arranged by us so they might explain how they started Internet businesses. We held one such seminar in the Killyhevlin Hotel in Fermanagh last year.

190.

There has been a great deal of activity to generate trade, and to help shorten supply lines. People may be buying material from all parts of the world, but it could be available up the road. There is simply not the requisite awareness, for people have not been thinking in such terms. Trade is as good as investment or anything else, for if you build more trade, you build more jobs. There are other major benefits to shortening your supply lines. You can hold less stock. You are at less risk of something going wrong, for if you are shipping stuff in from far afield, there is a risk of that being interrupted; if it is only up the road there is less risk. These are very simple, common-sense things. That is what the organisations are trying to do; I feel they are having success, but we shall have to measure that. We have set more than enough targets on our plate at the moment to achieve some of those, after which we can move on to other things. Let us get a few things in the bag, however, before we undertake any more analysis.

191.

Mr Wells: I was at the Somme over the weekend; I flew in from London this morning, and when I told the gentleman beside me on the plane who I was to speak to, he bent my ear about the lack of venture capital support for Northern Ireland’s small businesses. I am leading on to recommendation 29.

192.

He felt that we had not tackled the problem of start up situations with our small businesses and that there was not the same history and ethos of venture capital for companies that were starting up as opposed to that that exists for companies that are already running. He also made the point that big companies such as 3i are not interested in coming to fund small start-up situations in Northern Ireland.

193.

In balance to my previous comments, you have gone a long way towards meeting the Committee’s concerns about recommendation 29. The only thing that is missing, and perhaps it is missing from several other aspects of your response to the Committee, is any definition of the amount of monitoring that will be carried out. It is one thing having ‘Strategy 2010’ up and running, but, if it is to mean anything, it must be implemented and that implementation must be monitored and reviewed. What mechanism would review the success of your proposals in recommendation 29? This is slightly at a tangent, but what is your latest feeling about venture capital?

194.

Sir Reg Empey: The chartered accountants’ report that is circulating deals with that in some detail. I would sum it up as follows: venture capital availability has significantly increased in the last three or four years. 3i operates here but it is not necessarily the right company for small businesses. Venture capitalists will tell you that it requires as much effort and time to look at a project valued at £250,000 as it does to look at a project valued at £10 million or £20 million. They must send the same people over and do the same analysis. Therefore they put the same amount of effort into financing a tiny loan as they would for a large loan.

195.

Therefore you need specialist companies that deal with the small sector. The range of venture capital that is available today is improving, but the report identified a particular band where it felt that there was a weakness and made recommendations that we are examining. That also touched on the next issue, and you are really on the ball here.

196.

Northern Ireland’s history and ethos is problematic. A lot of family owned businesses are very reluctant to part with their equity, and you can understand why. The Republic had the same problem five or ten years ago. However, it is beginning to sink in and become more accepted that venture capitalists have a role to play because they can bring a resource in and provide the capital. Those such as Crescent Capital have done it and been fairly active recently; they have also had a number of significant successes. A few successes can build further success.

197.

In June of last year I entertained a team of substantial venture capitalists from New York at Hillsborough. They returned the hospitality when I was in New York in October. There is a lot of interest out there, but the basic problem is that we do not have enough projects to bring to them. That is the reality.

198.

The report identifies areas where there are shortfalls, and I think that we can fill that gap. The ethos issue is a big problem because there is a reluctance to part with equity. People may have reached a stage where they are comfortable — they have their second BMW or whatever. They do not want to part with the equity. They do not want to have somebody telling them what to do. That attitude still exists.

199.

The start-up area is where we are weakest because — even though our longevity is better — our start-up rate is lower than that of our competitors. In other words, after three years, more new companies are in operation here than there are in England.

200.

Clearly there is a gap, and it is hard for people starting from nothing to go to a venture capitalist and say "Give me X amount of money". It is tough, but there are a number of micro lending schemes now that did not exist before. ASPIRE is one such scheme, and there are others. The availability of access to venture capital is improving, although there is still resistance to the concept.

201.

Mr Wells: You said that there is a fundamental gap between ASPIRE and 3i. Those are in the £250,000 to £500,000 market. However, someone with an idea could become another Dyson.

202.

Sir Reg Empey: That band to which you have just referred was identified in this report, and we will focus our attention on that area. The Veridian growth fund is a £10 million fund, but we do not have approval from the European Union to launch that. Money from the European Investment Bank was put into that, as was money from Viridian. The Northern Ireland local government superannuation committee pension fund also gave money. That fund, which is aimed at smaller businesses, will now come on the market. We are aiming at companies with fewer than 80 employees.

203.

That could contribute to the gap to which you referred. The chartered accountant’s report also states that that is a weak spot. Therefore, we are now concentrating on that area. We are not far from filling that gap. The absence of sufficient projects is a remaining problem. The supply of projects worries me, not the supply of money.

204.

Mr Wells: Recommendation 29 of the departmental response to ‘Strategy 2010’ may be a good point with which to sum up. Monitoring is important if any of this is to be achieved — there must be a watch kept on how it is going and to ensure that targets have been set. What is your overall view on the monitoring of support for small and medium business? What is your general view on ‘Strategy 2010’?

205.

Sir Reg Empey: As you say, you can have all the schemes in the world and that sounds good, but you must be able to judge whether they are working. We have set targets in the Programme for Government, and there is a team that works not only throughout Government, but also in our Department. I get a report every quarter. There is the operating plan and the annual reports, but I also get a quarterly report on the development of the stages of every recommendation in ‘Strategy 2010’. A focused full-time team follows that up. That is one way, in the first instance, of ensuring implementation.

206.

However, where European resources are available, you are automatically obliged to carry out an evaluation and report back to the Commission. Similarly, where we have set targets, the Government centrally through the Office of the First and the Deputy First Minister have a responsibility to produce a report on the different stages of each recommendation.

207.

There is continuous monitoring, and the Public Accounts Committee, the Committee for Enterprise, Trade and Investment and other Committees in the House have a major role to play in that because they can help to keep Departments to account — Committees can call for people and papers. That is allied to the normal procedures for a scheme. Am I right in saying that when a scheme comes in there is always a section about the monitoring criteria?

208.

Mr McConnell: It is worth talking about the Programme for Government, the corporate plan of Invest Northern Ireland and the operating plan. Those all have targets and measures, and we will report on those in the annual report of the agency. The Committee will have an opportunity to comment on the measures and targets that are being set, and consult the annual report on the extent to which those are being achieved. There will be a very high level of monitoring of the information available to the Committee.

209.

The difficult bit is setting the targets and the measures. The easy bit is seeing whether they are achieved, and the Committee will have a role in examining those targets to see how challenging those are.

210.

The Chairperson: I would like to thank you Minister, and all of your officials, not only for how you have answered and dealt with the questions, but on how very open you have been. The Committee appreciates that. Without pre-empting the Committee’s decision, we intend to publish a special report based on the Committee minutes and the response of the Department of Higher and Further Education, Training and Employment.

211.

Sir Reg Empey: Will it be printed on glossy paper or recycled paper?

212.

The Chairperson: I think we will take your advice and go for recycled paper to set an example.

213.

In conclusion, I want to thank you for all your co-operation. We look forward to future co-operation.

214.

Sir Reg Empey: Thank you.

TOP

5.34 The Committee recommends that detailed studies be carried out on -

• the potential of the social economy to contribute to sustainable economic and social development;
• the spatial impact and distribution of economic and social development; and
• the working conditions of employees in the economy.

• DETI’s New TSN Action Plan identified and maps the most economically disadvantaged areas in Northern Ireland on the basis of the Robson Index of Deprivation, supplemented by more recent unemployment statistics. A new Index of Multiple Deprivation, developed by Mike Nobel of the University of Oxford, is scheduled for publication in July 2001. By March 2002 DETI will develop and publish detailed plans showing how the Department will utilise the new indicators.

• Working conditions embraces a wide range of issues. DETI has a remit through the Health and Safety Executive to ensure employers fulfil their statutory obligations under the Health and Safety at Work Order (NI) 1978.
• DHFETE, has lead responsibility under the NI Childcare Strategy of promoting the national Work-Life Balance Campaign within Northern Ireland. This business-led campaign encourages employers to consider the business benefits of organising work patterns to address the needs of employees. The campaign is not about regulation but rather seeks voluntary measure from employers.

The Department for Employment and Learning (DEL) (formerly the Department for Higher and Further Education, Training and Employment (DHFETE)), in particular the Training and Employment Agency ( T&EA), has been working closely with Foras Aisenna Saothair (FAS), the employment and training authority in ROI, to share best practice and co-operation on areas of mutual interest. The FIT initiative is therefore well known to the Department.

The programme proved useful, in the particular circumstances in which it was introduced, to provide Microsoft based IT training to long term unemployed in North Dublin. It does not have an immediate transferability to Northern Ireland as the design and delivery do not match DEL’s mainstream programme position. Nevertheless, DEL keeps the needs of the electronics and software industry under constant review and seeks to match training provision to industry needs.

Providing opportunities for training for the unemployed to enhance their employability and helping employers find the staff they require are two of the main activities of the Department. It uses the various options under New Deal, Worktrack and the Bridge to Employment to address these issues for adults. Although DEL does not run or plan to run a FIT initiative, it incorporates some of the principles and thinking behind FIT into aspects of the provision in programmes such as New Deal.