Proceedings of the Sub-Group to Consider the Economic Challenges Facing Northern Ireland - 03 October 2006

Minutes of the meeting held on Tuesday, 3 October 2006 in Room 135, Parliament Buildings at 2.00pm.

In the Chair: Alban Maginness

Present: Dr Esmond Birnie
George Dawson
Michelle Gildernew MP
William Hay
Mitchel McLaughlin
David McNarry
Sean Neeson
Margaret Ritchie

In Attendance: Alan Patterson (Principal Clerk)
Shane McAteer (Clerk)
Colin Jones (Assistant Clerk)
Trevor Allen (Clerical Supervisor)
David Douglas (Clerical Officer)
Michael Smyth (Economic Advisor)

The meeting commenced at 2.12pm in closed session.

1. Apologies

Ian Paisley Jnr (Mr Dawson attended the meeting as DUP representative in place of Mr Paisley Jnr).

Peter Weir (Mr Hay attended the meeting as DUP representative in place of Mr Weir).

2. Draft Minutes of Meeting on 2 October 2006

These were agreed for publication on the Assembly’s website.

It was agreed that today’s minutes of proceedings would be included in the draft report as unapproved minutes.

3. Matters Arising

None.

4. Consideration of Draft Report

Members considered and agreed the draft report as follows:

Paragraph 18 
Agreed subject to the term “civil unrest” being amended to read “civil unrest/political instability”

Paragraph 20 
Agreed subject to the fourth sentence being amended to read:

“The structure of the Northern Ireland economy is characterised by a strong demand for relatively lower paid jobs. This has a consequence of introducing large numbers of migrant workers to the economy. These migrant workers make an important contribution to the economy.”

Paragraph 27 
Agreed subject to the term “civil unrest” being amended to read “civil unrest/political instability”

Paragraph 30 
Agreed subject to the words “(see also paragraph 32)” being inserted after the words “ The sub-group considers it significant to reflect that it was low corporation tax”.

Paragraph 36 
Agreed subject to the words “The sub-group believes” being replaced with the words “There is evidence to suggest”.

Paragraph 37 
Agreed subject to the second sentence being amended to read:

“The sub-group’s recommendations at paragraphs 98 -117 aim at a major increase of inward investment into Northern Ireland, and the sub-group agrees that much if not most of this would go to rural areas and towns outside Belfast and that investment would need to be policy driven.”

Paragraph 38 
Agreed subject to the third sentence being deleted and the word “however” being deleted from the next sentence.

Paragraph 88 
It was agreed that the paragraph be replaced with the following paragraphs, and that the numbering of all subsequent paragraphs be amended accordingly:

“88. The case for a corporation tax reduction to make Northern Ireland competitive with the Republic of Ireland has hitherto implicitly assumed that this would be achieved through a differential tax rate of, say, not more than 12.5%. An alternative mechanism that achieves an effective 12.5% rate is through the use of corporation tax allowances. To illustrate, if the first 60% of corporate profits is taxed at zero and if the remaining 40% of profits is taxed at 30%, this gives an average rate of approximately12%.”

“89. The operation of a lower corporation tax regime would give rise to a shortfall in tax revenues of between £400m and £500m per annum. This shortfall will decline over time as corporation tax revenues pick up from an expanded private sector resulting from increased FDI. The shortfall needs to be covered in order to obviate the necessity for budget reductions. There are several ways in which this shortfall could be mitigated:

• Northern Ireland’s annual public expenditure underspend is running at around £400m.
• Under the Reinvestment and Reform Initiative (RRI), Northern Ireland plans to borrow up to £300m per annum from HM Treasury. This borrowing could be redirected to cover much of the tax revenue shortfall.
• Northern Ireland currently spends around £100m per annum on selective financial assistance to business. There would be less need for such financial support under a lower corporation tax regime.
• Northern Ireland has one of the highest personal savings ratios in the United Kingdom. A new Development Bond aimed at local savers could attract upwards of £150m per annum (the equivalent of £100 per head of population).”

“90. The sub-group agrees that, based on the evidence to-date and despite the uncertainties outlined above, there is a growing case for Northern Ireland having a competitive rate of corporation tax. However, further consideration of the case will be required in light of the findings from the ongoing ERINI research and of the identification of solutions to the practical and policy issues involved in setting up a differential corporation tax regime for Northern Ireland. In the interim, The sub-group recommends that the government consider the evidence submitted by witnesses that establishes a strong case for Northern Ireland having a competitive rate of corporation tax and should take full account of imminent research reports by ERINI into FDI and corporation tax. The sub-group recommends that the government should engage with the political parties with a view to addressing this issue as part of an economic package. ”

Paragraphs 89-91 was agreed.

Paragraph 92 
Agreed subject to the first sentence being replaced with the following:

“ The sub-group takes the view that fuel duties in Northern Ireland should be equivalent with the lower duties in the Republic of Ireland.”

Paragraphs 93-94 was agreed.

Paragraph 95 
Agreed subject to the last sentence being amended to read:

“The sub-group recommends that a study be undertaken of the impact of those Enterprise Zones with an assessment of the potential for using Enterprise Zone incentives to aid regeneration in Belfast and other cities and towns throughout Northern Ireland”

Paragraph 96 was agreed.

Paragraph 97 
Agreed subject to the words “is rapidly becoming” being replaced with the words “has become”.

Paragraph 98 
Agreed subject to the words “and these should be accelerated without delay” being inserted at the end of the paragraph.

Paragraph 99 
Agreed subject to the following bullet points being inserted:

• Linking the M1 and the M2 via the International Airport with a dual carriageway.
• Establishing a strategic link between the South East and the Belfast/Dublin corridor.

Paragraph 100 was agreed.

Paragraph 101 
Agreed subject to the following bullet point being inserted:

• The development of a railway spur connecting Belfast International Airport to the existing network.

Paragraphs 102 – 104 were agreed.

Paragraphs 105 – 107 were agreed.

Paragraph 108 
Agreed subject to amendments to read:

Further expansion of student places should take place in the view of the sub-group. This could take place at the existing institutions. Both QUB and UU have expanded rapidly in recent years and could continue to do so. While there may be some economies of scale in continuing to expand at QUB and UU, the sub-group takes the view that there may be merit in exploring the case for a third major university within Northern Ireland, possibly with a particular specialism. This could help to make a statement about Northern Ireland’s determination to establish itself in the forefront of HE provision within the UK.

Paragraph 109 was agreed.

Paragraph 110 
Agreed subject to the final sentence being amended to read:

“ The development of a vibrant modern tourism industry was prevented by civil unrest and political instability.”

Paragraph 111 
Agreed subject to the fifth bullet point being amended to read:

“ The potential exists for a step change in raising the number of holiday visitors to Northern Ireland. Under these conditions, the sub-group recommends that government assistance for the promotion of tourism events should be increased. Support has declined in recent years to £2m in 2005/6, and could be doubled, to enhance the attraction of major sports and cultural events.“

And that the following bullet point be added:

• Further investment in tourism infrastructure needs to be encouraged.

Paragraph 112 was agreed.

Paragraph 113 
Agreed subject to the third bullet point being replaced with the following:

“ Subject to a transparent business/economic appraisal an acceleration of the redevelopment of the Maze prison site . To do so would make an important statement of intent that Northern Ireland is moving ahead.”

Also that the following bullet points be added:

• A review of special needs education provision across Northern Ireland to identify opportunities for investment in increased provision to promote greater social cohesion.
• A more pro-active targeting of financial and business service companies with the view to locating in Northern Ireland, in recognition of the increasingly prominent role that financial and business services play in boosting productivity and wages.

Paragraphs 114 – 115 were agreed.

Recommendations

Agreed subject to amendments to recommendations agreed in the main body of the report being reflected in this section.

Executive Summary

Agreed.

It was agreed that the report, as amended, be the second report of the sub-group to the Committee on the Preparation for Government. Members noted that the report, as amended, would be issued to the Committee by tomorrow (4 th October) as agreed.

The report, as amended, would also be issued to the chairpersons and members of the all sub-group.

5. Any Other Business

None.

6. Date, Time and Place of Next Meeting

The next meeting of the sub-group was arranged for Monday, 9 October 2006 in Room 135.

The meeting adjourned at 4.35pm.