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Taken before the Northern Ireland Affairs Committee
on Wednesday 9 February 2011
Mr Laurence Robertson (Chair)
Mr Joe Benton
Dr Alasdair McDonnell
Examination of Witnesses
Witnesses: Roger Pollen, Head of External Affairs, Federation of Small Businesses, Northern Ireland, Patricia O'Hagan, Member, Federation of Small Businesses, Northern Ireland, Aubrey Calderwood, Managing Director, Capitus, and Andrew Reid, Consultant, Capitus, gave evidence.
Q1 Chair: I welcome our witnesses to the Committee. Thank you very much indeed for joining us. As you know, we are starting to conduct an inquiry into a potential enterprise zone for Northern Ireland. As well as that we are looking at corporation tax, and the difference between UK and Irish corporation tax and the effect that may have on Northern Ireland. So they are two separate inquiries, but obviously may be linked in certain ways, so we have various questions we would like to put to you today. Perhaps I could start off with the questions. With regards to Northern Ireland, do you think that declaring it an enterprise zone is potentially a good way to increase investment and prosperity in the Province? The question is to all of you.
Roger Pollen: I am Roger Pollen, Federation of Small Businesses. Thank you, Chair and Committee, for having us here. I think we very firmly believe that it is a good route to go, with the one caveat: what is it? What is in it? It sounds good and we looked at a number of things one might see in it. It is enticing. The concept is a place in which the private sector thrives, and generates employment, opportunity and wealth. That would be good. Wealth that underpins continued improvement in the living standards there and in the resources that are available to let the country flourish in education and health; a low tax environment that attracts inward investment, that rewards risk taking-I think that is a very important point we might come back to-and that encourages indigenous businesses as well as investors from afar. Something I think that is also important to us is a place that stands on its own two feet and pays its way-preferably more than pays its way. I think that is an important change that it could help deliver. If I may say in this place, with respect, an area where Government works in partnership when needed-reducing barriers and cutting red tape-where it sets goals and provides incentives, but also, importantly, where it gets out of the way when it is not needed. That is what we would see as being part of the ingredients within an enterprise zone. So that is a description of an enterprise zone, but whether it is the description of the enterprise zone that we are discussing here-I look forward to the discussion.
Aubrey Calderwood: I totally agree with what Roger said. My name is Aubrey Calderwood, from Capitus; we are an investment incentives consultant. Everything that Roger mentioned in terms of how we would envisage an enterprise zone operating-those are the elements that we would definitely want to see within the Northern Ireland enterprise zone structure. Around the other areas of the UK it has been primarily a taxbased regime where enhanced capital allowances have been available to investors in those areas, also reduced planning red tape and maybe some stamp duty land tax holidays. As Roger says, however we want to come up with what an enterprise zone looks like for Northern Ireland, it must be able to stimulate economic growth and create jobs at the end of the day.
Q2 Lady Hermon: I wonder if I could just clarify one point. Do you wish all of Northern Ireland to be declared an enterprise zone? I refer to the fact that there was some ambiguity between the response from the Federation of Small Businesses and from Capitus, because you referred to "an" enterprise zone.
Aubrey Calderwood: I mean the whole of Northern Ireland. I envisage the whole of Northern Ireland being an enterprise zone.
Lady Hermon: Is that the case for you?
Roger Pollen: We are absolutely in tune with that. I think to create subdivisions in somewhere of the size of Northern Ireland would just be divisive and distort the playing field that as a whole needs to have a step change induced in it.
Aubrey Calderwood: I think it would also create areas where you had increased land values and property bubbles arising, if, for example, you had an area of Belfast that was just an enterprise zone as opposed to other areas of Northern Ireland. I think that would lead to some of the worst parts of enterprise zones being prevalent in Northern Ireland.
Q3 Chair: Would your colleagues like to comment further at this stage? We have lots of questions we will ask. Obviously, the Government paper has not been published yet; we have been pressing for that for quite a while and we raised it in the Commons just today. At this stage, have any of you been asked to put ideas forward or is that expected to come in the consultation period?
Roger Pollen: We have not been asked yet to put ideas forward.
Chair: Not at this point? No, that is fair enough.
Q4 David Simpson: In relation to the enterprise zones-and I know that both you and I would not be old enough to remember the old enterprise zones many, many years ago-in your opinion were they successful in the areas that they were put into? Did they create and have that stimulus that was required of them?
Aubrey Calderwood: I think throughout the areas of the UK where the enterprise zones were set up, they were successful. Some areas were more successful than others. If you go from the premise that the primary purpose of the enterprise zone is to create economic activity and economic growth, I think that certainly happened in the areas where enterprise zones were set up.
Q5 David Simpson: But on their own, they are only part of the elements that are required?
Aubrey Calderwood: Sorry, say that again please.
David Simpson: On their own they will not achieve it; you need a cocktail of different elements?
Aubrey Calderwood: Yes. This goes back to what Roger said: what is an enterprise zone? Is it a low taxation zone? Is it an area where you are going to get capital allowances for investment? It just really depends what we come up with as being our utopian enterprise zone.
Q6 Mel Stride: Welcome to the Committee. Have you made any quantified estimates of the benefits of an enterprise zone for the whole of Northern Ireland in terms of jobs and investment, and perhaps quantified the cost in tax revenues that might be lost as a consequence of having an enterprise zone? Do you have any feel for that?
Aubrey Calderwood: As a company we have not got any empirical data on that. We have just got our views on what works and what does not work and if an enterprise zone is set up, what we think will happen arising out of that.
Q7 Gavin Williamson: You just touched on an interesting point. You said you have got your views about what works and what does not. If you had three things that you wanted to suggest as really good things that would work, what would they be?
Aubrey Calderwood: A simplified planning regime within the enterprise zone. I think that is very much a crucial element, particularly for Northern Ireland, because I think the planning regime in Northern Ireland is very detrimental to investment and encouraging growth in the Province. I think a low taxation regime within the zone would definitely encourage investment in the zone.
Q8 Gavin Williamson: Is that corporation tax?
Aubrey Calderwood: Corporation tax, yes.
Andrew Reid: From our perspective, investment incentives would possibly be preferable to the blunt instrument that is a reduction in corporation tax straight off. We have had a chat several times about it and we feel that an enterprise zone allows someone to take tax relief from corporation or income tax from investment, so the more you invest, the more you get a return.
Q9 Gavin Williamson: For example, there is talk about a corporation tax reduction costing £200 million. Do you think there would be better ways of using that £200 million in order to stimulate business investment?
Andrew Reid: At the end of the day, I think most people want some sort of kick-start to the Northern Ireland economy, whether it is the tax reduction or whether it is increased reliefs or allowances against corporation or income tax. I think either/or.
Gavin Williamson: I think we would be in favour of lower income tax, actually.
Chair: I think we are going to come back to that issue in somewhat more detail later.
Roger Pollen: Can I just answer your first question? One of the points you made in it was had the tax cost been quantified, but that is assuming that there would be a tax cost.
Chair: We will come back to corporation tax in more detail.
Q10 Mel Stride: You mentioned a little earlier the downsides of enterprise zones, I think in the context of whether the whole Province should be a zone or a part of it should be a zone. Are you referring there to the displacement effect perhaps of an enterprise zone? What issues are coming to mind at that point?
Roger Pollen: I suppose there are several. My colleague here can come on to some of them, but I think we are saying Northern Ireland is the size of Yorkshire; is it tenable to have it subdivided into enterprise zones? You asked earlier whether we had done any assessment of the efficacy of operating as an enterprise zone. It is difficult to do until we know what is likely to be included in that. That, I suppose, is the circle we are trying to square here. So I think what we have tried to do in the paper we submitted, which admittedly was led by your own questions, is to put in ideas and hopefully today we can add some further ideas as to what might be included. Thereafter, once you start to get some consensus about what is in it, you can evaluate the impacts and costs of that and the benefits for jobs and so on. But I think we are trying to advance a number of proposals that will, in our view, create the game-changing effect that is desired and that the Secretary of State set out as his 25-year approach that needed to be taken to rebalance the economy there.
Aubrey Calderwood: Let us remind ourselves of why we are talking about this in the first place: we are trying to rebalance the whole of the Northern Ireland economy to be less reliant on the public sector. I think if you are just creating small zones within the Province, that will not have the desired effect. You need an actual sea change; a complete shift in attitude to investment in the Province.
Q11 Mel Stride: Looking again at the downsides of enterprise zones, is a speculative property bubble-asset price increases-which may have driven some of the problems in the South, something that you think is a very real issue here?
Aubrey Calderwood: From our point of view it is the key issue that has to be addressed. We have to put some checks and balances in place to make sure that that does not happen and that we are going to create real growth and real jobs within the Province; it is not just a property speculator’s paradise.
Q12 Mel Stride: What are the things that you would be looking to put in place to ensure that did not happen?
Aubrey Calderwood: We put forward in our submission possibly tiered rates of tax incentives depending on the type of investor you need in the Province. So for example, we need property developers and we need property speculators, so we do not want to cut them totally out of the loop. We have to give them some kind of incentive, but whether they get the same kind of incentive as a pharmaceutical company or a company that is going to be engaged in creating real manufacturing jobs-there is maybe some scope there for giving enhanced capital allowances to the sectors that we feel-or you feel-we are trying to attract growth in within the Province.
Andrew Reid: We said in the submission, Aubrey, about possibly splitting the tax reliefs between landlord and tenant so you have to incentivise the developers to build these high spec science parks and what have you, and maybe provide a different type of benefit to the tenants-the pharmaceutical companies-who are coming in and utilising that.
Aubrey Calderwood: We gave the example of 50% tax relief that could apply to ordinary property investors and 100% for property investors providing properties with a very energyefficient building, taking account of the low carbon commitments that we have as well. So rather than look back to what an enterprise zone has meant in the past throughout the UK-just 100% capital allowances for investment and property-I think we have got an opportunity, if we go down this route, really to target it at specific sectors and specific areas and create the kind of investment that we want.
Q13 Lady Hermon: Would that be compatible with European Community law, to target particular sectors of the economy and give them tax breaks and not other sectors of the economy? Have you checked the compatibility with Community law?
Aubrey Calderwood: I think we already have it on R&D, don’t we?
Andrew Reid: At present obviously you have the R&D tax relief scheme, which in theory is open to all, but in reality is specifically for the higher tech industries. The Government at the minute is looking to bring in the Patent Box idea, which will possibly be for specific industries. I think the EU permits innovation and research and development enterprise, but I am not sure whether you can actually limit the industry itself. Does that make sense?
Aubrey Calderwood: I think in the Republic as well, they have targeted incentives, or they have had in the past. So to encourage building hotels, you get 100% capital allowances for hotel investment. The same thing happens for nurseries-different sectors. We have not really done any research to establish whether in European law we can do it, but that would be anecdotal evidence that it is possible.
Chair: It is a minefield.
Aubrey Calderwood: Yes.
Q14 Mel Stride: Very quickly on R&D allowances, Northern Ireland has not done very well in terms of R&D investment, has it? It has lagged behind the European average quite significantly. Why is that? What is the drag there, do you think?
Andrew Reid: It is difficult. We talked about this on the plane on the way over. We talked about the possibility that the mentality is just not quite there. I specialise in research and development tax relief and to be honest, a lot of clients I speak to were not aware or just did not take the time to look into it. So there may be some sorts of R&D taking place, but they just have not quite defined it correctly.
Aubrey Calderwood: I think over the years as well, obviously with the welldocumented Troubles-Patricia and I were just having a chat outside-we definitely have had a brain drain that has led to not so many entrepreneurs being available in Northern Ireland. We have had to go outside the Province. Some come back, but most do not. So I think that is probably one of the key factors in why you do not get the same levels of take-up of R&D that you would in other areas of the UK.
Patricia O'Hagan: I am managing director of a local software company and we do use R&D tax credits and we benefit from funding from Invest Northern Ireland to supplement our investment in R&D. So there are companies in Northern Ireland who are very interested in doing this. I think there is an issue, as you said, that our ambitions have always been curtailed by the experience we have had over the last number of years. I would very much endorse creating an environment whereby our young people who are coming out of universities consider the opportunity of entrepreneurship. Certainly when I qualified from university, that was not seen to be a career opportunity at that point in time, but we have a lot of young people-we are seeing them come through the Science Park-with great ideas coming out of university. But we also need to create an environment to nurture that. So, for example, to make them aware of seeking funding, to create a VC environment where they can fund early-stage ideas, develop them, access skills and people to help them grow those business ideas and make them aware and establish an ambition to grow large-scale international companies.
Q15 Mel Stride: A final question if I may, Chair. The Secretary of State has suggested that whatever approach we take here, it might take 25 years to rebalance the Northern Ireland economy between the private and public sector and get it moving. Do you feel that is a realistic assessment? Do you think that is about the time it will take?
Roger Pollen: There is a degree of realism about that, but I think that the danger of putting such a timescale on it is that it can seem always just to be sometime in the future. I think he first floated that idea in October 2009 and here we are in February 2011 and there does not yet seem to be engagement between yourselves and the Secretary of State-and also on corporation tax with the Treasury and our own finance Ministries-on working together to see any sense of urgency about this. So there is a danger about setting a 25-year timeframe that it is "something we will get round to". Political parties will change and so on. That idea was floated when the Secretary of State was in opposition; he is now in government, so things will move along. To go back to your opening question about setting a time limit on it, what we are trying to encourage here is an entire change of culture, so that it has not got an end to it. We are not looking at long timescales as being the period over which you can judge its success; you are starting that change as soon as possible and trying to move a generation away from what has become the norm because of our historical legacy.
Patricia O'Hagan: But I think we have to be careful, too, about putting a five- or ten-year timeframe on it. Then we will find that companies coming from outside-foreign investment-will just come in for that period and that will limit the impact of people considering investing in Northern Ireland.
Q16 Chair: So it is an ongoing thing?
Roger Pollen : An ongoing thing, yes.
Q17 Oliver Colvile: Before I go on, I should warn you that I am a member of the FSB, although not in Northern Ireland obviously. Secondly, I have an interest in a small communications company that does a lot of consultation when it comes to development, so I have some understanding of the planning process, though I have to say it is some years since I did anything in Northern Ireland. But it seems to my mind that one of the things that one has to do if one is going to be able to attract inward investment-and I will presume this would come under a sideshow of the enterprise zone debate-is you have to do something about your unit costs, to make sure those are going to be competitive not only with Southern Ireland but also other parts of the United Kingdom. The most important one is going to be the whole business of wage costs and things like that. You have to have the skills base, but you also have to make sure that your wage costs are going to be lower and so that is actually going to attract people to want to come and invest. I just wondered what your view was about that.
Andrew Reid: Personally, I would have thought it was pretty clear that Northern Ireland as a whole was a lower wage area than the rest of the UK-utilities, and possibly rental charges and property costs, are all lower than particularly Glasgow, Edinburgh and London. If you look at the wages in key areas of investment of late: Citibank, for instance, said that the reason they came was because of the lower wages, comparable with those if they set up in London. So I think there is evidence there to suggest that.
Roger Pollen: A couple of statistics have come back through our research. One is that the average private sector wage in Northern Ireland is about 20% lower than the public sector wage. That in itself is a major distorting factor, but it also means that there is scope for private sector wages to rise quite a bit without getting out of kilter with other parts of the economy.
Q18 Oliver Colvile: Or reducing public expenditure.
Roger Pollen: That is another whole area. I think the aspiration in many ways surely should be for wages to rise, because you are creating value; you are creating wealth.
Q19 Lady Hermon: Patricia just told the Committee a few minutes ago that she was conscious of and concerned about the brain drain from Northern Ireland, particularly in R&D. I suggest to you that one of the reasons might have been the low wages to retain people with R&D skills in Northern Ireland. Is that the case?
Patricia O'Hagan: I would say more that, in my experience, I left Northern Ireland to develop my professional career and to get job opportunities that were not available in Northern Ireland at that time, because perhaps there were not organisations big enough to give me an adequate career path. I think that is a more likely influence for our young people, that there are more opportunities on the mainland, for example; more companies, larger companies with defined career paths for young graduates.
Q20 Lady Hermon: So are lower wages in Northern Ireland, which has been the evidence that you have given us, not a deterrent to people staying in Northern Ireland?
Patricia O'Hagan: I would say that is only one aspect of it. In practice, I meet lots of young people who want to stay in Northern Ireland.
Lady Hermon: Irrespective of the wage?
Patricia O'Hagan: Yes.
Andrew Reid: And the rain.
Lady Hermon: And the rain? Oh, we have rain in London as well.
Oliver Colvile: And in Plymouth too; don’t worry about that.
Q21 Dr McDonnell: There were just a couple of things I wanted to pick up on, Chair. Number one was the R&D stuff. You skimmed over that; it was not quite clear to me whether you were saying nobody was interested in R&D or whether there was R&D going on under the radar. But I think the most important point that I have heard so far is the question of R&D and I would like to know, if we are not exploiting R&D, why we are not exploiting it. What would it take to get R&D out there?
Andrew Reid: I will start off with this one. It is difficult for every business, but there is definitely R&D going on, especially within SMEs. In particular in our experience with the aerospace industry, there are quite a few small and medium enterprises that feed in. One of the main problems I would find is that if a company receives support for R&D from Invest NI, they actually lose some entitlement to the R&D tax relief that is available, so the actual benefit is much lower and they are not as keen to follow it through. However, in our proposal we were mentioning the fact that possibly increased rates for R&D tax relief might help to draw the companies in and really help kick-start the research and development.
Q22 Dr McDonnell: Have you any familiarity with European Framework 7 and why we do not avail of it? There is something like £10 billion or €10 billion a year and we are not accessing it at all.
Andrew Reid: Is that the grants available for-
Dr McDonnell: From Europe.
Andrew Reid: I have seen quite a few companies availing of it, but I did not realise there was that much available.
Aubrey Calderwood: I think it goes back to the entrepreneurship of the people who live in Northern Ireland. We do have entrepreneurs-there is no doubt about that-but we do not have enough of them compared with the Republic of Ireland and the rest of the UK. I think that goes back to what we are trying to redress here. We have become too public-sector reliant, which does not really encourage a spirit of entrepreneurship. So there are obviously people in Northern Ireland who are entrepreneurs, but if we are not taking advantage of the R&D funding that is available, it is because there are not enough of us doing it, in my view. I think that goes back to what we are actually trying to address here in terms of an enterprise zone-making sure that the graduates we produce have the skills that R&D companies need to take R&D forward in the Province.
Q23 Naomi Long: I am interested in this particular issue about research and development. My perception certainly has been that in terms of employment, people in Northern Ireland generally are very risk-averse and therefore the public sector is a very strong lure. I was thought of as slightly strange when I graduated and went into the private sector on a lower salary because I did not want to work in the public sector and that was a choice that I had made at the time. There is the cultural history of it, and the other aspect is about the commercialisation of research, because I know from my experience of working with Queen’s in the QUESTOR Centre and places like that that they actually do some really good, high level research, but one of the challenges has been commercialising that. I was interested in what you just said about access to venture capital. I am aware that that is being addressed in a small way within this Northern Ireland Science Park in terms of there being a number of organisations who are now offering more venture capital. But is that something that if it were to be further developed, young people with good ideas would actually get the opportunity to take them forward and create a business out of them?
Patricia O'Hagan: Very much so. I think there are three levels that capital is needed at. At the early stage, like seed funding, to develop an idea. So a young person coming out of university may have a great idea and give them access to funding where they can develop that and scope out what it would be, how much it would cost to develop it and so on. That is very high risk. It is difficult to get private investors to fund that and I think there is a need for the Government to come in at that funding level. The next level is really to commercialise the idea and bring it through to where it is going into the market. There are different venues for that; there is the angel funding, where private individuals invest in it. We are starting to get an effective angel network running in Northern Ireland, but I must say it is very early days. The Halo Network won an award last year for being the best network in the UK, but that can be developed much more. There are a limited number of VC funders in Northern Ireland. There really is not any competition between them and for a company like us, we may find that what we are trying to do is not aligned with their investment criteria, so we would have to look outside Northern Ireland.
Q24 Naomi Long: Chair, on that specific point around the seed funding, if you like, being the high-risk element. You said that that would be where Government intervention was required. Is there an element where Government is actually really reluctant to invest in that early stage because of the risk of failure and of the risk of them then being audited and it being seen to have been a bit of a gamble, rather than recognising that a proportion of businesses will fail in those stages but a proportion will actually take off?
Patricia O'Hagan: Yes. I think that is a big issue at many levels within Government. Even looking at Government procurement, the products we produce improve efficiencies for Government Departments and trying to introduce those innovative new products is very difficult-virtually impossible-because the procurement process at the moment has no way to introduce innovation. So there are many layers at which our Government is risk-averse and as you say, there has to be an acknowledgment that risk has to be taken in order to advance and that there will be a percentage of failure, but that is quite natural.
Q25 David Simpson: Very briefly, Chair, on the whole issue around enterprise and education for young people, Patricia mentioned some award being won recently. I was at an awards ceremony this morning for the Enterprise UK Award for Enterprise and the Southern Regional College in Northern Ireland won it. I was privileged to be there as it is in my constituency. Young people going through universities and FE colleges-do you believe that that is where it really starts? The colleges today, to produce entrepreneurs and people of enterprise, need to offer courses that are relevant to what the industry needs. When we come out of this recession, no matter how long it takes, we need to have young people there that are trained with proper courses. Whether it be in sciences or whatever, we need to have young people coming out ready and geared for it. I think that is where it starts and today winning the United Kingdom Enterprise Award for that college and for the young people is fantastic.
Aubrey Calderwood: I think that is what they did in the Republic. As far back as before 1995, they identified the subjects that students needed to study for-so of course STEM: science, technology, engineering and mathematics-and they geared their education system towards that. I think that is what you were saying as well. We would be very much in favour of that.
David Simpson: Yes, tailored towards what is required.
Aubrey Calderwood: I think Northern Ireland has fewer students studying those types of subjects than anywhere else in the UK and certainly in the Republic as well. Again, going back to why we are actually sitting here, this is the country that we share the border with; we are on the same island and to compete with that, we really need to address that as a fundamental issue of the enterprise zone.
Andrew Reid: Not to blame it all on the parents, but I have a quite a few friends whose parents are in the Civil Service and that, as Naomi said earlier, is just the easy way to go; mum and dad were civil servants and it is seen as a safe job and everything else. So it is the risk-averse nature as well. However, as you quite rightly say, if you can start it early and really get people involved in those science, economics and finance from an early age-
Patricia O'Hagan: David, can I comment on that?
David Simpson: Yes.
Patricia O'Hagan: I think there are two-sorry.
Chair: Please go on
David Simpson: You can ask me if you want, but-
Gavin Williamson: He will always say yes.
Patricia O'Hagan: I think there are two aspects. There is education and the subjects that people study-the STEM subjects-but there is also entrepreneurship, introducing that into the curriculum and giving young people the experience of what business is like and how they build a business. That, from what I can see at the moment in our society, is being managed by voluntary organisations and they are going into the schools and giving the young people opportunities to experience entrepreneurial activities.
Q26 Oliver Colvile: Do you think that Northern Ireland failed to benefit from previous enterprise zones compared with other parts of the United Kingdom? What lessons do you think we can learn should Northern Ireland become an enterprise zone again in order to make sure that we do not repeat that problems that you had last time round?
Aubrey Calderwood: I personally think that we cannot really compare like with like here, because the enterprise zones that we had previously were in the context of the Troubles in Northern Ireland. So yes, they did work to a certain degree; they encouraged investment in those areas. But compared with the enterprise zone that we envisage now to get away from the reliance on the public sector, it is not the same animal at all. I think they were successful in spite of the Troubles, really, but if you had an enterprise zone like the one we are envisaging at the moment, I think it would be completely different. What we are actually trying to achieve in an enterprise zone-the economic growth-would happen because the Troubles on the face of it are not there at the moment.
Andrew Reid: It is not just the regeneration of one area per se; it is trying to regenerate the entire country.
Aubrey Calderwood: As Roger says, the cultural shift that you talked about.
Roger Pollen: All these things, Chair, seem to me to be very closely related. It is a change of culture, where at the moment if you take risk and you get away with it you are maybe a lucky chancer; if you take risk and you fail, you will be condemned for a long time. Thinking back to President Kennedy, setting out an ambition to land a man safely on the Moon and bring him back within a decade was fairly fraught with risk that a Government was taking, but it set a direction for an entire industry and a country to look at and very publicly be judged. We are not necessarily looking at something on the same scale as that.
Chair: I don’t know.
Roger Pollen: In terms of changing a mindset, that is a massive challenge. I think we need to have fairly big, bold visions that will move people away so that the first choice is to go into business-that is where people will naturally gravitate-and to work in the public sector may be something that they will come to at a different stage for a different reason. But the primary driver is to get into business. That means coming in at school level and at university level, and changing the attitude of what you will do with what you get when you go through those. I think Patricia may come on later to some interesting comments on the concept of internships to sit parallel to apprenticeships to harness that sort of activity as well.
Q27 Chair: Mr Reid touched on it earlier, but obviously all parents want security I suppose above all else for their children. How much does that perversely hold people back from going into business?
Andrew Reid: That is not quite what I meant earlier.
Chair: No, I am moving it on a bit.
Andrew Reid: My mother and father wanted the best, so they pushed me on and what have you, but I think if you can amend the mentality within Northern Ireland as a whole and if people can see these jobs coming in and they can see a large corporate coming in and they can aspire themselves-if they drive or walk past it on their way up to Queen’s or wherever else, then that can help to drive the mentality on.
Q28 Naomi Long: I would just in passing say my husband runs a small business. He is a dentist and he spent five years qualifying and half a day being trained to run a business, which says everything about what is wrong, because most dentists will end up in that situation of running a small business. So I think there is an imbalance in terms of perception of the academic being supreme over the practical and everything else. In terms of the 1980s situation, which, as I have told other Members and I will remind you, I was not around to see much of, only part of Northern Ireland at that point was designated as an enterprise zone; it was basically Belfast and Derry at that time and the idea was to try to address difficulties in those areas and to regenerate them. What are the drawbacks? You mentioned briefly some of the drawbacks there can be if you designate only a particular area. What are the drawbacks of that versus a wider designation for the whole of Northern Ireland? Building on what you said earlier, if the whole of Northern Ireland is designated, given that you said there is an issue of diverting activity from other places if the zones are smaller, would we simply be diverting activity from the Republic of Ireland and from other parts of the UK or would we be creating a platform on which we could show people what is on offer that they are maybe just not aware of?
Roger Pollen: I think our feeling and feedback is that it is to divert activity from other parts of the world to come to Northern Ireland. Northern Ireland is probably in a unique position at the moment, in that American policy is to see American jobs repatriated to America in most parts of the world, with the exception of Northern Ireland. That is a very clear policy that we should be able to harness. There is great sympathy in Europe as well from President Barroso, for Northern Ireland’s position, and offers to assist. There is the Secretary of State’s commitment to see an enterprise zone and to examine something as fundamental as changing corporation tax for Northern Ireland. So there are a lot of reasons and a lot of support around the world that could be harnessed. I do not think that would be to do something to the disadvantage of either the Republic or other parts of the UK; it is a much bigger game than that. It is actually to elevate Northern Ireland and see it as a beacon of best practice and at the same time achieve the rebalancing that we are talking about over a 25-year period.
Q29 Dr McDonnell: Do you think that would be better than selectively picking on various deprived areas and saying, "Yes, we will put an enterprise zone somewhere in Craigavon"-that David might suggest-"we will put one in North Belfast, we will put one somewhere else"? Do you think the whole of Northern Ireland as an enterprise zone would be better than that?
Aubrey Calderwood: I personally do. I think the original intention of the enterprise zone was not to regenerate disadvantaged areas; it was to encourage economic growth and a spirit of entrepreneurship in those areas. So it was not really just to do up rundown or disused buildings; it was really just to get that economic activity in the area. I think they did that in the Republic in Dublin, along the banks of the Liffey. There are some rundown areas there where they had enterprise zones and that undoubtedly generated a lot of construction activity and gave rise to a number of shiny new buildings being built. But that is not really what we are trying to do here. We are looking at the whole of the Northern Ireland economy, not just parts of Belfast or Derry or wherever.
Q30 Dr McDonnell: How did it stack up? I would love one or two of you guys to come along with me to the South Belfast federation of residents groups, who want third party appeals on planning and all the rest. You are suggesting that there would be literally no planning regulations.
Roger Pollen: Can I come in on your first question and then on your second question? On the first question, I think the difficulty of that is you will not change a culture with that. You will designate those areas that you have called enterprise zones as impoverished areas; bad areas; areas that need some sort of special assistance. What we are trying to get here is an entire culture change through the private sector, the public sector, schoolchildren-everybody-to see Northern Ireland’s opportunities as different. On planning, certainly the FSB’s position is not to try to achieve a single change to the outcome of any planning process; it is to shorten the process and give clarity to that. At the moment, that is one of the biggest things hampering it. Can I ask, Chair, for Patricia to give you a very quick example of what happens if we treat planning and building control together?
Chair: Can we delay that? We are going to come back to planning in a bit more detail later, if that is okay.
Roger Pollen: Certainly.
Q31 Jack Lopresti: Mel brought this matter up when he said that previous enterprise zones have been criticised for creating property booms rather than real jobs and employment. What can we do to prevent the risk of this happening again?
Aubrey Calderwood: As I said earlier, if we target the allowances available to different classes of investor within the zone, I think that would go some way towards addressing that point.
Q32 Jack Lopresti: Is that pretty much it as far as what Government could do?
Andrew Reid: Obviously there is the other issue that was raised in the CT debates that if you can somehow tie it to economic activity and job creation-so for every 50 jobs you get another 50% or something along those lines. But that is a little bit further down the track. I think that is one of the key areas.
Aubrey Calderwood: In the Republic at the moment they have got a limitation on the amount of tax you can shelter from investing in enterprise zones, so they have obviously realised that the professional classes have invested in those enterprise zones purely to shelter tax. We do not want that, so a similar kind of arrangement could be put in place here as well.
Q33 Kate Hoey: Hello, Mr Pollen. Y ou said that enterprise zones were very shiny and exciting and then went on to say , if you knew what they were actually. I am a bit wary of all these new, glossy things that come in. H ave you done any thing on the costings of all this and how much it would actually cost, particularly in terms of the whole of Northern Ireland having an enterprise zone? Have you thought about whether there might not be better way s of helping to change that culture that you were talking about?
Roger Pollen: With respect, the cost of all what?
Kate Hoey: Presumably the benefits that you are trying to give or ask for for small businesses, for the setting up of it, the bureaucracy of it and the machinery of it. It does not just happen that you are now an enterprise zone; somebody has to pay something extra. I am trying to find out what my constituents in my area or the rest of the United Kingdom are going to have to pay and why.
Roger Pollen: As I said at the very beginning, I think our objective would be for Northern Ireland to cease to be a net beneficiary and recipient and actually become a contributor. So in the longer term, your constituents would benefit from it. Again, we have set out the pieces and because we are not quite clear what we are commenting on, I will just flag up a few. Some of it should see a fairly rapid reduction in costs, because what we are talking about is stripping away bureaucracy.
Q34 Kate Hoey: But could you not get that done anyway without being an enterprise zone? My constituents and my businesses and small businesses in England would like the bureaucracy stripped away as well.
Roger Pollen: I think that is one of the challenges and that comes back to how you are creating a climate in which the culture changes-in which civil servants, politicians, businesses and local authorities all look to see what they can do to try to make things run better and more efficiently. So it is about having the land-a-man-on-the-Moon objective; it is about having an enterprise zone at the forefront of everything that you think about when you are carrying out activity so that when you as a Department or as a Minister go to take a decision or to implement a policy, you can say, "Well, what is the impact of this going to be on Northern Ireland’s competitiveness?" That is the culture that we would like to try to see fostered. All of these things are as yet admittedly unquantified measures that might contribute towards that. So we have not really got into the detail of what these things are yet, but to touch on one very quickly, there is an idea I want Patricia to flesh out for us about internships, which is where people are working in professions alongside their time in university, so that they are learning what it is like to be in a business, to work in a business and to run a business while they are studying.
Q35 Kate Hoey: Why does it need an enterprise zone to do that?
Roger Pollen: Because we would like to see, for that particular one, companies incentivised to do that by, for example, an exemption from the National Insurance payable for anybody who is on a registered internship or apprenticeship.
Q36 Kate Hoey: Have you done any costings on that?
Roger Pollen: No, in all honesty, because how long is that piece of string? How many people might be caught up in it? I think what we are trying to get is the ideas to take hold and once people see that yes, those ideas could really deliver change, let us look at what the costs of those would be. I think that has to be the sequence, because even looking at the corporation tax debate, getting accountants and the Treasury and everybody else to put a cost on that has been very difficult to get consensus on and those are people who have the resources and the statistics behind that to evaluate. So with these things I think it would be unwise to try to put figures and hard costs onto things that are still only ideas that we are trying to get into play.
Aubrey Calderwood: I think one of the key things to remember as well is the fact that unless there is actually capital investment, there is no give-up in any tax relief available, so you are giving 100% capital allowances to investors in property or in businesses in the Province, but you do not actually have to give that up unless they are making that capital expenditure commitment in the first place.
Andrew Reid: And hopefully the increased revenues from indirect taxes, if they are not affected by the enterprise zone, never mind the social externalities that will flow.
Q37 Mr Benton: In answer to my colleague, I think you also answered the question that I was going to put, which was in effect, why enterprise zones? I have had experience of an enterprise zone on Merseyside and I suggest to you that one of the difficulties is trying to assess the success or otherwise of it at the end of the day. You never really know if it was this initiative that created work. Would it have happened naturally? In my own personal experience of it, I think business found the establishment of an enterprise zone on Merseyside very, very welcome.
So in answering the question, I think you have come up with some very interesting and very thoughtful ideas about how you bring about the restoration of an economy and so on. Everything that has been mentioned truly is a very important factor. In answer to the Chair earlier-I think it was the first question-I can understand that nobody is quite clear what they mean by an enterprise zone. What it will mean, effectually what it will do, the cost, to which you just referred in answer to my colleague-these are all unknown factors. At the end of the day, the Government, I am sure you appreciate, has got to make a decision about the cost to the Exchequer in terms of corporation tax and also the cost, of course, of creating an enterprise zone. So what I think is very important and what I think is a most interesting point-I would appreciate your observations on it, because it is not quite clear to me-is all things being equal, if you were to get the enterprise zone put in place that you and all the business and the economy in Northern Ireland wanted to see, would you still think that is a better proposition than a reduction in corporation tax? It seems to me that there is a genuine argument about which of the two is best. So I can appreciate the difficulty when you answered the Chair, because there are lots of unknown factors. But most of all, as I said earlier, one of the problems is that you are limited in how far you can judge an enterprise zone, unless it is some marvellous thing that everybody can identify. So, just to satisfy the Committee, all things being equal, could you indicate exactly what would be preferable to the economic and industrial interests in Northern Ireland?
Andrew Reid: Can I just clarify one point? It was my understanding that if we ever see key rate reduction or an enterprise zone, the additional funding will come out of the block grant, not the Exchequer per se. So Northern Ireland’s budget will actually be paying for it. The other point is that, quite interestingly, all the benefits of the added tax will flow back to the Exchequer.
Roger Pollen: I do not think that any of us should be looking at it as a choice between one or the other and I think if you got one, it would fit beautifully with the other and be a really logical part of supporting the other. So if you got the corporation tax, that would play a key part within an enterprise zone, because it would be sending the signals; it would be the cultural change; it would be rewarding the companies that you would be hoping to attract and also to grow indigenously. Admittedly we have not yet seen the corporation tax paper, but it is interesting reading the BBC's comment on it yesterday-so we can assume that is accurate. There is a quote in it that says that "such a move ‘would, on its own, be likely to have a positive effect on local private sector investment’". Now that is different from the signals we have been getting unofficially for some time; that is clearly suggesting that there is a move within the Treasury to recognise that the corporation tax change could be beneficial and could have a positive return. So I do not see that it is a choice between the two; I think we clearly see a low tax environment. But the other attraction-I think Aubrey alluded to it-is that we see taxation policy being how you drive changes in behaviour and therefore, in many ways, a more effective tool than simply Government intervention through grant aid. I am not suggesting you get rid of grant aid, because it clearly has strategic values for certain objectives. But by doing that, all you are really doing is sacrificing potential taxes by getting private sector investment to do the job you want. So that is why we are trying to look at this thing as a whole.
Aubrey Calderwood: There is not a huge amount of research on the effectiveness of enterprise zones, but there was quite an extensive study carried out in the United States on their enterprise zone regimes and their culture about trying to encourage economic growth in enterprise zones. Just going back to your point that it is almost imperceptible about how effective it is-would it have happened anyway? Just to read from this report for a second, the research team "found that the relationship between incentives and investment/development was complex and often ambiguous. For instance, many existing facilities that found themselves in enterprise zones made investments and expanded operations while ignoring incentives for such activities. This was explained as the ‘placebo effect’ whereby business responded to government commitment to an area while simultaneously paying little attention to the government incentives and ‘rewards’". So that goes back to the fact that just because an enterprise zone is created, it creates a spurt of entrepreneurship and local indigenous companies within that area can feel confident that the Government is committed to the area and therefore they invest in it anyway.
Andrew Reid: May I add one final point to that? One of the key advantages of an enterprise zone over the rate reduction per se would be the requirement for investment. As Aubrey has already mentioned, a company would have to make that step and make the investment into the area, so you already have £1 million going to local contractors, hopefully, and then they feed off the economy through that, as opposed to just setting up your Facebook head office with 10 people in it and paying 10% tax.
Q38 Lady Hermon: I think if we were in a court of law my next two questions might be described as leading questions, but we are not in a court of law, so let me lead you. Am I right in thinking from what you have just said-and please correct me if am wrong-that it would be the unanimous view of the four of you that if permission were given and the Assembly decided to take the opportunity to reduce corporation tax in Northern Ireland, that it would be a missed opportunity not at the same time to declare Northern Ireland as an enterprise zone? That is the first. Since it was Mr Pollen who said he would not like to see it a choice between lowering corporation tax in Northern Ireland or an enterprise zone, if you prefer the two to go together, do they go literally hand in hand at the same time?
Aubrey Calderwood: My personal opinion on that is yes, they go hand in hand together and yes, it would be a missed opportunity if we did not create an enterprise zone at the same time as lowering corporation tax within the Province. The reason for that is because, in my view, we are competing directly with the Republic of Ireland and the advantages that they have available to them in terms of their low corporation tax rates. They are already set up for ones throughout the island of Ireland, whereby they have specific clusters of areas earmarked for, for example, biopharmaceutical companies. So they have planning permission already in those areas ready to go and if we do not do the same thing in Northern Ireland, then if you have got a CEO of a company in America wishing to invest in the island of Ireland, why would they come to the North as opposed to the South?
Q39 Lady Hermon: Mr Pollen or Patricia-whichever-are you unanimous?
Roger Pollen: I think we would echo that, yes. That is fair comment. The one thing I would add to it is that Declan Kelly, the US Economic Envoy to Northern Ireland, made the point last week in a speech in Belfast that he felt there was a period probably of about two years where Northern Ireland needs to seize the opportunities that it is being presented with, if it is not going to spend a generation ruing the fact that it has missed them. So to take your leading question, it should be done, it should be done concurrently and it should be done fairly quickly.
Q40 David Simpson: Very briefly again, Chair. For a long time now the Committee has taken evidence on the whole issue of corporation tax. We have had numerous organisations giving evidence. We have Invest Northern Ireland saying that it is a key component in order to stimulate the whole of the economy again and get industry going and of course we have had numerous economists-I hope none of you are economists-in the room giving their opinion. We get a different answer every time we talk to an economist. I am going to put the same question to you that I put to John Simpson when he was here. Blank sheet of paper, from one to 10, where do you put corporation tax? I know what his answer was. What is your answer?
Andrew Reid: If I can just pick it up-
David Simpson: I do not want a bluff answer.
Andrew Reid: No, okay. I am an economist, but we will just quickly-
Oliver Colvile: I think you have given your answer.
Andrew Reid: Retrained in accountancy. I think lower taxation would be close to the top-if not three.
David Simpson: He differs, Chair. Do you want to clarify?
Chair: 10 being the highest, I think. Is that right? 10 being the highest?
Andrew Reid: Oh, 10 being the highest? Sorry, I meant top three as in one, two, three.
David Simpson: John Simpson said six, because there were five other important elements to achieve before we got to the stage of corporation tax. I have to say I am an advocate for lower corporation tax. We do not all agree round the table on how we get there, because I think if we are looking at £350 to £380 million coming out of the block grant, it is impossible. We could not even phase that in over a two-year period after the cuts that we have already had within the Assembly. So that is the difficulty for us. But I think it is a stimulus; it is not a silver bullet, but it is part of a cocktail of measures to take to drive us forward. I have been in business in Northern Ireland for 30 years and no one would love to see lower corporation tax more than me. I hope that is not minuted, Chair. It probably is.
Chair: It is, yes.
Roger Pollen: I think it is interesting that out of all those economists who appeared in front of you, you chose one. I think our comment on that is that the time to move is now. The cost of that could be deferred. I think this is the point that Sammy Wilson has been bringing forward, that at least if you are in a position to signal that, in three years’ time, corporation tax will be down to this level, then, if that is done as part of a wider package of introducing elements that might make up an enterprise zone, that delay probably is not going to be material.
Q41 David Simpson: But does delaying it really take away the impact? "We are now open for the lowest corporation tax anywhere in Europe-but it will not be there for three years". Does it take away the impact?
Aubrey Calderwood: I personally think it does and I think it would cost more if you delay it as well. We are trying to come out of recession and we are trying to encourage growth at the moment, so the tax take-what you would give up in taxation-would be lower if you did it now. So I think in terms of both the impact and presenting it as a complete package as part of the enterprise zone, now is the time to do it.
Andrew Reid: The Patent Box will be coming in from April 2013, which offers you 10% for intellectual property profits. So personally I would prefer to see tax reliefs and allowances targeted at investment, so increased research and development tax relief, the same for capital investment and then you have got the companies doing the R&D now and they can take advantage of the 10% Patent Box in 2013.
Q42 David Simpson: How do small companies, which are very much the backbone of Northern Ireland and very much hands-on, take advantage of R&D? Do they buy it in? How do they take advantage of it?
Patricia O'Hagan: We take advantage of it. We are a software company but the grants that we get from Invest Northern Ireland for R&D actually pay wages. If I did not have those grants, I would have fewer people sitting at desks working for me.
Q43 Chair: So it is grants rather than tax relief?
Patricia O'Hagan: I take advantage of both, so they both contribute.
Q44 Gavin Williamson: Assuming that the enterprise zone is a package of various things, whether it be planning reform and lots of other bits and pieces, and the Government says reducing corporation tax is an absolutely fantastic idea but it is not for the UK Government to decide-it is for the devolved Assembly; the decision is devolved; the devolved Assembly says no because the price of it is too expensive-does that totally scupper absolutely everything? Is there something that can still be saved out of it all?
Aubrey Calderwood: I suppose just having an enterprise zone without the low corporation tax rate is better than not having anything at all. I personally feel that that will not achieve what we are trying to achieve.
Gavin Williamson: It would be very shallow?
Aubrey Calderwood: Yes.
Q45 Mel Stride: R&D incentives are currently clearly within the remit of HMRC. Is there any case, in your view, for devolving that to the Northern Ireland Executive itself? What would the issues surrounding that be?
Andrew Reid: It is quite tricky. The Coalition are currently looking at R&D tax relief as a whole and they are asking for proposals on streamlining the process. But in terms of taking it away from HMRC, my experience with HMRC has been very, very good. The people in the R&D unit within Northern Ireland especially really do help to push on. There is one chap in particular we meet regularly and he actively goes out and promotes the scheme to businesses. I am not sure if Patricia has had that experience herself with Revenue.
Patricia O'Hagan: Not yet, no.
Andrew Reid: Not yet.
Mel Stride: You will after this meeting, I suspect.
Andrew Reid: I will give you their phone number. We are coming up with a few ideas at the minute, but the proposal is for a few weeks’ time.
Q46 Mel Stride: In terms of using R&D credits as a device for targeting particular types of employers and sectors, you mentioned green housing and so on. Are there any other sectors? What specific sectors would you be looking at and how would you design it so that it worked for those particular areas?
Andrew Reid: We talked about this at length because we did not want to restrict the relief available to particular industries. For instance, one of our clients is a concrete manufacturer and you would not normally associate those guys with expansive research and development. However, they have availed of the relief and have been able to employ another 10 people as a result. So I think, to strip it back, it can be quite difficult. However, if the likes of Queen’s and Jordanstown can really put on these high quality graduates in ICT, biosciences, agri-food and those kinds of industries where we already have a bit of a base, if we could target those and maybe give them a little bit extra just to help the employment figures, I think that would help.
Q47 Oliver Colvile: Do you think that research and development is seen as a cost or do you think it is seen as an investment?
Roger Pollen: Seen by whom?
Oliver Colvile: By your members and by the people you are involved with.
Patricia O'Hagan: It is most certainly an investment to us. It is what our business is built on. We differentiate ourselves from larger companies by the innovative product that we can offer and our responsiveness to the market.
Q48 Oliver Colvile: So part of the package that you would be looking for to do with becoming an enterprise zone potentially is some kind of tax break on research and development? Would that be helpful?
Patricia O'Hagan: Yes. We already do get a tax rebate and if that was emphasised more that would be even better, yes indeed.
Q49 Oliver Colvile: It seems to my mind that the other thing that is very important is to try to build up a knowledgebased economy-using the university much more and doing all those kinds of things to try to promote it. I rather agree with you that low taxation is a good idea and I am for ever in trouble for talking about Hong Kong, but there we go.
Chair: Go on.
Lady Hermon: I will speak to him after the Committee.
Q50 Jack Lopresti: What kind of changes to the law on intellectual property do you want to see and how would this be part of an enterprise zone?
Roger Pollen: Obviously it is being talked about at present because I think the UK as a whole has lagged far, far behind the rest of Europe and indeed some areas of the world with respect to IP and foreign companies’ taxation. I think they are really trying to bring that up to speed. I think it would be handy to try to streamline the patent process. I think it will be rather difficult within EU regulations. However, I think if you can open up at least the tax relief and really try to benefit the holders of IP, get the people to do the work in the UK, particularly in Northern Ireland, and get them to hold the IP within Northern Ireland so we continue to get the tax benefits.
Q51 Naomi Long: In terms of the FSB, do you have any idea of how many of your member companies would be involved in employing staff and how many would not be involved in employing staff?
Roger Pollen: I do not have a specific figure on that at the moment, but I do know that from a survey we carried out in December of the entire membership of 8,000 members, 71% of them said that they would be keen to take on an additional employee or a new employee if the circumstances were right. We looked at a number of measures that might be put in place to support or assist that and that then is where it starts to get more extensive. But certainly that is the number of businesses that were indicating a desire to take on an additional employee. We were very encouraged by that figure.
Q52 Naomi Long: So they might be pleased with the Chancellor’s announcement this afternoon about an extra £1 billion for the Business Growth Fund then, potentially?
Roger Pollen: I am sure they will be.
Q53 Naomi Long: In terms of job creation, obviously if we are going to create a positive culture in Northern Ireland in terms of being able to seek a rebalancing of the economy away from the public sector more towards the private sector, that will require us to grow new jobs. Do you think that it is fair and realistic to say that there has to be a requirement on the enterprise zone to create employment to benefit from those elements that would contribute to its structures? So people have to create employment to benefit, rather than simply continue to do what they are already doing.
Roger Pollen: I think the danger when you get into that sort of micromanaging is that you could actually be setting up a structure that will drive the wrong sort of change and you may then get people whose jobs just disappear because they were not incentivised or were not able to benefit alongside a competitor who was slightly larger and was able to effect that change. It seems to be about creating this cultural shift, going back to the point of the Member who has just left-the one who asked about intellectual property. Again, it is getting these links between the universities and the businesses so that there is an understanding of what is coming through-what is able to come through-and then people who can see what is coming through and might be in a position to exploit that. We think that in the context of this type of zone and the sort of change of culture that you are trying to develop and foster will make those links, formal and informal, easier to develop.
Q54 Naomi Long: Do you think there are other measures of business growth that are just as important as job creation in terms of judging whether this scheme would be successful? Obviously a lot of the focus is on job creation, but are there other measures of business growth you think would be just as critical in judging success?
Patricia O'Hagan: I think something that we need to focus on in Northern Ireland is export sales and business and that would be a good measure-if we can encourage more businesses to seek markets and take part in markets outside Northern Ireland.
Roger Pollen: That is one of the other things. You say, "How do you drive that change?" That is where Government has a role to play and that is why ideally the enterprise zone is a mix of local government, Assembly, Executive and Westminster playing their parts in it. That one could be driven by fiscal policy-by taxation incentives focused specifically on export activity. If you create an economic climate where one part of your sales is more attractive and profitable than another through tax policy, that is where people will gravitate their effort.
Q55 Mr Benton: I know that reference was made earlier to skills levels, but I was wondering how the enterprise zone designation could be used to enhance the skills base. Have you any thoughts on that? How would you apply the establishment of an enterprise zone directly to increasing-I agree with the comment made before by Patricia O’Hagan; it is absolutely imperative in any sort of economic resurgence that we have the right skills and so on. I think there is a very important question in terms of the designation of enterprise; one of the really strong elements in economic recovery is to have the right skills available. If an enterprise zone is going to bring about these benefits, surely one of them must be to enhance the skills base. Do you have any specific thoughts on how that could be best achieved?
Patricia O'Hagan: I think it could affect the skills levels at different levels. At one level I think business needs to engage with universities more by feeding into the universities what specific skills we need the students to be educated in. I think we can engage more by offering internships to students so that they can spend more time working in an industrial environment as part of their course so that when they graduate they have very good skills. We have done this in our company and we have worked with a number of graduates who have worked with us while studying and they have come out with very good results in their degrees. I think that is the input of a live environment. As we attract larger corporations into the environment through the enterprise zone, we will bring people with skills into our community and then the indigenous companies may have access to attract those into our businesses or even informally get access to those additional skills. So I think there needs to be several layers at which we interact with the education providers and also benefit from the new people who would bring skills into our community.
Q56 Mr Benton: My view is that there is a certain problem in terms of apprenticeships. I think it is so vital to encourage apprenticeships and skills in that direction. Of course, over many years, we have seen a terrible decline in what you would call these traditional skills and the people coming forward. So to me it has got to be that if you are talking about enterprise zones you have got to have this coupling. Again, I know I am going over old ground, but I am trying to suss out what difference an enterprise zone can make to encouraging the resurgence of these skills; what cannot be done without an enterprise zone, if you are following me. It involves investment in training and in education; that has got to happen in any event if it is desirable to get your skills base up. I am really looking to see where an enterprise zone can make that difference between what is going on now in terms of enhancing the skills base. What effect would an enterprise zone have on increasing the number of skilled people?
Patricia O'Hagan: I think that having an enterprise zone that aims to bring about cultural change and transform the economy needs everyone to buy into it; it needs the universities, the colleges and everyone to buy in. It is not just about the business community; it is aspirational and for everyone to have that focus on growing our economy; that puts more pressure on our education providers to be part of that.
Aubrey Calderwood: I think the enterprise zone per se does not increase the educational standards of people within the Province. I think what they did in the Republic before they introduced the corporation tax rate of 12.5% and introduced the various enterprise zones within the RoI was they decided what kind of businesses they wanted to attract within the Republic and then they had the joinedup thinking to match the skills to those kinds of businesses they were trying to attract. So I do not think the enterprise zone itself would be responsible for creating those skills; it has to be a longer-term plan of the skills we need for the kinds of businesses we want to attract in the first place. So, in that sense, the enterprise zone does create the skills, but it has to go back further; there has to be more planning about what we need first of all.
Q57 Lady Hermon: We are drawing towards the end of this session, so we are going back to the beginning. At the beginning, when asked to identify the key components as you envisaged them that an enterprise zone tailored for Northern Ireland’s needs would need-I did take a note quickly-you said, "A simplified planning regime within the enterprise zone". That was number one. Number two was low taxation. Number three, investment incentives compared to the "blunt instrument" of corporation tax-not my words but a witness’s words. Now, for the sake of clarity of our understanding in the Committee, I am looking at the information that was given to us about the survey conducted by FSB when asking the members in Northern Ireland what they thought should be in an enterprise zone. We have it in our documentation today and this is what was so interesting. It came back that when asked about the planning regulations they featured-and David Simpson would love to know where they are rated, but it is right down-only 27.3% of those who answered the questionnaire rated the easing of planned regulations. Now, which is it? Is it top priority within an enterprise zone that the planning regime is simplified or is it, according to your membership, actually a very low percentage of them who identified planning as a problem? We just need clarity.
Roger Pollen: That is absolutely fine. Thank you for asking the question in the way you have. In constructing that question for our survey, in many ways it was where do you start on this circle we have been talking about? We set out a number of issues that we would like to have had members’ opinions on that might be included in an enterprise zone. Given that an enterprise zone had not been defined and there had been nothing published that we were consulting on, this was a number of things that we wanted to get feel for from our members. But I think you have to recognise first of all that more than a quarter of our members see that as one of the things that is important to them. That is a significant factor. When you consider that 99% of businesses in Northern Ireland are small to medium-sized enterprises, a lot of people have an issue there. But I think also that you have got to look at when the survey was done. It was done in December 2010, at a time when an awful lot of businesses have been contracting, and planning and expanding has not been necessarily one of their highest priorities. We deliberately did not put a question about banking into this survey, because we did not want to draw a particular amount of attention to an area that we knew had been exercising a lot of people for quite a lot of time. So we were looking at things that could be in here. I have to say that it repeatedly comes back to us from members that planning issues are big problems for them. Within planning we are also looking at building control; it is the whole thing to do with how you use your buildings and how you construct, how you extend and everything else. It can be right down to putting up signage. If you do not mind, can I draw in Patricia here with a very relevant example, which beggars belief?
Patricia O'Hagan: We have recently expanded and taken on several new members of staff, but we are in the existing premises, which is far too small for us and we have been planning to move for some time. We are actually moving into a building that has been built by Invest Northern Ireland, which is great; it is a very modern building, built within the last five years. We need building control to approve our plans for that and it has taken us two months. It is going into a building that was recently built for the purpose of officebased small businesses and all we are trying to do is put up a few internal walls, which are not structural, and it took us two months to get permission to do that.
Q58 Lady Hermon: But you have achieved it now, after two months?
Patricia O'Hagan: We have, yes.
Lady Hermon: That is probably a record.
Aubrey Calderwood : Yes, I was going to say that is not too bad. How did you manage that?
Roger Pollen: But there has been a cost, because there has been a requirement to get architects’ plans and everything else, so that business has had a whole cost put on it. That is in premises that are specifically designed to accommodate businesses of this sort. If you look in areas where there are private landlords who are maybe being required to make a minor amendment or alteration-it is just unnecessary. The request there was of such insignificance in the scheme of things that we need to find a way of shortening that process, not-as I said earlier-necessarily to change the outcome of it, but to make the process shorter and more costeffective.
Q59 Lady Hermon: So would it be more accurate to summarise that in fact as presently drafted, our planning regulations and policy are in effect an obstacle to business and business expansion? Would that be fair?
Roger Pollen: Yes.
Patricia O’Hagan: Yes.
Lady Hermon: I heard two yeses and then silence.
Aubrey Calderwood: I would definitely agree with that, but could I just add that it does not-
Lady Hermon: Yes please. You are the witnesses. This is information gathering. It has been very, very helpful; you are very generous in your time here today; you have come over here at your expense today, so we can only benefit from the evidence that you give us. So please expand.
Aubrey Calderwood: It does not particularly surprise me that the members of the Federation of Small Businesses do not have planning as an issue high up on their agenda, but one of the features of enterprise zones is that it involves major construction of large buildings. For inward investors to attract foreign direct inward investment into the Province, they will require premises that will go through the planning process. I think in that scenario it would be a huge issue in terms of the planning obstacles that exist in Northern Ireland at present. So if you have got a developer wishing to develop a commercial property in Northern Ireland, they will face huge challenges in terms of their planning. I think if that could be simplified in the enterprise zone, it would be very attractive for speculative developers to construct in the Province. So on the one hand, small businesses do not really have the need to build large premises; they move into them and they will have planning issues and building control issues and building regulation issues. But in terms of the overall planning process of, "Can I build that property in that location?" I think it is well documented that developers find it very difficult to construct properties in Northern Ireland without obstacle and that would be one of the features that I would very much advocate for a Northern Ireland enterprise zone. Some form of simplification for the types of investors that we are trying to attract into the Province, so that they know that if they want to set up a pharmaceutical company, that there is a piece of land there, ready to go, as they do in the South of Ireland, and there are no planning obstacles, because I think that very much puts them off.
Q60 Mel Stride: Would it be fair to say in a way that that figure of 27% plus is quite large? Whereas tax and the cost of employing people, etc. is going to be highly relevant to almost everybody who answered your survey, presumably there are many who answered the survey for whom planning is generally not something that they are coming up against that much. But where they are, they are having very significant problems with it. Does that summarise it?
Roger Pollen: I think that is a very fair point. I take your point-it is well under half-but I think we would still see it as a significant figure, given the matrix of small businesses across Northern Ireland.
Lady Hermon: That is very helpful.
Q61 Chair: Just going back to what Joe asked, in some ways, yes, an enterprise zone would help, but maybe it should be done anyway. Do you see that as a temporary measure or a long-term measure or a permanent measure?
Roger Pollen: Two points there. Virtually nothing that we are looking at-I cannot think of anything-would be deemed as a temporary measure. I think this is a change we are trying to achieve. To take your point, all these things could be done without the banner of an enterprise zone, but what is it that is going to need to be put in place to get local government, the Assembly, Westminster, universities and businesses all changing their attitude and working together and seeing things differently? I think the enterprise zone has arisen as a very useful wrapper for that to change perceptions, partly at home and also partly abroad.
Aubrey Calderwood: Yes. I think it would make Invest NI’s mission to sell the Province much easier if they knew that they could go to inward investors and say, "This is the NI enterprise zone. This is what it entails", and just let them concentrate on getting inward investment into the Province.
Q62 David Simpson: I think you have answered a lot of this already, but finally, in looking through the research papers in the evidence, you have said, "The relaxation of other punitive legislation and timeconsuming bureaucratic process"-that is a mouthful at this time of the afternoon. Could you give us some examples of that, tell us what is devolved and what are reserved matters? Just to summarise, if you are taking it from one to five again, where would you put it on the bureaucratic side of things to try to make it easier for businesses?
Roger Pollen: We were looking at the things that might be delivered under this wrapper. For example, we have already alluded to procurement and I think Patricia had an example where a decade ago she was able to deal directly with a Government Department to procure and now a number of layers have come in between. So in the last decade alone, the risk culture we talked about and so on has brought in more measures that have made things complicated. In terms of taxation, part is reserved and part is devolved. If you look at things like business rates, that is clearly devolved. If you look at the corporation tax, that might become devolved. Things we want to look at as well are things like enterprise investment schemes and how those might be extended and adapted within a Northern Ireland context. Why is Northern Ireland a special case? In many ways there is an opportunity here to use it as a special case for all the reasons it ought to be treated as that, but actually to test bed some things and see if genuinely you can get enterprise to flourish as a result of changing policies there in a controlled cost way, then those might be unrolled elsewhere. So does that help to answer the question?
David Simpson: Yes, it does.
Andrew Reid: Can I just make one point? Maybe it is not the right time to bring this up, but the corporation tax returns that people are doing. I had a think about this over the last few days in advance of coming and I was trying to think how it would work in practice, the administrative burden of having to do a Northern Ireland tax return as well as a UK tax return, whereas if you had the EZ status, you could just roll that into your whole UK return and you would only have to do one and that would be it, rather than splitting up profits and everything else. I know that is slightly different.
David Simpson: It is a good idea. Chair, that has been raised before with me, but as you will know, HMRC are not the easiest people in the world to deal with.
Chair: I am sure you contest that.
Lady Hermon: Well it was Andrew who actually complimented them, if I am honest.
Andrew Reid: He did indeed, yes.
Just one final point I wanted to bring in. The other thing I was thinking about on the enterprise zone was if there was some way to work in from Executive level easier access to foreign exchange reserves for smaller companies, especially those who are trying to drive on exports; if there is a way they can commission free or hedge as a whole.
Q63 David Simpson: So you think it would be a bad idea to go to the banks?
Andrew Reid: I would not even go near a bank.
Q64 Chair: I think we have probably exhausted our questions. It has been a very interesting session. We are very grateful to you for giving up your time and for coming here today, so thank you very much indeed.
Roger Pollen: Thank you, Chair. I know we have done a written submission already, but would it be helpful for us to send you another letter with any things that have come out of this discussion?
Chair: By all means. Thank you very much.
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