Expanded private sector and corporate tax reform key to economic revival
Northern Ireland has struggled since 1998 to escape the legacy of 30 years of strife
There are few more naturally beautiful locations in the world than the Glens of Antrim, particularly along the coast where the cold, tidal waters of the Irish Sea meet land.
These cerulean waters are home to the only Atlantic salmon producer in the Irish Sea, the Northern Salmon Company.
During their first business mission to China last week, the North’s First and Deputy First Ministers, Peter Robinson and Martin McGuinness, announced the Co Antrim company had secured big orders in the region for its Glenarm Organic Salmon range.
According to the Northern Salmon Company, the latest business win highlights “what sets our salmon apart from its competitors” (the environment in which it is produced, in seawater farms off the coast of Northern Ireland).
But what the latest win also demonstrates, according to the North’s political leaders, is “how small local businesses can go from strength to strength in competitive environments”.
Glenarm Organic Salmon ticks a lot of boxes as a poster product for Northern Ireland. Its parent company is a major exporter – an estimated 75 per cent of its organic produce is sold outside of the North and regularly finds its way on to the plates of top chefs from the US to the United Arab Emirates.
Growing exports from the North to markets such as China is a key part of the Northern Ireland Executive’s strategy to transform the economy into one that is “vibrant, private sector-led and outward looking”.
In its programme for government, which runs until 2015, the Executive outlines how it wants to build a larger and more export-driven private sector. It also wants to attract big investors to locate and create high-quality jobs in the North in a bid to reduce Northern Ireland’s overdependence on the public sector. Nearly one in three people work in the public sector in the North.
Ambitious wish list
The Executive has also pledged to support the promotion of more than 25,000 new jobs and to “press for the devolution of corporation tax”.
It is an ambitious wish list which projects the image of a new grown-up approach to government in the North, one that is focused on the economy instead of sectarian politics.
But while the peace process has dramatically reconstructed every aspect of daily life, the reality is the economy has struggled since 1998 to escape the legacy of 30 years of violence. Northern Ireland is now imprisoned in an economic downturn. Household debt and personal insolvencies have hit a record high this year while house prices have plummeted from their peak by 53 per cent.
In the last five years about 55,000 jobs have been axed and in almost the same period the number of people claiming jobless benefits has increased by 40,000. Latest labour market statistics show that in the three months to September the number of people out of work jumped to 67,000.
According to Richard Ramsey, chief economist with Ulster Bank, Northern Ireland’s claimant count is 9.5 per cent higher than the level it was at the time of the Belfast Agreement. But he said one of the more unsettling developments was that, while in April 1998 the jobless rate for 18 to 24 year olds was 9.6 per cent, the current youth unemployment rate was estimated to be about 21.1 per cent.
Recent research from Ulster Bank shows the local private sector is continuing to contract as key sectors struggle to win new business and battle against rising costs. Separate analysis from Northern Bank suggests that the local economy will have contracted by 1 per cent during 2012.
Northern Bank’s chief economist Angela McGowan said the impact of a slump in investment, fragile business confidence and tighter credit conditions during the summer months have taken their toll.
Although there is some prospect of light at the end of the economic tunnel, it is unlikely to shine too brightly. Economic adviser PricewaterhouseCoopers estimated that the local economy could grow by just 1.2 per cent next year.
So what is the solution? How can Northern Ireland stimulate sustainable economic growth, create jobs and ensure a peace dividend will be delivered? For many people the great hope is a lower rate of corporation tax.
Two years ago a campaign was launched to persuade the UK government that the Executive should be given the powers to set a separate rate of corporation tax – lower than the current UK rate of 24 per cent.
Research carried out by the Northern Ireland Economic Reform Group suggested that a rate in line with the Republic’s 12.5 per cent could generate 90,000 jobs over 20 years .
Ian Coulter, chairman of the Confederation of British Industry, said a reduction in corporation tax was needed. Northern Ireland has “come a long way”, he said, “but we still have the major problem of our overdependence on the public expenditure. Despite more than 14 years of political stability, is the economy in a better place?
“Public spending as a percentage of GDP has actually increased by 14 per cent since 1998 to 71 per cent and Northern Ireland living standards still remain 20 per cent below the UK average. What we need is a real chance to rebalance the economy.”
Feargal McCormack is the founder and managing partner of Newry-based accountancy and business consultancy FPM, which has offices on both sides of the Border. In the last 20 years Mr McCormack has witnessed the divergence in the two economies in which he operates. He said the rapid boom years in the South inspired a new generation of business people who reaped the benefits of working for large multinationals.
“We all work on the same island – but our experiences have been very different. In the South the transfer of knowledge, the opportunity to deal with customers around the world and the chance to travel to new markets created a new confidence that is now part of the national psyche. This confidence encouraged people to take the risk and set up their own businesses” said Mr McCormack.
“In the North because of the legacy of the Troubles and the overdependence on the public sector there were not the same opportunities. People were more hesitant to take risks.”
He said that since the Belfast Agreement “there is no doubt that the indigenous business community is more confident”, but they were now battling with a deep-rooted economic downturn and the North still needed to find a way of attracting significantly more foreign direct investment.
“Northern Ireland needs a lower rate of corporation tax; I’ve seen what it has done for the South,” said Mr McCormack. “It is the reason why many companies now operate from two sites on the island – one in the North and one in the South, to enjoy the maximum benefits of both locations.”
The decision on whether to give Northern Ireland the power to set its own rate of corporation tax lies with British prime minister David Cameron. It will be up to him to decide whether it is a gamble worth taking and how much it will cost.
Mr Cameron and his treasury officials will seek to reduce the £10 billion (€12.5 billion) annual block grant given to the Executive if they allow the North to set its own corporation tax rate.
However, Mr Cameron is also the man who once said the North needed a bigger private sector – now might be his only chance to put his money where his mouth is.
McDonnell's recipes for success: Measures that would drive growth
Introduce a lower rate of corporation tax.
Cut red tape and make Northern Ireland the most business-friendly environment in Europe.
Introduce new incentives to encourage research and development.
Attract more tourists and build on the successes of Titanic Belfast and Northern Ireland’s reputation as a golf destination.
Invest more in education.
Encourage the Northern Ireland Executive to bring capital investment plans forward.