Northern Ireland Economy

Baroness Ritchie of Downpatrick Excerpts

Thursday 1st March 2012 Westminster Hall

[Ms Margaret Ritchie (South Down) (SDLP)]

I welcome the opportunity to debate the rebalancing of the Northern Ireland economy here in Westminster today. The Chair of the Select Committee on Northern Ireland Affairs has already referred to the report on corporation tax in Northern Ireland and the Government’s response to it. The report, which was fairly far-reaching, set the course on which we should look again at our economy, to rebalance it between the public and private sectors. We fully accept that the public sector forms more than 70% of the Northern Ireland economy, but we also caution, from a party perspective, that we should not throw the baby out with the bath water. We are dealing with the legacy of conflict, and we must take all those various issues into account.

It is important to give an overview of the economic situation in Northern Ireland. According to research produced by the Northern bank, the economy’s growth rate will struggle to reach 1.1% this year, compared with the UK average of 1.7%. The Northern bank’s survey, which lowered the chances of falling back into a deeper recession, warned that growth and recovery were still fragile in Northern Ireland.

Seasonally adjusted data for Northern Ireland estimated that 784,000 people aged between 16 and 24 are in employment. That figure has increased by 2.9% in the past year and is now higher than the pre-recession employment level, recorded three years ago.

The research indicates that the unemployment rate in Northern Ireland is below the UK average and the fourth lowest rate among the twelve UK regions. The seasonally adjusted Northern Ireland unemployment rate showed a quarterly increase of 0.1%. However, the Northern Ireland rate, which is around 7.3%, remained below the UK average and was the fourth lowest of all UK regions. It is interesting to note the high youth unemployment, with some 18% of people aged 18 to 24 not in work. Northern Ireland is experiencing a sevenfold increase in long-term unemployment among 18 to 24-year-olds since the recession.

The economic inactivity rate for all people aged 16 to 64 is 2.3% lower than the rate some five years ago, but it remains the highest of all UK regions. A higher proportion of economically inactive persons aged 16 to 64 identify sickness or disability as their main reason for not wanting or not being able to work. Northern Ireland is ranked fourth highest among UK regions in terms of self-employment rates from April to June 2011. The average for the UK was 13.6%.

Those figures characterise and set the scene for the economic situation in Northern Ireland. With that economic backcloth, it is important that we discuss today the need to rebalance the economy in Northern Ireland and that we do so here, notwithstanding the devolution of governmental powers to the north, because many economic levers that can deliver a step change in our local economy remain in the hands of the Treasury in London. For that reason, I am pleased to see the Exchequer Secretary to the Treasury here to respond to the debate. He was involved with us in the early days of the corporation tax issue and came to Belfast around the end of last March to launch an important consultation document, for which there was cross-party support and subscription, for want of a better word.

Devolution has given us one significant economic lever: public expenditure, for which the hon. Member for East Antrim (Sammy Wilson) has ministerial responsibility in Northern Ireland; we have had certain tours de force at certain times in another place with him. We can now determine how to allocate within the block grant ourselves. We therefore have the capacity, even though we may not have properly used it yet, to target more resources at economic priorities.

Naturally, moving resources into priority areas, such as tourism and agri-food, which can yield the best returns for jobs and economic growth, comes at a cost to other areas. We have been cautious and perhaps even—dare I say?—unimaginative to date. I hope that that will change. That is why my party has produced a comprehensive plan, called “Partnership and Economic Recovery”, which sets out in considerable detail how we could target more economic stimulus at priority areas.

We were unique for a political party in Northern Ireland in that we identified where the extra money could be found without looking to the Exchequer. However, while preparing “Partnership and Economic Recovery”, we realised how many economic levers were still in the hands of Westminster. For example, despite being the only part of the UK with a land border with the eurozone, Northern Ireland’s Government are powerless to intervene in the numerous situations that place Northern Ireland at a unique economic disadvantage. One of them—the vastly differential corporation tax regimes north and south of the border, to the advantage of the south and the disadvantage of the north—has clearly caught the attention of London, for which we are grateful.

The Secretary of State for Northern Ireland deserves some credit for advancing our quest for corporation tax-varying powers—we realise that there are different views about that—albeit at a price. We hope that we are somewhere near a positive end of the journey. The Exchequer Secretary is well aware of the cross-party support for latitude on corporation tax. Perhaps he can provide us with an update on the ministerial working group on the issue and advise us whether he and his group, of which others here are also members, have reached any conclusions. If so, what might they be?

There is a strong belief that that one lever can bring about a significant step change in the growth of our private sector. However, corporation tax is only the tip of the iceberg, as is passenger duty and the differential application of the EU aggregates levy and its impact on our construction sector. I questioned the hon. Member for East Antrim in another place the other day on that issue, but perhaps the Exchequer Secretary will provide us with an update about the European Commission and where exactly those negotiations are at. That exemption is very important to our local industry and could act as an important stimulus to the construction industry.

We have no powers in Northern Ireland to depart from the overall UK position on all sorts of other matters that adversely affect our economy. We have long suffered the competitive disadvantage of a much more favourable agriculture and food regime south of the border, while we have been tied to a UK policy broadly hostile to the common agricultural policy. I hope that the eventual reform of the common agricultural policy will accommodate the needs of not only the local farming community in Northern Ireland, but the wider agri-food industry.

We have no power to vary indirect taxation or such things as excise duty on fuel, alcohol or tobacco. Excise duty anomalies alone have led to a wave of filling station closures in the north and the resurgent problem of cross-border smuggling. The Chair of the Northern Ireland Affairs Committee has already referred to the forthcoming report on fuel smuggling. We look forward to that report. There is no doubt that fuel smuggling is a vexatious issue that needs to be redressed and resolved on behalf of the wider community in Northern Ireland.

We are also tied to UK rates of motor taxation, which is something that stops us from doing more to help ourselves. I have not even mentioned the differential economic impacts of a UK welfare reform programme that is designed around perceived norms in the south-east of England.

It would be right in the context of arriving at the right solution on corporation tax to look at all the areas where the rigidity of the overall UK position prevents Northern Ireland from helping itself in its own economic development. We are not afraid of further devolution or further devolution of tax-varying powers, but we acknowledge that that could have implications for the block grant. Other hon. Members present today have already referred to that. We would like to know the consequences, although we accept the point that the Office for Budget Responsibility will have an overall remit to undertake such calculations.

Of course rebalancing the economy goes beyond the vital task of growing the private sector. As the Chair of the Select Committee has already mentioned, we also need to right-size the public sector and make it perform better. For decades, public sector workers maintained normality in Northern Ireland, and we owe those unsung heroes a debt of enormous gratitude. However, with peace, there is an opportunity to redesign a public sector aligned to the precise services that citizens now need. We are prepared to be radical on public sector reform. The Northern Ireland Executive can do much more good for themselves, but they will need the co-operation of Westminster in that reforming endeavour.

In that context, I should like to pay tribute to the Environment Minister in the north—his work has already been referred to by the Chair of the Select Committee—because he has responsibility for planning and local government reform. He has blazed a trail in prioritising timely decisions for major planning applications. For example, the decision on the golf course announced last week, which was mentioned by the Chair of the Select Committee and the hon. Member for North Antrim (Ian Paisley), will have a significant economic and job creation impact.

[Ian Paisley]

Will the hon. Lady unite the House and call on the National Trust to support that magnificent project for Northern Ireland, because it will lead to more tourists in an area where it has an economic interest?

[Ms Ritchie]

I thank the hon. Gentleman for his intervention. I am in no doubt that the planning application just approved, which took some 10 years to come to fruition, will have an economic impact on that part of North Antrim. I encourage my colleague the Environment Minister, who sits in another place, to try, subject to challenges and difficulties, to make similar decisions. It is important that all organisations act in the public interest for the people of Northern Ireland, so that there can be a sea change in terms of stimulants and economic development. There is no doubt that planning is playing its part as an improved public service that facilitates investment and growth. The tourist board can also make a contribution, as can Tourism Ireland.

Rebalancing the Northern Ireland economy is a necessary and worthwhile endeavour, but it will require a collective effort by not only the devolved Administration, but London, too. We need to develop an economic agenda that will empower rather than alienate our work force. Some of us might have different views about the degree to which corporation tax should be lowered to attract foreign direct investment. No doubt, the Scottish agenda and the English regional agenda will play their part in bringing influences to bear upon on the Treasury.

Small indigenous businesses must be encouraged as well to provide opportunities for all. Perhaps the Government should consider the establishment of another working group with the Northern Ireland Executive to examine other areas where Northern Ireland could profitably be released from the UK system to further rebalance the economy.

It would be remiss of me not to mention the high priority that I attach to tourism development in the overall task of rebalancing our economy and stimulating job creation. Two out of our five signature tourism projects in Northern Ireland—the Mournes and St Patrick’s—are centred in my constituency. Our open invitation to come to Downpatrick and walk in the footsteps of St Patrick is particularly relevant to both Britain and north America. In fact, the shadow Secretary of State, the hon. Member for Gedling (Vernon Coaker), will do just that next Friday. We very much welcome his visitation on that occasion.

That is why we were right to press for relief on the air transport duty issue. I note that that will be subject to provisions in the Finance Bill. We acknowledge that there will be reference to transatlantic flights and the Continental Airlines flight between Belfast International and Newark, New Jersey. What about flights that deal with the domestic market between Belfast City and Belfast International to airports in Britain?

To return to my original point about tourism development, I have often said that St Patrick was probably our greatest ever import and has the potential to be our greatest ever export. Our unique heritage can even help to rebalance our economy. May I say in the month of St Patrick’s festival that our invitation—and my invitation to all hon. Members—to visit St Patrick’s country remains open to all?

In conclusion, we very much welcome our participation in the debate today about rebalancing the Northern Ireland economy. We in the Social Democratic and Labour party want to play our part, along with the Government and the Northern Ireland Executive, to help to rebalance the economy. It is vital that we provide the necessary stimulus, seek to rebalance the economy and provide hope and expectation for this generation and future generations in Northern Ireland.

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[Sammy Wilson]

No, I do not think I have adopted any of them. The only one that was adopted was then condemned; namely, that we could get some money from housing associations by cutting their grant and making them borrow more in the market. When that was adopted, the first party to condemn it was the party sitting to my left. Even when we adopt some of that party’s ideas, it suddenly decides that they are not good ideas.

[Ms Ritchie]

Further to the point made by my hon. Friend the Member for Belfast South (Dr McDonnell), I make the simple point that it is my clear understanding that the budget review group that sits in another place in Belfast has adopted a lot of the proposals contained in the SDLP document, “Partnership and Economic Recovery”. Perhaps the hon. Member for East Antrim might like to comment on that fact, rather than being disparaging.

[Sammy Wilson]

If I had anticipated the length of that intervention, I might have listed some of the things that had been adopted. I cannot think of too many, other than the one that has now been condemned by the party that first suggested it. I have to say that it is actually working quite well. We are getting more houses built for less money in the public sector, and of course that is a good idea.

[Ms Ritchie]

Will the hon. Gentleman give way?

[Sammy Wilson]

No, I will not give way. This debate is not about the internecine warfare that goes on in the Northern Ireland Assembly, much as I enjoy it. I am sure that hon. Members do not want a rehash of the kind of budget debates we have in that other place. I will make one point, however, because there has been a call for more devolution of tax-varying powers in Northern Ireland. There seems to be a contradiction. On the one hand, the idea is that if we had tax-varying powers we could use them to spend more money on public sector projects. On the other hand, when we get those tax-varying powers it is not to put taxes up, but to bring taxes down. I do not know how we bring taxes down and spend more money as a result, but that is the equation put forward by the hon. Member for South Down, which I think is part of her party’s policy. More recently, we have been told that if motor tax were devolved to Northern Ireland, we would be able to avoid all the changes that we do not want to introduce in welfare reform. From the devolution of motor tax we could find—according to the SDLP’s erroneous figure—£600 million. I would not like to be a motorist in Northern Ireland if we had to raise £600 million extra from a motor tax.

There are many issues I do not run away from. The Executive and the Assembly in Northern Ireland cannot run away from their responsibility for the things that they have to do to try to help to rebalance the economy. Some things are done well, some things are not being done so well, and some things still have not even been started. Those are internal matters, and the Minister may make reference to them later on. However, we are well aware that where we have responsibility, that responsibility should be taken. However, certain matters reside here at Westminster, and they are important if we are to rebalance the economy in Northern Ireland.

The first matter is the debate on devolution of corporation tax and tax-varying powers in relation to corporation tax. I would be cautious about that. It is not that I would be opposed to it, but if it is devolved it must be devolved at a price that does not put further pressure on an already pressurised public sector budget in Northern Ireland. We have lived with the cuts. I am not one of those who believes that because of Northern Ireland’s special circumstances we ought to be exempt from all of the financial difficulties that have to be faced by the rest of the people in the United Kingdom. I do not take that stance. It is an unreasonable stance for people from Northern Ireland to take.

We have lived with a £4 billion reduction in our budget in the next four years—a 40% reduction in the capital budget for expenditure in Northern Ireland in the four years. We have sought to ameliorate that by looking at what sources of revenue we could raise, what assets we could sell, how we could switch expenditure around, and where we could make savings. If, on top of that, as a result of the devolution of corporation tax, we were then hit with an additional burden—a burden that the Treasury estimates could be anything up to £500 million—that would not be either fair or sustainable. Given that the price would be paid immediately and the benefits would only be experienced in the medium term, that price would not be affordable. Nor would it produce, even in the medium term, the desired result of rebalancing the economy.

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[Sammy Wilson]

That is one reason why, when one looks at all the business surveys and the terms offered for loans, compared to the rest of the UK—I had the figures here somewhere, but I cannot dig them up at the moment—some 10% more businesses in Northern Ireland are saying that terms for loans have worsened between 2007 and 2011. Of course, on top of that many businesses have huge debts associated with property.

I listened to the chairman of RBS the other morning on Radio 4 saying how the bank had brought down its bad property debts. That is good from the point of view of the bank’s record, but I know what that means in places such as Northern Ireland: a good, strong business with a core operation, but with some bad land loan attached to it, is squeezed to bring down the debt on the land and, in doing so, people are being put out of work and businesses are finding it impossible to expand, even where they have good markets. The Government have to address the banking issue in the longer run.

I will mention only one more thing, so that other Members have a chance to get in, and that is VAT. I understand Government reluctance to reduce the rate when VAT brings in a lot of revenue, but to do so would of course have very beneficial effects in stimulating the economy. The Government do not have to reduce VAT rates generally; specific reductions in the tourist sector, as in the Irish Republic, or in the building sector, so that people could put extensions on their houses and so on, could stimulate a lot of labour-intensive employment not only in those particular industries but wider afield—I am not saying for Northern Ireland specifically. Come the Budget, the Government should look at that.

[Ms Ritchie]

Does the hon. Gentleman agree that the forthcoming Budget on 21 March is an opportunity for the Government and the Treasury to look at VAT? We are not coming from Northern Ireland with a begging bowl, but we would like to see some mitigation of VAT on tourism or general products. If that were possible, we would be extremely grateful.

[Sammy Wilson]

As I said, a reduction should be targeted, and not at Northern Ireland in particular. For example, we are looking to grow tourism in Northern Ireland; we have great opportunities to do so over the next number of years, because it is one of the growth areas we have identified, but any such VAT reduction could benefit the whole United Kingdom,

As someone who values the Union, I do not want to see lots of the fiscal ties broken. Equally, I understand and said earlier that, if the home nation is facing particular difficulties, we must face them along with the rest. Being part of the Union and the Union family, however, also means that there is an obligation on that family: if there are specific problems in a particular part of the kingdom and remedies are available, those remedies must be given serious consideration. As a Unionist and as someone who believes that the Union is stronger when specific problems are recognised and action taken, I hope that the Government will respond positively to some of the suggestions made by me and other contributors to this debate.

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[Mr Dodds]

The hon. Lady is absolutely right. She represents the constituency of Belfast East, and I represent Belfast North, which has more of the so-called peace walls than any other constituency. She and I share many of the challenges that come with representing a Belfast constituency and inner city areas, and I totally agree with what she said.

I was talking about tourism and the impact that violence on our TV screens has on attracting visitors. I believe, however, that the tourism industry has great potential to help grow the private sector. When the troubles—the violence—started in the late 1960s, the number of visitors coming to Northern Ireland, which had been growing very much during the ’60s, dropped off massively overnight and stayed at that very low base for 30 to 40 years. There is massive potential to grow the numbers back to what they were previously. We are not even back to that point yet.

[Ms Ritchie]

As the right hon. Gentleman says, there is further potential to be developed in relation to tourism. Does he agree that part of what is required is the development of the product assets themselves, as opposed to the marketing of them? If we develop the assets, we will ensure that marketing flows from that.

[Mr Dodds]

The hon. Lady has a point, but I think that it is a matter of doing both. We must have the product. That is why the number of signature projects that have been and are being developed in Northern Ireland is extremely important. Then, as everyone knows, we have to get out there and sell the product. We need a combination of both.

I congratulate the Executive on their aim to have, by the end of December 2013, 3.6 million visitors coming to Northern Ireland, with a revenue of £625 million. That will provide a major boost to employment. We are talking about investment in product. The Titanic signature project, which has been referred to and which opens on 31 March, is a very significant addition to the tourism product in Northern Ireland.

I am reflecting on the first meeting of the Northern Ireland Executive in 2007, after devolution was restored. The first item of major expenditure brought to the table was a proposal that I brought to invest and commit public funds, alongside private investment and European funds, to the Titanic signature project. I am delighted that that has come to fruition. Along with some other projects, it was derided, criticised and picked over at the time, but everyone now agrees that it will probably be the biggest tourist draw on the island of Ireland, apart from the natural attractions, such as the Giant’s Causeway. It will be a massive addition to the tourism product. That was a far-reaching and visionary decision of the Northern Ireland Executive, taken at one of their first meetings in 2007.