Northern Ireland: Economy

Baroness Smith of Basildon Excerpts

Wednesday 19th October 2011 Lords Chamber

[Baroness Smith of Basildon]

My Lords, this has been a stimulating and, I hope, a very valuable debate for the Government. As the noble Lord, Lord Empey, said, the significance of debating the economy is one that your Lordships' House should be proud of. I congratulate the noble Lord, Lord Lexden, not only on his choice of debate, which has given us the opportunity to debate extraordinarily important issues this evening, but on the way in which he introduced the debate. I think your Lordships' House will be very grateful to him for doing so.

The comments made by the noble Lord, Lord Alderdice, at the beginning of his contribution were very appropriate. He talked about the purpose of tonight’s debate, which is to help assist the Government in what is a difficult decision to make: how to rebalance and grow the Northern Ireland economy. It is a debate that, as we have heard tonight, cannot be taken in isolation because the economy of Northern Ireland is inseparable from what has occurred politically, socially and security-wise over 30 years. We recognise that there is higher per capita public spending in Northern Ireland and understand that the Government want to see the level of public spending reduced more quickly there. We all want to see a stronger and more resilient economy, because nothing causes public concern and dissent faster than rising unemployment, the fear of unemployment and poor public—and indeed private—services.

After decades of underinvestment in key services—although not for a lack of spending, as there were very high costs associated with policing and security—there is a real need for public services to improve and be more efficient. Your Lordships' House has to understand that there are special reasons why public spending in Northern Ireland remains higher, and it was clear from the debate tonight that it does. That backlog of underinvestment did not disappear with the Good Friday agreement or the establishment of the Northern Ireland Executive.

I entirely agree with the objectives of improving the economy, attracting private sector investment and improving skills, as the noble Lord, Lord Empey, said. As noble Lords have said, this has to be done in several ways. A reduction in the level of corporation tax is the main argument put forward in the document on rebalancing the economy. However, I do not see bringing the rate of corporation tax down to 12.5 per cent, in line with the Republic, as a silver bullet. It was Kate Barker who first commented on this in her Economic Advisory Group report. She reported that if a reduction in corporation tax were to be introduced, it would have to be alongside other measures to rebuild the economy. I am not sure whether Kate Barker at that time considered it alongside the reduction in the block grant; I think that came from the Azores judgment. However, we need to look at the other side of the equation and at further cuts in the block grant.

The Northern Ireland Executive are already having to make savings and efficiencies following the cut of £4 billion to £5 billion over the next four years as a result of the public spending review. They are taking action; I am pleased to see that the RPA—the review of public administration—is proceeding to reduce the number of councils. However, I am sure that the Executive will have heard the frustrations expressed tonight in your Lordships’ House about the programme for government.

I was the relevant Minister on two levels. I had to look at two decisions: one on the introduction of water charges and another on the 11-plus, which was also mentioned. Neither of those were popular decisions and nor are they now. However, clearly difficult decisions must be taken so I am certainly not against the Northern Ireland Executive having to take political responsibility for their own budget. My real fear is that the cuts already announced are too harsh and too deep, and will bring significant problems to both individuals and the Northern Ireland economy. I was struck by the comment of the noble Lord, Lord Black, about the creative industries and how difficult they are finding some of the cuts that they have had to face.

I welcome some of the decisions made by the Executive in support of businesses. For example, there was an announcement yesterday by Invest NI, which is part of DETI, the Department of Enterprise, Trade and Investment, of a new £50 million fund to provide loans to companies that have not been able to access equity. Despite government promises to get the banks to lend more, that remains a significant problem for many smaller businesses and medium-sized enterprises that are trying to grow. I congratulate Invest NI on a great initiative, which has the potential to make a real difference.

We see a position where the Northern Ireland Executive already have to make significant changes and cuts, and need to attract investment to rebuild the economy. My concern arises because the impact of a reduction in corporation tax could be a loss of a further £300 million or £367 million—different figures have been mentioned. That cut in devolved spending has to be taken into consideration by all who are debating this issue. Where will that money come from? Which services will bear the brunt of that further cut? That is the area of concern. Is it too high a price to pay? In examining the case for a cut in corporation tax for Northern Ireland, one has to look at the reasons for the growth in investment that we saw in the Republic of Ireland. Was the primary factor in the growth in investment and the increase in jobs that was seen—we do not see it now—a different level of corporation tax?

I am not a tax expert but I have tried to speak to and read the works of those who are. They tell me that the Republic did not compete on just its tax rate. Many experts say that, in effect, many companies are offered a zero rate—they pay nothing at all—and that is part of the reason for the current problems that the Republic of Ireland is experiencing. There was significant growth, yet while the rate of corporation tax remains the same the economy now has significant problems. The level of unemployment in the Republic is significantly higher than it is in both the UK as a whole and Northern Ireland. For example, unemployment in Northern Ireland is a little more than 7.5 per cent, while in the Republic it is 14.3 per cent—up from 4.6 per cent in 2007. Among 18 to 24 year-olds, unemployment has significantly increased here in the UK to just over 21 per cent. In Northern Ireland it is 18 per cent but in the Republic of Ireland youth unemployment is a staggering 31.5 per cent.

Therefore, I urge caution: I worry that some may feel that a cut in corporation tax is enough to encourage that much needed investment. I note that the noble Lord, Lord Lexden, agrees with my concern that on its own it is not enough. We recognise that it is much more complex and that significantly more information is needed. I understand that the Northern Ireland Grand Committee in the other place has postponed its session on the economy and instead is debating the big society because it feels that it does not have enough information at this stage and wants more information before it resumes that debate.

I appreciate that the Government know that there is a lot of work to be done before any decision can be taken but, for the debate to proceed, more basic information is required. The Minister may have this information to hand. I am not clear whether the Government yet know how many companies in Northern Ireland pay corporation tax and at what level. Do we know what the total take of corporation tax in Northern Ireland is? Unless we have those figures it is very difficult to ascertain what the cut in the block grant should be.

The paper suggests that the level of corporation tax tapers off as the level of the block grant goes down. However, if it proves evident that the cut in corporation tax is not having the intended effect, do the Government plan to consider making adjustments to the amount of block grant being removed? I know the issue will be resolved but the Azores judgment specifically says that there has to be a balancing to ensure that any money that could be gained through corporation tax has to be taken away from another area. Therefore, if the amount gained through cutting corporation tax is not realised, does the amount of the block grant still go down by that amount? I have reservations about this devolved matter but if we are to work with the Executive and the people of Northern Ireland to secure the stable and resilient economy that we want to see we have to listen to local decision-makers and take on board their arguments on these issues.

Finally, I understand that the Government are establishing a working party—it may already have met—with Northern Ireland representatives and UK Ministers. Given the significance and impact of this issue it would be helpful to have representatives from all the political parties on the Executive discussing and examining it.