The Problems of Centralised Government: The Ill-considered Constraints on Economic Recovery in Northern Ireland

Nobody will argue that the United Kingdom is in choppy financial waters. On March 26, the Chartered Institute of Personnel and Development charted the cost of Britain’s recession at a cumulative output loss of £87 billion, or 6% of GDP.

All very interesting, but what do cold percentages and unqualified numbers mean for the people of Great Britain and Northern Ireland? The simple answer is a drop in real wages and a critical lack of jobs.

The unemployment rate in Northern Ireland currently stands at around 7%, taking the number of people claiming unemployment benefit to over 60,700. And while at 7% Northern Ireland is still below the national average of just over 8%, a 2009 survey found that the greatest increase in Job Seeker Allowance came from the 30 mile radius of Magherafelt, Dungannon and Cookstown. The area has a relatively low population base to begin with, but considering that the biggest employer is construction, the downturn in the housing market has been devastating for mid-Ulster.

Northern Ireland finds itself in a difficult situation. To the south it sees the discovery of oil off Cork as well as big business investments across the ROI from Beijing and Washington. Across the water, Scotland rumbles with the politics of independence, while England is occupied with maintaining the Union on the one hand, while ensuring London continues to enjoy its place as a global leader on the other.

The mounting sense of insecurity has left the country in an unenviable position, where the only comfort comes from the promise of external investment or industrious business ideas within. It was with open arms, therefore, that the country received news that over 7,500 jobs were pledged by foreign investors during a three-year period. But it was not without Northern Irish energies, as it was locally-based Invest NI that had stimulated the interest with a tempting chunk of Government-sourced capital.

Invest NI has spent £1.5 billion in the nine years since its inception, promoting an estimated 42,600 new jobs, safeguarding an additional 19,400 positions and securing £5.5 billion worth of investment in the local economy. While this success is a relatively recent phenomenon, with the vast majority of its triumphs recorded between 2008 and 2011, the economic stimulus that Invest NI has afforded to Northern Ireland must not go unnoticed.

Which is why the Government’s decision to limit the reach of an organisation with a proven and growing record of success in stimulating the Northern Irish economy is baffling. From 2013, the country will be prohibited from proceeding as it has, lest Belfast enjoy an unfair advantage over other parts of the UK in seeking investment. Furthermore, Business Secretary, Vince Cable has plans to recall Northern Ireland’s 100 per cent status for regional aid, which will have the effect of restricting Invest NI’s ability to offer financial assistance to all but a handful of economic areas designated as being most deprived. And this is despite intense lobbying by senior members of the Stormont Parliament.

Historically, the success rate enjoyed by Invest NI has been drawn from the ability to extend economic opportunities to companies throughout Northern Ireland, but without the 100 per cent incentive, foreign investment will have to be encouraged by alternative means.

But the nature of British economics is such that if one part of the country succeeds, the rest does by default, and while the stimulus would be more acutely felt in Northern Ireland, the impact is farther reaching. Why then, with the Office for Budget Responsibility predicting the unemployment rate to rise from its current level of 8.4 per cent to 8.7 per cent and public sector net debt to a peak of 76.3 per cent by 2014-15, would Westminster find it a sound judgement to restrict one of its four constituent nations?

The government claims to be simply exercising a policy on the small scale that mirrors one in Brussels; namely that the EU prevents government funds being used in a way that can be deemed to unfairly advantage one country over another. But aside from the irony that the Conservatives are stepping to the beat of Europe, the fact remains that this legislation also allows member states to continue with stimulus if the area in question qualifies the need for support: which Northern Ireland certainly does.

And one way to help achieve this in accordance with EU laws is through the distinctly Conservative notion of enterprise zones. A remnant of the Thatcher era, enterprise zones have been reintroduced across England, Scotland and Wales, bringing with them tax breaks and rate holidays as incentives for business to relocate and existing businesses to thrive. They are successful ventures, as Duncrue Industrial Estate demonstrates on the local level and Canary Wharf on the global scale.

It is arguable that reintroducing the scheme to Northern Ireland would help to cushion the blow of the new restrictions placed on Invest NI should the removal of the 100 per cent regional aid status pass in spite of Stormont’s efforts to fight the move. Enterprise zones would also carry with them the potential to help redress the heretofore lopsided economic balance of the country by helping to stimulate business in the previously mentioned areas west of the Bann, as well as other historically economically deprived areas. With another avenue for the expansion of established companies on the one hand, and fresh growth on the other, the government would lawfully enjoy the fruits of an economic stimulus without betraying the status quo of its ideology.

And then there is the more pressing issue of Corporation Tax. Despite plans to reduce it to 22 per cent by 2014 with an overall medium term aim of 20 per cent, Northern Ireland would still find itself at a considerable disadvantage when placed alongside the generous 12.5 per cent offered in the Republic. To see proof that a low Corporation Tax does generate foreign investment one only need consider that multinationals account for roughly a quarter of Irish GDP. US companies doubled their investment in the Republic in the first half of 2011 on top of fivefold growth in the past ten years, and former US President Bill Clinton has been personally encouraging his fellow countrymen to invest in Ireland due to the competitive tax rates. In principle this writer can understand support for the economic theories of consumer and industry spending, and with greater tax breaks for business comes the opportunity to increase real wages, offer employment and reinvest in the local infrastructure.

Emphasising this point is a report by a new trade union-funded think tank, Nevin Economic Research Institute who in their first Quarterly Economic Observer report recommended an All-Island spending stimulus package by the Republic with 15 billion euro going to the Republic itself and an additional five billion euro being offered to Northern Ireland. They admit it won’t represent a fix-all, but rather claim that it will help the economy to gather momentum in the short-term, leading to a projected long-term boost to the island’s growth capacity. The package is advised over a five year period beginning in 2013, and it is predicted to result in the creation of 262,000 jobs and a rise of 25 billion euro in GDP.

This is arguably one area in which Westminster needs to accelerate devolution of power to Northern Ireland who, in spite of similar demands by Scotland, is the only UK country to share a border – and to some extent resources, consumers and a workforce – with another EU country. If Northern Ireland is to get back on its feet it must be given the tools required to match in real terms its southern neighbour’s competitive Corporation Tax rates in order to stand a chance of garnering its share of interest bestowed on the Republic by powerful foreign investors.

Business Alliance members recently released a statement in which they specifically pinpoint the issue of reducing Corporation Tax as a key issue requiring focus on delivering a positive decision by the summer.

Recovery is certainly possible, and the mechanisms to achieve it are firmly in place. So why does the government feel that curbing growth in the province is the most prudent course of action? Well, to be perfectly honest, your guess is as good as mine.

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  • FuturePhysicist

    Business will have to look at the issue of competition in a fiscal neutral or negative environment.

    Assume no tax cuts, assume no stimulus, assume no legislative advantage or removal of red tape.

    The goal then becomes one of resourcefulness

    1. Exploiting the buyer’s market from the talent on the dole
    2. The preservation of resources
    3. Preserving and promoting the disciplines of industry
    4. Finding sound technological advice sources
    5. And of course the old tenants of efficiency and marketing

    Constraint can be the key to innovation not a barrier to it, obviously within reason.

  • aquifer

    “This is arguably one area in which Westminster needs to accelerate devolution of power to Northern Ireland” But Sammy has already said he does not want tax powers devolved, because he is a Unionist or something.

    Could he even re-instate industrial rates relief?

    It is hard to imagine making anything in this cold rainy place without a tin roof over your head.

  • cynic2

    “your guess is as good as mine.”

    …because it involves taking real decisions that might damage interest groups who vote for them …snouts in the trough dont vote for less swill

  • IJP

    cynic may not be so far off there.

    Here’s the thing: the cumulative effect is a decline of 6%, but once you take account of economic growth over the period 1997-2007 and economic projections based upon that, we are 14% worse off that we expected to be. That’s a decline of roughly double comparable Western economies – toss in currency devaluation of 20-25% and it’s a total mess.