Corporation Tax in Northern Ireland - Northern Ireland Affairs Committee Contents

4  Enterprise zones


116. The Secretary of State told us that his idea of an 'Enterprise Zone' for the whole of Northern Ireland differed from that referred to by the Chancellor when he announced enterprise zones would be set up across England.[197] The concept offered to the rest of England involved measures such as reduced business rates and relaxed planning rules. Previous enterprise zones in the 1980s had tried to regenerate areas of industrial decline and commonly focussed on making it easier for land to be developed. Most witnesses agreed that this would not necessarily be appropriate for the current needs of the Northern Ireland economy.[198]

117. The Secretary of State for Northern Ireland explained that his version meant two things, corporation tax and planning.[199] Most of the witnesses to our inquiry commented on the vagueness of the concept or were confused by this definition. For example Terence Brannigan from the CBI, said "when I asked what enterprise zone meant, I was told that actually it is about corporation tax".[200] And others agreed that, without greater clarity, it was difficult to know what an enterprise zone would mean for Northern Ireland. John Simpson preferred to talk about "how to make Northern Ireland an enterprising region".[201]

118. There was, however, broad agreement that more needed to be done to encourage companies in Northern Ireland to export, carry out innovation, research and development, help SMEs expand, and persuade companies to drive output levels up.[202] Lord Heseltine told us to use the strengths of what already existed on the ground, such as skilled labour, strong universities and sophisticated industries.[203] He also stressed the importance of finding people with vision, including local leaders who would bring together the various policy areas, such as education and transport, which contributed to whether a culture of enterprise might succeed.[204]

119. There was also recognition that addressing the loss of talent due to the Troubles would be helped if Northern Ireland was seen as a place where entrepreneurs would flourish. Patricia O'Hagan, Managing Director of Core Systems, said:

    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 [venture capital] 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[205]

120. Much of the evidence to the Committee has suggested lowering the corporation rate would be advantageous but would not be effective in isolation.[206] Indeed, the Exchequer Secretary admitted to us "Is this just about corporation tax? Does it solve everything? You are absolutely right: no it does not".[207] Just as there are other factors, alongside tax, which affect investment choices, similarly, there are other things that can be done to make it easier for businesses to locate and invest in a particular place. Responsibility for some of these are already devolved to the Northern Ireland Administration. Some, largely tax measures, are reserved. As the Secretary of State said: "It was useful to have that phrase [enterprise zone], because I said that a lot of these competences are now in devolved hands and nothing to do with me at all".[208]


121. One of the strong messages we took from our meetings in Dublin was that IDA in Ireland use the 12.5% corporation tax rate as a headline figure, but additionally offer a package of extra fiscal and non-fiscal incentives that are used to target and develop clusters of the specific sectors that Ireland wanted to attract.[209]

122. We received evidence arguing that for Northern Ireland to encourage enterprise and stimulate entrepreneurs and attract investment, it should be able to offer enhanced incentives to encourage innovation, research and development, exports and to help SMEs expand—for example targeted tax credits to incentivise Research & Development (R&D); the generation of intellectual property and patents; capital expenditure; exporting training; and marketing investment.[210]

123. PricewaterhouseCoopers quoted research that suggested such incentives could be fiscally neutral, readily understandable, have a significant impact on post-tax profits, be attractive to viable and highly profitable projects rather than "cash hungry" low return projects; and encourage investment and innovation. The research suggested their incentives could deliver "significantly greater retained profits that a simple 12.5 % corporation tax alternative as then prevailed in the Republic of Ireland."[211] As in Ireland, these incentives could offer flexibility according to the potential investor's needs and could be provided in Northern Ireland alongside the more blunt corporation tax, or be brought in instead of the power to vary corporation tax.

124. However, any changes to the tax relief system might also be covered by the same state aid rules as corporation tax, and having a separate regime in Northern Ireland would involve further administrative burdens.[212]

125. The Treasury consultation paper pointed out that the Government have made recent changes to UK wide R&D tax credits to reward those firms which do carry out innovation and R&D. We heard evidence that companies do avail themselves of some of these incentives already, Patricia O'Hagan, Core Systems, told us:

    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.[213]

126. However, we were told that there were not enough firms taking advantage of the credits available.[214] This was partly attributed to the difficulties the SME dominated private sector encountered in trying to carry out R&D, and the lack of large employers who want to be innovative.[215]

127. We recognise the potential in offering targeted incentives on top of corporation tax to incentivise particular sectors. However, we conclude that now is not the time to consider devolving further tax powers to the Northern Ireland Assembly. The complexities of doing so would be likely to stall change. Targeted fiscal incentives should continue to be legislated for and administered on a UK wide basis.

Air Passenger Duty

128. Another matter which puts Northern Ireland at a disadvantage is Air Passenger Duty. The one direct transatlantic flight from Belfast to the US, carrying 100,000 passengers a year to New York is currently at risk due to increases in the Air Passenger Duty[216]—adding near £60 per passenger to the US compared to €3 rate in the Republic,[217] although recent reports indicate that the Irish Government is preparing to scrap even this small amount as part of a package of measures being introduced to encourage tourists to the Republic. The service and was referred to by one of our witnesses, NYSE Technologies, as a factor important to their location in Northern Ireland.[218] If Belfast and Northern Ireland are going to compete with Dublin and the Republic of Ireland for investment from the US then it is important that the direct service is not lost. The CBI also pointed out that Shannon airport has full pre-clearance procedures that allow US bound passengers to undertake all immigration, customs and agriculture inspections at Shannon prior to departure the US.[219] Transport tax rates must not deter businesses from coming to Northern Ireland; any consideration of applying a per plane tax to freight must take into account that businesses could be lost to the Republic of Ireland if this is introduced.


Education and Skills

129. The Independent Review of Economic Policy (IREP), set up to look at the economic development policies and programmes of the Northern Ireland Executive, recognised that the local education system needed to anticipate increased demand for higher level Science, Technology, Engineering and Maths skills (STEM) if there was an increased prioritisation in innovation and R&D.[220] Lord Heseltine stressed the importance of skilled labour to what he an enterprise zone in Northern Ireland might require.[221] Similarly, John Simpson said the Northern Ireland could not provide the skilled labour to fill the better paid, high skilled jobs if there was an increase in FDI. He advocated using money, that would otherwise be lost from the block grant to pay for the corporation tax cut, to improve education and skills training, and ensure Northern Ireland had a skilled labour force that matched the demands of a modern economy:

    The problems of too few and inadequately trained and skilled people have not yet been seriously tackled. [...] A favourable corporation tax system, alone, cannot compensate fully for the other weaknesses.[222]

130. Victor Hewitt, NIERG, said companies are interested in a good level of basic skills but often trained the more specific skills in-house.[223] He also pointed out that in the past "we have done a lot of training but have not had the jobs, and the net effect is that Northern Ireland has managed to train some of the United Kingdom's, Republic of Ireland's and USA's best businesspeople, because they had to move elsewhere.".[224]

131. Witnesses pointed out that the Republic of Ireland had strength in skills, and focussed on technical colleges and universities.[225] NYSE Technologies reiterated the value of good relationships with colleges and universities that are going to provide the relevant skills:

    We have very tight ties with the local universities. In fact, on Monday, I was in attendance at the Industry Advisory Board, where we work very closely with Queen's University to ensure that the curriculum, particularly in the engineering and computer science department, maps directly onto our requirements. It wasn't just ourselves; there were other representatives from other businesses there as well, so there's a very close collaboration in that respect.[226]

132. Consideration also needs to be given to the extent of broadband coverage in Northern Ireland. In addition, mobile phone coverage should also be considered. The coverages of both are relatively low and there should be help given to ensure that is expanded to all areas of the Province.


133. Witnesses commonly referred to the planning system in Northern Ireland as an important blockage to development.[227] The IREP recommended that the system should be reformed, and should have "processing time targets which are competitive with those countries and regions against which Northern Ireland is competing".[228]

134. Reform of the planning system in Northern Ireland is currently taking place.[229] Professor Greg Lloyd, from the University of Ulster, said the current Planning Bill was the largest piece of legislation being pushed through the Assembly and aimed to "bring about an appropriate and democratic land-use planning system—one that is much more akin to what is going on in Wales, Scotland and England."[230]

135. A skilled workforce is essential to take advantage of any expansion in the sectors that Northern Ireland wants to attract. Education and planning are already devolved matters, and the Northern Ireland Assembly must make its own decisions about where and how to invest in skills training, and how to reform its planning system.

197   Department for Communities and Local Government, March 2011, Enterprise Zone Prospectus. Back

198   Ev 234 Back

199   Q 24 [Responsibilities of the Secretary of State for Northern Ireland] Back

200   Q 99. See also Q 124 Back

201   Q 231 [Northern Ireland as an Enterprise Zone]. See also: Lifting economic development to a more professional level, 9 April 2011,  Back

202   Q 5. The IREP said that the promotion of Innovation and R&D was the most important long term driver of productivity. Back

203   Qq 102-104 [Enterprise]  Back

204   Q 82 [Enterprise] Back

205   Q 14 [Northern Ireland as an Enterprise Zone] Back

206   See Q 59 Back

207   Q 7 [Rebalancing the Northern Ireland economy] Back

208   Q 24 [Responsibilities of the Secretary of State for Northern Ireland] Back

209   See  Back

210   Q 68 or Q 266 Back

211   Ev 202 Back

212   HM Treasury, Rebalancing the Northern Ireland economy, para 4.84 Back

213   Q 14 [Northern Ireland as an Enterprise Zone] Back

214   Ev w4 Back

215   Q 22 [Enterprise] Back

216   Threatened New York air route reprieved, but future is uncertain, Belfast Telegraph, 2 May 2011 Back

217   Q 243 Back

218   Q 257  Back

219   See  Back

220   DETI and Invest NI, Independent Review of Economic Policy, September 2009  Back

221   Q 102 [Northern Ireland as an Enterprise Zone] Back

222   Cutting company tax rate is not cure for all our ills, Belfast Telegraph, 26 October 2010  Back

223   Q 14 Back

224   Q 13 Back

225   Q 99 Back

226   Q 251 Back

227   For example see Q 233 [Northern Ireland as an Enterprise Zone]; Q 31 or Q 263 Back

228   DETI and Invest NI, Independent Review of Economic Policy, September 2009, para E.21 Back

229   Q 3. See also the HM Treasury, Rebalancing the Northern Ireland economy, paras . 5.7-5.14 Back

230   Q 116 [Enterprise] Back

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Prepared 24 May 2011