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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