9 October 2002
Speech by the FST at the 7th Annual Northern Ireland Economic Conference
Productivity - Making Northern Ireland a Leading Region in the United Kingdom
Thank you. I am delighted to have this opportunity to address the 7th annual Northern Ireland economic conference, particularly in this beautiful location at Galgorm here in Ballymena on the banks of the River Maine.
Since its inception in 1996, the conference has been an important and highly regarded forum for leaders in the public and private sectors to evaluate prospects for Northern Ireland's economy, share views and experiences, and identify a way forward. I can see from the programme that many interesting and informative discussions already today and I hope that my contribution will be of equal interest.
But I want first to say something about the Northern Ireland Executive. The major programmes of reform that the Northern Ireland Executive have undertaken, looking at all aspects of public sector activity, including difficult issues of financing, are testament to the achievements of the Executive.
This is a key part of the process of peace and normalisation at the heart of the Good Friday agreement, and one of the many fruits that devolution has brought. My wish is that we can all pull through this crisis and preserve what has been achieved over the last three or four years. I understand that the in presentations this morning there was a general sense of optimism in textiles, leisure and the food industry. We have to build on that sense of optimism and recognise the challenges ahead.
Gross domestic product in Northern Ireland is more than 20% below the domestic average. Rates of employment, economic activity, small business creation, manufacturing output per head, household income and average earnings all lag behind the UK average. Here in relatively prosperous Ballymena, employment is high by Northern Ireland standards and compares favourably with the rest of the United Kingdom. Other parts of Northern Ireland do not fare so well. In Strabane, unemployment stands at 9.5% of the total workforce. There is still work to be done and I know the Northern Ireland Executive is ready to face the challenge.
Our shared aim must be to raise the level of productivity, create sustainable employment opportunities, and contribute to a higher standard of living across all parts of Northern Ireland, and the whole UK.
The low level of productivity in the United Kingdom should concern us all. OECD figures for 1999 show that output per worker was 7 per cent higher in Germany, nearly 20 per cent higher in France and some 45 per cent higher in the United States. Our aim, announced by the Chancellor in November 2000, is that productivity in United Kingdom will rise faster than in our major competitive countries over next decade.
To achieve this aim, we have worked hard to put in place a platform of macroeconomic stability. Tough decisions in our first term. But it worked, and so today:
a.The UK is enjoying the longest period of sustained low inflation since the 1960s.
b.Long-term interest rates are around their lowest levels since the 1960s.
c.Unemployment which reached 3m in 1993 and the mid 1980s; it now stands at 1.56m - a rate of just 5.2%. Less unemployment means less money spent on the costs of economic failure.
d.Public sector net debt has fallen from 44% of GDP in 1996-97 to just over 30% at the end of 2001-02. That means debt interest repayments are expected to be £8 billion less in 2002/03 than in 1997-98: freeing up £8bn a year to spend on priority areas and enabling us to invest without imposing an excessive burden on business.
In our second term we are focussed on balanced growth and increasing productivity. That means micro-economic reform to remove the barriers which prevent markets from functioning effectively. The focus is on the five drivers of productivity: competition; enterprise; investment; innovation; and skills.
Strengthening competition will encourage firms to innovate, cut the slack, and put downward pressure on costs. The Enterprise Bill, introduced on the 26th March, will strengthen our competitive position, ensuring that independent competition authorities rather than Ministers take decisions. That means greater certainty for business and a more transparent system.
We want the new regime to work. Spending Review 2002 increased the Office of Fair Trading budget from £34m this year to £55m by 2005-06. And this extra expenditure will also benefit Northern Ireland.
Small businesses account for 55 per cent of all private sector jobs, over 10m jobs across the United Kingdom in all, and nearly half the economy's output, in total a trillion pounds of economic activity.
It is the small firms of today that are the big employers, wealth creators, and money-spinners of tomorrow. Support for small firms is an important theme running through this government's policies.
There are lots of small businesses in Northern Ireland - over 400 per 10,000 people. While the three year survival rate for small businesses in Northern Ireland is significantly higher than all other regions of the United Kingdom, the rate of small business creation is still too low - among the lowest in the UK. As Leslie Morrison has discussed, I believe that reflects a risk adverse culture where, in the past, entrepreneurs have not been encouraged and small businesses have not received the right support. The Government has introduced a broad range of tax measures to help turn that situation around, complementing the measures launched by the Department of Enterprise, Trade and Investment here in Northern Ireland.
In 1997, we cut the small companies tax rate from 23p to 21p, in 1998 we cut it again to 20p, with a starting rate of 10p. Now, in 2002, it is going down again, down to 19p - benefiting around 8,000 small businesses in Northern Ireland.
And to send a strong signal to the small business community we have reduced the starting rate of corporation tax from 10p to zero. This means that companies with profits of up to £10,000 - of which there are 4,000 in Northern Ireland - will pay no Corporation Tax.
This is the most favourable tax regime for small companies in any of the advanced industrial countries.
Turning back to enterprise, because we recognise the additional difficulties that businesses in disadvantaged communities may face, we have already cut stamp duty for transactions up to £150,000 in deprived areas and plan to remove it completely for non-residential transfers. And we have put in place the Community Investment Tax Credit, which will ensure that businesses in these communities can access mainstream finance at a reasonable cost.
Tax cuts have to be matched by cuts in the cost of compliance. The flat rate VAT scheme will give 19,000 small businesses in Northern Ireland the chance to save around £1,000 a year in compliance costs, and the annual accounting scheme could improve cash flow for even more.
We have to do more to create an entrepreneurial culture - where enterprise is open to all. Following the Davies review of enterprise and education, the 2002 spending review committed resources rising to £60m a year by 2005-06 to ensure every child in England has experience of business and enterprise before they leave school. I know that the Executive here in Northern Ireland has already enabled many of your young people to experience enterprise while at school.
Investment is the lifeblood of the small business community and a key driver of economic growth. As a Government, our overriding objectives are to increase the level of investment, ensure it is channelled efficiently, and work to correct market failures by bridging the funding gap for small businesses.
The Myners Review recommended that institutional investors consider carefully their asset allocation to ensure their portfolios captured the potential benefits of investment in high growth sectors. Pension funds are investing more in venture capital asset classes, but there is still a lot to do.
That is why the Department of Trade, Enterprise and Investment here in Northern Ireland, is focussed on increasing the role of private equity finance, and business angels, addressing the gaps in provision that exist for smaller venture capital deals. The target is to take the level of venture capital investment per person up to the UK average by 2010.
In Northern Ireland, investment in infrastructure was significantly boosted this year when the Northern Ireland Executive, together with the Prime Minister and the Chancellor, launched the Re-investment and Reform Initiative.
As a result, the Northern Ireland Executive will have access to borrowing from the taxpayer for capital investment in strategic infrastructure programmes: schools, health and transport. This new facility brings Northern Ireland in line with the rest of the United Kingdom where local authorities can also borrow from the taxpayer at the most competitive rates for capital investment. Some £270 million will become available for investment over the next two years. The Executive also plans to work closely, through a new strategic investment body, to attract private finance and investment in significant public service projects. The aim is to clear the current backlog of under-investment and deliver for Northern Ireland a world class public infrastructure.
Investment has to be channelled to productive purposes. In Government, we have a part to play in establishing the right framework. That means encouraging investment in innovation. In this year's Budget, we extended the Research and Development Tax Credits to all companies. So around 30 large businesses in Northern Ireland can now receive 125% credit on their R&D expenditure. Historically, R&D spending in Northern Ireland both by business, higher education and Government has been much lower than in traditional competitor regions. This year's Budget is good news and an opportunity to reverse that trend.
Companies across Northern Ireland are already engaged in innovation, investing today in the technology of tomorrow. I will share just one example with you: the ICT Company 'e-blana' enterprise group is investing in state of the art software development facility in Armagh, which was backed by Invest Northern Ireland.
Looking more widely, as Leslie Morrison has outlined over £80m is expected to be leveraged by a new R&D investment in centres of excellence to assist companies and universities in Northern Ireland develop innovative products for global markets. Support from the European Union Peace II Programme will enable commercial and market orientated collaboration between industry, academia and government - essential to the creation of a modern, knowledge-led economy.
New technology and advanced manufacturing techniques are empty without the wherewithal provided by a highly skilled workforce. In Northern Ireland, and across the UK, for too long, that vital component of a high productivity economy has been missing.
The UK compares well with other countries in terms of highly skilled workers, but has a much higher proportion of workers with low skills levels than other European countries. Over 30% of UK workers (over 8m people) have low skills, compared to less than 20% in Germany. Tackling the lack of basic skills is an even higher priority in Northern Ireland where the disparity in educational achievement has tended to reinforce existing skill shortages.
Skills shortages are properly addressed locally and it is clear, with the creation of the Northern Ireland Skills Task Force in 1999, that Northern Ireland is doing just that. Following the Task Force's report in 2001, the Department of Education and Learning is focussed on enhancing skills levels, particularly in business services and construction industries, and in associated professional and technical managerial and craft occupations. New Sector Training Councils are focussing their efforts on hospitality and tourism, ICT and construction.
In each of these areas - enterprise, investment, innovation, and skills - it is the Government in London in some areas and the Northern Ireland Executive in others that establishes the right framework. But it is the local agencies, the small business services, universities, chambers of commerce and trade unions that make our shared vision a business reality.
Here in Northern Ireland, the merger earlier this year of the old Industrial Development Board, Local Enterprise and Development Unit and Industrial Research and Technology Unit into a single organisation - 'Invest Northern Ireland'' - is an important step forward. It is an expression of the devolved administration's commitment to meet the productivity challenge.
The new regional policy devolves responsibility downwards to enable local solutions to grow upwards. The man in Whitehall certainly does not know best, and I'm sure he never did. Devolution has helped empower the devolved administrations and their agencies to drive productivity in their own area - building on indigenous strengths to compete in increasingly open global markets. Only the devolved administrations and businesses know best what is needed, and they now have the opportunity to deliver.
Regionally balanced growth, led by the regions and nations of the United Kingdom, is the key to working out regional imbalances and increasing the productivity of the UK as a whole. The prize on offer here in Northern Ireland - where GDP languishes behind the UK average and output per worker is 10 to 14 per cent below this - is enormous.
Everyone, whether in public sector or private sector, whether employed in a business or running a business, has an urgent duty to help raise Northern Ireland's productivity and economic performance.
There is no doubt in my mind that the prospects for economic development in Northern Ireland have never been better. The challenge is to ensure that the increases in productivity are built on in the future.
As part of the fourth largest economy in the world, and the largest economic union in the world, adjacent to the phenomenal Celtic Tiger, Northern Ireland is well placed to take the high road to greater productivity and long-term prosperity. A long history of hard work and entrepreneurial endeavour has given Northern Ireland a legacy of productive potential - a legacy which will serve us well as we rise to meet the challenges ahead and build the framework of prosperity that the people of Northern Ireland so richly deserve.
Thank you.