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New minister must manufacture change

By John Simpson

Published 24/05/2016

Questions remain about a new strategy for the NI manufacturing sector
Questions remain about a new strategy for the NI manufacturing sector

Does Northern Ireland need a new strategy for its manufacturing industry? In the aftermath of recent announcements at Michelin and JTI Gallaher's, along with job losses at Bombardier, there is an easy response that attention should now turn to a differentiated policy to incentivise a larger manufacturing sector.

The intention is laudable. The outworking of the idea merits rather more care.

Two immediate questions help to frame the challenge. First, are there specific extra costs or disadvantages now faced by manufacturers that could and should be removed or offset? Second, over and above any specific manufacturing disadvantages, is there a coherent job promotion strategy across the range of all commercial job opportunities?

There is a significant difference between making sure that, as far as possible, manufacturers have 'a level playing field' in competition with other manufacturers in the UK or in the Republic and, more generically, that Northern Ireland is improving the effectiveness of its job creation policies across the whole economy. By way of illustration, extra jobs for well qualified scientists and IT specialists can be worth more to the local economy than extra jobs (or jobs protected) in mid-range manufacturing occupations. Both types would be welcome but there needs to be some care in the way in which official discretion is used.

There is a range of policy outcomes which should attract varying degrees of official support. Extra jobs are not all of equal impact. A mechanism to incentivise jobs with the biggest multiplier impact is needed.

Is there a level playing field for manufacturers? When manufacturing costs are determined by commercial competitive factors and there is little evidence of market distortion, the playing field is as good as might be expected.

Manufacturing attracts special support in the 70% de-rating concession which is an attractive non-selective subsidy. Ministers have said that they expect re-rating to continue although, if it was a new intervention, it would probably fall foul of the state aids rules.

More significantly, energy costs are proportionately higher in Northern Ireland because of the way in which regulatory provisions have been developed. This is a particular problem for about 30 important large energy users. The new minister, when appointed, has this as an issue along with other energy policy questions awaiting decisions. In respect of energy prices, a correction of the current 'uneven playing field' is overdue.

Moving to the wider economy, manufacturers and other commercial concerns now await the implementation in 2018 of the reductions in corporation tax rates on their trading income.

Now is an appropriate moment to reconsider the broader application of business development policies. Invest NI has served Northern Ireland well but, inevitably, its agenda and 'tool kit' merit reconsideration. A critical issue is whether Invest NI should, itself, rewrite its remit in the form of a new corporate plan or whether, to inject a critical but friendly review of changes in how it functions, an independent external agency should be given the job.

Invest NI has grown out of initially a capital grant provider adding an increasing emphasis on grants for employee training and skills development. These specialisms could now become a smaller part of the budget of Invest NI, partly as a result of tighter rules on State Aid as permitted across the EU. Where does Invest NI go next? Can Invest NI be given a wider remit for equity funding, leverage for R&D development (including patent protection), assistance with supply side linkages or export marketing linkages?

In addition, the delegation of business start-up responsibilities and the encouragement of social enterprise to the newly created local authorities need to be assessed. These are challenges which should have been appreciated some time ago.

A new minister can take a fresh look at delivery of the remit.

Belfast Telegraph

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