Jump-starting the economy
Cutting corporation tax is the best show in town, says Len O’Hagan, chair of Belfast’s Metropolitan Art Centre and Belfast Harbour
Northern Ireland’s economy is out of kilter. Our private sector isn’t large enough to drive the growth we need to maintain, let alone improve, our standards of living. As a result, the public sector is left to bear the burden of economic expectations, expectations which are as unfair as they are unrealistic.
By nature the public sector is not designed to create wealth; that is the private sector’s role. Northern Ireland has too few businesses. That limits employment options, lowers wages and productivity, and leaves us unduly exposed to Treasury cuts.
A small private sector means we’re all poorer. There’s less money to fund public services and too few jobs for the excellently qualified young people which our universities and schools produce. A larger private sector would curtail the ‘brain drain’ and help us maximise our greatest resource: our people.
At the turn of the 19th and 20th centuries, Northern Ireland’s economy was very different. We had a vibrant manufacturing sector which was genuinely world class. There is no lack of entrepreneurial flair in the local psyche; it’s still there, but we’ve lost our ability to convert that flair into successful, large firms.
Not that the Executive hasn’t tried. Invest NI has done tremendous work attracting overseas investment and our job creation record is one of the UK’s best. Stubbornly, however, the gap between the level of wealth here and other UK regions remains with no signs of improvement.
The ‘Peace Dividend’ has boosted the economy somewhat, but 13 years later its effect is largely spent. Now is the time for new thinking.
Cutting corporation tax isn’t a panacea. It won’t solve all our economic ills, nor is it a cost free option. It is, however, the only lever of policy available that has a chance of jump-starting the economy.
Northern Ireland is fortunate that its current Secretary of State, Owen Paterson, has devoted so much to moving the Treasury to a position where it will even contemplate cutting the rate.
Likewise the Executive, business groups and individuals such as Sir George Quigley and Sir Anthony O’Reilly deserve fulsome praise for pushing the case year after year. Having got this far, now is the time to redouble our efforts and secure the Treasury’s blessing.
The benefits of lower corporation tax are clear for all to see south of the border. There’s no doubt that the banking crisis has grounded the Celtic Tiger, but it’s the overseas multinationals, attracted to Ireland by its low tax rates, which have saved the economy from complete disaster.
Manufacturing firms first started relocating to the Republic in the early 1960s on the basis of ‘export tax relief’. There’s no reason to believe that reducing rates here wouldn’t have a similar effect.
The benefits of attracting a greater number of world-class firms are manifold. Aside from more — and better paid – jobs, the spin-offs are myriad. To some extent we’ve been here before. In the 1960s Northern Ireland also attracted major international manufactures such as DuPont and Michelin, companies which brought new thinking and new techniques. Their success was infectious, radiating life and warmth to the rest of the economy.
Unfortunately the Troubles stymied the number of firms which followed their lead, but even for that short period there’s compelling evidence that the skills of local managers were widened and deepened.
It’s no coincidence that in the Republic 70% of new business start-ups are by people who have gained experience working in multinational industries either in Ireland or overseas. You can’t teach entrepreneurship, but you can forge it in the classroom of hands-on business experience.
The other great benefit of attracting larger firms to Northern Ireland is that they will source goods and services from local companies, allowing them to tap into global supply chains, and learn new skills that will open up other export markets. Greater demand will in turn feed through to greater job creation.
Larger multi-nationals will also provide greater opportunities for corporate sponsorship — something which local charities, art venues and sports clubs desperately need. Plus, cuts in corporation tax will allow Northern Ireland to compete on an equal footing with emerging new industries in the green economy, providing us with a golden opportunity to establish the region as a hub for sectors such as renewable energy.
Cutting corporation tax won’t solve all our problems, and it’s something which needs to be augmented by changes in how we educate our children and incentivise business. It is, however, the best show in town. The challenge is to thrash out the details and hold the coalition Government at Westminster to its promise to help Northern Ireland help itself.