Ross Carroll: The next Conservative Government must aid the development of a dynamic and sustainable private sector in Northern Ireland

Ross Carroll is a Public Policy Manager for a multi-national company and is a member of the Bow Group. His new paper, The Enterprise Nation? Developing Northern Ireland into an Enterprise Zone, is published today by the Bow Group.

At the Conservative Party conference in October 2009, Owen Paterson MP, the Shadow Secretary of State for Northern Ireland, announced that should the Conservative Party win the next general election, it would look to develop Northern Ireland into a private sector economic ‘enterprise zone’.

This has been reiterated by Sir Reg Empey, leader of the Ulster Unionist Party, which has of course formed an electoral alliance with the Conservative Party for the general election. In my report whcih the Bow Group is publishing today, I examine some of the challenges confronting the Northern Irish economy, whilst considering some aspects of what an ‘enterprise zone’ may look like in practice.

My conclusions have been drawn from research and analysis over the last six months, considering the past attention paid to this issue by the Labour Government and the Northern Ireland Executive, as well as assessing some of the key factors involved in the remarkable ‘Celtic Tiger’ years of growth experienced by the province's nearest neighbours in the Republic of Ireland. The report has also been based on expert interviews with business, entrepreneurs, economists and politicians, including former Taoiseach Bertie Ahern and Finance Minister Sammy Wilson.

I conclude that the Northern Irish economy is in need of development as part of a long-term vision. Current over-reliance on subvention from Westminster and subsequent public spending (accounting for as much as 77.6% of the economy) has had the effect of stifling the growth and development of the private sector. This  could have profound implications for the province as we enter a period of sustained retrenchment in public spending.

Average salaries in the public sector are higher than in the private sector, with private sector salaries in Northern Ireland the lowest across the UK. Northern Ireland has high levels of adults without any qualifications, whilst the number of economically inactive adults is critically high. Business start-up rates in the province are modest with a lower number of entrepreneurs active relative to the wider UK or Republic of Ireland.

In considering education and skills, Northern Ireland is afflicted by a ‘brain drain’ of talented A-Level students and university undergraduates leaving the province. Enrolments in value added Science, Technology, Engineering and Mathematics (STEM) subjects are declining and are prioritised to a lesser degree than in the rest of the UK or Ireland.

These subjects are vital for attracting Foreign Direct Investment (FDI) in critical business sectors such as financial services, Information Technology and pharmaceuticals and life sciences. Imaginative policies will be required to embed STEM subjects, along with a wider culture of entrepreneurship and innovation throughout the education system and wider economy. Meanwhile, a strategic long-term focus on growth industries - such as green technology - should be adopted to enable Northern Ireland to be at the forefront of global advancements in these areas.

Despite its current economic hardship, lessons can be applied to Northern Ireland from the great success of the ‘Celtic Tiger’ years in the Republic, where a flexible, open economy responsible for attracting impressive levels of FDI has been developed over a number of decades. In addition to the above-mentioned issues around education and skills, it had a long-term plan focusing on a low corporation tax rate and a developed infrastructure.

The contentious issue of a lower preferential rate of corporation tax for the province to stimulate FDI and wider private sector growth – ruled out under a report commissioned by the Labour Government in 2007 - may need to be revisited. However, European Union legislation and past precedent (the Portugal/Azores Case) may continue to pose problems in this area. A UK-wide cut in the corporation tax rates - as proposed by George Osborne and the Conservative Party – is something that could and should be enacted with a long-term view to lower this below 20%.

There is clear scope for further development of Northern Ireland's transport infrastructure, specifically the rail system and air links: this would serve to better integrate key economic centres of value to Northern Ireland. Finally, it has been postulated that economic development can play a role in minimising social and sectarian disruption.

Northern Ireland has some excellent qualities and great resources but currently faces a number of challenges across its economy. We all know we are now living in a drastically changed economic environment with public finances in a parlous state. Northern Ireland is overly reliant on public spending and could feel the effects of this retrenchment in public spending more acutely than other parts of the UK.

As identified by Owen Paterson, the development of a dynamic, innovative and sustainable private sector economy is therefore critical to the future of the province, and will also help the Northern Irish economy become less dependent on subvention from Westminster. However, if any an additional funding commitment is provided for this, the Conservative Party should be mindful of past inertia in this area and therefore ensure any budget is phased, linked to clear and demonstrable developments on agreed activity.