Making Policy in Northern Ireland: A critique of Strategy 2010 by J. Bradley & D. Hamilton
From: Administration 1999 Vol 47 No 3 Autumn (Institute of Public Policy, Dublin)
3.3 Enterprise
The desirable qualities of an enterprise culture are easy to state: vigorous, entrepreneurial, self-reliant, innovative, risk-taking, competitive. Not surprisingly, given the heavy public sector representation on the SSG, there is a reluctance to declare outright war on the grant culture that permeates the Northern business sector. Rather, a "rebalancing" of industrial incentives is mooted, with greater targeting of companies with desirable characteristics and greater use of private equity capital. The recommendations in this area are closest to the type of policy proposals that fall within the remit of DED itself, perhaps in association with Department of Finance and Personnel and the UK Treasury.
Clearly it is not feasible simply to sweep away the present set of incentives in the absence of a better alternative, so the report proposes that:
The existing grant regime for inward investment should be maintained unless and until new measures become available. ....... However, we should also seek to adjust the package, and if the right changes are achieved, there could be less dependency on grant (pages 168-69).
The justification offered for retaining high rates of grant aid is simply that other competing regions are also using grants. However, there is persuasive applied research on Northern Ireland on the impact of the grants system on investment decisions and company profitability (Roper, 1993; Sheehan with Roper, 1994), and the conclusions would warn one off any continuation of the present system if the objective is to engineer a switch from low profit traditional manufacturing to high profit new technologies.
Perhaps the most surprising policy recommendation in Strategy 2010 is the proposal to establish, for a limited period, a special rate of corporation tax for new inward investment. Leaving aside the question of clearing this with the UK Treasury (a difficult, but not impossible task once trade-offs in the subvention were negotiated with the Northern Ireland Executive and Assembly), the proposal is simply not feasible since it would violate EU and WTO competition law.1 Even if the law could be waived, experience shows that temporary tax breaks are likely to be discounted by inward investors, who tend to plan location of plants over a product life-cycle of at least ten or more years.
The crucial recommendation made in Strategy 2010 is in the area of priorities for financial support of industry, i.e. the main regional policy instrument actually available to, and being actively used by DED. Here, the ex post Northern rates can differ greatly from those of the other UK regions and regional preferential assistance to industry in Northern Ireland amounts to 5 per cent of manufacturing GDP, but is only 0.1 per cent in England.
Strategy 2010 rejects the idea that grants should only be made available
to selected "growth" sectors or that differential rates of assistance should
be decided on a sectoral basis (page 173-4).2 However, a form of prioritization
is recommended based on a series of specific company characteristics, including
commitment to R&D, export orientation, workforce skill levels, anticipated
added value, equity and funding aspects, partnerships, and strategic "fit"
for cluster formation. However admirable these criteria may be, the recommendation
begs some obvious questions, such as: were they the basis of grant allocations
in the past, and if not, why not? |
