Northern Ireland Assembly and Business Trust
Economy Briefing with Minister Sammy Wilson
Tuesday 15 January 2013

(Chairperson: Mr Chris Lyttle)

Mr Chris Lyttle (Northern Ireland Assembly): You are very welcome to Parliament Buildings this morning. We are delighted to have such a good crowd here. I am delighted that the Minister of Finance and Personnel, Sammy Wilson, has been able to join us. Minister Wilson is a long-standing supporter of the Assembly and Business Trust. It is obviously timely for us to have him with us here this morning, with what has undoubtedly been a challenging start to 2013. However, we are encouraged that we have him here to hear his outlook for the year ahead, to reflect on some of the key issues for the economy that are coming up — corporation tax and air passenger duty remain on the agenda — and discuss how we can respond with the business community to some of the early and serious challenges that we face at the start of the year. Without further ado, I welcome Minister Wilson here this morning.

Mr Wilson (The Minister of Finance and Personnel): He did that deliberately: I was in the middle of a bap there. I was hoping he would keep on talking. Chris, thanks very much for the invitation to speak at the breakfast this morning. As I have said on previous occasions to this group, it is important that, as an Assembly, we communicate and speak with the business community and listen to it as we try to plot a way forward.

This morning, I really do not want to dwell on the events of the past number of weeks. It would not be productive to do so, and for far too long we have enjoyed wallowing in despair, some of which has been self-inflicted. We had a good year in 2012. The image of Northern Ireland internationally was changed. The events of the past week have undone a lot of that work. However, we now have to see what opportunities there are to, first of all, try to get it quickly behind us. That is a political question, and it is one that all of us in the Assembly have to work at in our own communities. That will include making it clear to those who are engaged in the kind of disruption and destruction that there is at the moment that it does not help any cause at all, but it will also involve finding alternative ways for people to express their frustration. We also have to look to what opportunities there are in 2013 to restore the image that has been tarnished over the past number of weeks.

We have opportunities. We have the most powerful leaders in the world from the biggest economies in the world coming here in June. There will be huge publicity for Northern Ireland in the run-up to that. That gives Arlene, Peter Robinson and Martin McGuinness a platform to present the good things and the positive opportunities that there are in Northern Ireland. We have to grasp that with both hands as far as our image is concerned.

Obviously, as far the economy is concerned, there are still negative things that we have to deal with: the austerity programme and the fiscal tightening, which will remain with us. I must say, though, that sometimes we make an awful lot of this. Two years ago, when we were first told what the Budget for the next four years would be, there was all kinds of gloom and doom and despair that public services, public finances and the services that depended on the public sector would fall apart as a result of the reductions in the block grant from Westminster. We are entering the third year of the Budget. We have worked our way through the reductions in public spending. There has not been a collapse in the public sector. Efficiencies were made, and there continue to be efficiencies that can be made. If Ministers become even more adventurous in how they deliver services and how we seek to do the kinds of things that the public sector has to do, we can work our way through to the end of this Budget period. Looking beyond that, of course, there will still be that tightening. By continuing and, indeed, building on some of the things that we have done so far, the reductions in public spending do not have to be catastrophic. That is the first message that I want to get over to you today. Yes, it has been difficult, and, yes, some difficult decisions have had to be made, but I still believe that there is sufficient capacity, even within the system, if Ministers are prepared to look at how their Department does things. Are there better ways of doing it? Are there better ways of delivering some of those services so that we can live within the Budget that we have been handed down?

The second piece of good news is that all the commentators now predict that, although it will be slow at first, the UK economy and, indeed, the economy of the Irish Republic will start to experience some growth, albeit very modest growth. Nevertheless, there will be an upturn. It will be very slow at first and will probably not have a great impact, but the trend is in the right direction. That will have a knock-on impact on us and, of course, hopefully on public finances.

Thirdly, when I look around this room, I see many of you who have spoken to me in the past about banking issues. Arlene and I have just finished a series of meetings with all the banks, and we intend to have follow-up meetings with them every three months. I hope that, on the basis of what we have spoken about today, we will have an opportunity to talk to the governor of the Bank of England when he comes to Northern Ireland. I also intend to meet Theresa Villiers to see what representations she, I and Arlene can make to the Treasury on banking issues. Two things came out fairly clearly from the discussions with the banks, and I include the National Asset Management Agency (NAMA) in this as well. First, for the first time, the banks are saying that they have money to lend but are finding it difficult to get the demand. Some of that may be due to restrictions on the conditions that are attached, such as greater security and higher costs, but, for projects that can stand on their own two feet, the banks are arguing that there now is the ability to lend. Secondly, in the banking industry, serious consideration is now being given to how it is beginning to deal with individual customers when it comes to the overhanging property debt that many businesses find themselves lumbered with and which, obviously, hampers their ability to borrow. Indeed, the industry has given some suggestions on that. That may be through taking equity stakes in the businesses, as they are beginning to do in some cases, or in now starting to reflect on what, if the banks have written off the debt on their balance sheet, they do to start writing down the debt that the businesses owe. That is a very delicate operation. Of course, you do not want to send out the signal that people can run up piles of debt and be forgiven for it. However, serious consideration is being given to that, and examples have been given to me of where the banks are quietly starting to do some of that. They recognise that that is an ongoing issue.

From the discussions I have had with NAMA, I understand that it is starting to lend on developments it wants to offload and start getting work done on. Indeed, it has extended the scheme whereby it makes loans to potential buyers to purchase buildings, especially office accommodation. Interest has not been as great in Northern Ireland as in the Irish Republic — maybe because some of the prime properties are in the Republic — but we need to work along with NAMA on that.

The other piece of good news that I see is that, even in the midst of the recession, there are still industries that continue to grow and continue to have strong order books. Many of those are target industries that we, as an Executive, have invested a lot of money in, such as the food processing industry, the aerospace industry, IT, the film industry and the creative arts. There is still great potential there. This might not go down well with the sectors of the economy that find that they are not buoyant, but we have asked the banks whether we can work with them on their lending policy for the sectors that we have identified. Through trade missions and its own work, Invest NI has identified businesses that, it is confident, have a good future and need finance etc. We are working with the banks to see if that can be done. I have spoken to John Swinney in Scotland, and that is one of the things that the Scottish development agency has been doing. He has highlighted the downside to that, which is that some people will feel a bit miffed that they are not the favoured sector and are not being promoted as hard as the ones we see potential in. However, there will always be a downside to every approach. There are things that we ought to be looking at and seeing as opportunities for the future.

I have the benefit of being here and at Westminster — for the minute anyway — and I detect a changing attitude from the Westminster Government. We were able to get air passenger duty devolved, and we have now reached agreement, at least as far as we are concerned, on the mechanism for the devolution of corporation tax and the parameters within which the potential costs of that will be determined. Of course, at the end of the day, there will be some political input into that. Furthermore, as I look around the room at the some of the industries that are represented, one thing of immense importance to many industries and consumers in Northern Ireland is the exemption we were able to get on the carbon price floor. That has probably saved jobs in many of the generators in Northern Ireland and avoided a 15% increase in electricity costs in Northern Ireland. Knowing how important energy costs are to some of the industries represented here, I think that that was one of the most important concessions to Northern Ireland in the autumn statement. So, I have detected a greater willingness to listen in Westminster. However, I have got to say — I am really talking to the politicians in the room when I say this — that that, equally, requires us to be seen to be responsible in making the other economic decisions we have to make. I find it very difficult when I talk to Danny Alexander, for example, when we have the kind of shenanigans that we have had around welfare reform and pension reform in Northern Ireland. We have to convince him. We are not awash with money, but we make these daft decisions. We are prepared to go our own way on welfare reform and pension reform, but then people will say that we must have stacks of money if we are prepared to do that. There is an obligation on us to recognise the perception that exists when we make those populist decisions here in the Assembly. I address that to my Assembly colleagues who are dotted around the room, although I am afraid that not all the culprits are here. I will have to say it again on some other occasion.

I do not want to go into the plethora of work that is being done by Invest NI. It is not just about banking finance. This is a message for businesses. Businesses have to look at different ways of financing for the future. I believe that there will have to be a greater reliance on equity finance. There is a greater interest in equity funds coming to Northern Ireland and, of course, the Department of Enterprise, Trade and Investment (DETI) now has a number of funds that stretch from small businesses to larger businesses.

Another important message that has come from the discussions that I have had with the Treasury is that, although there may not be an increase in the departmental expenditure limit (DEL) allocation for capital spending, the Treasury is now aware that the criteria for some of the infrastructure guarantee funds that had very stringent conditions, probably not applicable to Northern Ireland, will be revised. They will look at opportunities for smaller schemes in Northern Ireland that are not regarded as nationally strategic but are, nevertheless, important to this region. That provides an opportunity, I believe, to access guarantees for some private investment, such as for the gas extension pipeline. Those are things that we have to work through with the Treasury.

Over the past number of days a lot of businesses in Belfast city centre have called on the Executive to say what they are going to do about the loss of revenue that we have had. Let me be blunt about this: there are things that we have sought to do. I do not want to rehearse all the stuff that we have done on rates and the extensions of the rates allowances that we are going to have in April 2013. However, there are some things that we cannot do. It is not a case of simply throwing a pot of money at the situation. How do we start to unravel the cost to businesses of the disruption that there has been over the past six weeks? Where do we stop? Do we simply go to the hospitality industry, or do we go to those who depend on that industry? Do we include taxi drivers and the suppliers of provisions to the hospitality industry who have been affected? Where do we draw the line? Is it just in Belfast city centre, or has it affected arterial routes? What about some of the small towns? We are not Santa Claus, and there is no scheme that could encompass fairly all the problems that there are. That is one of the messages that I want to get over. There are some issues that, although there may be sympathy among politicians in the Assembly, cannot be resolved using public money. Someone might come up with a solution that might fit under the 2007 financial assistance provision.

It has been said that when people’s houses were flooded we paid them £1,000. I am not so sure that that is the best way to spend that money. I think that, sometimes, that money should be spent on making sure that those homes are not flooded again, rather than just handing out £1,000. But at least there it is easy. The water gets into your house, somebody verifies that, and you get £1,000. Whether that £1,000 compensates you for the damage that was done is another matter, but at least it is easily verifiable. How do you verify some of the claims that people are talking about at the moment with the loss of trade? How do you distinguish that from the general downturn etc? Some businesses have done well and some badly, so where do you make the distinction? I thought that I would say that towards the end, in anticipation of some of the questions that might come later on this morning.

All I can say, folks, is this: yes, there still are big challenges for us, but I think that we have to lift our eyes to some of the opportunities that there are, the good news that there is and the things that can benefit the economy. We should start concentrating on those and giving some optimism. One of the things that the bankers said to me — I know that some of them were trying to make excuses for what had happened in the past and everything else — is that the thing that could start releasing bank lending in Northern Ireland is if people have confidence to go out there and start investing in their companies. I can understand why businessmen do not do it, and, sometimes, that lack of confidence is added to by the fact that we — politicians, the media, business groups that have a particular agenda and want to lobby for additional government support — tell all the bad news and emphasise the gloomy side. My message for 2013 is “Let us look at the opportunities. Let us try to make them a cause for optimism. Let us not ignore the problems that there still are, but let us get the economy working”. That is where it is important for us, as politicians, to listen to you from the business community and see how we can capitalise on that. This should be the general approach for 2013: what we can do, rather than what we cannot do.

Mr Lyttle: Thank you, Minister Wilson for your comments this morning. You will be happy to take a plethora of questions now on all those matters. Do we have questions from the Floor? This is your opportunity.

Mr Peter Spratt (Anderson Spratt Group): Good morning. One of the things that we do in our business increasingly is to advise businesses and organisations on their business model. You set the tone with a very uplifting and optimistic presentation this morning. One of the things that you and your colleagues will seek to do, going forward, is to be imaginative — increasingly imaginative — in the delivery of public services. I am thinking against the backcloth of the desire to rebalance the economy, which is an ongoing debate in Northern Ireland. In the past week, we have seen news that the Northern Ireland Housing Executive, as a model, may fundamentally disappear or be changed, with perhaps more imagination in the delivery of its service portfolio. Might that be an opportunity for further engagement with the private sector in the delivery of that brief?

Mr Wilson: It is. Let me just tell you. There will be great political disagreement with what I am going to say in a moment or two. Housing is a very good example of where we could draw in significant private finance to provide social housing and affordable housing in Northern Ireland, releasing the £150 million that we devote to the provision of housing from the block grant. I am indifferent about whether a housing association is private or not-for-profit, to be quite truthful. Once you separate housing out in that way, any borrowing that housing associations undertake becomes separate from the block grant. The guarantee is given not by the Government but by the rental income or stream that comes from that housing or indeed, from the value of the asset that has been transferred to the housing association or to whatever organisation that happens to be. That is one way. I know that Nelson McCausland and PEDU recently did a report on building social houses in Northern Ireland. It identified a number of issues, one of which was the unwillingness of some housing associations to go out to the market and borrow to deliver on social housing. When we look at what happens to the Housing Executive’s stock of houses, we have to make sure that it is transferred to an organisation that has an incentive to use the asset and the income stream from it to take the risk — there is a certain risk in it — of borrowing to build social housing. That is only one model.

The other model that we ought to look at more and more is one that I have seen in the health service, albeit at the softer end delivering the social aspects, namely the use of the social economy sector and the private sector. I will give you an example. In my constituency, the Good Morning East Antrim scheme is run by community organisations in Newtownabbey, Carrick and Larne. About 600 vulnerable people are contacted on a daily basis by that local community group, which gets about £10,000 a year from the Northern Health and Social Care Trust. For that, it is able to deliver a service to 600 people that the social services sector could never deliver for that price. The trade unions and some public sector workers have issues with that, but the health service is not an employment agency; it is a service that is designed to deliver services to the general public. There may be better and more effective ways of doing that. I know that that is more effective because I sometimes do the telephones in the morning with them, and I have seen the follow-up. It ties in to the big society-type idea. However, it has to be financed. There are lots of smaller innovations such as that that can free up money and improve the service. Whether you are looking at a big change for the Housing Executive as a whole or small changes at a micro level, I hope that Ministers will look at those examples more and more.

Mr Jonathan Bell (Northern Ireland Assembly): Sammy, we are hearing from businesses in Newtownards that they are on the verge of real danger of imploding. The banks are circling them. One of them told me that, if it looks like you are trading really badly, the banks will leave you alone because they know they will not get anything from you if they close you down. However, those that are on the verge of experiencing difficulties and genuinely hope to trade their way out in the future are being picked off by the banks — [Inaudible.] Can you give any hope to businesses that want to keep trading and want to look to the future?

Mr Wilson: One of the problems with banking issues is that a lot of anecdotal evidence is provided. I have heard so many stories from businesses that come to see me. The door is open in my office because I want to know what the problems with the banking industry are. However, I am always aware that I hear one side of the story, and, on some occasions, when I think there is a real danger, I approach the bank and sit down with the individual to talk about it. Sometimes the story that emerges is slightly different. One of the things that I want to talk to the governor of the Bank of England about — I see that Joanne is here; I know that, at one stage, she pushed this as well — is that, rather than just high-level information about what banks are lending, we need much more detailed information about lending in sectors, net lending, how much is new loans, how much money is being paid back into banks and so on. The Bank of England has a survey that breaks down an awful lot of bank lending into smaller pieces of information. All the banks resisted that initially. One thing that came through quite clearly — we challenged every bank that came to speak to Arlene and me — was that they were quite happy for the detailed information that the Bank of England collected from them to be made available to us and to business organisations for publication. In the past, the Bank of England told us that it could not do that because banks would not agree to it. Armed with the information that we have now, we will try to get greater transparency about bank activities in Northern Ireland. It may help, Jonathan, with the kind of issue that you mentioned to demystify some of that and we actually see what banks are doing. Then, you could identify or quantify the problem much more than we are able to at present. Quite frankly, I do not think that the kind of anecdotal evidence that we have at present really gives us the picture that would enable us to challenge the banks or, indeed, look at what the remedies might be.

Ms Joanne Stuart (Northern Ireland Assembly and Business Trust/Attrus Ltd): I want to touch on the comment that you made about confidence, which I think is very important. Certainly, working at the Northern Ireland Science Park, we see very innovative and successful companies. At present, one of the projects that we are working on is about “The Here and Now”, showcasing companies that are successful on the global stage and are working and doing that from Northern Ireland.

One thing about being more innovative — if we are going to bring that type of thinking into the public sector — is that we need to think about how we manage risk. Having gone through some economic appraisal processes in the past 12 months, I believe that it is quite difficult to look at different ways to assess risk and how we would actually manage that. I am interested in what is happening from your perspective. If we are going to be innovative, how do we manage that element of risk?

Mr Wilson: The whole issue of managing risk frustrates me, especially when there is public sector involvement either in the provision of finance or in some other way, Joanne. There are three things that make decision-makers in the public sector nervous. The first thing is the opportunism that I see sometimes in the Assembly. You cannot take risks and not, sometimes, get it wrong. There is a cadre of people in the Assembly for whom this is a sport. Five years down the line, with the wisdom of hindsight, they ask how you made such a bad decision. Actually, five years ago, it looked like a good decision, but things changed. It is just as well that Danny Kinahan is not here this morning because he would have a go at me for saying this. The second thing is that I really believe that the Northern Ireland Audit Office and the Public Accounts Committee need to act a bit more realistically when it comes to the way in which public finance is used. I was speaking to Richard Needham in the House of Commons. He and I meet every now and again. We were talking about some of the projects that he had pushed in Belfast. He had a bit of a cavalier attitude to these things, mind you — maybe too cavalier. At the time, there were massive risks involved. Some of those projects fell flat on their face, but we are living with the good legacy of others today. He told me that he was badgered. He said that the great thing about direct rule was that he did not give a stuff. He said that he was badgered by civil servants who said, “Minister, you cannot do that”. He said that because he did not have some of the restraints that I have on me in the Assembly, he was able to do that. The third thing is that the media play a big role in this. I do not want to be seen to be media-bashing this morning, but it is great for a reporter to delve into the detail of a report from the Northern Ireland Audit Office or the Public Accounts Committee and then start trailing some Minister or civil servant through the front page of the paper. All those things make people very nervous when it comes to deciding what to do with some of the kinds of organisations you talked about.

There will inevitably be failures there, especially when you start to talk about industries at the leading edge. Arlene has tried to address this. One of the things that we have tried to do is use some public funds for equity-type loans. We keep that at arm’s length, and perhaps civil servants, therefore, feel a wee bit nervous. I know that she even had to fight to make some of that money available, especially when accountability became a bit more tenuous there. I think that we have to have a bit of a change in the culture here. I am not optimistic that we will get that change in culture. If we cannot, can we look at putting in place structures that at least allow some public involvement to happen in such situations and allow people to get on with the thing?

Mr Ross Brown (Green Party): You mentioned that the Executive will come to an agreement with Treasury regarding the parameters for corporation tax. Will you outline what those parameters are? I heard you say that there is a limit to the acceptable costs, and I am interested to find out a wee bit more about what you think that limit is.

Mr Wilson: On the second question, I am not going to tell you what the limit is, because I do not want Treasury or anybody else to know what we believe it is. As far as we are concerned, we will drive it down to the lowest possible cost.

I will tell you what some of the parameters are and some of the things we have looked at. The first one is how it is calculated. We have decided that it will be calculated on the figure for the particular year in which the decision is made. The second thing is what should be included in that. Considerable work has been done to move profits in and losses out of Northern Ireland. Do not forget that, if there is a higher rate elsewhere and companies are making losses, it pays them to declare them in other parts of the United Kingdom. We feel that we have an agreement on how that will be dealt with. The third one is the secondary benefits that there may be. There has not been an agreement on the secondary benefits, such as whether the income tax, national insurance and VAT paid by a new firm in Northern Ireland should remain here. That will be a political decision. Europe has made it quite clear that it is up to the member state to make that decision. What Treasury has done, which has been very helpful and which it said it could not do before, is quantify what that is likely to be given certain scenarios for growth. So, we know the figure that we can negotiate on with the Prime Minister and the Chancellor. We now have agreement on those three areas.

There have been political decisions on the desirability, the timing and the exact allowance for some of those costs, which are moveable. The Prime Minister and the Chancellor will hopefully engage with the First Minister and deputy First Minister on those things in the near future. Just this week, he wrote to them saying that he will arrange a meeting for early this year. I do not know how early, but at least it should start the political discussion at the level where the decision has to be made.

Mr Colin Anderson (Anderson Spratt Group): I was going to ask about corporation tax and whether or not we are going to see it happen. However, having listened to what you have said this morning, I want to say that, in the marketing profession, we talk about the first rule of marketing being “Make it easy to buy”. To make Northern Ireland easy to buy, we have to be competitive. To be competitive, we need a very strong private sector as well as a strong public sector. The interaction between the public sector and the private sector seems to be getting harder. It seems to be getting harder for SMEs to have regular contact with those making decisions. Do you have any comment on that, Minister?

Mr Wilson: I find that a wee bit of an odd criticism in so far as the whole purpose of devolution should be that Ministers are much more accessible to the people their decisions impact on and those they need to feed information to. So, if there is that barrier, it is important that, wherever it is being experienced, forums like this and other forums are used to say to the decision-makers, “Look. We are finding it difficult to get communication with Ministers or Departments. What can be done there?”.

There is, in some areas, a difficulty with the private sector and the public sector interfacing. Coming back to Joanne’s point about risk and everything else, some of that is due to the way that the private sector behaves as well. I see the number of judicial reviews that are taken against planning decisions and procurement decisions et cetera, where an aggrieved party, rather than moving on, as they probably do in many other parts of the United Kingdom, and saying, “Right, I did not win that one. I will have another go”, holds the whole process up. Then, there is a ruling by a judge, who will make recommendations and comments, which means there are more boxes to be ticked. There is some negative engagement between the private sector and the public sector, and that is something that the private sector needs to sort out as well.

If you are just talking about communication between Departments and the private sector, I would be surprised if that interaction is not happening. If it is not happening, I would love to know where. That is something that I would certainly be more than happy to take up with other Ministers and take up at an Executive level, because that should not happen. Most of my time is taken up with behind-the-door meetings rather than the kind of stuff that goes on in the Assembly. Those engagements are not always fruitful for me and, probably, for the people who come to see me, but I find them very useful in informing me about the job that I have to do.

Mr Lyttle: Mr Wilson, I thank you on behalf of the Assembly and Business Trust for the time that you have given us this morning. I also thank everybody who has come this morning to take part. That engagement between the private sector, public sector, Ministers and elected representatives is the key aim of the Business Trust. It is clear that, going forward in 2013, we will have to improve that interaction if we are going to achieve the opportunities that Minister Wilson is talking about.

The next Assembly and Business Trust event will be held in conjunction with Queen’s University. That is on Thursday of this week and it will be part of the Debating Europe seminar series, looking at the possibilities and opportunities around low-carbon technologies. Again, Minister Wilson, thank you very much for being here this morning, and I thank everybody for their attendance. All the best.