As part of the Programme for Government (PfG), two separately published documents, one on Economic Strategy and the other on Investment Strategy, will be significant for the local economy.

Both documents give a wide ranging descriptive agenda of the actions proposed by the Executive. Both are, in some respects, disappointing.

They both offer extensive headline reviews of current and proposed policy developments. This has helped to generate a favourable public reception. However, they must now be tested against more demanding criteria. Do they show a coherent analysis which allows the prospective conclusions to be seen and assessed against the action plans? Do they show that plans have moved from a wish-list into assured early implementation? Do they show that devolved Government is using delegated decision-making to maximum advantage? If these strategies are fully implemented, how will the local economy perform?

Public consultation on the Programme for Government (PfG) and the economic and investment strategies is underway and responses are invited up to 22 February 2012.

The focus of this comment is the 50 page Investment Strategy. The Strategy is ambitiously worded but vulnerable to the criticism that some proposals are more aspirational than operational.

The Investment Strategy can be seen as an assertion from the Executive of a wide-ranging series of proposals affecting economic, social and environmental challenges. However, it is not a considered strategy to be tested by the likelihood of achieving stated macro-economic performance objectives. Also, it does not read as coping with a seriously inadequate financial provision which, presumably, is smaller than the Executive would have wished.

If the Investment Strategy is expected to show how priorities for investment have been chosen and how the choice relates to the performance of the Executive, the strategy document is not persuasive. No annual spending figures are specified and no comparisons with recent years, for the main investment areas, are on offer. The Investment Strategy starts from a smaller capital allocation than the Executive would have thought desirable but includes no annual series to show the scale of the reduction and the annual allocations in the next four years.

Public sector capital spending in the four financial years 2011-15 is planned to be £5.4bn. The Executive acknowledge that, under the Barnett formula, earmarked capital funds from the UK Treasury will be over 35% lower in this four year period than in the preceding years. Public sector capital spending at an average of less than £1.4bn each year is a sharp reduction.

Options

The critical test for the Executive is whether there is scope for any constructive variations. Critically, has the allocation from the UK Treasury been sensibly distributed, has the Executive taken steps to release more from current budgets to transfer to capital, and has the Executive used its discretion to develop access to alternative sources of capital?

On each of these questions, whilst there is room for debate, a case can be made that the public sector capital budget could be eased or improved. Some of the options have been explicitly excluded by the Executive which, even if arguable, is its prerogative.

There is scope to take some of the present commitments in the capital budget out of this arena. In England, the public sector budget would not include nearly £200m for capital spending on water services. The English privatised water services would raise capital on commercial markets. Northern Ireland could move to local arrangements, possibly a mutual model, to move the financing of water into an arms-length organisation. The question of water charges might be made acceptable or manageable if hypothecated sums were separated from domestic rates.

The public sector capital budget might be further eased if the Housing Executive was restructured as arms-length (one or more) housing associations established as social enterprises.

In the overall Northern Ireland budget, the Executive has moved some funds from current spending into the capital budget. In principle, this is allowed under the Treasury rules. There is a question about whether these transfers should be larger. A (silent) feature of the public spending plans has been the modest emphasis on reducing current spending and linking this to improved efficiency in the delivery of public services.

The absence of plans to reduce the size of the current provision for the public sector, through efficiency measures, structural reform or plans to reduce the size of the institutions is notable. The absence of a demanding review of the size and functions of the public sector is conspicuous.

Scottish initiatives

A comparison of the responses of the Northern Ireland and Scottish administrations invites serious reconsideration of the scope for ideas to enhance the budget.

The Scottish Government has asked its investment agency, Scottish Futures Trust, to supplement the Scottish capital budget by committing revenue funding, each year, equivalent to 1% of Scottish current expenditure. This is converted to a capital sum which, in Northern Ireland, would mean an extra £1bn capital spending in the next four years. In addition, the Scottish Futures Trust has been encouraged to design pilot programmes using the concept of Tax Incremental Financing (TIF) which will allow other Government agencies to initiate further extra capital projects. These devices would offer a larger source of local capital funding than the current RRI budgetary allowance.

The Scottish plans show that public sector capital spending fell in 2011-12 but then is increasing year by year. Northern Ireland plans show no early pick-up.

These Scottish plans offer a more substantial commitment than the rather incomplete aspiration in the Northern Ireland Investment Strategy to ‘actively explore all options to maintain the levels of investment we believe necessary’. With nearly a year’s advance warning, the Executive response has been too passive.

Inherited deficiencies

Perhaps the most worrying features of the investment plans are the number of occasions when, despite apparently making preparations in earlier years, the new plan makes a virtue out of past failure or inaction. The failure of commitments to have an Outline Business Case for Rapid Transit in Belfast by March 2009 is now overtaken by a claim that funds are now not expected until 2014.

Other serious slippage has hit the original Workplace 2010 ideas, the Maze-Long Kesh proposals and the slow delivery of the Desertcreat public services centre.

Stormont expects to get better management of public sector assets through a strengthening of the Assets Management Agency activities. The strategy says that ‘the running cost of property… diverts money away from frontline services and must be tackled urgently.’ This is not a new conclusion yet decisive actions have been rare. Again, the Scottish Futures Trust is setting an example to emulate.

Our public sector investment strategy is disappointing in scale, coherence and integration with wider economic needs. The policy priorities are logically identified but the decision making sequence to prioritise specific choices should be operationally more demanding.

One of the big successes of the 1984 Olympics in Los Angeles, was the Great Britain and Northern Ireland men’s hockey team.

With two Northern Ireland men in the team, they came from nowhere to get to the semi-finals and, after losing narrowly to Germany, watched by millions on TV, they beat world champions Australia for the bronze medal.

A few weeks later, inspired by the exploits of the LA heroes, dozens of enthusiastic young hockey players arrived for pre-season training at our local hockey club. In one stroke we trebled our regular membership and overnight hockey became the most popular sport in town.

Sadly the hockey craze in our town faded almost as quickly as it appeared – the club was totally unprepared and we had neither the facilities nor the programmes nor the coaches to cope with the unexpected surge of interest. The ‘legacy’ was lost.

Securing some sort of legacy from the Olympics, whether it is the direct benefits arising from increased sports participation or the broader economic and social benefits, has become the focus of attention for many recent host cities. There is a large volume of academic literature on the subject of the impact of the Games, much of it casting doubt on the benefits claimed by the organisers.

With the London 2012 Games costing in excess of £9bn to stage, at a time when public expenditure has become scarce, it has become imperative for the organisers to demonstrate how the positive impacts of the Games are going to be realised.

A huge effort has gone into trying to ensure that as much economic benefit as possible is secured before, during and after the three weeks in July and August next year, followed by the two weeks of the Paralympic Games in early September 2012.

The organisers are also keen that these benefits should be enjoyed not just by London and the area around the Olympic Park, which will be the centre of the Games, but by all the nations and regions of the UK.

So how has Northern Ireland benefited from the London 2012 Games so far? And how might we expect to benefit in 2012 and beyond?

There are four potential areas of benefit for Northern Ireland – business, tourism, sport and pre-Games training camps.

For business, the big opportunity in the lead up to the Games was to secure Olympic related contracts, which ranged from venue construction to all sorts of contracts associated with the operation of the Games, ranging from software systems to the tarpaulin covers for the beach volleyball courts. A special Compete for web portal was set up to allow companies from all the regions, including Northern Ireland, to bid for these contracts. The Olympics Delivery Authority announced recently that it had awarded over 1,500 direct contracts worth over £5bn.

Unfortunately, Northern Ireland companies have not hit the jackpot with these contracts – the latest government figures estimate that 43 local companies have won contracts with a total value of £40m, including a handful of small construction contracts, less than 1% of the total awarded to date. This is all the more disappointing given the current depressed state of the local construction industry.

While success has been limited so far, there are a few contracts still to be awarded and over 50 local food and drinks companies have registered for provision of the catering and hospitality requirements of the Games. Furthermore, the experience of the multiple contracts arising from the London 2012 Olympics has alerted Invest NI and the business community to similar future opportunities such as the 2014 Commonwealth Games in Glasgow and other major international sporting events.

Nevertheless, there is the sense of a missed opportunity for Northern Ireland with the London 2012 contracts to date.

This is also reflected in the difficulty experienced in attracting pre-Games training camps, another area of projected benefit for Northern Ireland. DCAL had set a target of 10 such Olympic and Paralympic camps to be based in Northern Ireland, but until recently only two teams had signed up – the Australian boxing team and the Irish Paralympic team. However, the announcement that the Chinese artistic gymnastics team is to use Lisburn as its training base for the Olympics represents a major coup.

So what about the tourism benefits of London 2012 for Northern Ireland? There is a golden opportunity here to build on what is already happening in Northern Ireland in 2012 and 2013 – the Titanic celebrations and the opening of Titanic Belfast, the new Giant’s Causeway Visitor Centre, the opening of the MAC in Belfast, the Cultural Olympiad and the City of Culture in Derry/Londonderry in 2013.

The NITB ‘NI 2012 Our Time, Our Place’ campaign is designed to capitalise on this – all we need now are the visitors. With millions of overseas visitors expected to travel to London for the Games, this represents a major opportunity to sell Northern Ireland as a destination. The boost to general economic activity generated by the Games comes at a critical time for the economy and it will be important for us to make the most of it.

Perhaps the greatest legacy of the London Olympics will come from increased participation in sport, whether it is hockey or some other sport this time. There is strong evidence that this leads to healthier lifestyles and reduces the costs of the health and social services. But we still need the investment in sporting facilities, programmes and coaches in order to secure these benefits, and securing that would seem far from certain.

As we move into the last quarter of 2011, recent market activity has proved that there is still an appetite for commercial property amongst local and overseas investors according to Andrew Coggins, Investment Director with Osborne King Commercial Property Consultants

Our local marketplace currently possesses many advantages over the Irish market, which is partially constrained by uncertainty regarding government proposals for the reform of rent review clauses in business leases.

Should Morgan Stanley and Merrion cast their sights north of the border, they will be the latest addition to a growing number of institutional investors and fund managers who are trickling back into the local market as evidenced by a number of significant local investment deals transacted over the past fifteen months.

Admittedly, local investment activity has been lower than in previous years. There are signs of the market gathering some momentum with deals including La Salle Investment Management’s acquisition of Braidwater Retail Park, Ballymena (circa £14m); the sale of Longwood Retail Park, Newtownabbey to Scottish Widows Investment Partnership (£48m) and the sale of Marks & Spencer’s store, Donegall Place, Belfast (£8.75m) to another institutional investor. In the news of late has been the on-going sale of CastleCourt Shopping Centre, which is on the market at £171m with interest initially from Land Securities and Catalyst Capital with Blackstone. A sale has not been concluded and the scheme is still on the market at the time of writing.

Clearly, NAMA and non-NAMA lenders are still seeking to de-leverage their property portfolios and we anticipate further sales during Q4 of this year and into 2012. The biggest challenge for those involved in the property market will be to attract new sources of funds to invest, as it is evident that local investors are not yet in a position to purchase significant assets without debt funding, which is still proving extremely difficult to obtain. That is not to say that local investors have withdrawn altogether from the market: they are still actively seeking investment opportunities albeit at much lower lot sizes namely within the £1m-2m price range. In addition, for cash buyers, property undeniably still yields a better return when compared with savings or other asset classes for the savvy investor, particularly properties within a good location offering secure income and long leases.

For instance, we recently negotiated the purchase of a retail parade outside Belfast on behalf of a local investor yielding in excess of 10% while we sold an industrial estate in Mallusk to a local investor, which will also provide good returns.

From a broader perspective, the UK property investment market will continue, in all likelihood, to suffer as a direct consequence of volatility within the global money markets, which may well put the brakes on overall investment levels. There is no doubt that uncertainty regarding the future of the Eurozone has made institutional investors more cautious, resulting in a number of high-profile London deals collapsing in recent months. All of which points to vendors having to re-align their expectations in terms of pricing and timing, particularly in relation to secondary assets as purchasers are clearly taking a longer and more considered approach than hitherto. That said, it is clear that institutional investors, sovereign wealth funds and overseas private investors are still focusing on central London properties whilst appearing to be nervous about investing beyond this market.

As the institutional investors and fund managers continue to consider other major UK cities, they are seeking to apply a discount to their pricing, which naturally is unpalatable to the majority of vendors and results in lower than expected levels of activity. This pricing differential is exacerbated in respect of Northern Irish assets making it more of a challenge to dispose of property locally. Some of our local clients are still active on the UK mainland and we have been successful in negotiating a number of significant deals this year involving local and institutional investors including the acquisition of a Tesco food store in Bristol, a prime retail unit in Glasgow’s Argyle Street plus the sale of a substantial development opportunity in Liverpool.

Moving ahead, although we anticipate new institutional entrants into the local marketplace, this needs to be tempered with the knowledge that this may only apply to prime asset classes. We are far from emerging from global recession and can only hope that the general economy begins to improve, as this is the only thing guaranteed to have a positive and lasting impact upon the property market across Britain and Ireland.

How does the world of business angel investing look through the eyes of business angels. Alan Watts, Director of Halo offers an insight

It looks really great when you see the Dragons on Dragon’s Den sit in those plush chairs, surrounded by piles of cash and knowing all of the answers as the pitching companies come before them. The reality, as you might guess, is slightly different and actually a lot more fun!

So how does your typical UK business angel investor see the world? Let’s start with some statistics and indeed the bad news. 56 per cent of UK angel investments don’t return their stake. And the average time to invest your money in a start-up and to make money is six years, while the average time to lose it is three years. On the face of it, not very appealing! However the same authoritative report, Siding With the Angels (British Business Angels Association and NESTA) claims the average return on UK angel investing is the equivalent of 22 per cent IRR. And that’s before some very generous tax reliefs, most notably the Enterprise Investment Scheme.

So the statistics show that it is possible to make good money in angel investing, but when you talk to business angels it’s equally clear that many don’t. Many people come into angel investing, make one or two investments ‘to see how it goes’ and then either lose money or lose interest with the longer time spans involved. The ones who make money by and large are the ones who spread their money over a larger number of companies and in fact treat angel investing as an asset class in its own right.

Michael Blakey is a successful Halo angel investor, based in England. He says: “It’s important, given the high risks involved, to take a portfolio approach, and not just put all your funds into one or two investments.” Angels like Michael have a portfolio of over 10 companies and know that only a few will do well – but they will do so well that they will more than pay for all the others that don’t.

A portfolio can be built up by working with others in syndicates or by using one of the various EIS funds. Halo runs a fund for example that invests in four companies per year making is easier to achieve a good spread. And in 2010 Scottish angels invested 30 per cent of the £60m UK total angel investment, but with only 8 per cent of the UK population. The reason for this startling performance is their early and widespread adoption of a structure of angel syndicates. Their angels invest together, spread their risks and are very successful.

Michael has another rule. When he invests £1 in a company, he sets aside £4 for later investments in that same company. He knows that growing companies normally need further funding rounds and that if the angel doesn’t take part in these rounds he or she will be diluted.

This point about following on is often not understood by inexperienced angels. Instead they tend to just ‘leave their money in until I see how it goes’. And if the company is successful, they end up with a much smaller share of the profit than they should. So potentially high returns, albeit at very high risk, which are supported by excellent tax relief. EIS for example can give around 50 per cent relief on losses with potentially no capital gains tax on the successes.

While angels will tell you they do it to make money, there are other equally compelling reasons.

Michael Blakey again: “It’s fascinating being involved in companies in so many different industries; you are constantly learning and taking lessons from one company any applying them to others.” Others have admitted that, after the cut and thrust of growing their own business, they’ve got a bit bored with golf and sailing. Angel investing and getting involved with young companies provides that ‘rush’ that they’ve lost.

Paul Larmor is another business angel with a number of investments under his belt. He says: “An angel now has an opportunity to invest not only capital but bring personal experience and influence into a new start-up company. This way he or she has some control and say to how that investment will develop.”

And one of the nicest things about investing through a business angel network is, well, the network. Here is a really great group of people who’ve enjoyed big success just like you and who want to do it again. This is a group who share a common interest where you can meet and learn from others and discover who you’d like to work with on deals.

Something else which adds to the fun factor is the sheer variety of companies and ideas. There’s always at least one company that causes your jaw to drop. Halo angels have backed a film and a graveyard system as well as many high technology ideas. However they’ve also been presented with a sports team, chocolate and a photographic visit to the wreck of the Titanic. It’s never boring.

Angel investing is interesting, worthwhile and you can even make money doing it.

Or as Paul Larmor puts it: “In a blend of knowhow, experience, business acumen and marketing skills, angels are the glue that binds these building blocks together. They contribute to developing the DNA of a new company and help determine the same principles that Darwin found in evolution.”

Economist Maureen O’Reilly finds a wealth of evidence to prove that the speed at which the Republic of Ireland gets back on its feet will have a huge influence on Northern Ireland’s economy.

As recessions and recoveries go this one is certainly protracted.

A recent IMF review found that those associated with financial crises did tend to be more severe and long lasting than those associated with other shocks. Northern Ireland is even more exposed to the extent that small businesses (which make up most of the business population here) are particularly sensitive to changes in financial conditions. This makes the challenge to recovery here all the more difficult. In 2009 Northern Ireland experienced possibly the largest calendar decline in output since post the First World War depression. While eighteen months have passed since the UK “officially” came out of its longest recorded recession, many of the key economic surveys and statistics show few signs of recovery here.

In fact, it would appear that Northern Ireland is becoming even more disconnected from the wider UK economy. In a recent survey of 500 local Chartered Accountants representing businesses ranging from sole traders to multinationals, around four in every five believed that the Northern Ireland economy was still firmly in recession and performing worse than the UK as a whole. This is dispiriting given that, regardless of the economic climate, Northern Ireland typically ranks around the bottom three performing UK regions (out of 12) across most economic indicators.

One of the key reasons attributed to the growing divergence between Northern Ireland and the UK is Northern Ireland’s unique exposure to the near collapse of the Republic of Ireland economy. The UK is already one, if not the, most exposed countries in relation to Irish debt. However, the two economies on this Island are so inextricably linked in some areas that the knock on effect of Ireland’s recession has and continues to have considerable implications for the Northern Ireland economy as a whole.

Ireland is Northern Ireland’s second largest trading partner after Great Britain accounting for almost 30 per cent of manufacturing exports or £1.5bn. It is in fact the largest trading partner for small local manufacturers here. Almost 30 per cent of sales (£63m) from Northern Ireland’s more export orientated services are sold to Ireland.
Around one third of foreign owned businesses (250 firms) operating here are Irish-owned and between 2002/03 and 2009/10 some 10 per cent of planned foreign direct investment in Northern Ireland originated from Ireland. Irish visitors/tourists staying in Northern Ireland spent an estimated £66m in 2009. During 2009/10 Irish shoppers, driven by the strong euro, spent an estimated €400m here.

When you begin to aggregate these figures you start to get a sense of just how important Ireland’s economy is to our own even though its population is only two and a half times larger. This does not even begin to touch on other key sectors, particularly agriculture, where strong trade links also exist.

The Irish recession has taken its toll across a number of these areas. During 2009/10 Northern Ireland manufacturing exports to Ireland fell by £99m or 6.3 per cent. Small local manufacturers were particularly badly affected. Driving this decline were sectors such as fabricated metal products (down 62 per cent) and the manufacture of concrete/cement/ glass and wooden products, all with links to the construction industry.

Unfortunately, a very strong performance by our local food sector in Ireland was not sufficient to counter the decline experienced by these sectors combined. Northern Ireland also sold fewer services to Ireland during 2008 and 2009 (down by almost £4.5m or 6.3 per cent), not surprising given the importance of architecture and engineering services to overall services trade with Ireland.

The profile of Irish-owned firms located in Northern Ireland adds another interesting dimension to this. Around one third of Irish manufacturers with plants here are in what could be considered construction related sectors including ready-mix concrete and concrete products. All of these sectors have been significantly exposed to the collapse in the construction industry on both sides of the border.

The very serious adjustment in the construction and property sectors in Northern Ireland has been well documented. Many of the job losses in construction here can be linked to the complete disintegration of the Irish construction industry. Much of Northern Ireland’s property “bubble” had its origins in the Irish Banking crisis and easy access to debt finance. The estimated £3.35bn transfer of Northern Ireland land/property to NAMA is testament to the sheer scale of the problem. Northern Ireland will also have to take its share of jobs losses as part of a planned reorganisation of the Irish banking system.

Tourism has also suffered badly with visitor numbers by Irish residents to Northern Ireland falling by an estimated 25 per cent during 2010 with an associated fall in spend of £22m or 33 per cent. Consumer spending is expected to remain very subdued in Ireland over the coming year which one would expect will further impact on both tourism and cross-border shopping (currency movements aside).

Northern Ireland is already facing budget cuts on a scale never experienced before. It may also have to deal with fallout from the even harsher cuts introduced in Ireland. Local firms have been relatively successful in winning public procurement contracts in Ireland. However, the Irish government is coming under increasing pressure to concentrate spending exclusively within its own jurisdiction. The withdrawal or postponement of funding by the Irish government for the proposed Narrow Water Bridge project connecting County Down to County Louth is perhaps a recent illustration of this.

Back in April 2008, the then Irish Finance Minister Brian Cowen and Stormont Finance Minister Peter Robinson made a joint announcement enabling firms operating in the International Financial Services Centre (IFSC) in Ireland to establish offices in Northern Ireland. Described as a “win-win” situation, this would help cope with the then skills deficit in the South, IFSC firms would continue to qualify for Irish tax incentives while Northern Ireland would benefit from potentially thousands of very well paid jobs. Unfortunately it could not have come at a worse time as the global recession firmly took hold. Northern Ireland has therefore gained little from this announcement to date. It may now however take some share of the 10,000 net new jobs which the Irish government plans to create over the next five years through its recently launched IFSC Strategy 2011-2016.

Uncertainty still prevails around recovery in both economies. Almost all Members recently surveyed by Chartered Accountants Ulster Society only saw Northern Ireland recovering from Spring/Summer 2012 onwards. In fact, around one third believe that it will be some time after 2012 before Northern Ireland returns to positive economic growth.

Chartered Accountants Ireland’s latest Business Survey also points to a continued sluggishness in recovery for the Irish economy. More than half of the businesses they surveyed now believe that the Irish downturn will persist for at least another two years.

What is certain is that both economies are still in for a bumpy ride.

Maureen O’Reilly is an independent economist. She previously worked with the Economic Research Institute of Northern Ireland (ERINI) and the Northern Ireland Economic Research Centre (NIERC). Maureen be contacted at m.oreilly@hotmail.co.uk or on 07917 543870.

Would big retailers be eligible for the lower CT rate?

By John Simpson

If Northern Ireland gains approval for the transfer of authority to set corporation tax for local businesses, what rules or guidelines can be expected or what variations should be adopted?

The Treasury can be expected to want to protect the fiscal authority of HMRC (or what was formerly known as Inland Revenue). For the Treasury that would suggest that devolution should be planned to minimise the number of variations that might be accepted.

The simplest option might be that the Treasury would agree that all commercial trading companies registered in Northern Ireland would continue to file a UK-wide company tax return but that the calculation of tax due would be at a lower rate, say, 12.5%.

LOCATION

Even that simple concept raises difficulties. Would a company registered in Northern Ireland (NI) qualify for the lower rate of tax, even if some of its turnover or profit was earned in Great Britain (GB)? There are a large number of local businesses which have turnover in GB. Presumably, HMRC would insist that profits earned by subsidiaries in GB would not qualify. Then, does the restriction need to be narrowed further to exclude all non-NI turnover and profits?

The Treasury will be quick to argue that the objective of a lower corporation tax rate is to encourage additional investment.in NI. It could make little sense to encourage local firms to do more business outside NI.

Then this question must be reversed. What would be the sensible decision on qualification for lower corporation tax for businesses which have GB Headquarters and have branches in NI. An example would be the multiple retailers. Should their turnover and profits in NI be allowed to claim the lower tax rates? The expected answer is that, if the business can prepare separate accounts for operations in NI, then the business in NI would be eligible. Some businesses would decide that the extra administration and tax inspector scrutiny made this too cumbersome. Others, particularly the big retailers, could be expected to file claims.

Under this category, firms such as Tesco, Sainsbury, Dunnes and ASDA could benefit significantly, unless their structure already minimises UK taxation.

OPTIONS

Having decided which firms could qualify, there are then decisions to be made on determining the appropriate tax rate in NI, the phasing in of any change of tax rate after the handover, the degree to which NI might vary the scheme of tax allowances, as well as whether (or how) existing businesses might contribute to help offset the loss of revenue to NI through the change in the tax revenue from the Barnett formula.

The option of phasing in a lower corporation tax rate has been suggested as a method of reducing the impact on the NI budget. Arguably, the incentive value of the prospect of lower tax rates would be created by a commitment to a timetable and new investors could plan on that assumption. As a tactical decision, the important qualification is that the phasing should not be too prolonged. A five year timetable seems acceptable whereas a ten year prospect would be less convincing.

Perhaps the most critical decision on the application of a Northern Ireland corporation tax would lie in the scope to vary the scope and scale of tax deductible allowances.

There is still some uncertainty on whether the Treasury and Treasury Ministers can be persuaded to widen the devolved remit to allow different allowances in setting the taxable profits. If the Irish example is followed, a key distinction will be made between trading and non-trading income. In principle, the devolved tax base would only apply to trading income.

More interesting possibilities emerge if the devolved Northern Ireland arrangements include authority for an enhanced scale of allowances for capital expenditure or new or increased allowances for R&D, training and marketing.

To avoid doubt or ambiguity, the NI Executive should negotiate these options at an early stage as the legislation is prepared. The Treasury may argue that adding options about varying the tax base is extending the proposal for a variation in the tax rate in ways which would make the UK system more complicated to administer.

From a NI perspective, a legislative framework which allowed variations in the tax base would be an attractive feature for the Executive which, although potentially adding extra revenue losses to the Executive, might be used judiciously.

Whilst the Treasury will have an understandable preference for a devolution of corporation tax systems which minimises extra complications, there is a possible caveat from the European Commission. If the UK corporation tax system remains a single national structure with only provision for a lower rate in NI, the Commission may ask whether this fails to satisfy the requirement of the Azores ruling of the European Court. The challenge would be that institutionally there was a national UK system which was being used to ‘cover’ the introduction of a new State Aid.

Presumably the Executive and the Treasury will get informal guidance from the European Commission before the legislation for devolution of assigned taxation powers is drafted.

There is no mention in the Treasury consultative paper of any possible complication for Northern Ireland of the implications of UK international double tax agreements with other countries. Are any agreements affected by a change in taxation rules in NI?

MEETING THE COSTS

There are very big differences in the estimates of the cost to NI as corporation tax revenue decreases, at least for some years. The optimists believe that the net reduction in the Executive budget may be only a few years; others see at least a ten year problem.

The Executive, naturally, will wish to avoid any accusation that in order to benefit international businesses, other social causes should be penalised. Logically, since the corporation tax changes are a benefit to all profitable businesses then the beneficiaries should contribute.

The first trade-off could legitimately be the withdrawal of the cap on business rates bills for manufacturing businesses. This will be unpopular with some large manufacturing firms but this subsidy has for a long time been monitored by the EU as an undesirable State Aid.

Lifting the cap on rates for manufacturers would not be a large enough source of revenue.

The basic proposition is that all profitable businesses benefit handsomely from a reduced tax rate and that some of that benefit should be recouped by a targeted levy. The difficulty is that there is a trade-off between raising a levy and leaving improved post-tax profits so that extra investment is incentivised. This becomes a tense political judgement for Ministers.

The easiest (but not ideal) form of levy would be a flat rate increase in business rates. What firms gain in lower corporation tax they lose, in part, in higher rates. To maintain the attraction to new investors, a feature of a changed rating regime might be a five year rates holiday for major investments.

The corporation tax debate must now move from slogans into operational details. The devil is in that detail.

By Tim Barker, VP EMEA Marketing at Salesforce.com

More than a decade ago, CEOs and business leaders realised that they didn’t have a system that put customers at the heart of their enterprise. The resulting CRM deployments enabled businesses to measure customer lifetime value and then transact with them. However, CRM was not deployed as customer facing – customers were just records in a database.

Here we are, ten years on, and these customers have burst out of these databases and are on the web; they’re vocal and they’re ready to engage. The new challenge is that of the social enterprise.

Organisations have evolved into highly networked, collaborative eco-systems. These enterprises interact with their customers through social channels, which requires the tools to listen and engage with these individuals in real-time.

These same organisations are matching this social integration for customer communication with collaboration for employees, who are using these social networks everyday in their private lives. This collaboration gives employees a whole new range of tools and opportunities to be more effective.

The pressure to move into a Social Enterprise comes from internal and external sources, so providing social channels for outside audiences to engage with internal stakeholders is equally important. Salesforce.com recently launched the third iteration of its Service Cloud – a tool that engages customers on social networks including Twitter and Facebook. This is strengthened by the recent acquisition of Radian6, which gives more powerful eyes and ears to an organisation’s Social CRM activities.

One company using this approach and embracing a transition to Cloud 2 is Belfast-based recruitment agency CPL. Using Jobscience Recruiting, an application from a salesforce.com partner company, CPL’s employees can access applicant, recruiter and industry information through any device – from their desktop to their smartphones.

Paul Bacon, Managing Director at CPL said: “The level of collaboration that this new social enterprise environment creates has significantly increased our efficiency and improved the level of service to our clients.

“Collaboration for us means being able to share information and opinions on candidates and applications across the business in real time. This enables quick, effective decisions to be made that directly increase the quality of our work.

“Using tools such as Chatter means that our individual recruitment consultants can specify people or cases to follow and then receive any data, communication or documentation that’s relevant to them.

“Externally, the ability to monitor hot topics and trending issues on sites such as Facebook or Twitter means that we can incorporate relevant information into our processes and quickly respond to any issues or opportunities.”

The Social Enterprise is the evolution of functions that companies have been fulfilling for decades – increasing speed, efficiency and quality because of a much greater level of collaboration.

We all know these are challenging times for the Northern Ireland economy. We have been hit by a double whammy of public sector cuts in a society over-dependent on the public finances and the knock-on effect of the financial crisis in the Irish Republic. That is especially true for those businesses in the border areas, where retail activity has suffered acutely from the fall in cross-border trade.

While the English economy is showing signs – inconsistent and weak, agreed – of growth, the Northern Ireland economy is in a worsening recession. This is why the phrase ‘rebalancing the economy’ has to mean much more than simply correcting our local over-dependence on the public sector.

Yes, we need to grow the private sector and ensure it is the driver of our prosperity.
But we also need incentives – such as the corporation tax cut – to encourage business relocation and economic activity displaced from England to Northern Ireland. There is an imbalance of prosperity across the UK as a whole and Northern Ireland is, at present, the main loser in that imbalance.

But there is a third dimension to the challenge of balancing the economy, which is the regional imbalance within Northern Ireland. Belfast has suffered from the collapse of the property sector and unemployment has risen. Yet we can see welcome signs of new investment and new jobs being created in the city. It is a very different picture across much of Northern Ireland.

Take, in particular, the North West region. The three highest claimant count figures are all in the North West – the council areas of Derry, Strabane and Limavady. Much of our traditional employment base has shrunk – specifically clothing and engineering. Retailing has grown, but it has suffered badly from the economic problems both sides of the border.

This is not merely a local issue. What is good for the North West is positive for Northern Ireland as a whole. When visitors come from Great Britain for UK City of Culture 2013, many of them will fly into Belfast and visit our capital city, the North Antrim coast and the Fermanagh Lakes.

Equally, what is bad for the North West is damaging for all of Northern Ireland. Derry-Londonderry does not want to be a financial drain on the taxpayers of Northern Ireland or the UK. We want to be financially self-sufficient, to be a vibrant city and region and to slash unemployment.

UK City of Culture 2013 will mark a symbolic turning point in the fortunes of Derry-Londonderry and local businesses here are determined to exploit this. But while the designation is excellent, it will not transform the city’s economic fortunes on its own. It is just one part of a package that requires investment to create a long-term positive financial and social return.

At the core of that necessary investment is the need to boost the local skills base. Many employers here want to grow their workforces, but the city does not have sufficient graduates with the relevant STEM (science, technology, engineering and maths) skills. We need to create the capacity in Derry for inward and indigenous growth, but that is difficult, and perhaps impossible, without a sustainable and large university campus. Such a campus needs to offer 21st century skills in the STEM subjects and the creative and digital technologies, while focusing also on sustainable industries and supporting the growth of the healthcare sector locally.

The single most important investment to transform our city would therefore be the substantial expansion of the University of Ulster’s Magee campus in Derry-Londonderry. This would provide the enlarged skill base that is needed and attract new employers and investment. It would lead the physical, social and economic regeneration of the city. The Ilex Urban Regeneration Company’s plan for the city puts the expansion of the university campus at its heart, because this would achieve the most positive economic and employment impact of any intervention.

University expansion is not the only thing the North West needs of course – we also need better road and rail links with Belfast and Dublin, a new radiotherapy centre at Altnagelvin hospital and support for those schools that under-perform. But when it comes to addressing the continued regional imbalance of the economy, it is clear that turning Derry-Londonderry into a true University City is the number one priority.

Pádraig Canavan is President of Londonderry Chamber of Commerce and Chief Executive of Singularity

People are more connected than ever before. Smartphone penetration and the ability to publish anything anywhere thanks to the likes of Twitter, Tumblr and Facebook means we can stay constantly connected to our network of friends and family.

Everything rises to the surface: what we’re doing now, what we did last week and, most importantly, our likes and dislikes.

It used to be that reputation management was something only high-profile companies like BP worried about. The social web has changed this. Twitter, Facebook, blogs, forums and websites have all enabled a new generation of consumers to publicly broadcast their thoughts, feelings and experiences.

Using tools such as Twitter, people are tapping into the “wisdom of the crowd” via social networks to make informed choices about purchasing products and services. This means that bad experiences become recycled and have much longer staying power than they did ten years ago. Big ad promotions no longer influence us as much or more than the influence of our peers and trusted sources.

While SMEs and larger organisations are aware conversations between consumers are taking place online, they lack the time and resource to identify and deal with them.
Coordinating an organised team effort towards doing so can be difficult.

Although there are no quick fixes, improving your reputation online is fairly simple. It means doing the same three things over and over and over again: Listen, Engage and Resolve.

• Listen: If the customer feels the need to vent about your company, it’s because they want someone to listen. They’re looking for a reaction; if they can’t have a resolution, they’ll settle for scaring a few customers away from your business because revenge feels good. If you can give them a resolution, they won’t need to do that. This starts with knowing what the problem is.
• Engage: If you think you provide good customer service, then be prepared for a two-way street when it comes to communicating with customers. Some companies have been known to set their lawyers on to customers who have complained about them online, threatening them with legal action. This is absolutely not a strategy you want to be known for using. Instead, engage with them. If they’re Facebooking about how poor your product is, politely ask how can you help them. Most people vent on social media out of pure frustration so when you reach out to help, most react with pleasant surprise.
• Resolve: If practicable, and within your power, do your best to resolve the customer’s issue. You may not always be able to but often you’ll find the effort is appreciated-even if you do decide to part ways. Most bad reputations begin with an outsourced call centre not fixing a customer’s problem, so the higher your support resolution rate, the healthier your online reputation will be.

Implementing a sound reputation management strategy begins with finding efficient tools that reduce the amount of resource and time needed to address conversations online. Doing this will enable you to engage with customers and improve your reputation and bottom line.

John Reid is the CEO of RepKnight, a reputation management solution that enables companies to track conversations and trends in realtime, 24/7, and coordinate their teams to respond.

Secretary of State Owen Paterson, here launching the consultation document on Northern Ireland’s Corporation Tax, has driven the Enterprise Zone idea

By John Simpson

There are important new plans to improve the ‘weapons’ of economic development policy in Northern Ireland. After four years of an Assembly and Executive where the ambition to grow the economy was often stated but continued much as before, the levers of economic policy may now be reshaped.

A new Assembly and a reformed Executive have an agenda to consider three key initiatives. First, they will receive and then decide on the recommendations of the special Economic Strategy Group, chaired by Kate Barker. Second, the long awaited paper on the scope to devolve corporation tax to the regional authorities is out for consultation and poses critical far reaching questions. Third, the Executive must consider how to respond to the proposal to make Northern Ireland an Enterprise Zone.

There is an immediate challenge (not necessarily the most important) in proposals for an Enterprise Zone.

The concept that all of Northern Ireland should deploy measures which allow the whole region to be seen as welcoming for additional enterprise and business is attractive. Whilst the initiative for an enterprise zone has stemmed most strongly from Owen Paterson, Secretary of State, the concept would readily be widely endorsed. The generic appeal of the concept can also confuse its scale, purpose and administration.

There is a potential confusion in terminology. The Chancellor of the Exchequer has announced that there are to be 21 new enterprise zones in deprived areas in England. That announcement was generally welcomed in the areas that may benefit and, from initial comments, will replicate and develop the concept that was used in 1979-80 to earmark areas for special treatment on planning, local taxation and business regulation.

The ambition for Northern Ireland should differ significantly from the English model. For that reason, a Northern Ireland proposal should adopt different terminology. As a first suggestion, perhaps the Northern Ireland concept and proposals should be described as features of an Enterprise, or Enterprising, Region. The emphasis on the inclusion, initially, of all of Northern Ireland and the scope for a wider agenda both point to the need to avoid confusion in terminology.

The possible scope for a wider agenda needs to be translated into an action plan.

That action plan should draw on the potential targeting of variations in corporation tax to incentivise business development, including attracting more external investment (FDI). There are numerous variations in the reshaping of company taxation which are being, and will be, debated elsewhere. However, a critical element in shaping an Enterprise Region is that variations in corporation tax should only be one element in the package.

An Enterprise Region must be much more than a favourable tax regime. The strength of an Enterprise Region should be the capacity to demonstrate a competitive base which attracts businesses that are viable and sustainable in the long-term.

An Enterprise Region that offers high value-added output must have a favourable structure in competitive terms. The components are diverse but, for analysis, can be separated into two general parts. For simplicity, these can be seen as, first, the enduring fundamentals of a strong regional economy and, second, the specific or unique additional features that add to the attractiveness of the region.

If Northern Ireland is to succeed as an Enterprise Region, both components must be in evidence.

Part of the challenge in the creation of an Enterprise Region is an acknowledgement that, before the local special factors are added, the fundamentals of a successful region need to be strengthened. In terms of business regulation, employment legislation, planning laws and practices, educational standards and skills, and urban and rural infrastructure and regeneration, there are weaknesses to be addressed.

To date, these weaknesses are sometimes denied, or sometimes acknowledged, but rarely are they being tackled in a convincing drive to raise the local ‘game plan’. A worrying feature of the local political debate is the degree of complacency about the fundamentals which constrain the competitiveness of the local economy. Too often this is linked with naïve reliance on small Government adjustments to business rates levels or similar variants.

Strengthening the fundamentals that underpin the economy is more significant than being regarded as a feature for emphasis in an Enterprise Region. The review group chaired by Kate Barker will fail in its purpose if it does not review and comment on steps to improve the fundamentals. Simply to recommend that Northern Ireland should become more export orientated, as has emerged elsewhere, would be not just a missed opportunity but a serious dereliction of the review team’s responsibilities.

There is then, in parallel, the opportunity to add the extra agenda for an Enterprise Region. What features, in addition to the (still uncertain) corporation tax changes, would be commended? Where should the responsibility for the Enterprise initiative rest?

Owen Paterson has campaigned for an enterprise zone and led local politicians to refer to this initiative as emerging from the Treasury. In principle, responsibility for delivery of an enterprise concept should lie in Northern Ireland. Most of the scope for individual initiatives is devolved so that a devolved administration should have the primary responsibility. Indeed, they would ideally rest the responsibility with just one Minister who might appoint the best possible advisers and a high profile business leader who commanded respect and would co-ordinate a strategic agenda.

So, what should an Enterprise Region offer alongside a highly structured and professional delivery of public services?

For a minimum guaranteed period of ten years it should include:

1. tax concessions on new capital invested by businesses
2. tax concessions on R&D and innovation possible exemption from business rates for a genuinely new business
3. cheaper and quicker planning application decisions
4. 90% guarantees on approved loans from banks
5. allowances to meet training and education costs for new employees

In principle, Northern Ireland should be a single region-wide Enterprise Region. There is a further refinement of these measures that would be justified.

For defined (but not too narrowly) inner city areas including inner Belfast, the wider Ilex areas in Derry City and other areas of industrial decline, special status akin to a Development Company might be awarded. The intention would be that the special Development Companies might be given authority to purchase land, develop key road lines and standards, consolidate sites, and prepare development plans to break the cycle of inner urban decline.

The Enterprise Region concept is no simple, one-phased application. It is complex because it calls for co-ordinated action. Part of the scope depends on the transfer of corporation tax decision making. If that happens, then the responsibility more clearly falls on Stormont.

After the Chancellor’s announcements for English enterprise zones, the case for a locally designed concept and a local branding is even stronger.