9 August 2019

Rebalancing Britain: A new deal for Northern Ireland

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Rebalancing Britain is a major new joint project from CapX and the Joseph Rowntree Foundation, which focuses on how the Government should tackle the longstanding imbalances in the British economy. The project looks not only at the well-documented North/South divide, but at the way smaller towns and cities are often left behind in national policy debates.

The last ten years have not been kind to the Northern Irish economy.

The province has gone from the UK’s second fastest growing region in the decade before the 2008 crash, to recording the slowest economic growth of any region last year. It has consistently had the lowest labour productivity of any UK region. While the unemployment level has fallen below the UK average, Northern Ireland has a high incidence of long-term unemployment and the highest economic inactivity rate in the country at 25.9% – partly as a legacy of the Troubles and the mental and physical damage wrought on the workforce.

The significant manufacturing and engineering sector, which makes a Gross Value Added contribution far above the UK average, is going through a period of structural change towards the high tech and niche. Landmark former shipbuilders Harland & Wolff went into administration this week; aircraft pioneers Short Brothers, now Bombardier Belfast, is up for sale. Despite the growing presence of global legal and financial firms, the GVA contribution from professional, scientific and technical services is the second lowest in the UK. Entrepreneurship levels are significantly lower than elsewhere too – 6.3% versus a UK average of 8.8%.

However, ONS surveys show that when it comes to life satisfaction, happiness and sense of worth, Northern Ireland shines, with a higher average and substantially greater numbers claiming very high levels than the rest of the UK.

Despite many excellent schools, major disparities in the skills and educational levels of Northern Ireland’s workforce hold back the economy and society. Attainment is polarised in an academically selective and still largely faith-segregated school system. In the most recent figures, 94% of grammar school pupils achieved five good GCSEs compared to 50% of children not at grammars; and Catholic students outperform their Protestant peers from equivalent socio-economic backgrounds.

Across the board, 30% of young people leave school with less than five A*-C GCSEs including English and Maths, at a time when just one in 10 vacancies for education leavers will be accessible to those with low level qualifications. A 2017 CBI/Pearson survey found that for intermediate skilled jobs, 46% of Northern Ireland firms were concerned about filling vacancies compared to 38% across the UK, and for low-skilled jobs the figures were 25% and 18%. Too much capacity in further education is taken up by pupils studying lower level qualifications, and there is insufficient take-up of mid-level professional and technical qualifications which future jobs will demand.

The long tail of underachievement at GCSE, the recent Skills Barometer Report for the NI Department for the Economy noted, perpetuates worklessness and poverty in deprived communities.

Brain drain

At the other end of the scale, Northern Ireland is losing a considerable number of its best educated young people every year. With student numbers capped and funding cuts reducing the number of places at the province’s only two higher education institutions, more than a third of prospective students choose to study elsewhere in the UK. Two-thirds of them never come back to live and work in Northern Ireland. According to Andrew Webb, chief economist at accountants Grant Thornton Northern Ireland, “when they leave they see a way of life and job opportunities and it’s very difficult to get them back”.

Within the NI higher education sector, most students are pulled from other parts of the province to Belfast. There are gaps for provision in particular areas – nowhere to study veterinary science, for instance, despite the substantial agricultural sector. There is a mismatch between the most popular subjects for degree-level study and job market demands, with universities producing more than enough teachers and medics but not enough STEM graduates, particularly engineers and computer scientists. The growing IT sector, in particular, has a challenge to publicise the wide variety of jobs offering wide-ranging day-to-day tasks open to computing graduates.

At just 4,100 in 2018 – its highest level for 10 years – net migration to Northern Ireland is low compared to other parts of the UK, and since the EU referendum vote some skilled eastern European workers have returned home for higher wages and better quality of life, or moved to the Republic of Ireland. A food and drink trade body representative told a seminar last year that recruiters sent by companies to countries like Poland were coming back empty-handed. “The phrase ‘we can’t get the staff’ is one we are likely to hear more and more” predicted Richard Ramsey of Ulsterbank last year. Following strong criticism from employers’ groups and the hospitality sector the review initiated by Sajid Javid of the proposed £30,000 salary cap for migrants will have been welcomed.

Infrastructure

Limited infrastructure is another recurring complaint.

The outgoing CEO of shipbuilder Harland & Wolff, Jonathan Guest, says:

“Compared with the situation in the Republic, whose road and rail networks enable huge foreign direct investment, we do not even have a dual carriageway that goes round the full way to our two major cities; our International airport has no flight connections outside of European holiday destinations and is not serviced by train lines”.

The programme to give homes and businesses access to broadband of at least superfast speeds has been running behind target. Coverage in rural and border areas is patchy, with almost one in five premises in the Fermanagh and Omagh council area still not getting broadband speeds to meet typical household needs by the end of last year.

Project Kelvin, a telecom cable linking directly to North America cutting data transfer times to a fraction has been completed, but take-up by firms has been limited. The inequality of infrastructure between different parts of Northern Ireland also stands out. Thus, points out regeneration consultant Steve Bradley, all but a few hundred metres of the province’s 60 miles of motorway are in the eastern half, 55 years after a motorway between Belfast and Derry-Londonderry was proposed, and only one train from Derry reaches Belfast before 9am on a weekday, until the completion of an upgrade scheduled for 2027.

These differences reflect and compound divisions rooted in politics and sectarianism, so that Derry for example is consistently ranked the UK’s least prosperous city, with lowest wages and levels of private sector employment, the lowest rate of business formation at only 4.2% and 95% of young people saying they see no future for themselves there.

A shrinking town centre

Retail is more volatile in Northern Ireland than elsewhere in the UK, with shoppers with below average discretionary income quicker to splurge and quicker to retrench when the economic climate changes. Currently one seventh of retail units are empty, 5% higher than the rest of the UK, and no town in the province is unaffected.

Aodhan Connolly of Retail NI says that as retail contracts, a good leisure and hospitality offer is needed and Northern Ireland should learn from how other parts of the UK have breathed life back into town centres. “We have to be globally competitive, but we are falling further and further behind the rest of Britain and Republic” he says. Reforms to give local government more economic and planning powers could go further in the realm of regeneration and car parking regulations, and to help raise the profile of retail. There’s no Northern Ireland equivalent yet of Scottish Parliament Member Daniel Johnson’s bill to protect shop workers from abuse and violence.

Tourism has grown strongly with the marketing of attractions such as Belfast’s Titanic visitor experience, the Giant’s Causeway and Game of Thrones locations (the latter has helped the province gain traction as a film location too). Almost one in 11 jobs are directly attributable to tourism and visitor numbers compare favourably, in terms of overall scale and growth trends, with other regions of the UK. But there are limiting factors including a hospitality skills shortage and a retail offer that doesn’t yet match what visitors want. Critics suggest that a coherent tourism strategy is needed to back up all the effort put into becoming hosts of major events like the 2019 Open in Portrush, or more cross-border working on tourism with the Republic to eliminate needless duplication.

FDI in major construction projects has held up well, too, despite economic uncertainty. There’s a sense that the image Northern Ireland is projecting to the world hangs in the balance. Seamus Nevin of manufacturers’ group Make UK thinks the lasting significance of the Open is in “what wonderful images, particularly when it’s sunny, show about NI Ireland is how the country has moved on, with a much more modern, healthy and prosperous economy”. Jonathan Guest takes a less positive view: “Have you seen the image of NI in the media? That’s why no one wants to come here, outside of the agri-food, hospitality and manufacturing industries”.

An absent executive

The fact that the Northern Ireland Executive has not sat for more than 30 months is a day-to-day practical obstacle for business as well as a political one, particularly because the remit of local authorities in the province is more limited than in Britain.

Tina McKenzie, MD of recruiters Staffline Group Ireland, FSB NI Policy Chair and former chair of cross-community party NI21 explains the frustrations: first, key infrastructure projects, like the York Street Interchange road upgrade in Belfast have not been able to progress. Second, without a Finance Minister in place, firms have not been able to avail themselves of the enhanced business rates relief announced by Philip Hammond. Skills are also an issue, McKenzie says, with businesses “unable to take steps to improve our training offer, while monies raised from the Apprenticeship Levy comes back to the Northern Ireland budget generally, and are not targeted to skills, never mind Apprenticeships”.

Employers with a wage bill of £3 million or more who have had to pay the levy since April 2017 see it as a tax and have been “screaming about” the situation since it started, says Stephen Kelly of Manufacturing NI. Kirsty McManus of the Institute of Directors NI says that the anomaly Is suppressing productivity levels. She argues, “additional money to pay for training would go a long way to addressing [overseas] recruitment issues by retraining and upskilling our existing workforce while also providing an avenue into sustainable employment”.

Advocates of apprenticeships have to struggle even harder than elsewhere in the UK to persuade parents they are a good and prestigious option. A business rates review was finally announced in May by the Permanent Secretary to the devolved Department of Finance – with a caveat that change would probably have to wait for a restored Executive. Currently Northern Ireland businesses pay 12p in the pound more in rates than the UK average.

Pressed about what the new Prime Minister’s approach will be to the logjam, the Northern Ireland Office tells CapX – “The Northern Ireland economy remains strong, with employment at a record high and unemployment at a near record low. However, Northern Ireland needs a devolved government – to allow for local decision-making, to continue to strengthen the economy and to build a united and prosperous community. The Secretary of State is determined to do everything he can to restore the institutions, so
that important matters such as economic development can be addressed by locally elected representatives.”

No Deal dilemmas

All these frustrations may be overshadowed, though, by business concerns over Brexit. A coalition of business groups came together with voluntary organisations on August 2nd to declare a No Deal outcome must be prevented under any circumstances. They included the Ulster Farmers Union, many of whose members voted to Leave before judging the potential threat from cheap imports and tariff barriers greater than the harm of EU agricultural subsidies and regulations. July’s report from the NI Department of the Economy predicted 40,000 jobs could be lost in the event of No Deal – almost as many in total as after the 2008 financial crisis, but concentrated in particular geographical areas and sectors and in a potentially much shorter time frame.

There are logistical and public health impacts of No Deal – for instance what happens to Derry Port & Harbour over control of the River Foyle without cross-border understanding; or to one-third of Northern Ireland’s milk production that would be blocked from passing to the Republic for processing if the UK becomes a third country, and the resulting redundant dairy herds. There are companies based near the border with staff living on both sides such as Strabane sportswear manufacturer O’Neills – supplying bespoke team kit just-in-time to clubs in the UK, Ireland and worldwide – concerned about potential delays to moving goods, supply chain changes and the impact of currency fluctuations for staff.

Many of the arguments around Brexit and its impact on Northern Ireland’s constitutional position, peace and prosperity take different starting points and are impossible to square. Harry Cullen, former chair of Northern Ireland Conservatives and a former Belfast textile mill MD is enthused by the positivity of the new Prime Minister, thinks a drastic new direction is needed and says that as a retired businessman “I cannot believe for one minute that there can’t be a deal, [although] any deal has to be right for both parties”. He considers the possibility of free ports and more Enterprise Zones (of which NI has only had one designated so far) could be transformational for the province and that Northern Ireland has “an unbelievably good opportunity whether or not we get a deal”.

Dr Conor Patterson of Newry and Mourne Co-operative and Enterprise Agency sees the flourishing of microbusinesses and fall in unemployment to just 2% in Newry (from 30% in the 1970s) to be a product both of the Good Friday Agreement and the enabling of a “compliant, tax-paying business community” by the openness and security of the border. He is dismayed by the prospect of No Deal because the mass non-compliance implied would mean a regression to the grey economy and distrust.

Those accepting of or enthusiastic about No Deal are right that the lion’s share of sales by Northern Irish businesses are within the province or to other parts of the UK, and only a small percentage are exports to the Republic (5%) or other EU countries (4%).

This overall picture disguises regional variability and the degree to which cross-border movement of goods and people is fundamental to life in border areas. There’s a powerful argument that it goes against the noble obligations of boosting neglected regions, the integrity of the Union and the uniqueness of Northern Ireland to pursue a policy that is economically damaging to border communities. Stephen Kelly of Manufacturing NI acknowledges the tensions: “the scale and size of the population of Northern Ireland is completely contradictory to the scale and size of the problem Brexit presents”.

Business critics of No Deal who see themselves as providing leadership which politicians have shirked will stand firm. But they may be forced to move from critique – labelling No Deal “the worst of all worlds”, predicting civil disturbance by farmers closing roads and ports – to working out what their winnable demands might be from Westminster, and what the plan is for business if Britain does indeed leave the EU in this way. To what extent will unintended consequences of the Brexit process – the possible return to direct rule, bypassing the absence of the Executive, the loss of value of the pound – offer opportunities to Northern Ireland to mitigate what many see as an impending catastrophe?

But while there are undoubtedly concerns about the future, there are also plenty of exciting ideas for economic renewal. Mairaid McMahon of the FSB NI suggests reforming licensing laws to the help the tourism sector capitalise on the boost from the Open. Economist Andrew Webb suggests ‘Skills Academies’ modelled on the existing Tourism and Hotel Academy set-up as a potentially useful initiative. Conor Patterson suggests the network of social capital that built up the business community in Newry – NGOs, credit unions, voluntary and educational mentors – is transferable across Northern Ireland. Tina McKenzie looks forward to more investment in childcare provision as the top priority of the next Executive.

For now, all these hopes will have to wait, not only for Brexit, but for a society and political system united enough to carry them through.

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Joshua Neicho is a freelance journalist and communications officer for a London university.