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RebalancingTheEconomyDETI
1. NI Economic Strategy / HMT Consultation Paper Graeme Hutchinson Director of Economic Policy, DETI 20 May 2011
2. Overview 1 Current Economic Performance 2 3 4 Long Term Economic Trends Corporation Tax NI Economic Strategy
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7. The Northern Ireland economy is dominated by the public sector… NI Public Sector Jobs Almost one-third of workforce jobs in public sector* UK NI * Public sector defined as public administration, health and education NI Public Spending Underpins two-thirds of the economy + 5%
8. … which has (and will) not lead to convergence with the rest of the UK… Productivity Employment Rate Living Standards No convergence since mid 1990s No convergence going forward unless significant change in approach Source: Oxford Economics UK Average
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11. The new economic strategy… 2011 DETI Minister launched initial consultation on economic strategy on 13 January Meetings with key stakeholders took place during the consultation, including: CBI Trade Unions HE/FE Business Alliance Govt Departments MATRIX Economic Advisory Group Voluntary Sector Agri-Food Consultation period closed with more than 60 responses received Report will be published drawing out key points made in consultation responses NOW Responses used to inform development of full strategy, which will be put out for consultation later in the year
12. … acknowledges that economic growth must be led by the private sector… Strategic Aim Wealth and employment creation Key Driver Export-led economic growth Rebuilding the Economy Building economic & labour market stability (short to medium term) Rebalancing the Economy Increasing private sector productivity (short, medium and longer term)
13. … to both rebuild and rebalance the economy… REBUILDING THE ECONOMY REBALANCING THE ECONOMY Improving Employment Opportunities & Employability Promoting Employment Stimulating Innovation, R&D and Creativity Developing Economic Infrastructure Encouraging Business Growth Competing in the Global Economy Improving Employment and the Level, Relevance and Use of Skills CROSS CUTTING THEMES Equality Balanced sub-regional growth Sustainable development
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16. A cut in Corporation Tax will redirect money from the public sector to the private sector… Cut in Corporation Tax provides a stimulus to move away from a public sector orientated approach Could lead to much larger benefits throughout the local economy than direct public spending 85 80 70 65 30 Behavioural response 2.6 2.6 2.5 2.3 1.0 per cent of NI block 270 265 265 235 110 Direct cut to block grant 345 Year 4 300 Year 2 335 Year 3 355 140 Total redistribution Year 1 Year 5 £m
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19. Low Corporation Tax is very important for attracting FDI in a small open economy… Source: Inward Investment Monitor 2010 10-17% 39% 30% 29% 28% 19% 19% 12.5% ROI and 12.5% CT Rate “ Let me be absolutely clear on this issue: our 12.5% rate of corporation tax is here to stay. It is central to our industrial policy and is an integral part of our international brand. The Government’s message is therefore unequivocal and I can assure the House that there will be no deviation from that position.”
20. … and has been a key driver in the economic success of the Irish economy up to recession Productivity Living Standards 10% rate for manufacturing 10% rate for financial services (IFSC) Living Standards Rapid increase from 60% of UK to 110% in 2006-07 Productivity Went from 15% below to 15% above UK in 2003-05 Phased reduction in main rate to 12.5% Source: World Bank Databank
21. EAG has commissioned independent research to help estimate the benefits… - Baseline economic forecasts for EAG - Assessing economic impact of lower tax on GVA and jobs SCOPE TIME SCALE - Draft estimates currently being considered by EAG - EAG paper to be published in May / June 2011
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23. … which shows that a lower rate of CT could significantly increase living standards… UK Ave Central High Baseline Low Source: Oxford Economics Trendline fDi Intelligence Draft estimates are in between low and central OE scenarios Draft estimates indicate a step change in NI economy from lower CT
24. … and raise the employment rate UK Ave Central High Baseline Low Source: Oxford Economics
