The boardroom at MKB Law’s Great Victoria Street offices provided
the venue for the latest Business Eye Round Table in association with
MKB Law, one of Belfast’s leading commercial law firms. In a wideranging
discussion, an influential panel discussed the challenges
facing businesses in Northern Ireland, the role of government,
finance & banking as well as a number of other live issues.
RB – Let me kick off with an opening question for all of you. How do you view the broader business climate here in Northern Ireland? Are you optimistic?
BW – Cautious would be the answer. There’s been an easing in inflation and energy prices have come down. But that hasn’t found its way into people’s pockets just yet from what we can see in hospitality. I’m usually optimistic but there’s a fair degree of caution at the moment.
RR – You have to be optimistic to do business here and our own plans are quite ambitious in terms of business growth. We’re all watching what the Assembly & Executive is going to do in terms of making the hard decisions. But we’re ploughing on regardless, and we’re not the only ones.
CK – It’s a mix across the sectors. Manufacturing is fairly buoyant and software is still strong. In my own sector, R&D and innovation, it’s a bit more uncertain. The government can’t seem to make its mind up about what it’s going to do.
GH – We’ve been through a few difficult years and it’s more stable now for sure. Stormont getting back has been helpful. But Cathy is right. It varies across the sectors. Commercial property, for instance, is a sector that we’re a bit more concerned about.
JS – We’re very positive. I’m involved in two businesses. One is a brand and digital agency, we can work anywhere in the world and the pandemic accelerated that for us. We had our best year in business last year, and the same goes for my other business, which is in sports goods. So we’re optimistic as well.
MC – George is right, there is definitely uncertainty around commercial property and hospitality as well. A lot depends on consumer confidence. At the moment people want to spend less and that has a knock-on effect.
GM – One thing that strikes me is the cost of human capital. Wages bills have grown really quickly off the back of inflation and the fact that there are fewer qualified people out there as well as more demand for them. That’s our single biggest cost of sales and it does squeeze margins. The past year was our best in terms of turnover, but not in terms of profit.
RB – A couple of you mentioned the return of devolved government. Does it really give everything a lift? Or is just a feelgood factor?
MC – It does bring a feelgood factor but the proof of the pudding will be in the eating. Take residential property, which is a big part of our business. It’s dependent on infrastructure and investment in infrastructure is uncertain at best. But it’s better that they’re there than not there.
GH – It will have a positive effect on inward investment. There has been a reticence to come here until they see some sort of stability. But infrastructure is a key point. The Derry road is open but there are plenty of examples of infrastructure projects that haven’t been delivered. We’ve heard of investors who’ve been put off by the infrastructure situation.
BW – Any form of political and social stability has got to be good. Infrastructure is an issue but if you look at return on investment from businesses and properties, there’s a better return here than there is in Dublin. But politicians here need to stop waving flags at one another and get on with the economy and guiding us to a situation where we can stand on our own two feet. If only they could take a more adult approach to what’s best for all of the people of Northern Ireland.
CK – I’ve been talking to the same clients for quite a few years and we never talk about red, white and blue or green, white and gold. It just never happens. Few care who’s in the government. They just want a government in place. All of the successes in the past few years have been despite a government not being in place. There is so much in the media about division but it’s so irrelevant to businesses here.
MC – Certainly, when it comes to investors, local politics are of no interest. They’re more interested in the issues which affect Belfast city centre in the evening, and they’re more interested in infrastructure issues like limited routes from our airports.
RB – They’re back now and they’ve set a budget. What should their priorities be?
RR – It’s great to have the Assembly back but you could say that we don’t have a government. Our First and Deputy First Ministers are figureheads. They’re not in charge. Their appetite for making difficult decisions is certainly in doubt. I’d like to see more delegated to local councils. They’re more accountable and they make local decisions.
GM – I’d agree and disagree. Handing control of planning to local councils hasn’t improved things on that front. But you’re right that we don’t have a government. We’ve a group of people who rubber stamp what’s proposed to them by the senior civil servants. That becomes apparent when the Programme for Government is discussed. It’s handed to them by the civil service. They’ve no vested interest in helping business because there are no business votes and they’re not dependent on taxes generated by the local economy.
BW – We have a competitive advantage in that we’re able to trade with the UK and with Europe. They should have a laser focus on that. How can we sell Northern Ireland as a location with that competitive advantage? Let’s make Northern Ireland more successful, let’s generate more tax income, let’s pay for ourselves.
CK – Our clients would love to see capital investment, big projects coming out of the ground. Firms are stuck between a rock and a hard place. A machine which cost £2k before Covid now costs £3k and there are no capital grants available. They’d like to see government supporting them, helping them grow. As things stand, it sometimes feels that government is hindering rather than helping.
BW – I heard one MP on radio recently saying that our trade with Europe with irrelevant. If he was in business, he’d be asking how we can do more trade with Europe. That neatly illustrates what we’re up against. We have a real opportunity to make Northern Ireland not only successful but profitable.
GH – I did get asked a lot about dual access and the Windsor Framework. The good news is that it has gone quiet. No one asks the question any more. But we’ve heard of Dublin organisations interested in coming north, and there is also interest from London. Go down to Newry and there are loads of thriving cross-border businesses. It’s become part of the fabric.
RR – The problem could be complacency. We’ve got to remember that inward investment is constrained by lack of people. It you want to move here with a family, it’s not easy to find a home and a school place.
RB – Should we resurrect the proposal that we set our own rate of corporation tax?
CK – We’re now at 25% for profits over £250,000. We’re now even worse off compared to the Republic than we were back then. But I don’t think it can even be on the table until the Executive gets on a steady financial footing.
GH – Yes, it’s hard to see it happening any time soon because of the current fiscal situation. Some sensible decision making needs to take place.
RR – If we did have it, are we ready to embrace it? If a big investor came in today looking for somewhere to house a huge server centre, for example, we couldn’t deliver. Then there are the problems in our planning system.
GM – Yes, the tax rate isn’t as big a driver as we might think. It’s the wider environment. We’re a low-wage economy compared to the south, and that’s something we can build on, but we need to get the infrastructure right.
BW – Whether its short, medium or long-term, it should be something we look at. There’s a big difference between 25% and 12.5%. Then there’s VAT – 20% in our business here and 13% in the south. The UK government tends to forget that we share land border with the south.
CK – The bottom line is that we have double the corporation tax of the south and that sends the wrong message, whatever way you look at it. People will just see the headline.
RB – What is the finance climate? Are the banks actively lending to business in Northern Ireland?
GH – Yes, we are. We’ve got more liquidity than we’ve had for a number of years. This place is awash with Covid money. A lot of it hasn’t been spent and therefore less businesses are borrowing. There may be some confidence and fear factors, of course. Some sectors are better than others. You don’t need to be a genius to work out that commercial property isn’t the best bet at the moment. On the other hand, we’ve changed our view on tourism and hospitality.
GM – Are the banks not very tied to businesses that have a lot of fixed assets? There’s a view that you won’t lend on cashflow or support new economy businesses and start-ups.
GH – Look, it’s certainly easier to lend on fixed assets. But we’ve funded machinery investments in manufacturing, for example. And we do lend purely on commercial finance. But a pure start-up with no background is always going to be difficult for lenders.
MC – And that’s a problem for small companies who just can’t meet lending criteria, so they end up having to take much more expensive finance and it just doesn’t help their chances of succeeding. Even where the core business is good, the cost of finance can lead to problems.
JS – We struggled to get finance for our sports business, and we ended up giving up some equity and working with Belgian investors.
GM – I think there is a challenge for local business owners to be willing to give up some equity for finance. Historically, we’re not too keen on equity finance.
GH – A lot of businesses here are family-owned and, for obvious reasons, they won’t take that route.
RR – One sector really struggling to get finance is residential property development. In fact, the Executive should consider ways of kick starting the housing market here. Without that, the rest of the economy is going to lag behind.
MC – We’ve talked a lot about encouraging city centre living but we’re not getting there. A lot of younger people would love to live and work in the city, but Belfast isn’t good at it.
RB – Almost every business leaders today mentions HR and people as one of the big challenges. Are there any solutions?
JS – We’re lucky to have a lot of creative talent here so we don’t struggle on that front. Where we do struggle is on the tech/software side of things. That hasn’t been helped by FDI firms coming in and sucking up a lot of the talent. We’ve ended up offshoring some of that kind of work.
GM – In our sector, Big Law coming to Belfast in the shape of the big offshore operations has had a real impact. There is a limited pool of lawyers qualifying each year and that hasn’t changed in the 40 years I’ve been in the profession. What has changed is the arrival of the Baker Mackenzies and Allen & Overys. So we have a specific problem. When we train people, they have a much wider market that they can then go into, and it forces salaries up from the bottom.
MC – And the young law graduates tend not to think about their career path. They’re thinking about how they can make the most money as quickly as possible. They end up delivering legal services into a New York office or somewhere well away from Northern Ireland. If and when they come back into private practice, they might need re-trained but their salary expectation will remain high.
CK – When Invest NI announced 30 new jobs, it doesn’t actually mean new jobs, it means 30 people who need to leave other companies.
BW – At the higher level, we’re really struggling to get good people – managers, top quality chefs, marketing people. We’re in the ludicrous position where we contribute to an apprenticeship levy but there are no apprentices coming through. There has never been any joined up thinking between education and industry. Our industry is vibrant, growing and will continue to grow. For that, we need good people.
MC – It’s not made any easier by a lack of joined up government. Schools here fall under the Department of Education remit while colleges don’t. They’re managed by the Department for the Economy. So there can be a disjointed approach.
BW – I was at one of the biggest schools in West Belfast not so long ago to talk about careers in hospitality. There were lot of other employers there. Over the two hours, 11 young people came to talk to me. But there was a big queue for physiotherapy. What does that tell you?
MC – It begs the question what sort of guidance are these kids being given on careers? Schools should be celebrating the fact that they’re sending kids out into a whole range of different careers across every sector.
RR – From our perspective, recruitment has improved from where we were immediately after Covid, but we have to work harder to retain people and look after people now. There are much better career paths in hospitality now than there have ever been, but staff costs are getting higher and higher.
RB – Let’s turn to infrastructure. If there was any money in the pot, what are the key priorities for investment?
GM – We act for a number of large housing developers and the single biggest constraint that they have is getting connected to the sewage network. It’s affecting a lot of residential and commercial developments.
MC – In many cases, developers end up paying the cost of planning applications that they can’t implement because of the sewage problem.
RR – Infrastructure, if we get it right, is the gift that keeps on giving. Think about the Lagan Weir and how one investment transformed the whole waterfront. Those game-changing investments can pay back in spades.
GM – Absolutely. A pound spent in construction circulates all around the economy.
RR – The green economy is a massive opportunity. Onshore wind farms can provide significant benefit to local economies, for example.
CK – I’m a recent convert to an electric car but, if our government is serious about converting more people to EVs, they’re going to have to invest. We’re so far behind when it comes to EV charging infrastructure. We have tax advantages for electric cars but not nearly enough chargers.
RB – Finally, what about tourism? Are we doing enough?
RR – Our tourism strategy is a big document. I looked for the strategy in it, but there doesn’t appear to be one. It says that tourism is great and that we need more of it. But it doesn’t say how or when.
JS – The strategy should be about getting them to stay here longer and spend more money.
BW – 70% of our visitors come through Dublin Airport and a lot of them need the new Electronic Travel Authorisation. They don’t understand why and it doesn’t make things any easier. And Rajesh is right about the strategy. None of us know what it is. But let’s not forget that the size of the prize is substantial. It comes back again to joined up thinking and a sharp focus on what needs to be done to move us forward.
GH – As I’ve said, if we get the basic building blocks right, we can go from there. The new Ulster University is a case in point. It’s a superb building and it’s brought new life into a part of Belfast that was in need of it. So let’s move on, take the big decisions and stop playing around the edges.
CK – Michael Williamson, who heads up our tourism and hospitality practice, says that world travel is due to rise by 50% between 2015 and 2030. That’s a lot. But will we be able to capitalise on that? Will we have the rooms and the facilities?