Mr. Paul Mac Flynn:

I thank the Chairman and members for the opportunity to contribute to this discussion. I will begin by giving a brief overview of the two economies on the island and how they have each experienced the recession. Both jurisdictions underwent a substantial economic downturn following the financial crash in 2008. While the experience of property bubbles and bank failures is common to both, the scales of externally imposed austerity and outcomes in the labour market have been very different. For instance, house prices in Northern Ireland increased substantially in the two years prior to the crash before reaching a peak in 2007. By contrast, the increase in prices in this State followed more of a growth trend from the previous decade, which led to a situation in which we have proportionately more people in negative equity in the South, or in much deeper negative equity, compared with the situation in the North. Northern Ireland's property prices are still 50% below where they were before the crash.

In terms of the labour market, while unemployment reached a peak of 13% in this State, it peaked at just above 8% in the North in early 2013. In respect of the banking sector, financial institutions in Northern Ireland faced similar losses to those in the South, but the cost of this was borne either by the British or Irish Government, depending on where the institution was headquartered.

Northern Ireland has experienced a significant cut in Government expenditure since 2008 in line with the rest of the UK, but its experience has not been of the same scale as the rest of that country. Austerity measures are estimated to have totalled some 18% of GDP in the North, compared with a UK figure of 9%. The North saw the largest fall in incomes of any UK region over the course of the recession and is now the lowest-income region. Incomes in the Republic also fell significantly, but the downward trend began much earlier, in 2008 and 2009, compared with 2010 and 2011 in the North and the rest of the UK.

In terms of barriers to the all-island economy and increased trade, the currency issue has become much more current given recent fluctuations. As Dr. Healy mentioned, the trade in manufactured goods was roughly equal between both economies until 2001. Trade from the Republic to Northern Ireland dropped off significantly after that, however, aided by a sharp depreciation in sterling in 2002. Exchange rates then stabilised until a further significant devaluation of sterling arose in 2008 and 2009 following the financial crash. The advent of the euro has meant that the exchange rates between both jurisdictions on the island are less sensitive to changing economic conditions in each jurisdiction. While that has advantages, particularly for this State, in terms of increased trade to the rest of the European Union, it also has had an unintended consequence. The most recent depreciation of the euro following quantitative easing by the European Central Bank highlights the remoteness of such decisions.

Areas close to the Border, on either side, have maintained some of the highest levels of unemployment and lowest levels of productivity in Ireland and the UK. On the idea of introducing a development zone, I am concerned that the experience of such zones, referred to as enterprise zones, in the UK has not been convincing. There is scant evidence that favourable tax treatments or increased capital allowances have made any inroads into encouraging economic development. Perversely, where enterprise zones were considered to have been moderately successful in the UK, it was found that rather than creating increased economic development, they merely drew in economic development that would have transpired in surrounding regions.

Therefore there is a danger that focusing on supply side initiatives in one particular geographical region may ultimately create areas of economic underdevelopment in surrounding regions. However, there are opportunities to harness cross-Border co-operation to enhance the Border region, particularly with regard to public services and in the important areas of education and skills, in order to remove a possibly false limit on economic growth.

With regard to a job creation strategy, NERI has been producing research on the need for a significant rethink of industrial policy in both Northern Ireland and the Republic of Ireland. In particular, the current trajectory of policy would indicate that the Northern Ireland Executive intends to attempt to compete with the Republic of Ireland in terms of job creation and foreign direct investment. I refer in particular to the current plans to devolve and reduce corporation tax powers in Northern Ireland, which would signal a dangerous shift away from all-island co-operation and could lead to a dangerous race to the bottom in terms of policy. The Northern Ireland economy has suffered years of under-investment in both the public and private sectors and consequently, any claims that Northern Ireland could emulate the perceived success of the Republic of Ireland economy in the 1990s by simply reducing corporation tax is misleading.