Belfast cleans up on jobs

Posted on August 4, 2015 · Posted in Belfast Telegraph

Less than a week before the announcement that Ballymena is to lose 900 jobs at its JTI tobacco factory, Belfast was celebrating the creation of an extra 807 jobs with accountancy firm PwC. The symbolism is obvious.

It feels as if Belfast is getting all the new jobs.  What is more, Northern Ireland’s once great industrial economy seems to be morphing into a services economy right in front of our eyes.  Gone are the large centres of employment in textiles, shipbuilding and chemicals.  In their place are customer services centres and advisory offices.

JTI is a case study in the process of decline.  It is relocating production from Ballymena to Poland and Romania.  If it carries out its intention to do so – and at present JTI is merely stating that it is consulting on the proposals – it could save a rather large fortune.  According to the Irish Congress of Trade Unions, average pay at JTI in Ballymena is between £40,000 and £50,000 a year – more than twice the Northern Ireland average.

A report on the internet says that tobacco workers in Romania receive about £9,500 a year.  JTI’s pay bill could fall from £40.5m to £8.5m – a reduction of £32m a year.  That saving increases substantially when National Insurance is taken into account.

JTI also stands to save costs on energy.  The Manufacturing NI lobby group complains that electricity charges in Northern Ireland are the second highest in the whole of Europe, behind only Italy.  It argues that generator margins are too high and the rewards for renewable production are too great.

Stephen Kelly, Manufacturing NI’s chief executive, says: “Utility regulators north and south reported that in some cases generator gross margins were as high as 79%, with net profit running into hundreds of millions of pounds.  This is at the expense of all customers and is utterly unacceptable and unsustainable.  Unless action is taken, we have no hope of being globally competitive and building a strong economy.”

And it is true that JTI is not an isolated case.  We have recently seen job losses also at FG Wilson/Caterpillar and Bombadier.  Employment in manufacturing has gradually become smaller, falling from 15% of all employment in 1995 to less than 11% today.  That decline will surely continue, despite niche activities such as Harland & Wolff’s assembly of wind turbines.

Increasingly the employment base of Northern Ireland is moving into services and into Belfast.  In the last two months alone, more than 2,000 new jobs have been announced for Belfast – almost all in the services sector.  As well as the 800 jobs with PwC, there were 338 jobs at another accountancy firm, Deloitte.  Two law firms Baker & Mackenzie and Allen & Overy are to engage 256 and 100 people respectively – in Belfast.  Outside the Belfast metropolitan area, about 500 jobs were announced in the same period, of which 348 are for one employer, Almac in Craigavon, in pharmaceuticals.

It is easy to understand the attraction of Belfast for inward investment.  Our capital city has two universities, good schools, excellent digital connectivity, mostly good road connections and two airports.  Nowhere else in Northern Ireland can compete with that.

One factor in the preponderance of services going into Belfast is to do with the UK’s rate of Corporation Tax – 21%.  In the Republic the main rate is 12.5%.  Inward investors are therefore more inclined to locate profit generating activities in the South, while support services can go into the North, where average wages are lower than in either the Republic or Great Britain.  This helps to explain the finding of a report produced last year for the Scottish Executive that Northern Ireland does well in attracting inward investment, but this tends to be lower value inward investment.

Yet there is a paradox behind the job announcements.  While Belfast is attracting the jobs, it is not necessarily Belfast people that are taking them.  The claimant count figures tell the story.  Certainly the level of claimant count unemployment in Belfast at 6.2% is much better than that in the new Derry and Strabane council area, which is the highest in the UK at 8.1%.  And claimant count unemployment in Belfast has fallen by 13.9% in the last year.

But it is the neighbouring areas where unemployment is really low.  In the new Lisburn and Castlereagh super council, the rate is a mere 2.7%.  Unemployment in the Belfast travel to work area is much lower than that in Belfast itself, suggesting a big rise in commuting into the city.

Belfast’s magnetic attraction is its skills base – and this also helps to explain why the jobs boost is not being felt by everyone.  Time after time, inward investors point to the location of two universities in Belfast as being a decisive factor in attracting them.  Skills, especially graduate skills, are a powerful currency in the modern economy.

Away from Belfast and its commuter territory, our graduate numbers are small, thanks to Northern Ireland having the smallest university sector per head of population of any the UK’s four nations.  We export one in three of our highest achieving school pupils that go onto university, half of whom do not return.  Meanwhile our lowest achieving school pupils present our economy and society with a serious problem.