JPR Blogwire

Record tourism figures will help ease NI's Southern Discomfort

2012-02-06T10:39:00.000Z

ByRichard Ramsey, Chief Economist, Ulster Bank

Traditionally,the Northern Ireland (NI) economy follows the economic cycle of the UK. However, a key feature of the latest economicdownturn is the similarity to the economic trajectory of the Republic ofIreland (RoI). Two factors are largely responsible for this. Firstly, severe property booms and busts inboth markets. Secondly, there are significant economic linkages between the twoeconomies, primarily in relation to trade, tourism and investment. Tourism, inparticular offers a major opportunity.

Investment- Last year, there were some 765 foreign-owned firms operating in NI, employingjust over 83,000 jobs, or around 1 in 8 of employment. 245 of these firms wereRoI-owned, with an associated 19,400 jobs. This is almost one third of all foreign-owned businesses and close toone quarter of all foreign-owned employment.

Duringthe Celtic Tiger boom, Irish financial institutions were an important source ofincreased wealth here, not just for employees but for individual andinstitutional investors (including Charities) in the Irish stock market (ISEQ).In just four years leading up to the February 2007 peak, financial stocks onthe ISEQ rose by 125% but are now 99% lower than their 2007 peak and havepulled the overall index down 70% over the same period. In the same way thatthere was a positive Celtic Tiger induced wealth effect, which stimulatedinvestment in property, new cars and wider consumer spending, there willcontinue to be a negative wealth effect on the way down. The Irish-ownedfinancial sector is expected to see further downsizing in the years ahead andthe long-term impact of NAMA will also provide a significant challenge.

On apositive note, some Irish-owned firms are set to ramp up investment and createmuch-needed employment. NIE (owned by ESB) has plans to invest £2bn inupgrading the local electricity infrastructure over the next decade, whichshould lead to 400 new jobs over the next five years. This privatesector-investment will go some-way towards offsetting the scaling back of theIrish Government’s capital investment plans such as the £400m earmarked for theA5 road upgrade.

Trade- Historically, NI and RoI have enjoyed a healthy trading relationshipirrespective of exchange rate differentials. After GB, RoI is NI’s largesttrading partner. In the last financial year (2010/11), NI’s manufacturing salesto RoI accounted for almost 8% of all sales and almost 1 in 4 of all exports.Nevertheless, these figures represent a reduced share relative to 2007/08.

Upuntil 2007/08, NI’s export performance with the RoI was nothing short ofstaggering. Between 2001 and 2008, manufacturing exports to RoI increased byalmost 75% in real terms, with exports by large firms doubling. Since then, however, exports have fallen byone third, which means only 20% of the Celtic Tiger-driven export boom hassurvived. It has been a case of thesmaller the size of firm, the steeper the decline. SME’s have experiencedsteeper declines of 44%, taking sales volumes back to levels not seen since2003. The smallest firms - those employing fewer than 50 employees - now haveexports to RoI at levels that are 10% below those recorded 10 years ago.

Overtwo-thirds of all manufacturing sales made to the RoI market is undertaken bySMEs, with over half of all exports by SMEs bound for RoI. A significantproportion of these exports were linked to the RoI construction sector, and RoIhouse-building is already around 80% below its 2006 peak. This huge SME exposure will be difficult tochange quickly, particularly when the euro zone as a whole is in recession andthe £/€ exchange rate is less favourable than it has been for quite some time.But lack of demand will be the chief problem, not price.

Tourism- As with wider trade and exports, RoI is the most important tourism market forNI, after GB. The latest figures for 2009 revealed that almost one quarter ofout-of-state visitors originated from RoI. Interestingly, while exports to the RoI fell sharply in 2009, visitornumbers for the same year posted the sharpest rate of growth of any market,with a staggering 29% y/y rise. Indeed,2005-2009, RoI visitor numbers increased by 75% and visitor spend doubled inreal terms. The combination of a favourable £/€ exchange rate alongsideausterity induced ‘all island staycations’ clearly benefited NI in 2009.Although 2010 was more challenging, looking ahead, the prospects for RoIvisitor numbers look somewhat brighter than for RoI exports. This year will seethe Titanic centenary celebrations, followed by the Irish Open golf tournamentin Portrush. Meanwhile, the North West gets a double stimulus next year withthe Derry-Londonderry City of Culture and All-Ireland Fleadh providing asignificant boost to the Northern Ireland tourism industry. 2013 is thereforelikely to represent a record year for RoI visitor numbers.

Sowhilst we have become accustomed to record rates of decline in our economy inrecent years, it looks like tourism could provide the most fertile ground forwelcome records of the positive variety during the years to come.

If you're small and fast, you won't be squashed by elephants

2012-02-01T07:09:00.000Z

By Ron Immink, co-founder of Smallbusinesscan.com

Werisk being squashed by elephants. No, really. I read an article last week aboutall these 'elephants' stamping around threateningly - Germany, public sectorwages, the eurozone crisis, deficits, budget cuts, (and I am sure we can comeup with a few more). They're trying to squash us all.

Thisreminded me of a book I read a long time ago called The Elephant and The Flea,by Charles Handy. The book was way ahead of its time. It talked about theflexible, free agent moving outside the big corporations. A combination of Pokethe Box by Seth Godin and Killing Giants by Stephen Denny.

Thereis also a book called The Ant and the Elephant which is about the intentional(the ant) and unintentional (elephant) mind and how we need to control theelephant to become good managers.

I'mgetting sick and tired of 'elephant thinking' (mainly referring to the doom andgloom). So here is the good news. If you are a flea or an ant, it is difficultfor the elephant to step on you. You are too small and too fast. Most of us aremoving at the scale and speed of ants. Yes, elephants, as described in thearticle I read, are a nuisance, and you need to watch for the looming shadow,but they should NOT consume all of our thinking (or our media's).

Asants, we should think about which other ants we should and could work with, howwe can all work together as ants, where to fly out to for our next nest, etc.You get the point.

Backto where to fly to, which is a bad segway to 'exporting' and our Business Liveevents. Where would you to fly to as an ant? Why don't you ask some other antswho have done some 'air miles'? Our event in the north west on February 2 willhear from small business owners who have had great success doing businessoutside Northern Ireland. Find out more atwww.smallbusinesscan.com/business-live-events.

Or,if you want to fly to Asia, watch out for the joint Ulster Bank, Invest NI andUK Trade and Investment Doing Business in Asia event at Riddel Hall, Belfast onFebruary 10, at which experts from Invest NI and Ulster Bank's global parentcompany Royal Bank of Scotland will be on hand. More information is at:www.businessinasia.co.uk/events. Remember Indiana Jones and the Crystal Skull?When the ants pulled a human into their nest? I bet they could do it with anelephant too. Smallbusinesscan is kind of like one of these ant nests (in agood way). Join the army of ants and let's beat the elephants.

Hereis the good news. If you are a flea or an ant, it is difficult for the elephantto step on you, you are too small and too fast.

Sustainability should be reflected in property value in Northern Ireland

2012-01-11T17:20:00.001Z

ByBen Collins, Director, RICS (Royal Institution of Chartered Surveyors) Northern Ireland

RICSrecently set up a European Sustainability Task Force to advise propertyprofessionals about their role, responsibilities and possibilities incontributing to the transformation towards a sustainable built environment andproperty markets.

Theirwork includes: developing guidelines and training; research for assessing thesustainability performance of property and related investment products; andanalysing property related developments in policy, legislation, research,education and standardisation.

Sustainabilityand value has been a big focus of the task force. There is general agreementthat property professionals require more transparency and comparability ofindicators and metrics in order to better reflect the sustainabilityperformance of the built environment.

Whyis all of this relevant?

Wellit’s relevant for one because more than a quarter of the UK’s carbon emissionscome from homes. And something like 40% come from buildings as a whole. Moreneeds to be done to reduce carbon emissions from property, and to make ourbuilt environment more sustainable.

RICSbelieves that developing a stronger link between energy efficiency and thevalue of homes has an important part to play in reducing carbon emissions byincentivising householders to take action. If your house is going to be worthmore as a result, surely you’ll be more likely to take action to make it moreenergy efficient?

RICSbelieves that there are some practical things that can be done by government toachieve this. Better information for consumers and professionals is one aspect.Strengthening the market through improving skills is another.

Indeed,RICS believes that not just energy efficiency, but wider sustainability issuesshould be reflected in a home’s valuation. A recently published informationpaper from RICS says that whilst sustainability has traditionally not beenconsidered important in a property’s valuation, this is changing. RICS saysthat should a home possess sustainability features which are likely to have animpact on value, this should be reflected in a valuer’s assessment of theproperty.

Sustainabilityfeatures can include a home’s energy efficiency rating, as well as thematerials used in its construction, and other features such as anenergy-efficient boiler. Elements such as a building’s proximity to publictransport links and its ability to adapt to occupiers’ changing future needsshould also be considered.

Atpresent, when calculating a property’s worth, the market doesn’t always takethe issue of sustainability into account, but this could also have been saidfor central heating way back in the 1970s when people weren’t convinced it wasgoing to have a market impact.

Withthe increased emphasis on green living and energy efficiency, it is highlypossible that the market will need to adapt. The new information paper offersadvice to RICS members, recommending that they are fully aware ofsustainability policy and the characteristics of individual buildings whenvaluing property.

Althoughmarket awareness of sustainability is rising, attention is currently focusedlargely on a home’s energy efficiency, propensity to flood and carbonemissions. Whilst this is very important, a property’s sustainability statuscan also cover a range of social, environmental and economic matters that canpotentially lead to changes in demand and therefore affect value.

Thisis particularly important in Northern Ireland, where fuel poverty and - with anincreasingly car-dependent, dispersed rural population - ‘transport poverty’are significant features. As the cost of running a car increases, transportcosts form a bigger part of the family budget.

RICS’slatest information paper aims to help valuers consider sustainability issuesand their implications when undertaking valuations of residential property. Itdetails environmental factors, including energy, waste, water and flooding,along with social factors such as accessibility and health and wellbeing.

NI new car sales continuing to fall

2012-01-09T12:11:00.000Z

By Richard Ramsey, Chief Economist, Ulster Bank

TheSociety of Motor Manufacturers and Traders (SMMT) new car sales figures for UK,England, Scotland, Northern Ireland and Wales were released on Friday forDecember 2011.

Oneof the most reliable indicators of consumer sentiment is new car sales as it isbased on fact and not opinion.

It is not surprising that in Northern Irelandnew car sales are continuing to fall and in 2011 were some 31% lower than thepeak in 2007 or almost 21,500 fewer car sales.

This is a steeper fall than in the UK as a whole (19.2%) but stillcompares favourably with the Republic of Ireland.

During the 12 months to November 2011, newcar sales in the RoI remained over 50% below its 2007/08 peak.

InDecember 2011, there were just 1,441 new car sales / registrations in NorthernIreland. This is over 13% lower thanDecember 2010 and 20% below the same month back in 2007.

ForQ4 2011 there were 7,101 new car sales in NI. This was down 7.3% on the corresponding quarter in 2010 and 22% belowthe same period in 2007. By comparison, UK car sales as a whole were only 1.7%lower y/y in Q4 2011.

During2011, new car sales fell by 11.7% (6,260 fewer car sales) relative to 2010.This was a steeper fall than the UK experienced (-4.3%).

Economic outlook for 2012

2012-01-03T09:29:00.000Z

ByRichard Ramsey, chief economist, Ulster Bank

Lookingin the rear view mirror and at the road in front is far from pretty. 2011 started off badly, deteriorated mid-yearand tailed off towards the end. Indeed, my own economic outlook this time lastyear proved to be overly optimistic for the fourth year in succession. Againstthis background, expectations for the year ahead are extremely low and on pastexperience are likely to be overly optimistic once again. Having become wearyof and immune to surprises, we should expect the unexpected and more volatilityin the year ahead.

Economicgrowth forecasts for 2012 have been slashed. The consensus opinion is for the UK economy to expand by just 0.7% in2012, one third of the growth rate anticipated 12 months ago. This is also onethird of the growth rate (2.1%) forecast for the US economy, which is stillsluggish by its standards. Meanwhile, the biggest downgrades in economic growthare centred on the eurozone. Last Christmas, financial markets were nervousthat Spain might require a financial bailout. The focus, however, shifted toItaly which wasn’t even on the radar this time last year. The eurozone isexpected to contract by 0.1% in 2012 which compares with the 1.6% growth rateexpected just 6 months ago. Rating downgrades will remain a feature for sovereignsand financial institutions alike. France is expected to lose its prized AAAcredit rating for the first time since 1975.

Ayear ago I highlighted that talk of the demise of the euro was overdone andthat the EU authorities would ‘throw the kitchen sink’ at addressing theirproblems. Clearly, this did not happenand markets lack confidence that there will be an adequate policy response in2012. Rather than the demise of the euro, the talk this year will be on how theeurozone changes – in terms of possible eurozone exits and further fiscalintegration. Against this backdrop, we have a bias for euro weakness againststerling. UK holiday-makers in theeurozone next summer should experience their best exchange rate since 2008 withthe pound expected to be worth around €1.22 (€=0.82p).

Froma local viewpoint, we will be closely watching the issue of corporation taxfrom two perspectives. First, whetherthe Republic of Ireland manages to hold onto its 12.5% corporation tax rate andsecond, whether Northern Ireland can secure such a rate if corporation taxpowers are devolved. Clarity on both issues should emerge later this year. Onthis front, let’s hope for Northern Ireland’s sake that the London Olympicsdon’t provide a good opportunity to bury bad news.

Nextsummer will also reveal the findings from a Chancellor-commissioned report intoregional public sector pay. Both of these fiscal issues will have a significantbearing on rebalancing the local economy. Before then we will get a Spring UKBudget which will provide more detail on the additional spending cuts (2015/16& 2016/17) announced in the Autumn Budget Statement. Total public spendingis now set for its tightest squeeze since the end of World War II. Followingthe unprecedented 12-year boom in public expenditure growth, the UK now facesan equally unprecedented squeeze on public spending. Excluding debt interest and welfare payments,public spending is set to fall by 16% over the 7-year period to 2016/17. Todate, Northern Ireland / the UK has almost completed just one year of theeseseven years of cuts. The severity of this situation still doesn’t appear tohave been grasped by most of the population. Unlike our neighbours in theRepublic of Ireland, Northern Ireland has experienced relatively mild fiscalpain with few, if any, unpopular policies announced for local households. Water charges have been ruled out for thenext few years. However, other revenueraising policies are anticipated to be announced in 2012 over and above theexpected U-turn on free prescription charges.

Againstthis context, Northern Ireland faces the unenviable position of being the UKregion that has experienced the deepest recession and is also the most exposedto public expenditure. It is also the UK region most exposed to the Republic ofIreland. With both the latter and the UK set to grow by one per cent or less,the local economy is not expected to record positive growth this year. These two economies are effectively the twotow trucks that will pull the Northern Ireland economy out of recession. Apartfrom the latest recessionary period, however, these two tow trucks are expectedto grow at their weakest rate since 1986 for the Republic of Ireland and 1992for the UK.

Outsideof Europe, 2012 could prove a significant year for China. In the Chinesecalendar this is the year of the dragon. However, it remains to be seen whether China will still be firing on allcylinders. Opinion is divided over whether the booming Chinese economy willexperience a soft or hard landing. I amsitting on the fence and expect it to experience something in between! 2013 isominously the year of the snake. So far,China’s economic development has been all ladders and no snakes. However, the economic board game being playedby most other economies is ‘Snakes and No Ladders’. The one positive from aslowdown in China would be an easing in global commodity price inflation.

UKCPI inflation should fall dramatically this year, with the Bank of England moreconcerned with inflation being too low in two years time than too high.Therefore, in order to hit its 2% target within 2 years, we anticipate moremonetary policy action next month in the form of another £50bn injection ofquantitative easing (QE) as interest rates remain on hold. However, it’s thelevel of prices rather than the rate of increase that is the problem. InNorthern Ireland, the severe income squeeze set to continue, with the impactincreasingly felt on the high street and consumer sensitive sectors. Thesesectors, alongside construction, are expected to be the worst performingsectors in 2012. There will still be opportunities for competitive businesseswithin all sectors but 2012 will be a case of survival of the fittest. Unfortunately for many firms the economicstorm has simply lasted too long with competition too severe and profit marginstoo small.

2012will be another year of further restructuring for businesses and the start ofmajor reform within the public sector. Northern Ireland’s relative economicprosperity vis-à-vis the UK average is now back at levels last seen in 1992.This underscores the need for game-changing reforms and policies (e.g. lowercorporation tax) to aid in the economy’s longstanding restructuring &rebalancing challenges. Whilst I continue to have a bearish outlook, I am by nomeans a pessimist. To quote WinstonChurchill “A pessimist sees the difficulty in every opportunity; an optimistsees the opportunity in every difficulty”. From this perspective there are numerous opportunities for the localeconomy. But the key question is will we grasp them?

Don't waste a good crisis...

2011-12-20T15:23:00.000Z

ByRon Immink, co-founder of Small Business Can

Onbehalf of Small Business Can, I’ve just had the pleasure of spending 10 days inBoston and San Diego courtesy of the US State Department and BostonCollege. It was a fascinating trip,studying the best breed in entrepreneurship, networking, technology-transferand business education.

Ilearned a lot. Not difficult when you meet smart people from Harvard and MIT.But the really smart people were the people from San Diego. San Diego was asleepy town, completely dependent on the military. In the 80s they were hit bya 70% lay-off that should have left San Diego decimated.

Whathappened instead? They did not waste a good crisis and transformed the cityinto what is now a hub of innovation and entrepreneurship and a vibrant economyof mainly small businesses.

Whatwere the ingredients of this success? ‘Can do’, leadership, networking andcollaboration. Literally a handful of people decided to get together to make adifference. And then they ‘joined the dots’. Universities got involved,business got involved, agencies got involved.

Allthose parts are available in Northern Ireland; we have the universities, wehave businesses already collaborating on Small Business Can and other networks(we particularly claim the “can do” attitude), we have the agencies and we arebetter at networking, including a Diaspora that is second to none. We can dowhat San Diego has done and transform our economy.

Thatis the big stuff out of the way (it is after all Christmas and the time forreflection and vision). What can you do as a small business?

Youcan ‘step up to the plate’. Show leadership. Get involved. Join Small BusinessCan. Visit our next Business Live events in Derry and Cookstown with UlsterBank (details are on www.smallbusinesscan.com).

Butthe best thing you can do is to remain focussed on your business and make it asuccess. If you arethinking of starting, start now (you might not believe it, but this is the besttime to do so) and if you need support, let Small Business Can and over 10,000other business people help you. We will. And through success, we will breedsuccess. And eventually transform Northern Ireland.

HappyChristmas and let’s make 2012 a good one. Let’s not waste the crisis.

What will 2012 hold in store for NI property market

2011-12-20T08:38:00.000Z

ByDavid McNellis MRICS, Director, Lisney

2011has certainly proved to be a challenging year for the commercial propertymarket, and with the continuing effects of the eurozone crisis, we are unlikelyto see significant change in 2012.

Highbusiness rates, little capital from traditional banks and competition from theRepublic of Ireland are amongst the many issues facing the local market. Therehave been a high number of receiverships and administrations in 2011, and NAMAcontinues to be a dominant factor in the market. This is likely to be the casein 2012 as well.

NorthernIreland needs some kind of significant stimulus, or the economy will remain inthe doldrums. A reduction in corporation tax seems the obvious solution, asthis would enable Northern Ireland to compete much better for investment withthe Republic of Ireland, which currently enjoys a much lower rate ofcorporation tax. This of course has to be balanced against the reduction in theblock grant from Westminster.

Inthe retail sector, abundant supply and low demand are driving down retailrents. Prime rents have dropped substantially from the height of the market,typically 30–50% on average. Retailers are holding all of the cards in leasenegotiations, leading to low rents, flexible terms and, more often than not,turnover deals.

HighStreet retailers are facing ever-increasing pressure on sales, with consumerconfidence remaining low and online retail sales continuing to grow at pace.

Thesefactors have combined to reduce spending on the high street and in retailparks. Retailers are having to be more innovative and must work on improvingthe overall retail experience in order to prevent further leakage from the highstreet to the internet.

Asalways the Christmas trading period is fundamental to the success of manyretailers but inevitably there will be casualties. Retail is a dynamic industryand the gaps left will be filled by new entrants eventually.

Inthe medium term, rents and vacancy rates within the prime retail pitches in themajor towns and cities should start to stabilize, but we would predict furthererosion of rents and more voids in secondary retailing locations. This trend isstarting to roll out throughout many of the major cities in GB, where primerents have stabilized and indeed started to improve over recent months.

Howevertowns where there remains a high level of available space will see furtherdownward pressure on rents.

Interms of the office market in central Belfast, although activity is subdued,the reality is that there is not a lot of Grade A stock available. When demandstrengthens, for example as a result of a potential cut in corporation tax inNorthern Ireland, the existing stock could quickly be taken up in the event ofthere being no new construction.

Wehave established that there is currently an overall available stock of grade Aand B space totalling 1,009,854 sq ft on the market, overtly. This can bebroken down into Grade A 440,000 sq ft and Grade B 568,971 sq ft.

Stocklevels in Belfast are broadly in line with other GB cities. Within the stockthere are two buildings accounting for approximately 170,000 sq ft. Floor platesizes in the existing stock are predominantly in the size range 2-5,000 sq ft,catering for typically SME demand.

Ouranalysis shows that the available office product in Belfast does not showcorporate ambition. Floor plates are too small to attract large corporates.This needs to change to improve the outlook for the local market and the NorthernIreland economy in general.

Asregards the industrial market demand is generally at a local level and it ispredominantly from existing occupiers who are creating market churn. We areaware of approximately 1million sq.ft. of requirements in this sector. Giventhe level of demand for good quality space in prime locations and with a lackof new modern buildings, we expect a market where more favourable terms will beobtained for landlords however whether this is sufficient to stimulate construction should funding beavailable is up for debate. Historically take-up in the industrial sector hasbeen steady with little fluctuation. Somewhat unusually at present there are anumber of situations where competitive bidding is taking place to secure properties.As a whole, we expect occupational demand for modern buildings to strengthen,but occupiers will remain cautious. Due to the lack of speculative developmentit is unlikely there will be sufficient purpose built space available to meetdemand. The availability of space over 50,000 sq.ft. is limited. Typicallyoccupation is required within 3-6 months on flexible terms and there are few,if any, companies prepared to wait on design and build opportunities or offerthe terms to make a development viable. In a ‘normal’ market we would expectdevelopers to respond to the current demand with a return to speculativedevelopment in mid / late 2012, particularly in areas along the main motorwaynetworks and the A1 ‘Euroroute’ where demand is strongest and space shortagemost acute.

Clearly,as indicated, this is not only dependant on the terms being offered by tenantsbut the availability of bank finance which at present is extremely difficult toobtain.

Asthere is a shortage of good quality industrial space in buildings over 10,000sq.ft., companies have limited options. Once the available modern buildings areoccupied where and how will the demand be satisfied in these established areas?Occupiers will be driven to locate outwith these locations.

DavidMcNellis MRICS is a Director with Lisney, a commercial property agency based onBelfast’s Linenhall Street. Lisney works on behalf of many of NorthernIreland’s most significant property owners, and developers as well as majorretailers and businesses.

Will we catch cold from the eurozone?

2011-11-30T12:16:00.001Z

By Richard Ramsey, chief economist, Northern Ireland, Ulster Bank

Anold saying is that when the United States sneezes the world catches acold. This used to hold true but theemergence of the new economic superpower that is China has reduced theimportance of the US economy as a driver of global economic growth, and a keyconcern will be whether China sneezes and the rest of the world catches cold,or indeed something more serious. But for now, the spotlight is firmly fixed onthe Eurozone. The latest consensus forecasts anticipate growth for the eurozoneof just 0.4% in 2012 with some of its economies: Greece, Portugal andworryingly Italy expected to experience outright contraction. Indeed, someanalysts are forecasting the recession in Greece to last until 2015. It began in 2008!

Thesituation in the eurozone is certainly more serious than a cold, with thesovereign debt crisis spreading its flu-like symptoms throughout globalfinancial markets. To date, European policy-makers have struggled to stabilisethe patient and the best case scenario is a long, slow and painful recovery.The key question is will Northern Ireland catch a cold from the eurozone too?

NorthernIreland (NI) is unique in that it is the only part of the UK to share aland-border with the Eurozone – the Republic of Ireland (RoI). Throughout mostof the last decade, NI enjoyed the positive economic spillovers, or ‘SouthernComfort’ from its proximity to the fastest growing economy in eurozone. Priorto the downturn exports to the RoI were as large as all other sales to Asia andthe rest of the EU combined. As for tourism, the RoI is our second mostimportant market and visitors from the South contributed to a record year forthe industry in 2007.

Sincethen, however, the trade, tourism and investment linkages have turned intonegatives. Proximity, and the financialand economic inter-linkages with one of the eurozone’s so-called ‘PIGS’(Portugal, Ireland, Greece & Spain), led to NI contracting a ‘swine-flu’.As a result, NI is now experiencing the economic chill from its closestneighbour and a lengthy period of ‘Southern Discomfort’. It is important to note, however, that thelocal economy was already shivering as it had already contracted its ownproperty-induced flu. Since then, the local economy has stabilised but it hasbeen unable to shake off a heavy economic cold.

Withthe Eurozone likely to enter recession and the ongoing sovereign debt woes,these factors will simply delay NI’s recovery. The local economy will bepulling a ‘sickie’ for some time yet. Over the last year, the only part of theNI showing any meaningful recovery has been manufacturing. This has been due tothe fact that export markets, outside of the RoI, have been relativelybuoyant. However, the rapid economicslowdown is going to close, but not shut, that door. This will limit theeconomic uplift from an export-led recovery. Meanwhile, the domestic economy within NI remains pretty much flat onits back. NI will also not be immune to the rising funding costs within thewholesale money markets. This makes thecost of financing the recovery more costly than it otherwise would have been.

Thetwo most important factors behind a NI economic recovery are the strength ofthe recoveries in the UK and the RoI. Inrecent weeks, the economic outlook for both these economies has deterioratedmarkedly with growth forecasts being scaled back. These two economies areessentially the two tow trucks for NI’s economic recovery. But with economicgrowth slowing to a pedestrian rate, if not a standstill, these trucks havetemporarily run out of fuel largely due to the economic and financial marketdeterioration within the Eurozone. Therefore the biggest impact of the Eurozonedownturn on the local economy stems from the indirect impact on the economic growthand public finances prospects of the UK and RoI tow trucks.

Lastweek the Chancellor provided us with a sobering assessment of the health of theUK economy and its public finances. Put simply, the prognosis is far from goodwith more tax rises and deeper public expenditure cuts for longer than waspreviously thought. For a public expenditure driven economy such as NI the nexttwo parliaments of fiscal pain will hurt. Meanwhile, this week our nearestneighbour – the RoI – will receive yet another austerity budget. As we sawrecently with the ‘Enda the road for the A5’ the economic and financial impactof this will be felt here too.

Whilstwe will not be leaping out of the sick bed anytime soon it is important toremember that like all colds or flus, we will recover from this one. Thequestion is when and with what prescription? Locally, NI must take its ownmedicine, but much will depend on what is administered at a eurozone level. Inthe meantime, while we are laid up it is perhaps worthwhile bringing forward,rather than pushing back, some of that surgery (public sector reform) we havetalked about.

Programme for Government is welcome, but corporation tax reduction is essential

2011-11-30T11:15:00.001Z

ByBen Collins, Director, RICS (Royal Institution of Chartered Surveyors) NorthernIreland

So,we’ve had the publication of the long-awaited Draft Programme for Government2011-15. It should have been published some time ago, but its publication initself is an achievement, and there is much to welcome within the document, notleast its ambition.

Thatsaid, we would like to see more urgency in relation to addressing the cost ofdivision in Northern Ireland; greater efforts to boost the capital investmentbudget; and a greater commitment to public sector reform in a way that ensuresNorthern Ireland is making best use of its resources.

Interms of growing a sustainable economy, and investing in the future – the partof the document that has had the most focus – the point is made that furtherwork to reassess the degree to which the overarching economic goals can bestrengthened and made more ambitious will be carried out once the outcome inrelation to efforts to have corporation tax devolved are known.

Inrelation to this point, one could interpret this as an indication that areduction in corporation tax is viewed as an optional extra rather than anecessity.

Indeed,we’ve heard recently that the decision regarding whether to grant NorthernIreland the powers to lower corporation tax is in the balance. We’ve also heardthat even if the powers are granted, it is unlikely to happen in this Assembly term.Given the outlook facing the Northern Ireland economy, this is extremelyconcerning.

Weshould all be in no doubt about the extent of the challenges our economy isstaring into. For a number of years, our economy had been propelled by recordpublic spending, its inter-linkages with a booming Republic of Ireland, and thefact that we had our own property and construction boom. Today, all of thesethings are no longer going in our favour.

Publicspending is set to be cut significantly; the Republic of Ireland economy hasbeen experiencing a significant contraction; and the property and constructionboom has long since ended. The availability of finance to support businessexpansion is also much more limited today than it was before the recession, notleast due to a number of lenders who were very active having completely leftthe market.

If welook ahead, there is no prospect of these things that drove our economy in thepast returning to the point where they will drive our economy in the future.And there is nothing at present coming through to take their place. So we needto look to other possibilities and to be bold and innovative.

Encouragingmore of our indigenous companies to be exporters is one necessity (and theProgramme for Government deals with this). So too is ensuring that the publicmoney we have at our disposal is used to best effect and is directed towardsareas that will best support the economy. Putting in place measures to secure agreater amount of inward investment from foreign sources is also critical. Todo this, we absolutely need to be able to compete with our nearest neighbour inthe Republic of Ireland i.e. we need a lower rate of corporation tax.

Muchof the opposition to reducing Northern Ireland’s rate of corporation tax centreson protecting the Block Grant which the Northern Ireland Executive receivesfrom Westminster to administer services in the areas where powers have beendevolved. In my view, an economic strategy that has at its base protecting theBlock Grant is not the best way to serve the interests of Northern Ireland.

Iflowering Northern Ireland’s rate of corporation tax is going to result in areduction in the Block Grant of £150million, or £200m per annum or £300m, inthe context of a Black Grant of over £9billion, surely this is a price worthpaying to help rebalance our economy, create jobs and allow us to prosper inthe future. It will mean that we will have to be better at managing the publicmoney that we do have at our disposal. We’ll certainly have to manage ourassets and resources better – for example by creating a shared society andtherefore reducing and eradicating the cost of division. But these things canand should be done anyway.

Securingthe powers to lower corporation tax and announcing them as soon as possibleshould be the major priority of the Northern Ireland Executive. If they reallyunderstand the extent of the challenges Northern Ireland faces, they will bepushing as hard as possible for the powers to be devolved.

Freako-NI-omics

2011-11-28T14:57:00.001Z

By Richard Ramsey, chief economist, Ulster Bank

Economicsis often called the ‘dismal science’ and has been viewed by many as boring.Indeed, Sir Mervyn King famously stated that the Bank of England’s ambition wasto be boring, particularly in terms of monetary policy. In recent years,however, the world of economics and financial markets has been quite theopposite. A series of unprecedented events, such as the credit crunch andsovereign debt crisis, have dominated the newsflow and the man on the streethas become much more aware of economics and financial market developments.

Thisis, however, as much to do with the appeal of the messengers as with the eventsthemselves. Robert Peston’s ability to convey complex issues simply has madehim a credit crunch celebrity and a household name. In fact, the rise inpopularity of economics pre-dates the credit crunch, with a new breed ofauthors demystifying economics to an increasing number of people. Individualssuch as Tim Harford (The Undercover Economist) and in particular Steven D.Levitt & Stephen J. Dubner (Freakonomics & SuperFreakonomics) have madeeconomics sexy and interesting.

TheFreakonomics genre graphically illustrates how economic analysis can be appliedto explain and understand a diverse range of complex issues, particularlypeople’s behaviour. At the heart of the Freakonomics world view are thefundamental ideas that ‘incentives are the cornerstone of modern life’ and ‘theconventional wisdom is often wrong’. Armed with these basic economicprinciples, it’s interesting to cast an analytical eye over Northern Ireland’stopical economic issues to assess whether all is quite as it seems.

Intrue Freakonomics style there are many lesser known statistics about theNorthern Ireland economy. Did you know that Northern Ireland’s fiscal deficit –or annual overdraft – was over twice that of Greece when Greece sought an IMFbailout? Did you know that there are 2.5 times as many people (186,000) inreceipt of Disability Living Allowance (DLA) in Northern Ireland than there arecurrently employed in our export intensive manufacturing industry? Northern Irelandalso has some noteworthy wage arrangements. For example, the median publicsector wage amongst females is some 65% above the equivalent wage within theprivate sector.

AndFreakonomics tells us that some of Northern Ireland’s economic policies, despitehaving the best of intentions, may also have unintended consequences:

Aflagship policy has been for tuition fees for students from Northern Ireland tobe frozen at £3,500 per annum (excluding inflation). This contrasts withstudents elsewhere in the UK who will be charged up to £9,000 per year. A keyaim of this fee cap is not to dissuade students from low income households fromembarking on tertiary education. But what happens next?

Typicallyaround one third of NI school leavers have gone on to study in GB. Now,however, this is a financially unattractive option. The known unknown is howmany will opt for the lower cost option of staying in NI. In turn, thisincreased demand for NI university places could significantly outstrip themodest increase in supply. As a result, we might find that those students whotraditionally would have remained in NI, particularly those from lower incomehouseholds, will be displaced. Thereforea policy that was originally designed to help students from lower income households,could leave them with no option but to study in GB with the higher fees and thehigher living costs away from NI.

Withthe Republic of Ireland set to introduce water charges, Northern Ireland willbecome the only part of these islands not to fully charge for residential waterusage. Notwithstanding the fact that there is a lack of an incentive /disincentive to conserve a resource, the policy is not means tested. Wealthier people therefore enjoy this £250p.a. benefit alongside the less well-off.

Oneof the arguments for not introducing water charges is that households would notbe able to bear the cost. However, Freakonomics’ Dubner and Levitt might offerup an alternative analysis. For example, not having a £250 p.a. tax meanshouseholds have the scope to spend the money on things that they might nototherwise buy. Interestingly, figures from Ofcom reveal that 1 in 2 householdsin Northern Ireland have a satellite dish which is above the UK average.Perhaps this could be due to the availability of cable services relative to theUK? Closer inspection, however, reveals that an additional 11% of localhouseholds have cable services as well. The combined total at 62% is above the other UKcountries and the UK average of 55%.

Inaddition, Northern Ireland has more television sets per household than anyother UK region. Again these findings might be contrary to what is expected,given that Northern Ireland has the highest levels of economic inactivity,long-term sickness and the lowest wages of any UK region. The relatively higherlevels of inactivity perhaps explain why local households watch more televisionthan the UK average according to a recent Broadcasters’ Audience Research Board(BARB) survey.

Furthermore,does our industrial structure and greater adherence to a nine-to-five workingday explain why prime time viewing in Northern Ireland (6pm-7pm) is muchearlier than any other UK region? In light of this analysis, what positive impact– other than funding infrastructure investment and easing public financepressures - might water charges have on economic inactivity and the widereconomy?

Otherlocal subsidies have included free public transport for individuals over 60years of age. Again this enables free transport for all, regardless of need orincome, and there are no restrictions on the frequency or scope of travel.Wealthy pre-pension age individuals can avoid petrol charges and car parkingfees for their shopping trips and theatre visits. Indeed, those over the age of65, regardless of income, can extend their travels to Dublin courtesy of thetaxpayer. The problem is the cost ofthis subsidy continues to rise with an ageing population and rising fuel costs.It also has the potential to clutter public transport with passengers who areneither deemed pensioners or on low income, contributing zero revenue, not evena heavily discounted fare. There are environmental positives here as the over60s are switching their cars for the bus, potentially freeing up the roadnetwork and reducing pollution.

Freakonomicshighlights that a key problem with blanket subsidies is that they can encourageunintended incentives, generate new demand and therefore additional costs thatwere unforeseen at the implementation stage. A case in point is the free NHS prescription charges. Initially thispolicy was expected to cost £13m per annum but this has spiralled to around£20m. Never underestimate the ability of individuals to exploit a free serviceor indeed profit from it. Individualshave been able to get items for free such as headache tablets that theypreviously paid for. Indeed, there have been anecdotal reports that such freegoods are being subsequently sold for a profit.

Overall,Freakonomics teaches us a number of valuable lessons. Despite having the best ofintentions, policy makers need to be cognisant of unintended consequences intheir design of policies, otherwise outcomes may be the polar opposite of whatwas intended in the first place. Keepingit simple is perhaps the most important lesson and, most of all, it must beremembered that in both a positive and negative way: ‘people respond toincentives’.

Big event helps ease retail sector pain…

2011-11-22T12:23:00.001Z

ByDavid McNellis, Director, Lisney

It’seasy to understand the hype surrounding the recent MTV EMAs in Belfast. Atleast some of the euphoria can be attributed to the hope and expectation thatthis major event would create some much-needed confidence in the local economyand boost spending in our shops. In the current climate, this was inevitable.

Thetough economic outlook resulting from the European debt difficulties hasdampened consumer morale, with many cash-strapped people cutting back oneverything but essential spending. Disposable incomes have been squeezed byrising prices, muted wages growth and government austerity measures, whileshoppers worry about a challenging housing market, job security and a fragileeconomic recovery.

Retailsales have therefore been softening, according to the British RetailConsortium, which has resulted in greater difficulties for many retailers.

Therelease of figures by Dunnes Stores for its Northern Ireland-based businesslast week gave an indication of the continuing weakness in consumer spending.The business saw a fall in turnover of 9% in the year ending January of 2011compared to the previous year and indicated that the market remains tough.

HighStreet retailers are facing ever-increasing pressure on sales, with consumeronline retail sales also continuing to grow at pace. Figures by Capgemini showcontinuing strong growth in online sales.

Thesefactors have combined to reduce spending on the high street and in retailschemes. Retailers are having to be more innovative and must work on improvingthe overall retail experience in order to prevent further leakage from the highstreet to the internet.

Thisis why the MTV European Music Awards were a god-send for some retailers, andmany other businesses in Northern Ireland – bringing people with money intoNorthern Ireland and getting local consumers out of their houses and spending.And this is why the Christmas period will be even more important than ever forretailers.

Theexpected return of MTV in 2012 to stage an event in Titanic Quarter, andplanned big events like the City of Culture celebrations and the World Policeand Fire Games in Belfast in 2013 will also be welcome boosts for our cities.

Atpresent, tough trading conditions are leading retailers to focus on all oftheir occupancy costs and Business Rates are causing increasing concern. WhereBusiness Rates payable would historically have been approximately half that ofthe passing rent, with rents falling, rates are now quite often the biggestsingle occupancy cost. We consider this to be a major issue, and one thatgovernment will have to address if we are to improve the vibrancy of our cityand town centres.

Abundantsupply and low demand have been driving down retail rents. Prime rents havedropped substantially from the height of the market, typically 30–50% onaverage. Retailers are holding all of the cards in lease negotiations, leadingto low rents, flexible terms and, more often than not, turnover deals.

Thereare however, a number of retailers who are actively looking for stores inNorthern Ireland at present and are taking advantage of weak market conditionsto strike favourable deals. Retailers currently active in Northern Irelandinclude: H&M, Republic, Blue Inc, Caffe Nero, 3 Mobile, Card Factory,Poundstretcher, Poundland, Poundworld, Home Bargains, Boots, and Trespass.

However towns where there remains a high levelof available space will see further downward pressure on rents.

Virtual supermarket... super idea

2011-11-11T12:00:00.001Z

Found this online on Metrica.net. Brilliant idea. Quirky and functional.

2008 all over again? The economist says yes and no

2011-11-07T09:00:00.000Z

By Richard Ramsey, chief economist, Ulster Bank

Parallelshave abounded in the financial media of late between current events and thoseof autumn 2008, when there was a collapse in world trade, financial marketmayhem, and co-ordinated and unprecedented policy action by the world’s centralbanks and governments. So, is 2008 happening all over again? In the true spirit of economics, I think itis fair to say that on the one hand there are strong similarities yet on theother hand there are clear differences.

Interms of differences, the emphasis has shifted somewhat from the US to theeurozone. In 2008, George W. Bush’s Treasury secretary, Hank Paulson, knelt onbended knee before the House speaker and appealed for her support in passingthe $700bn bailout package, and President Bush profoundly stated that “if moneyisn’t loosened up, this sucker could go down”. Today it is eurozone governmentsthat have been pleading with their respective parliaments to back and enhancethe European Financial Stability Facility (EFSF) – aka the European bailoutfund – to ensure that Greece would not go down.

China’srole is a similarity and difference. Back in 2008, China embarked upon aninfrastructure splurge to keep its economy, and to a lesser extent the globaleconomy, growing. Once again, China is being asked to save capitalism byinvesting in the EFSF. But, notwithstanding current strong rates of economicgrowth in China, there are growing concerns over aspects of its banking systemthat funded the huge growth in infrastructure spending. The Chinese bankingsystem will be unable to repeat the capital investment boost that occurred in2008. Furthermore, many commentators are anticipating the bursting of theChinese property bubble.

Like2008, bank recapitalisations are currently all the rage, only this time it isin the eurozone rather than the UK and Ireland. Meanwhile, the faces behindthese actions have changed. Brown and Darling have been replaced by Cameron andOsborne. Brian Cowen and the late Brian Lenihan by Enda Kenny and MichaelNoonan. The ECB’s Jean-Claude Trichet has also been replaced with ‘Super’ MarioDraghi who will experience a baptism of fire. Further changes in the leadershipof Spain and Italy are anticipated in the coming weeks and months.

InNorthern Ireland, by contrast, continuity has been the order of the day, withSammy Wilson and Arlene Foster remaining in their respective finance andenterprise departments, and the economy remaining the number one priority.However the forthcoming Programme for Government needs to be markedly differentfrom the last one. The sacred cows that protect the status quo have to be dealtwith, otherwise the history books and the next generation will not look tookindly.

Amajor difference in Northern Ireland between 2008 and today is the view thatNorthern Ireland doesn’t do recessions. In 2008, talk of recession was viewedwith significant scepticism, even when Sir Mervyn King announced that the UKeconomy was facing “the most serious banking crisis since the outbreak of theFirst World War.” To our cost, we have learned that we have consistentlyunderestimated the length and depth of the recession and overestimated therecovery. Whilst the local economy is not contracting at the break-neck speedof late-2008 / 2009, Northern Ireland is still expected to contract in 2011, asin 2008.

Othersimilarities in the Northern Ireland economy include the fact that house pricesand construction output are still falling. In terms of unemployment, the dolequeue breached the 30k mark in the autumn of 2008; it has already passed the60k mark today. The key difference between autumn 2008 and autumn 2011 is thesheer scale of the collateral damage inflicted on the private sector.Meanwhile, households, through inflation and falling incomes, are feeling thefull force of the deferred pain from the recession that was absent in 2008.This explains why consumer sensitive sectors, such as retail, prospered in 2008but are suffering now. Similarly, the public sector provided insulation for theeconomy in 2008. Now, however, ourover-exposure to the public sector will be a source of economic weakness goingforward.

Inflationis a common theme. The latest UK CPI figures hit 5.2% y/y, the same record highposted three years ago. Back then, CPIinflation plunged to 1.1% the following year. A further sharp fall in inflationis expected in 2012 but the UK economy will not have the temporary reduction inVAT to help drive inflation down. It should also be remembered that whilst theannual rate of inflation is the same as September 2008, the price level is not.CPI is almost 10% higher over the last 3 years whilst the price of food andpetrol are 12% and 20% higher respectively. Inflationary fears are arguably greater now than they were in 2008 withgold prices – an inflation hedge – having more than doubled. Meanwhile, equitymarkets such as the UK FTSE 100 have posted a rather less impressive 30%gain.

As in2008, Sir Mervyn has tempered expectations, last month warning in the mediathat the world was facing its worst financial crisis in history. He was also quick to pour cold water on therecent eurozone bailout package, stating that “the plan as it stands would buyno more than one to two years’ breathing space”. So whilst there are a numberof differences between today and 2008, like three years ago a meaningfulrecovery seems a long way off.

Announce a lower corporation tax rate now

2011-10-31T07:06:00.000Z

ByBen Collins, Director RICS

We’veheard recently that the decision regarding whether to grant Northern Irelandthe powers to lower corporation tax is in the balance. We’ve also heard thateven if the powers are granted, it is unlikely to happen in this Assembly term.Given the outlook facing the Northern Ireland economy, this is extremelyconcerning.

However,the news on Friday that the first meeting of the joint Westminster and Stormontministerial group on corporation tax will take place next month, offers someencouragement.

Encouragingmore of our indigenous companies to be exporters is one necessity. So too isensuring that the public money we have at our disposal is used to best effectand is directed towards areas that will best support the economy. Putting inplace measures to secure a greater amount of inward investment from foreignsources is also critical. To do this, we absolutely need to be able to competewith our nearest neighbour in the Republic of Ireland i.e. we need a lower rateof corporation tax.

Muchof the opposition to reducing Northern Ireland’s rate of corporation taxcentres on protecting the Block Grant which the Northern Ireland Executivereceives from Westminster to administer services in the areas where powers havebeen devolved. In my view, an economic strategy that has at its base protectingthe Block Grant is not the best way to serve the interests of Northern Ireland.

Iflowering Northern Ireland’s rate of corporation tax is going to result in areduction in the Block Grant of £150million, or £200m per annum or £300m, inthe context of a Block Grant of over £9billion, surely this is a price worthpaying to help rebalance our economy, create jobs and allow us to prosper inthe future. It will mean that we will have to be better at managing the publicmoney that we do have at our disposal. We’ll certainly have to manage ourassets and resources better – for example by creating a shared society andtherefore reducing and eradicating the cost of division. But these things canand should be done anyway.

Inthe months ahead, the world spotlight will be on Northern Ireland - in apositive way - with, for instance the MTV European Music Awards coming toBelfast, and the countdown to the Titanic 2012 commemorations. We are alsostill receiving extremely positive press globally in relation to the success ofour local golfers. Wouldn’t it fantastic to be able to make a big positiveannouncement about reducing our rate of corporation tax in this context?

If wedon’t, I am confident that in five years time, Northern Ireland will look backand realize that a major opportunity was missed and that as a result, hasconsigned itself to over-dependence on a shrinking Block Grant.

Thereality is that we’re close to securing ‘game-changing’ measures that will giveus much greater power to decide our own destiny. We’re like a rugby playerabout to cross the try line. The policy makers need to hold their nerve andensure that the ball is properly grounded and the conversion kicked.

Soaring costs make green credentials more important in home valuation...

2011-10-25T07:00:00.000+01:00

By Ben Collins, Director, RICS

Figuresout last week underline just how much the cost of transport has rocketed in thelast few years. So too the cost of housing and household services, includingfuel.

TheUK CPI (Consumer Prices Index) shows that since August 2007 transport costshave risen 21.6%. Since August 2010, the inflationary rise has been 8.9%.

Accordingto the CPI, the cost of housing and household services, including fuel, hasrisen 24.1% since August 2007, and 8.6% since August 2010. (Interestingly, inthe Republic of Ireland the cost of housing and household services has gonedown by 1.5% since August 2007 and transport costs have risen just 4.4%.)

Idon’t mean to bombard you with statistics, but I highlight these strikingfigures for a reason. They help illustrate the increasing proportion ofpeople’s incomes that are going on heating and transport and therefore thegrowing importance of a home’s sustainability characteristics; not just interms of its energy efficiency, but also its proximity to public transportlinks. RICS is suggesting that these should become factors in how homes arevalued.

A newinformation paper from RICS says that whilst sustainability has traditionallynot been considered important in a property’s valuation, this is changing. RICSsays that should a home possess sustainability features which are likely tohave an impact on value, this should be reflected in a valuer’s assessment ofthe property.

Sustainabilityfeatures can include a home’s energy efficiency rating, the materials used inits construction, and other features such as an energy-efficient boiler.Elements such as a building’s proximity to public transport links and itsability to adapt to occupiers’ changing future needs should also be considered.

Sustainability,which covers a broad range of physical, environmental and social factors, ismoving progressively higher up the government’s agenda. It is likely thatresidential markets will become progressively sensitised to sustainabilityconsiderations. Therefore, RICS feels residential property valuers should befully aware of the sustainability characteristics of buildings when carryingout a valuation. Also important is consideration of legislation and policy thatcan influence current and future value.

Althoughmarket awareness of sustainability is rising, attention is currently focusedlargely on a home’s energy efficiency, propensity to flood and carbonemissions. However, a property’s sustainability status can cover a range ofsocial, environmental and economic matters that can potentially lead to changesin demand and therefore affect value.

NI downturn still under construction

2011-10-22T06:17:00.001+01:00

By Richard Ramsey, Chief Economist, Ulster Bank

The Northern Ireland economy was the first UK region to enter the economic downturn and it is likely to be the last region to secure a meaningful recovery. Its exposure to the construction industry and an unprecedented housing boom and bust has been a primary factor.

It is noted that Northern Ireland’s construction industry accounts for a larger share of the economy than its equivalent sector in any other UK region. Furthermore, after agriculture, it accounts for the largest share of the business population with almost 1 in 6 firms falling under the construction category. In addition, Northern Ireland is unique in that it is the only part of the UK to share a land‐border with the eurozone – the Republic of Ireland.

The latter has experienced one of the sharpest contractions of any economy worldwide with the economy shrinking by over 20% ‐ three times the contraction experienced in the UK. The Republic of Ireland’s construction sector also experienced a record boom and bust. The local construction industry, and manufacturers of construction related products, clearly benefited from the upswing and conversely are now suffering in the downswing.

In light of the above, it is not surprising that a quick review of the official statistics reveals that Northern Ireland’s construction industry has borne the brunt of the recession so far. Official figures reveal that construction output and employment have fallen by well over 30% (38% for output) and are still falling. The forward looking new orders index for the construction sector fell by almost 11% in the second quarter of 2011. As a result, new orders are now almost 50% below their 2007 peak. In addition, the rate of house building has more than halved and despite the fact that Northern Ireland has a growing population, we are currently building fewer houses than we did in the mid‐1990s. As a result, construction employment is now back at 1999 levels.

If all other sectors were experiencing the same economic conditions as the construction industry currently is, the economy would be experiencing a depression not a recession. It is acknowledged that without the infrastructure boom, funded largely by the Stormont executive’s capital investment programme, during the last decade, the plight of the construction sector would be considerably worse. However, this source of support is disappearing at the very time when it is needed the most. Whilst public sector cuts are necessary, there should a greater focus on protecting budgets that will have the most beneficial impact on the economy.

After four full years of contraction, Northern Ireland faces the prospect of another 2/3 years of falling output and employment. As we enter phase two of the downturn – the public sector recession – it is clear that the construction industry will also bear the brunt of the cuts in public expenditure. Capital investment is set to fall by 37% in real terms, from its recent peak, by 2013/14. This compares with relatively modest single‐digit declines in terms of current expenditure.

A rebalancing of Northern Ireland’s public expenditure cuts from current to capital is desperately needed. This is not just in the construction industry’s interests but that of the wider economy. It is noted recently that President Obama’s fiscal stimulus and Deputy Prime Minister, Nick Clegg, have focussed on infrastructure as the priority area to secure the economic recovery.

The local executive needs to follow this approach. As far as the Northern Ireland economy is concerned, the cuts to capital investment are too deep and too fast. Conversely, the cuts in public expenditure elsewhere, particularly in reducing waste and inefficiency, are not sufficiently deep or fast enough. Rebuilding the construction industry needs to feature prominently in the forthcoming Programme for Government.

Inflation - a tale of two economies

2011-10-19T07:09:00.000+01:00

By Richard Ramsey, Chief Economist, Northern Ireland, Ulster Bank

UK CPI rises to 5.2% y/y in September
Comparisons are increasingly being made between the economic and financial conditions of autumn 2011 and those of autumn 2008. Today’s inflation figures reveal yet more similarities. The annual rate of CPI inflation jumped from 4.5% in August to 5.2% in September. This was well above the outturn anticipated amongst City analysts (4.9%). Indeed, only 5 out of 35 economists surveyed within a Bloomberg survey expected a reading above 5%. Last month’s inflation figures equalled the record high posted in September 2008. As always, the September CPI figures have the added significance of being used to uprate welfare benefits payments & public sector pensions from April 2012. The switch to CPI uprating, from RPI, was announced in the Coalition Government's June 2010 Budget and came into effect in April 2011. In April 2011, welfare benefits (e.g. dole, state pensions) were uprated by 3.1% for the 2011/12 financial year as this was the CPI rate that prevailed in September 2010. So far, during the current financial year, CPI inflation has averaged 4.6% (April ‐ September). We anticipate a further rise in October to 5.3% y/y – which will mark a record high ‐ before inflationary pressures begin to subside. We do not expect the annual CPI rate to fall below 3% y/y until autumn 2012.

Underlying inflation, or ‘core CPI’, rises to 3.3% while ‘non core’ hits 11.1%
Meanwhile, the core CPI measure ‐ which excludes the volatile energy, food, alcoholic beverages & tobacco components – also surprised market expectations and jumped from 3.1% y/y in August to 3.3% last month. These underlying price pressures are a surprise given that wage inflation is moving in the other direction. City analysts had expected the core reading to remain unchanged. Conversely, the ‘non‐core CPI measure’ – which covers food, beverages, energy (incl. petrol) and tobacco – hit double digits (11.1% y/y) for the first time since November 2008. This non‐core measure, which with the exception of tobacco covers necessities, is rising at its highest rate since November 2008. It is concerning that this measure of largely unavoidable inflation costs, is more than twice the rate that prevailed last September, ahead of last year’s extreme winter weather conditions. A repeat of last year’s weather conditions, which has been mooted by some weather forecasters, will put a severe strain on household finances. Given Northern Ireland’s low wages, relative to the UK, and higher incidence of fuel poverty, NI will be more adversely affected than the UK as a whole. Finally, the lesser known CPI index which excludes indirect taxes (e.g. VAT & fuel duties), or CPIY, jumped from 3.0% y/y in August to 3.7% y/y in August. Despite this overall inflationary backdrop, the Bank of England has already shown, through the announcement of £75bn of more quantitative easing earlier this month, that it is convinced that CPI will undershoot the MPC’s target rate of 2% in 2 years time without this recent additional stimulus. Therefore the MPC has taken interest rate rises off the table for the foreseeable future.

Energy prices have risen by almost 50% since the credit crunch began
The bulk of the overshoot in the latest CPI figures was due to the timing / scale of utility price rises. The September data show gas, electricity & other fuels rising by 9.9% m/m taking the annual rate to 18.3%. Since the credit crunch began (August 2007), prices within this category of spend have risen by a staggering 49%. Meanwhile, ‘Transport Fuels & Lubricants’ (petrol & diesel) have risen by 17.8% y/y in September and almost 42% since the credit crunch began. Oil prices eased in sterling terms in late September / early October hitting a recent low of £65.2 per barrel. However, it has subsequently picked up again back above £70 pb (£77.3 = peak in April 2011). This suggests that the recent fall in the petrol prices in UK forecourts (134.5p per litre for w/c 17 October) may be short‐lived.

Annual RPI inflation increases to 20‐yr high of 5.6%
The Retail Prices Index (RPI) annual inflation rate came in 0.2pp stronger than expected at 5.6% in September. This represents the highest reading since June 1991 (+5.8%). Meanwhile, the RPIX measure, which excludes mortgage interest rate payments, rose to 5.7% y/y last month, up from 5.3% in August. This marked the highest reading since April 1992.

Inflation ‐ A tale of two economies – Northern Ireland (UK) v the Republic of Ireland
It is noted that the UK’s current CPI inflation rate of 5.2% compares with 3.0% in the euro zone and just 1.3% in the Republic of Ireland – using the HICP measure. The stark divergence in the inflation stories of the UK (Northern Ireland) and the RoI is revealed in the charts and tables overleaf. Since the credit crunch officially began, in August 2007, the cumulative rise in the UK all items CPI has increased by 15.5%. Conversely, the equivalent level of consumer prices in the RoI has risen by less than 1% (0.7%) over the same period (Aug 07 – Sep 11). During this period, UK average earnings (excluding wages) have risen by just 8.8% (public sector +12.1%, private sector +7.4%). The net result is incomes (before tax rises and benefits cuts are taken into account) are being severely squeezed. In our view, the annual earnings increases for Northern Ireland would be below the equivalent rises in the UK. Therefore the deterioration in living standards is more rapid in Northern Ireland than in the UK as a whole. In the RoI, household budgets have been squeezed by rising taxes etc imposed through the austerity budgets, which have reduced disposable incomes. To date, Northern Ireland / UK have seen only part of the UK tax rises / benefits cuts that have been announced but yet to take effect. Therefore even when inflationary pressures ease the squeeze on disposable incomes will continue.

Unlike the UK (Northern Ireland) the RoI has had an easy ride with inflation
But unlike Northern Ireland, the RoI has had an easy ride with inflation. This is particularly evident when considering necessities such as food. For example since the credit crunch began in August 2007, the price of food and non ‐alcoholic beverages has fallen by 0.7% (Aug‐07 to Sep 11) in the Republic of Ireland. Aggressive price reductions, in the context of relatively fat profit margins, alongside a strong euro have limited inflationary pressures in the RoI. By contrast food and non‐alcoholic beverages in the UK (Northern Ireland) have risen by a whopping 28% over the same period. This is a hefty burden for those households experiencing pay cuts / wage freezes. Also inflation in hotels & restaurants is up 14.7% for the UK (Aug‐07 to Sep‐11) whereas prices within the equivalent sector for the RoI are down almost 2%. There is only one category of consumer spending that has risen by more in the RoI than the UK since the credit crunch began ‐ Health 13.3% (RoI) versus 13.1% for the UK. Meanwhile, clothing and footwear has fallen by 21.3% over the last 4 years in the RoI whereas in the UK prices have fallen by just 8.7%. Further detail is highlighted in the charts and tables overleaf.

Government needs to address rating issue to improve vibrancy of towns

2011-10-11T11:34:00.000+01:00

By David McNellis, Director, Lisney

The consultation on increasing theamount of rate relief for small businesses in Northern Ireland, funded througha levy on the largest retail premises, ends this week.

There has been a significant amountof debate on the subject, with the Northern Ireland Retail Consortium forinstance just last week reported to have said that betting shops, banks andpubs will benefit, and the Finance Minister refuting this.

The Minister’s preferred approachfor the large retail levy would involve an average levy on rate bills of around20%. This would be applied to large retail premises with a rateable value of£500,000 or more. It would take the form of a regional rate supplement.

In terms of the small business raterelief scheme, the Minister’s preferred approach would be for 20% relief to beprovided to eligible premises with a net asset value (NAV) of £5,001 - £10,000.This would double the amount of relief provided under the main scheme. Noadditional relief would be provided to those currently receiving small businessrate relief (NAV of £5,000 or below).

Following theconsultation, the Northern Ireland Executive and Assembly will be asked toapprove any legislation so that the final measures would be in place from 1stApril 2012 for a three year period through to 31 March 2015.

Lisneyrecently carried out a significant piece of research into the retail propertymarket in Northern Ireland, which surveyed 17 towns and cities to assess thepercentage of available units across prime, secondary and out of townlocations. This highlights high retail vacancy rates in many towns – vacancyrates in Portadown for instance are over 20 per cent. There is an abundantsupply and low demand, and this has been driving down retail rents. Prime rentshave dropped 30-50% on average but Business Rates have remained the same.Business Rates would historically have been approximately half that of passingrent, but with rents falling, rates are now quite often the biggest singleoccupancy cost.

Withrents having have fallen to this extent, it highlights that we really need tosee is a more fundamental rethink of the rating and rate poundage system thanwhat is being proposed; one that gives consideration to changes in rents acrossthe board.

Thereseems to be no sense in making it more expensive for large retailers - who areanchor tenants in towns, cities and shopping centre, and major employers - tolocate in Northern Ireland. The likely outcome is to discourage new entrants toNorthern Ireland at a time when we need them most, and to make large retailersalready trading here to reconsider their position.

Also,to end up in a position where the single biggest cost to many retailers istheir rates bill is, I think, unsustainable. The significant over-supplyof retail space in Northern Ireland will remain an issue for the foreseeablefuture. Many landlords are receiving little or no rent at present but the ratesbills still keep coming.

We consider this to be a majorissue, and on that government will have to address if we are to improve thevibrancy of our town and city centres.

All of King’s men respond to ‘worst ever’ crisis

2011-10-07T11:22:00.000+01:00

By Richard Ramsey, Chief Economist, Northern Ireland, Ulster Bank

Yesterday the Bank of England took financial markets by surprise as it announced a further £75bn of asset
purchases (Quantitative Easing). Not only was the policy stimulus a month earlier than many were expecting the scale of the injection was some £25bn larger.

Clearly the MPC views the risk of doing too much too soon as more preferable to doing too little too late. The normally media shy BoE Governor also broke with tradition by doing a series of TV interviews after the MPC announcement. Sir Mervyn told Sky News.

“This is the most serious financial crisis we’ve seen at least since the 1930s, if not ever”. This candour perhaps explains his rare media outings. Incidentally, Sir Mervyn King was also sporting new glasses - ‘Plan B’ glasses – which will perhaps make the outlook clearer as he and all the King’s men try to put the UK economy back together again.

Financial markets reacted immediately selling off sterling with GBP/USD plunging from $1.546 to sub $1.53 but is now actually higher at $1.552. The reason being markets fear the additional QE will be inflationary and necessitate BoE interest rates to rise more quickly in the years ahead. 5-yr sterling swap rates were 1.675% before the noon announcement and are 1.86% today. Eur/GBP moved from 86.3p to 87.3p but is already back at 86.5p as I write.

The combination of BoE aggressive policy action and optimism in an EU policy-makers response to the euro zone debt crisis pushed equities higher with the UK FTSE up 3.7%. The US S&P 500 closed up 1.8%. Meanwhile, following on from the ratings downgrades in the euro zone earlier this week, 12 UK financial institutions have received downgrades by Moody’s this morning.

Whilst the Bank of England took markets by surprise with its policy action there was surprise at the relative inaction by the ECB. The latter left official euro zone interest rate on hold at 1.5% at yesterday’s meeting of the Governing Council. While there was no change in the ECB’s so-called ‘standard measures’ yesterday, the ECB did announce several new initiatives in the area of ‘non-standard’ measures. Trichet announced that the ECB will continue to provide significant levels of liquidity support to the banking sector.

In particular, the ECB will lend unlimited 1-year money to the system via two new long-term refinancing operations (LTROs), which will take place later this month, and in December. The December operation will actually have a thirteen month maturity, thus ensuring that it covers liquidity needs beyond year-end (2012), often a time of liquidity pressures in the market. It was also announced that the Bank will continue to offer unlimited liquidity in its regular operations at least until July of next year, thus providing significant support to and certainty about liquidity conditions for some time. In addition, the ECB has launched a new Covered Bond Purchase Programme (calling it CBPP2). This will have a size of Eur40bn and will begin making purchases next month, wrapping up by the end of October next year. The extra liquidity initiatives and the launch of the new CBPP are the ECB’s targeted response to the rising strains that have become evident in bank funding markets.

In our view, the ECB needs to go further as we believe that the case for an interest rate cut is strong, and strengthening. In particular, the extent of the loss of momentum in the euro zone economy is striking. Yesterday’s unexpected fall in German factory orders for August, released yesterday, providing further evidence of this. Trichet acknowledged that the decision to leave rates on hold today was based on a consensus of opinion within the Governing Council. In other words, there was some disagreement. So, overall, there was no parting gift of a rate cut from ECB President Trichet to European borrowers today as he bids farewell to the institution he has led for the past eight years. However, the ECB clearly does retain a bias towards an easing of its policy stance and we think it is only a matter of time before rates are lowered. It is still not inconceivable that we could see Trichet make an inter-meeting cut before he says au revoir if financial market turmoil intensifies. We think a 50 bps cut in interest rates is warranted and if it doesn’t arrive next month, it should be delivered by the December meeting.

Europe was the focus of attention yesterday and today it is the turn of the US. Arguably the most closely watch economic release in the world, the US nonfarm payrolls report, is due for release at 13.30 today. In August there were no net jobs created in the US with the private sector creating just a meagre 17k. The market is looking for 55k net job gains for September. Wednesday’s ISM non-manufacturing (i.e. mostly services) report signalled job losses so we expect the market consensus opinion to be disappointed later today. European economic data watchers will have to content themselves with the latest UK producer price inflation and German industrial production figures. Meanwhile, as far as Ireland is concerned the key event of the week is in Wellington tomorrow at 0600hrs. Here’s hoping that this time next week we are looking forward to watching Ireland in the Rugby World Cup semi-final. No surprises to the downside tomorrow please Ireland.

With the right pledges, things can only get better

2011-10-03T19:52:00.000+01:00

With the Northern Ireland Programme for Government (PfG)due to be published, Richard Ramsey, Chief Economist, Ulster Bank, outlines, in the kindof pledge card format made famous by the Labour Party in 1997, whateconomic commitments the Executive should make.

To bolster confidenceand enhance credibility in the economy being the number one priority, a numberof pledges are highlighted below. Given the challenging environment, a ‘doubleA-side’ with 10 pledges rather than five is provided.

Establish a Department for the Economy by 2013 – This would include merging DEL, DETI and economic functions of otherdepartments. The reduction in the number of other departments alongsidereductions in public bodies would take place within the same timescale. TheAssembly would establish an independent economic advisory unit to brief /advise it on broad economic issues.

Establish a NI Office for Budget Responsibility by 2012 - This independent body would advise on and scrutinise NI governmentspending over the next five years. Its focus would include determining whetherspending was consistent with an over-arching economic strategy and providegreater transparency on the affordability / sustainability of existingpolicies. This would help communicate to the public that public money is beingspent in the best possible way for the public and economy.

Promote a Government of All the Talents (GOAT) – The last UK Government brought external expertise intogovernment, such as Sir Digby Jones; Lord Myners; and Lord Sugar who wasinstalled as an ‘enterprise tsar’. Stormont has rightly placed the economy astop priority but has broadly the same personnel and structures to deliver itwhen it was not the priority. A step-change over the next 4 years is required bybringing in expert people and putting them in the key positions forgreatest effect. This would include appointing a Minister / JuniorMinister for the Economy from the business community who has a proven trackrecord of delivery. Similarly, appointing a Minister of Public SectorReform, or at least a politician whose sole remit is delivering reform.Furthermore, credibility would be enhanced if special advisers were chosen fortheir expertise in economics / economic development or public sector reform, aswas the case in the past.

Public sector jobs are no more important than private sector - A key cross-cutting theme that has been raised by many commentators isthat in Northern Ireland public sector jobs are treated as more important thanprivate sector. This manifests itself in terms of preferential pay andconditions (for comparable jobs) but also in terms of what parts ofsociety bear the brunt of the public expenditure cuts. For example, rate-payersin the construction sector or the business service sector can feel that theyare experiencing an imbalance of pain. Cuts should be concentrated on waste andinefficiency, with valued frontline-services protected as much as possible.Stating there will be no job losses is a commitment to ‘ring-fencing inefficiency’.

Invest more expenditure per capita on capitalinvestment than the UK average – Arebalancing of Northern Ireland’s public expenditure from current to capital isdesperately needed. NI suffers from an infrastructure deficit relative to theUK and therefore needs to invest more per head on capital investment than theUK average. Similarly, NI needs to spend more on economic infrastructure,such as transport, than the UK average. NI has spent considerably less on transport thanEngland, Wales or Scotland over the last five years.

We will narrow the public-private wage premium, for comparable jobs,over the next four years – Rebalancingthe economy is a two-way street. Higher pay and more favourable conditionswithin the public sector, relative to the private sector, has been a key factorin creating the current imbalance towards the public sector. It is alsothe most important lever the Executive has partial or total control over torebalance the economy and ensure value for money. The public sector pay-settingprocess should be more closely aligned to market rates. Middle-managers andlower grade administrators should not have wage premiums relative to theirprivate sector counterparts for comparable jobs.

Maximise the cost advantages and opportunities from the private sectordelivering public services – Manylike-for-like jobs are currently cheaper in the private sector, so thesepotential cost advantages should be exploited in delivering value for money forthe rate-payer / tax-payer.

Begin phasing in a cut in corporation tax, subject to approval, from2013 with the goal of a 12.5% rate by 2016 (if not before) – Northern Ireland has a major employment creationproblem and throwing all policies within the policy armoury at it is required.Without lower corporation tax, it is difficult to see how NI will generateenough jobs. Swapping public expenditure for incentives should be a priority,with Air Passenger Duty lowered to RoI levels for transatlantic flights immediately,subject to approval.

No household should receive more on benefits than the average workinghousehold In Northern Ireland – This may seem a rather obvious statement, as not supporting and adheringto this principle would remove an incentive for individuals to seek work asopposed to receiving welfare benefits.

Review and benchmark pay and conditions within the public sector with aview to prioritising front-line jobs and rebalancing the economy - Key principles to be introduced will be setting pay levels in line withmarket conditions and a premium between frontline and non-frontline pay rates.Salaries for lowest grade administrative jobs shouldn’t be comparable to thestarting salaries of key front-line staff (e.g. nurses and teachers).

Overall, a relentless focus on cost - the level of public expenditure,how it is spent and where - is needed. If the Executive signed up to allof these pledges, the hypothetical share price of NI Plc would soar.

What Lies Beneath? The surprising facts about the ‘human recession’

2011-09-27T07:08:00.000+01:00

By Richard Ramsey, chief economist, Northern Ireland, Ulster Bank

We all know that NI's unemployment levels have been rising, as, unsurprisingly, this has grabbed the news headlines. But, perhaps surprisingly for many, this is far from the full story, as recent latest Labour Force Surveys (LFS) are actually littered with record highs and lows of the positive variety.

Whilst the number of jobs continues to decline, the number of individuals now working in some shape or form (paid or unpaid), for at least 1 hour per week, has actually never been higher. Part-time work and shorter working hours are also becoming more prevalent. This is largely down to changing behaviours and lifestyle choices, particularly by women.

In many respects the recession has achieved changes in the local labour market that targeted policies failed to address for years. During the decade prior to the downturn, Northern Ireland experienced no improvement in its inactivity (or activity) rates whatsoever. This was despite an employment boom and a raft of policies to tackle a headline economic objective.

Now, however, it is noted that economic activity in Q2 2011 has never been higher. This means that more people are either in work or looking for work than ever before. And the proportion of the working-age population neither in employment nor looking for work – termed ‘economically inactive’ - has never been lower. Furthermore, the gap between NI’s and the UK’s respective inactivity rates has never been narrower. Whilst Northern Ireland still boasts the highest inactivity rates of all the UK regions it is fair to say the deferred pain from the recession has activated the inactive.

But who are the inactive? Only 1 in 6 individuals classed as inactive actually wants a job, whilst the remainder do not want work for a variety of reasons. The latter includes individuals claiming long-term sickness benefits, those looking after the family/home, students and individuals who have retired early.

Initially, the downturn’s most intense phase triggered a surge in inactivity, with the number of inactive individuals of working age rising by 10%, or 31,000, between 2008 (3mths to July) and 2009 (3mths to July). Meanwhile, the economic inactivity rate hit 31.4% in July 2009 – its highest level in 10 years.

The most significant driver behind this rise was an increase of almost a quarter (+17,000) in student numbers. The lack of job opportunities led a significant number of people to seek out the safe-haven of education as a recession-avoidance tactic. Student numbers subsequently rose by another 10% by the end of 2009 to a record high of 100,000. Meanwhile, the number of individuals classed as ‘long-term sick’ and those retiring early both rose by 12% over the year to July 2009. The rise in the number of ‘early’ retirements (+5,000) was largely triggered by redundancies.

The most intense phase of the local recession coincided with relatively mild inflation. The RPI measure averaged 0.5% for 2009 as a whole. Since then, inflationary pressures have surged, with the annual CPI & RPI rates recently hitting 4.5% and 5.2% respectively. This is occurring against a backdrop of rising unemployment, wage freezes and pay cuts. The net result is household incomes are being squeezed like never before. However, this is only part of the story.

Individuals on low incomes spend a much greater share of their incomes on necessities such as food, heat and light. Inflation within these categories has increased at an alarming rate. The FBTE CPI measure (includes food, beverages, tobacco and energy) has risen by 9% over the last year, and over the last 4 years FBTE consumer prices have risen by 31% - more than twice the rise in the headline CPI / RPI rates. A litre of petrol has risen by 60% since the start of 2009! Against this inflationary backdrop, household incomes are being aggressively squeezed, particularly for those experiencing unemployment.

So how has the local labour market responded to these conditions? Since the summer of 2009, the number of economically inactive has fallen by 44,000 or 12% and the economic inactivity rate has reached an all-time low. Two thirds of this fall in inactivity (or rise in activity) has resulted from falling female inactivity, which is now at a record low. Male inactivity has also fallen significantly from its recession-induced record high, but the male inactivity rate is still above pre-downturn levels. A key trend within both male and females is the fall in the 50-64yrs inactivity rate. This is due to the sharp decline in the number of people in this age-bracket retiring. Clearly, the rising cost of living and funding children through universities etc has reserved this option for the wealthy. The same pressures have arguably contributed to a decline in long-term sickness levels, particularly within men, since July 2009.

It should be noted that this has however been bad news for youth unemployment, which is now at its highest since October 1996. As people have been staying in work for longer, retiring later, this has meant fewer employment opportunities for younger people.

One of the most striking trends and most significant drivers behind the fall in inactivity levels is the rapid decline in the number of females not working to look after the family or home. Since July 2009, this has slumped by 25% (18,000). For many households, the recession and rising cost of living and funding children through higher education, has made opting out of work by choice (e.g. stay at home mums) and early retirement unaffordable. Meanwhile, changes to welfare benefits have shifted some females (e.g. lone-parents) onto the unemployment register and out of economic inactivity. Further reforms, yet to come into effect, will move thousands of ‘long-term sick’ back onto to the unemployment register (Job Seekers Allowance).

We hear a lot about rates of economic growth or contraction and whether we are still in recession or might go back into it. However, whether we are experiencing marginal economic growth or marginal economic decline, in real terms, this is unlikely to feel much different to most people. This has led some to differentiate between the ‘statistical recession/recovery’ and the ‘human recession’. In Northern Ireland, beneath the headline figures, there is clearly a complex human story unfolding, far beyond the black and white debate about recession or growth. Thankfully an analysis of this ‘human recession’ reveals some surprising facts that show it’s not all bad news.

A few home truths.... about home working

2011-09-20T09:14:00.000+01:00

By Ben Collins, Director, RICS(Royal Institution of Chartered Surveyors) Northern Ireland

You may not realise it but home working is one of the great social phenomena of the modern age. Some 40% of businesses in the UK, and around 25% of working people, operate/work from home.

These range from people providing services in their homes – such as hairdressers, and childminders – to those using their homes as an office. I’m aware of graphic designers, architects and PR professionals for example who do this. Many small internet based business also operate from home.

But is toiling at the dining room table, working from the bedroom, or slipping seamlessly from family life into working life within the same building a good thing for society? Well consider some of these facts.

Transport is one of the biggest sources of pollution in the UK, contributing to poor air quality, climate change, congestion and noise disturbance.

Surface transport for example is responsible for around a quarter of UK emissions of carbon dioxide. Of the 33 million vehicles on our roads, 27 million are cars. Many of these are used for commuting to and from work.

According to government figures, car traffic has increased some 15% in the last 10 years, with congestion estimated to cost some £10 billion per year in English urban areas alone.

Transport accounts for around a third of all final energy consumption in the EEA member countries and for more than a fifth of greenhouse gas emissions.

An increase in home working will only help alleviate some of these problems by helping take cars off the road at key times of the day.

And the indications are that home working will increase in the years ahead, because in many ways, it is making more and more sense.

The cost of car transport is one factor that could lead people to consider home working, particularly in Northern Ireland where we are overly dependent on the car.

The cost of childcare, which research showed last week is pushing one in four working parents into debt, could be another factor. The widely publicised research found that the average bill for sending a child under the age of two to a nursery for 25 hours a week is £96, while a live-out nanny in some areas of the UK costs some £30,000 a year.

Home working can provide greater flexibility, which can be extremely useful in managing childcare issues.

Improvements in communications technology will contribute to the environment in which home working is attractive.

Earlier this year, Ofcom put out to consultation plans for the largest single auction of additional spectrum for mobile services in the UK - 80% more than the 'third generation' auction in 2000.

Currently, Northern Ireland's 3G coverage is the lowest in the UK at 40%, compared to 70-80% in the other regions.

The 4G service is essential to meet the rapid increase in mobile traffic, fuelled by the growth of smartphones and mobile broadband data services such as video streaming, mapping services and social networking sites.

All these services depend on spectrum - airwaves that carry information between mobile handsets and the internet.

The new spectrum will deliver significantly faster mobile broadband services - approaching today's home broadband speeds. It will also cover more rural areas. Clearly these developments will make it easier for many more people to work from home.

And increased home working will likely have implications for the residential property market. When building new homes, we will of course have to bear in mind that a very significant proportion of them will be used for working as well as relaxing, eating and sleeping.

Institutional investment should be encouraged, not deterred

2011-09-06T16:20:00.000+01:00

By David McNellis, Director, Lisney

Worldwide demand for distressed property increased dramatically in the second quarter of this year, a survey published recently by the RICS (Royal Institution of Chartered Surveyors) found out.

Over 80 percent of the countries surveyed by RICS reported heightened levels of interest from specialist funds, with three-quarters of those surveyed reporting greater levels of demand than the quarter before.

Investor demand rose most dramatically in Japan and Hungary, with Italy, Poland and Russia seeing noticeable shifts in sentiment, with demand swinging from negative into positive territory.

The survey does, however, suggest that the supply of distressed property continues to outstrip demand in some countries, most noticeably in the Republic of Ireland and the UK. Northern Ireland, no doubt, is in a similar place.

But the survey raises an important point from a Northern Ireland perspective – that specialist funds and institutional investors are extremely important in an era of limited bank funding available to support private activity.

Last year, there was a flurry of activity from funds and institutional investors for prime, well-let retail investments in Northern Ireland. This included the purchase by Metric Property Investments of Newry’s Damolly retail park for £28 million and Scottish Widows Investment Partnership bought Longwood Retail Park in Newtownabbey for £48 million. Laharna Retail Park in Larne and Strabane Retail Parks were also purchased by institutional investors.

Expert property agencies like ourselves are asset managing distressed assets on behalf of clients to make them into products that will be attractive to institutional investors.

A notable fact in the Northern Ireland office investment market however is the lease structure imposed by the public sector which makes investment in the local product less attractive for institutional investors than elsewhere in the UK. In simple terms, this structure is created by the public sector imposing its dominant position in the market place, enabling it to dilute its liabilities because the leases place an imbalance of liability on the landlord which would not be seen in England, Scotland or Wales.

Government is a major occupier of office space in Belfast, accounting for something like 50% of all leasehold occupancy. This puts it in a very strong position in the marketplace to negotiate terms. These terms, government would argue, enable it to achieve value for public money. However, it is worth looking at the wider implications of this situation, as it is damaging for the investment market, and I would argue for Northern Ireland as a whole.

The lease structure that many office landlords in Northern Ireland have had to accept from public sector occupiers is different to any other sector in Northern Ireland. It puts an undue liability on the landlord, which wouldn’t be possible if the government didn’t have such a large say in the market. During the last development cycle, when local developers backed by bank funding were purchasing office development opportunities, these peculiar circumstances were able to continue.

Today, this scenario, which is peculiar to Northern Ireland, should not be able to persist. If it does, it will restrict Northern Ireland’s ability to attract institutional investment, which is more important than ever before.

In addition, increasingly, given the current pressures on them, in the absence of bank development finance, many developers may be discouraged from creating the required stock to accommodate Foreign Direct Investment, crucial to re balancing our economy, knowing that if there are any institutional office investors they will only pay a price reflecting a heavy discount.

If the investment product is not sufficiently attractive in its lease structure, then this will leave local developers to shoulder the burden to meet the various obligations that these leases place on them at a time when many are already under severe pressure. In effect, our development pipeline will not be able to deal with the ‘footloose’ occupiers that we need to attract.

These leases may, on the face of it, appear to be good value for public money, but a closer look suggests that they aren’t in the wider interests of Northern Ireland at a time when inward investment is essential.

Time for turning? Why NI needs a fiscal Plan B

2011-09-05T11:51:00.002+01:00

By Richard Ramsey, Chief Economist, Ulster Bank

“To those waiting with bated breath for that favourite media catchphrase, the U-turn, I have only one thing to say: You turn if you want to. The lady’s not for turning.”

Not only was this Margaret Thatcher’s most memorable line (October 1980), it was a defining policy stance for her premiership. She divides opinion, but Thatcher’s determination to stand firm against opposition to her liberalisation of the economy radically re-shaped the UK.

Today, the deficit – currently the largest ever in peacetime ever - is bigger than in 1980, but in many respects, George Osborne finds himself in a not dissimilar position to Thatcher, with clear economic and fiscal parallels.

Like economies elsewhere, and as in 1981, the UK economic recovery has been much weaker than anticipated. As a result, the Chancellor’s tax revenues will be lower and borrowing higher than originally envisaged. Against this backdrop, the view that the public expenditure cuts are too deep and too fast has led to a clamour for a fiscal ‘U-turn’ or ‘Plan B’. From the outset, however, it is worth noting that the UK’s fiscal plans are much less draconian than those being implemented in other parts of the euro zone periphery – notably the Republic of Ireland. In addition, it is important to note that Plan A also includes raising taxes and clamping down on tax avoidance. The recent UK-Swiss tax deal, potentially netting £5bn initially, is evidence of progress on this front.

Speaking just a few weeks ago, the Chancellor stated that “the events of the past month are a vindication of the Coalition’s decision to get ahead of the curve, and they demonstrate the reckless folly of the alternative route…….The alternative of more spending and yet more borrowing is now frankly ludicrous and places those who advocate it on the outer fringes of the international debate.” This suggests that George Osborne will not change course in a hurry. Indeed, looking at the financial market chaos in the euro zone, the US and more recently Japan (whose credit rating, like that of the US, has been downgraded due to political inaction on the deficit front), the UK, by comparison, has been a sea of tranquillity. Sterling has strengthened on the back of this new found ‘safe-haven’ status.

Clearly, there are compelling economic and financial reasons why Osborne should stick to his guns. At the time of the general election last year, the cost of issuing 10-Year government debt was around 4%. Now, it is 2.5%, a significant reduction of 1.5 percentage points. Conversely, over the same period, the cost of government borrowing within the euro zone (excluding Germany) has increased dramatically, increasing debt interest payments and reducing the money available for the delivery of vital public services. For comparison purposes, the cost of raising equivalent debt in other countries is: Greece 18%, Portugal 11%, RoI 9%, Spain and Italy both 5%.

It has been suggested that VAT should be reduced to act as a stimulus. However, VAT is one of the largest revenue generators and cutting VAT is simply not affordable and would lead to a loss of market confidence in the sustainability of the public finances. The same would hold true if the public expenditure cuts were softened. Arguably, such a scenario would trigger even greater difficulties. The likely chain of events would be: the UK losing its ‘Triple A’ credit rating; debt interest payments rising significantly; sterling weakening; imported inflation increasing (notably food & energy); the MPC having to raise interest rates; the cost of mortgages rising and disposable incomes falling. Clearly, given NI’s higher incidence of fuel poverty, lower household incomes and the property debt hangover, keeping interest rates low for longer is crucial.

In fiscal terms, whilst the UK does not need a fiscal Plan B at this stage, Northern Ireland does. As with Greece, populist policy measures need to be swiftly reversed. Economically speaking, they are unaffordable, inefficient and ineffective.

The Stormont Executive’s budget faces a cut of almost £1.5bn, in real terms, by 2014/15, relative to 2010/11. This has been presented as a cumulative reduction of £4bn in the block grant if expenditure had remained unchanged at 2010/11 levels in each of the four years. On their own, these are manageable; however, NI has its own devolved fiscal austerity to administer. The cost of devolved policies such as free prescriptions, free public transport for over 60s, lower tuition fees and no water charges all, effectively, have to be funded through public expenditure cuts to balance the books. Not implementing water charges alone costs, under the estimates of experts is as much as £600m per year - or cumulatively £6bn of cuts in public services elsewhere. There is an alternative.

Without any increases in revenue, the Executive has to live with around £10bn less public expenditure (cumulatively) over the next 4 years. It remains to be seen where these reductions will be made, but households on lower incomes, who use public services predominantly more will suffer the most. In this respect, retaining no water charges and free prescriptions for everyone, including the better off, is simply a waste of money. Northern Ireland’s public finances and its economy need an about-face on these issues, and they need it quickly. As John Maynard Keynes said in response to an accusation of inconsistency: "When the facts change, I change my mind".

£40bn NI government estate needs managed effectively

2011-08-16T07:04:00.003+01:00

By Ben Collins, Director, RICS (Royal Institution of Chartered Surveyors) Northern Ireland

With the recent publication of the National Asset Management Agency’s list of the properties it has repossessed in Northern Ireland, we got an insight into some of the activities to date of NAMA north of the border. We also got an indication of the importance of property asset management to the Northern Ireland economy.

NAMA took over something in the region of £3.5billion of property loans in Northern Ireland, and manages a substantial portfolio of properties. The list published at the end of July contains a wide range of residential and commercial properties in Northern Ireland, largely in county Down. Non-NAMA banks also own and are managing very large portfolios.

The fear was that there would be a fire sale of assets by NAMA and by banks that would set the recovery of the property market in Northern Ireland back significantly. This hasn’t happened to date and commitments have been given that it won’t happen.

But what is clear is that the good management and good valuation of property in Northern Ireland will be essential to ensure that the economy can recover and that viable and sustainable property markets can be created.

This also applies to public sector property assets. Government holds significant property assets, from the offices in which civil servants are based to railway stations, the Stormont Estate and college campuses, for instance.

The NI Audit Office identified, through a review of central government accounts for the year ending 31^st March 2010, an estate with a book value of £44billion. It is noted that the cost associated with management of this property asset estate are likely to be the second most expensive cost for government after staff. Managing these substantial assets to ensure best value for public money is absolutely essential.

The NI Audit Office carriedout a survey of asset management arrangements in central government in Northern Ireland. This was published in June 2011. Some of its findings were that: overall, Northern Ireland lags behind the rest of the UK in terms of estate management arrangements; less than one in 10 public bodies have a comprehensive and formal property asset strategy in place; and that almost half of public bodies have identified either surplus or under-utilised assets. These were amongst 12 high-level findings of the survey.

Asset management is a key priority for RICS due to its importance in the public and private sectors in Northern Ireland. It was a key feature of the RICS Northern Ireland Manifesto launched this year, which sets out positions on issues of importance to the land, property and construction sectors.

The fact is that the valuation and efficient management of existing assets is of central importance to any plan that aims to foster sustainable economic growth. What is clear is that the public sector needs to prioritise a professional approach to asset management,

Critically, property professional advice needs to be embedded at a senior level in local government and in the Northern Ireland Executive. This will help ensure that the correct choices are made regarding essential decisions for our economy, including objectives to raise revenue from selling public assets.

The fact is that the public sector can save money and boost efficiency by working with property professionals to manage public sector projects and assets in the most effective way.

Economic weather warning

2011-08-12T09:12:00.000+01:00

By Richard Ramsey, chief economist, Ulster Bank

In this part of the world we are obsessed with the weather. Almost 70% of people within the UK check the weather forecast at least once a day. Our interest in the weather is generally local and confined to what will happen within a short time-horizon. We are rarely concerned with weather conditions in the US, Greece or China unless we are there. Most of us have even less interest in broader climate change trends, such as global warming, which could potentially have far reaching impacts around the world for the next generation. For example, the polar ice caps are now melting at a faster rate than previously thought. Meanwhile, the glaciers in Norway & Alaska have shrunk to half their size in fifty years. In turn, this will lead to rising sea levels which will impact in the decades ahead.

The credit crunch was a truly global event and this week marked its 4^th anniversary. Since it began, meteorological analogies have been used to describe some of the most dramatic events with references made to a ‘financial hurricane’ or a ‘perfect storm’. The chaotic events of the last week brought another flurry of headlines such as ‘financial market meltdown’ and ‘double-dip recession looms’. Part of the concern is that government deficits in the euro zone are not shrinking fast enough. Or, indeed, debt levels in the US are still rising. Billions of pounds have recently been wiped off global stock markets which will affect anyone with a private sector pension. Those just approaching retirement have arguably the most to lose as they won’t have the time to wait for a recovery. During periods of extreme fear or uncertainty it is not simply a case of ‘any port in a storm’. Gold is the ultimate safe haven and its price has surged by 20% over the last 6 weeks. As a result, the earrings in your ear, watch on your wrist or gold filling in your mouth is becoming more valuable by the day. On the other hand those individuals waiting to pop the question will find the cost of that engagement ring is also rising.

Whilst most of us check out the weather forecast, how many of us regularly examine the economic forecast? Or, indeed, are we actually aware of what the economic conditions are today let alone what they will be like in one, five or ten year’s time? Arguably the economic outlook can be prone to even more uncertainty than predicting the weather but it is likely to have a greater impact on our lives. Whilst the shipping forecast may be a turn off for most of us, I suspect even fewer people tuned into the Bank of England’s press conference on Wednesday or read the Federal Reserve’s statement on the US economic outlook the night before.

Both events were significant not least as they signalled a slowdown in economic growth and a faltering recovery. This is bad news for local business given that Great Britain is Northern Ireland’s most important trading partner. However, slower growth has some positives with oil prices down by 10% over the last few weeks, petrol prices should follow. Furthermore, inflation is projected to be lower than expected. Therefore interest rates will stay lower for longer which is good news for those on tracker mortgages and those looking for fixed-rate products. Low interest rates, however, are bad news for savers.

Sir Mervyn King noted that the headwinds to global and domestic economic growth are becoming stronger by the day with the greatest risk stemming from the euro area. Northern Ireland is unique in that it is the only part of the UK to share a land border with the euro zone – the Republic of Ireland. Furthermore, the latter is the second most important economy - as far as trade, tourism & investment are concerned – for the local economy.

Fears of a ‘double-dip’ recession for Northern Ireland are misplaced as unlike the UK, Northern Ireland has not yet experienced a meaningful recovery. This year the local economy is as likely to see a contraction of 0.5% as it is growth of 0.5%. The latter is around one fifth of our normal growth rate. In any event the difference between entering and avoiding recession is marginal and the public will not notice the difference. What they will notice, however, is the continuing human recession for years to come. We got further evidence of that this week with signs of consumer stress intensifying. Almost 2,600 individuals became insolvent over the last year and almost 7,700 since the credit crunch began. Meanwhile, new car sales, a key barometer of consumer spending, fell again last month with over 20,000 fewer sales (30% fall) over the last year relative to 2007.

Prior to 2007 the Celtic Tiger provided a crucial tailwind that sustained strong economic growth here. Since then the downturn in the RoI has sent a Celtic chill through our economy. In the same way we experienced freak weather conditions last winter, the local economy experienced freak economic conditions on the run up to 2007. These included simultaneous booms on a number of fronts – property, Celtic Tiger, public expenditure, employment and inward migration. All of these tailwinds have now turned into headwinds and the local economy is currently in the eye of a storm as it awaits the public sector recession and the melting of the public expenditure ice caps over the next decade.

This is proof, if it were needed, that the great economic storm which as been raging around the Mediterranean and the US has parked itself well and truly over Northern Ireland’s own unique weather system. If this was a weather forecast we'd be advising an umbrella and a heavy coat. Furthermore, best keep an eye on the global forecast and not just the local one.

Four years of Credit Crunch. But ‘who dunnit’?

2011-08-09T07:39:00.000+01:00

By Richard Ramsey, Chief Economist, Ulster Bank

Today marks the fourth anniversary of the start of the Credit Crunch. Initially seen by many as a short-term phenomenon, it soon became clear that its effects would be deep and lasting, not least in the global recession it triggered. As a result, there has been a protracted game of ‘who dunnit?’, as all kinds of people have sought to apportion blame to one or other of the actors in the events leading up to its onset. In many respects this has resembled a game of Cluedo - identify the culprit, weapon and location to solve the crime.

For many it is seen as an open and shut case, with the blame in their eyes lying squarely at the door of the global banking industry. Indeed, hostility to financiers is not new and has been a recurrent theme over the centuries, particularly after financial crises. During the latest crisis, the banking and financial sector across the world has certainly not covered itself in glory, with the industry learning some harsh lessons as a result. Failures occurred at an individual, institutional and industry level globally. However, many of the explanations put forward for the economic mess we are currently in are probably overly simplistic, which is not in anyone’s interests, as we need to understand the situation fully to help avoid it happening again.

Was it the Federal Reserve (Fed) in the US with its lack of supervision and regulation, or its overly lax monetary policy during the Greenspan years? Was it the investment banks on Wall Street with their derivatives products (some of which were termed ‘financial weapons of mass destruction’) or the mathematics geeks who invented them? Or subsequently those that bought and sold them but failed to understand the product? Or alternatively, the credit rating agencies that incorrectly applied a ‘Triple A’ rating to junk assets?

Was it the man in the street with the large mortgage he couldn’t repay as he stretched the truth on his self-certification mortgage? Or Government policy that pushed the dream of home-ownership to the masses who simply couldn’t afford it? Was it the high street banks with their under-pricing of risk or their shareholders for failing to keep them on a tighter rein? Was it the increasingly light touch regulation that was evident in the US and the UK?

Clearly, a closer analysis of the Credit Crunch and the actions of those involved reveal that apportioning blame might not be straightforward. Unlike the game of Cluedo, a single individual with one weapon in one location cannot be identified.

In my view, Deputy Governor of the Bank of England (Charles Bean) best summed up the scenario of the Credit Crunch and Recession. He said: ‘It would be a mistake to look for a single guilty culprit…..As in Agatha Christie’s Murder on the Orient express, everyone had a hand in it’. In the credit crunch, the various characters included financial institutions, governments, borrowers, firms and regulators. Focussing on just one player ignores the role played by the others and diminishes understanding.

Prior to the credit crunch, there was an explosion of credit which was facilitated by ‘innovation’ and a movement towards self-regulation. Two key individuals were instrumental in relaxing regulation (Bill Clinton & Hank Paulson) whilst a third – Former Fed Chairman Alan Greenspan – was a strong advocate of light touch regulatory environment.

As President, one of Bill Clinton’s greatest achievements was eliminating the US’s massive fiscal deficit. However, in 1999 he also repealed the Glass-Steagall Act of 1933 which arguably contributed to the debt explosion which the US taxpayer has to address today. Glass-Steagall was the regulatory response to the Great Depression and separated retail banks from investment banks so as to prevent retail deposits being used for speculative activity. Meanwhile, George W. Bush’s Treasury Secretary Hank Paulson was instrumental in preventing a second depression post-Lehman chaos. However, as CEO of Goldman Sachs, Paulson had led a delegation of banking bosses to the US financial regulator (SEC) in August 2004. Paulson secured a relaxation in the debt to capital ratio from which enabled US banks to more than triple the level of debt they could issue. Furthermore, the SEC employed just seven people to monitor Wall Street’s $4 trillion worth of assets!

Light touch regulation and supervision was also a feature within the UK, with the first bank run (Northern Rock) since 1866. One of Gordon Brown’s first acts as Chancellor in 1997 was to remove bank supervision powers from the Bank of England (BoE) and create the Financial Services Authority (FSA). One of its Board members, Sir John Gieve (Deputy Governor of the BoE with responsibility for financial stability) was accused by Treasury Select Committee Chairman John McFall of “being asleep in the back shop while there was a mugging out front”. Meanwhile, the emergence of a shadow banking system over the last decade facilitated the explosion of debt – namely hedge funds and Structured Investment Vehicles (SIVs). These providers of debt were ‘off balance sheet’ and thus fell outside of international regulatory regulations.

Essentially, light-touch regulation was a strong feature of the events leading up to the Credit Crunch, resulting in an environment in which there was the creation, consumption and accumulation of too much debt. Indeed, it has been said that US growth in the Bush era was largely debt driven. Taking out the contribution of mortgage equity withdrawal to consumption, it is estimated that growth in this period would have been something in the order of 1% per annum. For the US, like elsewhere, it was a case of ‘buy economic growth now, pay later’. But we certainly can’t just blame regulators and governments. As Charles Bean said, we all had a hand in it; from the banks on the high street who under-priced debt and made it too freely available, to all of us consumers who under-saved, over-borrowed and over-spent.

The era of leverage is certainly over and we are now in a period of deleverage for the next decade. Whether Credit Crunch 2 comes to pass or not, it is clear that dealing with household, corporate and government debt will be the order of the day for some time to come. And we all need to have a hand in dealing with that.

Large retailer levy not the correct approach

2011-08-02T06:36:00.000+01:00

By David McNellis, Director, Lisney

Northern Ireland Finance Minister, Sammy Wilson, recently launched a consultation on increasing the amount of rate relief for small businesses, funded through a levy on the largest retail premises.

The Minister’s preferred approach for the large retail levy would involve an average levy on rate bills of around 20%. This would be applied to large retail premises with a rateable value of £500,000 or more. It would take the form of a regional rate supplement.

In terms of the small business rate relief scheme, the Minister’s preferred approach would be for 20% relief to be provided to eligible premises with a net asset value (NAV) of £5,001 - £10,000. This would double the amount of relief provided under the main scheme. No additional relief would be provided to those currently receiving small business rate relief (NAV of £5,000 or below).

The consultation will end on the 18^th of October. Following the consultation, the Northern Ireland Executive and Assembly will be asked to approve any legislation so that the final measures would be in place from 1st April 2012 for a three year period through to 31 March 2015.

Other proposed changes to the non-domestic rating system include to allow the non-commercial use of window displays in empty shops, so that the full occupied rate is not charged on otherwise empty properties. This would also apply for three years.

It is our view that the proposal to introduce a supplementary business levy for large retail premises is not the correct approach. There seems to be no sense in making it more expensive for large retailers - who are anchor tenants in towns, cities and shopping centre, and major employers - to locate in Northern Ireland. The likely outcome is to discourage new entrants to Northern Ireland at a time when we need them most, and to make large retailers already trading here to reconsider their position.

This proposal may represent a rebalancing of the rating system, but does it address the interests of the wider economy and the changes in the property market? Rents have fallen, in many cases by over 50%, so what we really need to see is a more fundamental rethink of the rating and rate poundage system that gives consideration to changes in rents across the board.

To end up in a position where the single biggest cost to many retailers is their rates bill is, I think, unsustainable. There is a significant over-supply of retail space in Northern Ireland, particularly in secondary and tertiary locations, and this will remain an issue for the foreseeable future. Many landlords are receiving little or no rent at present but the rates bills still keep coming.

One aspect of the proposals that is welcome however is the non-commercial use of window displays to avoid occupational rates being paid on otherwise vacant buildings. In many cases, when a landlord loses a tenant, they have a double whammy of costs - they obviously lose the rent, and then, in many cases, they have to pick up the tab for the service charge and pay vacant rates. This puts many landlords in a very difficult position in a market where new occupiers for their properties are few and far between.

The consultation paper, along with the initial impact assessments, is available at http://www.dfpni.gov.uk/rating-review. If you’re so inclined, you can send a response to: ratingpolicy.cfg@dfpni.gov.uk