On Monday, Westminster’s Northern Ireland Affairs Committee (NIAC) published a report into economic growth in NI, looking at growth strategies, SME supports, some of the structural barriers to growth, and the Local Growth Fund, providing recommendations on each of these.

The Committee is made up of MPs from different parties across the UK and scrutinises the work of the Northern Ireland Office. While most economic growth policies are devolved to the Northern Ireland Executive, the Committee looked at those policies that are the responsibility of the UK Government, and this inquiry included considering how these interact with devolved policies.

Growth strategies

Growing the economy is one of the UK Government’s five missions, and is also the first priority of the NI Executive’s Programme for Government (PfG).

The report found Northern Ireland’s growth sectors to be advanced manufacturing and engineering, aerospace and defence, agri-tech, construction, creative technology, financial services, food and drink, global business services, the green economy, life and health sciences, materials handling, professional and legal services, technology and tourism.

Over the last number of years, Northern Ireland’s growth has outpaced the rest of the UK – GDP is 12% higher than pre-pandemic levels compared to only 5.2% higher in GB. The chart below shows GDP growth between 2010 and 2023, with NI again growing faster than the rest of the UK.

NIAC looked at the various economic strategies for Northern Ireland. In 2021, the Department for the Economy (DfE) published its 10x Strategy for growth, built on the three pillars of innovation, inclusive growth and sustainability. When the Executive returned in 2024, the Economy Minister introduced a four-pillar vision for the economy: good jobs, regional balance, productivity and decarbonisation. These pillars form the basis of the PfG’s priority to “grow a globally competitive and sustainable economy”.

The UK Government’s Investment Strategy focuses on eight growth sectors, and supports Northern Ireland through City and Region Deals and industrial clusters. It will be launching an Enhanced Investment Zone for advanced manufacturing in Northern Ireland soon.

While witnesses in the Committee’s inquiry found that the UK Government’s Industrial Strategy was good for strategic thinking about the economy overall, there is a  lack of strategic alignment with actions being led by the Department for Economy in Northern Ireland, which confuses businesses and fragments delivery. One witness, commenting on the lack of coherence in Northern Ireland’s economic planning, said: “We have lots of musicians here, but we do not really have a conductor for this orchestra”.

There needs to be greater overlap and collaboration, particularly between DfE and the UK Department for Business and Trade, to understand NI’s needs and goals and to maximise the opportunities available.

The table below shows the differences and commonalities between their plans.

Support for SMEs

89% of firms in Northern Ireland are microbusinesses (with fewer than 10 employees) and only 2% employ 50 or more people. These small businesses have a lower risk appetite for growth and expansion, creating a “missing middle”.

Post Brexit arrangements

Northern Ireland’s unique dual market access to both UK and EU markets has had some anecdotal benefits but has also created “complexity for businesses, regulatory divergence, uncertainty for long-term investors, increased exposure to geo-political risks, and trade uncertainty”. According to the report, the opportunity of dual market access is “as yet unrealised”.

Trade across the Irish Sea has also proved to be a challenge for NI businesses who struggle to find, understand or engage with UK Government supports, which witnesses said was fragmented and less strategic than that which is provided to firms in GB. The Committee found that there has been a reduction in East/West trade, as businesses on both sides of the Irish Sea struggle in the regulatory landscape. Intertrade UK, which supports NI/GB trade does not have anyone with GB experience on their board.

The Government accepted the Windsor Framework review’s recommendation to streamline supports into a one-stop shop. The NIAC welcomed this move which should help businesses trading North/South and East/West.

Unlocking economic growth

NIAC found that the NI economy is focused on the urban centres of Belfast and Derry/Londonderry, and that there are wide regional disparities and imbalances, as the chart below highlights.

There are four City and Growth Deals in Northern Ireland totalling £1.2bn which are designed to “stimulate inclusive, place-based economic growth”. The programmes and projects benefitting from these deals, particularly in Belfast, have said they have been “a catalyst for economic growth and leveraged private sector funding”.

While the City and Growth Deals are capital focused, some witnesses to the inquiry said there needs to be greater resource investment in areas such as skills development, which is a significant barrier to sustainable growth. One witness stated that 35% of all job vacancies were linked to skills shortages.

Productivity in Northern Ireland is 10% below the UK average. A dedicated skills strand in the Growth Deals could boost productivity and foster growth.

Another challenge in unlocking growth is poor infrastructure connectivity which enhances regional imbalance and historical underinvestment.

“We heard about underinvestment in and mounting pressure on critical infrastructure: transport connections, digital connectivity, broadband infrastructure, mobile coverage and 5G connectivity, wastewater and sewerage processing, housing, electricity supply and the energy grid”.

NI manufacturers also face some of the highest industrial energy costs in Europe which undermines their competitiveness and deters investment in the region. Due to the devolved nature of energy policy, there are supports available in GB which are not available in Northern Ireland.

The final blockage to growth the Committee examined was “slow and unpredictable” planning. They said they have received “no evidence to date that the Executive has a thought through or deliverable plan to address and reform the deficits in planning policy and processes”.

All of these issues have been exacerbated by political instability, which has made it harder for progress to be made.

Local Growth Fund

Our low skills and productivity bases are closely connected to our consistently higher rate of economic inactivity – the highest in the UK and Ireland. The problem is particularly acute among young people and those with disabilities.

The European Social Fund, then the Shared Prosperity Fund, helped those most vulnerable back into work. The UK Government is introducing a Local Growth Fund in its place. However, this new fund has an “inappropriate” 70-30 capital-revenue split, and a “cruel and devastating” 64% cut in funding to address economic inactivity. The inquiry concluded that the Local Growth Fund, as it stands, is not fit for purpose.

The Shared Prosperity Fund supported 24,000 of the most vulnerable people into work, including young people, disabled people, ex-prisoners, and victims of domestic and sexual violence. NIAC found that around 11,000 people will lose employability supports through the change to the new Local Growth Fund. Pivotal’s recent report Voluntary and community sector-led approaches to economic inactivity further details these challenges

The Secretary of State told the Committee, however, that the 70-30 split is not going to change.

Recommendations

The Committee made a series of recommendations across these themes of inquiry.

The UK Government and NI Executive must work more closely on economic issues, aligning and co-ordinating their strategies and delivery. The Northern Ireland Office (NIO) should outline the steps, including targets and figures for additional growth, employment and productivity.

The Government needs to clarify when the one-stop shop for SMEs in Northern Ireland will start. This will help support businesses who are trading North/South, East/West and throughout the EU. Now that Intertrade UK has been set up, its board membership should be broadened to reflect challenges in GB.

Future City and Growth Deals should include local government to a greater extent, and have complementary funding for skills and infrastructure development. The NIO should set out how the UK Government will support the Executive in addressing these structural weaknesses.

Finally, the Committee recommended that either the capital-revenue split in the Local Growth Fund is reversed, or the NIO, Executive, Treasury, and Ministry for Housing, Communities and Local Government find alternative funding to tackle economic inactivity.

Pivotal’s conclusions

The NIAC report offers a detailed and welcome analysis of some of the key structural barriers to growth in Northern Ireland, as well as recognising the good work and continued potential of interventions such as the City and Growth Deals.

While its recommendations are aimed more towards the UK Government, particularly the NIO, there is plenty of learning for the NI Executive. Economic policy largely rests at the devolved level, and it is clear that the Executive has not done enough to tackle NI’s skills shortage, low productivity, high inactivity, or cumbersome planning. The Committee went so far as to damningly say there is “no evidence” that the Executive has a plan to tackle these challenges.

Economic growth is a PfG priority, and should be treated as such. There is significant potential in Northern Ireland’s SME-led economy, and huge opportunities to be gained from AI and our unique trading position. The Executive must work to support business and provide the space for them to make the most of these opportunities.