Industry chief says North tax breaks crucial, writes Arthur Beesley, Senior Business Correspondent

Richard Lambert says the crucial challenge for the Northern Ireland economy is to increase its productivity after the resumption of powersharing.

The chief of the Confederation of British Industry (CBI), and a former editor of the Financial Times, he says companies north of the Border are already likely to see the entire island as their natural market. "I was in the province yesterday talking to businesses. Again, they were talking about business in the island of Ireland. They weren't talking about North or South," he says.

In a brief conversation before the DUP-Sinn Féin deal to enter government in May, Lambert says companies in the North would like some of the tax breaks that fostered investment in the Republic.

"From that perspective, the real challenge for Northern Ireland is to do with some of the things that the Republic has done so well in the last few years, which is to increase productivity.

"In the North their productivity performance is poor. That's partly to do, I think, with skills and training and it's partly to do with the fact that there's a very big public sector in the North. A big public sector pulls down the overall level of productivity in an economy."

Lambert has has similar views about a recent growth in public spending in the British economy at large. Still, he says credit is due to the chancellor, Gordon Brown, who is likely to succeed Tony Blair as prime minister later this year.

"In the round, you've got to give him credit. The UK economy on his watch has grown quarter on quarter every year and inflation has been low and stable. Unemployment is low and that's a real achievement. He's the only Labour chancellor in history not to be knocked for six by the sterling crisis. That's all good."

But on minus side, Lambert notes mounting criticism of Brown in recent years.

"The criticisms of him are that just in the last few years, public spending has grown in real terms at a dramatic pace in the UK.

"It's not clear how effective that's been in terms of raising the quality and availability of public services. And the Treasury was over-confident about the revenue that would be flowing in. Borrowing has gone up in the last two or three years and the tax system has become more complex."

He does not recognise withering descriptions of Brown's "Stalinist ruthlessness" in government, but says the chancellor's move last week to cut British corporation tax to 28 per cent from 30 per cent did not go far enough. He sees the manoeuvre as a "welcome first step" but will not pinpoint the ideal rate for the CBI.

"What we've said is that we think if the chancellor manages to keep a tight grip on public spending over the next two or three years or his successor does, which they have promised to do, that would mean the economy would then grow a bit faster than the growth in public spending. That would create some headway for private tax cuts and some of that should go the business sector."

British corporation tax is much higher than the 12.5 per cent rate in the Republic. While Brown has commissioned a review of the difference between tax rates North and South, Lambert sees little validity in comparisons between corporation tax in the UK at large and the Republic.

"I don't think it's sensible to compare it with the Republic to be honest, because the economics are completely different. I can't imagine circumstances in which the UK would do that. And tax isn't the only critical issue when you're deciding where to locate a plant," he says.

"Where I think we need to compare it with is not so much with the Republic but with the European average for big economies in Europe - and there we've come pretty close to the European average."

Lambert was in Dublin to launch a new bursary scheme for masters students throughout the island. The project is backed by the CBI, Ibec in Dublin and Universities Ireland, a body that promotes collaboration between universities North and South, and the Dublin Institute of Technology.

He has a big interest in research collaboration between universities and business and he sees clear merits in an all-island approach. "The starting point is that business and university collaboration is growing. I think the island of Ireland is a good place to be doing it."

This makes good sense in a scenario where there there are nine universities in a "not very large country", he says. "There's a strong argument for collaboration and each of them building on their particular strengths and collaboration and so on. In that kind of intellectual exchange, you don't need a border."

Lambert is not at one with those who see something distasteful - or worse - when business collaborates with the academic world. "My feeling about that is that if academics don't want to get involved in that, they shouldn't be required to. If their whole goal is curiosity driven research and they don't care about the outcomes, then the world needs people like that.

"But what we heard this morning was that there are some real attractions for academics in this as well because it's a way of seeing their ideas translated into reality. It's a way of getting them funding. Normally academics spend their whole time trying to get funding for this year and next year. These sort of projects are five-year projects.

"It's a way of getting their hands on kit that they probably couldn't afford themselves but the businesses are bringing them in. And it's a multi-disciplined way, which is lively."

This chimes with the fact that companies no longer conduct all of their research in-house, he says. "They're trying to find partners to help them with their research efforts and universities are really good partners because they're being refreshed constantly with bright brains."

Lambert spent 35 years in the Financial Times but sees little tension between his work in financial journalism and his current job. "I always worked for a business newspaper and of course our job was to hold business to account, but it was also to be supportive of business," he says.

"A lot of the issues I'm dealing with now I've been dealing with for years. You know, like energy or skills and training or tax or innovation, all that stuff - it's not all that different."