I’ve had some time this week to read the report of the Welsh Conservatives’ Economic Commission, penned by Dylan JE, and which he has been highlighting in bite-sized chunks on his blog over the past couple of weeks. It’s probably more widely-available by now, but my source was Syniadau here.
One of the first things that struck me was the similarity in style of the analysis of the Welsh economy since 1999 to the sort of analysis which Plaid Cymru would have produced prior to 2007. And that isn’t intended as a suggestion that such an analysis has somehow become any less valid.
The other thing that struck me was the graphic way in which the report highlights the huge disparity between GVA/ head in London and GVA/ head in any other part of the UK. From a UK (rather than a simply Welsh) perspective, the ‘above-average’ levels of London are as much a part of the problem as the ‘below average’ levels in Wales.
However, as might be expected, even where I agree with the analysis of the problems, I don’t agree with all the suggested solutions; there are things in the document with which I agree, and others with which I do not. I don’t understand the Conservative obsession for introducing the private sector into the health service, for instance.
It is, though, a worthwhile contribution to debate about the way forward for the Welsh economy, and it indicated to me that there is at least a possibility of developing a degree of consensus around some policies, whilst continuing to disagree about others.
The headline policy, described by Dylan himself in his introduction as the ‘main recommendation’, is to vary the rate of Corporation Tax in Wales.
(If I may be forgiven a political side-swipe a moment, I really don’t understand why the proposal that the Welsh Conservative Party (is there really such a beast, by the way?) should lobby the UK Government to adopt this approach is predicated on the words ‘if elected’. If it’s the right thing to do, then it’s the right thing whoever is in government in Cardiff – why wouldn’t members of the Conservative Party in Wales want to lobby their own party’s government to make this change regardless of the outcome of the election?)
The method of achieving the reduction in CT isn’t spelled out, although the relevant passage in the Holtham report is quoted with approval. It isn’t what nationalists would ask for – i.e. the right for the Assembly to vary the rate of CT – but it’s a neat unionist solution, tying regional variations in the rate of CT to the variations in GVA per head. And, if it achieves the desired result, I can live with a unionist solution, for the short term at least.
As an aside, Dylan reported on his blog an interesting comment on the idea of varying the rate of CT, which deserves to be considered properly. It’s given some food for thought, even if it hasn’t led me to change my mind about the value of reducing CT in Wales. The comparison with the Irish experience is instructive; but the purpose of a change in Wales isn’t (or shouldn’t be) about encouraging companies to move here so much as giving indigenous companies a better chance of success. Wales won’t get the tax receipts either way, so it isn’t about raising revenue.
It's worth bearing in mind when talking about varying the rate of CT is that it is a policy which will largely benefit precisely the target companies for future economic growth in Wales – the SMEs. For the larger, international companies, CT is largely a voluntary tax anyway – they can and will declare their ‘profits’ in whichever tax regime is most favourable to them. (That’s a loophole which needs to be plugged, of course, but it isn’t one which is immediately relevant to a discussion about the ‘right’ rate of CT for the Welsh economy.)
So – is a regionally-varied rate of CT a good place to start looking for cross-party consensus in promoting the Welsh economy?
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7 comments:
John
Surely the time has come for Wales to be able to generate its own taxation revenue to finance the activities which are now clearly ours.
I see no reason why the W A G should not operate its own Bank to facilitate this source of revenue nor why we should not seek deposits from our people to finance capital projects network
Neither do I see any reason why we should not seek foreign investment to finance capital projects.
The argument that England will not let us has no validity in the sense that we are all competeing in the same global market for the same businees
I suspect that economic activity is weak here because we know that England will reap the rewards of all our efforts under current arrangements. So why should I bother.
Remember -- The Secretary of State who returned £100,000 to the Treasury saying it was not needed in Wales
Not convinced that a race of the bottom in terms of corporation tax rates between the nations and regions of the UK is entirely wise. Differential CT rates would potentially impose significant accounting costs to firms operating across the UK. There is also the 'business rates' problem in that without large scale redidtribution or 'damping' it would probably benefit the richer nations/regions disproportionately.
If the UK exchequer is going to devolve tax varying powers, i'd have though VAT and income / property taxes to be far more likely candidates.
Anon,
"£100,000"
I think you've lost a few zeroes there!
Democritus,
There are two slightly different issues here, and we need to keep them separate. The first is devolution of tax-varying power, and I'd tend to agree that income tax / VAT / Property taxes are probably the most likely place to start, although to give the Welsh Government meaningful control over the economic levers (as opposed to just responsibility for raising part of its own revenue), there need to be a range of taxation powers devolved.
The second issue is about trying to even out economic development across the nations/ regions of the UK. As Holtham pointed out, that doesn't actually need devolution of power over CT; it merely needs differential rates. His suggestion that the UK Govt should vary the rate of CT according to the deviation in GVA doesn't only apply to Wales; it can also be applied to the English regions. It would be a non-devolved attempt to address uneven economic development across the UK. All the CT collected would still go to the UK Treasury, so the issue of redistribution doesn't arise.
John,
Thanks. I stand corrected. Regional CT assessment and collection still strikes me as fiendishly complicated to put into practice though ...
"Regional CT assessment and collection still strikes me as fiendishly complicated"
You may well be right - I suspect that the devil (or the fiends) will be in the detail. But given that the principle appears to have already been conceded in the case of Northern Ireland, I'd guess that those responsible think that it's do-able.
John
Apologies
Perhaps you can enlighten me on the number of Zeroes there should have been
Todays Thursday Western Mail makes a number of good points on the future financing of Wales.
Anon,
It was £100m he returned, not £100k. Another three zeroes needed, therefore.
At the end of the year, he had £100m unspent, and returned it to the Treasury. As opposed to the Assembly Government which has £385m unspent which the Treasury is clawing back. I find myself wondering whether his real crime wasn't so much the return of the money as the crowing about it as some sort of 'success'. Operating on the basis of 'use it or lose it', which is the attitude of the Treasury, only encourages 'final month profligacy'.
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