Does a small tax really make so much difference?

Tweet Last week, a cross-party group of MPs urged the UK Government not to devolve Air Passenger Duty (APD).  No real surprise there – most MPs seem to be as strongly against devolving anything as I am in favour of devolving everything.  Taken in isolation, though, I find it hard to get as excited about APD as some do.  It’s a tiny part of total taxation revenue in the grand scheme of things, and the ability to vary it has little impact on total budget.  Insofar as it is a policy lever worth having, its value depends less on its revenue-raising ability than on its alleged impact on the success or otherwise of Cardiff airport.

On that point, I’m something of a sceptic. I’m simply not convinced that reducing the tax at one airport is going to result in the flow of business from elsewhere which others are predicting.

In a highly unusual show of unity by organisations which are usually at each other throats, four airlines joined forces a few months ago and commissioned a report from PricewaterhouseCoopers which argues that abolition of APD would benefit the UK economy.  It would also, of course, be of no small benefit to the airlines concerned. 

The argument put was that abolition of the tax would have a number of effects, including:

• making it cheaper for companies to physically visit their customers more often, thereby maintaining better relationships and selling more product
• making it cheaper for all of us as consumers to fly abroad on holiday and therefore encouraging us to fly more often
• encouraging airlines to invest in new and bigger aeroplanes and to open new routes.

The net effect, the report argues, would be to increase the U.K.’s GDP by around 0.45% in year one and by an average of 0.3% over three years.  Are they right? 

It’s an argument which has more than a little relevance for Wales given the suggestion that APD could be devolved.  (Although abolition of APD at UK level, should the airlines be successful with their proposal, would mean that Wales would have to set a negative air passenger duty if it wanted to use this tax for competitive advantage – in short, the government would have to pay us to fly.)

I don’t disagree entirely with the methodology used by the report.  There are however a number of caveats and unstated assumptions which are open to challenge, and which may affect the claimed benefits.  And I rather suspect that advocates of devolution of APD and subsequent slashing of the tax for flights from Cardiff are making very similar assumptions.

Firstly, it is effectively taken as read that globalisation is the way forward and that our economic model for the future should be based increasingly on travelling the world to sell our wares, rather than on a more localised approach to business.  And that, in turn, is based on the unstated assumption that fuel costs for transportation will remain at a low proportion of total costs.  In the short to medium term that may even be true; I’m far from convinced that it will be true in the longer term.

Secondly there is a question in my mind about the extent to which GDP really grows or is simply moved from one place to another.  If the sales made by jet-setting business people are truly “extra” then the overall world GDP does indeed grow; but if they simply replace goods currently being supplied from elsewhere, then we’re merely shifting someone else’s GDP to the UK.

Which brings me onto the third point – there is an implicit assumption that action by one country (or airport, in the case of the Cardiff proposals) to improve its competitive position at the expense of others does not provoke similar moves elsewhere.  It’s another example of the way in which tax reductions can simply lead to a race to the bottom.  And it’s a question which is equally valid in the case of any comparison between, say, Cardiff and Bristol airports.

The report also makes the point that air passenger duty is a regressive tax, which “impacts disproportionately on poorer households”, because the cost of an annual holiday in the sun represents a greater proportion of the disposable income of the lowest paid decile than of the income of the highest paid decile.  It’s true of course - in theory at least.  At a practical level I wonder how many people in that lowest paid decile can afford to fly anywhere anyway – with or without APD.  It also neatly skips over the corollary, which is that abolition of APD disproportionately favours those who can afford to fly off on holiday several times a year.

And somehow I rather doubt that the executives of the airlines commissioning this report would really support the abolition of all “regressive” taxes and their replacement with a more progressive income tax regime.  I suspect that their opposition to regressive taxes is confined to those taxes which are perceived to be limiting their own profits and salaries.

More generally, how desirable, in any event, is the expansion of air travel in policy terms?  Even if it does lead to a significant increase in GDP, is that enough of a justification?  Not all GDP is “good”; there are lots of things which are good for GDP but not necessarily desirable otherwise.  That’s a question which this report seems not even to ask.  And it's a question which those advocating a cut-price tax regime for Cardiff airport also seem not to be asking.

Butter not guns

Tweet There was a story recently about the problems being faced by General Dynamics UK, which will probably lead to a number of job losses in Wales.  I, no more than anyone else, want to see Welsh people short of jobs; we have enough of a problem in that respect already.

But General Dynamics is, of course, an armaments company; they refer to some of their products lovingly as ‘combat systems’; their business, ultimately is in the field of warfare and killing.

Calls to find ways of helping the company and retaining the jobs seem to me to be the wrong response to this particular situation.  I will never shed any tears over any job losses in the armaments industry.  And I’ve never been one for the idea that we should take any jobs at any price; expending time and resources on the production of weaponry is not something that I could or would support.

The question we should be asking is not how we keep these jobs but how we replace them – and all other jobs in the “defence” industry – with more useful and productive activity.  I don’t understand why so many of those amongst Wales’s politicians who claim to support the peace movement aren’t saying the same thing.

Splurging the family silver

Tweet One of the sins which I thought True Wales committed during the 2011 referendum campaign was to confuse – and I suspect sometimes deliberately – structure and process with policy and performance.  There were elements of their critique of the policy and performance of successive Welsh governments with which it was hard to disagree; but wrong policies and general incompetence do not, of themselves, justify criticism of structure and processes.  (That doesn’t mean that there’s no scope for criticising the structures and processes as well of course – merely that that scope isn’t based on policy or performance).

The issue of borrowing powers for the Welsh government is in danger of provoking a similar response, even amongst the friends of devolution.  I am deeply concerned - reading reports like this one – that the government would use those powers to splurge several years’ worth of available capital expenditure on a very short stretch of road in what is already the wealthiest corner in Wales.  Indeed for some it seems that the ability to build that one short stretch of road is sufficient argument for the borrowing powers in itself. 

The issue is, I fear, another manifestation of the way in which Welsh policy favours the south-east corner of Wales just as UK policy favours the south-east corner of the UK.

It’s a depressing prospect, but it isn’t really an argument against the Welsh government having borrowing powers.  It’s an argument, rather, for electing a government which looks at how it can spread economic wealth across Wales.  That is easier said than done.

Don't do evil

Tweet Google’s motto was rather thrown back at them last week by the Chair of the Commons committee looking at tax avoidance by some of the major companies.  I’m not sure that it was entirely fair though.

It’s not that I support tax evasion; I don’t.  Clever schemes to avoid paying tax in one jurisdiction by transferring the transactions to another are at the least immoral, and from some reports, may even be illegal.  But are immorality and illegality the same as evil?  Evil suggests something much more deliberately malign to me.

Killing people – now that would be evil.  Building and possessing weapons of mass destruction, or supporting and acquiescing in such – now that would be evil in my book.  (And, purely coincidentally, would put most members of the said Commons committee higher up my list of evil-doers than Google.)  But using the letter of the law to avoid paying tax doesn’t seem to be in the same league to me.

It made a good headline, though; which was probably all that it was ever intended to do.  Publicly castigating the bosses of such companies is great fun, and attracts attention to the castigators.  But I can’t help feeling that our legislators would be better occupied simplifying and strengthening the laws under which such companies operate rather than engaging in witch hunts.  To say nothing of ensuring that the authorities prosecute through the courts when breaches of the law are discovered.

Expecting capitalist companies to do other than maximise the profits of capitalists by every means that they can is unrealistic.  It’s what they’re there for.  Enriching themselves at our expense is what capitalists do; the evil is in the system rather than in the individuals.

PS – Another thing to emerge from last week’s news on tax avoidance was that Amazon paid less in taxation than it received in government grants.  Am I the only one to be wondering how on earth we can be in a position where a company making billions in profits is getting grants at all?  In this case, it’s the Scottish Government paying them an incentive to build a new distribution centre in Dunfermline; but presumably similar incentives were paid for the centre in Swansea.  We’re paying grants to companies to establish themselves here and then transfer all their profits and taxes elsewhere, in effect.

It makes for an interesting comparison with the call by Iain Duncan Smith a few weeks ago for pensioners who don’t ‘need’ the benefits they’re being paid to give them back.  What about capitalist companies which don’t ‘need’ the grants they’re receiving?

There's more to the EU than economics...

Tweet ...although one might not think that to listen to the opposing sides.  Those who want out proclaim that it will free the UK to compete globally, whilst those opposed to exit paint a picture of economic disaster.  There’s a parallel with the debate about independence for Wales in there somewhere, but not a lot of consistency.  Some of those arguing for the advantages of a UK outside the EU also paint a picture of gloom for an independent Wales; whilst some of those arguing for Welsh independence paint a gloomy picture of a UK outside the EU.

Who’s right?  I suspect that both sides in both arguments have a point, but they’re all over-playing it.  I do not for one moment doubt that the UK would be viable outside the EU.  There would be consequences, and they might not all be pleasant, and there’d be adjustments to be made.  It would be hard for me to argue otherwise when that is pretty much the position that I take on Welsh independence.  The idea that the ‘viability’ of any state depends on the extent to which it is, or is not, united in some form of union with its neighbours is a strange one, and seems to bear little relationship to the real world, in which all sorts of states in all sorts of arrangements manage within the arrangements which they choose.

And that, perhaps, is the point.  Any state has to – and inevitably will – adapt to the circumstances in which it finds itself.  That doesn’t mean that some arrangements might not be better, in purely economic terms, than others, in the short term at least.  Arguing about that balance of advantages is much harder, though, than painting a more black and white picture.

In truth, whether we are looking at the EU or at the UK, the rationale has always been much wider than the purely economic.  Mankind may be economic animals, but we’re not solely economic animals; there are wider considerations which come into play.  It’s a consequence of the extent to which the capitalist ideology has permeated thinking that the arguments are almost always presented in purely economic terms, coupled with a laziness which prefers to bandy numbers and statistics rather than debate wider concepts (to say nothing of an attempt, in some cases, to disguise the real motives).

My starting point is that we need to find ways of exercising sovereignty at a local level as far as possible, whilst pooling that sovereignty where needed in order to tackle wider issues.  It isn’t an easy balance to achieve; and there isn’t a single right answer to the question.  That’s no excuse for avoiding the question.  There’s much more to life than economics.

And another thing about that dam...

Tweet There’s a good reason why all the mockups and impressions of the proposed Severn Barrage show a road across the top.  Although the scheme’s proponents talk about the barrage itself being entirely privately financed, it is unlikely that the barrage would ever be built without the public sector financing that such a road requires.

In theory, it could be a rail link rather than a road link –  a 21^st century alternative to the Severn Tunnel would surely be worth having.  The proposed barrage is really in the wrong place for that though – the alternative (smaller and less environmentally damaging) Shoots Barrage would be much better placed to form part of HS3 – Wales’ link to the European rail network.  So road it would be.

That of course means connecting it to the M4; and I do wonder whether any of the proponents has really looked at a map to consider the implications of a four or six lane highway between Lavernock and the M4.

Assuming that little problem could be overcome, it also raises the question as to how such a road would be funded in practice.  For reasons which escape me, and which seem to defy logic, most, if not all, of our elected politicians seem to be wedded to the idea that road tolls are a very bad idea unless the road crosses a stretch of water, in which case they become a very good idea.  So much so that two parties (Labour and Plaid) are now in favour of using roads-which-cross-water as a source of taxation revenue to fund other projects.

It’s probably reasonable to suppose therefore that any new road crossing would be funded by tolls and that those tolls would have to be set at a higher level than the tolls for the existing crossings – the proposed bridge is, after all, considerably longer than either of the existing crossings and more expensive to build in consequence.

Using the logic applied when the second Severn Crossing was opened, we can’t really have a situation where the crossings are priced differently, since few people would then use the higher-priced crossings.  So I think we can assume that all three crossings would be priced at the new higher level – and that such tolls would continue for the foreseeable future, rather than being reduced (or even abolished) at the end of the current contract period.

So how much of a leap is it really to say that those politicians and others supporting the Hain barrage are, in effect, also supporting not just the retention of Severn tolls but increasing them to a higher level and maintaining them at that level for the indefinite future?

Being overtaken by events?

Tweet The Conservatives seem to be busy digging their European hole even deeper and wider as fast as they possibly can.  There is clearly within that party a deep-seated dislike of all things European.

It’s not often that I find myself agreeing with Norman Lamont, but on this occasion his assertion, although not quite in so many words, that ‘renegotiation’ was nothing more than a fig leaf to enable David Cameron to buy off his party in the short term and keep the UK within the European Union in the long term has a certain ring of truth to it. 

Whether the “renegotiation” ploy will work remains to be seen.  It clearly worked for Harold Wilson in 1975 but I’m not so sure that Cameron has as strong a grip on his party as Wilson had on his.  And Wilson’s Labour Party was badly enough split on the issue.

It’s difficult at times to work out exactly what it is about Europe that so many in the Conservative party have taken such a dislike to.  Lord Lawson attempted to spell out part of his objection at least.  He is quite clear that the European Union is attempting to obstruct the inalienable right of London based international capitalists to rip off the rest of the world and to destroy any country’s economy whenever they so choose.  Those weren’t quite the words he used, but it seemed to me what he was, in effect, saying.

Others have talked about freeing the UK from European bureaucracy in order to be able to compete more effectively.  Somehow it seems to me that the rest of the European Union’s members are unlikely to allow the UK to simply exempt itself from the rules which control them and then be allowed to gain economically through an unfair competitive advantage.  And the idea that the UK can compete (in the foreseeable future at least) with low-wage economies such as India and China, as has been suggested by at least one Conservative, seems to me equally fanciful.  Until such time as wages and living standards in those countries catch up with the West, it seems to me unlikely that competition is a realistic prospect.

It’s difficult to escape the conclusion that the real issue is more to do with the perceived electoral threat from UKIP; but that is itself a euphemism for an attempt to appeal to a certain group of voters who traditionally vote for the Conservative party.  There is a section of the electorate which is deeply hostile to Europe, Europeans, and indeed 'foreigners' in general (and I rather suspect, to those of a darker hue in particular) and the line being trodden by those attempting to pander to that section of the electorate without appearing to become openly xenophobic, or even racist, themselves is a fine one.

Attempted populism always carries a danger that events starts to overtake those who think they are in control of them; quite apart from the other dangers which arise from any attempt to appease that particular section of the electorate.  Cameron’s weakness is in danger of leading him into a position where, although I suspect this is contrary to his own instincts, he ends up leading the UK out of the European Union.  And even if he's unlikely to win the election which is such an important precondition, it seems that there are those in the Labour opposition who are being tempted to follow the same line.

The idea that the UK can return to some sort of imperial age independence may appeal to a particular section of voters, but it’s unlikely that most of us would benefit from it.  But, for all their talk of maintaining a rather different union closer to home, it looks as if the separatists are gaining the upper hand within the Conservative Party - and gaining ground in the Labour Party as well.

The dam with a hole

Tweet Just when it was starting to look as if the whole scheme for a Severn Barrage was sinking rapidly – so much so that the MP for Hafren Power Central Neath was starting to foment trouble elsewhere (How could the Labour Party ever think it could win any elections without his advice?), up pops the Western Mail with a front-page banner headline claiming that the barrage scheme has been “boosted” by the engagement of a number of major companies. The paper thinks this is a big story apparently – although not quite big enough to depose rumours about managers of Welsh soccer teams being enticed away to Everton from the very top of the front page.

I wonder whether it’s really that big a story – is it saying much more than “companies sign contracts from which they expect to make a profit”? The paper merely tells us that the companies have “been engaged” to assess the project; it tells us nothing about the commercial terms of engagement. One assumes that they’re expecting to be paid for their work; and companies accepting paid work for profit tells us little about the viability of the scheme itself.

It’s possible of course that I’m being too cynical here, and that they’re doing work for nothing at this stage in the hope of a bigger payback later. It’d be a gamble if they were.

The Western Mail has become something of a cheerleader for this doomed project. Its editorial tells us that “the environmental advantages of building a barrage are demonstrable”, but gives us only that half of the story which fits that particular narrative.

To read both the story itself and the editorial comment, one might conclude that the only opposition to the scheme comes from the owner of Bristol Port; and that as he is a donor to the Conservative party his concerns can be dismissed with no further consideration.

Not only do the environmental arguments for the barrage not stack up, but neither do the economic ones. This barrage will only ever be built – regardless of what its proponents say – if there is a massive investment of taxpayer funding; even if it is disguised funding. It is no coincidence that all the drawings and artists’ impressions of the scheme show a bridge over the top of the barrage.

Hafren Power have been, in fairness, clear from the outset that they would not provide that bridge, nor build the higher and stronger barrage which it would require. That is something that we would have to pay for, but since no one seems able to conceive of a barrage without a road on top, public involvement would be inevitable.

I’d lay odds that the risks and rewards will end up being shared in the usual fashion between the public sector and the private sector – the public sector (all of us, effectively) would get to share the risks amongst ourselves, and the sponsors of the scheme would get to share the rewards amongst themselves.

Preventing that which never was

Tweet A report in the Western Mail last week talked about the need for schools to educate children to prevent them becoming “radicalised” and turning to “terrorism”.  It’s not the first report of this nature to leave me feeling more than a little uneasy; the BBC carried a report a month or so ago in which the Home Office claim to have “deradicalised” 500 people.

The first concern that this raises in my mind is partly related to a sloppy use of language.  Words like radicalised and terrorist are starting to lose any meaning as they are applied in increasingly general fashion – what’s wrong, exactly, with holding radical views for instance?  There’s a danger that we start to treat different views as always being unacceptable views.

The second concern is around the idea that either the government, or the school, can identify those at risk of developing into “radicals” with sufficient accuracy to be able to target individuals or groups and bring them back onto the path of righteousness.  It’s hard to see how any such approach can avoid the danger of branding particular demographic groups as potential radicals or terrorists.

And how do the Home Office known that they have deradicalised anyone?  Putting 500 people who might or might not have become terrorists through a targeted programme gives a measurable outcome certainly; but the long-term effects of that program are surely open to question at the very least.  An ability to conceal their views and intentions is one of the key factors in the “success” (to misapply a word) of some terrorist activities.  I can’t believe that any techniques likely to have been used in the programme – or any program of which I can conceive in a democracy – would overcome that ability.

The intentions behind such programs and proposals are entirely worthy; we all want to think the government is doing all that it can to protect us, as well as protecting potential perpetrators from themselves and each other.

I can’t help feeling though that a line has been crossed when governments claim to be able to identify large numbers of potential terrorists before they’ve actually done anything; and the claim to have prevented people from becoming what they would probably never have become anyway is more than a little dubious.