Selective devolution

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According to the BBC, a report due out shortly is likely to recommend that full control over business rates should be devolved to the National Assembly as a move to help businesses in Wales.  The implicit assumption behind that, of course, is that the result of devolution of control would be a reduction in the level of business rates, although that is not the only possible consequence.

As one who favours full devolution of all taxation to the Assembly, I’m hardly likely to oppose the proposal in principle.  And I’ve argued before that reducing taxes on the operation of businesses and taxing the money through Income Tax and CGT when it is taken out of the businesses would help to boost GDP in Wales.  (With the proviso, naturally, that there are no loopholes which allow the money to be transferred to an alternative tax regime before being withdrawn.)

There are, though, two aspects of this proposal which concern me.

The first is that calling for power over one form of taxation, and then for a reduction in that tax, without the power to increase taxation elsewhere to recover any lost revenue is tantamount to calling for the Assembly Government or local councils to cut spending elsewhere.  In effect, it means transferring available funding out of fields such as education in order to give Welsh businesses a competitive advantage over businesses elsewhere in the UK. 

That implication doesn’t seem to have been spelt out at all clearly.  But it’s the reason that I would always argue for devolution of a range of tax-varying powers rather than a single tax; taxation needs to be considered in the round.

The second concern is the suggestion that business rates should be retained by individual councils rather than paid into the centre and then dispersed on the basis of some formula.  The idea is not without merit; after all, the businesses concerned receive their services from the council in whose area they are situated – why should the revenue not go to that authority?

However, the current system allows for a degree of geographical redistribution.  It may not be the right way, or even the best way, of managing that redistribution, but merely removing it without putting some sort of replacement mechanism in place is a recipe for widening geographical disparities in Wales.