I'm back - missed me?
Just a quick post about yesterday's Emergency Budget. For me one measure in particular stands out and that is the allowance to exempt new businesses which start up outside of the South East of England, East of England and London areas from paying the first £5,000 of Class 1 employer NICs due in the first twelve months of employment - this will apply for each of the first 10 employees hired in the first year of business.
As this blog has long argued, for Wales to attract greater inward investment and grow its private sector it needs to provide a more favourable economic environment than England. As we are on the periphery of the UK with fairly poor transport links, companies need to be extra incentivised to set up so far from the economic and population centres of the UK and Europe. Currently, all regions of the UK have exactly the same rates of corporation and income tax, which are set centrally by Westminster. The only taxes which the Welsh Assembly Government has the power to adjust in order to differentiate the region from other parts of the UK are Council Tax and Business Rates. However despite Wales needing to provide that 'extra economic incentive' for businesses to set up in the Principality, the fact is that until recently Business Rates were actually higher in Wales than any other region of the UK. Since March they have been brought inline with Rates in England, but are still higher than Business Rates in Scotland where businesses enjoy an additional rate relief.
This provision by the Government to apply a regionally differentiated National Insurance policy is truly groundbreaking and could be, as Dylan Jones-Evans says, the beginning of a Regional Tax Policy.
Personally I would like to see much more of this with the Assembly Government given much more powers to adjust the levels of both income and corporation tax in Wales so that we are able to compete with neighbouring regions in terms of tax - and thus make Wales a more attractive place for businesses. However, that said, Wales's problem is that it's Public Sector is simply too large to be sustained by the tax income from Wales alone at current rates. In reality, were WAG to be given more tax raising powers - at the cost of losing a portion or all of the current Barnett formula subsidy - tax rates would need to go up NOT down just to sustain Wales's current Public Sector, thus making Wales a far less attractive place to do business. This is one aspect of Plaid Cymru's policies which have always puzzled me - if they truly believe in eventual Welsh independence then surely it would be better for them to pursue a policy of gradually reducing the size of the State in Wales - i.e. creating a lean and mean public sector fully able of being supported by the tax take in Wales alone - so as to make any eventual devolution feasible without huge tax hikes. Instead Plaid seem content to grow the size of the Public Sector in Wales whilst at the same time complaining about the £300m shortfall in funding via the Barnett Formula - both policies which will ensure Wales is tied to England for a long time to come.
Anyway, no doubt we will be hearing a cacophony of complaints from Labour and Plaid WAG Ministers about the "unfairness" and "recklessness" of this budget. A good time therefore to remind ourselves why we are in so much debt. And, no, its not all down to bailing out the banks. Here are the amounts the Labour government borrowed every year since 2002:
- 2002 - £19bn
- 2003 - £34bn
- 2004 - £36bn
- 2005 - £41bn
- 2006 - £30bn
- 2007 - £33bn
- 2008 - £61bn
- 2009 - £142bn