“What I would suggest is that if Wales really wants to be enterprising and attract investors who want to stay here ... the best thing we could do is lower the level of corporation tax, the tax that companies have to pay, but perhaps look at something quite radical like the top rate of income tax and lowering that, so that people who are higher earners – and there aren’t many in Wales – come to Wales and start up businesses, and because they do that they are able to retain more of the wealth they are generating.
“I really think that is the only way to tackle the long-term economic poverty that we have in Wales, compared to many other regions in Britain. We’ve really got to have a tax policy in Wales that’s a bit different to that in the south east of England or London.”
For too long successive governments have tried to counterbalance the concentration of private businesses in the South East of England (where they have access to the largest market, complementary service companies, and easy international links, etc) through the apparatus of the state. Regional Development Agencies, staffed by hundreds of bureaucrats, have sought to tempt businesses to set up in their localities through the blunt instruments of offering non-repayable grants or tax holidays. This strategy has been flawed from the outset for two reasons:
- The Agencies have attempted to "pick winners", i.e. select which firms they believe should succeed and then showered them with grants. First of all, as any honest stockbroker will tell you, picking winners is a very, very difficult game. Secondly, this process has been 'self selecting' insomuch that only those companies which are aware of the opportunities have applied for assistance -- in many cases multiple times once they have figured out how to play the system.
- These regional agencies have not been able to bring about any meaningful change in the business environment in their regions, meaning that when the grants run out or the tax holiday ends, the original reason why those companies set up in that region in the first place is removed. Then, like the experience with many multinationals in South Wales, they then shift their manufacturing to lower cost countries.
My point is that in order to generate sustainable economic growth in Wales, it is necessary to create a business environment which has an in-built competitive advantage over other regions, and were that advantage is available to all companies -- not just the ones favoured by a few bureaucrats. A reduced rate of Corporation Tax in Wales would deliver this and I am delighted to see that David Melding AM seems to get it. However, that said, so far the Welsh Assembly has completely failed to create a competitive advantage for Welsh businesses. The only economic lever which the Assembly has full control over is the setting of Business Rates (a devolved matter) and yet as I pointed out the other day, Business Rates in Wales are the highest in the United Kingdom.
We need more radical thinking in the Welsh Assembly along the lines which David Melding is suggesting.