Thursday, 16 September 2010

At last some radical economic thinking from an Assembly Member..!

The Druid has long argued (most recently here) that the most effective way of promoting economic growth in Anglesey and in Wales as a whole would be to strategically reduce the rate of corporation tax levied here. I am delighted therefore to read an interview in today's Western Mail with the Welsh Conservative AM, David Melding, where he advocates exactly the same policy:

“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:

  1. 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.
  2. 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.


mozzila said...

My questions below are asked in ignorance of the business world, so please read them whilst remembering, I am the man who just got on the Clapham bus:

To be successful you need to get the product to the client quickly, so first question - is the infrastructure in Wales good enough?

Today most business is done on the web via e-business I ask therefore is the broadband in Wales as good as it could be?

To succeed you need good staff, does the education system in Wales provide the best workers for the future?

We cannot compete against China and India and other emerging economies such as Poland, therefore we need to find a niche markets, what steps are being taken to identify these developing markets?

Would reducing corporation tax and or income tax for high payers actually help in any of the above?

The Druid of Anglesey said...

Mozzila - You're a long way from the Clapham Omnibus, nevertheless reasonable questions all.

"To be successful you need to get the product to the client quickly, so first question - is the infrastructure in Wales good enough?"

Recognising our position on the periphery of the UK (and arguably on the "wrong side" from the rest of the EU) this is an important point. Transport links in North Wales have improve dramatically and it is difficult to see how the transport infrastructure could be improved further bar direct flights from Anglesey to London and other population centres.

"Today most business is done on the web via e-business I ask therefore is the broadband in Wales as good as it could be?"

E-business places very little strain on broadband networks at all. It is streaming media sites which need and eat up bandwidth. From that point of view I would say that the current broadband is more than serviceable.

"To succeed you need good staff, does the education system in Wales provide the best workers for the future? "

Another good question - and one I am already intending to write a whole posting on soon.

"We cannot compete against China and India and other emerging economies such as Poland, therefore we need to find a niche markets, what steps are being taken to identify these developing markets?"

We cannot compete against places like China & India in terms of manufacturing or other low-value added sectors. But we do and have to compete against other regions in the UK and Europe in other sectors. For the government to try and identify niche markets sounds a little like 'picking winners' to me. The six sectors identified in IWJ's ERP (ICT, Energy and environment, Advanced materials and manufacturing, Creative industries, Life sciences, Financial and professional services) are certainly not niche or areas were Wales has any demonstrable competitive advantage...

"Would reducing corporation tax and or income tax for high payers actually help in any of the above?"

Creating a competitive tax regime is just one piece in the jigsaw - an important corner piece perhaps.

Anonymous said...

The best way forward is for Wales to stop importing cheap rubbish from low econmic development countries, let's me think, let's stop buying cheap rubbish, let's all stop going to poundland and other crappy shops and stop wasting your money on junk. Buy decent stuff, save your money and buy somnething decent, that way we will stop this country being flooded out with garbage from these countries that have destroyed our own businesses.

Stop buying cheap wine and beer, stop buying french cheese and fruit, just start an econmic trade war against the countires that don't trade with us. Simple.

Anonymous said...

That's a good way to get our politicians to stand up, why don't we elect to stop buying french fruit, the next time we all go to tesco or morrisons or asda or wherever we do our shopping, why don't we all boycott french food, wine and cheese, fruit and veg, let's see if anything happens?

Plaid Cymru's Bunker said...

Stopping imports will not help Wales, but learning from other small countries that are successful would be better. Producing high quality products would also help. As for education take it out o the hands of the politicians!

Anonymous said...

please improve broadband on the island it is very important for modern business and cultural life.
It will attract business people like myself. Competitive and low taxes are also essential for small business, but it has to be tackled on a national not just local level. Reducing Capital Gains Tax would be one good place to start, there is no incentive in the current tax code for CGT to incentivise long term investment. And long term investment is what this country clearly lacks.

Anonymous said...

These are all side points Business needs access to competitive markets, They need the resources to penetrate these markets.If we are to move on in our economy first step is get the market working. s

The Great Councillini said...

I have to take issue with the view that broadband is adequate on Anglesey. It clearly isn't. At the moment, I get almost 0.5Mbits/s, or about 60 times slower than the best city cable connection.

If you're sending a simple email, it will be fine. If you are, like me, sending large numbers of digital images down the line every day, then it really isn't fine at all. It means that, whilst the editor is drumming his thumbs waiting, his mind is already wondering if it was a good idea to use someone in darkest north Wales, and whether he should turn to using someone else.

As for making one area of the United Kingdom more competitive than another, surely that makes it less of a United Kingdom? I would argue for a level, not tilted playing field. That way, you get the best services shining through, not the most helped.

Anonymous said...

Focus on jobs for Anglesey, Focus on a trade embargo with France too, we can live without french imports but we can't live without a job, my plan is to start a trade war with France and in retaliation they will open up Anglesey Alumnium and turn it into a Renault factory!

Huw Terry

Anonymous said...

The trade war is in response to the forceful extraction of the Roma from France, they are Europeans with the same rights as you and me, how would you feel if the started to remove Welsh Families from their property forcefully! Oh dear I forgot they do that already in Anglesey!!

Anonymous said...

Council of Europe declare Human Rights Abuses cast a shadow over Anglesey.
Shameful episode in our country..

Jarlath said...

Returning if I can to a question asked by Mozzila, the quality of broadband on the Island. Where the service is provided via the traditional copper lines, the speed of the broadband is down to the distance you are from the telephone exchange, anything further than say 5 miles and the speed will never be acceptable. Optic fibre cables deliver quicker broadband, because the signal has less if no interference.

BT to be fair to them, are committed to improve broadband speeds, but we need to consider whether there is a different system available to deliver fast broadband, say on Anglesey an island wide Wifi service?

It is recognised especially in the USA, that in Europe the main developing market is e-business, if we cannot provide an adequate system for developers to tap into the system what are the initiatives for individuals and or companies to set up on the island.

The Red Flag said...

We have been through this issue on this site not that long ago. It is widely established and accepted that Anglsey's 'woes' are largely down to geography. Any importer/exporter and manufacturer etc needs to be situated in the south and east in order to reduce transport costs with the major customer - mainland europe.

Anglesey it should be remembered is nearer to Dublin than it is to Chester - the first major conurbation down the A55. Therefore it needs to develop in fields where it is unique. Someone above mentioned in jest a car factory. Something like that would be ideal - especially built on the Tinto site - but the infrastructure does not exist to cope with the raw material requirements and the production volumes - the A55 would be a complete traffic jam all day every day and that would impact on other things such as tourism - and not just Anglesey but right along the coast.

The Red Flag said...

/cont. There are other areas that could be explored. The tories wish to remove the British Army from German but cannot until there are sufficient garrisons in the UK (which currently don't exist). How about a Welsh Brigade of the two Welsh Infantry Battalions and the Welsh Cavalry. Along with the supporting ecehlon units you would be looking at 3,000extra Forces wage-earners spending here along with a considerable number of long-term civilian jobs it would create not to mention the short term construction ones. And for what? A bit of unused land down near RAF Valley and the total cost being met by the MoD - even infrastructure upgrades such as schools, NHS facilities etc. Even the council get money via council tax.

That's one idea that wouldn't actually cost Anglesey a penny and would pour money into the local economy all year round and I'm sure there are people on here with plenty more 'localised' ones such as this.