Anyway, what I find dissatisfying in this whole affair is the piecemeal nature of the promise of action in Northern Ireland but not elsewhere - despite similar levels of need. It seems to me that the N.I. special measures are dependent on special pleading - Northern Ireland's politicians have obviously managed to make their case to the Coalition far more effectively than our own Welsh politicians who appear to be more interested in in-fighting (think of the situation in own beloved Anglesey, but writ large).
Anyway, it therefore occurs to me that the fairest and most equitable solution would be to introduce variable levels of corporation tax (and possibly business rate relief, etc.) in the UK based on relative regional GVA indices. I understand that Gerry Holtham has proposed something similar, but here's my own modest proposal.
Gross Value Added (GVA) measures the contribution to the economy of each individual producer, industry or region in the UK and is an important measure in the estimation of the nation's total Gross Domestic Product (GDP). However, GVA has also become the preferred measure of the Government in assessing the overall economic well-being of an area. As such it is the ideal yardstick to use in comparing the relative need of different UK regions for variable rates of corporation tax. I would propose the following system:
- The system would be based on headline GVA per head indices for NUTS2 regions (a subdivision of the UK used by the Office for National Statistics whereby the the UK is divided into 37 subregions)
- In regions where the GVA per head index is at 90 or above: no change to corporation tax.
- In regions where the GVA per head index is between 80-89: a reduction in the corporation tax by one percentage point.
- In regions where the GVA per head index is between 70-79: a reduction in the corporation tax by two percentage points.
- And so on...
- West Wales and The Valleys (Anglesey, Gwynedd, Conwy and Denbighshire, South West Wales, Central Valleys, Gwent Valleys, Bridgend and Neath Port Talbot, Swansea)
- East Wales (Monmouthshire and Newport, Cardiff and Vale of Glamorgan, Flintshire and Wrexham, Powys)
In terms of the cost of introducing such a system, it would be tempting to offset the costs of reducing corporation tax in some regions by raising it in other more 'profitable' regions. I would resist this temptation in order to ensure that the country as a whole is competitive internationally. I do not have the entire resources of the Treasury at my disposal so cannot attempt to cost this proposal accurately, but one would hope that lower regional rates of corporation tax would incentivise many companies to relocate from the South East to other areas providing much needed unemployment and other benefits. Hopefully a large portion of the cost therefore of reducing the corporation tax could be recouped through lower social security and other current government expenditures in those regions.
The advantages of such a system would be to ensure that all regions are treated equitably (and without the distorting effect of special pleading) and according to their need. Should the GVA of the various regions rise, then the rates of corporation tax will also rise accordingly and vice versa. I would be very interested in your views on such a system.
A full list of the GVA per head indices for all NUTS2 regions are below for your perusal:
GVA Per Head Indices UK