Saturday, February 26, 2011
THE CHALLENGE - GETTING THE WELSH ECONOMY BACK TO GROWTH
This was created to develop policies that would drive forward the economy of Wales, currently languishing at the bottom of the UK prosperity league table.
During the Commission’s period of review, the UK economy was hit by the deepest recession since the 1920s, with over 88,000 private sector jobs lost in Wales during this economic downturn.
The Commission therefore had to change its focus not only on revitalising the economy of Wales but also on examining how the business sector could be supported to recover from the recession.
Last week, the Commission published its set of recommendations, aptly called “The Challenge” which it believes could make a real difference to the overall economy of Wales over the next decade.
The overriding philosophy of our approach is that the Welsh economy must be driven by the private sector and every business in Wales has a vital part to play in that.
That is why the Commission believes that business rates should be permanently abolished for the majority of small firms across Wales and that any financial levers, such as grants, to encourage business growth should be available to all firms, regardless of the sector in which they operate.
After the failure of three successive Assembly Governments led by Labour, we need to encourage entrepreneurship and innovation to create a flourishing Welsh economy that is driven by the skills and talents of its people.
In particular, we need to maximise the potential of the SME sector in Wales, from the small local corner shop that may benefit from lower business rates and take on an extra employee to a new high technology spin-off that is selling its products internationally.
We also need to ensure that large businesses attracted to Wales, especially those from the manufacturing sector, are firmly embedded within a new innovation ecosystem.
We are recommending that Welsh Conservatives should lobby for the new high speed rail link to be built from London to South Wales and that there may be a better case for this line to be upgraded prior to the proposed Birmingham-Manchester high speed line.
Wales also needs to ensure that it fully takes advantage of the benefit obtained from any UK Government support for superfast broadband infrastructure.
We believe that business development and skills should be directed by one Minister so as to ensure a clear direction for the development of the Welsh economy, one that hitherto has been missing from government.
More relevantly, that provision must ensure that any form of business development or support mirrors the needs of the business and is flexible enough to be able to respond to the dynamic that comes with an enterprising culture.
However, our main recommendation is that the reduction of corporation tax for Welsh businesses which we believe is the radical step required following years of economic decline.
In order to spur investment by Welsh-based companies and attract high value added foreign direct investment, we believe that the UK government should be lobbied for a reduced corporation tax rate for Wales as this is the only major economic structural change that can lift the Welsh economy from the bottom of the UK prosperity league table.
Recently, there have been calls from the private sector for corporation tax to be reduced within another devolved region of the UK.
Last year, the Northern Ireland Economic Reform Group of senior economists, accountants and business interests launched a major report on reduced corporation tax for the province.
It concluded that “reduced corporation tax is the fastest way we know to revitalise the Northern Ireland economy” and estimated “that more than 90,000 extra jobs could be created over 20 years and that the subvention could be cut at a relatively small cost to public expenditure”.
This was followed by a further study from the accountants PWC that noted that “as economies with relatively large public sectors in an environment where UK public spending is to be cut, the status quo with respect to policy (including continuation of the Treasury’s traditional one size fits all approach to taxation across the UK) will simply doom Northern Ireland, Scotland and Wales to fall further behind the UK average”.
The UK Coalition Government has already indicated that it may be willing to consider a regional tax approach after offering new firms based outside the three most prosperous regions in the UK a £900 million tax break i.e. any company set up outside London, the South East of England and East England will not have to pay employer National Insurance contributions (NICs) for the first ten employees taken on during its first year in business.
Given that the reduction in NICs for new firms has been regionally focused, there is no reason as to why other future tax measures may also focus on those parts of the UK in greatest need of support i.e. those areas that are overly dependent on the public sector and desperately need private sector jobs.
With Wales remaining at the bottom of the UK prosperity league table, any measure that directly helps those running Welsh businesses cannot come quickly enough.
The Commission therefore proposes that the next Welsh Assembly Government should seek immediate and urgent discussions with the UK Government and the other devolved administrations about the feasibility of reducing corporation tax in Wales to encourage investment and create vital employment at a time when the economy is recovering from recession.
This, in the opinion of the Commission, is the only major policy that can engender the massive step change needed to turn around the nation’s economic fortunes and ensure that Wales stops propping up the UK economic league table.