Differences in taxation-based incentives, Dr Ball says, have proved to be a powerful tool of economic development in many parts of Europe. Such incentives have been based on corporation tax, however, but profit has to be made before any such incentives become attractive. An alternative response is to introduce a tax based not on profit but on turnover. While the encouragement of profitable businesses is essential to economic well being, the definition of profit is at best ambiguous. Profit levels can be manipulated and transferred between operations and countries, resulting in a situation where there are no profits to be taxed. The great advantage of a turnover tax is its simplicity and transparency. Tax-based incentives, such as capital allowances would still apply but be off-set against the liability arising from the turnover tax. The mechanism for the collection of the tax already exists through the VAT system. The tax would incorporate a sliding scale at the lower end to encourage smaller, and probably local, businesses and as with VAT there would be a threshold below which the turnover tax would not be paid.

Although separate data on the amount of corporation tax paid in Wales is not currently available, extrapolating figures produced during the 1990s shows that a turnover tax would at the very least equate with the total amount of corporation tax paid in Wales. To boost competition, introduce buying power into the economy and simultaneously address the benefits trap, Dr Ball calls for a fundamental change in the personal taxation system, replacing the present taxation system with one based on a single, flat tax. Adopting a single, flat tax, applicable across the board would have the effect of putting money, and demand, into the economy. The resulting economic dynamism would generate additional revenue for local businesses. In addition, low taxed incomes would mean that those on social security would no longer be penalised when moving into work, even if the work was low paid. This measure alone would have the particular attraction of addressing the benefits trap, boosting incentives to seek employment. There would be little or no loss in taxation income to HM Treasury, since many of those who would benefit from this tax system would almost certainly be in receipt of social benefits or below the personal taxation thresholds.

A Strategy for the Welsh Economy by Dr John Ball is available for purchase: £10 to non-members and £7.50 to IWA members (plus £1.50 for P&P). Email wales@iwa.org.uk or telephone 029 2066 6606 for more information or to order.

Labels: corporation tax, john ball, stock exchange, treasury, welsh economy

As discussions have taken place in the IWA seminars it has become apparent that the progressive consensus of One Wales raises many questions. Wariness of the private sector features in the One Wales document, which said: 'We firmly reject the privatisation of NHS services or the organisation of such services on market models. We will guarantee public ownership, public funding and public control of this vital public service.' However, issues about medication, for example, challenge this assumption that the NHS is purely public. Paying for medication, and specifically which drugs are available on the NHS in Wales, has been debated throughout the UK. Pharmaceutical companies make huge profits from drugs delivered by the NHS. In light of this, is the NHS a purely public service?

Wales needs to have more informed debates about the role of the private and public sectors. Do our current public service arrangements allow innovation and provide adequate (and not merely financial) incentives? Will Hutton’s criticism of the progressive consensus was that it assumes the concepts of state and public to be the same. In the broadcasting realm the BBC is, for example, a public rather than state broadcaster. In Wales, and the UK also, Hutton said we need a more sophisticated understanding of what ‘public’ means.

Returning to the medicines issue: advances in medicine have increased expectations and costs in a way that the architects of the NHS could not have conceived 60 years ago. There are strong attachments to certain ideals, meaning concepts such as private medical insurance and charges would not be popular in the current Welsh setting.Yet, there is a responsibility on politicians to make tough decisions in allocating and deciding on sources of funding.

The overall UK budget has been running a large deficit for some time and many of the indicators suggest a slowdown in the economy, which will have a direct effect on public spending. The challenges are great but so, now, is the opportunity to cultivate Wales-specific solutions to Welsh issues through the Assembly. If we are to continue to develop health and other services in Wales we must have these debates about the public, private, profits and their connected issues.

Labels: BBC, david marquand, john hutton, john kay, one wales agreement, peter stead, welsh assembly government, welsh economy, welsh politics, will hutton