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Corporation tax cut could BOOSTWELSH economy by PS700m, claims economist.

Byline: David Williamson Political Editor

ONE of Wales' best known economists argues the UK has the chance to cut corporation tax in the poorest regions in a move which could boost the Welsh economy by up to PS700m.

Eurfyl ap Gwilym said the UK Government's willingness to consider such a model will be an "acid test" for its seriousness about wanting to rebalance the economy once Britain leaves the European Union.

The economist was Plaid Cymru's representative on the Silk Commission on the future of devolution and came to UK-wide attention with a 2010 clash with Jeremy Paxman on Newsnight in which he told the television to do his "homework". Warning of the scale of upheaval Wales could face as the country leaves the EU, he said: "Wales is in danger of being disproportionately impacted by Brexit due to two factors: our greater reliance on the EU as a destination for our exports; and our receipt of PS680m a year from the EU in the form of CAP payments and European Structural Fund payments.

"The uncertainty will undermine confidence and thus investment in Wales. This will happen whatever the final shape of the Brexit deal."

He fears large employers in Wales will "defer investment or relocate major new investments to countries that are remaining in the single market".

Making the case for Wales to gain powers over corporation tax, he said: "The considerations which will make many major employers, particularly those that are parts of large international groups, review future operations in Wales will also weigh heavily on foreign direct investment (FDI). Unless Wales has powers over such factors as corporation tax it will become increasingly difficult to attract FDI."

In an analysis last month for the Institute of Welsh Affairs Mr Gwilym also made the case that the UK Government should consider lower rates of corporation tax for the poorest parts of the country.

He said: "One of the challenges facing the UK is the chronic inequality across the nations and regions of the UK. Could corporation tax policy be used to help redress some of this imbalance? "A way of doing this would be to vary the rate of corporation tax across the UK with a reduced rate been levied in the poorest areas and a slightly higher rate being applied in the most prosperous."

The main rate of corporation tax today is 19% and the Conservative manifesto stated it would fall to 17% by 2020 because this cut would help bring "huge investment and many thousands of jobs to the UK".

But the economist described a scenario in which the headline rate is 20% and it is cut to 10% in the three worst-off areas of the UK - North East England, Wales and Northern Ireland - but raised to 22% in the richest parts of the country, London and South East England.

He said: "The additional 2% levied in the two most prosperous regions should be politically palatable. In the case of Wales such an approach could provide a stimulus of between PS600m and PS700m a year.

"In the model proposed the cost of this stimulus would not be deducted from the annual block grant, an action which would be self-defeating, but would be a transfer from the most prosperous areas of the UK to one of the least prosperous."

Setting out the hurdles he expects Wales to face as the country leaves the EU, he said: "As well as ensuring that Wales continues to receive development funds to replace the loss of EU structural and social funds a measure to reduce the rate of corporation tax as described here could mitigate the damage wrought by Brexit as well as helping geographically to rebalance the UK economy. Willingness to adopt such a model would be an acid test for how serious [the] UK Government is about geographically rebalancing the UK economy post-Brexit."

The economist argues Brexit will remove an obstacle to the devolution of corporation tax.

He said: "Plaid Cymru has long been an advocate of devolving corporation tax where it could then be used as part of the tool-box for revitalising the Welsh economy and attracting more foreign direct investment. Until now such devolution was thought to be contrary to EU rules but with the coming of Brexit this obstacle will disappear."


Eurfyl ap Gwilym clashes with Jeremy Paxman on Newsnight in 2010

'Wales is in danger of being disproportionately impacted by Brexit' - Eurfyl ap Gwilym
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Publication:Western Mail (Cardiff, Wales)
Geographic Code:4EUUK
Date:Jun 24, 2017
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