The potential impact of a stronger Wales on the West Of England has been “neglected” and should be investigated, according to a major report which sets out the powers the Assembly could gain in the near future.
The IPPR think tank’s report states that the devolution of Air Passenger Duty (APD) could have “considerable” consequences for Bristol’s airport.
It also flags up key differences between the Wales-England border and the one dividing Scotland and England.
This report, Borderland West: Assessing the Implications of a Stronger Wales for the West of England, comes days before the Wales Office is expected to put forward proposals for the next wave of Welsh devolution.
The report, whose authors include devolution experts Alan Trench and Guy Lodge, states: “Ninety per cent of the Welsh population lives within 50 miles of the English border, and there is a huge amount of connectivity, with 138 million journeys taken between the two countries each year. Whereas Edinburgh and Newcastle are 120 miles apart, and a car journey of two and a half hours, Cardiff and Bristol are just 44 miles apart and under an hour away by road.”
Warning of the impact on Bristol’s airport of devolving APD, it states: “One often-cited fear of increased devolution is the worry that devolving air passenger duty to the Welsh government could damage prospects for international connections from Bristol. Due to the proximity of Cardiff airport, it would be relatively easy for passengers to take their business across the border if it were worth the time and cost of additional connecting travel to do so.”
Arguing that Cardiff could compete for long-haul traffic, the authors write: “Cardiff airport is already in a better position than Bristol in this regard, having a runway that can accommodate Boeing 747s and other large aircraft for maintenance and a number of seasonal long-haul charter flights to the Caribbean. The question of whether Cardiff can attract carriers for scheduled long-haul routes will depend on a number of factors, and no doubt a reduction in APD would make it more attractive…
“Approximately one-fifth of the 6.2 million passengers per annum using Bristol airport have an origin or destination in Wales, further underlining the porous nature of the border between England and Wales. With just 94km between the two airports, there is a significant overlap in catchment areas which makes this highly competitive market particularly sensitive to price differences.”
However, the report notes: “A further issue would arise with the status of Cardiff airport, now that it has been acquired by the Welsh Government. Since Cardiff airport is the only substantial airport in Wales, any use of tax levers which advantaged it would have to satisfy EU rules regarding state aids and ‘state monopolies of a commercial character’ – issues of which the management of Bristol airport are clearly already well aware.”
The authors only expect tax competition from Wales to affect the West of England “to a limited extent”.
Exploring the potential impact of income tax devolution, they write: “Given the extent to which there is a shared labour market between the west of England and south-eastern Wales, devolution of income tax creates scope for a noticeable effect. Depending on the tax decisions made by the National Assembly, there may be an attraction for some workers to live on the Welsh rather than English side of the border, even if they continue to work in England.
“But the amount of such an incentive is small – at most, around £318 per year for workers on the basic rate of income tax, if income tax rates were 1p less in Wales than in England. Moreover, [the] number of workers commuting from Wales even to Bristol is about 10% of the total workforce in the city (and less to the neighbouring local authority areas).
“Such a modest incentive is likely to have a limited impact, even in the medium term – and even if it did, would not affect the resources or labour market in the Bristol area (as workers might move homes but keep a higher-paying job around Bristol). In only a small number of cases would the amount of tax saved or other benefits (such as reduced commuting time) compensate for lower pay levels in Wales.”
Playing down the impact of the devolution of land and property taxes, they state: “[If] price were a significant factor in driving economic competition between the two places, Wales already has considerable advantages when it comes to office space and residential property.”
They note that Wales receives public spending worth £9,740 per head compared to the South West’s £8,171.
Highlighting the lack of financial powers at Bristol’s disposal, they state: “The tools by which Bristol and the west of England are able to determine their own economic future remain highly constrained… Bristol retains little of its own tax base or benefits from growth, and has precious few levers to pull to facilitate economic development free from the restrictive hand of Whitehall.”
Sourced from walesonline