THE BEGINNING OF A REGIONAL TAX POLICY?

Whilst the focus from this week’s budget will be on the reductions in public expenditure, it is worth noting that George Osborne will also offer new firms based outside the three most prosperous regions in the UK a £900 million tax break.

Focusing a pre-election promise on those regions hardest hit by the recession, the Chancellor will announce that 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

In a long overdue intervention that previous governments have avoided, this will be one of the first taxation measures developed that will directly help those entrepreneurs who are thinking of starting a business by reducing their outgoings during the critical first twelve months.

With the Assembly Government calling for a growth in the private sector to combat our dependence on the public sector, this measure could help to stimulate greater levels of new business creation within the Welsh economy, which has declined considerably during recent years.

For example, whilst the average decline in the number of new business births across the UK as a whole between 2004 and 2008 was 3.5 per cent, in Wales it was 19.4 per cent - the worst performance of any region of the UK

This catastrophic decline in the number of new firms being created by local entrepreneurs has had serious consequences for the economy.

In terms of employment, this decline has meant that 6,270 fewer businesses have been created in Wales since 2004, impacting directly upon the number of new jobs within the private sector.

If we assume that each of these ‘lost’ businesses only generates, on average £50,000 of sales every year then, taking survival rates into account, the turnover lost to the Welsh economy has been around £600 million since 2004 (and this was before the recession hit this nation hard).

It is also expected that George Osborne will confirm in the budget the scrapping of Labour's planned increase in employer NICs and propose ‘road map’ to cut corporation tax and the raising of income tax thresholds towards £10,000 by the end of this Parliament.

Given that the reduction in NICs for new firms has been regionally focused, one can only hope that 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 managing Welsh businesses cannot come quickly enough

I also hope that George Osborne will consider whether there should be different rates of corporation tax across the regions, as that could stimulate job growth in areas such as the North East, Northern Ireland and, most importantly, for Wales.

The case has already been made for Northern Ireland before the last general election with local economists showing that, with reduced rates of corporation tax, an additional 90,000 jobs could be created in that region (political anoraks can read the recent debate on the subject here).

Alternatively, he could introduce a lower rate of corporation tax for the manufacturing sector, a move that would benefit Wales enormously as we are more dependent on this sector than any other.

It may also encourage overseas companies to relocate to areas such as Anglesey that are in desperate need of employment whilst securing existing manufacturing investments in our industrial heartlands of Deeside and Wrexham.

Certainly, if there are reductions in public sector expenditure later this week, this needs to be balanced by measures to stimulate economic growth, especially within the less prosperous regions of the UK, and these policies to help new firms are definitely a first step in the right direction.