|
15 January 2003 |
The Secretary to the Commission
The Richard Commission
Caradog House
1-6 Saint Andrews Place
Cardiff
CF10 3BE. |
|
| Dear Sirs |
The Powers of the National Assembly for Wales
|
| I am writing to you to provide some comments
on the issues raised in your consultation document. I
do not intend to comment on all the issues you have raised
as I do not pretend to be an expert on constitutional
law and, at present, the Assembly has very little direct
impact on the company I work for. |
| However, I do have a fair amount of experience
of how legal and taxation systems can have an impact on
investment decisions within foreign multinational companies
and my comments arise from this experience. |
| At present, I am the Finance Director of the
Julian Hodge Bank, which as you will be aware is Wales's
only indigenous bank (obviously there are a number of
building societies as well) . However, my remarks are
made in a private capacity, have not been discussed within
the bank and do not purport to represent in any way the
views of the directors or the shareholders of the bank. |
| Before joined the bank, I worked as the Group
Treasurer for Waste Management International plc, the
international arm of Waste Management, Inc, the world's
largest waste company. Waste had investments in around
15 countries outside North America. I was involved in
all new overseas investment decisions and am therefore
aware of the kind of issues which influenced whether we
invested or not. Before this I worked for Security Pacific
and Bankers Trust, 2 large US banks. |
| I am going to deal primarily with what I would
see as some potentially harmful effects of the Assembly
gaining primary law making and taxation powers. These
I would see as follows: |
|
| 1). A separate legal system
costs investors money |
| At one time in my previous job, we were considering
making an investment in one of the newly independent Baltic
states. We decided not to for a number of reasons. One
of them was that given the relatively small size of the
market (which was however larger than Wales), we did not
want to incur the expense of getting to grips with an
unfamiliar legal system. |
| 2). A new legal system
will always be mistrusted by investors |
|
| Investors like certainty. The English (obviously
actually English and Welsh) legal system has developed
over hundreds of years, and investors now feel they understand
the way it works even if they do not like some of the
laws. As a result, English law and the English courts
are often used for international contracts. Investors
also feel that they understand the relationship between
the political system and the law (i.e. how the law might
evolve), because they have some knowledge of the views
of the major political parties. |
| Neither of these would apply in Wales. Effectively
international investors would see a new legal system as
a blank sheet of paper, even if those powers were unlikely
to affect them (because they will not have time to do
the research). The mere existence of separate legal powers
would therefore be a potential deterrent to investment. |
| A new legal system also tends to have more
unstable legislation as people are less experienced in
dealing with the issues involved. This is also disliked
by investors. |
|
| 3). Some of the potential
areas of competence will themselves be seen as problematic |
| Manufacturing industry in particular might
be put off by the idea that Wales might have more restrictive
environmental laws than England. Environmental costs are
seen as a big negative by many multinationals, in spite
of what they may say in "social responsibility reports". |
|
| 4). The stability of any
constitutional settlement will remain in question |
| Since we did not start the devolution process
by going out to create a federal system, the constitution
of the UK is defective in not having considered from basic
principles what powers should be devolved to.the regions
and "nations" of the UK as a whole. There is . no logical
reason why Scotland should have a separate criminal system,
for example. Powers have been devolved to Scotland which
did not need to be to bring decision making on basic services
closer to the people (which most Welsh people who support
primary law making powers would see as its objective). |
| Unless there is a new UK constitution which
is accepted explicitly by all parties including the nationalists,
potential investors will always fear that new powers will
be transferred which may result in legislation which could
damage their business (e.g. additional employment rights,
onerous Welsh language obligations). |
|
| 5). The long term political
make-up of the Assembly is uncertain |
| Whilst I do not wish to make explicitly political
points, it is undoubtedly true that no-one knows how a
Assembly government containing Plaid Cymru might work
in practice. This will make it difficult to give long
term commitments to investors on how Assembly powers might
be used in practice. |
|
| 6). The Scottish model
is more problematic than people realise |
| When one raises concerns about the principle
of Wales having law making powers and the possible reaction
of investors to this, the immediate reaction is that "Well
it doesn't seem to be a problem in Scotland". In reality,
the fact that Scotland has different laws relating to
the enforcement of debts means, for example, that a number
of finance companies will not do business in Scotland.
The Finance and Leasing Association has recently drawn
attention to the additional costs and risks of current
Scottish Parliament proposals on dealing with defaulting
debtors. |
| In addition, so far Scotland has not yet used
its tax varying powers. |
|
| 7). Tax varying powers
could cause major problems |
| The existence of something regarded by companies
as "Welsh taxation" would be a significant disincentive
for investment. Even though the Scottish powers do not
apply to companies, they would apply to sole traders and
partnerships and would result in businesses relocating
to England to avoid them. The managers of larger businesses
would make sure they lived in England-for me it would
only involve moving 2 miles. In order for this effect
to be muted, similar tax powers would have to be transferred
to the English regions. This would mean that the "Barnett
formula" would have to be revisited with all the potential
conflict over the share-out of national tax revenues. |
| In addition, such taxes would be very easy
to avoid. Sole traders would avoid the tax by incorporating. |
| The uncertainty over the long term settlement
and the political complexion of the Assembly would again
make it difficult to make credible long term commitments
over tax rates. |
| Finally. |
|
| 8). Most investors in
Wales are English |
| People tend to think of "inward investors"
as European, Far Eastern or US. In fact, most investment
in Wales is from England. Why should English companies
locate in Wales if there are more onerous laws and higher
taxes? Primary legislative and tax varying powers would
mostly benefit the people of Bristol, Gloucestershire,
and Cheshire. |
| I hope you may find my comments useful. |
| Thank you for your time. |
| Yours truly
|
| Clive M. Jones |
| |
