Cardiff airport

I don't blame Bristol Airport managers for kicking up a fuss - that's part of their job. In terms of the wider Bristol economy though direct flights from Cardiff to NY, a Middle East hub etc would be of huge benefit and scrapping long-haul APD at Cardiff is probably the only way to tempt airlines into offering such services from either airport.

I agree that if the roles were reversed, Bristol would be arguing for cuts in rates to boost competitiveness, and then claiming that this was about "competing for longer distance flights with Heathrow rather than with Cardiff, which operates in a different market for short-haul flights". Business will be business (and people will be people) and will lobby rather shamelessly for something that gives them an advantage.

However, I don't think that means that the point is completely invalid. Tax competition is a looming issue in the UK. Proposed cuts to APD in Edinburgh would impact on Newcastle. Passengers and Airlines use Edinburgh over Newcastle purely for tax reasons. Thats an economic distortion that benefits Edinburgh but hurts Newcastle. And in fact, the losses outweigh the gains from a UK-wide sense (unless one believes that air travel is overtaxed to begin with, which I doubt, because airline fuel is not taxed).

Newcastle could lobby Westminster that powers should be devolved to the Newcastle City region. If it gets them, it will cut rates so it can compete with Edinburgh more effectively. Flights and passengers will migrate back to Newcastle. If overall demand isn't very responsive to price, we may end up in the situation where there are no more flights than before. All that happens is they pay less tax. So now Scotland is worse off than initially (same flights, less tax). Newcastle is ambiguous - because it is also competing with Leeds-Bradford: it has restored its competitve position vis a vis Edinburgh and improved it versus Leeds-Bradford. Leeds-Bradford will lobby. And so on. Eventually, might the UK government just cut APD across the UK?

Same reasoning with Bristol and Cardiff, obviously.

You can also make similar arguments about devolving business rates; or devolving corporation tax.

Now I'm not saying tax competition is always bad. It can stop governments taxing "too much" sectors with limited political clout, but that are very mobile at the local level. It might spur overall economic growth, so in the very long run, pay for itself even in terms of government revenues.

But it has problems. Aand it is assymetric: It is easier for a small country or area with a small tax base to compete (because incoming investment, activities are large relative to the existing tax base) than a big country or area with a big tax base. Thats why its usually small countries with low corporate tax rates and big ones with high rates. It will be harder for England to follow Scotland, Wales and NI if they engage in tax competition. Given England already contributes to large net transfers of taxes to each of these nations, it'd be quite understandable if there were a backlash if these nations then used their devolved powers to undercut and undermine England.

I don't blame them either, they'd be daft not to. I just find it a bit amusing.

It's just business, tough luck really.

I don't blame them either, they'd be daft not to. I just find it a bit amusing.

It's just business, tough luck really.

But thats the point with tax competition, it isn't "just business".

It's not Cardiff outcompeting them on a level playing field in terms of tax, regulations, etc. Its not business fundamentals driving commercial decisions. Its the tax system. Now you get that internationally, and even subnationally to an extent. But further tax devolution increases that. Businesses won't necessarily operate where most productive, but where they pay least tax. In this case, flights won't operate from the most efficient airport that best serves passengers. But instead, from where they pay less tax.

It's like when you pay subsidies for firms to open in deprived areas. You're distorting business decisions. Sometimes thats worth it for social goals. Sometimes its not.

What I'm saying is that from a Wales-only perspective it might be worth cutting rates in Cardiff. From a South West perspective it would not be; and from a UK-wide perspective, probably not either.

And going from the case of the airport to the broader issue, we're potentially setting up a system not only where Wales, Scotland and NI are massively subsidised by England. But a system where they also have much more freedom to maneuver and adopt policies to compete with England (and especially certain regions of England), that England just cannot respond to (because size is the enemy in tax competition). Its a bit like biting the hand that feeds us...

I know it's more than just business David, but the fact is you have to look out for yourself, just as Bristol has done for years.

They don't worry about the positive impact on their economy of other typedsof government decision or investment and neither should we.

Well then, how about my tax money and all that of other people in London and the home counties stay in the region? If we're looking out for ourselves...

I don't like a beggar-thy-neighbour approach to policymaking. It happens yes. But we can design systems to stop it happening so much. Sometimes that means not devolving powers, especially over taxes with particularly mobile tax bases. Other times it means trying to coordinate internationally to try to reduce the extent this kind of competitive behaviour can be exploited - witness aims to reduce tax avoidance by multinationals with the BEPS project by the OECD.

with London being the worlds largest tax haven, the UK is a net beneficiary of BEPS

If Liam Fox is against it then I'm automatically in favour of it.

Devolving air passenger duty has to one of the stupidest decisions taken at a UK level in recent years. One bad opinion poll on the independence referendum and our 'strong' prime minister is up there promising further devolved goodies whilst maintaining the Barnett formula. He then manages to run a successful election campaign about how Labour in power would be in the pocket of Scottish nationalists. The key attribute in modern politics appears to be having more front than Brighton.

We worry about the rise in hostility to foreigners and anti-EU sentiment. But it's worse than that. Forget nationalism. We're in danger of descending into a load of petty regional squabbles.

Frank - I kind of agree. Although I think the elephant in the room here is England and if that Lion roars, the rest of us will be off the gravy train (I don't really detect regional antipathy growing in England yet, although it might).

I'm in favour of devolution when its about greater local financial accountability, and about tailoring services to local preferences and needs. That means parts of the "City Regions" agenda (although what about rural areas), some links between the amount that can be spent in an area, and the amount of taxes raised - hey maybe even devolving some income income or VAT revenues to regional levels.

Theres some of that - in the North of England, and actually, in Scotland (where it is broadly about autonomy, even if they want to cut a good deal on the block grant). But increasingly the debate is about extracting more resources for your area, or engaging in beggary-thy-neighbour tax competition.

Witness campaigns for London to have a proportion stamp duty revenues raised there - it wasn't about incentives/accountability it was about extra money for London, as witnessed when it went quiet when the top end of the market started turning sour. Or the APD issue. Or corporation tax and the frankly ridiculous position of Sinn Fein on welfare in Northern Ireland.

Maybe this is the more individualistic world we're in. Increasingly seeing politics as a zero-sum game of trying to appropriate resources at the expense of other people/regions. I for one find it depressing.