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