Professor Jim Stewart:

My point is that our industrial policies are tax-based. However, it is very difficult to work out exactly what are the effects of these tax policies. For example, we might want to help indigenous industry by providing tax concessions, but the reality is that most small firms do not pay tax because they are not making a profit. Giving a low tax rate is irrelevant to them. Capital grants are very important, as are access to credit and a range of other issues.

There is a difficulty in trying to work out how multinational companies respond to tax incentives. Are they here because of linkages with the country? While some multinational companies have extensive linkages and are embedded in the economy, others, unfortunately, do not have strong linkages. The problem is that if we set up a very attractive tax regime, we will attract firms for which tax is very important and these are likely to be the very firms which have low linkages and are not well embedded in the economy. In short, they are here because of the tax system. If there is a change in tax regimes abroad - a change in the European Union, the United States or elsewhere, which has nothing to do with us - they may move on. That makes it a risky industrial strategy.