Referendum : The Corporation Tax Cut Race to the Bottom

Lesley Brennan

4 June 2013

One of the few policies that the SNP are not reluctant to talk about  before next year’s Referendum to inform Scotland about the kind of independent country they want is their Corporation Tax Minus Three Per cent policy.

Tory Chancellor George Osborne has promised to cut corporation tax for UK businesses from 23 per cent to 20 per cent by the time of the next General Election in 2015.

The SNP would then intend to undercut that by 3 per cent

So whatever rate the Tories implemented , the SNP would want to lower it  by a further by 3 per cent in Scotland.

This would precipitate a fresh round of cuts between Scotland and the remainder of the UK in  a race to the bottom which Scotland does not need.

The downside of these tax cuts for business -  that there would be, as a consequence of this, less money from these revenues  to pay for the social services we need such as health, education, pensions, housing,  - is not significantly addressed by the SNP. 

So how does the promise of a 3 per tax cut stack up against reality or is it just part of their story that everyone’s a prize winner in an independent Scotland?

Last month, a survey by the Scottish Council for Development and Industry revealed “ no great desire” amongst businesses for the 3 per cent extra cut and questioned how the tax cuts would be funded. 

Two years ago, the STUC had already said that they “ do not accept that cutting the rate of corporation tax in Scotland will boost long-term sustainable growth in GDP and employment.

“The Scottish Government‟s case that it will is based on flawed and selective ‘evidence’ and a misunderstanding of the Scottish economy and current business environment. Scotland in 2011 is not Ireland in 1987.”

The experience of the Irish Republic, the one-time Celtic Tiger,  is evidence that sustained economic growth cannot be built purely on the hope of business investment through a  low tax regime .

International Business Times reported last week on the effect of austerity :  “According to Irish media, some 308,000 people (mostly youths) have left Ireland since 2009 (in a country with a population of only about 4.6 million). Of that 308,000 figure, 41 percent came from the 15-24 age segment.”

The Daily Record joined in saying  “As the Republic of Ireland has shown, cutting corporation tax is no guarantee of success for a national economy” in an article entitled , “Only winners from Alex Salmond's tax haven plan may be foreign business owners “

Claims that a  corporation tax cut would fund itself have been dismissed by the STUC.

It said,  “ It is hugely irresponsible to develop policy on the basis that a Corporation Tax Cut will pay for itself – or even that it will partially pay for itself. It is simply not credible to claim that the revenues would over the medium term - and here it would be helpful to be specific about what constitutes the medium-term - rebound to the tune of £2.6bn. The evidence presented in the paper to suggest that CT cuts will pay for themselves simply doesn’t stand up.

Research by Tax Research indicates that £58 billion over six years from Mr. Osborne’s tax cuts will be gained by big business , who, according to Ernst and Young report, are in the pink of monetary health :

UK corporates have emerged from the recession in relatively good shape and have continued to stockpile cash on their balance sheets. Private non-financial companies are now holding deposits worth over £729billion, a staggering 47% of GDP.”

However, as Tax Research comments on the Osborne give away to business,

“That’s cash given to business it does not need, has no use for and will not invest.”

More problems for the corporation tax cut has arrived from the verdict of Nobel Prizing winning economist, Joseph Stiglitz

Scottish Labour leader Johann Lamont recently quoted him.

“Just a month a month ago he said `Some of you have been told that lowering tax rates on corporations will lead to more investment.

“The fact is that’s not true. It is just a gift to the corporations increasing inequality in our society.”

Professor Stiglitz is one of Alex Salmond’s economic advisers.

Another of his economic advisers is businessman Jim McColl who does favour the extra 3 per cent corporation tax cut. Mr McColl lives in Monaco.

The Nationalists assert that they will keep the £ as the currency of an independent Scotland, though of course, the UK Government has neither agreed to this nor has it entered into negotiations on it either.

Any Remainder- of-the-UK government that would come about after September 2014 would drive a very tough bargain on this, and one likely casualty would be the 3 per cent less corporation tax in Scotland which would see all business north and south of the border on an even playing field again.

Seeking monetary union with the Remainder of the UK government would come at a price – the fiscal policy of the Scottish Government on taxation  and spending on public services being constrained.

What this episode of the 3 per cent cut in corporation tax illustrates is how the Nationalists fail to lay out the consequences for an independent Scotland of a flagship policy that they will feature in the Referendum.

Legitimate questions about serious issues such as pensions, mortagages and social services are dodged, postponed to be answered only after the referendum is ever won.

Stuck far behind the “No” campaign, their strategy for the Referendum for the moment still appears to be chiefly by assertion, and by soundbites, findings of focus groups, and rummaging through opinion polls for scraps of comfort. 


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