The SNP would risk slashing public spending still further with their plans to devolve Corporation Tax, warns JUDITH FISHER
The SNP Government have not just called for the devolution of Corporation Tax; they have also set out their case for why, they believe, the rate of Corporation Tax should be reduced.
The SNP claim that “lower corporation tax is a vital source of competitive advantage in an integrated global economy, helping to attract new businesses and highly-skilled jobs.”
In reality, cutting Corporation Tax in Scotland would undermine investment in public services and engage us in a fruitless race to the bottom that will have no winners.
We should have learned by now that marketing ourselves as a bargain basement destination for inward investment is not going to work for Scotland, even in the medium term. Scotland can’t compete on operational cost, the outsourcing of services to India amongst our countries is proof enough of that. It’s just not our market.
Where Scotland needs to compete is through our skills base - our natural resources and our quality of life – but to do that we need to invest in our public services and in exploiting our existing advantages.
This month, BP announced that they would be recruiting for between 150 and 300 positions a year in their North Sea operation, but that their biggest challenge was in recruiting the right people with the right skills to fill the positions. That’s not just a challenge for BP, but also for the Scottish education system. Cutting investment in education and skills training is not the way to address it.
We also need to ensure we invest in encouraging business start-ups and in our indigenous enterprises, businesses which will be rooted in Scotland and will contribute both to the economy and to wider society in the long term.
With a current main rate of 26 per cent, excluding North Sea oil, Corporation Tax generated £2.6bn in revenue for Scotland in the year to 2010. If we were to cut Corporation Tax to 12.5 per cent, the rate in Ireland, this revenue would be cut by more than a half.
We’ve been here before. In the run up to the 2003 elections we heard much from the SNP on the importance of cutting Corporation Tax in order to emulate Ireland’s rate of economic growth. Few would now wish us to model our economy on that of the Irish, but as the world economy has changed, the SNP’s commitment to what is essentially a neo-liberal approach to economics remains unshakeable.
It’s peculiar. The SNP like to present themselves these days as a left-of-centre political party and have, along with most of the rest of Scotland, criticised the Coalition’s slash and burn approach to public sector funding. Yet in Scotland the SNP are making the case for reducing income to the public purse still further.
Do the SNP really believe their own argument? Or is this just another example of the SNP using issues of national importance to feed their own constitutional obsession?
We need to invest, not cut deeper and deeper. We need to compete on quality, not sell ourselves short.
Whether Corporation Tax is devolved to Scotland or not, cutting our way to the bottom is not in Scotland’s best interests.
26 thoughts on “Scotland needs to compete on skills, not Corporation Tax”
There is undoubtedly a need for a full and vigorous debate on many issues including whether to devolve Corporation Tax or not, regrettably this article in my opinion does not add much to this debate. To my mind it feels more like a tick box where many of the usual mantras are repeated, eg Ireland, public service cuts, constitutional obsession. The attempt to associate CT devolution with outsourcing call centres is almost laughable as is the assumption of a “race to the bottom”.
I believe that for many people Labour are seen as being “naysayers” and there is a real danger that on this topic they may be seen to be doing the same again. To my mind one of the biggest issues is that even assuming CT is devolved is how that would be implemented, in particular how would the Treasury set this up and administer the scheme, given there track record this is perhaps a bigger challenge than even getting consensus on the principle.
Perhaps sir, you ought to read it again. This time without mearly scanning it for articles that offend you. If you do that you will see that the author points out that we should be prioritising education, not cutting corporation tax that will have little impact for SME’s. If thats you don’t think that is having a debate then we definitely need more education investment now.
The SNP’s case is on corporation tax is incoherent. On Newsnicht last night John Swinney waffled along for ten minutes, avoiding the point here, evading it there, completely missing it elsewhere.
…..the coverage begins about 9 minutes in.
If any of the Nationalists who post here can explain Mr Swinney’s case more clearly than he can himself, it would at least add to the debate.
Mr Swinney spreads obfuscation and misinformation aplenty, but he gives no straight answers nor any clarification. No detail, no evidence and no sense that the policy is anything other than the usual desperate Nationalist attempt to appear to be doing something and the welcome (to Nats) by-product of provoking and exasperating the rest of us.
This is because he has NO case for cutting corporation tax. It’s a power grab.
In cutting the rate of Corporation Tax from 30% to 28% Gordon Brown said this in his Budget 2007 statement, “A lower rate of Corporation Tax can boost the competitiveness of UK companies in the global economy and attract greater levels of foreign direct investment.”
Judith are you arguing that both Gordon Brown and John Swinney are both wrong on the economic benefits of cutting Corporation Tax?
Simple answer, Yes. At that time the economy was still in full employment. A cut in corporation tax would have had a positive effect and was required to keep the country competitive. Now however we are not in full employment and there are other areas where this money is better spent.
The UK government under Labour and under the Coalition agree with Economic Research Institute of Northern Ireland’s assessment that devolving Coporation Tax powers to Northern Ireland that results in cutting Corporation Tax for the region would see gains in competitiveness and foreign investment that would result in the creation of thousands of jobs (up to 58,000), raising of overall living standards and see increases in annual growth.
If having power over Corporation Tax can greatly benefit the UK and Northern Ireland then the arguement holds for Scotland.
There can’t be economic arguements against devolving Corporation Tax powers there can only be political ones.
So why is the Scottish Labour party arguing against something that would greatly benefit all Scots?
That simply does not make sense!
There can’t be economic arguements (sic) against devolving Corporation Tax powers there can only be political ones.
What about the prospect of Holyrood having less money to spend on public services than at present? I accept that there are those who don’t accept that that would happen, but for those who do fear it, isn’t that a legitimate economic argument?
It is recognised that phasing in cuts in Corporation Tax over the medium term results in regions receiving maximum economic benefits, economic growth, more small business start ups, higher wages, jobs, etc, with minimum impact on block grants from the centre.
The UK Treasury estimates that the cost to Northern Ireland would be less than 0.5% of the block grant if Corporation Tax was reduced to levels similar to the Republic over a 5 year period. Indeed it has been argued that such an economic stimulus would mean less overall demand on the public purse in Northern Ireland – the cost of goverment will be reduced.
For Northern Ireland this is a no brainer – it is the only economic policy they have for sustainable job creation.
“So why is the Scottish Labour party arguing against something that would greatly benefit all Scots?”
Eh, because we’re not. What we are saying is that the money John Swinney would use to cut Corporation tax could be used better elsewhere. It really is a simple argument being made there and yet you can’t seem to come up with a rebuttal that tackles that.
There’s a difference between boosting the competitiveness of UK companies -v- foreign companies and boosting the competitiveness of Uk companies -v- other UK companies. The overall tax take goes down, the UK doesn’t benefit, in fact the benefits to anyone are very questionable, what’s the point?
And if you think Scotland would benefit, watch this…
and read this…. http://www.taxresearch.org.uk/Blog/2011/08/16/unite-scotland-economic-brief-%E2%80%93-corporation-tax/
and then come back and argue from facts and evidence..
If the SNP want to help boost the economy, control of, and lowering of Corporation tax is not the answer. It would be a tax cut for larger companies and would be the antithesis of their “tesco” tax. No this is simply a bout of political manoeuvring by Mr Swinney. If he was serious he would a) lobby the UK gov to cut VAT b)arrange a rebate for SME’s that effectively raises VAT registration threshold c)lobby the UK gov to cut taxes on low earners and d) hand over that £68,000 profit he just made on his Edinburgh home he bought with tax payer’s money!
The article makes no reference to the fact that the UK Government is already considering devolving corporation tax to Northern Ireland. If Northern Ireland gains the power to vary corporatiion tax Scotland needs that power too. Whether or not it is used not having the same control over corporation tax that Northern Ireland has would put Scotland at a disadvantage. This is national interest politics at such a basic level it’s astounding that Labour has still not grasped it.
The reason Northern Ireland wasn’t mentioned is probably because we’re talking about Scotland and what’s best for Scotland. Possibly also because Northern Ireland is completely different to Scotland geographically (it’s part of another island with open borders between itslef and RoI so it’s needs these powers for a different reason). Swinney just wants the argument over this so he can say that the UK are being unreasonable and plays up the politics of grievance that we’ve come to expect from the SNP.
As said above why don’t the SNP push for a VAT cut? That would put money into the pockets of the people of the UK who could then spend it on on other goods which would help the economy; rather than giving a tax cut to the companies who may or may not hire more staff etc
Northern Ireland is part of the UK at present, as is Scotland and Wales. All three nations have difficulty competing against the magnetic pull of London and the South East. You don’t appear to see that as a problem – you are happy for a business in Stornoway to pay the same headline rate of corporation tax as a business in London, taking no account of the inbuilt competitive advantage that being located in London rather than Stornoway creates. You also appear to see no problems with Belfast being able to offer a more attractive business tax regime than Glasgow. I am sure that people in Glasgow will be very understanding if Belfast gets the jobs they lose. Not.
London has a lot of pull not because of it’s level of corporation tax but because of it’s highly skilled population, which I would point out is the purpose of this article. The money that would be used to fund a corporation tax cut is better spent on training and education.
MJL. I don’t think you really understood my point. London and the south east has a magnetic pull because that area is the powerhouse of the UK economy. It’s the centre of government, it’s where the City is, it has far higher levels of public as well as private investment, it has better transport connections, better infrastructure etc etc. Those things are far more important than anything else. The idea that increasing skills and training in the western isles or the highlands will magically make those areas as competitive as the south east is frankly laughable. There is nothing that Scotland – or indeed any of the outlying Celtic nations – can do to change the fact that the UK economy is centred around London and the south east. What they can do is look for ways to give tnemselves a competitive advantage, Otherwise we remain branch line economies in perpetuity. That’s not something that bothers Labour, we know that, but the SNP is putting forward an alternative proposition – gaining control of corporation tax is just a small part of that.
No no, I understood your point. Actually London doesn’t enjoy the highest levels of public investment (per capita). I fail to see what measures can be taken to stop London being a desirable place to do business. It competes with places like Paris, Berlin and New York. Edinburgh or Glasgow will never compete with that. What I am talking about is why lower corporation tax in the hope of attracting big business when there is nothing stopping George Osborne doing the same? The solution for Scotland is to continue investment in skills and education. The problem then becomes how do we stop our talent moving to london? The only answer to that I can think of is to provide assistance to SME’s. Help them to grow and create new jobs. Corporation tax cuts is the not the most efficent way to help SME’s.
London has a lot of pull because it is subsidised heavily by all other parts of the UK.
Why should a business in Stornoway pay the same headline rate of corporation tax as a business in Edinburgh? Or Aberdeen?
I think cutting down on the amount of red tape strangling businesses is probably more important than cutting corporation tax, honestly.
This would save businesses a lot of money that is currently being wasted, and do the same for government.
Granted, this is a UK wide problem and will also involve taking on the EU, but Judith is completely right that no fully developed Western country can possibly do things more cheaply than many developing nations.
What we can do, though, is to streamline the process for businesses as much as possible so that they are easy to set up and run, allowing the greater social and skill based advantages of the UK to operate to advantage.
Raising the minimum tax threshold and dropping the top rate of income tax are both also important parts of that, of course. It’s absurd that people on benefits are also paying income tax, and a top tax rate of 50% is not only uncompetitive but also iniquitous (And no, I’ll never personally approach that in my lifetime – the observation is general, not personal).
Brilliant article! The debate continues in Ireland whether or not to raise the corporation tax as they continually seek sources of new revenue but at the risk of thousands of jobs. We have to remind the snp time and time again that they presented Ireland and Iceland as the perfect model for an independent Scotland. Two different rates of corporation tax in the uk would present more problems than solutions.
We could have an experiment concerning corporation tax. We could make the Crown Dependencies bring their rates in line with the UK (and therefore stop stealing jobs and investment off their fellow Brits) and see what happens to their economies. There is precedent. We already have treaties with the Isle of Man obliging them to have the same rate of VAT and NICs with the UK.
Providing skilled workers is great. However not seen any suggestions on this forum on creating the circumstances which will provide the workers with jobs. You can create a thousand bricklayers but if there are no buildings being constructed then where are the jobs to employ them.
Simples! Cut VAT and raise the threshold for VAT registration. Maybe dust off that income tax varying power the people of Scotland voted for and give them a 1p income tax cut. Oh and maybe we could stop wasting public money translating everything into gaelic.
Actually, it was Labour who kick started that whole Gaelic thing you know.
MJL if you actually read the discussion paper you would see that control over corporation tax is not just about big business, it is also about smaller businesses. But I suspect that this may be one of those heated debates where most people are arguing about what they think is being proposed and the arguments they think are being made without reference to the reality. A bit like independence perhaps!
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