By Keith Aitken in Edinburgh | 15 August 2011
Scottish ministers will this week publish a consultation paper on Scotland taking control of Corporation Tax, undeterred by a weekend intervention from the Institute of Chartered Accountants of Scotland that rubbished the idea.
Defending the move, Finance Secretary John Swinney cited the support of Scottish business leaders such as Jim McColl and Sir Tom Hunter.
‘Powers over Corporation Tax would enable us to boost investment, attract new businesses, and take the right decisions for Scotland,’ Swinney said. ‘The evidence from around the world is clear – a competitive Corporation Tax regime has been a feature of the economic success of many countries.’
The consultation paper will quote from the Treasury’s own report in March, which set out the benefits of devolving the tax in Northern Ireland to help the Belfast administration compete for mobile investment against the Irish Republic’s 12.5% ceiling, which is less than half the UK rate.
‘A lower Corporation Tax rate would, on its own, be likely to have a positive effect on local private sector investment and foreign direct investment,’ the Treasury paper said. ‘Increased investment, other things being equal, typically leads to increased growth and employment.’
This allusion is unlikely to go down well with Peter Robinson’s administration in Belfast. It has already made known its apprehension that what it sees as a copy-cat demand from Edinburgh could scare the Treasury off its cautious support for devolving the tax in Northern Ireland.
Swinney’s stance also runs counter to the advice of the ICAS, which issued a statement bluntly warning Scottish ministers that they risked destabilising the Scottish economy if they took charge of Corporation Tax.
The ICAS argues that a transfer of Corporation Tax control would mean a hefty cut in Westminster’s block grant to Holyrood. This reliable income, it says, would be replaced by unpredictable revenues from highly volatile sectors such as oil and banking.
The institute predicts that handing Corporation Tax to the devolved administrations would result in a ‘race to the bottom’, with rates being cut competitively to attract business, at a consequent cost to public services. It suggests that companies would find smart ways to transfer profit, rather than hard investment, between jurisdictions.
Swinney also came under fire from his Labour shadow, Richard Baker, who said: ‘We know from the figures produced by the Treasury that if the Scottish Government were to reduce Corporation Tax rate to 12.5%, the costs to the Scottish budget could be as much as £2.6bn per year.’
