By Keith Aitken in Edinburgh | 27 September 2011
Two of Scotland’s most senior economists will today back the Scottish Government’s demands for control over corporation tax, despite a lukewarm response to the idea from business.
In a paper for MSPs, Andrew Hughes-Hallett, a professor at St Andrews and a member of the Scottish Government’s Council of Economic Advisers, and Drew Scott, a professor at Edinburgh University, will say corporation tax is ‘a key economic policy lever’.
Hughes-Hallett will present the paper, under the auspices of the Campaign for Fiscal Responsibility, to the Holyrood committee monitoring progress of the Scotland Bill.
The professors argue that if the Northern Ireland Assembly is given control over the tax to counter the lure of low business taxes in the Irish Republic, Scotland will need that power too.
They dismiss fears that shifting control over corporation tax from Westminster to the devolved legislatures would bring about a ‘race to the bottom’, with Edinburgh, Cardiff and Belfast trying to undercut each other’s pitch to investors. Nor do they accept suggestions that implementing the transfer would be costly.
But Scottish businesses have been wary about devolving corporation tax.
CBI Scotland’s submission to the committee argued that having more than one rate of corporation tax in force in the UK would impose ‘significant complexities and burdens’ on businesses, as well as posing risks to the public finances of Scotland.
The CBI was also sceptical that the Scottish Government would reduce rather than raise the corporation tax rate, given its readiness to increase its revenue take from business rates, in particular from big retailers of alcohol and tobacco.
Similar fears surfaced yesterday from the Scottish Chambers of Commerce, which warned the committee that corporation tax receipts were volatile, especially in times of economic adversity, because they were based on profits.
SCC chief executive Liz Cameron said Scottish ministers could do more to boost the economy by making better use of existing economic powers, in respect of procurement policy, planning, and infrastructure investment.
