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It mostly covers my work as UNISON Scotland's Head of Policy and Public Affairs although views are my own. For full coverage of UNISON Scotland's policy and campaigns please visit our web site. You can also follow me on Twitter. I hope you find this blog interesting and I would welcome your comments.

Wednesday, 17 August 2011

Corporation Tax

The long awaited Scottish Government paper on devolving Corporation Tax has been published. It has been some time coming given the FM raised the issue in May and this is a long standing SNP position.

UNISON Scotland is not only a strong advocate of devolution, but we would generally be regarded as in the 'devolution max' camp. This is reflected in our evidence to the Calman Commission and elsewhere. However, we have opposed the devolution of Corporation Tax and I can see little new in this new paper to justify this proposal.

So what are the problems?

  • The bottom line is that there is little evidence that cutting taxes on business creates new jobs. If there is a link, it is marginal and there are more cost effective ways of using the same money to create more jobs. Most of the savings are likely to go into big company profits and shareholders pockets.
  • Like the UK Government's enterprise zones, at best this might displace jobs from one part of the UK to another. Turning Scotland into some type of tax haven is not the basis for a strong economy with real jobs. At worst it will simply lead to 'brass plating' were companies notionally move their headquarters to Scotland, but no real jobs are created.
  • Devolution of taxation is not a free lunch because there will be a corresponding cut in the block grant. Northern Ireland estimates have just increased to £400m and it would be much more for Scotland. The Treasury estimate is £2.6bn although I agree with the Scottish Government that this is an over estimate, but still around £800m. Even if the Scottish Government is right that the lower tax rate will lead to a higher yield, there will be several years during which public services will have to be cut to fund the gap. Obviously this is the worst time to take such a risk. In any case the evidence for higher yields (Laffer Curve) is again slim.
  • Lower tax rates in one part of the UK could come up against state aid rules and what is known as the Azores judgement. In essence Scotland could face an additional cut in public spending. The cost to the block grant could be as much as £1 to 1.5bn. That's a lot of schools and hospitals.
There are many other arguments against this policy articulated by a range of groups across the spectrum. While I would always treat the views of PwC and the CBI with some scepticism, the same does does not apply to tax experts like Richard Murphy. In his commentary he said:

"The SNP’s policy on this issue comes from the economics of the madhouse. The trouble is they plan to release the mayhem, that’s intended to create on the UK economy. It’s an act of gross irresponsibility on their part. But worst of all it’s a betrayal of the ordinary people of Scotland to try to turn that country into a tax haven right now, at cost to those who need strong government and not business run amok with greed."

The only winners from this policy will be big business. The losers will be the rest of us through cuts in jobs and public services.

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