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I was the Head of Policy and Public Affairs at UNISON Scotland until my retirement in September 2018. I now work on several policy development projects, so all views are very definitely my own. You can also follow me on Twitter. I hope you find this blog interesting and I would welcome your comments.

Friday, 22 March 2013

Corporation Tax and Independence

There is an interesting sideline to the Budget that impacts on the constitutional debate. There is at least one point that the respective chancellors, John Swinney and George Osborne agree on, and that is the Laffer Curve. They both believe that if we cut Corporation Tax, revenues will increase and businesses will come flocking to our shores.

As I have written elsewhere I remain bewildered as to why John Swinney believes in this right wing economic nonsense. No surprise of course that George Osborne does – but does he really?

Buried away in the Budget is the OBR forecast for tax receipts.

You can see from this table that receipts from Income Tax and National Insurance are forecast to increase in line with the predicted increase in economic growth. However, Corporation Tax is forecast to fall despite the fact that Corporation Tax receipts always go up disproportionately in a recovery.

If Osborne really believed in the Laffer Curve then the forecast receipts would be at least £56bn and probably a lot higher. Of course we know that receipts have dropped since the last cut and that’s exactly what will happen this time. Companies are sitting on a £600bn+ mountain of cash reserves. What they need is confidence to invest and that needs consumer confidence in a growing economy - not one that is being strangled by pay cuts and job insecurity.

John Swinney might like to look at these numbers carefully. If a true believer like George Osborne has no confidence in his ideology, what does this mean for the finances of an independent Scotland committed to the same policy?

Hat tip to Richard Murphy for spotting the table.

1 comment:

  1. Alternatively, he expects Company profits to remain largely flat for the foreseeable future: which seems about right, as GDP growth will not exceed population growth + 0.5% for the next 50 years or so - at best.*

    * On that basis, we've had no growth for nearly 20 years.

    I just wish someone, somewhere within The Establishment would recognise this self-evident truth and so start the £150 billion-every-year-for-50-years cuts in State spending that we so desperately, desperately need.