Taxation and independence

The media today has put a real focus on taxation aspects of the constitutional debate and Corporation Tax in particular. The Scotsman has used a new book, Scotland’s Road to Socialism” as their starting point. The Herald focuses on the SCDI paper and there will be a discussion on Newsnight Scotland tonight.

From a pro-independence perspective, Jim and Margaret Cuthbert argue that Alex Salmond’s vision for Scotland falls, “far short of any meaningful concept of independence”. On taxation they argue that keeping the pound will bind Scotland in fiscal ties that will radically limit the country’s ability to pursue its own taxation policy. While I am somewhat more sceptical about the general case for independence than Jim and Margaret, I couldn’t agree more and made the same argument in Red Paper publications.

The Scotsman chooses taxation aspects of my chapter in the book to make a similar point. I argue that, “The evidence that tax cuts pay for themselves (Laffer curve) is simply not there. Any saving goes into profit, not investment and many of our companies are sitting on vast cash reserves already. There will certainly be a huge hit on public finances that is unsustainable. A better way is actually higher taxation to fund investment in people, plant, infrastructure and research.”

There isn’t even any great enthusiasm in the wider business community. The SCDI paper, based largely on a business survey, that I reviewed yesterday notes, “There is no great desire to participate in a race to the lowest tax environment”. That survey put much greater emphasis on infrastructure and skills that all require public investment – not tax cuts.

Andrew Goudie makes the point in his Scotsman article that even if the Laffer Curve delivers the outcomes its supporters claim, it is a medium term strategy at best. He asks, “What would be the short-term – and hopefully transitory – compensating changes in policy and expenditure? That is, what is the opportunity cost of the corporate tax reduction in terms of foregone alternative policy and alternative public expenditure?”

Gus O’Donnell, the ever cautious former civil servant, said that there may the odd “obstacle” in the way of a Sterling zone. Other academics, such as Sebastian Payne, a public law expert at Kent University, declare more forthrightly, “The proposal of a joint sterling zone is economically unattractive and politically unsellable within the UK”. Precisely because taxation would need to be harmonised and our respective economies might not always be at the same stage of the economic cycle. Something that Dr Angus Armstrong from NIESR has articulated clearly.

And on the subject of forthright, there is a biting piece from Brian Wilson in response to Jim McColl’s rather strange interview earlier this week. On tax Brian says, “The next obvious question is how far this race to the bottom would go. If Scotland set out to undercut corporation tax in what was left of the UK, then it seems likely that our (by then foreign) neighbours would respond. And then another cut? It is easy to see why this scenario appeals to Mr McColl – but who pays? Certainly not residents of Monaco. More likely the same people who are currently paying, throughout the UK, for the same kind of priority.”

Jim McColl might regard these views as ‘unenlightened’, but they go to the heart of the SNP strategy dilemma. Nicola Sturgeon is keen to tell us about the prospects of a socially just Scotland, while Alex Salmond is promoting Scotland the tax haven. Sorry, but you can’t have both.



'Scotland's Road to Socialism' is available from Scottish Left Review Press.