Tax rate setback for Nationalists
Alex Salmond wants Edinburgh to set Scotland's tax-rates. Picture: PA
ALEX Salmond’s demand to set Scotland’s business tax rate from Edinburgh has taken a major blow in an authoritative new report which warns it would be “at best a calculated risk” that could leaving the country short of money to pay for its schools, hospitals and public services.
A study by the Institute for Fiscal Studies (IFS) concludes that moves to hand the key business tax to Edinburgh, Belfast and Cardiff would “be difficult” and “could reduce the revenues of all administrations within the UK”.
It says that, under EU law, if the Scottish Government was to cut corporation tax it would have to accept the consequences in terms of lower or higher revenues which would flow as a result.
SNP ministers claim that cutting the tax would boost business activity and bring more cash flow into the Scottish Government coffers.
But Labour last night criticised the plans as a “race to the bottom” as UK nations would seek to cut tax on business in an attempt to out-compete one another.
In a further blow to the SNP plans, CBI Scotland said it backed the IFS study, saying businesses were not convinced that, if the tax was devolved it would not lead to more bureaucracy and, eventually, a higher rate.
In the study, the think-tank says that if different rates applied around the nations of the UK, businesses would shop around, taking advantage and ensuring “a fall in corporate tax revenues in the UK over time”.
It added that under EU law, if the Scottish Government was to reduce corporation tax, it would have to accept lower income as a result.
The report also notes that, because corporation tax rates are volatile, a devolved government could “experience a shortfall in their ability to complete spending plans if… revenues turned out to be lower than expected”.
It continues: “A concern is that allowing separate rates across the four nations could lead to harmful tax competition within the UK, which would reduce tax revenues for all nations.”
The study concludes: “There are some compelling reasons to maintain a single rate of corporation tax across the UK: it is administratively much simpler, and cheaper, and reduces the potential for harmful tax competition, which could reduce the revenues of all administrations within the UK. Implementing devolution would at best be a calculated risk, with unknown long-term consequences for the UK tax system.”
A Scottish Government exercise last year examined the impact of a measured 3 per cent reduction in corporation tax, finding that it could lead to 27,000 jobs being created as business was stimulated.
However, the IFS says: “It is hard to judge whether the benefits from greater levels of activity would be sufficient to outweigh the costs of the public spending cuts that would be needed to finance reductions in the rate of corporation tax and the additional compliance costs and distortions to corporate decision-making that would result.”
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Comments
There are 105 comments to this article
Page 1 of 7
Ron Greer
Sunday, February 5, 2012 at 07:47 PM104 Anagach Aye indeed, hence my post at 102.
Anagach
Sunday, February 5, 2012 at 06:41 PM101 Buford Van Stomm nice picture of eck with an australian banknote. ----------------------------------------------------------------------------------------------------- You try spending it in Aus mate. They use the Aus $ there and not Sterling.
Anagach
Sunday, February 5, 2012 at 06:40 PM92 davidjames Corporation tax in Norway is 28%, UK 20-25%, Ireland 10-12%. Employment rates are approximately 3%, 8% and 14% respectively. -------------------------------------------------------------------------------------------------- You mean unemployment rates. What about standards of living or GDP per person, oh those dont match your point. Irrespective of limits of using corporate tax as a lever of economic power, its best held in Edinburgh than London, or Brussels.
Ron Greer
Sunday, February 5, 2012 at 06:36 PM101 That was the most erudite comment from a Britz -Natz there's been for a while
Buford Van Stomm
Sunday, February 5, 2012 at 05:29 PMnice picture of eck with an australian banknote.
Ron Greer
Sunday, February 5, 2012 at 04:06 PM99 Finzz Thanks for the uptake BUT why is 10% fair?
Finnzz
Sunday, February 5, 2012 at 04:02 PM#97 Interesting option, personally I'm in favour of a tithe (Tenth) system. All taxes are set to 10 %. with the first £10,000 personal income free of tax . No exceptions, no deals, no appeals. It would be interesting to see where on the Bell curve that appeared.
Ron Greer
Sunday, February 5, 2012 at 03:44 PM95 and 96 Only too right and the Unionists don't like it when you spoil the taste of their Dummy-Teat. by seeing through the divide and rule, doubt-mongering turd-stirring that's going on.
Ron Greer
Sunday, February 5, 2012 at 03:38 PM91 and 93 Another alternative I 've raised on related threads is the non tax option, yes a zero tax economy. There is no fair level of tax and essentially it's just state robbery of individual and corporate labour. Why would 19.5% be too little, 20.5% too much and 20% just right? Another feature of the stupidity of tax is that it often results in less of the item that is taxed( eg brickig up of windows to escape window tax), being produced or exchanged; hardly what we need in a recession. Then of course there is the infamous evasion-avoidance problem that costs several times more to the economy than benefit fraud. Tax is just a 3 letter word for bad. Luckily there is a 100% fair method of raising public revenue and one that is also unacvoidable, even by nondoms. This is a 100% collection of 100% societally generated Land Rental Value. It would also prevent another recurrence of the speculation in land values that caused the recession in the first place.
well informed
Sunday, February 5, 2012 at 03:26 PMI dont know why Der Sturmer doesnt just name itself the Unionist Lie!
well informed
Sunday, February 5, 2012 at 03:24 PMThe real story is unionist lying filth criticise SNP policy for party political gain and propaganda purposes! Der Sturmer making news again!
Ron Greer
Sunday, February 5, 2012 at 03:18 PMRider 000 That's simply not true, but I don't often see you on the wind farm issue threads. I believe it's quite in order to respond to other posts and develop related viewpoints. Could I suggest that you also try sucking a lemon--it might sweeten you up a bit.
The Tin Man
Sunday, February 5, 2012 at 02:57 PMWell, a few people would certainly be better off if the tax on big business profits was slashed. Oligarchs, for example. But back in reality, what the janus government have actually done in reality, is increase tax on big business, especially the places where we buy our bread. By their own logic, this was done to avoid business investment, but who believes anything they say?
davidjames
Sunday, February 5, 2012 at 02:48 PMCorporation tax in Norway is 28%, UK 20-25%, Ireland 10-12%. Employment rates are approximately 3%, 8% and 14% respectively.
davidjames
Sunday, February 5, 2012 at 02:37 PMScotland and the UK faced corporation tax and inward investment grant competition with Ireland for some time. Certainly Scotland found it harder to compete with Ireland on both counts. But Ireland began to lose inward investors to central Europe and then saw those it had won migrate there as well. The driver was was more labour rate than tax rate. Remember most international companies can influence the tax they pay by how they organise subsidiaries, so as to show lower profits in higher tax countries and vice versa. But if labour rates erode profitability they are compelled to move and the tax and investment incentives are wasted. Remember also the country of company domicile can reduce the tax bill but this may not generate many jobs. A company could locate its HQ in Scotland and keep most the jobs in England or Poland. In short giving away tax breaks can be a one way street and it pays to be cautious.
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