Stephen Boyd: Business must pay their part in reviving the economy

Published on 14/06/2012 00:00

THERE was much in John Swinney’s Glasgow Caledonian lecture earlier this week with which the Scottish Trades Union Congress (STUC) could agree, including the biting critique of austerity and the emphasis on the value Scotland derives through retaining active economic development institutions.

It was sadly predictable that Mr Swinney used the occasion to attempt to resurrect the zombie economics of corporation tax cuts. He argued that “small countries, and regional economies, need a fiscal edge”. Do they? Is the enduring success of some small national and regional economies really attributable to low business taxation?

The evidence would suggest not. Eurostat, the European Commission’s statistical analyis body, confirms that Denmark, Norway, Austria, Sweden and Finland all have higher rates of corporation tax than the UK and the World Bank reveals that the UK’s total business tax rate is significantly lower than in Norway, Finland and Sweden.

So, despite its recent travails, perhaps the finance continues secretary to flirt with the Irish model. Yet, as the STUC has frequently reminded him, there is no possibility of Scotland replicating the various factors which conflated in the 1990s to drive rapid growth in Ireland. Low corporation tax was only one of these factors but crazy pro-cyclical “business-friendly” taxation was certainly one cause of Ireland’s collapse.

Nor does the evidence support the canard that tax cuts pay for themselves.

In any constitutional scenario, reducing corporation tax would be an incredibly risky strategy for Scotland: already stretched public finances would take a massive hit, inequality and instability would be exacerbated as the profit share continued its relentless upwards march and the prevailing short-term business culture would become more deeply embedded. The benefits, if they exist, are highly uncertain.

Enduringly successful small economies rely not on a “fiscal edge” but on a patient investment in people, plant, infrastructure and research. This is often funded through relatively heavy taxation of business. You know what? It works.

• Stephen Boyd is assistant secretary at the STUC.