Watt demands tax incentives to make UK plc more competitive

Watt, who heads the Institute of Directors Scotland, is calling on George Osborne to improve Britain’s corporation tax standing in the middle of the 34 member countries of the Organisation for Economic Co-operation and Development (OECD).

The Treasury plans to cut the main rate from 26 per cent to 23 per cent by 2014, but Britain’s mid-table ranking is revealed in a study by the IoD and accountancy firm BDO which argues that it should be reduced to 15 per cent by 2020.

Watt said: “The UK tax system, as currently applied in Scotland, should encourage international capital to the country. The tax system should not be so burdensome as to tilt the balance against enterprise and hard work.

“Our tax system is uninviting. It places the country in the middle of the pack of developed countries, not out in front. We want to see a radical programme of business tax reductions for the coming decade, in order to remedy that.”

The UK’s top income tax rate is very much at the high end of the scale, giving the UK completely the wrong reputation, the IoD and BDO claimed.

Only three other OECD countries have higher top rates, the report found. Martin Bell, partner and head of tax at BDO in Scotland, said: “The vision we are promoting is based on the advantages for both businesses and individual taxpayers if the UK were to move in the direction of a flatter tax system, with lower tax rates but fewer overly targeted reliefs. Progress can be made in the short to medium term that would be entirely consistent with the coalition government’s stated objectives to reduce the fiscal deficit.

“It would both create a more competitive tax regime and significantly simplify taxation.”

Bell added: “But then we have to consider how a different Scottish corporation tax rate would fit into this.

“For example, what would happen to a business with operations across the UK? It would need to separately assess Scottish corporate tax on its ‘Scottish operations’, which could lead to artificial financial reporting in some cases.

“A low headline rate would conceivably attract inward investment into Scotland, which would be welcomed by all, however it is not the sole solution to achieving much needed economic growth.”

Supporters of full fiscal autonomy for Scotland have called for the Scottish Parliament to be able to raise its own taxes – including corporate rates – rather than just allocating how money should be spent.

* Updated forecasts by the Centre for Economics and Business Research (CEBR) show world growth falling to 2.5 per cent in 2012, a downward revision from the forecast made in September.

It also says that if the politicians fail to fix the problems of the euro and countries leave and default on debt then global growth would fall to 1.1 per cent.

The European growth slowdown is forecast to be even more marked, with a fall in GDP by 0.6 per cent and a possible 2 per cent fall if the euro fails to be saved.

The forecast for the US is better than for Europe, with growth of 1.8 per cent.