Analysis: Healthy dose of reality in latest case for control, but more evidence needed

THE Scottish Government's discussion paper on options for the reform of corporation tax in Scotland is another step on the road to attempting to wrestle control of this economic power from the UK government.

Unlike previous steps, which concentrated simply on reducing the headline tax rate, the discussion paper looks at different options for reform.

This is a welcome widening of the terms of debate.

The document is also less strident in its claims of the potential benefits of such reforms than previous proponents have been. It acknowledges the critical importance of how such a lever is used "in conjunction with other levers".

It also acknowledges that past academic studies "are difficult to interpret and apply directly to the Scottish context". Again, this circumspection over the potential benefits of reducing corporation tax rates (and the document is clear that it is looking at reductions and not at increases in this tax rate) is a welcome "reality check" against those who see only the potential upside of any such changes.

What of the potential short-term financial shortfall in relation to cutting this tax? The document, wisely, doesn't try to put a figure on this, or on any changed administration costs.

However, it does acknowledge the risks and that the options outlined "would require financing, at least in the short term" and outlines some ways of potentially softening this blow.

What the document does not do is outline the counter arguments in those areas where evidence of a link between reduced corporation tax and economic growth is made. For example, the academic evidence is complicated over where a revenue-maximising rate would lie. Such a rate is most likely to be country-specific depending on a variety of economic factors.

For this reason, (and as Scotland is not, for example, Northern Ireland) a fuller study of the evidence base in relation to Scotland needs to be commissioned. This will not be achievable within the 5 September initial response deadline but could be available by later in the autumn.

Scotland is clearly behind Northern Ireland in the queue for achieving greater autonomy over corporation tax and any final decision on this will be heavily influenced by whatever arrangement is finally agreed between the UK Treasury and the Northern Ireland Assembly.