Tax Scotland: Drop corporation tax to 15 per cent for key Scottish sectors to boost economy, says Sir Tom Hunter

Entrepreneur Sir Tom Hunter has criticised “progressive taxation”, the preferred approach of the SNP

Scotland should significantly reduce corporation tax for key growth sectors such as renewable energy, artificial intelligence (AI) and medical technology, one of the country’s most successful entrepreneurs has said.

Sir Tom Hunter, who made his millions selling trainers out of the back of his van, said Scotland should take lessons from Ireland in its bid to improve its economy, as part of the launch of a new paper published by Oxford Economics and commissioned by the Hunter Foundation.

He called on politicians to bring in a 15 per cent corporation tax – a cut of 10 percentage points – for these sectors to “net more tax, more jobs and more value”.

Sir Tom Hunter has called for targeted corporation tax reductions for key sectors to boost the Scottish economy.

In what could be perceived as an attack on First Minister Humza Yousaf, who is consulting on potential tax increases, the tycoon also criticised proposals for “progressive taxation” – such as increased taxes on the richest in Scottish society – arguing the experience of Ireland demonstrated the benefit of low taxes on growing the economy.

However, experts said much of Ireland’s success was driven by being part of the EU, labelling the lack of EU market access for Scotland as the “elephant in the room” for Sir Tom’s plans.

In the foreword to the paper, Sir Tom states Scotland should operate as a “small business”, focused on specific sectors and being agile and competitive, with an agency dedicated to attracting the best in business to invest in the country.

To do this, he suggests following the Irish model of low corporation tax to drive economic growth and expand the tax base. These tax breaks would be focused on areas such as the renewable and low carbon economy, life sciences and medical technology sectors, and software, big data and AI.

Sir Tom’s suggestion would be to give these areas a 10 percentage point cut in corporation tax – a decision that would have to come from Westminster given it is a reserved area.

He states: “The answer is not progressive taxation as we learn from the Irish experience – it is a focussed, low (and at one point no) tax system that targets sticky jobs in growth sectors in a highly focused manner. By sticky, I mean high-value, permanent jobs that do not – as in Silicon Glen – drop off as lower cost nations compete.

“So here’s my suggestion to Holyrood and Westminster – make all of Scotland a 15 per cent corporate tax zone for three key global growth sectors: renewables and low carbon manufacture and services; life sciences and medical technologies and software, big data and AI.

“The Irish experience tells us we will net more tax, more jobs and more value from this highly focused approach with one agency delivering that approach than we will with our current strategy.”

Speaking to The Scotsman, Sir Tom rejected the suggestion his comments on progressive taxation were an attack on Mr Yousaf, but in relation to income tax said “you can’t keep squeezing that, it’s all to do with the tax take”, adding it would be a “big mistake” to add another tax rate for higher earners.

The entrepreneur said Brexit had been a disaster, but it offered an opportunity for the UK to set its own tax rates. He said “we should take advantage of that”, rejecting the suggestion that EU market access was required for his proposals to work.

However, Eoin McLaughlin, professor of economics at Heriot-Watt University and an expert in Irish economics, warned Ireland's membership of the EU was the "elephant in the room" when it came to the potential effectiveness of such a policy.

He said Ireland had successfully driven investment not just from becoming a low tax nation, but from being a positive employment base for multinational companies.

"Foreign direct investment from US and European firms, alongside tax breaks, EU market access, and a skilled labour force are what we normally think about for Ireland's success,” he said.

"However, in this paper less is being said about the EU part of the equation. That's the elephant in the room. Being in the EU let Ireland take advantage of the the opportunities sparked by a low tax regime and foreign direct investment.

"The current tax boom in Ireland is also notoriously distorted by multinational companies. With ten foreign-owned firms accounting for over 11 per cent of the state's revenue in 2021, that is very risky.

"I would also be reluctant for the state to pick ‘winners’ given how difficult it is to predict what will be the winner in the long run. With calls for global tax harmonisation, it's not clear how realistic this will be ongoing and the Irish government is wary of this too. However it is an old policy, so there is confidence in it from business, but it's not clear how credible it would be in Scotland.”

Prof McLaughlin added: “Ireland was successful at attracting foreign direct investment as a low-cost economy, but now it is the most expensive country in the Eurozone, so that could be exploited, particularly around rent costs, even if Scotland has its own constraints.

“However, Scotland likely needs more skilled immigration to offset the older population. If Scotland went for 15 per cent, it would likely see calls for Northern Ireland or England and Wales to follow through.

"Then there is a competition between devolved regions – one that is in UK and the EU – and with the Republic of Ireland (in the EU). That needs to be carefully thought through. The EU market is bigger than the UK market."

Scottish Conservative finance spokesperson Liz Smith said the paper highlighted the “stifling impact” of high-tax policies coming from Bute House.

She said: “Growth is, in his words, ‘anaemic’ precisely because we are at a competitive disadvantage – not just with Ireland, but with the rest of the UK.

“Whether it’s failing to pass on the rates relief provided in the rest of the UK to struggling Scottish businesses, or imposing higher income tax rates on hard-working Scots, by making us the highest taxed part of the UK, the nationalists are encouraging hard-working people to leave and discouraging others from coming here.

“Sadly, this approach should come as no surprise, given the extremist Greens don’t even believe in the concept of economic growth. And, worryingly, Humza Yousaf seems intent on further widening the tax gap with the rest of the UK by hiking taxes again.”

Ross Greer, the Scottish Greens’ finance spokesperson, said the ‘Celtic Tiger’ model pioneered by Ireland was “utterly discredited” during the 2008 financial crash, resulting in an IMF bailout and outward migration, adding that replicating it would be “the last thing Scotland needs”.

He said: “If we are to build an economy that works for people and the planet, then it must be based on high-quality jobs which pay a good wage and working for companies based here in Scotland, not on a race to the bottom designed to help the same multinational corporations already making obscene profits at the expense of everyone else.

"With the powers of independence, we can set a corporation tax that recognises the huge amount of wealth controlled by a small number of companies and ensures that they are paying their fair share."

Scottish Liberal Democrat economy spokesperson Willie Rennie said the report offered “a lot to mull over” and that it was true Scotland needed to “focus far more effectively on delivering highly-skilled, high-wage jobs”.

He said: “The Scottish Government's approach to economic growth has veered from the haphazard to the ineffectual. Making sure Scotland is at the forefront of key industries of the future like green tech and biotech is the best way to deliver strong and well-funded public services."

The UK Government said it had no plans to devolve corporation tax or introduce a separate rate for Scotland, and stressed it was making the UK the “best place in the world to do business by offering the lowest corporation tax in the G7, a smart regulatory system and a simplified tax system to save firms time and money”.

Wellbeing economy secretary Neil Gray said: “I was pleased to meet with Sir Tom Hunter, alongside the First Minister and Deputy First Minister, to discuss the foundation’s analysis.

“Scotland has exceptional capability in emerging industries such as clean energy, life sciences and artificial intelligence, and we will continue to use all the powers we have to continue creating an economy which helps businesses to thrive and drives a lasting improvement in our economic performance.

“We agree that a targeted approach to inward investment is required and there is clear evidence that our ‘Team Scotland’ approach is helping to achieve this outcome.

“Scotland’s share of the UK’s foreign direct investment projects reached a record high last year, according to the latest EY survey – maintaining its position as the top-performing area of the UK outside of London for the eighth year in a row.

“While corporation tax is currently controlled by Westminster, we think there are strong arguments in favour of these targeted proposals for Scotland, to boost economic activity in key growth sectors, including renewables and low carbon manufacturing.

“The Scottish Government has already delivered the fairest and most progressive income-tax system in the UK, while raising extra revenue to invest in public services and Scotland’s economy.

“Our medium-term financial strategy sets out a clear commitment to have an increasing focus on the policies and actions with the greatest potential to grow and strengthen Scotland’s economy.”