Tax power 'would give Scotland competitive edge'

CORPORATION tax should be devolved to the Scottish Parliament so ministers can choose to cut tax on businesses, the SNP government will argue this week as it publishes further proposals on handing more power to Holyrood.

Finance secretary John Swinney said the power to reduce corporation tax in Scotland compared with England would boost internal investment in the country, giving it a competitive edge.

But the report coincides with the publication of a paper by the Institute of Chartered Accountants of Scotland (ICAS) today which warns there is "limited scope" for reducing the tax if services in Scotland are not to be put at risk.

UK ministers have highlighted a Revenue & Customs report which warns that reducing the tax to 12.5 per cent - the same rate as proposed for Northern Ireland - could cost as much as 2.6 billion a year.

The Scottish Government paper published today examines options for reform, which include giving greater tax incentives for certain industries, such as those involved in green technology.

Swinney claimed: "Powers over corporation tax would enable us to boost investment, attract new businesses and take the right decisions for Scotland. The evidence from around the world is clear: a competitive corporation tax regime has been a feature of the economic success of many countries."

The Scottish Government put forward entrepreneur Jim McColl as a supporter of the move. In a statement released by the government, he said: "Scotland needs all the powers at its disposal to give people the reason to bring their business and investment to Scotland. Corporation tax would provide a significant fiscal lever to provide necessary incentives providing a major boost for the Scottish economy at a critical time."

Ministers say that if corporation tax is lowered in Northern Ireland, to bring the province in line with the Republic of Ireland, there is no reason why it should not be available to Holyrood ministers.

However, the ICAS report published today says that as well as threatening the government's coffers, a cut in corporation tax could also see businesses shifting profits from one side of the English border to the other.

Accountants say they are also concerned that receipts would be extremely volatile, with receipts from banks and financial services having fluctuated massively in recent years.

Elspeth Orcharton, assistant director of tax at ICAS, said: "Devolving tax powers is contrary to the goal of simplifying tax legislation and stability at a UK level, and you could question whether such a move would make the UK as a whole less competitive on the international stage."

Last week, PricewaterhouseCoopers (PwC) also warned that the implications of cutting Scotland's rate of corporation tax were "highly complex", saying "robust research and informed debate" were needed.

However, SNP ministers are highlighting a Treasury analysis on Northern Ireland's proposals which suggests that the very fact of a lower rate of corporation tax would attract inward investment.

Swinney added: "We need action from the UK government. Full responsibility for corporation tax can give Scots a greater incentive to start their own business, provide Scottish firms with a competitive edge and help raise Scotland's standard of living. We need all the tools to create new jobs and deliver strong, sustainable economic growth."