Money is where the Union thinks it can win

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by Hazel Lewry

It really couldn’t be more wrong, but hard core un-researched propagandist backing over the fiscal argument/paranoia from London-Centric MSM might just give it an outside chance.

I’ll summarise this article on corporation tax here, Westminster has picked a number that I believe Alex Salmond and John Swinney would never consider in a single step, to be blunt Westminster has invented a number, discounted benefits, conveniently “forgotten” Scotland is in surplus and reported the result as a “black hole”.

Our mainstream media continues to lose credibility by simply regurgitating it as such.

Backtracking slightly we had Moore’s 6 questions, they’d already been answered for the most part, so they weren’t really for the Scottish Government, they were a publicity stunt for the Scottish people, aye and perhaps the English as well.  Articles here on Newsnet nicely covered the details.

Our dear anti-Scottish office Westminster appointee based 50% of his six questions on money, reinforcing the Westminster belief that Scots vote with their purses or wallets.  What currency, how to pay for pension liabilities and how much will Independence cost.

The only surprising issue is that while Scotland’s moving forward England isn’t.

Shouldn’t these questions be asked south of the border as well.  They certainly seem more pertinent there with the Westminster pension raids of recent years, spiralling deficits and Euro or no Euro debates coupled to potential bankruptcy in the UK.  Whitehall has its own serious problems.

Last night the Treasury, in the form of David Gauke the UK’s Exchequer Secretary who oversees tax, put forward a written series of questions to John Swinney.  Gauke highlighted the “risks and costs” of the suggested change in corporation tax not only to Scotland, but to the UK treasury.

It’s an attempt to put John Swinney on the spot just two days into the Scottish Parliament’s new session.  An attempt which on the surface appears to be founded in quicksand, at least if Scotland had a mainstream media worth the name and that did any sort of research it would give that appearance.  Instead it has only the illusional credibility created by spin as a surface veneer.

Time to scratch the veneer.

I noted the Herald report on the 7th, still dutifully regurgitating the line. “John Swinney’s plan for a devolved corporation tax was last night trashed by the Treasury, which suggested it was one-sided, ill-considered and would leave the Scottish taxpayer billions of pounds out of pocket.”

If I actually gave the Herald or Scotsman, with exception of a few individuals, credibility for investigative journalism this would put the fear of total disaster in me.  Fortunately they tend to bob around in the same apple barrel as the BBC, infected by Westminster propaganda and well on the way to making a rank type of cider.

The other interesting issue is that we’re now getting civil service type wigs thrown into the fray.  Could this be indicative of the fact that Westminster’s waking up to the reality it just might not be Westminster’s choice any more.  I note the rhetoric has changed from “you can’t do it/it’s reserved/we won’t allow” to “here’s what you need to justify”.

I personally consider that an interesting change of stance from Whitehall, a bit like the marathon runner who’s pushed it over the edge, the knees are wobbling, the will and desire are there, but we all know no matter how much effort is put in the finish line will stay out of reach.

How long until we see the same from the Westminster appointees at the Scottish office I wonder.  On second thoughts I won’t hold my breath for reasoned argument from the anti-Scottish office, I think I’d quickly get mistaken for an extra in a Mel Gibson movie.

Michael Moore insisted it was only right Mr Swinney “fully thought through” his proposal and responded to the treasury’s “reasonable questions”.

It’s interesting that Mr Gauke’s demands for written responses to a tax amendment he apparently takes umbrage over came on the same day as Alex Salmond set out 15 new bills in his SNP Government’s agenda.  In England it’s considered “bad form” to interrupt, in Scotland when it emanates from London’s halls of power it’s apparently just another mark of the “respect agenda”.

Mr. Gauke’s ire was apparently focused on a discussion paper John Swinney put forward recently outlining what he believed to be any Scottish Government’s “compelling case” to have its hands on the key levers controlling corporation tax in Scotland.  This would then permit the Scottish Government to adjust it at need.

Corporation tax could be lowered in the short or longer term in the expectation it would stimulate jobs and investment.  It could remain where it is, or in extreme need it could be increased.  An aspect perhaps not considered by the UK Government’s blanket blackest picture scenario is that adjustments could be industry specific for set durations.

As a simple example, new green energy investment could be exempt from corporation tax in year one, pay 10% in year two and be capped at 75% of the maximum corporation tax after five, seven or ten years, all based from the date of investment.  This still gives tax revenues to Scotland where she presently has none.

In simple terms it makes Scotland a good place to invest in Green Energy, and we all benefit.  Ditto other sectors.

As a basic type of example let’s allow a company puts in an investment of £100 million, and generate £10 million a year in profit.  In the UK they’d be taxed in future around 23% or £2.3 million.  In Scotland they’d be taxed at 75% of that in time.  This would save them £575 K.

An unfair advantage, no, simply levelling the playing field and generating tax revenues for Scotland to support all our services and lives while reducing our welfare roll.

It levels the playing field because it costs more to do business in Scotland.

The UK has engineered it so most raw materials, goods and component parts come in through England and her ports.  This simply offsets these additional costs and then allows Scotland an opportunity for her quality workforce to compete on more nearly even terms.

Westminster’s actions indicate Whitehall can’t afford that?

John Swinney’s tax repatriation call followed a demand by politicians in Northern Ireland needing a lower tax rate to compete with the Republic’s basic rate of 12.5%.

It’s worth alluding to the Irish rate as earlier this year, the Revenue and Customs branch of Westminster warned us that if the Scottish Government had control over corporation tax and reduced it to the Irish level, there would be an annual black hole north of the border of around £2.6 billion.  Who said we’d reduce it that much, or universally – Swinney certainly didn’t.

Scare tactics.

The first of Mr. Gauke’s specific points was “How the Scottish Government would manage having £2.6bn less in annual income?”.

Again the Scottish Government has never said it would reduce the tax to Irish Republic rates, and Gauke’s not allowing for offsets in income.  About the only thing he appears to be allowing for are his own poorly founded numbers.

What Mr. Gauke didn’t tell us in this part of his questionnaire, and our MSM didn’t bother to look at was that we’re in the black.  Scotland is in fiscal surplus.

Now let’s work a scenario where Mr. Swinney works just half that in cuts and targets specific industries – he could tie the rate to various stimuli.  There is then a potential for a highly significant surge in economic activity, close to full employment and massively reduced social support bills.

Therefore John Swinney cuts industry a £1.3 billion pound tax break, but reduces social security costs alone by £1 billion as the workforce is now for the most part employed.  We’re not including payroll taxes, National Insurance going in rather than out, VAT and associated incomes also likely to soar.  The “tax break” ends up generating a “profit” for the Scots Government.

Are any of these figures guaranteed, no, but they’re every bit as valid as Whitehall’s arbitrary worst case scenario numbers.

Right now corporation tax in the UK is 26%, though it proposed to decline to 23% noted above over the next few years.

Next we must consider that Scotland’s economy is as stated in the black, the UK is in the red, yet according to Westminster the UK can afford to lower corporation tax and swallow a potentially bigger deficit, Scotland apparently can’t afford to lower corporation tax even if it would still be in the black.

Could someone somewhere please explain the logic in that argument to me?

In that poorly timed wee note to John Swinney, Mr. Gauke noted: “Scotland’s economy is significantly more integrated with the rest of the UK than Northern Ireland and separate corporation tax regimes could introduce significant distortions and frictional costs.”

Interpretation time: Westminster gets Scotland’s revenues, Whitehall controls it and has done so for years, they want to keep it that way.

The interesting portion is that “significant distortions and frictional costs” part.

The only way I can read the above is that Whitehall would have to properly account for only English corporation taxes.  The chunk from Scots companies allocated to London would need to “go away”.  Those funds would then be properly allocated to Scotland.

This will lead to considerable “friction” as the distortion engineered by Whitehall of what Scotland truly generates is reduced then eliminated.

More “friction” comes as Whitehall see’s employment reduce, they no longer need the staff to process Scotland’s accounts, but Scotland does.  Scotland sees an employment increase to compensate for a Westminster decrease.

This is appropriate as Scotland’s revenues like any other nation should be processed within her own borders.

The end result of the above is that the City of London will then have to survive on its own revenues, not Scotland’s.  The issue is that every indicator I check says it can’t.

Put that potential new revenue centre in Lossiemouth or Inverness, it would help in so many ways.

It could alleviate the military base cuts issues and also prove to those north of the Highland line that Holyrood isn’t just about Edinburgh or the Central Belt.  We should stimulate the north simply because Scotland just can’t afford to have England’s M25 scenario in miniature as she strides towards a brighter future.

Mr. Gauke’s letter apparently also informed Mr Swinney that corporation tax was a complex matter.  Mr Gauke appears to think that the nation who, as one book put it “invented the modern world” can’t do basic sums.  That he appears to think this while Scotland is led by what’s often acknowledged as the premier administration in these islands is cringe worthy indeed.

Whitehall’s eminent representative also made it clear there was basically an overriding need that Holyrood “realistically costs and funds the reforms it proposes”.

Incredulity is the only response possible to this statement.

This esteemed gentleman is using no facts to base his request.  Perhaps it explains the mess we’re all in through London being in charge.

Mr. Gauke has so far, in just one communication, used fear, intimidation and cringe, but no hard facts.  He has not asked for any fiscal specifics.  It’s all “what if’s and why-for’s”.  All the previous paragraph intimates is that the Scottish Goverment can’t balance the books when we’re consistently in the black. It’s nonsensical.

The only hard numbers used by Mr. Gauke are Westminster’s invented worst case scenario ones.

The treasury letter continued in the vein that the SNP Government’s proposal would “require significantly more devolution than is being considered in Northern Ireland” and said more clarity was needed.

Westminster apparently still can’t get its thinking adjusted to the fact that Scotland is in the black, she’s voted for a government with independence as it’s raison d’être and the Scots are moving swiftly away from Westminster’s fiscal control.  Westminster has little say in this.

We may not go the whole route of full independence, though that looks increasingly likely, but it’s fiscal autonomy at a minimum.  It’s time for Whitehall to start working on that premise, Holyrood does.  It’s been years since consistent polling supported anything less.

Reclaiming corporation tax in the near future gives both Westminster and Holyrood an opportunity to make the next stage of adjustments relatively seamless and substantially painless.  The decentralization process can be gradual and soft allowing Londoners to be absorbed into other positions over the next few years, or it can be sudden and painful.

It really is Westminster’s choice if it will inflict pain and suffering on its own or not.

Mr Gauke rounded out his little interrogatory letter with a few valid points, on the surface at least.

How would Scotland cope with employed and self-employed people adopting “a corporate form to reduce the amount of tax they pay”, which would lower tax receipts in Scotland?

That’s a fair comment, and valid.  It applies just as strongly to England.  How will England deal with this issue, and if it crops up at some future time intergovernmental cooperation would be a simple way of solving the issue, except Westminster have so far shown cooperation is frequently beyond the scope of their abilities.

It also works on an assumption that corporate tax will be reduced significantly below personal tax.  As no one has stated this will definitively happen Mr. Gauke’s question is inherently one that could be described as hypothetical nonsense.

The Treasury then wished to know how the costs of setting up a separate corporation tax would be paid for, it will “require new IT systems as well as expertise to police the new border with the rest of the UK”.

Mr Gauke, you’re the one speaking of borders and border police, not Scotland.  Kindly eliminate the fear mongering paranoia from your interrogatory demands.

You are well aware the interim process before both nations again walk their own paths would be no different than that between Missouri and Kansas, Alberta and British Columbia or New South Wales and Queensland.  None of these have border police or passport control. To suggest we’d need them, you’re havering.

As to costs, the treasury already levies a proportionate (dis-proportionate?) level against Scotland.  That needs to be reduced and eliminated as we walk our own paths once again.  The monies are already there and being spent, it’s simply time Scotland had a say in their allocation and use.

Next, perhaps most incredulous of all in the frame of this corporation tax issue, “Was the SNP administration proposing a separate regime for taxing foreign profits, including setting up a network of treaties and double tax agreements with other countries?”

Sir, please, Maine, New-Hamshire and Vermont all have different tax regimes, does this presently dis-united Kingdom have separate agreements and treaties with each.  Of course not.

Mr Gauke rounded out his letter “I would welcome your views on the real tension between having a tax regime which varied in both rate and base and your aim of simplifying the tax regime, especially for those businesses which operate in both Scotland and the rest of the UK,”.

Successful businesses operate.  Period.  They operate nationally, internationally and globally.  Domestic business in the US and Canada and elsewhere operate with multiple city, state and federal tax regimes and layers.  To suggest that UK business just can’t manage this is insulting in the extreme to employers on both sides of the Tweed.

Michael Moore then tossed in his tuppence, though putting such a high value on Mr. Moore’s remarks could be regarded as unadulterated generosity:

“The case for any devolution of corporation tax has to account for both sides of the argument and explain how Scottish ministers would deal with some of the negative effects on Scotland’s economy.  We cannot fully consider a proposal which makes only one side of the argument, and there is no avoiding the difficult issues.”

The problem with Michael Moore’s statement is that for once it’s accurate.  It’s just inverted.

The Scots are appearing quite comfortable with the upcoming changes, but what about the English, how will they cope?

Mr Moore is so very correct, we’ve only heard one side of the argument.  Nobody is looking out for how the English will manage afterwards, and what their proposals are.  It’s beyond time Westminster addressed that issue.

As a final thought, Westminster claims the SNP are “continually picking fights”, yet this case is not alone in showing the shoe is certainly on the other foot as on this particular day the SNP were simply getting on with their job of governing Scotland.