Scottish government makes case for greater powers

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by G.A.Ponsonby
 
Scotland’s economy would become more competitive and jobs would be created if Holyrood took control of powers over corporation tax, Finance Secretary John Swinney has said.
 
Mr Swinney was speaking after the Scottish government published its paper putting forward options for reforming corporation tax.

The SNP has argued that Scotland needs more economic powers in order to grow the economy and protect jobs.  The nationalists are insisting that the Scotland Bill, as proposed by the Tory – Lib Dem coalition, is inadequate and needs “more economic teeth” if it is to be effective.

As it stands corporation tax, at 26%, is set by Westminster and Scotland, like Wales and Northern Ireland, has no control over the rate.  According to international evidence corporation tax provides a significant lever to economies providing a boost to foreign direct investment.

The Westminster coalition is currently planning on devolving the power to Northern Ireland in an effort at boosting the economy and attracting inward investment to the province.   Analysis shows that if Northern Ireland were able to pre-announce a reduction in the corporation tax rate to 12.5 per cent, it would create 58,000 more jobs, increase living standards by 13.5 per cent, and raise annual economic growth by one percentage point by 2030.

The UK Treasury has accepted that a lower rate for Northern Ireland would help the region’s economy.  The Treasury said: “A lower corporation tax rate would, on its own, be likely to have a positive effect on local private sector investment and foreign direct investment.”.

Westminster’s cross party Scotland Bill committee argued that if the tax was devolved to Northern Ireland then the same power should be available to Scotland.  “…if a scheme to vary corporation tax were to be available in some of the devolved countries of the UK as a tool of the UK Government’s regional economic policy, it should be available as an option for a Scottish Government to use also.”

Critics of the SNP proposals claim that there would be an increase in paper work as companies sought to deal with two different tax rates.  Others have claimed that a reduction in corporation tax would lead to a cut in public services.

BBC Scotland’s Douglas Fraser when asked about the tax, described the revenue raised as “very volatile” and claimed that future Scottish governments may in fact decide to raise the tax in order to “protect public services”.

The call for the tax to be devolved to Scotland has met with widespread support from leading figures from the Scottish business community with Jim McColl of Clyde Blowers and entrepreneur Sir Tom Hunter both backing the Scottish government.

Mr McColl 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.”

Finance Secretary John Swinney said:

“Scotland needs full control of the key economic levers to meet the specific challenges facing the Scottish economy – and the cross-party Scotland Bill Committee in the last parliament concluded that this power should be available to the Scottish Government if it is granted to Northern Ireland.

“Control over corporation tax would enable us to boost investment, bringing jobs to communities across Scotland, grow the economy and take the right decisions for Scotland.”

Mr Swinney re-iterated that research showed the benefits of lowering tax burdens on businesses and added:

“The UK Government itself has recognised the crucial role that differences in corporation tax rates can have in narrowing differences in economic performance, as illustrated by its consultation on allowing Northern Ireland to lower their corporation tax rate.

“With control of corporation tax, Scotland can operate a lower tax rate, vary the tax base, simplify the tax system, or use corporation tax as a lever to encourage innovation and investment.”

Mr Swinney challenged claims that a cut in tax would lead to a fall in revenue and a cut in public services:

“… cutting the headline tax rate would not necessarily reduce tax receipts.  Despite the phased reduction in the headline corporation tax rate in the UK by 2014-15, the latest forecasts by the Office for Budget Responsibility predict that total onshore receipts in 2013-14 will be higher than the pre-recession levels.

“As we look to capitalise on the new opportunities that will emerge from the fragile global recovery, it is vital that Scotland has all the tools to help create new jobs and deliver strong, sustainable, economic growth. Full responsibility for corporation tax would give Scots a greater incentive to start their own business, provide Scottish firms with a competitive edge to help them grow, and help raise our standard of living bringing jobs and wealth to communities across the country.”