Growing momentum for Scots to control corporation tax


by James Aitken

The UK Chancellor earlier this week announced a further reduction in the rate of UK corporation tax and also opened up the possibility of Northern Ireland being able to set its own rate of corporation tax.

The SNP has called for the Scottish Parliament to be given similar powers.  In addition the two wealthiest businessmen in Scotland, Sir Tom Hunter and Jim McColl, have said that Scotland should be granted the right to set its own corporation tax.  I look forward with interest to what the likes of the Labour party and the CBI in Scotland think of this.  Evidence of the possible success that this policy might have was given when a number of companies said that they are likely to return to the UK.

The fact that the Northern Ireland Assembly might receive this new power reminds me of an earlier debate on borrowing powers.  It was pointed out during that debate that for some as yet unexplained reason the Northern Ireland Assembly was deemed worthy of borrowing powers the Scottish Parliament was not.    

The ability to set a rate of tax is though just one part of this debate.  The question that needs to be asked is does the ability to set a rate of tax might in itself provide the economic levers that are being called for?  No and I suspect that that this will also turn out to be one of the major problems with the income tax proposal contained in the Scotland Bill.  Under this proposal the Scottish Parliament can decide the rate of tax but not which reliefs and allowances are available.  These powers are retained by Westminster.

If the Scottish Parliament is given the power to set the rate of corporation tax but not the power to decide which companies pay the tax or what reliefs are available then problems are likely to arise.  You can imagine the confusion and potential for conflict if a Scottish Government sets a lower rate of corporation tax than the UK Government but the UK Government decides to interfere with this policy by changing the underlying company or corporation tax legislation.  For example the UK Government could introduce a new relief that applies to all companies registered in the UK that makes the lower rate of corporation tax in Scotland irrelevant.  

The next point is you should not just look at corporation tax in isolation.  What about the stamp duty that is paid on shares?  

Then there is the collection of these taxes.  Does it make sense for them to be collected and administered by HM Revenue and Customs, the Stamp Office and Companies House.  Of course not.  Scotland is a relatively small country and these and a number of other similar services need to be combined and form part of a new Scottish Exchequer.  

If Scotland is to have a truly competitive corporation tax regime then those calling for the increased powers to achieve this need to also make it clear that the Scottish Parliament needs to have complete control over corporation tax, company law, stamp duty and the collection and administration of these taxes.