As the BBC in Scotland have reported:
The Scottish government is to unveil its plans on taking control of corporation tax.
Finance Secretary John Swinney will confirm a move to lower the headline rate of business tax and to give tax breaks to small firms.
Excluding north sea oil, corporation tax generated £2.6bn in revenue for Scotland in the year to 2010.
But Mr Swinney sees making a reduction in the charge as a way to add fresh revenue and attract new businesses.
Mr Swinney is a sadly deluded man.
I have explained why this policy would not work for Northern Ireland, here. In Northern Ireland the argument for it is that the land border with the Republic justifies it. In Scotland there is no justification for it at all bar the economic madness of supply side neoliberalism that says if only government got out of the way then everything would be rosy in the world, the economy would floiuyrish and the rivers would flow with milk and the land would be awash with honey.
Except there's no evidence for that. And wise people know it. As the BBC also note:
[T]he Institute of Chartered Accountants in Scotland said that changes to the rate of corporation tax - the main rate currently stands at 26% - could leave the government short of money to fund public services.
And as PWC warned recently:
The implications of cutting Scotland's rate of corporation tax are "highly complex", PricewaterhouseCoopers (PwC) has warned.
PwC warned EU tax rules meant cutting corporation tax in Scotland would result in a reduction in the block grant, equivalent to the loss of revenue to Westminster.
PWC are right on this occasion. The rules are clear: pound for pound Scotland has to lose grant from Westminster to match corporation tax lost by cutting its rate so the only way it can win is if for reason no one can explain cutting the rate (which is already low, particularly given there aren't that many large companies left in Scotland) is going to suddenly increase the profits earned in Scotland.
Of course this is Laffer curve theory - theory which has never been proven to work for anyone but big business -w ho will gain from this move, you can be sure, just as throughout Scotland ordinary people will lose by having their services cut.
But it's worse than that. As the BBC also noted:
In addition, it could start a tit-for-tat war over corporation tax rates with the other home nations.
Too right it will. And at the very least the complexity of moving to Scotland will become enormous - because HMRC in the rest of the UK will not be challenging all relocations on the grounds that they are tax avoidance - and rightly so.
So we'll now have HMRC Scotland at war with HMRC England and Wales with HMRC in Northern Ireland potentially lobbing in its tuppence worth too.
Whilst the Tories will of course demand rate cuts for England too.
And where will this lead? To less funding to close the deficit, more cuts, an increase in the income and wealth gaps, more chaos in society and diminishing social cohesion. Which is just about the last range of outcomes we need right now.
The SNP's policy on this issue comes from the economics of the madhouse. The trouble is they plan to release the mayhem, that's intended to create on the UK economy. It's an act of gross irresponsibility on their part. But worst of all it's a betrayal of the ordinary people of Scotland to try to turn that country into a tax haven right now, at cost to those who need strong government and not business run amok with greed. I sincerely hope the people of Scotland turn on them in retribution. Because if there's any silver lining in this it's the fact that this must surely considerably increase Labour's chances north of the border.
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So, making Scotland a tax haven is “an act of gross irresponsibility”, “a betrayal of the ordinary people of Scotland” and will lead to “more chaos in society and diminishing social cohesion”.
Yes, because the IoM and Channel Islands are such cauldrons of discontent that have been teetering on the brink of civil war for years.
Their tax systems are illegal
Local tax rates are rising
And their economies are collapsing
Is that what Scotland wants?
Richard,
Maybe a silly question but – your point stating the IOM/CI tax systems are illegal. Is this from an EU or other international body/legal perspective?
Surely it should be the right of any self-governing state to set its own tax policy. What is really uncompetitive about having a tax rate of say 0%,10%? Surely it is the opposite and actually competitive?
I realise such practices of having 0% tax rates is often unsustainable for many of these nations (as you correctly point out), but from a legal perspective, where do you draw the line? Why is 0% or 10% uncompetitive/illegal but lets say 20% ok in the eyes of the various international frameworks?
I gather there are various tax treaties and distribution laws in higher tax countries to stop profits being recycled through “tax havens” and redistributed back to the higher tax country without any tax being paid. If these mechanisms work effectively then why does it matter if a nation has CT rate of 0%?
Thanks
It is the EU that rules them illegal
The reality is that these are not self governing states, of course.The EU rightly considers them part of the UK and therefore subject to EU jurisdiction on harmful tax practices
Their independence is but another charade which the EU rightly rumbled
And given the change in policy by the UK on tax havens recently profit lost there is lost for good….
That’s why we really lose out
Vir Cantium = neo-liberal troll (loads of web references).
@Vir Cantium
“Because the IoM and Channel Islands are such cauldrons of discontent that have been teetering on the brink of civil war for years.”
Actually not too far from the truth.
Obviously there is little “discontent” among those who profit in the “finance industry” – including the governments and other scroungers and hangers-on in the legal and accountancy professions.
But these places are secrecy jurisdictions with no freedom-of-information legislation; on the Isle of Man the government even owns/controls local radio. All of this ensures that the general populous are fed misinformation/propaganda in an attempt to keep them sedated.
There is real “discontent” but when you live in a small community surrounded by sea the prospect of an island becoming “cauldrons” is blunted by government sponsored intimidation.
A few courageous souls do complain but thankfully the islands are not “teetering on the brink of civil war” preferring instead to use more civilized methods to express their views — ably supported by many well respected campaigners, among them Richard Murphy of Tax Research.
Cuttiing back on tax rates leaves countries more vunerable to the vagaries of finance capital. The more a country removes “restrictions” such as what is perceived “uncompetitive” tax rates, or, in particular, begins to privatise state assets, the more finance capital can take advantage.
More often, rather than an influx of money and jobs tought to accrue because of more “competitive” conditions, the more money is sucked straight back out again and tied up in shareholdings and the currency markets.
While it may well be beneficial to corporations for countries, the hoped-for profits due to tax cuts and privatisation are either short-lived or almost entirely illusory. That is because, as fast as finance capital comes into the country, just as much goes out again. It is largely a zero sum game!
Formulary apportionment seems to work well enough in Canada and the USA. Comments by Gauke and Moore suggest that they haven’t considering this route, but instead imagine a system where lower corporation tax in Scotland would result in lots of profit shifting. But that would be a consequence of a poorly designed system rather than the result of devolution. A US- or Canadian-style system might result in some companies moving their headquarters to Scotland to enjoy lower taxes on some part of their earnings, but it wouldn’t be free of cost to the corporations and neither would the advantages be as great.
I don’t think there is anything for Mr Murphy to fear right now. The Treasury, and those who share their worldview, will inevitably prevail in this skirmish over the devolution of corporation tax. But if it contributes to them losing the war – in the form of a future referendum – it will have been a pyrrhic victory. If that were to come to pass the Treasury’s dire predictions might come true and the law of unintended consequences would have triumphed once again.