Why Scotland should steer clear of corporation tax

18 Aug

By Pat Rafferty, Unite Scottish Secretary

It’s easy to understand why the Scottish Government wants control of tax policy. There’s no doubt that cutting corporation tax rates is a way to encourage profits being recorded in a country. However, it’s equally certain that any country that encourages this process will be subject to counter-measures from other countries competing for profits.

Even if the case for control over the corporation tax rate is won then Westminster will do two things in response. The first is that it will, as required by the EU, cut the block grant to Holyrood by exactly the same amount lost in tax revenue as a result of cutting corporation tax. That means on the day that the tax rate is cut – which is the stated aim – Scotland gives itself a double whammy: it loses the tax and it loses the grant. This is the scale of the gamble that’s being argued for. The loss could be around £2.6 billion.

The hope is that new profits will be earned in Scotland as a result of the change and that jobs will come with them to make up the loss. But there’s massive risk attached to that hope not least because the second thing Westminster will do is put in place law making it harder for English companies to move to Scotland just to get a low tax rate.

There’s also very mixed evidence of any jobs dividend that comes with corporation tax cuts and there are more effective ways of creating and supporting jobs. At the heart of this debate is the type of society we want to create– a low-corporation tax haven or a social economic model that supports growth through promoting measures such as collective bargaining. But where does this feature in the Scottish Government’s narrative?

What’s the likely result of this? Simply that Scotland will lose billions of revenue for desperately needed services; existing companies in Scotland will get a windfall tax cut but it will be much harder to set up new businesses here in the future. None of which makes any sense for Scotland. That’s why this move is a bad one, and one that we should walk away from.

This article can also be found in the Thursday 18th of August 2011 edition of The Scotsman’s ‘Platform’ section.

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