Ian Swanson: Tax cuts attract business but do they help Scotland?

Alex Salmond is talking about 17% tax after independence. Picture: Jane Barlow

Alex Salmond is talking about 17% tax after independence. Picture: Jane Barlow

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ALEX Salmond has long boasted about how an independent Scotland would steal a march on the rest of the UK by cutting corporation tax to boost inward investment.

But it looked as if Chancellor George Osborne had gradually undermined that plank of the SNP’s independence platform by slashing the UK-wide rate of corporation tax – down from 28 per cent in 2010 to 23 per cent now and due to fall to 20p by 2015.

That was the rate the SNP had set its sights on. Now, however, Mr Salmond is talking about a further three per cent cut if Scotland becomes independent.

And that has prompted renewed warnings about a “race to the bottom” where countries desperately try to undercut their rivals in a bid to offer ever-lower tax bills to multinational corporations.

At a time of justifiable public anger over the bonuses which bankers are still paying themselves and the tax-avoiding antics of giant multi-nationals, it seems curious that a First Minister who usually has such an impressive populist touch should appear to be falling over himself to benefit big business.

So why does the man whose government made its mark by scrapping bridge tolls, ending tuition fees and abolishing prescription charges now want to hand millions to large companies by cutting taxes on their profits?

One SNP insider says low corporation tax has a particular advantage for smaller countries because the new investment it attracts has a 
disproportionate impact in boosting revenue. “It brings in investment which you would not otherwise have had and generates revenue you would not otherwise have got.”

He says small countries are more nimble and larger countries have not tended to follow suit. “Ireland had a low rate of corporation tax for about 15 years and the UK did not seek to undercut it.”

He also argues it could encourage large companies, like those currently under fire for not paying their fair share of taxes, to have their headquarters in Scotland in order to keep their tax bills down. “By making Scotland the place to be for recording their 
economic activity and revenue, we would be beating these companies at their own game.”

But critics are sceptical. The STUC’s Stephen Boyd says he has seen no evidence that a three per cent cut in corporation tax would generate enough extra economic activity to pay for itself. He adds: “In the early days of independence it would leave us with a big black hole to fill. What would it achieve in terms of inequality by returning money to the richest in 
society?”

Labour’s finance spokesman Ken Macintosh says: “Establishing Scotland as a tax haven for brass-plate companies does nothing to create jobs or prosperity and sends out entirely the wrong message.”

And the Greens, who are on the same side as the SNP on independence, are also implacably opposed to corporation tax cuts. Co-convener Patrick Harvie says: “The SNP tries to combine progressive social policies with centre right economic policies and I don’t think that adds up.

“If we don’t levy the taxes needed, we won’t be able to afford the public services wanted. We have seen the failure of centre right economics in the UK over the past 20-30 years. Independence should not be about repeating those failures.”

The independence debate allows everyone to think about the kind of society they want to live in but tax cuts for big business may not be the best reflection of the new Scotland people hope for.