Scottish government makes corporation tax case

A debate has been sparked over the pros and cons of the change

The Scottish government has set out its proposals for Holyrood to win control of corporation tax from Westminster.

Finance secretary John Swinney said cutting the headline rate would encourage business growth and boost economic recovery.

Critics of the move said it could leave ministers short of money to pay for public services.

Excluding north sea oil, corporation tax generated £2.6bn in revenue for Scotland in the year to 2010.

Setting out the Scottish government's case, Mr Swinney argued that using new powers to cut the business tax and encourage business research would leave more profit for investment, making Scotland a more attractive place for businesses to locate.

The proposal received a lukewarm response from UK ministers, who said the paper had flagged up several problems with the proposal.

The Treasury is considering devolving control of corporation tax to Northern Ireland, given its unique position in sharing a land border with the Republic of Ireland - where the levy is set at 12.5%.

The Scottish government wants the same powers included in the Scotland Bill, currently going through Westminster.

Mr Swinney said separate analysis showed if Northern Ireland was able to pre-announce a cut in the corporation tax rate to 12.5%, 58,000 more jobs would be created, while living standards and economic growth would rise.

He explained: "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.

"Lower corporation tax is a vital source of competitive advantage in an integrated global economy, helping to attract new businesses and highly-skilled jobs.

"A competitive corporation tax regime has been a feature of the economic success of many countries, and we want Scotland to have the same opportunities to bring in jobs and boost growth."

Mr Swinney has been backed by businesses leaders, including Jim McColl and Sir Tom Hunter.

Sir Tom, said: "Frankly I'm tired of the advocacy around the status quo, we've had that for decades and we track backwards not forwards as a nation.

"My challenge to those who say no to Scotland controlling corporation tax is this - what then do you propose in stimulating a moribund economy in a globally challenging marketplace?"

But the 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.

In addition, it argued a tit-for-tat war could be started over corporation tax rates with the other home nations.

Scottish Secretary Michael Moore said he would continue to contribute to debate on the issue, adding that the SNP government's paper had accepted devolving and cutting corporation tax would lead to a drop in tax revenue, as well as highlighting extra costs and the need to tackle problems, such as profit-shifting.

'Key questions'

"In looking at what the Scottish government's proposals, the UK government is clear that it will not support anything that would expose the Scottish budget and economy to unreasonable risk," he said.

"We should not forget that the UK government is already in the process of cutting corporation tax to the lowest level in the G7, from which businesses across Scotland will benefit.

"The Scottish government support this action, but seem unduly concerned about who cuts the tax rather than what the tax level is."

Labour finance spokesman Richard Baker said the Scottish government had failed to answer key questions in its case.

"Today's paper puts the cart before the horse," he said, adding: "It argues Scotland should sign up for a change in corporation tax responsibility before stating what detailed changes the SNP would make.

"They also fail to supply any detailed evidence of how this will actually benefit Scotland's economy.

"What rate would corporation tax be set at? What would make up any shortfall? How would you stop firms from leading economic activity elsewhere in the UK but declaring profits in Scotland? There are lots of arguments in the paper but no detailed answers."