THE TUC has weighed into the debate over the lowering of UK corporation tax and has now cast doubt on whether Scotland should be granted the right to set its own.
A report, published by the TUC today, claims that lowering corporate tax does not stimulate national economies, but merely reduces government coffers and fails to create jobs.
The contention flies in the face of those who support fiscal autonomy for Scotland and, by extension, attacks one the key tenants in the economic argument for Scottish independence.
Earlier this year, Scots millionaire entrepreneur and philanthropist Sir Tom Hunter and billionaire businessman Jim McColl, who recently overtook Sir Tom as Scotland’s richest man, told The Herald the right to set corporation tax was essential to the nation’s prosperity.
Sir Tom said the levy on business profits in Scotland should be set between 12.5% and 15% and Mr McColl said 12.5% was “absolutely the right number” to entice more overseas corporations to establish bases here, which would have a knock-on effect on the Scottish economy.
They also contend that lowering the corporation tax in Scotland would level the playing field with the Irish Republic and potentially now Northern Ireland.
However, the TUC’s Corporate Tax Reform and Competitiveness report insists that cutting the company tax rate as a means of stimulating growth is a “poor economic strategy”.
The report, which compares corporate tax and employment growth rates between 1997 and 2010 across OECD countries, claims there is no strong correlation between low taxes and high employment or GDP growth.
The union organisation further contends that at a time of constrained public finances, the economic benefits are not significant enough to justify tax cuts of the scale that the government has embarked upon.
Brendan Barber, the TUC general secretary, yesterday said: “The Government has been seduced by employer calls for more corporate tax cuts.
“While everyone wants to pay less tax, from multinational corporations to ordinary taxpayers, the argument that simply cutting corporation tax will fuel jobs and growth does not stand up to scrutiny.
“UK corporate tax rates are already extremely competitive. And while some people, including the Chancellor, have talked about emulating the Irish economy’s aggressive low tax policies, its current woes suggest this is not a sustainable economic model.”
However, Sir Tom yesterday remained defiant over Scotland’s right to lower corporation tax north of the Border.
He told The Herald: “The TUC argues corporation tax reduction will not generate increased growth yet fails to offer any alternative to stimulate growth.
“We as a nation cannot simply adopt a status quo mentality at a time of extraordinary financial pressure – this is the frog in the warm water approach.
“We collectively in business, trade unions and government have to work together to drive innovation and growth and for me categorically I believe by lowering the overall tax take you increase inward investment opportunities, indigenous growth prospects and generate the new employment this country so badly needs.”
He added: “If we stimulate private sector growth, the job opportunities needed to cushion public sector job losses open up.”
The debate over a separate, lower Scottish corporation was re-ignited in March when Chancellor of the Exchequer George Osborne’s Budget revealed that the Treasury was considering allowing the Northern Ireland Executive to reduce its corporation tax level to 12.5% in line with the Irish Republic.
The consultation paper which examined the case for lowering corporation tax rates in Northern Ireland was published this week, and noted that low rates of corporation tax are important for attracting overseas investment.
But while it examines ways to devolve rate-reducing power to the Northern Ireland Executive, it adds that any fall in corporation tax, if agreed by the Treasury, would have to be paid for by a corresponding fall in the block grant, which could be up to £300 million a year.
At the same time, a report this week from Economic Advisory Group claims that pre-announcing the move by next year would help create 58,000 extra jobs in Northern Ireland by 2030.
Mr Osborne‘s March Budget doubled the cut in corporation tax, which will now be slashed by two percentage points from this month, instead of one percentage point as previously announced.
The UK tax on company profits will then continue to fall by one percentage point in each of the next three years until it hits 23%.
The TUC report warns ongoing cuts in the corporation tax rate will reduce vital tax revenues without any significant benefit to ordinary taxpayers.
The report cites data from OECD countries to show the UK already enjoys an extremely competitive tax rate, and notes that more than 90% of UK businesses pay the small business rate of 20% while the effective tax rate for large companies is currently estimated to be 23.2%, compared with OECD average of 26.5%.
Mr Barber added: “The more that big businesses and the super rich avoid paying their fair share, the more ordinary taxpayers will have to pick up the tab though tax rises and reduced public services.”
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