Salmond in 'fantasy land' over tax plans, says former adviser

Scottish Political Editor

Sunday 29 January 2012

ALEX Salmond's vision of an independent Scotland attracting global investors with ultra-low corporation tax has been dismissed as "a fantasy" by one of his former economic advisers.

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exclusive By Tom Gordon Scottish Political Editor

Professor John Kay, who served on the First Minister's Council of Economic Advisers during the last Parliament, said the idea was a "non-starter" because the rest of the EU would block it.

Salmond and his Finance Secretary John Swinney called last year for corporation tax to be controlled from Edinburgh, citing the example of Ireland's 12.5% rate, which has created jobs by helping attract international firms like Google.

The idea is backed by two of Scotland's richest entrepreneurs, Sir Tom Hunter and the engineering tycoon Jim McColl, who have called for the current UK rate of 25% to be slashed to between 12.5% and 15% north of the Border to boost the economy.The ability of an independent Scotland to cut corporation tax is one of the SNP's big economic ideas in the run-up to the 2014 referendum.However, Kay said a low rate was incompatible with the SNP's plan for an independent Scotland also being a full member of the EU.He said it was inconceivable that other EU states, who want to end Ireland's 12.5% rate and who are now moving towards common tax rates, would allow Scotland to copy Ireland's example."No-one is going to allow Scotland to have a low corporation tax. That's just a fantasy," he said. "If Scotland's an independent country, the EU will not allow it. It's a non-starter. What has happened on corporation tax is Ireland has this low rate and everyone around the EU is determined that that should never happen again."So Scotland would have to negotiate EU membership – it wouldn't be difficult, everyone's going to have Scotland as a member – but you can be absolutely sure that one of the conditions is that you don't have a 12.5% corporation tax rate."Since a fuss has been made in Scotland about doing that, it would be inevitable that you would get the determination on the part of the Europeans that you do not have it."In August, the SNP Government issued a discussion paper on reforming corporation tax, which repeatedly referred to Ireland's 12.5% rate and the investment it attracted, saying it could create 58,000 jobs if copied in Northern Ireland.In a speech to the Northern Ireland Assembly at Stormont in 2008, Salmond also referred to the 12.5% rate, saying "Scotland's government believes very strongly that, with measures such as low competitive tax, we can match or even exceed" the success in Ireland and the other countries in the now infamous "arc of prosperity". However, France, which has long complained about Ireland's 12.5% tax rate, and Germany are currently pushing for more tax harmonisation as part of the measures to stabilise the Eurozone.Opposition parties last night said the SNP's independence plans didn't stand up to scrutiny. Labour finance spokesman Ken Macintosh said: "Alex Salmond's economic policies are disintegrating in front of our eyes. Now one of Britain's leading economists and his former adviser is telling him what he should already know: his plans to cut corporation tax, maintain public spending and remain a member of the EU are incompatible." LibDem leader Willie Rennie said: "The SNP will need to do better if they are going to convince people to take the risk of independence. Making false promises over tax will shake business confidence and call into question other assurances the SNP has given over the economy."David McLetchie, the Tories' constitution spokesman, added: "There is no way that the EU is going to permit an independent Scotland to have a low corporation tax rate. As on so many other things Alex Salmond will be told what to do by the French and the Germans and will meekly comply."A spokesman for Swinney said: "There are varying rates of corporation tax across the EU and each state is free to set their rates, as long as they do not discriminate against other businesses. Lower corporation tax will give Scotland a competitive edge. The opposition parties are as confused and incoherent as usual."

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Salmond in 'fantasy land' over tax plans, says former adviser

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