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Meeting of the Parliament 15 September 2011

15 Sep 2011 · S4 · Meeting of the Parliament

Item of business

Scotland Bill (Corporation Tax)

McLetchie, David Con Lothian Watch on SPTV

No, I will not; I would like to move on to my next point.

The central proposition behind the Government’s proposal—which is that the lowering of the rate of corporation tax would boost economic growth in Scotland—is highly debatable. The Republic of Ireland is regularly cited by the SNP and others as proof positive of that proposition, but it is not as simple as that.

Corporation tax was introduced in Ireland in 1976. The standard rate started at 50 per cent, then went to 40 per cent; by 2000 it had reached 24 per cent, and in 2003 it came down to the present 12.5 per cent. Ignoring the fact that the Irish economy is a total basket case at present, I suggest that, if the simple equation between lower corporation tax rates and growth had held true, one would have expected growth rates in the Irish economy to have risen as corporation tax rates had fallen. However, that is not the case. The highest rate of growth in Ireland in recent times was achieved between 1996 and 2000, when it averaged 9.6 per cent per annum. In that period, the corporation tax rate in Ireland was never less than 24 per cent. Indeed, in the subsequent five-year period in which corporation tax rates fell, growth rates fell too.

We have heard a great deal about the proposition that, according to the Scottish Government’s model, a 3 percentage point reduction in corporation tax would create 27,000 jobs after 20 years. The price for that is a reduction in corporation tax revenues of between £200 million and £250 million a year. Let us keep those figures in mind: for £250 million per year, we get 27,000 jobs after 20 years.

Let us now look at an alternative approach to stimulating economic activity, of which we have a recent example in the form of the small business bonus scheme. To find out the impact of that measure on jobs, I turned to that authoritative source, the Scottish National Party website. On 28 February this year, it told us that in only four years, at a cost per annum of barely £110 million, it had created 40,000 new employees.

There we have the contrast, based on the SNP’s own figures. A small business rates reduction creates 40,000 real jobs after four years, but a corporation tax reduction, which is twice as expensive, creates fewer jobs and takes five times as long. That is why our amendment calls on the Scottish Government to model the impact of a reduction in business rates that is equivalent, in money terms, to its proposal for corporation tax, so that we can compare outcomes.

What could be the lesson for the SNP Government from that exercise? It is quite simple: we should use the tax powers that we have, rather than moan about those that we do not have. If we did that, we might get a pleasant surprise, and Scotland would be much better off.

I move amendment S4M-00856.2, to leave out from “the important role” to end and insert:

“that there is no simple relationship between rates of corporation tax and economic growth, which is dependent on a multitude of factors, and calls on the Scottish Government to model the economic impact of an equivalent cut in business rates as a comparator to its corporation tax model and a policy option that is currently available to it.”

15:52

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Meeting of the Parliament 15 September 2011

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