A paper published today by HM Treasury estimates that cutting Corporation Tax in Scotland to the same rate as Ireland could reduce overall spending power by a total of around £10bn to £12bn over a five year period. The paper provides provisional HMRC estimates of both the ‘direct’ and ‘behavioural’ effects of cutting corporation tax to 12.5 per cent in Scotland and estimates that £2.6bn could be removed from the Scottish budget in a single year.
Appearing before the Scottish Affairs Committee in the House of Commons today, Scottish Secretary Michael Moore told MPs that it was this sort of analysis that must inform the devolution debate.
Commenting on the tax paper, Michael Moore said:
“This paper makes clear the very real risks for Scotland in making changes to corporation tax without first looking at the details. Cutting corporation tax to Irish levels would leave the Scottish Government with a gaping hole in its budget.
“To risk losing more than £2bn in spending power in a single year raises some serious questions that Scottish Ministers need to address in their proposals to devolve corporation tax. What cuts would be made? What other taxes would be increased?
“Analysts have examined a whole range of factors here. They have looked at the direct impact of a cut in Corporation Tax as well as the behaviour effects of ‘profit shifting’ and ‘tax motivated incorporation’. It highlights not only the revenue involved but also the complexity involved in one tax change. This doesn’t even take into account the administrative costs for government and business.
“The UK Government is already cutting Corporation Tax to one of the lowest levels in the G20, helping Scottish businesses to grow and generate new jobs.
“There are advantages to being able to share risks across a much wider tax base so that different parts of the UK support each other. Making changes to that system have to be carefully thought through and set out in real detail for everyone to analyse.
“A serious proposal for devolving new powers must be based on serious research and a credible case. Ideology must not get in the way of the very real impact these decisions will have on Scotland’s families and businesses.
“We await the substantial detailed case from the Scottish Government on Corporation Tax but we will not agree to anything that will damage Scotland’s best interests.”
The paper estimating the cost of a reduction in the Corporation Tax rate in Scotland has been laid in the commons library.
Read the HMRC paper estimating the cost of a reduction in the Corporation Tax rate in Scotland