Click to get your own widget

Thursday, June 18, 2009


The Calman Commission came out with their report on new powers for the Scottish Parliament. They came out for changing our income tax varying powers from the 3P we have now to 10p downwards & unlimited upwards. Since at no time in the last 10 years has there been any real attempt by any party to use the 3p rate it hardly seems likely this is more likely to be used. They have also said we should get the power to regulate airguns! This letter was the lead one in the Aberdeen Press & Journal yesterday & is in the Scotsman today, alongside one by Tam Dalyell. Not chosen by my local paper, the Herald or any others or I could have got the hat trick but perhaps that will happen tomorrow.
The Calman report looks like a stitch up by the other 3 parties to give the illusion of change. I do not write of the refusal to give us a share of oil revenue since the argument against is reasonable. Oil prices fluctuate massively. Giving it to us would obviously be politically impossible without cutting the rest of the grant proportionately since, as English voters point out, we already spend more per head than them. That would simply make planning spending impossible.

I write of the purely public relations call for us to get more of the income tax varying power which no government has come close to using. This is tokenism. The power we could & should get is to reduce Corporation Tax. Everybody knows it was the reduction in this that was the driver of the Ireland's 7% growth. This is why the SNP went into the last election promising to try & get us the power to reduce it. That was & still is the basis of their promise to produce a "Celtic Lion" economy matching Ireland's. It is also something then Labour leader McConnell promised to support (Scotsman 17/11/6) & that even the LibDems had been "looking at" cutting business taxes (Scotsman 3/7/6).

Whatever tokenism Calman has produced (airguns & extending a power we haven't used) if we actually want to grow Scotland's economy control of the levers which could most directly improve our competitiveness must be used & the most obvious of these is corporation tax. Everything else is smoke & mirrors.
The Scotsman edited out the last 2 sentences of the first paragraph & both edited out the reference to airguns.

Looking at the report [pdf p261) this is what it says about getting control of CT.

Devolving Corporation Tax would represent a shift in increasing the financial accountability of the Scottish Parliament, although other taxes have a closer connection to the electorate. We are not convinced that allowing the Scottish
Parliament to determine a Scottish rate of Corporation Tax would produce harmful tax
competition because the scope to vary the rate is, in effect, constrained. Divergent
rates of Corporation Tax across the UK would create economic inefficiencies as firms
react to tax considerations rather than commercial factors. If tax competition did
occur, it would have the potential to be harmful rather than efficient. The creation
of compliance costs to businesses operating on either side of the border, as well as
the increased collection costs to government, would be especially undesirable in the
present economic climate.
By "economic inefficiencies" what they mean is that that entrepreneurs would base decisions on where to locate not merely on "conventional" business costs but on taxes. Of course all businesses everywhere in the world make their decisions taking into account government taxes & regulation. However note that by saying this THE CALMAN COMMISION ARE ADMITTING THAT CUTTING CORPORATION TAX WOULD BE HIGHLY EFFECTIVE. If they didn't think it would persuade companies to expand their Scottish employment then there would be no effect & no such "inefficiencies"! There are 2 further fallacies in their position.

Firstly that any business moving to Scotland must be matched by an equal cut in England. They should study Milton Friedman who said "Most economic fallacies derive from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another." This is one such - for every job gained by transfer from England we should expect a minimum of 1 from other parts of the world & another minimum of 1 from companies who, or whose bankers, would otherwise have decided such an investment would not be worth making. On top of that a growing Scottish economy produces resources some of which will, in due course, be invested in the rest of the world as well as more money for the Chancellor. Economic growth is, fairly obviously, not a fixed pie scenario.

The second fallacy is that this report is supposed to be about what is best for Scotland. Apart from the argument being wrong, if it were right it would be proper for Westminster MPs to turn it down on those grounds. It is highly improper of the Scottish ends of parties, however Unionist, to restrict, in advance, their request for powers in the interests of the Westminster end of the dog.

Their position is not only ignoring Scotland's interests in a putative Unionist interest but is economically flawed & a parochial view of the Union in which the rest of the world doesn't exist.

NOTE Previous Labour & LibDem apparent approval of CT cutting

On an entirely different subject I was on the radio Scotland phone in this morning. Gary's sermon was about potholes in our roads & whether we should, in this time of financial stringency be fixing them. I was given a few seconds to say that this was typical of the BBC. That they are constantly doing programmes about how we should spend more on enforcing nanny state regulations (for example yesterday his sermon had been on banning smoking in cars with kids in them in case they all died of passive smoking) but that when it comes down to basic infrastructure vital for the country's prosperity they say we don't have the money.

I got just long enough to say that & he moved on.

Labels: ,

Divergent rates of Corporation Tax across the UK would create economic inefficiencies as firms
react to tax considerations rather than commercial factors

This tax competition already occurs across the EU, the US and between the West and the Far East. In my state Intel convinced the state to give it an exemption to the state income tax in order to get them to upgrade and keep open their plant.

Having defended tax competition, I don't think that Scotland should be able to change a tax that is payed to the central government in London. I can only realistically support allowing a government to alter a tax that it spends the revenue from, otherwise that one region is being given a free (or reduced) ride at the expense of the other reasons.
Scotland would have to refund the Exchequer for the l;ost money. This is how the income tax reduction has lready been agreed. EU rules also require it.

Corporation Tax in Scotland takes £3.1 billiion so if it were cut from the curent 28p to Ireland's 12p we could have to refund £1,8 bn. Since we spend about £1bn on windmillery & £500m on Scottish Enterprise, the state organisation for attracting industry this would clearly, but not easily, be affordable.

Of course once the Laffer Curve went into effect our business tax take would rise & so long as we had negotiated the refund on the proportion of CT taken in Scotland rather than the amount payable as the economy grows we woyuld see the gap close.
Well, what I would suggest is separate corporate income taxes for Scotland and the rest of Britain. The income from these taxes would go to each capital and be spent by each on their own projects. Scotland would get all the revenue from its corp tax, but would get less from London in return. If you could get Hollyrood to live on less then you could cut, or eliminate the tax.
Because Scotland is poorer than the UK average I think we would want & be entitled to some balancing factor. A lot of innumerate SNP supporters simply refuse to accept that we are getting more than we raise which makes intelligent discussion involving them difficult.

I have no doubt Scotland's government could spend a lot less (I have given the examples of windmillery & "Scottish Enterprise") but the will seems to be missing. Come to that I am sure it could be done in London too.
Come to that I am sure it could be done in London too.

Scotland can be the example for the rest of Britain.

Because Scotland is poorer than the UK average I think we would want & be entitled to some balancing factor.

I don't think you are entitled to squat. As long as you accept London's money you will do what they tell you even if it is destructive to Scotland. All of this is in accord with the Golden Rule:

He who has the gold makes the rules.

Either Scotland can pay its own bills and send a small amount to London to pay for the military protection that it receives, or the entire exercise in Scottish independence is a farce. Of course, when I talk of sending a small amount to London, I am including tariff revenue, North Sea excise taxes, and whatever revenue you can scrounge up.

With proper management Hollyrood could be entirely self sufficient financially.
I would very much like it to be such an example, as ireland has been, but for cultural reasons Ireland didn't get noticed as much in London as here.

I have no doubt Scotland could be fully independent & what we get, after counting Scotland's oil, isn't that much - probably less than we pay the EU, certainly far less than adding the cost of EU regulations. It isn't a deal breaker if it comes to independence but I do think that in any union there should be some pressure towards equalisation.
I wasn't talking about financial independence from the EU, although I advocate that too.

But if you do point out that Scotland is receiving more than it is paying then you should also point out that that is what is driving socialism and dependence on London. And you should state that Scotland can make it without a hand out.

Is a summary of Hollyrood's budget available online?

Of course, if Britain goes broke you may get your financial independence sooner than you planned.
Scottish budget
pdf p 126 for the total.

If Britain went bust we would still be stuck with our share of the national debt. Apart from anything else most government debt is owed to citizens.
Post a Comment

<< Home

This page is powered by Blogger. Isn't yours?

British Blogs.