Treasury minister warns over corporation tax 'risks'

fingers on calculator
Image caption The Scottish government has been making the case for control over business tax

The UK minister running the country's tax system has said the Scottish government needed to clarify its case to get control of business tax.

The SNP said devolving corporation tax would give Scotland the powers it required to boost the economy.

But Treasury Minister David Gauke warned there were "risks", and warned costs of the policy were higher than forecast.

The Scottish government said people needed incentives to start businesses.

The UK government said Scottish ministers must provide more detail on paying for the "significant costs" of cutting tax, as well as dealing with measures companies could take to reduce their tax bills.

The Treasury also said the administrative costs of a separate corporation tax system would be "significantly higher" than indicated by the SNP, requiring new IT systems and expertise to police the new tax border between Scotland and England.

The Treasury is considering devolving control of corporation tax to Northern Ireland, given its unique position in sharing a land border with the Republic of Ireland - where the levy is set at 12.5%.

The Scottish government, which has published a discussion paper on its proposals, wants the same powers included in the Scotland Bill, currently going through Westminster.

Corporation tax, excluding North Sea Oil, generated £2.6bn pounds in Scotland, during 2009-10.

In a letter to Scottish Finance Secretary John Swinney, Mr Gauke, the exchequer secretary to the Treasury, sought to set out the "risks and costs" of the proposal.

'More clarity'

Mr Gauke said: "Scotland's economy is significantly more integrated with the rest of the UK than Northern Ireland and separate corporation tax regimes could introduce significant distortions and frictional costs.

"Corporation tax is complex and reform will always involve tough choices.

"There is therefore a need for government to acknowledge the constraints it faces, among which is crucially the absolute requirement that it realistically costs and funds the reforms it proposes."

Mr Gauke said the Scottish government plan went beyond the Northern Ireland proposals, saying more clarity was needed.

"I would welcome your views on the real tension between having a tax regime which varied in both rate and base," the Treasury minister stated in his letter to Mr Swinney.

The Scottish government has said the devolution of corporation tax has been backed by successful Scottish business people, including Jim McColl and Sir Tom Hunter, and would give firms with a competitive edge and make Scotland a more attractive location for international investment.

"Ministers gave a commitment to call for the devolution of corporation tax so that we can cut the rate, and have a clear mandate to achieve it," said a Scottish government spokesman.

"Full responsibility for corporation tax would give Scots a greater incentive to start their own business, provide Scottish firms with a competitive edge to help them grow, make Scotland an even more attractive location for international investment and help raise our standard of living, bringing jobs and wealth to communities across the country."

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