Scotland politics

Corporation tax cut pledge dropped by Scottish government

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Media captionNicola Sturgeon says productivity is the key to improving living standards and wants Scotland to close the gap with the best in Europe

The Scottish government has revealed in its new economic plan that it is no longer committed to a "blanket" three point drop in corporation tax.

The switch in policy is a departure for the SNP which promised to introduce the cut if Scotland became independent.

First Minister Nicola Sturgeon confirmed the change alongside other measures to end economic inequality.

The UK government has insisted its austerity policies are working and have resulted in more Scottish jobs.

Scottish Conservative finance spokesman Gavin Brown said Ms Sturgeon's economic strategy was "underwhelming" and called for business rates to be reduced.

The first minister told a gathering in Linlithgow that there would now be a focus on "targeted changes in tax allowances."

'Targeted changes'

While corporation tax remains reserved to Westminster, the Scottish government has long argued for it to be devolved to Holyrood.

And its White Paper setting out the case for independence said: "This government plans to set out a timescale for reducing corporation tax by up to three percentage points below the prevailing UK rate."

However, the newly published 84-page economic plan, titled Scotland's Economic Strategy (March 2015) said: "The Scottish government has made clear that we have no intention to engage in a 'race to the bottom'.

"Instead, we will use these powers to create a long-term competitive advantage, not through a blanket approach, but by using targeted changes in tax allowances."

Ms Sturgeon visited the technology firm Calnex, where she outlined the twin-track approach aimed at increasing competitiveness while halting inequality.

She told the gathering that productivity "was the key" to "any sustainable long-term improvement in living standards".


What has the Scottish government said on corporation tax?

November 2007 - The Scottish government's economic strategy said: "To make Scotland the lowest taxed part of the UK, dropping corporation tax significantly below the UK level."

November 2013 - The Scottish government's White Paper on independence said: "This government plans to set out a timescale for reducing corporation tax by up to three percentage points below the prevailing UK rate."

November 2013 - The Scottish government's Building Security and Creating Opportunity: Economic Policy Choices in an Independent Scotland said: "In 2011, the Scottish government modelled the potential impact of a reduction in corporation tax broadly equivalent to a cut in the headline rate of three percentage points. The results showed this has the potential to increase output by around 1.4% and boost employment by approximately 27,000 jobs."

March 2015 - The Scottish government's economic strategy said:"The Scottish government has made clear that we have no intention to engage in a 'race to the bottom'. Instead, we will use these powers to create a long-term competitive advantage, not through a blanket approach, but by using targeted changes in tax allowances."


Ms Sturgeon explained: "When we published the first Scottish government economic strategy back in 2007, Scotland's productivity then was 6% below that of the rest of the UK.

"The gap with the rest of the UK has reduced significantly since then, but we are still some 13% below Sweden and 20% below Germany. So we need to do much more.

"That is why we want to focus on closing the gap with the very best in Europe and that really matters."

She added that if Scotland increased productivity by 0.1% a year it could:

  • boost GDP by 1.3%
  • boost employment by 11,000
  • and boost tax revenues by £400m a year after 10 years.

Ms Sturgeon said that in order for those figures to be realised there was a need to invest in infrastructure and skills, "in contrast to the UK's government deep and and harmful cuts in public spending".

She added that the approach of "promoting equality and competitiveness together is two sides of the same coin - it is in itself innovative, but it is also in tune with a growing international consensus".

Scottish Labour said the first minister was "right to point out appalling inequality in Scotland".

MSP Jackie Baillie said her party had a powerful vision for making Scotland a "better and fairer country".

Tax burden

She added: "Scottish Labour has a plan to make Scotland the fairest nation on earth.

"We will make work pay for all Scots by calling time on zero hours contracts, using the mansion tax to invest in our NHS and raising the minimum wage for those in work.

"We have also set out how we would close the attainment gap by investing £125m to support working class kids who have been left behind by the SNP government in Edinburgh."

Tory MSP Mr Brown said there was no commitment from the government to use new tax powers to lessen the tax burden and "make us more competitive".

He added: "It is also surprising for the first minister to use OECD (Organisation for Economic Co-operation and Development ) figures from 2010 to claim UK government policies aren't working.

"Only last week, the head of the OECD praised the 'tremendous progress' made in Britain's economic recovery, and noted the 'remarkable' levels of job creation."

Andy Willox, the Federation of Small Businesses' Scottish policy convenor, said the Scottish government's intentions were "admirable" but needed more detailed work to ensure "improvements on the ground".

STUC general secretary Grahame Smith welcomed the Scottish government's commitment to tackling inequality but said it could have gone further.


Two views on equality V's competitiveness

Ben Southwood, head of research for the Adam Smith Institute

"We can achieve economic growth and equality in an economic strategy, but we have to be very careful about what measures we use.

"It does seem that the poorer counties in the world are unequal, whereas the richer countries are more unequal. That doesn't necessarily mean that reducing inequality lets you get richer.

"In fact what we tend to see is first you grow very fast, become more unequal, and then you carry on growing and everybody else catches up.

"Redistributing wealth is very important for alleviating poverty but in the long run it has barely lifted anyone out of poverty, compared to the amount economic growth has lifted people out of poverty.

"Economic growth has lifted billions of people around the world out of poverty, redistribution has lifted millions of people out of poverty. Redistribution is important but it isn't nearly as important as growth and we should always be focusing on growth."

Morag Gillespie, a senior research fellow at Glasgow Caledonian University's Women in Scotland's Economy group

"Once you have a level of growth, and the UK and the United States are well past that, then you start to get diminishing returns from simply focusing on growth alone.

"And I absolutely agree with Nicola Sturgeon, I think it is essential that we pursue equality as part of our economic strategy.

"And if you look at some of the richer nations across the world you will see that some of them are much more equal than others and it isn't to do with how long they have been growing, or how much growth they have had, but how much they focus in ensuring that all the people of the country can benefit from economic growth and it isn't just a few people that profit.

"One of the things that we really, really need to tackle in Scotland is that the jobs being created are better paying jobs and that we are not just creating minimum wage jobs, that we don't have more and more people working in really exploitative work situations, such as zero hours contracts, temporary employment, and that we tackle the really high levels we have of under employment."

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