Scotland Bill (Corporation Tax)

– in the Scottish Parliament on 15 September 2011.

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Photo of Elaine Smith Elaine Smith Labour

The next item of business is a debate on motion S4M-00856, in the name of Fergus Ewing, on the Scotland Bill and corporation tax.

Photo of Fergus Ewing Fergus Ewing Scottish National Party

I welcome this opportunity to debate a key policy lever that should be at the heart of our strategy for sustainable economic growth in Scotland: corporation tax. Our approach to the economy is well established and clearly the people of Scotland have given strong backing to it. Our commitment to enhancing sustainable economic growth was affirmed by the publication on Monday of our new economic strategy, an important part of which is our commitment to creating an environment in which businesses have an opportunity to flourish, underpinned by a fair and efficient tax system.

In our last term and in the first 100 days of this Administration, we took—and have taken—forward a range of initiatives to make Scotland the most competitive location in the United Kingdom in which to do business. For example, we have delivered the UK’s most competitive business rates package, including the small business bonus scheme, which has either eliminated or reduced the business rates burden for tens of thousands of properties across the nation. However, under the current constitutional arrangements, many of the key job-creating powers, particularly in relation to taxation, are held back from Scotland. Indeed, more than 90 per cent of Scotland’s tax revenues are controlled by Westminster. Under the current Scotland Bill, that figure would fall to around 85 per cent.

As a result, key decisions over vital economic levers, such as corporation tax, fuel duties, national insurance and oil and gas revenues, are taken without consideration of the unique circumstances or opportunities in Scotland.

I firmly believe that Scotland’s best interests are served by taking full responsibility for the key policy decisions that affect the Scottish economy. That is why we are committed to holding a referendum on independence. However, our immediate constitutional priority is to improve the Scotland Bill. While we have offered detailed proposals for truly enhancing our decision-making powers, the UK Government continues to engage in a negative campaign of scaremongering over any attempt to improve the Scotland Bill—scaremongering for which, I noticed with some approval, Lord McConnell recently criticised the former Prime Minister.

Are we really to believe the claims from the UK Government that reducing corporation tax to 12.5 per cent in Scotland would reduce our budget by £2.6 billion? Does it not realise that that figure is actually the total amount of corporation tax raised in Scotland? I hope that today we can have a proper debate on the potential opportunities to add economic powers to the Scotland Bill.

The financial framework for the Scottish Parliament needs reform, with a greater focus on accountability and fiscal responsibility. It surely cannot be the summit of our collective ambitions—for any member in this chamber, from any party—simply to rely on a handout from the London Treasury.

Photo of Gavin Brown Gavin Brown Conservative

I agree entirely that we ought to have a detailed and mature discussion, but why has the Scottish Government not published the modelling that it claims to have done?

Photo of Fergus Ewing Fergus Ewing Scottish National Party

We do not agree with that proposition. We believe that we have published proper detail on the principle of our proposals, and I will come on to address some of the matters that I suspect may be in Mr Brown’s mind.

Any reform must be more than simply an accounting exercise. It must offer a genuine advance and real economic teeth that can boost Scotland’s growth, create jobs and deliver a better nation. The Scotland Bill fails to deliver that. The income tax proposals are flawed and need to be revised. Indeed, the Secretary of State for Scotland admitted at last week’s Scotland Bill Committee that he does not even know the impact of his own bill on Scotland’s budget. That is surely not good enough; the Scottish people must deserve better.

Photo of James Kelly James Kelly Labour

What would the impact of the minister’s corporation tax proposals be on the Scottish budget?

Photo of Fergus Ewing Fergus Ewing Scottish National Party

I am coming on to that. We believe that the impact will be positive for Scotland, which is why we propose it, as opposed to the impact of the Westminster Government’s income tax proposals. The Scottish Government estimates that those proposals would have cut nearly £8 billion from the budget from 1999 to 2011, while the Scotland Office figures suggest a reduction of £691 million. What on earth is the position?

Photo of Fergus Ewing Fergus Ewing Scottish National Party

Not just at the moment; I want to cover the matters that I know will be of interest to all members.

It is the lack of economic levers that is important to our debate today. Yes, Her Majesty’s Treasury will give us some borrowing powers, but it will determine how much we can borrow, when we can borrow, the interest rate at which we repay the borrowing, when we repay, and from whom we can borrow. How does that represent a significant transfer of powers to this place? Aside from borrowing, that is it: no corporation tax, no capital gains tax, no fuel duty, no oil revenues and no welfare. I am convinced that we could do much more if we had greater access to the key levers of economic growth.

The debate will focus on corporation tax, which is one of the six areas on which we are currently pressing the UK Government for additional powers. As we outlined in our discussion paper, corporation tax is one of the main levers open to Government to promote growth, investment and jobs. It is broadly accepted that there are three principal channels through which corporation tax can influence economic growth. First, it can boost incentives to invest in physical and human capital and in research and development; secondly, it can increase firms’ profitability and their ability to compete in both domestic and overseas markets; and, thirdly, it can make Scotland an even more attractive location for enterprise and investment.

I believe that the weight of evidence highlights strong links between corporation tax and economic growth, and the UK Government is of the same view. The UK Government has placed reducing the headline corporation tax at the heart of its growth strategy; however, a unified UK rate of corporation tax is neither desirable nor economically efficient.

Photo of Fergus Ewing Fergus Ewing Scottish National Party

I will move on. There are other matters that Mr Brown would expect me to cover, and I wish to do so within the time that I have available.

Clearly, parts of the UK such as London and the south-east already have an in-built competitive advantage. A more tailored, more competitive and better designed corporation tax system could address many of the economic challenges that Scotland faces.

I do not seem to be alone in recognising the benefits that such an approach could deliver. The UK Government itself has recognised the important role that different rates of corporation tax can have in boosting the performance of different parts of the UK economy.

Photo of Fergus Ewing Fergus Ewing Scottish National Party

Not just yet. I am in the middle of this point, but I will give way to Mr Harvie later on.

HM Treasury has stated that, in Northern Ireland,

“A lower corporation tax rate would, on its own, be likely to have a positive effect on local private sector investment and foreign direct investment”.

Why does the London Government think that that would be good for Northern Ireland but not good for Scotland?

Photo of Patrick Harvie Patrick Harvie Green

What safeguards does the minister think ought to be in place, if corporation tax were devolved, to prevent the already scandalous problem of corporation tax avoidance from getting worse through the creation of new loopholes? Or are we to assume—given the glee with which the First Minister cites the support of a notorious tax exile for the policy—that the Scottish Government would be comfortable with increased corporation tax avoidance?

Photo of Fergus Ewing Fergus Ewing Scottish National Party

No, we would not. I accept that there is a serious problem with the avoidance of corporation tax as it is administered by the London Treasury. The problem has persisted for Administration after Administration. It has been reported on, it has been documented, it has been considered by accountants and it has been the subject of innumerable comments by the well-informed members of the accountancy profession, but no effective action has been taken. That is entirely the responsibility of successive Administrations in the Westminster Parliament.

Last week, we had the publication for the first time of analysis to quantify the potential impacts on Scotland’s economy. The initial modelling work that the Scottish Government undertook examined the implications of an equivalent fall in the headline corporation tax from 23 to 20 per cent. Even that modest reduction in the corporation tax rate would have potentially huge benefits for the Scottish economy, including boosting employment in Scotland by some 27,000 jobs, raising investment levels and supporting a rebalancing of the economy through higher levels of exports.

Photo of Fergus Ewing Fergus Ewing Scottish National Party

I must make progress to cover the important matters that Mr Brown and others are interested in.

I am confident that there would be far greater benefits to Scotland from our having control over this key lever. In my short period of tenure as a minister, I have seen how Scots around the world, across all sectors—especially oil and gas, renewables, the life sciences and financial services—play a key role in global investment decisions.

Our globalscot network helps to broker deals, leverage finance and attract new business to Scotland. With the ability to control the corporation tax rate, we can set a competitive rate to ensure that Scotland becomes one of the most attractive places in the world to do business. That message will be communicated in boardrooms around the world by our network of leading Scottish businessmen and women. Who on earth, in this chamber, can object to that proposition?

We would be able to create a system that provides certainty for businesses to invest, not like the UK Government, whose last-minute raid on the North Sea oil and gas sector increased the tax rate on some fields to 81 per cent and led to the cancellation of investment in the North Sea.

Our proposition is clear: the Scotland Bill should be amended to provide us with the powers and leverage we need. I regret that I have insufficient time to canvass some of the material that I have prepared because I have been reasonably generous with interventions.

As the global economy continues to recover, as we hope it will, and we look to capitalise on the new opportunities that emerge, it is vital that Scotland has the levers of a normal nation to grow our economy and see future generations of Scots benefit hugely as a consequence.

I move,

That the Parliament recognises the important role that corporation tax can play in an economy’s growth strategy; notes the importance and implications for Scotland of devolution of corporation tax to Northern Ireland; supports the devolution of corporation tax to Scotland, and agrees that this economic lever, if used wisely, could support thousands of new jobs in the Scottish economy.

Photo of Richard Baker Richard Baker Labour

When the First Minister announced the Scottish Government’s calls for the Scotland Bill to be extended to give new powers to his ministers, we made it clear that we would not simply reject all the proposals but would judge them on the evidence that was brought forward on how they would benefit the Scottish economy. That is the test: not new powers for their own sake, but whether they will boost our economy, particularly at this time of low growth and cuts in public spending.

On borrowing powers, we have made common cause with the Scottish Government and—I hope—with other parties in the chamber, particularly given the comments by Nick Clegg yesterday on infrastructure. We support the calls for the Scottish Government's borrowing powers to be increased and accelerated beyond the current provisions in the Scotland Bill so that we can invest in new infrastructure and, through that, boost our economy. We are still scrutinising the other calls for new powers. For example, we have yet to hear from the Scottish Government the detail of the case for devolution of excise duty.

On corporation tax, the Scottish Government has failed to make its case. It has pointed to some prominent individuals who support devolution and the cutting of corporation tax, which we heard again today. However, for every supporter of the cause, a cast of others are unconvinced or downright opposed. As Iain Gray said earlier, the Government managed to build a consensus against the proposal between the Confederation of British Industry Scotland and the Scottish Trades Union Congress, which is no mean feat.

Why does the Scottish Government’s case break down? It is because, not for the first time, the sums do not add up. Cutting corporation tax is not a panacea for our economic tribulations. The Scottish Government’s case must be examined and it often rests on the example of the Republic of Ireland.

Photo of John Mason John Mason Scottish National Party

Does the member agree that the debate goes much wider than the headline rate? There is also the opportunity to target particular industries or small businesses. That might not cost a lot of money but would be quite effective.

Photo of Richard Baker Richard Baker Labour

I do not agree with the analysis put forward: there appears to be scant evidence that taking that step will achieve the additional economic activity in areas that has been argued. There are other things that the Scottish Government can do.

Photo of Kevin Stewart Kevin Stewart Scottish National Party

Can Mr Baker provide one international example of a country that cut its corporation tax rate and did not generate an overall increase in corporation tax revenue? I will give him a clue: the answer is none.

Photo of Richard Baker Richard Baker Labour

The Institute of Chartered Accountants of Scotland tells us that there is very little evidence indeed to suggest that corporation tax cuts in this country have resulted in more revenue from corporation tax and more economic activity, so I very much doubt the figure that Mr Stewart has given.

The Scottish Government often rests on the case of the Republic of Ireland. The minister will no doubt be aware of the report by PricewaterhouseCoopers, “Corporation tax: Game changer or game over?” The report found that there was no evidence that the Republic of Ireland’s corporation tax rate had been the prime driver of overseas investment. In fact, PWC said that 30 years of low corporation tax had delivered “comparatively little” direct foreign investment. In a separate study, PWC concluded:

“Low Corporation Tax is not a key driver of investment for foreign businesses locating in the UK, ranking 17th in a list that prioritised: language; culture and values; infrastructure; skills; and proximity to market”.

Those are the issues that should be the focus of the Government’s activity, with the powers that it has.

Let us consider the international evidence on whether lowering corporation tax benefits the economy. Countries that have a lower rate of corporation tax than the UK include Portugal, Greece, Ireland, Iceland and Spain. Those countries do not appear to feature on the Scottish Government’s current list of members of the arc of prosperity—if it still manages to find an arc of prosperity.

Let us also consider the evidence from the Scottish Government that lowering corporation tax would create growth. The Government published estimates that a reduction in corporation tax from 23 to 20 per cent would increase gross domestic product by 1.4 per cent and increase employment by 1.1 per cent after 20 years. We must wait 20 years in the hope that the estimates will be realised. At the Scotland Bill Committee meeting this week, the economist Professor Chris Heady described the estimates as “brave”, in the finest tradition of Sir Humphrey.

The prediction is brave, indeed. It does not take account of, for example, what happens if other devolved nations cut their corporation tax rates. If we follow the Scottish Government’s logic, why would businesses choose to pay corporation tax at 20 per cent in Scotland if Northern Ireland has cut its rate to 12.5 per cent to compete with the Republic? Where will the Scottish Government’s forecasts be if all that happens is that the devolved nations of the UK embark on a race to the bottom on corporation tax?

The Government’s proposal to cut corporation tax is risky and the establishment of different rates across the UK would be very risky, at the least. The STUC has made a strong point that such tax competition is harmful to sustainable long-term growth and to the fair distribution of the proceeds of growth. The approach might well encourage businesses to ensure that their taxable profits arise in Scotland, but that does not mean that businesses will transfer economic activity here.

Photo of Patrick Harvie Patrick Harvie Green

I do not argue that safeguards against avoidance behaviour are impossible to achieve; I am concerned that the Government does not seem to place a high priority on telling us what they are. Would linking rates of corporation tax with, for example, wage ratios or the provision of a living wage, which has been suggested, give us a chance to incentivise companies to change not their location but their practices?

Photo of Richard Baker Richard Baker Labour

Such ambitions could be achieved if the Scottish Government used the powers that it has on, for example, business rates. It could be counterproductive to change the headline rate of corporation tax, thereby opening up avenues to the risks that Patrick Harvie talked about. I ask for a different approach, although I acknowledge the issues that he rightly raised. There is a real danger of companies engaging in a brass-plating exercise and simply robbing other parts of the UK of corporation tax income without attracting jobs or creating extra growth in Scotland.

The evidence to support the Scottish Government’s contention that the measure would boost growth is, at best, hotly contested and weak—and that is before we consider the important issue of how the measure would be paid for. The Scottish Government contests the HM Revenue and Customs figure of £2.6 billion. That is a dispute for the Government to have with HMRC, but whether we are talking about half that figure or just hundreds of millions of pounds, the question is how the money will be found in the Scottish Government’s budget, particularly given all the Government’s commitments in a range of areas, including its commitments on higher education funding and freezing council tax for five years. If cutting public expenditure to provide for a corporation tax cut means losing thousands more public sector jobs in a gamble to create more private sector jobs, on the basis of flimsy evidence, then we should not take it.

The motion refers to Northern Ireland. The issue is hotly contested there, where it has been estimated that the proposal will cost £400 million. Trade unionists there do not support the move.

Over the summer, John Swinney presented a cut in corporation tax as a cure for our economic ills, but today he has left Mr Ewing to make the case for the Scottish Government. I am sure that Mr Ewing will make the case for tax cuts unfettered by the constraints of a social-democratic analysis with gusto on this occasion.

Today, the SNP has managed to put itself to the right even of the Scottish Conservatives in arguing for business tax cuts and cuts in public spending. I do not imagine that that will cause Mr Ewing much discomfort, but I cannot believe that all SNP members will be quite so comfortable with that, because the plans are not a magic bullet—in fact, they represent voodoo economics. It is impossible to sustain Scandinavian levels of social investment with a Reaganomic approach to taxation. The SNP would have us believe of this proposal and of its plans for independence that it is possible, but its sums do not add up. That is why we will oppose the Government motion today.

I move amendment S4M-00856.4, to leave out from “recognises” to end and insert:

“believes that proposals by the Scottish Government for new powers to be included in the Scotland Bill must be backed by evidence that their devolution will benefit the Scottish economy; believes that, in its case for corporation tax, the Scottish Government has failed to provide the required evidence that such a move will be affordable or beneficial to the economy; notes that neither CBI Scotland nor the STUC support this proposal, and recognises that the broader issues of tax competition within the UK are complex and challenging and that no decision has yet been made on the devolution of corporation tax to Northern Ireland.”

Photo of David McLetchie David McLetchie Conservative

The purpose of the Scotland Bill is, first and foremost, to improve the financial accountability and responsibility of the Scottish Parliament by extending its tax-raising powers in the areas of income tax, stamp duty and landfill tax, with the potential for further or new taxes to be devolved at a later date. Moreover, its proposals have been formulated in the context of the economic, monetary, political and social union that is the United Kingdom, and also in the context of whether the devolution of further tax-raising powers to this Parliament can work effectively within that framework without having adverse consequences for the country.

The issue of whether corporation tax was suitable for devolution in whole or in part was carefully considered by the Calman commission and by the Scotland Bill Committee in the previous session of this Parliament, which considered whether an ability to vary the rate of corporation tax in Scotland and other parts of the UK was desirable as part of a regional development strategy, and it was in that UK-wide context—and that context only—that the committee recommended that it should be available as an option for the Scottish Government to use, if it were available elsewhere. It is to misrepresent the committee’s position to suggest that it was in favour of the devolution of wholesale responsibility for the levying of corporation tax.

Photo of Fergus Ewing Fergus Ewing Scottish National Party

In that case, can Mr McLetchie explain why the UK Government recognises why it would be advantageous for Northern Ireland to have the power to reduce its corporation tax rate? Why is it right to do so in Northern Ireland but not in Scotland?

Photo of David McLetchie David McLetchie Conservative

If Mr Ewing followed the subject more carefully, he would know that the UK Government has just completed the consultation on the matter and has not yet taken the decision about whether Northern Ireland should have the power to vary corporation tax. There is no UK Government decision on that at all.

Despite the length of time that it has had, the Scottish Government’s proposals on corporation tax are nowhere near the finished article. Given the complexities of the subject, it is totally unrealistic to press for their inclusion in the present Scotland Bill if that bill is to complete its parliamentary passage early in the new year. That is particularly so given the concerns that have been expressed by the business organisations, trade unions and professional bodies in Scotland and the difficulties that even the Scottish Government acknowledges have to be overcome. We have to avoid a situation in which we get into a dangerous game of beggar my neighbour and reduce overall tax revenues without any commensurate increase in real economic activity that is of benefit to Scotland or anywhere else in the UK.

Photo of David McLetchie David McLetchie Conservative

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.”

Photo of Willie Rennie Willie Rennie Liberal Democrat

I apologise to the Presiding Officer and members in the chamber for arriving marginally late; I need a better alarm clock in order to arrive on time.

Legislation is one of our primary duties in this place and at Westminster, and we must ensure that there is proper debate, consultation, scrutiny, deliberation and reflection before a conclusion is reached. That is especially the case with regard to constitutional changes, which require special consideration because they are supposed to be lasting and fundamental in nature.

The SNP, however, seems to have departed massively from that well-established best practice and neglected all those key elements in their demands for corporation tax to be devolved. The Calman commission was set up around four years ago, at which time the SNP refused to take part. The Scotland Bill was subsequently published and is progressing well through the House of Commons—in fact, it has been through the House of Commons, and has achieved its second reading in the House of Lords. We are making significant progress. Just last week, however, the SNP demanded—at this stage in the process and in probably its most substantial paper to date—that corporation tax be devolved.

Photo of John Mason John Mason Scottish National Party

I accept the historical account that Willie Rennie has given us, but does he accept that the election in May this year somewhat changed the political landscape in Scotland?

Photo of Willie Rennie Willie Rennie Liberal Democrat

The mandate that the UK Government achieved in 2010 was also significant. We introduced, with Conservative support, a Scotland Bill that would never have seen the light of day if other Governments had been in charge on their own. We have already made significant progress, but we have done it in an orderly and substantial fashion, not in the reckless manner of those who demand changes at the last minute based on flimsy evidence that does not stand up and which has been criticised by many people across the business sector and beyond in Scotland.

Photo of Willie Rennie Willie Rennie Liberal Democrat

No—I have only six minutes for my speech.

The SNP has claimed that, through corporation tax cuts similar to those in Ireland, we can achieve economic growth rates similar to those in Ireland. In 2007, Alex Salmond claimed:

“we have everything it takes for a Celtic Lion economy to take off in Scotland.”

However, Mr McLetchie set out the case on that extremely well. As he pointed out, Ireland started in a very different place from Scotland and it had the benefit of being first off the mark in achieving the advantage from businesses that were looking to relocate there. Scotland would have to reduce its rates significantly to compete with Ireland on that level.

In recent days, the SNP has pulled back a bit—now it proposes a corporation tax rate of only 20 per cent rather than the implied 12.5 per cent—so we no longer even seek to compete with the Irish levels, but the rhetoric that we could achieve what Ireland did has not diminished in any way whatever.

Photo of Willie Rennie Willie Rennie Liberal Democrat

No—I have only a limited time.

Our main concern is about the effect on the public finances. Many members have criticised the UK Government for the public spending cuts that have been made, but we believe that making those cuts is absolutely necessary to get the public finances back in order. The SNP has failed to spell out the price of its claim—the cost to the public purse at an already challenging time. I have described how Scotland would not have the economic benefits that Ireland had, because tax would not even go down to Irish levels.

Photo of Willie Rennie Willie Rennie Liberal Democrat

No—I do not have enough time.

The crucial element that we require to progress in the debate is that the SNP comes clean and spells out the price. The UK Government has said that the cost would be £2.6 billion. The brains in the Treasury are better than mine and I am sure that they can justify the case for the £2.6 billion. [Interruption.] The minister protests, but the SNP has not provided its own figures. We have had no calculation whatever.

Photo of Fergus Ewing Fergus Ewing Scottish National Party

The corporation tax yield in Scotland is £2.6 billion. If we in Scotland decided to cut that tax rate to 20 per cent or even 12.5 per cent, will Mr Rennie explain how on earth that would cost £2.6 billion, which is the whole—100 per cent—of the yield? That is arithmetically illiterate.

Photo of Willie Rennie Willie Rennie Liberal Democrat

The minister knows perfectly well that the information is not arithmetically illiterate. The Treasury has set out the case and the projections for 2015. Considering all the other implications, it estimates a cost of £2.6 billion.

The minister protests, but the crucial point is that he has not provided his own figures, because he knows that the impact on public spending in an already tight period would be dramatic and that the economic growth claims are not substantiated in any way whatever.

Fergus Ewing indicated disagreement.

The minister shakes his head, but he has no answers. That is why the careering towards devolving corporation tax, which has involved not following the proper process, not spelling out the figures and not substantiating the economic growth claims, shows that the SNP is tremendously reckless with the proposal.

The Government’s response to serious business opinion in Scotland has had a touch of bullying about it. When the CBI made a reasonable interjection in the debate two weeks ago, the response was to accuse it of blundering into the constitutional debate and to say that it was no surprise that the CBI’s membership numbers were reducing.

The Deputy Presiding Officer:

Mr Rennie, you must conclude.

Photo of Willie Rennie Willie Rennie Liberal Democrat

Certainly. What I described is no way to treat serious business opinion. The SNP needs to treat people with a bit more respect if it is to get more powers.

I move amendment S4M-00856.3, to leave out from “strategy” to end and insert:

“and in providing resources to pay for public services; notes that the Scottish Government’s own discussion paper on options for reform states that cutting corporation tax could ‘lead to an immediate reduction in revenues collected in Scotland’ and that, if such a position was adopted, ‘decisions regarding budgetary priorities would be needed’, and calls on the Scottish Government to identify now which budget lines would be reduced as a result of implementing a policy to substantially reduce corporation tax levels in Scotland.”

The Deputy Presiding Officer:

I am afraid that the open debate is oversubscribed. To have any possibility of fitting in all the members, we must have speeches of six minutes, but members should please feel free to take less time if they wish.

Photo of Bob Doris Bob Doris Scottish National Party

Scotland is changing and is moving forward. Significantly more powers will be delivered to benefit our nation. I firmly believe that every member in the Parliament works to benefit Scotland, but I accept that we will have disagreements along the way about how best to do that. As Scotland moves forward, the debate will be about whether the end point of additional power is Scottish independence.

The people of Scotland will of course decide that in a referendum. However, I believe that, short of the independence issue, there is more agreement between us than we sometimes care to admit, and perhaps more than the amendments or some of the speakers in the debate have been willing to admit. If truth be told, I suspect that the issue of devolving corporation tax powers to the Parliament is one on which we can finally reach agreement. Agreement is not that far away, despite some of the speeches that we have heard, such as that from Mr Rennie. As a signpost for him, I point to the Steel commission.

I commend the Scotland Bill Committee in the previous session of Parliament for agreeing that, if corporation tax powers were extended to Northern Ireland, they should be extended to Scotland. That is a clear admission that if one component part of the UK varied its corporation tax, it would potentially gain a significant competitive advantage over the other parts. Therefore, the issue is simple: Scotland’s Parliament should ensure that Scotland has a comparative advantage over other parts of the UK to boost our economy and drive job creation. The question that is before us is whether we should be reactive to UK economic developments, rather than proactive. Do we wish Scotland to be ahead of the curve or playing catch-up?

Photo of Bob Doris Bob Doris Scottish National Party

Given the time constraints, I am afraid that I will not be giving way.

It could reasonably be argued that London and the south-east of England have an inbuilt structural advantage over other parts of the UK. London is a powerful global city and an international hub with exceptional links to the worldwide market. Its competitive advantage has developed through many years of UK economic policy. I make no bones about that, other than to say that I do not believe that it serves Scotland as well as it could. The clear UK economic policy of bolstering the city of London and the south-east economy was not designed to damage Scotland, but it certainly does not help Scotland.

The barriers in Glasgow to encouraging business growth and relocation are very different from those in London, and completely different from those in places such as Lerwick. Britain is a varied place and our economic policies should respect that. It is reasonable to suggest a different set of economic policies in Scotland, because we have a different set of economic conditions. Those who believe in the retention of the UK and who want to make a positive case for it should embrace the ability of a Scottish Government to take macroeconomic decisions for the benefit of our country.

In considering corporation tax, I think that it is important that we have a factual base. When UK Government modelling work suggested that reducing corporation tax in Scotland to 12.5 per cent would cost £2.6 billion, many people simply did not believe the statistics, which, as we have heard, were greeted with a gasp of disbelief. After all, £2.6 billion is the total corporation tax take, so the figures suggest that a 12.5 per cent corporation tax rate in Scotland would not raise one penny. That is simply mockable—it is laughable. There is no credibility for those who would cook the books to preserve a no-change agenda.

Photo of Bob Doris Bob Doris Scottish National Party

I do not have time.

Perhaps unsurprisingly, the UK Government has very different projections for the on-going cut in corporation tax across the UK to 24 per cent by 2014. Its Office for Budget Responsibility has estimated higher corporation tax revenues by 2013-14 than those at the pre-recession peak. It is staggering that, when the UK Government examines cutting corporation tax at a pan-UK level it does an analysis that builds in the benefits of growth, but when the work is done on a purely Scottish basis, the UK Government scurries around looking for a worst-case scenario and stretching the credibility of its projections to breaking point.

Therefore, let us have a look at some other projections. Scottish Government modelling work has indicated that setting corporation tax at 20 per cent can create 27,000 jobs and increase economic output by 1.4 per cent, with a 2 per cent uplift in overall investment. It has been suggested that Northern Ireland’s model will create 58,000 jobs, which is very powerful indeed. If Northern Ireland is to have those powers, why not Scotland? Recent work by the American Economic Journal shows that, in the Organisation for Economic Co-operation and Development countries, a 10 per cent reduction in corporation tax has typically raised investment rates by 2 per cent and boosted company registrations by 20 per cent. So why not in Scotland?

There is compelling evidence that the power to vary corporation tax levels can be a significant economic boost. Rather than debating whether we should have the economic powers, our nation’s Parliament should be debating how we use them once we have them. That is the debate for this place. To suggest that we should not have the power to do so is clearly constitutionally incompetent and underlines the democratic deficit that we face in trying to take Scotland and our economy forward. That is the debate on which Scotland’s Parliament should be expending energy; we should not waste energy in resisting the delivery of real economic powers that will make a real difference to the people of Scotland.

I commend the Scottish Government’s motion.

Photo of Neil Bibby Neil Bibby Labour

I reiterate what my colleague Richard Baker said: the Labour Party has said for a long time that we would not rule out additional powers being given to the Scottish Parliament. We have actively sought those powers in a number of areas. Our approach must be centred on what is in the best interests of the Scottish people and what is best for Scotland’s economic future.

It is already clear that Scottish Government ministers have a significant responsibility to find ways to grow the Scottish economy and assist businesses, but there are real concerns that a race to the bottom on corporation tax is not the answer to our problems. It is reasonable to suggest that a proper analysis is needed of the consequences of devolving corporation tax and, in particular, of setting a different rate by cutting it. That is what I want to focus on.

Cutting corporation tax would undoubtedly create a financial black hole in the Scottish Government’s budgets and that raises many questions. How much would it cost? What spending commitments would need to be sacrificed? What would be the administration costs of setting up an entirely separate corporation tax regime in Scotland? The minister may dispute the figures that have been provided by HMRC and the Treasury and that the Scottish budget could be hit by up to £2.6 billion, which is the equivalent of nearly 8 per cent of the Scottish Government’s budget, but what would the cost of a corporation tax cut be, and how would the Government be able to keep its election pledges? How many businesses would have to relocate to Scotland to make up for the immediate deficit?

Photo of Neil Bibby Neil Bibby Labour

I am sorry; I do not have enough time.

I understand that the Government’s reason for devolving and cutting corporation tax is to attract inward investment, but there appears to be a lack of clear evidence that cutting corporation tax would make Scotland more attractive for that purpose.

Photo of Neil Bibby Neil Bibby Labour

I am sorry; I do not have enough time.

As Richard Baker said, the PricewaterhouseCoopers report rated corporation tax as 17th in the drivers for economic growth. If we want the Scottish economy to grow, we should prioritise the higher rank drivers such as infrastructure and skills. Those things are already controlled by the Scottish Government; ministers have power over them.

In addition, there is a real threat that, if Scotland cut corporation tax, other parts of the UK would do likewise, which would cancel out any competitive advantage that was sought. During the recess, I visited the Welsh Assembly. It is clear that Wales’s First Minister, Carwyn Jones, and the Welsh Assembly Government share those concerns and believe that there is a danger that competition in the tax system in the UK would result in a race to the bottom and that no one’s public finances would benefit.

This morning, the First Minister selectively quoted what Wendy Alexander said in last session’s Scotland Bill Committee report. He failed to mention that the committee said that it

“does not believe that Scotland should seek to maximise its tax income by becoming a tax haven for companies operating elsewhere in the UK. We therefore support the UK Government in not at this stage devolving corporation tax in the Scotland Bill.”

The Scottish Government has stated that it would cut corporation tax to 20 per cent, but with low corporation tax rates already existing in the European Union, there is insufficient evidence to suggest that a cut in the rate of corporation tax in Scotland would result in a large number of businesses deciding to relocate here. Perhaps profit shifting is more likely. Economic activity and jobs could be created elsewhere, with profits being declared in Scotland.

The Scottish Government may say that that is the objective, but I ask members to consider two things: first, the fact that the UK Government is already cutting corporation tax by 5 per cent over the next few years and, secondly, the question whether a cut in corporation tax leads to stronger economies. Mr McLetchie and Mr Rennie made that point. Ireland, for example, has a corporation tax rate of 12.5 per cent, and countries such as Greece and Iceland have lower rates than the UK, but the UK’s gross domestic product growth rate in 2010 was 1.4 per cent, compared with negative rates for all three of those countries. Furthermore, the forecasted growth rate for the UK in 2011 is 1.7 per cent compared with 1.5 per cent for Iceland, just 0.6 per cent for Ireland, and minus 3.5 per cent for Greece.

Those numbers illustrate that there is no guarantee that cutting corporation tax will lead to a stronger Scottish economy. Ireland and Iceland are also prime examples of how quickly corporation tax receipts can fall in difficult economic times. However, we do not need to look overseas to see evidence of that; here in the UK we saw corporation tax receipts fall from £40.4 billion in 2007-08 to £30.3 billion in 2009-10; a 25 per cent decrease in the space of two years. If such a drop occurs here, combined with a lower rate of corporation tax, an even bigger black hole would emerge in the budget, which would inevitably mean cuts in public services.

When I speak to my constituents in Renfrewshire and throughout the west of Scotland they tell me that they are angry that public services are being cut and jobs are being lost because of the recession that was caused by the global banking crisis. Working people in Renfrewshire—or anywhere else in Scotland for that matter—should not pay for the mistakes made by others.

The CBI and the STUC have rightly raised concerns about how devolving corporation tax would work, while accountancy experts have criticised the Scottish Government for the lack of clarity about the costs of devolving the levy.

If there is a will to proceed with this policy, the Government needs to listen to the business community and the unions, which so far are not convinced by the proposals. I hope that the Government is willing to do that.

Photo of John Scott John Scott Conservative

Thank you very much for finishing on time. I call Kenneth Gibson, to be followed by James Dornan.

Photo of Kenneth Gibson Kenneth Gibson Scottish National Party

What a lot of depressing, negative hot air we have had from the unionist parties. David McLetchie let the cat out of the bag when he said that what he did not want was to disadvantage the UK as a whole. Whether the tax benefits Scotland does not seem to be of much concern to him. He is concerned about comparative corporation tax rates. If he looked beyond the Channel for once he would see that there is a whole variety of EU tax rates, but, sadly, he does not seem to be able to do that. If he did look, he would see that many unitary states have differing levels of corporation tax within them: Germany, Luxembourg, Canada, Portugal, Switzerland and the United States. Luxembourg is one thirtieth of Scotland’s geographical area and has less than one tenth of its population, but, funnily enough, it has twice its standard of living.

As the OECD has pointed out, the experience of Canada suggested that tax rates neither converged nor diverged systematically over time and no race to the bottom was observed.

Mr Baker said that the SNP wanted a Scandinavian standard of living, but without its corporation tax levels. Perhaps he should take a look at the 2009 World Bank report, which showed that corporation tax levels are lower in Denmark, Sweden and Finland than they are here in the UK.

Let us hear what Gordon Brown said on the issue. In some of his many remarks on the matter, he said:

“To continue to build a modern corporation tax regime for British firms operating in a global economy I will exempt companies from corporation tax on the gains from the sale of substantial shareholdings.”

That shows the Labour Party’s view on that issue.

The Office for Budget Responsibility said:

“It is also the case for the UK, where despite the planned reduction in the headline corporation tax rate in the UK to 23% by 2014-15, the latest forecasts by the Office for Budget Responsibility predict that total on-shore receipts in 2013-14 will be higher than their pre-recession peak.”

It is quite clear that cutting corporation tax is effective.

Despite the fervent demands of the unionist parties to abandon our manifesto pledge and call an independence referendum in the near future, we will progress with a very clear economic strategy to improve the real economic powers of the rather sedate Scotland Bill. That will allow us to shore up the economic recovery and build on the progress that we have made in recent months.

Photo of Kenneth Gibson Kenneth Gibson Scottish National Party

I will give way to Mr Findlay because he tried to intervene yesterday and again today.

Photo of Neil Findlay Neil Findlay Labour

Can Mr Gibson point to any firm hard evidence that the strategy being proposed works—

Photo of Kenneth Gibson Kenneth Gibson Scottish National Party

Yes. In Austria the corporation tax rate was cut from 34 per cent in 2004 to 25 per cent in 2005 and yet between 2004 and 2008 corporation tax revenue rose by approximately 27 per cent. That is clear evidence—yet again—that reducing corporation tax works and will work for the people of Scotland if we have the powers.

Yesterday, Alex Johnstone suggested in the finance debate that John Swinney has been such a good finance minister that he does not need more powers. Although it is indeed true that the work of Mr Swinney has been nothing short of remarkable, what Alex Johnstone said is the equivalent of saying that Usain Bolt was the fastest in the sack race, so we should not let him run the 100m. We know that Mr Swinney can achieve a great deal more given the opportunity to have more powers. We saw that when he delivered the M74 under budget and early, with the subsequent announcement of £14 million of investment and the creation of 700 jobs.

If the conditions are right, business will flourish, and we must do all that we can to encourage the kind of investment that can create additional jobs. It is a simple economic fact that variations in corporation tax are one of the most significant factors that are taken into account by businesses that are looking to expand their operations. Having the ability to control that tax would allow the Scottish Government to offer companies an inducement to come to Scotland. Mr McLetchie was highly disingenuous when he talked about Ireland having a corporation tax rate of 24 per cent, as that was significantly lower than the UK’s rate at the time, which was 31 per cent.

Of course, it would not be necessary to offer a cut in corporation tax across the board; the rate could vary from region to region. It could be targeted to help small and medium-sized businesses or to assist businesses that require significant capital investment or research and development facilities. Such policies are not without precedent. For example, the UK Government has provided such tax relief to the film industry and considered doing the same for the games industry; indeed, it already varies corporation tax according to the size of taxable profits.

In addition, the UK Government has consulted on a preferential regime for profits that arise from patents, which is known as the patent box, the rules on which it intends to introduce in next year’s Finance Bill. The patent box will encourage companies to locate in the UK the high-value jobs and activities that are associated with the development, manufacture and exploitation of patents. It will also enhance the competitiveness of the UK tax system for high-tech companies that obtain profits from patents. The intention is that corporation tax that is charged on the profits that are generated from such patents would be set at 10 per cent. GlaxoSmithKline, which is considering a £100 million investment in Scotland, but which other areas in England are competing for, has said that it wants the party that supports an independent Scotland—in other words, the SNP—to confirm that it would continue with the patent box set at 10 per cent. The level of corporation tax will make a significant difference to whether that company wants to invest in Scotland.

The reality is that Scotland is at a competitive disadvantage with much of the rest of the UK and further afield. Companies on Arran in my constituency pay the same level of corporation tax as companies in the south of England, which enjoy excellent transport links to the City and continental Europe. That is lunacy. The present system could be rebalanced by offering businesses an additional incentive to base themselves in places such as Arran or Cunninghame North. We need those powers and we need them now.

Photo of James Dornan James Dornan Scottish National Party

This debate should not be about how the Scottish Parliament would use corporation tax powers; it should be about whether we believe that it should have those powers in the first place. After all—believe it or not—we might not be in power forever.

In almost any Parliament in the world, members of all political hues would enthusiastically support the call for more powers—particularly tax-varying powers—for their Parliament, but I am afraid that that is not the case here in Scotland. Across the Opposition benches, a stream of Scottish parliamentarians tell us why our having tax-varying powers would be harmful to us Scots. Of course, we all know that their position is based on a combination of two things: subservience to all things Westminster and their political masters; and the instinctive oppositionism that worked so successfully for them in this May’s election.

Patrick Harvie rose—

Jackson Carlaw rose—

Oh! I touched a nerve. I just don’t know who to pick. I think I’ll have you, Pat.

Photo of Patrick Harvie Patrick Harvie Green

I am very grateful to the member for giving way to one Opposition MSP who has a slightly more nuanced position on the issue.

Are there no members of the SNP who are in the least bit embarrassed about the First Minister citing the support of a multimillionaire tax exile who wants to pay less tax?

Photo of James Dornan James Dornan Scottish National Party

I doubt that there is any member of the SNP who supports the idea of multimillionaires not paying tax in this country, but if they do not pay tax in this country at the existing rate, they will not pay tax in this country at any new rate. Corporation tax, whatever rate it is set at, will make no difference to that. Those are two different arguments, which the member continues to conflate.

It appears that you can change your name and your leaders, but that you will never, ever change your spots. This is not a case, as some would have us believe, of needlessly picking a fight with Westminster. It is about trying to help the communities that we were elected to represent. It is about putting into place a structure that allows Scotland to better compete with other world economies for the benefit of those in our constituencies who are crying out for jobs.

I want to focus on two detailed aspects of the debate. The first is the issue of implementation and administration of corporation tax. The Scottish Government’s paper makes it clear that it thinks that there are two options for the administration of corporation tax post devolution. One option would be to contract HMRC to administer the system on Scotland’s behalf. The other option—which is the one that I favour—would be to establish a Scottish tax collection agency. That strikes me as the obvious option for a number of reasons, not least because it would mean that we were directly responsible for control and administration of the corporate tax regime and would demonstrate our desire to be a more autonomous Government.

The second issue, which has been widely discussed in Northern Ireland’s case, is state aid and the need for the devolution of corporation tax to be compliant with EU rules and regulations.

Members will be will be aware of the European Court of Justice judgment in the Azores case, which concerned an autonomous region of Portugal. The court ruled that, for a different business tax rate for a region or country within the borders of an EU member state to be compliant with EU rules and regulations, the devolved Administration must have a distinct political and administrative structure from the central Administration—in our case, Westminster; the devolved Administration’s decision to set or change the tax rate must be taken without interference by the central Government; and the fiscal consequences that flow from a reduction in the tax rate must not be offset by aid or subsidies from central Government.

The Scottish Government’s proposal for the full devolution of corporation tax—with responsibility for the rate, base and financial implications—is consistent with the ruling on the Azores case. Indeed, Her Majesty’s Treasury has concluded that devolving corporation tax to Northern Ireland would fulfil the criteria set by the Azores case ruling.

The UK Government’s acceptance of devolving corporation tax to Northern Ireland shows how much it has moved on in the debate, although I take on board the fact that the final decision has not yet been made. The UK Government seems willing to accept that corporate tax rates varying across these islands can be a good thing and that they should be managed by a devolved Administration, but it appears that, when it comes to Scotland, it is a different matter.

We have already heard about the ludicrous estimates from HMRC, which has conveniently come up with a funding gap of £2.6 billion, based on a tax rate of 12.5 per cent. However, as has been pointed out, that is the tax take at the present rate, so go figure. It appears that the Whitehall mandarins were so desperate to scramble together something to present to George Osborne that they did not even bother to get their sums right. Could those figures have come from the same fag packet as Calman’s 10p tax rate?

Photo of James Kelly James Kelly Labour

What would the implications of a change to corporation tax be for the Scottish budget in monetary terms? Can James Dornan put a figure on it?

Photo of James Dornan James Dornan Scottish National Party

I would much rather leave that to the two fiscal geniuses that we have in the Cabinet, particularly the cabinet secretary.

Photo of David McLetchie David McLetchie Conservative

He is not a fiscal genius either.

Photo of James Dornan James Dornan Scottish National Party

That is not what we heard yesterday.

Being able to vary corporation tax to suit Scotland’s economic circumstances and not those of the south-east of England can only benefit the people of Scotland. After all, that is who we are here to represent—well, at least some of us.

Maybe I am the only one, but I tend to support proven businesspeople who have argued for lowering corporation tax rather than organisations such as the STUC and CBI Scotland, whose support for Labour’s position is akin to a mother saying that her son was the best player that day—quelle surprise!

There is no magic bullet. Nobody has suggested for a moment that corporation tax is a magic bullet, but it is a useful weapon in the armoury. My constituent Jim McColl, previously of Clyde Blowers—[Interruption.] He stays in Carmunnock as well. Jim McColl said in The Scotsman on 11 December 2010:

“People need a reason to bring their businesses to Scotland, and full financial responsibility with control over major fiscal levers, such as corporation tax, would provide the chance to create such incentives.”

Photo of Patrick Harvie Patrick Harvie Green

He is quoting a man who is a disgrace.

The Deputy Presiding Officer:

The member is in his last minute.

Photo of James Dornan James Dornan Scottish National Party

On 14 August 2011, Jim McColl said:

“Corporation tax would provide a significant fiscal lever to provide necessary incentives providing a major boost for the Scottish economy at a critical time.”

That man knows his business and he just picked up £750 million to prove it.

Photo of James Dornan James Dornan Scottish National Party

Scotland must not be left to languish behind other economies.

The Deputy Presiding Officer:

You must close now, please.

Photo of James Dornan James Dornan Scottish National Party

We must be able to implement policies that can benefit us and we must not be disadvantaged in comparison with other nations.

Photo of Margaret McCulloch Margaret McCulloch Labour

I listened carefully to the arguments that were presented and, as interesting as they were, I am ultimately unconvinced of the case that the Scottish Government is making. I have come to that conclusion after spending much of the summer recess speaking to businesses, talking to experts and meeting our economic development agencies to understand what drives growth in Scotland. The issue divides opinion, not just along the traditional fault lines between left and right but even within the business community.

Having worked in the private sector, I can safely say that most businesses are perfectly willing to entertain the prospect of tax cuts. The Government did not need to commission any research to tell it that. I also know from first-hand experience that businesses want to be competitive and that they want to function—even flourish—in a competitive and growing economy. However, there is a difference between a competitive economy and a low-tax economy, and there is a difference between competitive taxation and low taxation.

We do not need low business taxes to secure growth, but we need to be competitive. We need skills, students, infrastructure, better roads, joined-up railways, faster broadband and an economic strategy that focuses on building prosperity and creating opportunities. Education and investment are essential building blocks for a competitive Scottish economy. They are far more crucial to our economic success than an experiment in corporation tax.

There is also something to be said for our part in a strong single market and our common bonds with our friends and neighbours elsewhere in the UK. The devolution of corporation tax could start a race to the bottom as the Governments of the union compete to cut taxes rather than co-operate to raise levels of economic activity.

Photo of Margaret McCulloch Margaret McCulloch Labour

I am not taking any interventions.

I have also heard from accountants who have expressed their doubts about how tax would be policed to protect against tax avoidance and evasion. How can the Scottish Government be certain that a firm that is registered in Scotland under the Scotland Bill proposals contributes to the Scottish economy? Tax incentives could lead to companies relocating head offices without bringing jobs, wealth and investment with them. Where do the proposals leave the Government’s aim of simplifying business taxation? There is nothing simple about investing or operating in a single market in which there are two or three separate rates of corporation tax.

To its credit, the Scottish Government has at least got people in the business community talking about taxation and asking what more can be done to boost GDP, improve productivity and stimulate investment. For what it is worth, I agree that there might well be some merit in looking at taxation in this country and asking whether we have got the balance right. However, the United Kingdom is already on course to have the lowest level of corporation tax in the G7. I am afraid that I simply do not believe that anything is to be gained by cutting the rate of corporation tax any further.

Indeed, like other members, I am gravely concerned about an economic policy that gambles the future of public services and hard-pressed public sector workers on a corporate tax break. If the Scottish Government wants to help businesses, especially small and medium-sized enterprises, and support Scotland’s consumers, I invite it to join Scottish Labour in calling on the chancellor to reverse his VAT hike and give the economy the boost that it needs right now.

I have argued that education and investment are essential for our future prosperity and that businesses and investors need a competitive tax environment. However, I have also pointed out that there is more to being competitive than cutting corporation tax. Even in this time of austerity, we can choose to gamble growth on a corporate tax cut, but investment in our people, our potential and our infrastructure is a surer route to success.

Photo of John Mason John Mason Scottish National Party

The headline rate of corporation tax is certainly important and I believe that we can attract business to Scotland by changing the rate, but that is not the only possibility with corporation tax. There is also the possibility of moving rates for all or some businesses and the potential to use capital allowances and other factors to target new businesses, smaller businesses or businesses in certain sectors, such as the video games industry, which might be relatively more important to Scotland than to the rest of the UK.

The Scottish Parliament information centre gave us a useful briefing for the debate. I picked up from it the point that, in Canada, the provinces are able to vary research and development incentives, tax credits for certain activities, and so on. We need to understand that such targeting is permissible as long as the opportunity is open to any company that comes to Scotland or is already operating in Scotland.

The Scotland Bill Committee has heard some interesting evidence, although our main meeting on corporation tax is not until 27 September. On Tuesday, we heard from the Chartered Institute of Taxation. It undertook a survey of its members in Scotland and gave details of that in its written evidence, which stated, for example, that 59 per cent took the view that

“support to SMEs was preferable to cutting the main” corporation tax rate. There is therefore a variety of opinion within the business community as to what is the best way of dealing with corporation tax and changing it. It is much more complex than just taking the headline rate. There was a fair bit of other information in the CIT submission. For example, it stated that the survey asked what would be the most useful of eight options, and annual investment allowances came out top. There is a lot more to this than some of the simplistic arguments that we have heard about changing the headline rate.

Photo of Gavin Brown Gavin Brown Conservative

How does the member square all that he has just said with the Scottish National Party’s other big goal, which is to simplify the tax system?

Photo of John Mason John Mason Scottish National Party

That is a tremendous intervention because I was going to touch on that in the rest of my speech. Much of the information that we had this week from the Institute of Chartered Accountants of Scotland as well as from the CIT was about minimising cost, keeping the burden down and simplifying things.

We have an incredibly complex tax system in this country—not just corporation tax but income tax, national insurance and so on. On that point, I completely agree with what the Green amendment says about widespread avoidance and evasion—Mr Harvie referred to this—which I totally abhor. Is that complexity the responsibility of successive Scottish Governments? I think not. Is it the fault of the UK and UK Governments? Definitely yes. I would also accept some blame on behalf of the accountancy profession for continually looking for loopholes.

Let us be clear that the present system costs UK business far too much in administration and taxation, so we need to change that.

Photo of John Mason John Mason Scottish National Party

I will have to finish because I have only four minutes.

We should also note that the motion has the wording “if used wisely”, which are key words. That is why Richard Baker, Willie Rennie and Neil Bibby were all somewhat mistaken. Nobody is saying that we should just chop corporation tax, so that we suddenly have a black hole—of course not. The Cabinet Secretary for Finance, Employment and Sustainable Growth will cut or raise corporation tax according to his projections for the Scottish economy and where extra money will come in, not less.

The Deputy Presiding Officer:

We move to closing speeches.

Photo of Willie Rennie Willie Rennie Liberal Democrat

It has been a rather shambolic and sometimes heated debate, which probably proves the point that I was trying to make at the beginning: we have not reached a considered consensus on the way forward with corporation tax. That is partly because we have had a rushed process and a proposal that was submitted to the debate at the very—

Photo of Neil Findlay Neil Findlay Labour

On the point about consensus in this regard, does the member agree that the coming together of an organisation that represents thousands of businesses up and down the country, another organisation that represents tens of thousands of workers throughout the country, senior accountancy firms and organisations and a host of third sector organisations would be deemed a consensus, or would the member regard a consensus as being two or three super-rich individuals?

Photo of Willie Rennie Willie Rennie Liberal Democrat

Mr Findlay makes a very important point. A considerable weight of opinion has been expressed that has been critical of the SNP’s proposals. However, it has been met with derisory comment, criticism and abuse. That is inappropriate and not conducive to a constructive debate.

Bob Doris made a reasonably considered contribution to the debate—maybe that has condemned his career for ever—but he revealed what this is really all about. It is the creeping move towards independence.

Members: No!

Well, the SNP is focusing on spending a year on changing a Scotland Bill that it confidently expects to abolish in a referendum. Why are we doing this? It is because the SNP wants to pull the wool over the eyes of the Scottish people. It wants to take them step by step towards independence. It should be a bit more honest.

Photo of Bob Doris Bob Doris Scottish National Party

I am glad that Mr Rennie thought that my speech was considered. One aspect that I considered was the fine piece of work that was the Steel commission. Dynamically, it suggested the devolution of corporation tax. Does Mr Rennie now distance himself from the Steel commission?

Photo of Willie Rennie Willie Rennie Liberal Democrat

Mr Doris should read the Steel commission.

Photo of Willie Rennie Willie Rennie Liberal Democrat

It made a number of different suggestions to be considered by a commission, but it did not recommend the devolution of corporation tax. I advise Mr Doris to go back and read it again. Perhaps he misrepresents the Steel commission in the same way as his colleagues misrepresent the CBI and other organisations.

John Mason made an even more considered contribution to the debate. He covered a number of areas, and considered not only the headline rate but a targeted approach. However, Gavin Brown was quite right about the balance between simplicity, complexity and targeting, which has to be considered, but Mr Mason made a good contribution to the debate.

Neil Bibby was right to highlight the race to the bottom and the effect that cuts would have on public services. Kenny Gibson—in his usual bombastic style—was criticising us all for being negative. However, I did not hear him praise the fantastic transfer of financial powers that is the Scotland Bill. Was he a bit too negative about that significant change for the Scottish Parliament?

James Dornan said that we have been subservient to Westminster. Why then did we—the Liberal Democrats, Labour and others—deliver the Scottish Parliament, when the SNP sat on the sidelines throughout the Scottish Constitutional Convention? If we were so against Scotland, and if we were so subservient to Westminster, why did the SNP not join us? Why did the SNP opt out of the Constitutional Convention? Fewer lectures from the SNP on standing up for Scotland would make for a better contribution.

Margaret McCulloch highlighted the difference between a competitive economy and a low-tax economy. She pointed out the significant benefit of having skills and talent, and the wider contribution that businesses can make. Of course, she is right that all businesses would want lower taxes, but a balance has to be struck between investment in public services and having a competitive low-tax economy. We are not against cutting corporation tax; that is why we have done it at a UK level. However, it has to be done as part of an orderly programme, and it has to be budgeted and planned.

The one thing that we certainly do not get from Mr Ewing is any transparency about the costs. Perhaps he thinks that they would be too embarrassing to reveal to the public, because the effects—

Photo of Willie Rennie Willie Rennie Liberal Democrat

I am in my last minute.

As I was saying, the effects would be significant. That is why Mr Ewing is not telling us the truth about the costs of this policy.

The Treasury minister David Gauke has asked the Scottish Government a number of questions, which I hope Mr Ewing will address in his closing remarks. Mr Gauke raised, for example, the benefits of having a unified corporate tax regime throughout the UK. Will we be ignoring that idea? How will the SNP reduce administrative burdens on businesses if there are different rates in different parts of the country? Is the SNP Administration proposing a separate regime? James Dornan seemed to imply that we would have a separate taxation regime.

I hope that the SNP will come up with some of the answers that we have been begging for for months.

Photo of Gavin Brown Gavin Brown Conservative

The context for today’s debate is extremely important. We currently have the Scotland Bill going through the motions, and the SNP Scottish Government wants powers for corporation tax to be included in it. The UK Government responded that it would consider any serious proposal put in front of it. That is where we are, Presiding Officer: the obligation is on the Scottish Government to produce a serious, costed and detailed proposal.

Fergus Ewing was absolutely right when he said that the debate should be about details and facts, not hyperbole. However, that is why I was disappointed with his contribution. When I asked him why the modelling done by the Scottish Government has not been published, his response—if I wrote it down correctly—was to the effect that it has been published. As a matter of fact, the modelling has not been published. The SNP Government picked three headlines from the initial modelling that it did, put out a press release on them and has done no more than that. We have no idea what assumptions are built into the modelling, and we do not know the methodology. All that is critical if we are to analyse the Government’s proposal seriously. Therefore, I hope that, in his closing speech, Mr Ewing will explain whether he believes that the modelling has been published. If so, we would like to see it; if not, he can explain why not.

Let me address another point before I go into that issue in further detail. Once again, Mr Kenny Gibson has been described as “bombastic”. As he was closing his speech, his big grievance was that companies in Arran, which he represents, pay the same amount of corporation tax as companies in the south-east of England, which is not fair because there are better transport links in the south-east of England. If the SNP proposals were to go ahead, companies in Arran would pay the same corporation tax as companies in Edinburgh. Despite the best efforts of a very good local MSP, fighting for transport links in his constituency, I think that it would be fair to argue that there are stronger market positions and better transport links—to use his words—in Edinburgh than in Arran.

Photo of Kenneth Gibson Kenneth Gibson Scottish National Party

Does Mr Brown not accept that, if we have powers over corporation tax, we can vary the tax levels geographically within Scotland, just as we do based on the profit that companies make? There is no reason why we cannot do that. As John Mason said, flexibility is the key.

Photo of Gavin Brown Gavin Brown Conservative

This is a new one that the SNP forgot to put in the paper: we will have different corporation tax rates for different constituencies in Scotland. We will also have different corporation tax levels for different types of company, whether they are big, small or medium, and we will have different corporation tax levels depending on the industry. At the same time, we are supposed to be simplifying the tax position in Scotland. That is simply not credible.

Photo of Gavin Brown Gavin Brown Conservative

Not at this time.

Let us return to my biggest gripe with what the minister said, which is to do with the modelling. The SNP told us that it was initial work. There was no publication of methodology or any assumptions to allow us to analyse critically what it has done. In the work that has been done, is the drop to 20 per cent that the minister talks about a one-year drop or is it staggered? What does he propose to do about the small profits rate? We heard that the Government wants to reduce the rate so that Scottish companies pay only 20 per cent in corporation tax, but the vast majority of companies in Scotland currently pay 20 per cent in corporation tax—they pay the small profits rate of 20 per cent. Fighting long and hard to get the rate to 20 per cent will make no difference to the vast majority of Scottish companies.

In the SNP’s assumptions, what effect has it built in for Northern Ireland or Wales deciding to drop its corporation tax rate? Assuming we get the power, what would the SNP do if England then decided to drop its corporation tax rate to match ours or to put it even lower than ours? Has any modelling been done on any of that?

We heard one member saying that there has been no big convergence or divergence in Canada. That may well be true, but it is pretty clear that, if there was a competitive advantage in having lower corporation tax rates in Scotland, companies in the north-west and north-east of England would very quickly be crying out to demand lower corporation tax south of the border. If the UK Government at the time decided to reduce it to the same level or lower, all our competitive advantage would be gone.

Those questions need answers. I suggest that, if the minister is serious about having a detailed debate, he should start to provide some details.

Photo of James Kelly James Kelly Labour

The debate has been instructive and has shed light on the lack of substance and detail in the SNP’s case for devolving corporation tax. There are three parts to it: the evidence, the effect on the budget and the impact on economic growth if the tax were to be devolved.

On the evidence, the paper that the Scottish Government has submitted lacks detail. The SNP’s approach is to demand and to assert, and when people do not agree with it, it portrays them as being against the consensus and anti-Scottish. Gavin Brown is correct to point to the lack of detail regarding the Scottish Government’s modelling, although the published paper gives the outputs from the model. The clue is in the fact that it is referred to as “initial modelling”. This is a serious debate about a proposal for a major change in taxation policy in Scotland, yet what we have is “initial modelling”. Financial and economic models are complicated. There are a great number of variables in them, and major assumptions underpin them. We are told that the modelling, in this case, was over 20 years; therefore, we might expect some of the variables and assumptions to change over that time. We do not have any of that information, and it is difficult to reach a practical conclusion on the basis of the information that has been published.

The Scotland Bill Committee has heard that the complexities of moving to two rates of tax—one in Scotland and one in the rest of the UK—would make things difficult for businesses. Businesses are constantly telling me that they want reduced bureaucracy and systems to be simplified. However, we are potentially introducing an additional tax system that not only will add costs to businesses, but will have significant set-up costs. That needs to be taken into account. On Tuesday, Professor Heady told the Scotland Bill Committee that the assignment of corporation tax as a sub-central tax is a poor policy because it would drive inequalities in investment across the area where the taxes were being applied.

Photo of Kenneth Gibson Kenneth Gibson Scottish National Party

Surely, the opposite could be the case: it could minimise inequalities. If there were different rates of corporation tax in different areas—as is the case in Germany, the United States, Canada and Japan—disadvantaged areas could be equalised by having lower tax rates than others.

Photo of James Kelly James Kelly Labour

The point that Mr Gibson made in his speech about the difference between Cunninghame North and south-east England defeats his argument on that.

On the effect on the budget, it is clear that whether it is £250 million, which is what Mr McLetchie quoted, or £1.5 billion, which is what Peter Robinson from Northern Ireland quoted, there would be a cost to the budget of moving to a reduced rate of corporation tax. No SNP member has been able to tell us the extent of the black hole that would exist in the budget. Neil Bibby was right to point out the policy implications of that. In effect, that would be shifting resources from the public sector to the private sector. We heard yesterday that nearly 600,000 people in Scotland are employed in the public sector.

The SNP is always telling us how we face a difficult budgetary situation that will make it tremendously difficult to tackle issues such as the living wage, finding jobs for unemployed teachers and tackling the scourge of youth unemployment. We must also question who would benefit from the policy. What are the main businesses in Scotland that pay corporation tax? They are the banks—HBOS and the Royal Bank of Scotland. The public would question a policy of passing on benefits to such banks and potentially asking public sector workers to pay for it.

The third part of the debate is the impact on economic growth. We have heard from many about the adverse implications of a race to the bottom. A much-quoted PWC report states that when businesses were surveyed, corporation tax was placed 17th in terms of making an impact on economic growth.

We heard the voices of the STUC and the CBI and the strong argument over the uncertainty in tax revenues. In Scotland, we have the advantage of a certain budget: the block grant gives us that advantage. When John Swinney stands up next week, we will know how much money we have. If we move to a new rate of corporation tax, there will be uncertainty over future revenue.

The Scottish Government should be looking at what it can do, as Margaret McCulloch pointed out, to promote broadband. It should also consider issues like simplifying the procurement process, for which businesses in my constituency are calling.

It is quite clear that the proposals would create uncertainty and instability. A range of people are opposed to the measures, against the SNP’s huddle of businessmen. It is time the SNP went homeward to think again on this issue.

Photo of Fergus Ewing Fergus Ewing Scottish National Party

It is quite challenging to say that this has been an entirely positive debate; it has been entertaining from time to time and it has been engaging in some respects. Members from across all parties have—at least in some parts of their speeches—made positive and thoughtful contributions.

It is somewhat disappointing that the level of consensus that had been reached in the Scotland Bill Committee in the previous session of Parliament has, seemingly, not been maintained. However, perhaps I can try to find a few rays of sunshine amidst quite a lot of heavy cloud in the debate’s contributions. I refer to the committee’s conclusion in its report in the previous session of Parliament that

“if a scheme to vary corporation tax were to be available in some of the devolved countries of the UK as a tool of the UK Government’s regional economic policy, it should be available as an option for a Scottish Government to use also”.

That was the conclusion in the last session of Parliament. It is a mature conclusion that was reached after a lot of careful deliberation of the sort that Mr Brown has asked for. He is right: it is important that we look at the detail and I submit that we have done so. The conclusion suggested that we had reached a degree of consensus, which was bolstered by some quotations from members of various parties. They were along the lines that if it is good enough for Northern Ireland, it is good enough for us. Also, if Northern Ireland possesses the powers and uses them, and other parts of the UK—such as Wales—are denied them, politicians in Wales will say that it is outrageous that they are denied the powers when Northern Ireland is granted them.

To be fair to Mr McLetchie, as I always try to be—I do not quite know why, because I am not sure that he always deserves it—I acknowledge his comment that the UK Government has not decided that Northern Ireland should have the powers, but has produced a consultation paper, which sets out the proposal for consideration. In that case, where is the UK consultation paper on whether Scotland should have such powers? If, as Mr Brown argues—in a somewhat narrow argument, perhaps on a restricted zone—

Photo of Fergus Ewing Fergus Ewing Scottish National Party

I will develop my argument, but I will certainly give way to Mr McLetchie later.

If Mr Brown is arguing that we need the detail and that without it we cannot have a debate about the principle—which, I suggest, is a somewhat specious argument—why did not the UK put the detail in a consultation paper? Why did it produce a consultation paper only on Northern Ireland? Moreover, in its paper on Northern Ireland, the UK Treasury estimated the cost to the Exchequer of profit shifting to be £70 million per year. However, for Scotland the figure becomes £1 billion a year. Can Mr Brown tell us what Treasury modelling leads it to say that Northern Ireland’s possible loss might be £70 million whereas Scotland’s would zoom up to a massive £1,000 million? I find that to be inconsistent, at best.

Photo of David McLetchie David McLetchie Conservative

I suggest that Northern Ireland does not have based in its jurisdiction the largest insurance company in Europe, two of the largest banks in Europe—albeit that they became basket cases for a time—or major industries such as the whisky industry. There is a huge difference between the economies of Scotland and Northern Ireland. It is quite possible that the differentials that the minister described are entirely appropriate.

Photo of Tricia Marwick Tricia Marwick None

I remind the minister that time is short.

Photo of Fergus Ewing Fergus Ewing Scottish National Party

Unfortunately for Mr McLetchie, the Treasury argued in its paper that if Northern Ireland gets the power to reduce corporation tax, the dynamic effects would be such that

“additional revenue from other taxes could recover 15-21 per cent of the foregone corporation tax receipts in each year”.

There is, at best, an inconsistency in relation to the “race to the bottom” that Mr Baker, Mr Bibby and other members talked about.

I mention an issue that has not been raised in the debate—I am surprised that Mr Gibson did not mention this, because he mentioned everything else. [Interruption.] Incidentally, we are not proposing a separate tax regime for Northern Ireland, but there we are.

In the United States of America, each state has different corporation tax arrangements. The pattern is clear from the figures. There is no “race to the bottom”. States that have an inbuilt competitive advantage—New York, New Jersey and California—and the District of Columbia have the highest rates—

Photo of Fergus Ewing Fergus Ewing Scottish National Party

I am sorry, I do not have time. I wish I did.

Because of their location, their benefits and their positions as financial centres, such states do not have to compete on corporation tax. They already have important advantages.

The important point is that we do not regard the approach as a “race to the bottom”. We regard the powers of a normal country to set our own levels of taxation on business—not simply through the small business bonus scheme, which has been such a massive advantage for Scotland, but through taxation on profits—as powers that we would use wisely. We have possessed limited powers on varying income tax since the Parliament was reconvened. We have not used the powers, because we did not think it wise to do so.

The most positive speeches in the debate came from the SNP benches, although Margaret McCulloch made a thoughtful speech and I found that I could agree with parts of Mr Bibby’s speech. Members of my party have argued that there would be many options for the Scottish Parliament if we had such powers. We could concentrate on stimulating investment in sectors such as renewable energy and life sciences. We could reduce the headline rate, to send a message to the world that not only does Scotland have a workforce that is made up of highly-skilled, committed and enthusiastic people, and not only do we have marvellous academic institutions and—I hope—a sympathetic Government and an approachable enterprise minister, but we have a target headline rate that marks us out as a place to do business in the world.

The most important things about business taxation are certainty and confidence. Given what we saw in the North Sea, with the raid on profits and the UK Government setting tax without warning at rates of up to 81 per cent—rates that Mr McLetchie might say would be associated with former totalitarian regimes—is it any wonder that boardrooms across the world are questioning decisions on investment in Scotland, with the consequence that much-needed investment in our oil and gas sector might have been withheld? Business needs long-term confidence if it is to invest.

I have always believed fervently and passionately that an independent Scotland, with the power to set a corporation tax rate that adds to our competitive advantage, would see all the investment in the world and it would immeasurably—[Laughter.] It would see all the potential investment in the world come to this country, and it would immeasurably improve the prospects of generations to come. That is an exceedingly positive prospect, and one that I hope all members can support.