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Scotland would be more competitive with new powers over corporation tax, Finance Secretary John Swinney said today.
The Scottish Government has published a paper on options for reforming corporation tax, highlighting how responsibility for this tax would provide a vital tool for the Government to increase sustainable growth and help bring more jobs to Scotland.
The paper looks at the evidence for change and considers options for reform, such as a competitive headline corporation tax rate, increasing support for small and medium sized companies, and greater tax incentives for particular investment activities.
International evidence shows that corporation tax provides a significant lever to economies providing a boost to foreign direct investment. Analysis also shows that if Northern Ireland were able to pre-announce a reduction in the corporation tax rate to 12.5 per cent, it would create 58,000 more jobs, increase living standards by 13.5 per cent, and raise annual economic growth by one percentage point by 2030.
Finance Secretary John Swinney said:
"Scotland needs full control of the key economic levers to meet the specific challenges facing the Scottish economy - and the cross-party Scotland Bill Committee in the last parliament concluded that this power should be available to the Scottish Government if it is granted to Northern Ireland.
"Control over corporation tax would enable us to boost investment, bringing jobs to communities across Scotland, grow the economy and take the right decisions for Scotland.
"There is clear evidence from around the world of the benefits from lowering burdens on business - and this 54-page document sets out the compelling evidence in more detail than ever before.
"Lower corporation tax is a vital source of competitive advantage in an integrated global economy, helping to attract new businesses and highly-skilled jobs. A competitive corporation tax regime has been a feature of the economic success of many countries, and we want Scotland to have the same opportunities to bring in jobs and boost growth.
"The UK Government itself has recognised the crucial role that differences in corporation tax rates can have in narrowing differences in economic performance, as illustrated by its consultation on allowing Northern Ireland to lower their corporation tax rate.
"There has also been backing from business leaders, with a growing number of Scotland's most successful entrepreneurs calling for change, such as Jim McColl and Sir Tom Hunter. And across the political spectrum there has been support for the principle of devolving responsibility for corporation tax, such as the Steel Commission, as well as the last Scotland Bill Committee.
"With control of corporation tax, Scotland can operate a lower tax rate, vary the tax base, simplify the tax system, or use corporation tax as a lever to encourage innovation and investment.
"Corporation Tax has a significant influence on increasing the size, competitive strength, productivity and ambition of Scotland's business base. Lower rates of corporation tax boost incentives to invest in human and physical capital, and research and development, increasing firms' profitability and the ability to compete.
"And cutting the headline tax rate would not necessarily reduce tax receipts. Despite the phased reduction in the headline corporation tax rate in the UK by 2014-15, the latest forecasts by the Office for Budget Responsibility predict that total onshore receipts in 2013-14 will be higher than the pre-recession levels.
"As we look to capitalise on the new opportunities that will emerge from the fragile global recovery, it is vital that Scotland has all the tools to help create new jobs and deliver strong, sustainable, economic growth. Full responsibility for corporation tax would give Scots a greater incentive to start their own business, provide Scottish firms with a competitive edge to help them grow, and help raise our standard of living bringing jobs and wealth to communities across the country."
Excluding North Sea oil, corporation tax generated £2.6 billion in Scotland in 2009-10.
The UK Treasury have made the case for devolving Corporation Tax to 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 (FDI) by increasing the return on capital to investors. In addition, a lower corporation tax rate means that businesses may have more post-tax profits available for internal investment. Increased investment, other things being equal, typically leads to increased growth and employment." Source: Rebalancing the Northern Ireland Economy, HM Treasury, March 2011
The previous Parliament's cross-party Scotland Bill Committee concluded that:
"the Committee's view is 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. Any discussions about this should involve all the devolved nations." Source: Scotland Bill Committee Report.
Key business people have backed calls for the devolution of Corporation Tax:
Jim McColl of Clyde Blowers said:
"Scotland needs all the powers at its disposal to give people the reason to bring their business and investment to Scotland. Corporation tax would provide a significant fiscal lever to provide necessary incentives providing a major boost for the Scottish economy at a critical time."
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