Corporation tax cut 'not credible'

Alex Salmond says cutting corporation tax would create 27,000 jobs and help boost GDP by more than 1%

Alex Salmond says cutting corporation tax would create 27,000 jobs and help boost GDP by more than 1%

First published in National News © by

Alex Salmond's flagship plans to cut corporation tax in an independent Scotland have come under fire, with pro-UK campaigners arguing the cost of such a move would pay the wages of 13,000 nurses.

Better Together claims reducing the levy to 3p lower than the rest of the UK would cost £385 million.

The cross-party group said that with the estimated cost of employing a nurse amounting to just over £29,700, that would be enough to pay for 12,950 nurses a year.

The SNP leader has argued that cutting the tax would create 27,000 jobs and help boost GDP by more than 1% over the medium term.

But Scottish Labour leader Johann Lamont said a recent paper from one of the First Minister's economic advisers, Professor Joseph Stiglitz, revealed the "lack of economic credibility" behind the proposal.

In a paper published in May, Prof Stiglitz argued that "there are some tax-avoiding jurisdictions, such as Ireland, that are competing in a race to the bottom by offering low tax rates, so much so that money kept abroad can almost escape taxation".

In the research, which was focused on the US, the economics expert said it was a "misunderstanding" that cutting corporation tax would provide firms with an incentive to create jobs.

"At the current time, it is not lack of funds that is holding back investment. It is not even a weak and dysfunctional financial sector," Prof. Stiglitz said.

"What is holding back investment, especially by large corporations, is the lack of demand for their products. If there were demand, firms would respond, as they always have, even when tax rates were far, far higher than they are now (as they were until 1980).

"It is demand that creates jobs, and it is our current system's high level of inequality that accordingly is destroying jobs."

A spokesman for Mr Salmond said: " Corporation tax rates remain an important tool for securing competitive advantage and for offsetting competitive advantages enjoyed by other parts of the UK, notably London."

Ms Lamont said Prof Stiglitz's paper was a " big embarrassment for Alex Salmond and exposes his lack of economic credibility".

She said: " When even Alex Salmond's own adviser thinks his tax cut for big business would lead to a race to the bottom, you know he's in trouble. It's difficult for the First Minister to say that Professor Stiglitz is scaremongering given that he has spent the last year telling us how much they both agree on economics.

"Alex Salmond wants to turn the nations of the UK into competitors, with the risks to jobs and conditions that would involve. We have a much bigger and more positive vision for Scotland than that.

"We can have the best of both worlds for Scotland as part of the UK. We can have more decisions about tax and welfare made right here in Scotland, and we can benefit from the strength, security and stability that comes from being part of the larger UK. We can say no thanks to putting that at risk in September.

"The nationalists want us to believe that we can have American levels of taxation and Scandinavian public services. It just doesn't add up, and Scots can see through this. That's why more and more people here are rejecting independence."

In the paper Prof Stiglitz proposes an alternative set of reforms, which "would be simpler, more effective in promoting efficiency, growth and job creation, and would actually increase revenues".

They include raising the rate of corporation tax, but providing generous tax credits for companies making investment and creating jobs.

The First Minister's spokesman said: " Independence will provide the Scottish Parliament and Government with the powers to set tax rates which are right for Scotland, allowing Scottish ministers to develop policies that will deliver sustainable economic growth and a fair society.

"For the first time ever, there would be a guarantee that taxes will be set by a government that has the support of the people of Scotland."

He added: "T his Government plans to set out a timescale for reducing corporation tax by up to three percentage points below the prevailing UK rate. Modelling suggests that such a cut could increase the level of output by 1.4%, boost overall employment in Scotland by 1.1% (equivalent to 27,000 jobs) and raise overall investment in the Scottish economy by 1.9% after 20 years."

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