Political parties against devolution of corporation tax
All three of the main UK political parties have agreed that corporation tax shouldn’t be devolved to Scotland so as to avoid any risk of a “race to the bottom”. This came after the UK government published proposals made by the parties for the devolution of more powers in regards to the Scottish Parliament.
David Cameron recently established the Smith Commission to begin talks about the devolution of further powers. In response to the prime minister’s statement of intent for certain powers over tax and spending to be completed by November, the Chartered Institute of Taxation have asked politicians to face the key dilemma of just how much tax competition they wish to entertain inside the UK.
The Scotland Office then mapped out the proposals of the UK parties.
A paper given to Parliament by the Scottish secretary stated that alongside the referendum drive all of the pro-UK parties had agreed on a timetable for giving more power to the Scottish Parliament.
This timetable is challenging, and this is because the need is there in Scotland to see through and have changes brought about and met.
The initial drafts will make up the foundation of a Scotland Bill that will be forwarded in the next UK government. Parliament has devolved landfill tax, as well as stamp duty land tax to the Scottish Parliament, followed by an expected Scottish rate of income tax starting in April 2016.
Just last week the SNP government asked for “maximum devolution”, which should include a maximum control over tax policies.
Currently, corporation tax policy is set by the UK parliament and isn’t devolved. However, David Cameron is set to decide by autumn 2014 if the power to impose the CT rate in Northern Ireland is to be devolved to the Northern Ireland Assembly.
The three UK parties think that CT should stay as the responsibility of the UK. Scottish Liberal Democrats believe the tax should carry on being managed and received at UK level but with income raised in Scotland to be passed to the Scottish Parliament.
The three parties concur that corporation tax shouldn’t be devolved, so as to prevent a ‘race to the bottom’ amongst other tax discrepancies. The Scottish government in August proposed that with independence, a 3% cut in the rate of corporation tax would occur. This was to avoid the natural draw of London, and would lift unemployment by creating 27,000 jobs over the long term.
Scottish Conservatives deem that the Scottish Parliament be in charge of making the rates of personal income tax in Scotland. However, matters of income tax on investments and savings should stay as a duty for UK ministers.
Scottish Labour would then broaden the variety with income tax by half (10p to 15p). They would also design progressive rates of income tax. This means that Scottish Parliament could raise tax to the upper and additional bands.
However, if this happens, the Scottish government could create tax competition within the UK by slashing just the top rates. This would be to the detriment of public services.
The Liberal Democrats think that income tax that is paid by Scottish taxpayers needs to be all of the responsibility of Scottish Parliament. Tax that is payable on savings etc., should remain levied as it is currently across the UK.