Thursday, 4 December 2014

Smith Commission and Corporation Tax

I try to avoid writing these posts during working hours as I have a business to run; but this morning I was forwarded a link to this Scotland Tonight interview and it irritated me so much I have to get this out of my system.

It features our old friend Gordon McIntyre Kemp, Chief Executive of Business for Scotland.  I will resist an ad hominem attack and I've said my piece about Business for Scotland and their Smith Commission Submission so let me focus instead here on the specific question being debated, that of income tax devolution.

To be absolutely clear: I'm a businessman who would benefit from lower corporation tax in Scotland but I think it's a bad idea for two reasons
  • Using differential corporation tax rates to shift business activity around the country is value destructive to the UK as a whole - it simply reduces the UK's overall corporation tax take and hands money back to profitable businesses instead of targeting the less well-off in society

  • Worse than that: it creates incentives for creative accounting within businesses to ensure profits are reported in low tax areas of the UK without necessarily needing to change any real economic activity.  Just look at the tax avoidance strategies of Google, Amazon, Starbucks etc. - if they'll do that across international tax borders we can safely assume they would apply similar accounting strategies within the UK

I could take apart McIntyre-Kemp's arguments one-by-one but frankly what's the point?  We know he leads an organisation who's very raison-d'etre is to campaign for independence and more powers for Scotland. That's fair enough; he and his members are entitled to think that way.  Unfortunately for them they are not in tune with the democratic will of the Scottish People.  

The Vow itself states:  "We agree that the UK exists to ensure opportunity and security for all by sharing our resources equitably across all four nations to secure the defence, prosperity and welfare of every citizen".  McIntyre-Kemp and his members would I'm sure accept they don't share that view
  • His focus and that of Business for Scotland is not "sharing resources equitably" but rather on Scotland getting its hands on as much resource as possible

  • Their concern is not "defence, prosperity and welfare of every citizen" - they would be compelled to append the words "of Scotland" to that sentence
But even given that context some of McIntyre-Kemp's arguments are a little strange

  • He points to discussions around possible devolution of corporation tax to Northern Ireland and suggests the "bit of water" which separates us doesn't make a difference.  Mr McIntyre-Kemp clearly isn't involved in the physical movement of goods if he really thinks that.

  • He complains about not being able to control VAT on tourism activities - surely if its a good idea for Scotland it's a good idea for the UK?  Of course arguing to reduce taxes you don't control is easy when you don't have to live with the consequences of reduced tax revenue that might result.  The Nationalists do that a lot.

  • He complains about not having control of NI whilst we're being offered full control of income tax. Let's be absolutely clear on this one: the proposed new powers allow the Scottish Government to redistribute wealth through income tax policy changes - nobody seriously argues that not having control of NI is a hindrance to that

  • He moans about not having power over oil & gas taxation.  You might have noticed that Nationalists have been a little quiet about that one so it's surprising to hear this on his list. The block grant would be reduced on day 1 by the amount of oil & gas revenues transferred and it would be damaging to Scotland's economy if those revenues continue to decline.  I guess Mr McIntyre-Kemp lacks the economic pragmatism of some of his Nationalist bed-fellows.

McIntyre-Kemp suggest we need to "get serious about the powers that are needed". Maybe he and his memers should "get serious" about deciding what they will do with those we'll be getting.  
  • Full control of income tax: so we can redistribute wealth, we can reduce or increase the total income tax burden.  So what are their proposals?

  • New powers to make discretionary payments in any area of welfare: so we can use money raised through income taxation or saved in areas of devolved cost to help those less well off in our society.  So what are their proposals?

Instead of using his valuable airtime to make a positive case for how these new powers could be used he - with wearying predictability and embarrassing inaccuracy  -  resorts to asserting that these powers do not represent "substantially more devolution ... unless they meant substantially less" and complains "we've been promised more powers but we're not getting them".  He even argues the powers mean "effectively we can't have a labour government".

The SNP, Business for Scotland and Mr McIntyre-Kemp have become so used to complaining about what we don't have that they appear incapable of changing tack. We are getting substantial new powers; we will face tough tax and spend decisions. Making constructive recommendations around what we'll do with these powers is a lot harder than simply complaining and blaming others for all of our woes.

I look forward to seeing how the Nationalist organisations propose embracing and using these new powers - they are substantial enough to expose expose their "all things to all men" promises and to require them to stop ducking economic reality.

No wonder they're not happy.

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