Scottish Government U-turn on corporation tax cut policy


Scottish Government document states it has “no intention to engage in a race to the bottom” on corporation tax

THE Scottish Government appears to have rowed back on its policy to cut corporation tax in Scotland, as First Minister Nicola Sturgeon outlined its new economic strategy at a speech in Linlithgow.

Corporation tax is currently a reserved power at Westminster and was not part of the Smith Agreement package of powers to be devolved to Holyrood. However, the SNP government is still seeking devolution of the power.

In a document detailing the Scottish Government’s economic strategy, the government stated in relation to corporation tax that it “has made it clear that we have no intention to engage in a race to the bottom”, adding that it would use corporation tax to “create a long-term competitive advantage, not through a blanket approach, but by using changes in tax allowances to encourage higher levels of investment in capital or research and development”.

The move is a significant shift for the Scottish Government, as its white paper on independence in 2013 proposed cutting corporation tax by two per cent below the rest of UK rate.

Alex Salmond, former party leader, defended the corporation tax cut policy as late as September last year.

When grilled on STV about the cost of a corporation tax cut to the public purse, he responded to presenter Bernard Ponsonby: “What we are arguing is this will increase revenues, increase wealth, increase jobs and make us able to afford to do things like pay carers a decent amount, to abolish the bedroom tax and introduce the socially progressive policies on which we stand.”

The STUC responded to the Scottish Government’s shift by saying it was “heartening to observe the Scottish Government quietly dropping its longstanding commitment to deep, blanket corporation tax cuts in favour of a much more nuanced approach”.

Robin McAlpine, director of the Common Weal campaign group and think-tank, said that the u-turn on corporation tax was “undoubtedly welcome” as the previous policy “stuck out like a sore thumb”, adding that it “seriously harmed the impression that the SNP wanted to create a fairer and more equality-focussed economic development strategy”.

“If the Scottish Government can make similar shifts on issues such as energy ownership, industrial policy and alternative banking it could prove an astute move for a public seeking change,” McAlpine added.

A Scottish Government spokesperson confirmed that “this is a move to a more targeted and, as STUC describe it, a more nuanced policy on corporation tax”.*

*This is updated from the original publication of the article