Devo Max with corporate tax cut ” disastrous” for NI

This powerful case against the SNP’s Devo Max plans including a 3% cut in corporation tax is made in the academic  website The Conversation by  Arthur Midwinter Associate Professor, Institute of Public Sector Accounting Research at University of Edinburgh  and a former adviser to the former Labour leader in the Scottish Parliament  Johann Lamont.

It is difficult to see how “devo max” could be workable in the UK system. The aim should be to achieve maximum devolution and accountability while retaining the pooling and sharing of resources. Devo max doesn’t work this way – instead it is based on devolved regions raising their own funds and not relying on transfers from central government….

Devo max shares several of the dubious assumptions of independence. It assumes Scottish control of tax revenues would improve economic performance and that cuts in corporation tax in particular would drive growth. This is highly questionable when you look at the numbers. Being in the UK system has not held Scotland back – its economic performance has been broadly in line with the rest of the UK.

This is not a matter for Scotland in isolation. The SNP wants to adopt this model so that it can cut corporation tax by 3p in the pound to deliver a competitive tax advantage over other regions of the UK. This is incompatible in a model based on equal access to markets across the UK. Sir Kenneth Calman expressed concern that it would lead to tax competition, among other things….There would not be much of a union left.

There would also be serious concerns over devolving North Sea revenues. Scotland currently receives public expenditure about 16% above the UK average, yet the tax revenues paid by Scottish citizens and business are around the UK average. Professor Gavin McCrone has made the point that if the Scottish government were to receive its geographical share of oil and gas revenues, there would have to be some corresponding cuts in public expenditure to balance out what Scotland is supposed to receive under the Barnett formula. In fact, the consequences for Wales and Northern Ireland of moving to devo max would be disastrous. They have structural deficits, but no North Sea revenues.

Is the argument enough  that NI is unique because it  has a land frontier state with  12.5% corporation tax?

 

 

 

This is not a matter for Scotland in isolation. The SNP wants to adopt this model so that it can cut corporation tax by 3p in the pound to deliver a competitive tax advantage over other regions of the UK. This is incompatible in a model based on equal access to markets across the UK. Sir Kenneth Calman expressed concern that it would lead to tax competition, among other things.

Devo max shares several of the dubious assumptions of independence. It assumes Scottish control of tax revenues would improve economic performance and that cuts in corporation tax in particular would drive growth. This is highly questionable when you look at the numbers. Being in the UK system has not held Scotland back – its economic performance has been broadly in line with the rest of the UK.

What is appropriate is to develop a maximum devolution model in which further fiscal powers consistent with the Treasury model are devolved. These would increase fiscal responsibility, autonomy and accountability while maintaining the principles of the UK system.

There is no need to see this as an exercise to devolve the most powers to close the so-called fiscal gap between what the nations pay in and what they get out, which is not a problem in practice. This means that the Barnett Formula should remain in use to determine the needs in total, albeit with a reduced block grant. Allocations do not require a needs-based formula, which in the final analysis requires political judgement.

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  • Scots Anorak

    A case made by a former adviser to Johann Lamont may or may not be powerful, but it’s highly likely to be partisan — and in a quite predictable way, given Labour’s self-interested desire to protect the voting rights of its Scots MPs at Westminster. All the talk of cuts to public expenditure is predicated on balancing the books instantly (something few governments actually do), but the Unionists invariably neglect to mention that, while an independent Scotland would have a notional deficit, it would in all likelihood be smaller than the UK’s current deficit. And that’s before all the savings accruing from the scrapping of Trident and opting out of constant military adventures. What these commentators are doing is pretending that the effects of the 2007 financial crisis are uniquely the problem of Scotland when they are everybody’s problem.

  • Ian James Parsley

    Most of this could actually be worked out. It would be possible, for example, to set public expenditure for each country at a level which takes account of Northern Ireland’s and Wales’ relative economic underperformance for 2014/15, and is then amended in such a way that good performance from that point is rewarded. That’s not a million miles from how Germany and the United States do it.

    It won’t happen, of course. Just pointing out that it could!

  • Bryan Magee

    A needs based system is what Gordon has set out.