Saturday, 7 April 2012

Up the Amazon without a paddle

It's almost a quarter of a century since Alex Salmond (in)famously interrupted monetarist Tory Nigel Lawson's Budget speech, branding it an "obscenity" when Margaret Thatcher's chancellor announced a reduction in the rate of corporation tax to a paltry 25%. Mr Salmond was suspended from the House of Commons for his troubles.

Of course, the realpolitik of government means that Scotland's now first minister has long abandoned such crude moral posturing, and a now long-standing demand of Mr Salmond is the devolution of corporation tax powers to Scotland, which would enable Holyrood to reduce the rate to a positively neoliberal half that which so exercised him when he was something of a radical firebrand.

So big companies and their shareholders would get richer, while a reduction in tax revenues would hurt hard-pressed public services and thus Scotland's most vulnerable?

Of course not - the Reaganomics of the Laffer curve demonstrate that reducing taxation rates can so stimulate economic activity that total tax revenues increase, so it's win-win.

Well many would dispute that this theory actually works in practice, but of course the Scotsman has provided a nice empirical example in the last couple of days, in the shape of Amazon's significant investment in Scotland. So the SNP slips Amazon £10 million or so in government grants, the global behemoth builds a shiny new "fulfilment centre" in Dunfermline and naturally the public coffers are bulging with all that additional corporation tax revenue?

Er, nae quite, because Amazon.co.uk is based in Luxembourg, so even though I buy something from Amazon and it comes up the M90 from darkest Fife to the sunlit uplands of Dundee I've actually bought it from a company in an overseas tax haven.

But naturally all this is HMRC/the Westminster Government's fault, since corporation tax powers are still reserved and thus the SNP Government has no say in the matter.

Oh aye, so Amazon invests in the UK on the basis of an effective zero per cent corporation tax rate and a grant from the Scottish Government, and the Scottish Government would do what precisely if powers over corporation tax were devolved? Raise the effective rate of corporation tax by closing the loophole?

Seems pretty unlikely. Which is presumably why Alex Salmond is refusing to say precisely how a company like Amazon would be treated with devolved corporation tax powers or in an independent Scotland.

Thus a de facto zero per cent corporation tax rate is taking the Laffer curve to extremes, but in Amazon's case reducing the rate has certainly attracted inward investment. However, this hasn't really done much for tax revenues. In fact in simple terms the public purse has suffered in two regards, since corporation tax revenues have disappeared courtesy of the loophole and then there's the government grant paid to Amazon for investing in Scotland in the first place.

Of course, it's true to say that it's not just about corporation tax per se, but that the workers employed by Amazon will pay more tax, the inward investment will result in other economic spin-offs, blah, blah.

Which is all very well, but obviously very difficult to quantify.

However, with tax avoidance schemes by big corporations being an ongoing bone of contention at Westminster, and in view of the SNP's desire to have these things decided by Holyrood, it's surely incumbent on Alex Salmond to tell us precisely how these matters would be dealt with.

Otherwise this all looks like another example of SNP posturing against Westminster which when examined doesn't really stack up and leaves all sorts of awkward questions unanswered.

Of course, as with the more general point about how the Nationalists would wave some kind of magic wand and "grow Scotland's economy" if only Holyrood controlled more economic powers, the grievances and soundbites are easy, but explaining how precisely these things would work in practice is a more difficult matter entirely.

So as with other vexed economic issues like the currency, interest rates and public borrowing, when the issue of corporation tax is put under the microscope the SNP seems unable to explain precisely what they would do with such powers. Perhaps it's about time we were telt.

13 comments:

Kevin Donnelly said...

Firstly, for those with a better memory or a better knowledge of recent political history, Alex Salmond did not interrupt the the Tory Budget of 1988 to complain about the reduction of Corporation Tax, but to stand up for the people of Scotland aginst the toxic Poll Tax being imposed by Westminster.

Secondly, the nonsense printed in the Scotsman so called newspaper regarding Amazon's tax avoidance, made the glaringly obvious omission that both Corporation Tax and its policing are currently the reserve of the UK Government at Westminster.

Labour Party apparatchiks jumped on the ridiculous story with glee solely in order to indulge in negative anti-SNP smears. This is the norm in the level of discourse indulged in by the Labour Party these days. Made worse by the fact that the story was discredited almost before the ink had time to dry.

Having indulged opportunistically in another bit of nat-smears, Labour now has to remount its moral high ground and tell Northern Ireland Assembly to renounce any claim to power over corporation tax. Something politicians across parties in the province desperately want.

Clearly the anti-independence camp simply do not want the people of Scotland to have any further power over their own affairs. They should be brave enough and honest enough to say that, as often as they want.

Alex Salmond has nothing to "come clean" about. Clearly any Independent Scottish Government would want its tax regime to be used to create growth and jobs - any idiot, even a Labour one, can work that out.

Post-independence, such questions will be important ones for whoever forms the first Government of an Independent Scotland.

One thing's for sure, the bewildering own goals, hypocrisy,double-speak and general contempt for the electorate that currently defines the Labour Party, ensures that it will not be forming a Government in Scotland any time soon.

Stuart Winton said...

Hi Kevin, correct me if I'm wrong but Nigel Lawson had havered on for some time before Alex Salmond's interruption, and I don't think he'd even mentioned the poll tax or community charge or whatever you want to call it. AS then called *the Budget* an obscenity, and this was just after Lawson had announced the corporation tax reduction, so whatever Salmond said subsequently there's little evidence that his interruption was about the poll tax per se, rather than corporation tax, or more probably a raft of issues, with the corporation tax announcement being the one that broke the camel's back.

Anyway, even assuming your knowledge of political history isn't ever so slightly revisionist, as regards more recent history still would it thus be true to say that Lawson's corporation tax reduction was one of the facets of the economics of Thatcherism that Alex said "the people of Scotland didn't mind" (in fact presumably he meant himself rather than the people of Scotland, but ignore that point!).

As regards the Scotsman article I assume you've been reading a second hand account of their contents, because your claim seems completely at odds with what's actually in the article. Even the first paragraph of the first article states that Amazon has paid no *UK* corporation tax and it then mentions that the SNP wants such taxes devolved and the article also questions precisely what the SNP would do with such powers, so perhaps you could have a read of the articles before commenting?

And to that extent the rest of your points don't really add much to the *substance* of the debate.

Stuart Winton said...

For the avoidance of doubt, in the third paragraph I'm referring to the Scotsman article*s* in the plural rather than any one of the two in particular - apologies.

Barbarian of the North said...

"Post-independence, such questions will be important ones for whoever forms the first Government of an Independent Scotland."

Kevin, the problem is that these questions need to be answered now.

There is no point promising economic utopia when the details are sketchy.

Angus McLellan said...

So it "seems unlikely" to you that a hypothetical future SNP government of an independent Scotland would move to close any corporation tax loopholes, ever? An interesting point of view, but perhaps not a realistic one. There's a quite a big difference between lowering rates of corporation tax or offering incentives on investments on the one hand and ignoring avoidance schemes on the other.

Stuart Winton said...

Well done Angus, you picked up on the two words that I thought about changing, indeed I think I'd already changed this to read "seems pretty unlikely" because my previous version was slightly more categorical.

Perhaps it would be better just to say that it's a known unknown, or whatever ;0)

After all, if Amazon et al could get away with a de facto zero corporation tax rate by locating elsewhere then even if an independent Scotland offered a significantly lower rate than the norm then obviously this still couldn't trump an effective zero rate or at least a very low one.

All of which perhaps underlines that the basic premise behind the SNP's proposal for devolving corp tax - or in fact how it would work under independence, because it won't be devolved between now and the referendum - isn't as straightforward as it's been posited, which of course has always been the criticim. And which the Amazon case underlines.

You're right that I was perhaps being uncompellingly categorical, but of course Alex Salmond could largely close down such speculation by clarifying what the SNP would do.

But clearly he won't because he probably doesn't know, and even if he did he's damned whatever course of action he proposes.

Braveheart said...

Surely the real point is that Cutting corporation tax to beggar your neighbour is a neo-liberal policy benefiting capital and not people or populations.

Why it's the centrepeice of the supposedly "left" Nats is a mystery (not really they're not left).

It also undermines the nation state by setting state against state to the benefit of neither and limiting the ability to calculate and collect taxes and pay for government and benefits.

Cutting corporation tax to beggar another part of the same country is just stupid and nasty.

Stuart Winton said...

Indeed, Braveheart, and this is one example of an issue where if the 'English Tories' were doing the same thing then it would be regarded in a diametrically opposite manner.

And the problem you outline is presumably why the EU wants to harmonise tax rates and policies across its jurisdiction, which in turn demonstrates the paradox of the SNP's 'independence in Europe' schtick with its corp tax policies.

Of course, there's a double paradox there with the 'independence in Europe' aspect as well.

Anonymous said...

As I recall, part of Salmond's intervention was precisely "...tax cuts for the rich, poll tax for the poor..."

It is true that Hansard records the intervention being made closest to the announcements about CT but the reason for the timing was Margaret Ewing and Andrew Welsh's attempts to stop Salmond from making the intervention. Although both excellent MPs, they were not as politically astute as the man himself.

You can take Hansard at face value if you like but that merely records words spoken rather than sentiment or motivation. For a reflection of that you would do well to research the interviews that Salmond gave to the press and TV in the aftermath of his suspension where he is crystal clear his complaint is about imposition of the Poll Tax at the same time as introduction of Income Tax cuts.

Stuart Winton said...

OK, so what you're saying is that evsn in those days Alex Salmond was a neoliberal on corporation tax?

At least he was happy with Lawson's corporation tax cut?

PARIS said...

Ufff! politics!

RevStu said...

This is a hilarious attack from Labour. Corporation Tax rules were determined by successive Labour and Tory governments in Westminster, and the Scottish Government has no control over them whatsoever. But how dare Alex Salmond bring jobs to Scotland?

http://wingsland.podgamer.com/labours-attack-boomerang/

Stuart Winton said...

But again you can hardly deflect attention from the SNP's difficulties on this issue by reference to what the Tories and Labour have done. That's pretty well been established for years now.

The point is whether global businesses like Amazon can headquarter in tax havens like Luxembourg and to that pay minimal corporation tax in Scotland, in which case the SNP's basic proposal won't really do much to attract such companies as compared to the current position.

Of course, the reason for the SNP's reticence on this is obvious. If they say they'll plug the loophole then it won't do much for investment. Why come to Scotland and pay tax if you can locate in rUK, domicile the headquarters in a tax haven and thus avoid corporation tax?

And if the SNP does say they won't plug the loophole then they're no better than the Westminster parties.

Which in turn points to the other more long-standing elephant in the room as regards these things. If the Tories had adopted the SNP's proposal to reduce corporation tax then it would be branded as a neoliberal sop to their rich corporate backers etc, while when the SNP proposes it it all about jobs and investment etc.

Which indeed seems to be the problem with a lot of the SNP's policies. The reaction is blind partisanship, not based on principle or even pragmatism.