Scotland Bill

Debate between Eilidh Whiteford and Ian Davidson

Tuesday 21st June 2011 Commons Chamber

[Mr Davidson]

If my hon. Friend is saying that the sucking of powers into Edinburgh has not benefited Edinburgh, things are even worse than I thought, and I will certainly take that into account in future.

The Committee dealt in detail with corporation tax, and we also welcomed the Scottish Parliament Committee’s points on the subject. Professor Muscatelli summarised the main reason why, on balance, we came down against the devolution of corporation tax, saying:

“tax competition was the main reason why our group recommended that corporation tax should not be devolved.”

He made the point that it was very likely that a reduction in corporation tax in one UK jurisdiction would result in the cannibalisation of tax from other parts of the UK.

[Dr Whiteford]

The hon. Gentleman and I sat through some very long evidence sessions with any number of erudite professors of economics, none of whom seemed to agree with each other, but who nevertheless managed to find agreement on some pretty simple principles in respect of corporation tax, one of which was that if we lower it too far we will harm revenue, and if we raise it too high we will harm growth. Those very learned people disagreed because there are so many contingencies and uncertainties at any given point in time, and because the interlinking of the economies of various parts of not just the UK, but the European Union and beyond nowadays, makes it very difficult to pin matters down with any certainty, and therefore they become highly theoretical. Does the hon. Gentleman agree that—

[Dr Whiteford]

Does the hon. Gentleman agree that the way to secure the Scottish economy is to create jobs?

[Mr Davidson]

Well, that is a hard one, isn’t it! Yes, clearly the way to improve the Scottish economy is to create jobs, and as far as I am aware not even the Conservatives are against that. The arguments to which the hon. Lady refers were so complex that it seemed at some points that even Hughes and Hallett were disagreeing. [Laughter.]

We did reach conclusions, however. I think everyone agreed that there were risks in devolving corporation tax, and, as we said,

“not least in that this could lead to competition which could result in the ‘cannibalisation’ of the UK’s tax base.”

There was a political difference there, because we went on to say:

“We recognise that this is not necessarily a concern for those who wish to consider the financial position of Scotland in isolation.”

I understand why a nationalist would not be concerned about the cannibalisation of UK taxes if there were a minor gain to Scotland, but for those of us who take a wider perspective across the whole of the UK, that is a valid point to take into account.

It is generally agreed that a reduction in corporation tax in Scotland would result in some drawing in of business from the rest of the UK; I have heard no serious opinion suggesting anything else. If we accept that, we can do no other than recognise that that is not likely to improve relations between the jurisdictions, and as we would hope that in the event of an independent, or further devolved, Scotland there would be an ongoing relationship, beggar-my-neighbour politics on corporation tax is not helpful. The risk of driving that divide between England and Scotland by achieving a marginal gain in corporation tax revenue in the short term is not worth the candle.