Glasgow -v- Edinburgh

There's been a lot of comment recently on Amazon's tax avoidance (see this Guardian article).

By structuring the company in such a way that all the revenues are controlled via Luxembourg it seems that Amazon has created a position where £billions of its UK sales are not subject to UK corporation tax. The result is that Amazon's profits increase and the company pays hardly any tax in the UK.  So when you buy through "amazon.co.uk" you are actually contributing plenty to "amazon" but not a lot to "uk".

Some would say that this is merely clever accounting by Amazon and good luck to them. Others might point out that, if UK sales are not subject to UK taxes then the UK Government has less than it would/should have to pay off debt, support Government costs, cut other taxes, improve schools, hospitals and etc. etc.

Tax Research UK linked the Guardian story to one in The Scotsman last year in which Alex Salmond fronted a £10million grant to Amazon to open up a warehouse in Fife. There followed criticism of the SNP's stance, but also a defence from Professor Brian Ashcroft.

Far be it for me to argue with an economist as eminent as Prof Ashcroft, but I think he rather misses the point. By concentrating on the narrow point that some jobs have been created in Scotland and that's a good thing (which it is), he does not address the wider position of the SNP: the introduction of competitive corporation tax levels into;

a) a unitary devolved state.  

b) an "independent" Scotland (if it ever happens) on the island of Great Britain.

To take the second instance first: an "independent" Scotland which tried to reduce corporation tax would face several barriers. If it was a member of the EU then that organisation has made its displeasure with the tactic clear. Neither Ireland nor any other EU country will ever again be allowed the previous laxity to compete with other EU members on company taxation, nor would an "independent in Europe" Scotland. The recession has put paid to that scam. So an "independent" Scotland accepts the rules of the EU and tholes its punishment or it is no longer an EU state. So much for "independence" in Europe.

It would also face the wrath of its biggest trading partner and neighbour, the UK. It is unlikely that England Wales and Northern Ireland would sit back and take a tax avoiding strategy from their new neighbour. What sanctions there would be is not clear, but there would certainly be diplomatic pressure and other (overt and covert) sanctions.

As for option a): can you imagine a situation where Glasgow could cut corporation tax to compete with Edinburgh?

All of Edinburgh's businesses would hightail it along the M8 in short order and reap the rewards.  Fine for Glasgow and bad for Edinburgh.....if Edinburgh cannot respond. But what happens if Edinburgh cuts even lower?

We get a predictable and destructive downward spiral. Competition creates cutthroats: businesses bounce back and forth, changing the address of their HQs, and benefiting from a continuous reduction in its contributions to society while the cities face a reduced tax income and an unstable business base.

That's what the Nationalists want to do with Edinburgh and Newcastle and Glasgow and Birmingham and the ret of the UK landmass.

It's nuts and it's nasty.

To return to the original argument: are the Nationalists wise to give a subsidy to Amazon to create new jobs in Fife?

Answer: probably not. The short term boost is welcome of course, but history shows that companies like Amazon are ruthless in taking any grant or subsidy on offer locally but they have no commitment to any particular country or people.

They may stay in Fife for the duration, but they may not. And it won't be our £10million that decides that. Amazon have got our money already and their behaviour shows that they could not care less about the exact location of their workers or the morality of accepting UK tax-payers money while avoiding UK taxes.

That's a perennial for those who wish to encourage inward investment, an its one to which no-one has found a completely satisfactory answer. The SNP's particular folly is to invest in Amazon when it has been known for years that the company has a predatory stance toward paying its taxes in jurisdictions like the UK and other, non shelter, economies.

A Manifesto for our Times...

Am I the only one that thinks it astonishing that unelected Prime Ministers have been foisted on Greece and Italy by the Germns and the French?

Even more bizarre is the fact that at least on of these new and unelected PMs is a financier......

I thought the financial crisis was the failure of the banking system, but it seems it's really the collapse of democratic systems...

On a lighter note, this....smile inducing and containing a real truth...

Hat tip tax research uk;

You're 'avin' a Laffer....

I'm no economist, but I do know that the SNP's plans to compete within the UK on Corporation Tax are flawed, as I blogged here and as Richard Murphy blogged here. A separate Corporation Tax in Scotland is contrary to the interests of the UK, it doesn't create new jobs but it does cause distortions in the market and any claimed benefits are not certain and will take years to appear... if they ever do. 

Meanwhile the EU is moving towards harmonisation of business taxes, forcing Tax Pirate economies like the Irish to toe the line, and making the policy that the Nationalists want in a devolved UK, i.e.cutting business taxes in isolation, impossible to implement if they ever achieved their dream of "independent in Europe".
So it's already a dog's breakfast, a fact emphasised by John Swinney's incoherence when trying to defend it on Newsnicht. 

Nevertheless the bold John yesterday issued this press release.....and now he seems to have swallowed the whole right-wing Laffer Curve nonsense... y'know the bit where Tea Party Republicans claim that lowering taxes always increases government revenues...

"There is clear evidence from around the world of the benefits from lowering burdens on business....Lower corporation tax is a vital source of competitive advantage in an integrated global economy, helping to attract new businesses and highly-skilled jobs. ......Corporation Tax has a significant influence on increasing the size, competitive strength, productivity and ambition of Scotland's business base. Lower rates of corporation tax boost incentives to invest in human and physical capital, and research and development, increasing firms' profitability and the ability to compete.....cutting the headline tax rate would not necessarily reduce tax receipts."

Proponents of the Laffer Curve are always willing to admit that it is counter-intuitive (translation "illogical") to believe that cutting taxes increases the amount of tax revenues gathered, but even they will only claim that it works if a country is "over taxed" in the first place. Say what you want about the UK, but it's not a high tax country for business in the first place. Corporation Tax is only around 26% and there are plans to reduce it, so the theoretical gain from the Laffer analysis wouldn't happen here (even if you believed in Laffer, which most economists don't).

Frankly, what a so-called "left wing" party like the SNP pretends to be is doing calling up neo-liberal mumbo jumbo to support an already discredited policy proposal is beyond logic and consistency. But then logic and consistency never were a Nationalist strong points. 

 

More a warning than a model......

I know that, in the past, the SNP has lobbied for a lower rate of business tax in Scotland "to attract inward investment". I presume that's still their policy: that an independent Scotland would have very low rates of Corporation Tax, and that would bring more Foreign Direct Investment (FDI).

Unfortunately for the SNP, the evidence would seem to be to the contrary. In June 2010 the coalition announced a stepped reduction in UK Corporation Tax from 28% to 24%. This analysis of FDI in London has a few telling points to make, including the info that...

"...60% said the lower tax rate would not change the attractiveness of London as an investment destination, 13% said it would make them more likely to invest, but 22% said it would make them less likely to invest. Therefore a net balance of 9% said lower corporate taxes would make London less attractive to investors!..." (my italics)

"...US and Japan have business tax at 39%. Germany has a 30% rate. The lowest rates are in Iceland (15%) and Ireland (12.5%), which should be more a warning than a model!..." (my italics).

 So the  survey of potential foreign investors has shown that they are less likely now than before the tax cuts to invest in the UK, and those countries that adopted a lower business tax to attract investors (the erstwhile "Arc of Prosperity") are the same countries that are now chin-deep the an economic mire and in danger of defaulting on their debts. Which rather leaves this particular SNP strategy in tatters, don't you think?