Belfast Telegraph

Scotland corporation tax row as Stormont expected to be granted power to vary rate soon

By Liam Clarke

Scotland's new First Minister has hit out at a Government commission for recommending that Scotland does not get powers to vary its corporation tax rates.

Nicola Sturgeon expressed her anger as political and business insiders here expect an imminent announcement that Stormont will be given those same powers.

Yesterday's paper, by the Smith Commission, recommended that Scotland gets wide-ranging powers over income tax, election law - meaning it can allow voting at age 16 - and powers to alter many social security benefits, which Northern Ireland already has.

Other powers Scotland wants - such as the personal tax allowance, corporate taxation, and child and working tax credits - would remain with Westminster.

The offer falls far short of 'devo max', an advanced form of devolution which would have given Scotland power over everything but foreign affairs and defence.

Ms Sturgeon said: "I believe it is very difficult to look at a package of proposals which leaves 70% of tax in the hands of Westminster and 85% of welfare spending still controlled by Westminster, I think it's very difficult to describe that as genuine Home Rule.

"That still feels to me in many different respects to be continued rule by Westminster."

Last night Dr Mike Smyth, a leading Northern Ireland economist and a UK representative on the European Economic and Social Committee, said that he believed Europe would object to Scotland ever getting corporation tax powers - but not Northern Ireland.

"If Northern Ireland gets it devolved Scotland might start agitating for it again - but Europe is unlikely to grant it to them. They would most probably appeal to the European Court of Justice," he said.

"Scotland is already well above the European GDP per head so to allow it a lower rate of corporate tax within the UK could be seen as state aid."

Northern Ireland's 220-mile land border with the Republic is another factor. Corporation tax in the UK is set at 21%, though the present Government has plans to reduce that to 20%. However, it is only 12.5% in the south.

This has enabled the Republic to attract top-end US investment, especially in the areas of pharmaceuticals and electronics.

"Europe will take that into account," said Dr Smyth. "Northern Ireland is still part of the UK but we have a land border with another eurozone member which has a much lower rate. So, in the context of the single market, that is OK - it is not an issue."

He said Scotland did not have as much need of a lower rate as Northern Ireland. "Scotland has a huge chunk of the UK financial services sector and it is an energy exporter whereas we are a hopeless importer. Here we only need two or three big pharma companies to open up and that will change the entire outlook fairly quickly."

If corporation tax is devolved, the new powers may not become operational until 2017 or later. That will allow Invest Northern Ireland to promote the improved incentives in advance around the world.

There will also be negotiation over the cost which Dr Smyth estimates at £200-£250m a year.

The first move will be for David Cameron to write to Jean-Claude Juncker, the European President, to ask for his clearance on the proposed change.

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