James Moore: How far does Salmond go with his tax cuts?

James Moore
Wednesday 01 February 2012 01:00 GMT

Outlook: Scotland's nationalist leader Alex Salmond has a problem. If the polls are to be believed the English are much more favourably inclined towards his independence plans than are his countrymen.

Hence the concept of "devolution max", with Scotland remaining under the UK umbrella for defence, foreign affairs, bailing out banks etc while taking control of everything else, including matters fiscal. Crucially, that would include corporation tax and there's little secret Mr Salmond likes the idea of a very sharp cut, perhaps to the sort of level enjoyed by companies who register across the Irish Sea. You can see the calculation: those that baulk at moving across the water might not feel as reluctant to up sticks if it simply meant a trip up the road.

The question is, how would the rest of the UK respond to this? Corporate tax rates of between 10 and 15 per cent are fairly common among smaller European nations. Not so the big guns. It is a well-known fact about certain forms of tax that if you cut them you generate more revenue. The Centre for Policy Studies argues that this is particularly true of corporation tax, which has halved from 52 per cent in 1982 to its current level of 26 per cent, and falling, in the UK. This has had a striking effect on revenues, which have increased from 2 per cent of GDP to 2.8 per cent (equating to the not-inconsiderable sum of £43.2bn).

Proponents of cuts to corporation tax say it not only attracts more businesses from overseas and encourages new ones to set up here, it also boosts confidence and provides businesses with more revenue for investment, and crucially, job creation. Which means even more profits and more revenues for the taxman.

But where do you stop? If Scotland follows Ireland, the rest of the UK might have to respond. At which point the other big European economies would be drawn in. The question the CPS doesn't answer is this: how low can corporation tax go before cutting it is no longer virtuous, especially if everyone is cutting at the same time. Perhaps Mr Salmond could give us the answer?

Hats off to Santanderfor early results

You have to give Banco Santander credit. It is in the global megabank category with HSBC and, perhaps, Barclays and yet it still manages to put out results at least a week before its UK peers.

Santander also provides a separate set of numbers for the UK division (which might be floated off at some point). Not too shabby. The same can hardly be said of the numbers themselves. Profits were down 40 per cent. The main reason was the cost of compensating people mis-sold payment protection insurance when they took out loans.

But even without that, earnings would be down. It will be most interesting to see how executives who haven't already passed on bonuses justify them if this is reflected across the industry when the UK banks finally get around to reporting.

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