Lower Corporate Tax

Yesterday's Sunday Herald ran another scare story, this time about the EU not allowing an independent Scotland to set a low rate of corporation tax.

Salmond in 'fantasy land' over tax plans, says former adviser

Alex Salmond's vision of an independent Scotland attracting global investors with ultra-low corporation tax has been dismissed as "a fantasy" by one of his former economic advisers. Professor John Kay, who served on the First Minister's Council of Economic Advisers during the last Parliament, said the idea was a "non-starter" because the rest of the EU would block it.

He said it was inconceivable that other EU states, who want to end Ireland's 12.5% rate and who are now moving towards common tax rates, would allow Scotland to copy Ireland's example.

"No-one is going to allow Scotland to have a low corporation tax. That's just a fantasy," he said. "If Scotland's an independent country, the EU will not allow it. It's a non-starter. What has happened on corporation tax is Ireland has this low rate and everyone around the EU is determined that that should never happen again.

"So Scotland would have to negotiate EU membership – it wouldn't be difficult, everyone's going to have Scotland as a member – but you can be absolutely sure that one of the conditions is that you don't have a 12.5% corporation tax rate. Since a fuss has been made in Scotland about doing that, it would be inevitable that you would get the determination on the part of the Europeans that you do not have it."

Sunday Herald, 29 January 2012

It might well be true that certain countries in the EU don't like Ireland's rate of corporate tax, but the idea that they would be forced to change it is one of the myths about the EU that seems to have sprung up in recent years. Ireland's rate of 12.5% is by no means the lowest rate in the EU. No comparison is completely accurate because there is a whole range of other taxes on business (for example non-domestic rates and employers' NI contributions in the UK) but here are the lowest ... and highest:

Hungary ... 10.0%
Cyprus ... 10.0%
Bulgaria ... 10.0%
Ireland ... 12.5%

Italy ... 31.4%
Germany ... 15.8% federal + 14.4% - 17.5% regional = 30.2% - 33.3%
France ... 33.3%
Belgium ... 34.0%
Malta ... 35.0%

Source

This table shows why the idea of "common tax rates" in the EU is highly unlikely. The average corporate tax rate in the EU is somewhere between 20 and 25%. So if the low tax countries are to be forced to increase their rates to get them closer to the average, then the high tax countries will similarly be required to lower them. But among the very highest taxing countries are France, Germany and Italy ... three of the EU giants. Does anyone think that they'll be persuaded to lower their rates just so that there can be an EU average?

A more likely scenario would be for EU member states to agree minimum rates of tax. The lowest standard rate of VAT that any EU member state can charge is 15%, although there can be lower rates (or a zero rate) applied to certain types of goods and services. So it might well be possible to in future set a minimum rate of corporate tax too. But if so, it would have to apply to every member, not just one particular member.

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It's also interesting to note that there are two EU member states that have different rates of corporate taxation for different geographical regions. The German model has a roughly half-and-half split between a fixed rate of federal corporate tax and a variable component according to the region. And the four Basque provinces are free to set their own rate of corporate tax, which at 28% is currently 2% below that of Spain. So there is no reason for the UK as it currently exists not to allow Northern Ireland, Scotland and indeed Wales to be able to set our own rates of corporation tax in order to act as a counterbalance to the increasing inequality in wealth between the south east corner of England and everywhere else in the UK.

Well, no reason apart from the intransigence of successive governments at Westminster, that is, who obviously don't seem to regard this over-centralization as a problem.

A surge in support for independence

I've just seen a report that the percentage in favour of independence in Catalunya has surged by more than 8% to 53.6%. The official Baròmetre d’Opinió Política is published every quarter, and the figures for the previous quarter were 45.4% in favour of independence with 24.7% against. I'll link to the full figures when they're available.

There does seem to be a strange contrast between Catalunya and Scotland. The Scottish government is pressing ahead with a referendum on independence even though the opinion polls currently show that only a minority favour it. But the Catalan government is not pressing for any move towards independence from Spain, even though the polls are consistently showing a large margin in favour of it. Odd, isn't it?

When do we get our independence referendum?

Elin Jones has just been reported by the BBC as saying:

"There is a debate happening now in Wales, England and Scotland now about the future of the UK constitution - I want to see Plaid Cymru engaged fully in the debate in order to lead us to becoming a successful independent nation.

"I'm clearly of the view that two consecutive victories for Plaid Cymru, just as with the SNP in Scotland, could trigger a referendum for independence in Wales."

It is the first time a leading Plaid figure has suggested a referendum could take place within the next decade.

BBC, 25 January 2011

Let's start with the positives. First, it's right to acknowledge that Elin has consistently taken a stand in favour of independence for Wales, that puts her head and shoulders above two of the other leadership candidates. Second, 2020 is certainly an improvement on her previous suggestion that we should aim to be independent before 2036. That is the sort of date that means nothing in practical terms because it is much too far away.

But I don't think she should have put it in the way she now has. It is definitely not necessary for Plaid Cymru to win two consecutive elections before we have the right to call an independence referendum. We just need to look to Scotland to see that. The SNP would have had a referendum on independence before 2011 if there had been a majority in the Scottish Parliament willing to pass a referendum bill in the 2007-2011 term. The only reason it didn't happen was because the SNP (together with the Greens and Margo MacDonald) didn't have a majority, and the three unionist parties would have voted it down.

The same is true in Wales. We will have a referendum on independence when a majority of AMs in the Senedd is prepared to vote for it. Nor will all those that vote for it have to be Plaid Cymru AMs, for there might well come a time when other parties are convinced that independence is in the best interests of Wales. But in practical terms, getting an independence referendum is more likely to happen when we elect a Plaid Cymru government.

     

I couldn't agree more with the idea of setting out a route map towards independence. We need to do this. Every country needs to have a framework of fundamental structures and institutions in place in order to safeguard the wellbeing, prosperity and security of its people. Wales does have some of these and with the progress of devolution is gaining more, but we are some way from having all of them. Every step we can take now will make the final step to independence that much smaller and therefore that much easier.

But we must also bear in mind that other events might bring us to the point where we are faced with making a decision much sooner. Events such as Scotland becoming independent, a wave of other countries in Europe becoming independent (Catalunya, Euskadi and Flanders, for example) or a reunited Ireland might mean that we have to make a choice between independence or being part of Greater England before we've built the framework of structures and institutions we need. That's not an insuperable problem ... we'll just have to build them after we've become independent instead.

So although we should work out a step-by-step route map and put dates against each step for planning purposes, we should not rule out becoming independent much sooner. The only criticism I have of what Elin has now said is that it seems to rule this out. I'm sure that is not what she intended, but those who are opposed to our independence are going to interpret it that way.

Missing the bigger picture

I must admit to being mystified by the way that the findings of the IPPR survey into English attitudes to devolution have been reported in Wales. The BBC Wales story has this headline:

     IPPR report: More English think devolution and Welsh Assembly harmful

And then quoted these figures:

•  31% of people thought the Welsh Assembly had a negative impact on how Britain was governed, compared to 11% in 2007.

•  Those who thought devolution to Wales had made no difference fell to 24% from a high of 66% in 2003.

•  About a quarter (26%) thought Wales got more than its fair share of UK public spending, with slightly more (28%) saying it got "pretty much" its fair share.

•  Only 7% thought England got its fair share, while 40% thought it got less than it deserved.

These figures are indeed taken from the report, which is fine. The problem is that the BBC's story only mentions Wales, saying nothing about Scotland and Northern Ireland.

If we look at the report itself, we can see that the first two figures sets of figures are almost exactly the same for Scotland's Parliament as for our National Assembly. Put in the same format, they are:

•  35% of people thought the Scottish Parliament had a negative impact on how Britain was governed, compared to 14% in 2007.

•  Those who thought devolution to Scotland had made no difference fell to 20% from a high of 64% in 2003.

IPPR report, Table 2.1

The IPPR report doesn't give an equivalent comparison with the Northern Ireland Assembly at Stormont. But it does give a comparison with both Scotland and Northern Ireland for the third set of figures on the share of UK public expenditure:

•  Nearly a half (46%) thought Scotland got more than its fair share of UK public spending, with slightly less than a quarter (24%) saying it got "pretty much" its fair share.

•  More than a quarter (28%) thought Northern Ireland got more than its fair share of UK public spending, with slightly less (25%) saying it got "pretty much" its fair share.

IPPR report, Figure 2.1 and Table 2.2

So why did the BBC single out devolution to Wales in their story ... without even a mention of the greater discontent that the English feel over both the "harmfulness" of the Scottish Parliament and the perceived "unfairness" in the levels of public spending in Scotland and Northern Ireland? Is it just blinkered parochialism, or is there a more sinister agenda at play?

And Wales Online follows in the same vein with an even worse:

     Welsh Assembly is damaging Britain, claims survey of English voters

However it does at least mention the figures for Scotland ... but that makes the headline even less excusable.

Independence? It's stupidity of the first degree

Among the endorsements that Dafydd Elis-Thomas has chosen to put on his new website in his bid to become leader of Plaid Cymru is this statement from Gwilym Owen:

Yn ôl rhai mae o'n euog o fod yn anwadal ei genedlaetholdeb a hynny yn fwy na dim am ei fod o'n ymwrthod a'r gair hwnnw "annibynniaeth". Dyna'r gair bellach sydd ar wefusau'r rheiny sy'n credu ei bod hi'n bosib ail adrodd stori'r Alban yng Nghymru. Ond twpdra o'r radd flaenaf ydi hynny wrth gwrs – ac mae Dafydd El yn ddigon hirben ac yn ddigon onest i gyhoeddi hynny.

Mae gan Blaid Cymru swyddogaeth bwysicach a hynny ydi cydweithio gyda, a sbarduno'r Llywodraeth Lafur i gynnal economi Cymru drwy gyfnod o galedi mawr. Mae gweithredu felly yn anhepgor y dyddiau hyn – ac mae gan y Cenedlaetholwyr ddyletswydd i wynebu'r her honno.

According to some he's guilty of being fickle in his nationalism and, more than anything, this is because of his rejection of the word "independence". That's the word which is now on the lips of those who believe that it's possible to repeat what's happening in Scotland in Wales. But that of course is stupidity of the first degree – and Dafydd El is shrewd and honest enough to say that in public.

Plaid Cymru has a more important role, and that is to co-operate with and spur on the Labour Government to support the Welsh economy through a period of great hardship. Working in this way is indispensable in times like these – and Nationalists have a duty to face that challenge.

Gwilym Owen in Golwg, 5 January 2012

There are two things about this endorsement that I'd like to focus on: first independence and second leadership.
 

Fickle about independence

Let's look first at independence and the idea that the narrative in Scotland is different from that in Wales. I don't think it is, and neither does Dafydd Elis-Thomas.

Before his professed conversion to the cause of independence for Wales, Dafydd certainly didn't think there was that much difference between Scotland and Wales. Of course he never believed in independence for Wales, but perhaps some people reading this won't remember that only a few years ago he was equally against independence for Scotland too. This is what he said in September 2004:

This week the SNP gathers in Inverness. Last week, the former leader of the Welsh nationalists spoke up about the SNP's failure to adjust to devolution, commenting: "There is still a role for them but not as a nationalist party."

He added that the SNP’s only chance of government was to cease to pursue "Scottish independence as if this is the real issue" and transform itself into a "party of government within the devolved set-up."

Scotsman, 22 September 2004

This was at a time when the SNP were at a low point, rather similar to the position that Plaid Cymru is in now. They had done very badly in the elections to the Scottish Parliament in 2003, and people were saying that they needed a change of direction in order to become electable.

But thankfully Alex Salmond refused to take Dafydd's advice and in fact laughed off the idea that the SNP should backtrack on the idea of independence.

I was amused by the Scottish press who ran the piece just before our conference and they said, "Dafydd Elis-Thomas doesn't believe in independence anymore."

"Well he never believed in independence anyway."

When asked whether there was any merit in Lord Elis-Thomas's arguments, Mr Salmond said, "Most of the criticism of the SNP actually comes from those who say we have lost sight of the vision of an independent Scotland by getting involved in devolution and getting wrapped up in the day-to-day running of politics.

"We have to do both. Where I disagree with my distinguished colleague is that you have to have a successful national party. You have to have a vision of independence galvanising support and the promise of what independence can deliver linked to a social and economic vision that you want to deliver. The job of the SNP is not to substitute the constitutional debate with the social and economic debate or vice versa but to link the two."

Western Mail, 12 November 2004

And that of course is the whole point: it is wrong to think that the debate is either to talk about constitutional matters or to talk about social and economic matters. The point is that we can only deal with social and economic matters in Wales to the extent that we can make decisions about these things in Wales. It is a question of whether we are content to let a government in Westminster make these decisions for us or whether we are prepared to take on that responsibility for ourselves.

Alex Salmond realized that the SNP had failed to make an electoral breakthrough because they had lost focus on what they existed for as a political party. But by sticking to their core aims, and by not being afraid to even mention the word independence in the way that Plaid Cymru has avoided it over most of the past decade, the SNP were able to form a minority government in 2007, and then went on to win a spectacular overall victory in 2011.

The lesson is obvious. If a political party is ambivalent about what it is for, it will get nowhere. The public won't tolerate two-faced politicians. But they will listen and respond positively to a party that wants independence for their country if that party is honest and open about it.

After being proved to have been so humiliatingly wrong, it is little wonder that Dafydd has had to change his tune in recent months. If we believe what he said to Martin Shipton, he has now become an enthusiastic supporter of independence for Wales. I was prepared to give him the benefit of any doubt about whether he was telling the truth or whether he was lying through his teeth to try and prolong his political career by a few years.

But now? All I will say is that he has done himself no favours by putting this endorsement from Gwilym Owen on his website. He's simply reopened an issue which it would surely have been wiser for him to let rest. Put simply, he's still trying to have it both ways at the same time. Dafydd clearly wants one group of people to believe one thing about him on the matter of independence for Wales, but wants others to believe something else.

Put more bluntly, he's being two-faced. But what's new about that?
 

Clueless about leadership

The second thing I want to look at is what Dafydd would do if he were to become leader of Plaid Cymru. For the second part of the endorsement he has put on his website maintains that the "more important" role Plaid Cymru should fulfil is to co-operate with the Labour Government.

But why?

Is the main reason for Plaid Cymru's existence to lend a helping hand to the Labour Party? Is this the limit of Dafydd's ambition for the party? Labour are our political opponents. In order for Plaid Cymru to form the next Welsh Government in 2016 we will need to take seats from Labour in their own heartlands, and we won't do that by positioning ourselves as nothing more than Labour's little helpers. Besides that, Labour don't need our help ... they have enough seats to manage on their own.

So the whole premise of Dafydd's strategy is misplaced. All he appears to want is to put a few more years of life into a political career that's been dead on its feet for a long, long time. Other candidates (well two of them, anyway) have put forward a vision of where they want Plaid Cymru to go under their leadership, how to take Wales forward instead of continuing the slow downhill slide under Labour. The best I can find on Dafydd's new website is this page on what the job of leader is and what he will do. It's just a cut and paste from the Assembly's own rules but with nothing new, nothing special and nothing unique to offer.

Quote of the Week

Simon Thomas said this in the Western Mail on Friday:

"If you want a leader who'll always talk about independence, then don't vote for me."

Western Mail, 20 January 2012

Don't worry, Simon. We won't.

Vote Britain

Thanks to a comment on the previous post, I thought I'd show this video from Scottish author Alan Bissett.

     

I'd read the written version here, but the video is much better.

Simple referendum maths

The ICM poll in today's Telegraph provides a timely illustration of the point I made in this post on Thursday: that not including the option of devo-max in the Scottish independence referendum will substantially increase the percentage that will vote for independence.

Three options

Independence ... 26%
Fiscal autonomy ... 26%
Status quo ... 37%
Don't know ... 10%

Two options

Independence ... 40%
Status quo ... 43%
Don't know ... 17%

ICM, 15 January 2012

I think it's reasonable to assume that the 10% who are undecided when three options are presented to them will also be undecided when presented with two. So that means the vote of the 26% who would have wanted fiscal autonomy but not independence splits three ways:

14% ... would vote for independence instead
6% ... would vote for the status quo instead
6% ... would be undecided

In other words, substantially more than half of them would vote for independence.

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It is also interesting to note that people in both England and Scotland are in favour of establishing an English Parliament with the same devolved powers as the Scottish Parliament, by a margin of more than three to one:

In England

In favour of an English Parliament ... 49%
Against an English Parliament ... 16%

In Scotland

In favour of an English Parliament ... 49%
Against an English Parliament ... 16%

Yet Paul Murphy, bless him, is still thinking in terms of devolution to the regions of England rather than to England itself.

This shows that he really has no idea about what people in England think. The previous attempt to establish elected regional assemblies in England failed primarily because it ignored the idea of England as a political entity in its own right.

Alien body snatchers at large in Westminster

I have to admit I was fooled into thinking that Wednesday's statement in the House of Commons which claimed that the Scottish Parliament had no power to legislate for a referendum on Scottish independence was made by Michael Moore, the LibDem MP for Berwickshire, Roxburgh and Selkirk and Secretary of State for Scotland.

     

However it has now become clear that this proclamation was not in fact made by him, but by an alien being that has taken control of his body.

How can I be so sure? Well, this is what the real Michael Moore said in an interview on the Politics Show in May last year:

UK "will not block" Scottish independence referendum

The UK government will not move to block a referendum on Scottish independence, the Secretary of State for Scotland has said.

Liberal Democrat MP Michael Moore said there would not be constitutional questions raised about the rights or wrongs of holding a vote.

The newly-elected majority SNP Scottish government intends to bring forward a referendum in its five-year term. The Conservatives, Labour and Lib Dems all oppose independence.

Mr Moore told BBC Scotland's Politics Show it was now up to the SNP to bring forward the referendum, which First Minister Alex Salmond said would come "well into the second half" of the new, five-year parliament.

"I firmly believe the Scottish Parliament, if it so decides, can proceed with a referendum," Mr Moore said, adding: "There will be the normal electoral rules that have to be followed and it will have to be discussed carefully with the relevant authorities."

The Scottish secretary added: "We could, I suppose, try to make a constitutional issue about where the powers lie or don't, but I don't think that would be a sensible use of anybody's time."

BBC, 8 May 2011

So we shouldn't be taken in by the new-found dogmatism coming from the unionist parties this week. What they are saying now is definitely not what they were saying only a few months ago.

You can't have devo-max

After David Cameron's rather combative statements on the Andrew Marr programme on Sunday, I made sure that I was watching Michael Moore's statement in the Commons on how the UK Government saw the referendum on independence for Scotland. It was notably much more woolly and much less definitive than I was expecting.

In essence, all that's happened is that they are launching a public consultation asking people for their opinions on what they should do. That document is available here.

There are many detailed points in it that could and no doubt will be discussed. I disagree with the contention that the Scottish Government cannot legally call a referendum, but acknowledge—as do the SNP themselves—that any referendum it could call under the Scotland Act would have to be phrased very carefully. The proposed wording in their 2010 paper was to ask whether:

The [Scottish] Parliament's powers should be extended to enable independence to be achieved

So if the UK Government now wants to make it easier for the Scottish Parliament to ask a more straightforward question, I don't see why anyone should object to it. In purely pragmatic terms it lessens the chance of any legal dispute, and therefore means that the debate can concentrate on political arguments rather than procedural ones. But that said, there is every reason to object to the "strings" that the UK government seem to want to add to it.

In a sense, this is all a storm in a teacup. The Scottish government will continue to believe that they have the right to call a referendum, the Westminster government will continue to believe that only they can grant permission for it, and they can both go on believing what they do provided that the referendum goes ahead. Is Westminster going to quibble about the date? No. There'll be a few mutterings about them wanting it earlier but they'll let it stand at Autumn 2014. Is anyone going to worry about the wording of the question? No. It would have to be agreeable to both sides anyway, and those who are against independence in Holyrood aren't going to have a different opinion from those who are against independence in Westminster. The only real question is over who will be eligible to vote.

     

But the one thing that now appears not to be in doubt is that there won't be an option for devo-max on the ballot paper. I have made the point on several occasions that devo-max is not something that the SNP wants or is going to fight for. Their position has consistently been that they would consider including it as an option if there was broad public support for it, if it could be precisely defined and if it was deliverable. Whether Scotland becomes independent or not is a decision for Scotland alone irrespective of what the rest of the UK thinks; but if Scotland was going to have a new constitutional settlement while remaining a part of the UK, this would need to be agreed with the rest of the UK. In practical terms, this means that the UK Parliament had to decide what it was and agree to implement it if that is what the Scots voted for.

The answer to the first of those three ifs is clear. In round numbers, the opinion polls tend to show that 30% support independence, 35% support devo-max (or at least much more devolution than is currently included in the Scotland Bill) and maybe 25% don't want any more than is included in the current Scotland Bill. So there is clearly broad public support for devo-max or devo-plus. But the answer to the second if is that none of the three unionist parties is prepared to define it, let alone work together to deliver the third if, namely a firm proposal that would win majority support in Westminster.

It is for these reasons that a question on devo-max is not going to be included on the ballot paper. Not because Westminster refuses to allow Holyrood the right to ask the question in a referendum, but because the three unionist parties together are unwilling to let the people of Scotland have it.

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It goes without saying that they have reached this position because of the political calculations that have been made behind the scenes. But I have to question how sensible those decisions are. If we take them at their word, the primary concern of the three unionist parties should surely be to keep the United Kingdom together. So why would they refuse to countenance giving people in Scotland the greater degree of devolution they clearly want if it would keep Scotland within the UK? I think there are probably two answers.

First, that they are more concerned about denying the SNP any sort of "victory". True, devo-max is not the sort of victory that the SNP want; but to use a sporting analogy it would be the equivalent of getting a draw and therefore keeps them in the contest in the hope of getting the victory they want in a later replay. It appears that scoring party political points over the SNP is more important than working out a sustainable model for the future of the UK.

But second, they probably wouldn't do this if they took the possibility of Scottish independence seriously. For if they saw the continued existence of the UK as being under threat they would surely take whatever steps are necessary to hold it together. This is the big "blind spot" for most unionists. They see the 30% / 35% / 25% split in public opinion in Scotland and read it as 30% wanting independence but 60% being happy to remain part of the UK. I, other nationalists, and maybe only a handful of unionists read it as 25% being happy with the UK as it stands but 65% who want something better.

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If people are offered a three way choice between the status quo, taking one big step to independence or taking the intermediate step of full fiscal autonomy in a federal UK, there is bound to be a significant number who will take the first step and then decide if they want to take the second step later. But if that third option is taken off the table, the 35% or so who wanted to take it one step at a time will be faced with a stark choice: either to stay in a UK that refuses to allow them the degree of autonomy they want, or to take full responsibility for their own future by becoming an independent country.

I've no doubt that some of them will decide to put up with continuing to be part of a UK in which they are drip-fed more devolution in tiny doses as and when the UK thinks it appropriate. But I'm confident that more of them will decide that they've finally had enough of being told what they can and can't do.

That's the fundamental miscalculation that the three unionist parties have now made. In the couple of years between now and the referendum in 2014, I'm sure that most of the 35% or so who wanted devo-max but not independence will decide to join those who have already decided that they want Scotland to be independent.

As the polls begin to reflect this, the unionist parties will wish that they hadn't been so dogmatic. But it was their decision to insist on a single Yes/No question in the referendum, not the SNP's.

Wales should now get £1.9bn

I'm very pleased that the UK Transport Secretary has today announced that the HS2 line between London and Birmingham is to go ahead.

     

This investment of £33bn is entirely within England. By all rights Wales should get a Barnett consequential of 5.83% in so far as it is funded from the Treasury or other public funds. On the full sum, this would equate to just over £1.9bn.

The priority now is to make sure we get it, rather than have to put up with the same sort of fudge that we had to endure over the expenditure on the Olympic Games. Having seen coverage of the statement in Westminster, I think our politicians would do far better to concentrate their efforts on securing this money for Wales rather than talking about about tunnels through the Chilterns.
 

 
Update - 18:45, 10 January 2012

For those who aren't aware of it, just before Christmas the current UK Government were obliged, under the inter-governmental disputes procedure, to make a U-turn over the Barnett consequential for the Olympic Games in London ... but only for that period in which they have been in power. Details here.

Sadly, the vast majority of the expense was incurred before that when Labour were in power in Westminster, so we're only getting a small fraction of what we should have got. But the point of principle has been established. Therefore the question is whether the Welsh Government will fight for a similar Barnett consequential in this case.

Blwyddyn Newydd Dda