The shadow chancellor is using the same arguments as the SNP on corporation tax. Photo: Getty
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Ed Balls’ corporate tax announcement is a pain for Scottish Labour

The shadow chancellor's recent praise of competitive rates of corporation tax makes life harder for the Scottish Labour party, which opposes the SNP's plan to reduce the corporate tax rate in Scotland.

The SNP’s plan to reduce the corporate tax rate in Scotland to 3 per cent below the UK rate has been subject to a lot of criticism – and with good reason. It’s a terrible plan. Just ask the Canadians. Between 2007 and 2012, Mark Harper’s Conservative government cut Canada’s federal rate of corporation tax from 21 per cent to 15 per cent in the hope companies would hire more staff, invest in research and purchase new equipment, thus boosting their profits and growing the economy. Instead, businesses hoarded the savings and hiked executive pay. Frustrated by such brazen corporate greed, the then governor of the Bank of Canada, Mark Carney, took the unusual step of telling Canadian firms to free-up the billions of dollars’ worth of “dead money” they were sitting on: spend it productively or return it to investors, Carney said, but don’t just let it rot in the bank.

Up until now, Scottish Labour has aggressively pursued the SNP over its corporate tax policy. It has argued that Alex Salmond’s obsession with slashing the tax proves an independent Scotland would not be the Nordic-style social democracy envisioned by many Yes campaigners. By contrast, it would be a low-wage, light-touch tax-haven run for the benefit of predatory multinationals. But that attack line (hopelessly overcooked, as ever, by Scottish Labour’s press team) was abruptly undermined this week when Ed Balls began singing the praises of low corporate taxes. During a speech at the LSE yesterday, Balls said: “The last Labour government left Britain with the most competitive rate of corporation tax in the G7 and we are committed to maintaining that position.”

To be clear, Balls is not talking about lowering UK corporation tax from its current rate of 21 per cent. Indeed, Labour remains committed to reversing the 1 per cent reduction planned by George Osborne over the coming 12 months. But the logic of Balls’ argument – that Britain can attract investment by undercutting other major economies with “competitively” low business levies – is indistinguishable from that used by the First Minister to justify his party’s position on corporation tax. Just substitute “Scotland” for “Britain” and “London” for “the G7”. (Incidentally, Labour’s UK-wide case for lower corporate taxes is every bit as weak as the Nationalists’ Scottish case: according to the TUC’s Duncan Weldon, British companies have built up a staggering £600bn corporate surplus over recent years.)

Balls’ announcement highlights one of the key problems for Scottish Labour as it attempts to bring its central belt and west coast heartlands back on side before September. For all the party’s talk of Scotland’s “progressive” future within the UK, it can’t disguise the fact that Balls and Miliband are almost as hawkish on the deficit, welfare reform and immigration as the Tories. It is no good Johann Lamont deploying the same-old exaggerated rhetoric against the SNP (“Look beyond the saltire. Look beyond the plaid … We are the crusading force in Scottish politics”) when the next UK Labour government intends to match the Coalition’s spending cuts pound for pound in 2015/16. Likewise, Gordon Brown can’t really expect people to take his warnings about SNP economic policy seriously when, as Chancellor, he presided over a debt-and-finance-fuelled boom that ended in Britain’s worst financial crisis since the 1930s.

In some respects, the obstacles Johann Lamont faces in trying to craft a progressive case for the Union mirror those of Ed Miliband as he heads into the next election. Both leaders have to explain what centre-left radicalism looks like in the context of tight budgetary constraints. Both have to cope with opponents who are more adept at communicating their core messages. Both are also, unfortunately, hogtied by the past. Just as the wider British electorate still seems to hold the Blair and Brown administrations responsible for the state of Britain’s economy, so the Scottish electorate looks back on eight underwhelming years of Labour rule at Holyrood and thinks ‘We can do better’.

Of course, the key difference between Lamont and Miliband is that Miliband actually runs his party. Lamont, on the other hand, has to work with the policy programme she is given. It is difficult to overstate how awkward this is for Scottish Labour. The SNP’s corporate tax plan was a gift. As the Canadian experience shows, cutting corporate taxes makes little economic sense – unless your goal is to boost company profits without generating additional revenues for the state. Nor does it make any real political sense. Scottish business remains overwhelmingly hostile to independence, while representatives of the broader Yes campaign have repeatedly expressed their opposition to the policy and resent having to answer for it at public meetings. Yet, from now on, whenever Scottish Labour attempts to raise these points, all the SNP has to do is refer them back to Balls’ speech. It’s a familiar argument, but one that bears repeating: the only viable future for the Labour party in Scotland is more autonomy. For as long as it remains anchored to Westminster, the SNP will have the advantage. 

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Geoffrey Howe dies, aged 88

Howe was Margaret Thatcher's longest serving Cabinet minister – and the man credited with precipitating her downfall.

The former Conservative chancellor Lord Howe, a key figure in the Thatcher government, has died of a suspected heart attack, his family has said. He was 88.

Geoffrey Howe was the longest-serving member of Margaret Thatcher's Cabinet, playing a key role in both her government and her downfall. Born in Port Talbot in 1926, he began his career as a lawyer, and was first elected to parliament in 1964, but lost his seat just 18 months later.

Returning as MP for Reigate in the Conservative election victory of 1970, he served in the government of Edward Heath, first as Solicitor General for England & Wales, then as a Minister of State for Trade. When Margaret Thatcher became opposition leader in 1975, she named Howe as her shadow chancellor.

He retained this brief when the party returned to government in 1979. In the controversial budget of 1981, he outlined a radical monetarist programme, abandoning then-mainstream economic thinking by attempting to rapidly tackle the deficit at a time of recession and unemployment. Following the 1983 election, he was appointed as foreign secretary, in which post he negotiated the return of Hong Kong to China.

In 1989, Thatcher demoted Howe to the position of leader of the house and deputy prime minister. And on 1 November 1990, following disagreements over Britain's relationship with Europe, he resigned from the Cabinet altogether. 

Twelve days later, in a powerful speech explaining his resignation, he attacked the prime minister's attitude to Brussels, and called on his former colleagues to "consider their own response to the tragic conflict of loyalties with which I have myself wrestled for perhaps too long".

Labour Chancellor Denis Healey once described an attack from Howe as "like being savaged by a dead sheep" - but his resignation speech is widely credited for triggering the process that led to Thatcher's downfall. Nine days later, her premiership was over.

Howe retired from the Commons in 1992, and was made a life peer as Baron Howe of Aberavon. He later said that his resignation speech "was not intended as a challenge, it was intended as a way of summarising the importance of Europe". 

Nonetheless, he added: "I am sure that, without [Thatcher's] resignation, we would not have won the 1992 election... If there had been a Labour government from 1992 onwards, New Labour would never have been born."

Jonn Elledge is the editor of the New Statesman's sister site CityMetric. He is on Twitter, far too much, as @JonnElledge.