Support 110 years of independent journalism.

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.

By Jamie Maxwell

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’.

Select and enter your email address Your weekly guide to the best writing on ideas, politics, books and culture every Saturday. The best way to sign up for The Saturday Read is via saturdayread.substack.com The New Statesman's quick and essential guide to the news and politics of the day. The best way to sign up for Morning Call is via morningcall.substack.com
  • Administration / Office
  • Arts and Culture
  • Board Member
  • Business / Corporate Services
  • Client / Customer Services
  • Communications
  • Construction, Works, Engineering
  • Education, Curriculum and Teaching
  • Environment, Conservation and NRM
  • Facility / Grounds Management and Maintenance
  • Finance Management
  • Health - Medical and Nursing Management
  • HR, Training and Organisational Development
  • Information and Communications Technology
  • Information Services, Statistics, Records, Archives
  • Infrastructure Management - Transport, Utilities
  • Legal Officers and Practitioners
  • Librarians and Library Management
  • Management
  • Marketing
  • OH&S, Risk Management
  • Operations Management
  • Planning, Policy, Strategy
  • Printing, Design, Publishing, Web
  • Projects, Programs and Advisors
  • Property, Assets and Fleet Management
  • Public Relations and Media
  • Purchasing and Procurement
  • Quality Management
  • Science and Technical Research and Development
  • Security and Law Enforcement
  • Service Delivery
  • Sport and Recreation
  • Travel, Accommodation, Tourism
  • Wellbeing, Community / Social Services
Visit our privacy Policy for more information about our services, how Progressive Media Investments may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications.
THANK YOU

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. 

Content from our partners
<strong>What you need to know about private markets </strong>
Work isn't working: how to boost the nation's health and happiness
The dementia crisis: a call for action