SNP hope to coax business start-ups with radical tax incentive scheme
JOHN Swinney has signalled his intention to offer generous tax breaks to wealthy entrepreneurs if the SNP succeed in securing a range of new powers for Holyrood.
The Deputy First Minister and Finance Secretary said capital gains tax could be used to create “targeted incentives” to boost entrepreneurship.
He promised to review the UK Government’s existing tax-relief scheme, which rewards successful entrepreneurs who make up to £10m from the sale of their business.
The proposal was set out in a document submitted as MPs began to scrutinise the new Scotland Bill.
Debating further devolution at Westminster, the SNP’s deputy leader Stewart Hosie said tax competition within the UK was “a good thing”. He also signalled the SNP would support a backbench Tory amendment to deliver full fiscal autonomy, despite warnings it would leave Scotland billions of pounds a year worse off.
The Scottish Government’s new document, entitled Beyond Smith, gave details of the “priority devolution” the SNP want in addition to measures recommended by last year’s Smith Commission.
As well as capital gains tax, Mr Swinney called for Holyrood to be handed control over National Insurance (NI), corporation tax and the minimum wage.
Working-age benefits and benefits relating to children would also be devolved, and Holyrood would gain control over the Jobcentre Plus network and employment schemes, and trade union and health and safety law.
The document gave clear indications the Scottish Government would seek to use the new powers to cut taxes for business while enhancing benefits and raising the minimum wage. Mr Swinney said capital gains tax could be used to boost Scotland’s rate of business start-ups, which lags behind the rest of the UK.
Under the existing entrepreneurs’ relief scheme, capital gains tax is reduced from 28 per cent to 10 per cent for people selling a business. The lower rate applies to lifetime gains of up to £10m, a limit doubled by George Osborne in 2011.
Mr Swinney said the Scottish Government would “review the effectiveness of the tax break”.
A Scottish Government spokeswoman said the document did not indicate a move “up, down or sideways”, adding: “All we are doing is saying we want to review it. There is no indication of where that review would go.”
Allowing entrepreneurs to keep more
of the money they make from selling a business might tempt more to set-up in Scotland. Alternatively, the Scottish Government could devise its own incentive with control over capital gains tax.
STUC assistant secretary Stephen Boyd said: “The implication is taxes would be cut. There are a number of examples where the Scottish Government would be trading an immediate cut in revenue for benefits that may not be great in the long run.”
As well as helping wealthy entrepreneurs, the Scottish Government indicated it would seek to cut NI contributions and reduce corporation tax for firms investing in new facilities or research and development. Mr Boyd welcomed the call to devolve trade union law, employment law and the minimum wage.
Mr Swinney said the package of “priority devolution” measures would pave the way for full fiscal autonomy, which would transfer all tax and spending to Holyrood.
He said: “The Scottish Government believes we should move towards full fiscal autonomy as the best route to fulfil Scotland’s potential. These proposals show how we could do that.
He added: “These measures could boost entrepreneurship, encourage innovation and improve productivity.”
THE current system of local taxation is long overdue for reform. It was introduced more than 20 years ago as a quick fix by John Major’s government and although the council tax was an improvement on the poll tax, it has essentially remained unchanged, meaning it is now based on property values two decades out of date. Not only that, it is a regressive form of tax as it hits poorer households harder than more affluent ones. It has to go.
The SNP’s response, with the support of other parties, has been to freeze council tax. While that was understandable in 2008 when the Government was looking at ways to ease austerity, it is no longer acceptable. Not only is it richer households that are disproportionately benefitting from the freeze, it has added to the pressure on council budgets and increased the pressure to cut back on services. Some councils have also responded by charging for some of their services or increasing charges, which again hits the poorest households the hardest.
A process of change is under way with the Commission on Local Tax Reform due to report soon, but as The Herald has highlighted as part of our Reshaping Scotland focus, the need for change is now urgent, with councils facing a black hole in their budgets of £1billion. The crisis means a radical response is required from government.
The first act should be an end to the council tax freeze and the state of limbo it has created. This would give councils the freedom to raise more revenue but it would also free up resources for the Scottish Government, which has been giving councils extra money in exchange for not increasing the rates.
There is also a potential democratic boost to be had from ending the freeze. The current situation means councils are not responsible for setting their rates, which makes it harder for voters to judge their performance. Professor Kenneth Gibb, one of the experts who has given evidence to the commission, says ending the freeze would make local government responsible again for its own finances and thereby strengthen the democratic system. Basically, if voters do not like tax increases, they can make that clear in the ballot box.
The next step is a serious discussion about what should replace the council tax. A number of options are on the table, but whatever system is settled on, it should be based on a progressive principle that the council tax flouts – namely, that taxation should be based on a fair reflection of wealth and the wealthier you are, the more you pay. This should mean taking into account both property values and income to avoid situations such as the pensioner on a fixed income bearing an unfairly high burden of tax because they live in a large property, but also to ensure that those who have more pay more.
Reform along these lines will not be easy because some voters will end up paying more and many politicians will be fearful of ending the freeze because it has proved popular. But reshaping Scotland means reforming our local tax system so councils have the money they need to pay for local services and voters pay their fair share.