Wednesday, June 20, 2007

Lowering corporation tax?

RoadrunnerReturns was interested to read this report about an independent tax and budget review for Wales which has been agreed to by Members of the Welsh Assembly. It is fairly well established that - in comparison to Scotland and Northern Ireland - Wales does less well than could be expected from the Barnett formula, at least on the basis of an objective needs assessment. But what continues to baffle Roadrunner is the persistence of the view that corporation tax rates could legally be lowered in some parts of the UK (Wales, Northern Ireland and Scotland) but not in others (England). This is wrong, wrong, wrong. European Union law regards any such infra-national variation in rates of corporation tax as state aid. Unless the UK can persuade the European Commission that regional reductions in corporation tax are justified on a strict economic development needs basis, which is highly unlikely in the cases of Scotland and Wales (and probably also in the Northern Irish case), then for right or wrong this policy is a non-starter.

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