So, the UK is leaving the EU, Scotland has issued a Section 30 notice requesting a referendum on independence and the EU are signalling that in the event Scotland becomes an independent country, they would need to go through the usual (and often lengthy) application process. If all these changes come to pass, what does that mean for Scotland’s economy and tax
What would independence mean for Scotland’s economy?
According to a recent article by the Telegraph, Scotland has the largest budget deficit of any country in Europe, as a proportion of GDP. In addition, compared to the rest of the UK Scotland generates £400 per head less in tax revenue, whilst expenditure per head is £1,200 more.
But what about Oil in the North Sea? The issue there is that the cost of production is high compared to many of the other oil producing nations. Recent estimates have put the cost of production at $44 a barrel. With prices over the last 3 months of $50 – 55 a barrel, that means profit margins are tight. Particularly when Norway and Russia are producing for less than $25 a barrel.
Therefore, if Scotland stands alone, change will be needed and most likely, this will mean a cut in spending and an attempt of some kind to increase tax revenues.
How can Scotland attract big business?
Cutting tax rates looks counter intuitive, however many countries in and around Europe have built strong economies off of the back of becoming a tax efficient place to do business
. Luxembourg, Cyprus and Malta are three such examples in the EU, with Switzerland and Jersey being outside the EU.
Ireland tried and successfully attracted the likes of Google & Apple with appealing corporate tax rules, although the economy has been suffering perhaps due to some more underlying issues.
The UK as whole has already announced that Corporation Tax rates will be falling over the next few years to 17%. If Scotland wants to attract big business, a rate less than 15% and nearer to 10% would be required.
What does Scotland’s economic future look like?
In the short term, tax revenues would drop, but perhaps opening up a bigger financial future for Scotland. There are a few hoops to jump through first – what currency will they use? Who will act as their Central Bank, what about Financial Regulators?
Could Scotland become a tax haven
? Well, it’s certainly a possibility, but the experience of Ireland over the last 10 years might just put them off!