Should devolved administrations set own corporation tax rate?

Accountants throughout the UK will no doubt be wondering what George Osborne will decide to do about Northern Ireland’s corporation tax.

The question of tax-varying powers in the devolved administrations will be in the spotlight when the Chancellor announces whether or not the Northern Ireland executive is to be allowed to vary their corporation tax rate.

The Scottish parliament is also asking for similar powers and some people have warned that Wales will become the only devolved nation without such privileges. Others say that such powers are not necessary for Wales and even if they were, Westminster would be extremely unlikely to grant them.

A spokesman for the Welsh government said that if Westminster gave tax-varying powers to one devolved administration, the offer should also be extended to Wales.

Kevin Chidwick, the chief financial officer of FTSE 100-listed insurer Admiral, is all in favour of the Welsh government changing corporation tax rates, as long as that meant it could lower them. His company paid £86.7 million corporation tax last year.

A lower rate of corporation tax could encourage more businesses to move to Wales and stimulate employment growth.

However, Professor Patrick Minford, an economist at the Cardiff Business School, points out that significant problems could arise if the devolved administrations were allowed to set their own tax rates. It would be like having different rates of income tax for different areas. A scenario that would probably cause HMRC no end of trouble as well!

He went on to explain that each region would cut their rate to encourage new business and we could end up with a situation where nobody paid corporation tax at all. The government would then need to come up with an alternative way to raise cash.

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