The Courier & Advertiser (Fife Edition)
Sunak aid plan did little to help small firms in Scotland
The cost-of-living crisis facing Scotland’s businesses and consumers is hitting home. With inflation now reaching a 40-year high at 9%, and expected to rise even further, the cost of doing business is rising almost daily. Households are seeing their gas and electricity bills and food prices sky-rocket.
Therefore, it was right that Chancellor Rishi Sunak, once again came before the dispatch box in the House of Commons, only weeks after delivering an underwhelming Spring Statement, to announce the Government’s new plan to provide support for those worst affected.
Businesses have been warning politicians for months that doing nothing risks tipping the economy back into recession.
Rampant inflation, increased raw material costs, continued supply chain disruption and consumer spending in freefall, makes the outlook for businesses bleak.
While the chancellor’s statement offered some relief for consumers through the provision of the £400 discount on domestic energy bills, it did nothing for Scotland’s struggling small and medium-sized businesses.
Before the Government U-turn on the windfall tax, ministers had cautioned for months that such a levy would deter investment in both the North Sea and the nation’s energy transition.
Despite this, confirmation of such a levy on the oil and gas sector was the headline feature of the statement with the chancellor expecting the windfall tax to raise £5 billion within 12 months. However, higher taxes could remain in place until the end of 2025, which would see over £17.5bn of profit syphoned off by the Treasury if hydrocarbon prices remain high in the years ahead.
A windfall tax though is of course a one-off levy and what the UK Government has put forward instead is a multi-year tax proposal which senior figures in the oil and gas industry, including Sir Ian Wood, warned will put North Sea investment plans at risk.
The UK Government’s response to investment fears was to offer a new investment allowance which incentivises producers to invest by saving them 91p for every £1 they spend.
How effective this will be when the sector is already paying taxes at much higher rates than other parts of the world will remain to be seen.
Oil and gas producers, many of whom have a significant base in Scotland, can now expect their headline rate of tax on profits to jump from 40% to 65% due to the additional levy.
Companies including BP and Shell, who support thousands of jobs across the country both directly and indirectly and who are significant contributors to the economy of the northeast have both consistently emphasised the importance of a stable environment for long-term investment and will be forced to look again at what the windfall levy and investment allowance will mean for their current and future investment plans for the North Sea.
With the oil and gas sectors contributing around £7.8bn to UK taxes each year, raiding the sector’s coffers to put a sticking plaster on consumer energy bills at the cost of undermining crucial investor confidence for further oil and gas developments and in support of a Just Transition is short-sighted, unnecessary and damaging.
It does nothing to resolve the long-term energy security challenges facing the UK and puts another unnecessary obstacle in our path towards net zero and will increase reliance on imported energy, which comes at a greater environmental and financial cost.
Offshore Energy UK also described the windfall tax as a “disappointing and worrying development for industry”, highlighting that the windfall levy flies in the face of the recently published British Energy Security Strategy in which the prime minister indicated prioritised investment and support for the sector to enable the UK to reduce its reliance on imports. Only hours after the announcement of the windfall tax and additional measures to support consumers, the chancellor recognised that it’s unlikely the package of support he announced will have a significant impact on inflation.
This takes us to the heart of the issue.
Unless the government also introduces measures to ease the cost of doing business, inflation will continue to rise, the economy will continue to falter and additional financial support for consumers will have very little impact.
Scottish Chambers of Commerce has lobbied the chancellor time and time again for the introduction of an energy price cap for small and medium sized businesses or a VAT reduction on bills which would go at least some way to supporting business and holding down price rises that are being passed onto consumers.
The windfall tax was wrong headed, and the statement was another missed opportunity by the chancellor to take meaningful steps to support the business community.
By supporting businesses, the government can support consumers, keep our economy moving and keep inflation in check.
We need action now to tackle rising costs and to stop the drag on our economy that will ultimately put growth, businesses and jobs back in the balance.