SNP DITCHES AMAZON TAX
Budget will hit families – but Nationalists duck taking on big business
PLANS to force online retailers to pay more tax are set to be scrapped by SNP ministers – as they will back a UK-wide levy instead. The Scottish Government had proposed a so-called ‘amazon tax’ – giving some councils powers to force online and out-of-town firms to pay a supplement on their business rates.
But it is understood the party has now halted the plan because it believes the UK-wide tax on online profits proposed by Chancellor Philip Hammond is a better way of making firms such as amazon pay more.
it also has serious concerns about creating ‘divergence’ in the business rates system in different parts of the country.
So it is now set to support a UK-wide ‘digital services tax’ on the profits of internet giants – which could raise £400million a year from around 30 companies.
The news comes as Finance Secretary Derek Mackay prepares to present the Scottish Budget on Wednesday – which is expected to see the income tax gap between middle earners in Scotland and the rest of the UK continue to grow.
The Government has faced calls from business to ease the burden of tax on struggling firms, while campaigners are urging it to reverse cuts to councils and local services.
The decision to drop the amazon tax plans comes after a huge backlash from businesses
opposed to the move. Now 21 business organisations have written to Mr Mackay urging him to scrap his proposals, saying they would add ‘complexity, cost and unpredictability’ for firms and damage investment.
A senior Scottish Government source said that, now the UK Government has come forward with its digital services tax plan, it is felt that a fairer system can be achieved ‘on a whole-UK basis’.
The source also said ministers are opposed to creating ‘divergence’ between business rates in different local authority areas.
The decision is expected to be confirmed when the Government publishes its NonDomestic Rates Bill in the coming months.
Scottish Retail Consortium (SRC) director David Lonsdale said: ‘Many firms will shudder at the prospect of forking out yet more in business rates.
‘One of the points we have made to the Government is that the debate has moved on with the Chancellor’s efforts to take on online operators.
‘If they are listening and have gone cold on the idea and are not going ahead, then that would be very welcome.
‘We look forward to some kind of confirmation of this in due course.’
The new tax was recommended by an independent review of business rates by former RBS chairman Ken Barclay. It said primary legis- lation should be introduced giving councils the power to introduce a new levy on business rates.
It recommended ‘no more than three’ councils be chosen for a pilot scheme where they can ‘levy a modest supplement on out-of-town businesses (perhaps retail) or predominantly online businesses (such as distribution centres)’.
A Scottish Government consultation published earlier this year proposed a pilot scheme for an extra levy on ‘predominantly online’ businesses, as well as out-of-town operators.
It said: ‘The proceeds would be used to support ratepayers in town centres.’
The Scottish Government’s programme for 2018-19 included a Non-Domestic Rates Bill, but made no specific commitment to the online or out-of-town levy.
After opposing the move during the consultation, 21 business organisations – including CBI Scotland, the Food and Drink Federation Scotland, the Scottish Chambers of Commerce and the SRC – have now sent a joint letter to Mr Mackay urging him to scrap his plan.
The letter said they were ‘profoundly concerned with the idea of giving local authorities the ability to levy an additional business rates charge on premises located out of town’.
It added: ‘We urge you not to proceed with this aspect of the legislation due to the potential impact it would have on a wide range of vital businesses, many of them major employers in communities across Scotland.
‘Business rates remain onerous and a new levy would be a further burden.
‘It would add complexity, cost and unpredictability into the rates system and undermine commercial investment.
‘We want Scotland to be a great place to do business. Dispensing with the proposed new rates levy would go some way to delivering on the Government’s ambition of having the most competitive rates regime in the UK.’
A Scottish Government spokesman said: ‘We are currently considering the responses to a consultation on the recommendations of the Barclay Review.
‘The consultation closed in September and a decision will be made following full analysis of the responses.
‘We are doing all we can to support the Scottish economy, including maintaining a competitive non-domestic rates regime for businesses.
‘We provide the most competitive rates relief in the UK, worth around £720 million.’
‘We look forward to confirmation’ ‘Profoundly concerned’
IWANT Derek Mackay to read this so I’m going to start by saying something nice about him. This column has been known to have a dig or two at the Finance Secretary but make no mistake: he is a skilled politician with legitimate ambitions to lead his party.
When he replaced John Swinney in 2014, some questioned whether he was up to filling the shoes of his predecessor, a seven-year veteran of the finance brief.
His debut fiscal statement was slated for its nervous, monotone delivery. One cruel soul called it ‘the most widely reported P7 class talk in Scotland’. Sorry about that. Since then, however, Mr Mackay has grown in confidence and stature, while Mr Swinney at education has made teachers nostalgic for the heady days of Angela Constance.
Nevertheless, if he wants to be a successful finance secretary and maybe, one day, first minister, he will get nowhere by making enemies of Middle Scotland and business. Mr Mackay can avoid this by becoming a champion of ambition instead of the aspiration-basher he has behaved like thus far.
He will get a chance to show us which path he is taking on Wednesday, when he delivers his Budget to parliament.
Speculation abounds that more tax hikes are on the way, a mistake that would hurt the economy – and his political future. Instead, he should unveil a Budget that stands up for Middle Scotland. The following are suggestions of what that might look like.
MATCH THE CHANCELLOR’S INCOME TAX THRESHOLD INCREASE
IN his October Budget, Philip Hammond increased the earning level at which the 40p higher rate of tax applies to £50,000. The Scottish higher rate (taxed at 41p) kicks in at £43,430. The disparity is, in effect, a tax on being Scottish. Closing the gap would send a strong signal that Mr Mackay does not view Middle Scotland as his personal cash machine.
BE BOLD
LAST year the Finance Secretary made Scotland the highest-taxed jurisdiction in the UK, with a complex five-band revenue system. It takes a big man to admit his mistakes, and this was a doozy. Mr Mackay could undo the damage by restoring the higher and top rates to match the 40p and 45p levied elsewhere in the UK, while scrapping the 21p intermediate rate, which especially hurts those just starting to get ahead. The 19p starter rate – a little relief for the lowpaid – should be kept in place.
BE BOLDER STILL
THE Finance Secretary could make Scotland the Tartan Tiger of the UK economy by setting tax brackets below the UK levels. Business, capital and skilled labour would flock to Scotland to take advantage of the opportunities that lower taxes and competition bring.
It would be an epic political move, outfoxing the Tories (who would have no choice but to vote for it) while handing tax relief to families across the nation. Mr Mackay would have a use for his £453million underspend and would not have to spend weeks in meetings with the Greens’ Patrick Harvie. Win-win.
GIVE RETAILERS A BREAK
THE Chancellor cut business rates by a third for high street retailers with a rateable value below £51,000. Mr Mackay should do the same for Scottish shops under pressure from online retailers.
HELP FIRST-TIME BUYERS
IN October, Mr Hammond extended Stamp Duty relief to first-time buyers of shared ownership properties worth up to £500,000. The relief threshold for Scotland’s Land and Buildings Transaction Tax is £175,000. Raise this ceiling and Mr Mackay will deliver an early Christmas present to Scots hoping to get on the property ladder next year.
GET HIRING, GET RATES RELIEF
IN the US, the government offers a Work Opportunity Tax Credit to employers who hire certain categories of worker – eg veterans, long-term unemployed, welfare recipients – equivalent to 40 per cent of the employee’s first-year salary. The Scottish Government should introduce a similar scheme through the non-domestic rates regime, cutting the rates of businesses that recruit a set number of employees in the next 12 months. This could be a significant saver for mediumsized firms as well as getting capable people off benefits and into work.
DEMOLISH THE HOUSE-BUILDING TAX
AGGREGATES levy is a tax on the commercial exploitation of sand, rock and gravel and applies whether the material has been dug in Scotland or imported. Quarrying firms pay £2 on every ton and the costs filter down the supply chain of the construction industry. The Office for Budget Responsibility estimates the Scottish share of the devolved tax will rise by around £5million in the coming five years, reaching £55million. During a housing crisis, scrapping it would be good for business and first-time buyers.
SEND LOW-INCOME, HIGH-POTENTIAL CHILDREN TO PRIVATE SCHOOL
MUCH class warrior joy was there when last year’s Budget announced the end of rates relief in private education. School would be out forever thanks to a £5million tax bombshell. Alas, fresh from sticking it to the ruling classes, Mr Mackay suggested the independent sector simply get discounts directly from councils.
Instead of adding to the financial strains of local government, he could fund a £5million voucher scheme for gifted pupils stuck in underperforming schools. Private schools would not have to hike fees, councils would not have to dip into the kitty – and some smart, deprived children would get handed the educational equivalent of a winning lottery ticket.
KEEP IN MIND SKILLS AND DEMOGRAPHY
SCOTLAND’S population grew for an eighth consecutive year in 2017, bringing it to a record 5.4million. However, these increases relied mainly on migration from abroad or the rest of the UK. In England, the immigration debate is dominated by the cultural and social effects of population change. That’s a luxury we cannot afford in Scotland, where immigration is a matter of economic life and death. Last year, deaths outstripped births here by almost 4,000 and our over-65 population reached 19 per cent.
Scotland needs to attract skilled workers to fill big-ticket private sector roles and NHS staff shortages. These are people with high-earning potential and lifestyle expectations; the prospect of paying extra tax is not going to entice a cancer specialist from the Royal Marsden to Raigmore. The Finance Secretary must remember that the impact of tax decisions go far beyond fiscal outcomes.
CHOOSE YOUR WORDS WISELY
MR Mackay is fond of accusing the Tories of favouring ‘the rich’, as though they were a ghastly class of social pariahs. Apparently building a business or reaching the top of your profession makes you fair game. Across the UK as a whole, 364,000 taxpayers (1.2 per cent) earn more than £150,000 but north of the Border it’s only 19,000 (0.75 per cent). If Mr Mackay likes denouncing ‘the rich’ so much, the least he could do is try to create more of them to complain about.
These are just a few policies Middle Scotland would like to see. They will be watching on Wednesday to see whether Mr Mackay is on their side or in their pocket. And they will vote accordingly.