The Courier & Advertiser (Perth and Perthshire Edition)
Bold ideas needed to boost economic output
Strathclyde University’s Fraser of Allander Institute has spelled out in stark figures what we already knew – that Scotland’s newly-devolved tax regime demands some big decisions in the face of inevitable cuts.
Our prosperity now hangs on the hope the Scottish Government makes the right choices to support business.
What’s different this time? A big increase in tax powers means that by the end of this Parliament in 2021, Holyrood will be responsible for raising around 40% of the money that it spends.
The remainder derives from the UK Government through a block grant exposed to UK Government’s deficitreduction.
Unless Chancellor Philip Hammond announces a major U-turn in his Autumn Statement, the Scottish Budget will fall in real terms.
The good news is that this year that the Scottish Government has more tools with which to carve out a distinctly Scottish, pro-business approach where reality matches the political rhetoric.
Scottish Chamber Networks’ 11,000 member firms have plenty of suggestions about how Scotland can get itself noticed as a pro-business environment.
Over the years, devolved government has pondered these cost-of-doing-business issues ad nauseam, producing endless consultations and strategies.
But more than ever in the new reality of enhanced devolution, Scottish Ministers will be judged on whether or not it can do something to remove remaining obstacles to growing the tax take.
One revenue-booster would be a planning system which works quickly and efficiently to the benefit of would-be investors. Another is the procurement system. Why? Because it currently does little to support Scotland’s army of SMEs to win contracts.
In a small country there is no good reason for not effecting “culture change” that business has long demanded.
Other areas for improvement include provision of appropriately skilled labour and digital infrastructure.
Indeed, we at the Scottish Chambers believe that in an age of tough competition for inward investment, the Scottish Government should be offering an attractive support package to would-be investors from the UK and abroad, guaranteeing pro-active, can-do guidance through the complexities and potential frustrations of setting up shop here.
We can all agree the Scottish Government’s commitments to expanded public sector spending, such as increasing health spending in real terms and doubling childcare provision, are desirable.
But without an increased tax base, they will need to be paid for in cuts to other spending priorities.
Fraser of Allander estimates the remainder of the Scottish Budget may have to be cut by 10-17% to balance the books or the Scottish Government must look elsewhere to raise new revenues.
Faced with such circumstances, politicians may be tempted by the seemingly easy answer: raise taxes on business.
Such deterrence of enterprise would be both wrong and counterproductive.
The government needs more revenue, so must think carefully about which taxes will actually boost its budget.
The most significant will be Income Tax, which sees further devolution next year, and VAT, where a portion of revenues will be assigned to Scotland from 2019.
The First Minister acknowledged in March that raising Income Taxes at the top levels could backfire, whilst increasing it at lower levels could limit consumer spending and hit VAT revenues.
Thus the only sure way to increase revenues through these taxes is to grow the Scottish economy, enabling businesses to employ more people on better wages, building consumer confidence and boosting demand.
Bold new ideas to make Scotland a recognised hotbed of business growth, not tax rises, should be in the mind of Scotland’s Finance Secretary Derek Mackay, as he prepares for his first Scottish Budget.
Equally, the ongoing review being carried out by the Government’s Enterprise and Skills Advisory Group must focus on business need in a globally competitive market.