UK: Taking the high tax road.

UK: Taking the high tax road. - Scottish business has negative feelings about devolution.

Last Updated: 31 Aug 2010

Scottish business has negative feelings about devolution.

Labour's plans for a Scottish parliament may have gone down well with electors but within the business community the prospect is causing some alarm. Even the parliament's limited powers to vary the basic rate of income tax - by plus or minus three pence in the pound - is enough to worry Scottish & Newcastle. A company spokesperson frets that: 'The probability that these powers would be used to create a higher tax regime in Scotland is a concern to the company.' The effect, says S&N, could be to increase wage costs and discourage it from making any future investments in Scotland.

A similar point is made by Howard Jordan, chief executive of engineering employers organisation Scottish Engineering. He sees no gains for manufacturing industry from a Scottish parliament but he does see plenty of disadvantages.

'First, we think it is likely to create an emotional barrier between us and our biggest marketplace, which is England. Second, if there is to be a variation of income tax we don't believe it will be downwards, and if it is upwards we think that will make it more difficult to attract and retain professional and technical labour.' Hence, Jordan believes, wages will have to go up.

Those within Scotland's financial community are also sceptical. The governor of the Bank of Scotland, Sir Bruce Pattullo, used the bank's annual report to warn that, 'many serious collection, administrative and motivational problems remain hidden. For these reasons the likelihood later of a switch to some form of tax on goods and services or an additional Scottish sales tax must become a distinct possibility.' Indeed, points out a spokesman, there would be little to stop this happening given the vague wording of the referendum proposal. One area of concern for the Scottish CBI is Labour's proposal to return the setting of business rates to local authorities.

Even if a Scottish parliament were to vote against such a measure, a different result in the English parliament would effectively spell the end of the uniform business rate.

However, Alf Young, deputy editor of the Herald in Glasgow, believes that, in general, business opposition is much less visible than the last time the issue raised its head in the 1970s. Smaller firms and professionals such as lawyers, he points out, are generally positive about devolution - as is Edinburgh's business community, although this is hardly surprising given the fact that it has most to gain. A recent report from Edinburgh City Council estimated the parliament would bring an extra 5,500 jobs to Edinburgh, the majority (4,500) of which would be the result of businesses, organisations and diplomatic missions relocating.

Where devolution will have an effect, claims Gavin McCrone of Edinburgh University Management School, is on public expenditure in Scotland compared to England, 'which will be subject to more scrutiny than in the past.

It is higher than in England and the justification for that will have to be made much more transparent.'.

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