Major business and commerce in Scotland has little to gain and much more to lose from independence, writes Peter Jones
WHICH tax on Scots do you think is expected to have risen by 60 per cent after eight years of SNP government? Tough one? I’ll give you a clue. By the time of the next Holyrood election, it is expected to be raising £1 billion more than when the SNP first came to power, which tells you this is not some piddling little tax.
Still don’t get it? And no, this is not a trick question – I’m not talking about a tax levied by that posh George Osborne so this is not about a raid by those horrid Westminster people on down-trodden Scots. This is a tax which is completely in the control of the Scottish Government.
Give in? All right, I’ll tell you. It is non-domestic or business rates. It is the tax which is levied on businesses according to the value of the property their enterprise occupies. It is a Scottish tax, controlled by John Swinney, the Scottish finance secretary.
This is the reason why a lot of businesses are highly suspicious, if not downright hostile, to independence. Now that the Institute of Fiscal Studies (IFS) have come out with a damning verdict about how difficult it will be to make the public sector books balance out, that suspicion will be re-doubled.
To listen to the Scottish Government on the subject of business rates, you would think they were a tax-cutting government. I heard Nicola Sturgeon, deputy First Minister at the Federation of Small Businesses Scottish annual dinner last week.
She reeled out the statistics – record numbers of business properties in Scotland are benefiting from Small Business Bonus Scheme business rates relief. Over the past five years the number of recipients has increased by 44 per cent from 64,179 in 2008-9 to 92,381 in 2013-14.
The most recent report on the scheme says it will save the small businesses who get it an average of £1,668 in 2013-14. The Scottish Government’s website boasts that it will “reduce the business rates tax paid by Scottish businesses by £154 million in 2013-14, an increase from £144m in 2012-13.”
Given the nature of Ms Sturgeon’s audience, it was not surprising that she had more than a few supporters in it. But when you come to bigger businesses – and you only have to occupy a building with a rateable value of more than £25,000 before you stop being small for the purposes of the small business relief scheme – I’ve found nationalist support tails off rather sharply and backing for independence falls even more swiftly.
Business taxes have a lot to do with that, for the website statement is a verbal sleight of hand. According to Mr Swinney’s most recent budget, business rates were expected to raise £2,272m in 2012-13 and £2,435m in 2013-14, an additional £163m.
The implication is clear. The SNP, far from reducing the business rates tax burden, is increasing it. It is also shifting the burden from small businesses to bigger ones.
The increase is even more striking when you look at the long-term trend. In 2007-8 when the SNP first came to power, business rates raised £1,724m. According to Mr Swinney’s latest budget, they will raise £2,779m in 2015-16, an increase of £1,055m which, in nominal terms, is a 61 per cent increase over just eight years. Apart from North Sea revenues, no other tax which raises more than a billion in Scotland will see an increase of that order. The nearest that will come to that is VAT, the take from which is up by about 20 per cent between 2007-08 and 2011-12.
I’m slightly surprised the opposition political parties haven’t made more of a song and dance about this. It seems an obvious stick with which to beat nationalists whenever they show up claiming to be a tax-cutting party, which is rather a lot these days when they are extolling the virtues of independence.
But some businesses have been noting it. Whisky-makers, who occupy a lot of property in distilleries, bottling plants, bonds, etc, have been totting up some sums lately and trying to work out whether they add up under independence.
Talking to one Diageo executive recently, he said that their biggest worry about independence was whether Scotland’s fiscal sums would add up. If there is not enough tax revenue to meet the current public spending bill, never mind any extras which the SNP may promise, he was absolutely sure that it would be his company’s door that a saltire-clad taxman would be knocking on.
Yesterday, the IFS confirmed those doubts. An independent Scotland would face two basic problems that can’t be wished away. Firstly, Scotland’s population is ageing more rapidly than is that of the UK as a whole, and since the old need more money spent on them dealing with their pensions, health, and care, over time the old age public spending bill is going to increase more quickly than in the UK.
Secondly, an independent Scotland will have to borrow (even Norway with its huge sovereign wealth fund borrows) and its costs of borrowing, if only because there is no credit history, will be higher than UK borrowing costs.
The IFS found that even if it made optimistic assumptions – that oil revenues would be in line with Scottish government predictions and the current rate of immigration could triple – it found that Scotland would have a bigger fiscal gap – the difference between money spent and taxes raised – than does the UK.
I thought that the IFS work was challengeable. It is a bit mechanistic, assuming that there are no major policy changes which affect how the economy and the welfare system operate to affect the economy.
Even so, their main point still stands that not only is there no free lunch out there for Scotland, no drain of money by the UK that can be stopped, but also that an independent Scotland is going to have to run harder to keep up with where it would have been under the UK.
And such is the authority of the IFS, most businesses, especially the bigger ones, are going to agree with it rather than the Scottish Government who are, after all, just another set of politicians bartering for votes.
And when they look at the business rates record, it will take something pretty extraordinary to persuade them to buy independence.