Report claims Scotland's business reputation would be damaged by tax-raising powers

Published on Thursday 29 July 2010 17:43

SCOTLAND'S reputation as a place to do business could be damaged by plans to give Holyrood increased tax raising powers, a report found today.

• The Scottish Parliament

Firms also need more clarity about the financial aspects of the Calman Commission proposals which the new Tory/Lib Dem Westminster coalition has pledged to implement, it said.

This proposes cutting the tax rate in Scotland by 10p, then allowing Holyrood to raise it back up to the level required based on need.

Scotland would also get powers over some other taxes under Calman – air

passenger duty, stamp duty land tax, the aggregates levy and landfill tax, according to the proposals.

A report entitled Conversations with Scottish Business published today revealed that 57% of firms believe two tax systems in the UK will have "considerable impact" in cost, administration and time.

This was confirmed in "informal discussions" with firms, according to the survey by PriceWaterhouseCoopers and the Fraser of Allander Institute.

"Most expressed the view that business location is a flexible option and any changes to cost, taxation levels, uncertainty or even complexity of the tax system could impact negatively on Scotland as the preferred choice of location," the report states.

The survey quotes one "very large" unnamed company which warned it is "the wrong time in the business cycle to consider giving greater fiscal autonomy to the Scottish Government."

Most firms (57%) said further fiscal devolution would damage the economy, leading to reduced investment and activity.

This stems from a "widespread perception" that a Scottish Government would favour higher levels of corporate and personal tax.

The report also found that 62% of firms have not had any discussion about the looming impact of Holyrood getting additional tax raising powers through the Calman proposals.

Most executives told the report that the plans had only been discussed in more detail in the financial services sector.

"Outside the sector our sample of companies reported no discussion," the report adds.

Rhona Irving, head of tax Scotland at PricewaterhouseCoopers, said: "What is clear is that up until now, businesses have been operating in a vacuum – or worse, have had their head in the sand.

"What they urgently need is clarity on how these new powers will work in practice, why they should be introduced and the benefits for Scotland and our economy.

"At a time when the public purse is being tightened and private sector recovery is fragile, the need for communication and engagement among all the relevant stakeholders, including HMRC, has never been stronger."