Holyrood tax powers could seriously hurt financial services, says PwC

THE plan to devolve tax powers to Holyrood is creating "uncertainty" among financial services firms and could prove a disincentive to future inward investment, a major report warns today.

The research from PwC reveals that financial firms are nervous about the potential for the Scottish Parliament to create its own taxes - such as the proposed tourist tax - and says changes under the Scotland Bill could have "detrimental effects".

According to the advisory firm, companies are particularly cautious about the administration costs likely to be involved with operating a separate fiscal regime north of the Border.

An "end to tax uncertainty" is one of the key recommendations put forward in the report, which analyses how the financial sector in Scotland will develop over the next ten years.

Both Edinburgh and Glasgow have slipped down international financial centre league tables and PwC highlights a "slow demise" in the numbers employed in the sector as banks and insurers shift headquarters and decision-making south of the Border.

The report argues there is still plenty of scope for the sector to grow but businesses and policymakers need to come together to decide on a "cohesive strategy".

This should also include overcoming Scotland's "emerging infrastructure problem" which, financial firms say, is already negatively influencing investment decisions.

Scotland also needs to catch up fast on the technology front, with broadband bandwidth and wireless coverage proving "broadly poor" compared to many other competitor countries.

Stephanie Bruce, leader of PwC's financial services business in Scotland, said: "Without urgent action, Scotland could continue to fall down the international rankings and, crucially, the rate of decline could accelerate."

Keith Skeoch, chief executive of Standard Life Investments, says in the report: "To attract inward investment, Scotland needs to focus on its USPs (unique selling points]. Scotland currently does not have overwhelming advantages over its competitors."

The PwC research comes as Scottish business leaders today make the case to coalition ministers for the Green Investment Bank (GIB) to be set up in Edinburgh. A delegation, including Ron Hewitt, chief executive of the Edinburgh Chamber of Commerce, has travelled to London to meet Business Secretary Vince Cable and Michael Moore, the Secretary of State for Scotland.

They will argue that Edinburgh would be ideally suited because of its proximity to renewable energy projects, its skilled financial services industry and the "green" investment that has already been made in Scotland by energy heavyweights such as Scottish & Southern Energy, Iberdrola, Spanish firm Gamesa and Mitsubishi.

Hewitt said: " We are challenging the received wisdom that any new UK institution should be located in London."