A cry comes from the capital – we need a fair deal

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SOME of the biggest names in Scottish business, including the Royal Bank of Scotland, Standard Life and Scottish & Newcastle, have joined forces to attack the Executive’s policy of distributing cash raised through business rates in Edinburgh to other areas of the country.

The companies – under the banner of the Edinburgh Business Assembly (EBA) – have demanded that the city’s income from business rates should be reinvested in the city itself, rather than being “sucked into a Scottish Executive pool for redistribution elsewhere in Scotland”.

The group has calculated that 805 million has been paid out by Edinburgh into the Executive pool over the past decade. This represents almost 40 per cent of the total business tax raised of 2.2 billion. That compares with 615 million from Glasgow out of a total raised there of 2.5 billion, making a combined total of 1.4 billion being raised from the country’s two main cities to subsidise

other local authorities around Scotland.

And it seems the figures are increasing. Last year, 111 million went into the pool from Edinburgh, against 66 million from Glasgow. The figures have risen every year since 1996-7, when 56 million

was paid into the pool from the capital.

Geoff Ball, the EBA chairman and head of the housebuilder Cala, called the Executive’s nondomestic rates (NDR) pool system a “stealth tax on business which deters development and hinders growth, instead of rewarding success and incentivising wealth creation”.

The high-profile attack will be seen as a direct challenge to the forthcoming SNP administration at Holyrood. Business rates did play a role in the election campaign, but most parties – including the SNP, Tories and Lib Dems – promised to reduce the burden, meaning there would be less cash for the city and less money to spread around.

Mr Ball said: “Business can’t vote on this, and the money is being used to pursue political policies elsewhere in Scotland.

“Edinburgh should be able to manage and reinvest all its business rates, but if a larger proportion could be kept in the city, investment would benefit not just businesses and workers, but also improve quality of life for all residents. This would [make] the city more attractive to inward investors and tourists, thereby generating higher income from business rates. All of this will benefit Scotland as a whole.”

Business rates are officially a “local tax”. However, the local authorities’ only involvement is in collecting the taxation. The rates are set by the Executive and the money is pooled and redistributed according to an assessment of need.

Scotland currently has a system of redistributing wealth created in Edinburgh and Glasgow all over Scotland. The idea is to ensure the wealth from all the cities benefits all of Scotland’s citizens and, in turn, its two main centres.

However, there has been a growing argument that this system leads to economic stagnation in the very cities we rely on to drive Scotland’s economy as well as provide the money to invest in big projects and services that benefit everyone.

Mr Ball is suggesting that a financial instrument should be set up to use the money for Edinburgh’s own development. This should be ring-fenced and could even be used to cover the interest charges on a much bigger capital fund, which could finance large-scale projects to guarantee the city remains competitive and keeps pace with, and surpasses, UK and European competitors.

Top of his project wish-list to improve Edinburgh’s business competitiveness is the city’s planned tram system. Others include the redevelopment of Waverley and Haymarket stations, a second Forth road crossing and a rail link to Edinburgh Airport.

Mr Ball said: “We must continuously improve the city through major investment in infrastructure [and] connectivity projects.”

Margo MacDonald, the independent MSP for the Lothians, said: “Edinburgh has to provide the facilities and services expected of a capital city and it is not only Edinburgh that benefits, it is the whole of Scotland. So it does seem fair that Edinburgh gets more money.”

Ms MacDonald has put one of the first motions before the new parliament calling for the capital to have a separate funding stream in order to complete projects such as the trams scheme and the Edinburgh Airport rail link.

“If we are to remain in competition for tourism, business and general development with other European cities, then Edinburgh does need more money,” she said. “It should not be seen as depriving other areas of Scotland; it should be seen as investing in the main economic driver for

the country where you know you will get a return on your investment.”

The EBA said that, while money from the Executive’s Cities Growth Fund has provided some funding towards city improvements, the 46.9 million awarded to Edinburgh between 2004-8 is a mere fraction of the 805 million lost from its non-domestic rate income.

Niall Stuart, of the Federation of Small Businesses, said: “You can understand why the big cities want to keep more of business rates income because they are the engines of their respective economies, a lot of workers do not pay council tax in the cities and they do generate a lot of economic benefits for the area.

“But my one big concern would be for services in rural areas and less well-off areas if the money stays in the cities.”

Jim Mather, the SNP’s economy spokesman, said: “The ability of Scotland to attract business and people is about the totality of Scotland. It is not in Edinburgh’s interests to see an economic decline in rural [areas] or outwith the Central Belt.

“The ethos of any SNP administration will be to do what is in the best interests of Scotland. What is best for Scotland is best for everybody. If we fragment Scotland financially, there will be unintended consequences.”

A spokeswoman for the Executive said the issue would be “a matter for incoming ministers to decide”.

Powerful voices

EDINBURGH Business Assembly represents the interests of firms employing more than 40,000 across the capital.

Its leaders include the great and the good, from firms such as Royal Bank of Scotland - the world's fifth-largest bank and Scotland's most important white-collar employer - to universities and public-sector development agencies.

Phil Miller, the chief executive of Miller Developments; Todd Nugent, the director of merchant bank Noble Grossart; Professor Tim O'Shea, principal of Edinburgh University; and Alan Robertson, managing director for the Scottish division of Jones Lang LaSalle, are all members.

The EBA was formally launched in May 2005 as part of an initiative from the City of Edinburgh Council and Scottish Enterprise Edinburgh and Lothian to improve collaboration between the public sector and Edinburgh's successful private sector.

Also among those represented are Marcia Campbell, group operations director and chief executive of Standard Life's shared service centre, as well as Gordon Drummond, the general manager of Harvey Nichols.

The EBA aims to provide a forum for ensuring that public policy-making is sensitive to the needs of business and to provide a means for the business community to exchange views with the council on options for the development of the city.