David Watt: Scottish Government misses point on ‘health levy’

THE Scottish Government’s proposed “supermarket tax” affecting sales of alcohol and cigarettes would have such a damaging and negative commercial and economic impact to make this particular piece of legislation a non-starter.

Finance secretary John Swinney has announced plans to introduce a tax on large retailers of alcohol and tobacco in the guise of a public health levy and it is due to raise £30 million in the first year, rising to £40m for two successive years.

I am on record for applauding the SNP-majority administration for its powers to implement bold decisions to ease challenges faced by Scots businesses and transform the economy. But this isn’t one of them because I am afraid that the tax on supermarkets comes from completely the wrong angle.

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The Scottish Government completely misses the point. It isn’t a health tax because you are not penalising people who use the health service and who drink and smoke, but the supermarkets themselves.

The supermarkets are large private-sector employers in Scotland, profit centres that are already heavily regulated and this move makes no sense. It’s just not logical. Furthermore, such a tax does nothing to encourage growth and with it the creation of jobs.

It represents an easy hit on the supermarkets that bring jobs to Scotland at a time when the economy badly needs such a lift. A wealthy individual gets free dental and eye tests, yet the private sector is being penalised. The balance is not quite right here.

Don’t take my word for it. The Scottish Retail Consortium (SRC), giving evidence to the Scottish Parliament’s economy, energy and tourism committee in response to the draft budget, puts the cost of the proposed tax as the equivalent of the stores needing to make extra sales of £1 billion a year, without taking VAT into account.

The supermarket sector, at both Scottish and UK levels, is one of the most competitive on the planet and operates on low margins of around 3-5 per cent. The £1bn cost assumes a mid-point of 4 per cent.

Retailers already pay around one quarter of all business rates in Scotland, the highest proportion of any sector, and the SRC has also warned the economy, energy and tourism committee that the proposed tax would make investment in Scottish stores less attractive.

I agree with SRC director Ian Shearer that the plan is based on misconceptions about the sector. Supermarkets make their profits on very low margins. Investment decisions are made on a store-by-store basis.

Discriminatory tax regimes of the type envisaged in Scotland’s draft budget sadly make this country a less attractive place to do business and send out a damaging message on how businesses may be treated by the Scottish Government.

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We’re talking about burdens such as this one deterring investment, store creation and expansion, not to mention employment. Private sector investment and job creation has to be central for the economic recovery in Scotland.

The Scottish Government faces huge challenges in revitalising an economy battered and bruised by the recession, but the administration should avoid trying to fund unsustainable expenditure by raising money through taxes on the firms that are the powerhouse of our economy. This includes the supermarkets.

Rather, the Scottish Government should implement policies that fuel the Scottish economy to drive the growth required to pay for vital public services. This means using all its existing and future tax-levying powers wisely to focus on encouraging growth.

Greater investment is required in economic development, a focus on training a highly skilled workforce, reduction in the red tape that is hampering businesses and lighter regulation to enable companies to flourish.

One such regulation that is just plain wrong is the suggested health tax on supermarkets, which is not penalising the tobacco companies or alcohol producers in any way but those selling these goods. This stealth tax is wrong, plain wrong.

• David Watt is executive director of the Institute of Directors in Scotland