The reason why Labour and SNP must avoid damaging business with even higher taxes is simple

The Scottish Chambers of Commerce and other business groups are warning that increased taxes or cuts to relief will ‘jeopardise investment and economic growth’

As the Scottish Government has been demonstrating in recent years, politicians sometimes appear to think there are no negative consequences to raising taxes. Indeed, there are those who view higher taxes as a social good, a sign of a ‘progressive’ government.

However, the people at the sharp end of Scotland’s economy understand all too well the problems with an approach that might appear to help balance the government’s books on paper but which can have serious, if unintended, consequences for its bottom line.

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Business groups, including the Scottish Chambers of Commerce (SCC), the Federation of Small Businesses, and the Scotch Whisky Association, have now warned that tax rises or cuts to financial relief will “jeopardise investment and economic growth” in Scotland.

Low business confidence

Speaking ahead of the UK Budget this month and the Scottish Government’s one later this year, SCC chief executive Dr Liz Cameron said: “We understand the fiscal pressures the Chancellor is facing, but the solutions will not be found by penalising businesses further with increased tax and additional legislative burdens.”

She warned business confidence was “low”, with taxation the “main concern” for half of the Chambers’ members. “Both the UK and Scottish governments need to find ways to support our struggling business sector, not further damage it,” she added.

Rachel Reeves is due to deliver her first Budget as Chancellor  on October 30 (Picture: Lucy North-WPA pool)Rachel Reeves is due to deliver her first Budget as Chancellor  on October 30 (Picture: Lucy North-WPA pool)
Rachel Reeves is due to deliver her first Budget as Chancellor on October 30 (Picture: Lucy North-WPA pool) | Getty Images

The ‘Laffer Curve’, developed in the 1970s by economist Arthur Laffer, is sometimes incorrectly used to suggest all tax rises are a bad idea. However, it is true that revenue will eventually fall if tax rates become high enough.

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This is the claim made by the Scotch Whisky Association, which estimates that the 10.1 per cent increase to spirits duty in August last year has actually cost the Treasury about £300 million, while also damaging confidence in the industry. As Sir Tom Hunter, the entrepreneur and philanthropist, wrote in The Scotsman last month, “it’s the tax take, not the tax rate, that pays for our public services”.

Both Labour and the SNP need to demonstrate caution and hard-headed pragmatism, not their progressive credentials, when considering taxes on the private businesses. The reason is simple: these are the companies that hold the secret to this country’s economic success – or failure.

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