Scottish Budget: How the SNP’s plans will damage both business and public services – Murdo Fraser

Humza Yousaf’s supposed ‘New Deal for Business’ is in tatters less than a year after it was launched

When the SNP government launched its “New Deal for Business” last spring, it was in reality an admission that their relationship with Scotland’s business community was in urgent need of repair. Under Nicola Sturgeon’s leadership, there was an increasing sense that the SNP-Green coalition was simply not interested in pursuing economic growth or listening to the concerns of Scottish business.

A whole raft of anti-business policy initiatives illustrated this – the doomed deposit return scheme, the growing income tax differential between Scotland and the rest of the UK, and the failure to support hospitality with the 75 per cent rates relief applicable south of the Border.

Add into the mix the fact that the Greens are a party in government and are actively hostile to the concept of economic growth, and it is little surprise that there were few in Scotland’s business community who had much belief that this was an administration prepared to listen to them.

SNP MSP Kate Forbes, seen on a visit to Cairngorm Brewery, warns that continually increasing taxes is ultimately counterproductive (Picture: Jeff J Mitchell/Getty Images)

To his credit, on becoming First Minister, Humza Yousaf realised that, despite being Nicola Sturgeon’s continuity candidate, something had to change. He appointed one of his most able lieutenants, Neil Gray MSP, to the crucial Economy and Fair Work brief. And he established the New Deal for Business Group, to provide what it was hoped would be a reset of the SNP’s relationship with the business community.

Hospitality rates relief denied

Nearly one year on, and there is little evidence that this reset has amounted to anything other than an exercise in spin. Later this week Holyrood will be debating the Scottish Government’s Budget for the coming year, one which has been greeted with almost universal dismay by Scottish business.

Despite having the funds to do so from Westminster, the Scottish Government has refused to pass on the 75 per cent rates relief available to retail, hospitality and leisure businesses in England, causing fury in the already hard-pressed hospitality sector.

The income tax differential between Scotland and the rest of the UK has widened, creating a growing concern amongst businesses that they will struggle to attract talented individuals to move to Scotland. Holyrood’s Economy and Fair Work Committee heard in evidence two weeks ago that one large hospitality chain is already having to offer higher salaries to attract staff to Scotland, to compensate for the additional tax that will be payable – around £1,500 more for someone earning £50,000.

The Scottish Retail Consortium and Usdaw, the shopworkers’ union, joined forces this week to express their concern about the business rate surtax on large grocery stores, a measure introduced without any prior notice or consultation with the sector. According to David Lonsdale, the SRC’s director, this would be “a retrograde step and firmly at odds with the government’s New Deal for Business… an additional tax which even the Scottish Government admits is little more than a cash grab”.

Lack of understanding

Elsewhere in the Budget, there was equally bad news for the economy. Despite the Scottish Government’s overall spending being up both in cash and real terms, there has been a reduction in the economy, fair work and energy portfolio of £118 million, or 8.7 per cent in real terms. This includes a cut to the tourism budget of 12.3 per cent, to the Scottish National Investment Bank of 29.2 per cent, to enterprise, trade and investment of 16.7 per cent, and to employability of 24.2 per cent. Every component of what should help economic growth is seeing cuts.

Against this backdrop, it is not surprising that, in a survey conducted just within the last two weeks of more than 500 of their members by the Scottish Licensed Trade Association, a staggering 96 per cent agreed with the statement that the Scottish Government did not understand business.

All this means that the Economy Secretary has his work cut out in trying to persuade business voices that the much-vaunted New Deal is worth the paper it is written on. Even within the SNP, there are those who are increasingly critical of the approach being taken by Humza Yousaf’s government.

Forbes echoes Fiscal Commission’s concerns

This week we learned that the former Finance Secretary Kate Forbes, seen by many in the party as the Queen over the Water, has written a column in a Highland newsletter describing continually increasing taxes as ultimately counterproductive, in that they will reduce public revenue.

In that, she was echoing the concerns of the Scottish Fiscal Commission, that due to behaviour change, the new advanced rate of income tax of 45 per cent, which should in theory raise £147 million, will drop to just £74 million with individuals taking steps to avoid it, for example by working fewer hours, or for those who are self-employed, seeking to pay themselves in dividends rather than by means of a salary.

Forbes’ concerns were backed by the two leading entrepreneurs Sir Tom Hunter and Lord Haughey, who also said this week that Scotland will suffer if the tax differential with the rest of the UK continues to grow, and we will see poorer economic growth here than the UK average.

With the Budget being voted on at Holyrood this week, this is one last chance for the SNP to think again about their economic strategy and their approach to tax. If they really are listening to the voices of business, then they will surely take this opportunity to change direction.

If they fail to do so, it won’t just be the Scottish economy that suffers. The revenues we need to raise to support our vital public services will fall in a needless circle of cuts designed and delivered at Holyrood.

Murdo Fraser is a Scottish Conservative MSP for Mid-Scotland and Fife