Exclusive:'Struggling' Scottish businesses in plea over tax rises as Rachel Reeves urged to slash 10.1% whisky levy

Business leaders have issued an urgent plea for a “struggling” sector in Scotland not to be penalised, as the UK and Scottish governments come under intense pressure to introduce tax rises to prop up spending plans.

The warning, mounted by the Scottish Chambers of Commerce (SCC), the Scotch Whisky Association (SWA) and the Federation of Small Businesses (FSB), claims any tax rises or cuts to financial relief will “jeopardise investment and economic growth” north of the Border.

It comes as a letter backed by six leading business groups was sent to Chancellor Rachel Reeves calling on her to slash the tax burden on Scottish whisky in her first Budget on October 30.

The jointly-signed letter urges Ms Reeves to “back Scotch whisky” by slashing duty on the country’s national drink. SCC chief executive Dr Liz Cameron, who has signed the letter, said the decision to hike spir8its duty to 10.1 per cent in August last year “damaged confidence” and cost the Treasury £300 million.

There are mounting threats of more tax rises being introduced when Ms Reeves sets out the UK Budget at the end of the month. The Institute for Fiscal Studies this week estimated the Chancellor may need to raise up to £25 billion from tax increases if she wants to keep spending rising with national income, with business groups fearful of what areas may be targeted.

The Scottish Greens have separately said they would consider backing the SNP’s 2025/26 budget, which will be unveiled on December 4, but only if it includes higher taxes.

The party wants business rates relief to be reviewed, with a demand for larger firms to contribute more. The Greens have also called for a cruise ship levy to be introduced and a private jet tax, as part of the devolved air departure duty, which is yet to be implemented. A minority SNP government will need to gain at least two votes from opposition parties to be able to pass its Budget.

UK Chancellor Rachel Reeves | Stefan Rousseau/Press Association

Dr Cameron said business confidence was “low”, profits were being “squeezed” and ongoing costs were a “major concern”.

She 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.

“The latest quarterly survey has clearly demonstrated that taxation is the main concern for half of our businesses, with both retail and tourism sectors recording five-year survey highs of 70 and 77 per cent ... both the UK and Scottish governments need to find ways to support our struggling business sector, not further damage it.”

The SCC has written a manifesto of the steps it would like to see taken, with the document sent to both governments.

Dr Cameron said: “The business community are the wealth and job creators that drive the economy and adding extra costs will simply undermine our ability to invest and remain competitive and will potentially force even more businesses to close.”

Graeme Littlejohn, director of strategy at the SWA, said the coming UK Budget was a “crucial test” of whether Prime Minister Sir Keir Starmer would “back Scotch producers to the hilt” as promised.

The Institute of Directors, Scotland Food and Drink, UKHospitality Scotland and the Scottish Tourism Alliance are among co-signatories to the letter calling on Ms Reeves to “change direction” after last year’s 10.1 per cent rise in alcohol duty. The letter states: “The largest tax rise on Scotch Whisky in 40 years not only hit confidence and investment, but it reduced Treasury revenue and led to the largest contribution to inflation from alcohol on record. Beginning to reverse that damage, and showing support for our leading export in its home market, is vital on October 30.”

Mr Littlejohn said: “The greatest driver of government revenue is economic growth. To generate this, investment and employment must be incentivised, not curtailed through an ever increasing tax burden on individuals and businesses.

“The UK Budget is a crucial test on whether the new UK government will ‘back Scotch producers’ to the hilt as promised by the Prime Minister.”

Mr Littlejohn added: “Reducing the tax burden on Scotch whisky and other spirits has consistently driven revenue at a faster rate than duty increases, and delivered additional resources for public services.” Love politics? Then sign up for The Steamie daily newsletter

Marc Crothall, chief executive of the Scottish Tourism Alliance, said the tax burden on the Scottish whisky industry and consumers was “too high” as he urged ministers to back “rhetoric with action”.

“Recent data shows that 40 per cent of all international tourists will visit a Scotch whisky distillery during their stay, and many of members tell us that those who visit their distilleries elect not to buy a bottle due to the high level of duty,” he said.

The concerns have been echoed by Colin Borland, director of devolved nations at the Federation of Small Businesses.

He said: “These are challenging times to be running an independent business. Costs have soared, customers are tightening their belts and many firms are still working to pay back Covid debts.

“Our research shows more than a third of small businesses in Scotland suffered a drop in income in the last quarter. That figure will be higher for many in the worst-affected sectors such as hospitality, leisure and retail.

“Small enterprises do not have the same reserves as big corporations to see them through the tough times.”

Mr Borland said incentives such as the rates relief offered through the small business bonus made a “big difference” and stressed any move to cut back this support would “end up pulling down the shutters on many small businesses who would otherwise weather these storms”.

He suggested the Scottish Government should consider targeted rates relief. Since the coronavirus pandemic, the UK and Welsh governments have offered reduced rates for retail, leisure and hospitality businesses.

“While we appreciate the overall reliefs offered by the Scottish Government are more generous than in other parts of the UK, if the upcoming UK Budget sees targeted reliefs extended for English businesses again, there is surely a strong case for reintroduction them in some form for their Scottish peers, whose challenges are no different,” he said.

Think-tank the Institute for Economic Affairs has said uncertainty over tax rises in the coming UK Budget is having a negative impact.

Julian Jessop, economic fellow at the institute, said: “Worries about the tax burden and the government’s other plans on everything from energy policy to employment rights are dampening business and consumer confidence and delaying investment and recruitment.

“The prospect of another surge in government borrowing is now starting to spook investors in the bond market too. The Chancellor will therefore still have to tread very carefully to ensure that the budget does not derail the recovery.”

A HM Treasury spokesperson said: “We’re supporting businesses through pledges to cap corporation tax at 25 per cent, make the business rates system fairer, and publishing a business tax roadmap so that future investments can be planned with confidence.

“We do not comment on speculation around tax changes outside of fiscal events.”

Finance Secretary Shona Robison said: “Driving economic growth is a key priority and ministers are committed to working right across the economy to maximise the economic opportunities that lie ahead. Scottish Income Tax policy for 2025/26 will be announced during the annual Budget process.”