Tycoon calls for cut in Tartan Tax

ONE of Scotland's richest men has urged Alex Salmond to rescue the economy by using Holyrood's powers to cut income tax by up to 3p in the pound.

Billionaire Sir Tom Hunter suggested the First Minister should create a tax haven north of the border, which would generate millions of pounds in personal wealth and help drag the Scottish economy out of recession.

Hunter's intervention last night sparked a fierce debate on the use of the so-called Tartan Tax – and whether it should be used for a tax rise or a tax cut. The Scottish Parliament has never used its power to vary income tax, but Hunter said a cut would help small and medium businesses which were the key to recovery. The retailer and philanthropist also claimed Alistair Darling's tax-the-rich Budget would drive entrepreneurs out of the country and lead to more unemployment.

Hunter's supporters agreed a reduction in tax in Scotland would attract new businesses and boost the economy. But critics warned it could prove divisive, depriving public services of around 350m a year and creating confusion. Others argued that a hike in the Tartan Tax would be better than a cut, to pay for front-line public services.

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In an interview with Scotland on Sunday, Hunter was asked if he approved of exercising Holyrood's tax-varying powers and having a lower rate in Scotland than the rest of the UK.

Hunter replied: "Lowering it has got to be good." He added: "When he was campaigning to get into Government, Salmond was saying that he wanted Scotland to be a low-tax economy along the lines of Switzerland and cutting Tartan Tax would be a step in the right direction. "If Scotland is to get out of recession, it is pretty obvious to me that the only way to get out of it is to help the people creating business, the people creating wealth."

If Tartan Tax was lowered by 1p, that would result in the average worker having an extra 150 in his annual pay packet. Across a workforce of 2.2 million that would result in an extra 350m being injected into the economy.

Liz Cameron, chief executive of the Scottish Chambers of Commerce, said: "This is well worth considering at this point in time when we need to restore business confidence."

Hunter's call was also welcomed by the Liberal Democrats, who tried to persuade Salmond to introduce a 2p cut earlier this year during the negotiations that led up to the Scottish Budget.

But David Watt, executive director of the Institute of Directors Scotland, said: "I don't think this would actually have a major benefit for Scotland.

"You might argue that it would send out a good message in Scotland, but it would be divisive because there are so many companies that work on both sides of the border."

David Bell, Professor of Economics at Stirling University,

said: "It would stimulate the Scottish economy and it would give Scotland a competitive advantage and shift the balance from the public sector to the private sector. But it is really a question of how the UK would react. The question would always be, would there be a reduction in the grant Scotland receives from the UK Treasury?"

However, there was support last night for a rise in the Tartan Tax. Professor Richard Kerley, an expert in public service funding at Queen Margaret University, said: "Clearly it would take some money out of the economy, but it would raise money to secure some of the areas where they say they want to improve public services."

Salmond's spokesman said: "We certainly had a position in our manifesto that we didn't advocate the use of these plans. We have no plans to invoke the tax."

Hunter, who made 260m when he sold his Sports Division chain of shops, is Scotland's first home-grown billionaire. In his interview he condemned Darling's Budget, describing plans to increase National Insurance by 0.5% from April 2011 as a "tax on jobs". And he was fiercely critical of the Chancellor's new top rate of income tax of 50% for those earning more than 150,000.

"We need tax incentives for enterprise. We shouldn't tax the rich, because it just means that people will leave the country and if these people leave the country we will have increased unemployment."