Liz Cameron: ‘There is little doubt this is a euphemism for proposed higher income taxes’Heat Profit
Scottish Chambers of Commerce was grateful to be included in a “business roundtable” with Finance Secretary Derek Mackay last week, along with other business groups and representatives of civic Scotland.
On behalf of the Chambers Network we were given the opportunity to comment on Mr Mackay’s recent paper “The Role of Income Tax in Scotland’s Budget”, intended as fuel for “a debate about how we finance our public services and grow our economy”.
The paper puts forward various scenarios postulating the likely impact on society and the economy if, as Mr Mackay writes in the introduction, the Scottish Government chooses to “use our limited tax powers differently”.
There is now very little doubt that this phrase is a euphemism for proposed higher income taxes in Scotland, a prospect that has support amongst other Holyrood parties, though probably less so amongst the electorate.
Like the First Minister herself, when she launched the paper on 2 November, the finance secretary has been careful to soften the expected blow of tax rises by stressing the extra social value that Scottish taxpayers receive from various universal benefits and exemptions.
Much of the tax debate so far has revolved around the likely “behavioural response” to possible increases. By this is meant the unknowable reaction of individuals, especially wealthy ones, to higher tax demands, and their ability to avoid handing over what tax policy-makers expect them to hand over.
The Scottish Chambers of Commerce has long warned of “behavioural” side effects from higher tax demands especially where the behaviour of prospective Investors is concerned. We believe that any changes to income tax in Scotland must be compatible with the need to create a competitive environment in Scotland that attracts and retains talent. A document that seems primarily designed to soften potential opposition to a more highly-taxed Scotland sends all the wrong messages to the right people, taking Scotland in exactly the wrong direction.
Whatever is announced, the forthcoming Scottish Budget must not be seen as a deterrent to those wishing to grow companies and to prosper personally in this devolved tax environment. Scotland’s relatively lacklustre growth rate illustrates the need to attract and retain more entrepreneurs and good quality employers. An offer to would-be Investors that they will pay more in income tax than elsewhere in the UK to enjoy our “distinct social contract” is perhaps not much of an incentive to Invest. Equally, we must take into consideration the already squeezed household incomes and the impact any potential reductions on take-home pay might have on Scotland’s economy.
The Scottish Government’s tax paper seems to take as read that higher spending by Government automatically equates to better results, including improvements in the business environment. In a landmark document about the use of new tax powers, potential Investors in Scotland will not be encouraged by the document’s lack of acknowledgement of the existence of fiscal constraints on spending, and the importance of reducing the future debt burden, to balance the usual point-scoring about austerity.
From a business perspective, clear assurances will be required from politicians that any additional revenue raised would be earmarked for policies that measurably boost Scotland’s economic growth on which all social spending depends.
Liz Cameron is chief executive of Scottish Chambers of Commerce.