LIZ CAMERON
Coming from a body largely staffed by former long-term civil servants, the Scottish Fiscal Commission’s first Budget Day report on Economic and Fiscal Forecasts was surprisingly blunt, verging on brutal.
For the next five years, the independent body concluded, Scotland can expect annual growth of around 1 per cent. This comparatively mediocre outlook was based on the weakness of Scotland’s productivity, of which it said “to have higher GDP growth, the Scottish economy would have to reverse recent [productivity] trends… we do not see evidence that this is likely to happen.”
Scottish Chambers of Commerce shares the SFC’s view, highlighted by finance secretary Derek Mackay, that the uncertainties of Brexit contribute to this unsettled outlook.
But while Mr Mackay’s willingness to respond to business concerns about comparatively high barriers for first time housebuyers (with Land and Building Tax relief) and commercial customers and commercial rate payers (re-rating uplift to CPI from RPI) is to be applauded, we look forward to his promised “further details” of how all the extra spending he announced will help solve the problem identified by the SFC.
Despite being the first in a new phase of fiscal devolution, Mr Mackay’s Budget followed the long-established Scottish Parliamentary precedent of broad brush dispensation of spending, without spelling out how this spending might boost GDP. The omission was highlighted by that SFC analysis of “recent trends”, which implies that the quality of spending matters deserves as much attention as the quantity.
Budget announcements such as an extra £600m for broadband or £150m for a “Building Scotland Fund” precursor to a £340m Scottish Investment Fund, or £2.4bn for “Enterprise and Skills” urgently require detail on how they will improve business productivity. What will be delivered, when and by whom?
The detail is especially important with broadband, where an Ofcom report last week showed Scotland continuing to fare badly in UK terms. Our rural Chambers colleagues report that many Scottish businesses perceive themselves to be poorly served in comparison to other rural locations in the UK and overseas (for example Cornwall, Sweden, Alpine France and Alaska).
On income tax, Scottish Chambers has already set out its objection to changes that produce even a marginal comparative disadvantage for Scottish medium and higher earners, believing that the prospect of increasing tax differentiation will weigh on investment and relocation decisions to Scotland’s disadvantage.
Time will tell whether that fear is well-founded. But time is not in abundant supply. For all Scotland’s strengths, there are headwinds in demographics, immigration, public health, the North Sea oil industry and other areas. Close co-operation between business and government is needed to get Scotland talked about as a place where the link between higher tax rates and prime conditions for business is clearly visible.
Liz Cameron is chief executive of Scottish Chambers of Commerce.
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