LABOUR'S approach to devolution could seriously affect inward

investment in Scotland and lead to major companies transferring their

headquarters south of the Border, the director general of the Institute

of Directors warned yesterday.

Mr Tim Melville-Ross said the likelihood of heavier tax burdens would

be bad news for the Scottish economy and would be ''likely to destroy,

rather than create, jobs''.

The director-general of the right-wing group also cast serious doubts

on whether the Scottish economy could survive separation. ''To

disentangle it, to tear it apart and go back to the drawing board, would

be very damaging because important parts would cease to exist,'' he


The comments by Mr Melville-Ross, made at a Glasgow news conference

before he went on to address business leaders at an IoD lunch in

Edinburgh, were immediately dismissed by Shadow Scottish Secretary

George Robertson and Scottish National Party leader Alex Salmond.

Mr Robertson, who earlier this month addressed the IoD in the capital,

said: ''The IoD would command greater respect if, before attacking

Labour's devolution plans, it bothered to find out what they are.

''Dogmatic opposition based on a deliberate ignorance of what is

proposed simply tells the Scots and Scottish business that these

southern-based politico-business pundits have nothing to offer them.

''A devolved Scottish parliament will not change the rules for

Scottish business but it will bring government much closer to hearing

what the real business community wants.''

Mr Salmond was equally vociferous in his condemnation of Mr

Melville-Ross's comments. He said: ''Scottish businessmen and women are

not as flighty as Mr Melville-Ross seems to think. Indeed, it may come

as a surprise to him to learn that increasing numbers involved in

business in Scotland are recognising the benefits that independence

could bring to their companies.

''It is the union, not independence, that poses the threat to Scottish

jobs and future inward investment. The Scottish people know that to be

true. They have seen it all around them.''

Mr Melville-Ross, who claimed his views were broadly representative of

Scottish businesses, warned that major constitutional change, with quite

different powers both in terms of limited tax raising and legislation,

as proposed by Labour, would almost inevitably lead to ''more difficult

rather than easier business conditions''.

''What the Scottish business community has to do is create conditions

in which people actually want to come here to do business,'' he said.

''If you are discouraging inward investment by a different and less

business friendly approach, that clearly has to be bad news for the

Scottish economy.''

He said Scottish business such as Scottish and Newcastle, Morrison

Construction Group, Standard Life, and Scottish Widows were very closely

integrated with the rest of the UK and their ability to create and

maintain wealth depended on this. But devolution could result in them

moving their headquarters south of the Border, he claimed.

''The impact would not be immediate. Clearly, if you have made an

investment of say #60m, you are going to stay with that. But over a long

period, you would see a gradual drain of investment away from Scotland.

After all, why have your main base in Scotland when the tax regime is

more favourable in England?''

A statement from Scottish Widows appeared to broadly support the IoD

chief's comments. It said its overriding priority was to protect the

interests of policyholders and added: ''Any assessment of the impact of

constitutional change on our policyholders is bound to be purely

hypothetical at the present time. However, if constitutional change were

to come about with a consequent impact on our policyholders'

investments, we would respond to the situation accordingly.''

Morrison Construction Group said: ''We have not had any discussion

with the IoD which could have prompted Mr Melville-Ross's comment

concerning Morrison. We don't base corporate decisions on hypothetical

situations and would just add that we place great value on our Edinburgh

group office presence.''

Mr Scott Bell, Standard Life's group managing director, said: ''We

have continued to speak to politicians of all political parties and we

have told them again of the sensitivities of the financial services

sector in particular to constitutional change.'' No-one from Scottish

and Newcastle was availabe for comment.