Kwasi Kwarteng Square

UK Government must channel Scottish business energy to fuel growth

ONLY TIME will tell whether the instinct of our new Chancellor Kwasi Kwarteng to cut taxes in pursuit of economic growth will produce the 2.5 per cent annual GDP growth intended. By any standards reversing the planned hike in national insurance contributions and corporation tax while adjusting stamp duty carry risk. Cutting income tax levels on top, at a time when public revenues are propping up drastic energy market interventions, brings the economy into uncharted territory.

By the same coin however, doing nothing is also risky.

Boris Johnson came to power on a promise to ‘level up’ the economy, spreading wealth more fairly and effectively. His successor Liz Truss understands you simply can’t share wealth if you haven’t taken steps to generate it. Business needs encouragement to invest, especially against a backdrop of so many economic stumbling blocks since the start of the pandemic.

That puts the onus on business leaders to step up and run with the opportunities presented by Government. If the Chancellor’s growth gambit is to pay off, he needs companies to sustain strong workforces, pay them well and take steps on training and infrastructure investment that will drive up productivity across the economy. By lowering the barriers businesses face to compete globally, then stripping out the impediment of crippling energy price rises, boardrooms will have a fighting chance of engineering the growth minsters so urgently need in the mini-Budget’s wake.

Here in Scotland, what matters next is how Scottish ministers react. Will we see anything more imaginative than opposition to Westminster plans? The early signs are Interim Finance Secretary John Swinney will resist scrapping Scotland’s higher income tax rate, despite a likely desire in the business community to see a level playing field.

According to the Chartered Institute of Taxation, the changes mean that unless Holyrood acts, all Scottish taxpayers earning more than £14,732 will pay more income tax compared to taxpayers in the rest of the UK. And someone earning £27,850 in Dumfries will pay £152.80 more than their fellow worker living across the border in Carlisle – practically the cost of the annual TV licence (£159).

At the other end of the spectrum, while additional rate taxpayers in 2020/21 represented only 0.6 per cent of Scottish taxpayers they provided 16.1 per cent of total income tax receipts, so we need to avoid putting them off working from here or face a significant erosion of the tax base needed to fund public services.

Such alignment and harmonisation may be beyond the Scottish Government.  SNP ministers are so wedded to an oppositional stance toward their counterparts at Westminster that the concept of cooperation for them is simply a non-starter. Far better to shape a separate path to illustrate secession. That way supporters of Scottish Ministers’ latest drive to break up the UK aren’t given reason to doubt the strength of their commitment to doing things differently.

Businesses in Scotland are, frankly, tired of such division.

They may in many cases be unsure whether the economic medicine provided by the Chancellor will cure an ailing economy. But unlike the SNP government, business leaders at least like the sound of action to accelerate growth, rather than half-hearted talk.

Companies here will look on with envy at the Chancellor’s announcement the UK Government is in discussion with 38 local and mayoral combined authority areas in England including Tees Valley, South Yorkshire and West of England to set up Investment Zones in their areas. Will Scotland’s local authorities get a piece of the action? “If willing to do so”, said Mr Kwarteng, but what he really means is ‘if the SNP / Green government lets them cut business taxes and liberalise planning rules without interference.’ After Holyrood’s foot-dragging on Green Ports, we won’t be holding our breath.

Instead, we’ll get ceaseless complaints from the First Minister even though there’s an extra £600 million in additional funding for Scotland as a result of Friday’s fiscal event. Enough to pass on tax cuts to Scots, you’d think, but not enough for a government that has, for example, spent hundreds of millions too much for the procurement of lifeline ferry services.

Increasingly business in Scotland feels left behind and powerless to influence attitudes at Holyrood. When this month the First Minister announced, out of the blue, a rent freeze across Scotland’s residential lettings sector, coupled with a ban on evictions, company leaders once again saw blunt, opportunistic populism take precedence over common sense for the economy. What followed was a succession of housing developers pausing plans to build much needed new homes, which will only fuel the problem of rising home costs – all because they see Scotland as an unsafe investment due to Scottish Government carelessness.

In the face of such wilful blindness to the interests of business is an opportunity for the UK government. We know that UK ministers, led by the Scotland Office, are keen to show the direct value they can bring to the nations and regions of the UK. They are already thinking of ways to invest directly in local economies through partnership with local government.

Business should be encouraged to play as full a part in that process as possible and have their voices, ideas and insights heard. Any such business council for the UK Government in Scotland can be a force for collaboration, driving the energy and ambition of companies so used to being ignored by the Scottish Government, and focussing it on the achievement of the growth agenda. If the UK Government calls, business stands ready to rally for the common good.

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Photo of Kwasi Kwarteng by HM Treasury via wiki commons

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