Independence push and ‘anti-business’ agenda mean Scots are reeling
Source ,- Daily Telegraph 15/02/23
As Nicola Sturgeon resigns as first minister of Scotland, Scottish businesses are left reeling from nearly a decade of high taxes, low growth and anti-business policies.
Uncertainty over an economically damaging push for Scottish independence and punishing taxes have left Scots poorer and businesses in the doldrums.
“Business and the economy was the one area where Sturgeon seemed out of her depth,” John Ferry, a contributor to These Islands think tank and finance spokesman for the Scottish Liberal Democrats, says.
Earnings in Scotland have declined during Sturgeon’s time in office. Average earnings were 96.7pc of the UK equivalent when she took charge in 2014 but they have declined to just 92.9pc – far below the pre-2014 average of 95.9pc.
Wages are now forecast to drop to 92pc of the UK average – the lowest share on record since at least 1988-99.
Crucially, Sturgeon’s constant push for independence has taken a heavy toll on business investment.
“Any business operating in Scotland or thinking about investing here over the last eight years has had to contend with the fact that they will be in a part of the country that could cut itself away from its established tax base, the Treasury, the currency and the central bank,” says Ferry.
“Businesses have faced an ongoing difficulty dealing with an administration that is ideologically committed to this. The risk of the enormous impact that would have must quietly have been influencing decisions behind the scenes.”
Scottish productivity has suffered as a result. From 2014 to 2018, the share of Scottish businesses innovating fell from 45pc to 32pc, according to the CBI/KPMG Scotland productivity index. This was the largest drop of any UK nation and lower even than 2008-10 when businesses were reeling from the global financial crisis.
Scotland lagged other parts of the UK in nine of 13 productivity indicators and reported a decline in business investment as a share of GDP, according to the CBI/KPMG index.
Other policies have actively deterred investment. The business community was particularly spooked after Sturgeon announced a co-operation deal with the Scottish Green Party in 2021.
“There has been a general anti-business feeling,” says Ferry. “She brought an explicitly anti-business party into government.”
The alliance with the Greens has ushered in new policies such as the Deposit Return Scheme, which from August 2023 will force people to pay a 20p deposit when they buy a drink in a single use container. This will then be refunded if they return it to a collection point.
“It is complex and difficult to implement and could introduce trade barriers. Businesses are really worried,” says Ferry.
Policies to protect those on the lowest incomes have also backfired. In September 2022, Sturgeon announced a six-month rent freeze on existing lets, but evidence suggests this has only encouraged landlords to raise rents higher on newly-let properties, which are exempt.
ONS data shows rent growth in Scotland hit a record high of 4.5pc in January, higher than the 4.3pc growth recorded in England.
On top of everything else, business owners have also had to grapple with big tax increases on higher earners.
Scottish household incomes by £210, or 0.5pc, on average since 2017 when devolved income tax and benefits measures were introduced, according to the Institute for Fiscal Studies (IFS).
Changes introduced by Sturgeon in the wake of the 2014 independence referendum mean that higher earners pay much higher tax bills. Those earning £60,000 or more in Scotland must pay an extra £1,806 per year – 16pc more compared to if they live elsewhere in the UK.
Higher taxes on the rich do not mean significantly less for lower earners: a person earning £20,000 pays just £22 less in tax compared to England – a saving of 1.5pc.
Changes coming in from April will see high earners hit yet again: the richest 10pc of Scots will take a £2,590 hit, equivalent to a 2.1pc dent to their incomes each year.
The growing reliance on higher earners to fund the state is likely to incentivise tax avoidance and even migration across the border, Tom Wernham of the IFS has warned.
Despite higher taxes, public services have not improved. Data from Public Health Scotland shows the share of patients seen in A&E within four hours in Scotland has plunged from 95pc in 2015 to little more than 60pc in 2022.
The Scottish budget for day-to-day non-benefit spending will fall by 1.6pc in real terms year-on-year in 2023-24, according to the IFS. Official projections suggest there will be a further 1.6pc drop in 2024-25.
If this happens, the Scottish Government will need to make significant cuts to a range of public services. Holyrood would have to cut other public service spending by 13pc between 2023 and 2027 if it plans to increase spending on health to meet rising costs and boost spending for its net zero policies.
While many Scottish entrepreneurs will be relieved by Sturgeon’s resignation, it means even more uncertainty in the short-term.
Tracy Black, CBI Scotland director, warns: “With the Scottish economy continuing to face severe pressure, the political vacuum must be filled at speed. Action on business confidence, investment growth are needed now more than ever.
Liz Cameron, chief executive of the Scottish Chambers of Commerce, says whoever replaces Sturgeon needs to work with businesses to help get the economy back on the right track.
“Urgency, action and partnership will be the watchwords from the business community. These will be essential parameters to create a business environment in Scotland which is growth led and competitive,” says Cameron.
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