Scottish Business Leaders Urge Next Government to Minimise Tax Divergence

Business Leaders Call for Economic Reforms in Scotland

Bold and immediate reforms are necessary by the next Scottish government to invigorate the economy and empower entrepreneurs, according to Scotland’s most influential business leaders.

Five leading Scottish business groups are demanding changes to the outdated planning system, quicker grid improvements, long-term funding for universities and colleges, advancements in city mass transit systems, and a viable plan to construct 25,000 homes per year.

Sara Thiam from Prosper, Catherine McWilliam of the Institute of Directors Scotland, Charandeep Singh of Scottish Chambers of Commerce, Colin Borland from the Federation of Small Businesses Scotland, and CBI Scotland’s Michelle Ferguson have collectively penned an open letter ahead of the party leader hustings event later this week.

Scottish GDP and Business Confidence

They bring attention to the fact that Scotland’s GDP growth has been slower than the UK average for the past ten years. “With rising operational costs and regulatory hurdles, business confidence is at a low ebb. Expanding the economy is integral to improving living standards,” they assert.

Income tax divergence between Scotland and the rest of the UK is an increasing concern for company executives. Holyrood has progressively deviated from the rates and bands set at Westminster since exercising its powers in 2017.

Scottish Tax System and its Impact

The Scottish tax system, with its six bands compared to England’s three, adds to the complexity. Its top rate of 48% for earnings over £125,140 is the UK’s highest. Any resident of Scotland earning more than £33,493 pays more income tax than they would elsewhere in the UK.

This adds to the operational costs of industries such as financial services, technology, engineering, and hospitality, making it more challenging to retain staff and recruit new ones, particularly at senior levels.

The business groups warn against unnecessary policy divergence and argue that tax and regulatory frameworks must not hinder entrepreneurs.

Recommendations for Economic Growth

A reform of the business rates system and the apprenticeship levy are among their suggestions for change. They emphasize that a skills system aligned with economic demands is crucial. They assert, “A government that focuses on these core objectives can accelerate Scotland’s growth and raise living standards for everyone.”

The hustings, run in partnership with The Times and The Sunday Times Scotland, is scheduled to take place at the Royal Bank of Scotland’s Gogarburn campus in Edinburgh.

Policy Challenges and Economic Outlook

Key political figures, including SNP’s John Swinney, Labour’s Anas Sarwar, the Scottish Conservatives’ Russell Findlay, the Liberal Democrat Alex Cole-Hamilton, Ross Greer from the Greens, and Reform’s Malcolm Offord, are all expected to participate in the event.

The call to action comes after warnings by independent experts, including the Institute of Fiscal Studies, of a projected £5 billion deficit in devolved spending by the end of the decade.

Renowned economist and President of the Royal Society of Edinburgh, Sir Anton Muscatelli, voiced concerns last week about the politicians’ honesty with the public regarding the “difficult choices” needed after the Holyrood elections in May.

Describing it as “possibly the most serious economic challenge since devolution,” Sir Muscatelli cited low productivity and an ageing workforce in Scotland, skills shortages, and potentially another global economic shock as major concerns for Scotland’s economy.