Holyrood's challenge to business

Whisky Image copyright PA
Image caption The alcohol lobby has voiced its opposition to the devolution of excise duty

Business is being drawn in to a debate in which few at senior levels seem to want to engage - about what position they should take on the constitutional future of Scotland.

A previous generation of the captains of industry faced flak in the early 1990s by voicing doubts about, or hostility to, devolution.

This generation is more canny, and they're a long way from the old habit of following the Conservative Party lead.

The SNP administration is fond of quoting Clyde Blowers' Jim McColl, Sir Tom Hunter and Sir George Mathewson in their support of corporation tax being devolved, even though they have not voiced support for independence.

But with the Scotland Bill Committee at Holyrood now forcing the debate open, as a skirmish ahead of the independence referendum campaign, it's interesting to see who else is taking sides, sitting on the fence or saying nothing at all.

On the fence

Few are saying anything. By the evidence of this week's committee hearing, the Apex hotel chain seems to be the only company with a boss willing to put his mouth where its potential tax bill is.

So the representative groups come into play. Among the business groups, CBI Scotland is at risk of going out on a limb, risking its relationship - such as it is - with SNP ministers. Iain McMillan seeks to balance support of some policy with pungent criticism.

On balance, he says members say the potential advantages of devolved business taxation are outweighed by the likely costs. But it is the criticism that gets McMillan noticed, and nationalist voices can increasingly be heard questioning the legitimacy of the CBI as a voice for business in Scotland.

The Federation of Small Businesses, the Scottish Council Development and Industry and Scottish Chambers of Commerce are careful to sit on the fence, probably because their memberships are split on constitutional questions.

It is also because the implications of the Scotland Bill, or of increased devolution of taxation powers, are so unclear. Neither the UK nor the Scottish governments are clear how much their proposed changes would cost business or the Scottish block grant.

Birds, bees and frogs

Amid the consultation, the clearest voices are from the alcohol lobby voicing opposition to devolution of excise duty.

Image copyright AP
Image caption The Bumblebee Preservation Trust is concerned about funding for habitats

And in written submissions, the voices of business are less clear than those lobbying on behalf birds (RSPB), the Great Yellow Bumblebee, (the Bumblebee Preservation Trust is concerned about funding for habitats) and frogs (a lobby group, Froglife, that wants aggregate tax incentives for quarry owners to create biodiverse ponds).

To be fair, accountancy institutes, both in Scotland and those based in England, are more outspoken than most about the practicalities of a more complex taxation system, as their members would be the ones expected by clients to understand it and make it work.

The Institute of Chartered Accountants in Scotland shares with its English rival concerns about income taxation north and south of the border (as proposed in the Scotland Bill) requiring complex residency qualifications. It could lead to "poor compliance, confusion and excessive cost".

On corporation tax being devolved, it also raises more questions for proponent of the idea (the Scottish government, that is).

What would the economic impact be and when? And how would the appeal of a lower tax rate relate to other considerations by internationally mobile companies about where and when to invest?

Costs and benefits

Slightly late, but worth watching, is a new and nuanced position from the voice of the finance sector, Scottish Financial Enterprise. It declares itself to be "constructively sceptical" about devolved corporation tax.

In answer to the Scotland Bill Committee's questions on devolution of corporation tax, it has fired back a series of its own. They're either very hard to answer, or intended to be rhetorical without being seen to be critical.

The key questions, boiled down, are: where would the costs and benefits lie?

Representing the banks, insurers and asset managers, SFE wants to know if the tax base could be changed as well as the rate. Would there be additional complexity, and at what costs to business? How volatile would tax receipts be, and can a value be placed on the value of being part of a larger, more diverse tax base, as at present?

Even asking questions, which might be seen as hostile or at least awkward, is risky territory for business. It's not just 20 years ago that it faced a backlash for challenging the orthodoxy. It's also that those who challenge the Scottish government are facing some feisty counter-attacks.

Inflated tensions

Take, for instance, the Centre for Public Policy for Regions. The economists in this small, Glasgow University unit publish their own analysis of spending plans, as reported here before. And, in the process, they're making themselves so unpopular with St Andrew's House that they may soon find themselves facing a forced merger with Abertay.

Image copyright SPL
Image caption Concerns have been raised about health spending and inflation

They've hit a particularly raw nerve by highlighting the rise in business rates over the next three years of SNP plans.

I won't go into all the detail of exchanges over the past week, except to say this... It is agreed between the Scottish government and the academics that the total Non-Domestic (business) Rates bill is rising by £493m by 2014-15, or nearly 23%.

(Those who splashed headlines using the £849m figure were adding the additional amount next year, 2012-13, to the extra the year after, and then the higher bill in 2014-15, and reaching a number which is not wrong, but it is largely meaningless. Nobody budgets by adding up everything they spend or earn over three years.)

The counter-attack by the Scottish government has been to argue that the inflation to be expected over the next three years - drawing on the assumptions being used in Whitehall - is that prices will go up by more than 12%. So, it is argued, more than half that increase is taken up with the expectation that business rates payers can simply keep pace with inflation.

So that's all right then. Business is only paying its fair whack, right?

But here's the puzzling bit: if an inflation rate can be assumed for those paying tax, at more than 12% for the next three years, where does that leave the 9% cash increase in the NHS budget?

That increase is meant to protect the National Health Service budget from inflation. But a different level of inflation is used.

If we're being consistent, if business faces inflation of more than 12%, and the same is applied to the NHS, then it can expect a real terms cut of around 3%. And that's at a time when the demands on it are already pushing costs up at 2% a year, even without inflation.

So either business is getting a raw deal with a fast-rising tax bill, or the NHS is not getting the ring-fencing it was promised. Take your pick.