Scots reaction to budget statement: can do better

Scottish business and finance groups were quick to react to the UK budget statement on Wednesday, with most of them of the opinion that more could have been done to help corporate Scotland.

UK finance minister Rishi Sunak announced Barnett-based funding for the Scottish Government of £41 billion per year – delivering “the largest annual funding settlement, in real terms, since devolution over 20 years ago.”

But the Scottish private sector was not too impressed.

The Scotch Whisky Association said: “In the budget statement, the Chancellor confirmed that all duty rates on alcohol would remain unchanged.

“The duty rate on spirits continues to be £28.74 per litre of pure alcohol, meaning that of the £15.01 average price of a bottle of Scotch Whisky, £10.55 is collected in taxation through duty and VAT.

“The tax burden on the averaged priced bottle of Scotch Whisky is 70%.

“Spirits, including Scotch Whisky, continue to be taxed more per unit of alcohol than beer, cider and wine.

“In the UK, Scotch Whisky is taxed at a higher rate per unit of alcohol than any other category and faces the highest duty rate among G7 nations.

“This remains the case, with consumers paying more in tax to enjoy a cocktail than a pint of beer or a glass of wine.

“The industry will study the detail of the reform proposals announced by the Chancellor and campaign to ensure that reforms fulfil the commitment made by the UK government to ‘ensure the tax system is supporting Scotch Whisky’.”

Scotch Whisky Association chief executive Karen Betts said: “By freezing duty, the Chancellor has given welcome relief to all distillers, specifically in Scotland where 92% of all UK spirits are produced or bottled.

“It’s confirmation that the UK government wants to support one of Scotland’s most important industries and will take action to protect jobs, investment and exports, and to bolster the recovery in hospitality and tourism.

“But the UK government must go further if it’s to meet its promise to ensure the tax system is supporting Scotch Whisky.

“Despite the duty freeze, spirits are still taxed more than beer, wine and cider and we will now want to scrutinise the reform proposals announced by the Chancellor today.

“At first glance, it appears that Scotch Whisky will continue to be put at a competitive disadvantage against beer and cider through the tax system, rather than being allowed to compete on a level playing field.”

Federation of Small Businesses Policy Chair Andrew McRae said: “There were slim pickings for hard-pressed debt-laden Scottish small businesses in today’s budget.

“The Chancellor could have reduced payroll taxes or taken the edge off non-domestic energy bills.

“However, Scotland’s local and independent firms struggling under the weight of covid debt and spiralling utility costs won’t have heard much from the Chancellor that will help them balance the books.

“Plans to reform alcohol taxes and freeze fuel duty will be welcomed by some in business.

“And moves to deliver a poundage freeze and provide hospitality firms in England with enhanced rates relief next year gives Holyrood some policy options.

“However many firms in Scotland, after enduring repeated public health shutdowns, will wonder how this Budget addresses the problems they’re facing today.”

Scottish Chambers of Commerce CEO Liz Cameron said: “Scotland’s businesses are focussed on recovery and overall, most will welcome today’s announcements which go some way towards securing the economic growth and conditions businesses need to bounce back from the devastating impact of the last 18 months due to Brexit and the global pandemic.

“However, businesses are asking whether this Budget goes far enough to tackle the significant issues facing them and whether it aligns with the economic realities on the ground, where supply chain problems, skills shortages and rising cost pressures are undermining growth.”

On inflation: “Rising inflation rates are placing increased cost pressures on businesses, and confirmation that the Chancellor expects inflation to rise to 4% next year will make many firms feel uneasy.

“Businesses across Scotland have reported record high levels of concern over inflation and taxation, which is impacting on investment.

“Surges in the cost of raw materials and shipping, global supply chain disruption and the UK Government’s decision to raise National Insurance contributions, are all being cited by firms as key factors behind rising costs which still need addressed.

“It’s important the UK Government and the Bank of England work to get inflation under control, help businesses repair those broken or damaged supply chains and deliver the opportunity for firms to attract the talent and skills they need into the workforce, otherwise this will eventually lead to increased costs being passed on to consumers.”

On fuel duty and energy costs: “Businesses in Scotland are struggling with rising fuel and energy costs and will welcome the scrapping of the anticipated 2.8p fuel duty rise. With soaring fuel prices this move will provide businesses with some relief as we go into the difficult winter months.

“Businesses will be disappointed though to see that there was nothing for them in this budget to help offset the rising cost of gas and electricity which is threatening business recovery right across Scotland.

“The introduction of a SME Energy Price Cap would have been a major boost to struggling firms and the Chancellor has missed an opportunity here.”

On alcohol duty: “The cancellation of the planned duty hike on spirits like Scotch whisky, wine, cider and beer, will benefit Scotland’s producers and consumers in the short term.

“However, the industry will want to study the detail of the reform proposals announced in the Budget carefully.

“Scotch whisky is a cornerstone of Scotland’s food and drink sector and is already a highly taxed product.

“It’s important the Chancellor works with the industry in advance of the simplification of alcohol duties that is due to take place in February 2023, to ensure the tax burden on this flagship industry for Scotland is fair and proportionate.”

On air passenger duty: “The decision by the Chancellor to introduce a lower rate of Air Passenger Duty for domestic flights has given the sector a ray of hope, although it is disappointing that changes won’t come into effect until 2023.

“We know that Scotland’s airports and aviation sector are essential to growing Scotland’s economy and whilst this commitment will provide an opportunity for businesses to protect and renew Scotland’s vital connectivity both domestically and internationally, ultimately both Holyrood and Westminster Government’s should be seeking to further reduce or remove APD altogether.

“The COVID-19 pandemic hit Scotland’s aviation sector hard and the sectors recovery still lags behind our European competitors, so whilst this commitment is welcome news for Scottish airports and passengers, the sector still requires further support now to enable it to rapidly regain lost ground.”

On the UK Government’s Levelling Up Fund: “The commitment from the UK Government for £170m in direct funding for Scottish projects will come as positive news for Scottish businesses, who will want to tap into this funding.

“The proposals will see significant investment secured for key projects across Scotland and will deliver some much-needed infrastructure projects that have the potential to increase economic activity.

“The Scottish Cluster Carbon Capture and Storage bid of course lost out last week on UK Government funding, which would have supported thousands of jobs and brought in huge investment into the Scottish economy, so whilst levelling up funding for Aberdeen and other parts of Scotland is welcome, it can’t come at the cost of support for other strategic investment opportunities.”

On talent and skills: “There are record high vacancies in Scotland as businesses struggle to recruit staff in an increasingly competitive labour market.

“The injection of money into training and skills, coupled with the introduction of the Scale-up Visa, which will launch in spring 2022, will help Scotland’s fastest-growing businesses to access overseas talent.

“Regrettably, many businesses will not feel this goes far enough, fast enough.

“Scottish industry needs a UK immigration policy which better aligns with the economic needs of the whole of the UK and one which is agile enough to fill the immediate gaps that exist in the labour market, otherwise there is a real risk of stifling economic recovery.”

Scottish Financial Enterprise CEO Sandy Begbie said: “Today’s budget and three-year spending review is arguably one of the most important in recent times.

“Measures on economic recovery were, rightly, the focus of the Chancellor’s statement and this priority aligns closely with SFE’s priorities as highlighted in our strategy.

“While we are positive that a green, inclusive recovery is within our grasp, we are seeing warning signs within the economy that growth is at risk without the right interventions.

“With this in mind, we are encouraged by the Chancellors willingness to use the full spectrum of fiscal powers to stimulate the economy.

“In the short-term, measures such as the £7bn business rates relief will offer much needed support for small and medium sized businesses, the lifeblood of our economy, through what will be a challenging period ahead.

“Looking towards the longer term, the announcement of a 48% rise in skills investment as well as investment pledges on housing and infrastructure are welcome.

“Public investment in these areas is vital if we are going to see the sustained growth and increased productivity that is central to the government’s levelling up agenda and, as the Chancellor alluded to, will help to unlock greater private investment.

“SFE continues to work closely with both the UK and Scottish Governments and will make the case wherever we can to ensure the policy environment supports a green economic recovery whilst creating opportunities for our young people.

“We must work in collaboration if we are to accelerate sustainable economic growth and SFE will play its part in identifying and supporting policies that achieve this very aim.”

Vishal Chopra, Head of Tax for Scotland, KPMG in the UK, said: “Despite being fuelled by an economy that is growing faster and borrowing less than the OBR previously anticipated, this was a budget which recognised the lasting impact of the pandemic and the long road to recovery which many businesses still must make to return to prosperity.

“The unveiling of new business rate reliefs in England of up to 50 per cent for sectors including retail, hospitality and leisure will be watched carefully by those at Holyrood, who may look to mirror some of the tax reliefs for businesses in Scotland during the Scottish budget in December.

“Rishi Sunak’s Budget focused on regional rebalancing including a number of funding announcements for Scotland, with the Government keen to provide a foundation for growth and economic rebalancing.

“While we hope the Levelling Up White Paper will bring further focus to the Government’s efforts to rebalance the UK economy, it’s pleasing to see that the Government is wasting no time in addressing what the Chancellor referred to as the UK’s ‘uneven geography’.

“Scotland’s food and drink sector will be feeling hopeful with measures designed to provide duty relief for low alcohol content producers such as cider and other low ABV drinks, cancelling the planned increase on duties for spirits including whisky, and introducing a new ‘draught relief’ to support pubs.

“Certain sectors will be feeling more optimistic about the future than they have for some time, including those dependent on domestic flights where changes to Air Passenger Duty have been announced.

“It remains to be seen how this will interact with Scotland’s proposed Air Departure tax.

“The creative industries will also be thankful for extensions and reforms to tax reliefs which will affect the likes of museums, galleries, and theatres.

“Almost as significant was the absence of comment on certain areas, with relatively little on the environment ahead of COP26, or addressing how we tax wealth and the way we work.

“Scotland’s business community is likely to be relieved that it was a relatively quiet Budget for them with few new tax obligations, and time now then to consider the previously announced increases in Corporate Tax and National Insurance Contributions.”

Institute For Fiscal Studies initial reaction: “Stronger growth so far this year – and the Office for Budget Responsibility’s judgement that the long-term damage to the economy will now be 2% rather than the 3% assumed in March – meant that the Chancellor was handed a more favourable set of economic and fiscal forecasts.

“Borrowing this year was revised down by just over £50 billion – though is still forecast to be £183 billion.

“The only times when it has been higher were last year, during the global financial crisis and during the two World Wars of the twentieth century.

“In later years, the forecast reduction in borrowing was less, in part due to Mr Sunak’s decision to top up departmental spending plans, to increase spending on Universal Credit, and to freeze alcohol duties and fuel duties.

“Borrowing in 2024–25 is now forecast to be £46 billion which is not just lower than the £74 billion forecast in March 2021 but also lower than the £58 billion forecast prior to the first lockdown in March 2020.

“This might be sufficient to see debt falling as a share of national income, though the forecasts are predicated on the large tax rises announced in March (specifically income tax and corporation tax) and September (the new health and social care levy) going ahead and not being offset with new tax cuts elsewhere.”

Institute For Fiscal Studies Director Paul Johnson said: “The Government is now planning to spend more on public services, and to have a more generous system of universal credit, than it was intending pre-pandemic.

“The increases in universal credit for those in paid work are occurring alongside increases in the national living wage.

“This means that the Budget and Spending Review are much more similar to Gordon Brown’s than to George Osborne’s.

“To help fund the spending increases, the Chancellor confirmed big tax rises: this year has seen the biggest set of tax-raising measures since 1993.

“It now looks like a large part of those tax rises is to be spent rather than being entirely used to reduce borrowing as originally announced.

“If implemented, this might be sufficient to push borrowing below that expected prior to the pandemic and to see debt falling as a share of national income.

“Of course there is huge uncertainty over the outlook for the economy and it remains to be seen whether the tax rises will actually be implemented as announced.

“The coming year will also be a difficult one for living standards.

“For example, for middle earners rising inflation and tax rises mean their real take home pay is set to fall by around 1%.”

About the Author

Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.