The Scottish Chambers of Commerce (SCC) has warned that “businesses are on the brink” following the UK Chancellor’s Autumn Budget.
SCC said it is deeply concerned about the impact of the Government’s tax plans on businesses, particularly SMEs.
SCC CEO Liz Cameron said: “After months of speculation and leaks, the Chancellor has simply delivered a trade-off budget which hikes taxes to increase government spending.
“While our members will welcome some of the encouraging announcements on regional investment and support for entrepreneurship, it is a far cry from the radically pro-business reset that firms across Scotland so desperately need. Chancellor has not done enough to restore the confidence of business.
“SCC called on the Exchequer to take serious, pro-growth measures, like targeted reductions in VAT, a reversal of last year’s ill-thought-out Employer NICs increase, and reform of the Energy Profits Levy to support the UK’s energy transition. It is disappointing and damaging that these opportunities for Scotland have fallen on deaf ears.
“But, the net effect of this Budget will be to dial up the pressure on businesses even further, in turn risking the UK’s reputation as a magnet for global investment.
“If the Government wants to make good on its stated commitment to sustainable economic growth, then it must listen more carefully to the businesses and people footing the bill.”
On the minimum wage, Cameron said: “Raising the National Living Wage by 4.1% may help stimulate demand in the short term, as some consumers feel a boost in their back pockets; but in the absence of targeted relief for already-squeezed SMEs, it will simply add to the rising cumulative cost of doing business. Without cost reductions elsewhere, businesses will suffer under the weight of additional cost pressures.”
On the Energy Profits Levy (EPL), Cameron said: “The Government’s intention to replace the EPL with a permanent windfall tax mechanism is deeply concerning for the oil and gas sector which contributes so much to UK economic growth and to the strength of Scotland’s supply chains. We join OEUK in expressing our disappointment, and the threat it poses to thousands of jobs in the North East region.
“Keeping the tax in place is both punitive and wrong-headed. Research from OEUK shows that reforming the EPL immediately could raise up to £15bn additional revenue by 2030. While we await full details of how this windfall tax will work, we stand with our vital North Sea oil and gas sector, and will continue to work to strengthen its role in delivering our national energy transition.”
On alcohol duty, Cameron said: “It is a missed opportunity that the Government has chosen to ignore industry-wide calls to reduce or freeze alcohol duty. This is a punishing tax on Scotland’s world-renowned whisky industry, worth £7 billion in Gross Value Added to the economy.
“Scotch is already the highest-taxed alcohol category in the UK, and these costs push investment to other, more profitable markets.
“A government serious about growth would be playing to the UK’s strengths and leveraging the commercial success of its flagship exports, not stifling them. We will work with industry and trade partners in any effort to reverse this rise, so that Scotch whisky can thrive on the global marketplace once again.”
On funding for SME apprenticeships, Cameron said: “Scrapping the co-investment in apprenticeships and training for under-25s for all SMEs, backed by over £700m of funding will help tackle youth unemployment, reduce the burden on small businesses, and boost vital training in high-growth sectors.
“We need similar action from the Scottish Government to attract talent and investment.”
On investment in Scotland, Cameron said: “The Government’s investments in Kirkcaldy, Grangemouth and Inchgreen are positive steps, which leverage Scotland’s diverse regions to support economic growth and deliver the UK Government’s industrial strategy. To make the most of these spending commitments, business needs devolved housing and transport policy that works in lockstep with the Treasury.”
On international trade, Cameron said: “We welcome the Government’s intention to bolster the relationship with our European neighbours, leveraging overseas talent to support our economy in high-growth areas. Reforming customs treatment for low-value imports will reduce the administrative costs for SMEs trading in international markets. While we welcome this consultation as a step in the right direction, we need progress to happen at pace.”
On the electric vehicle tax, Cameron said: “The Government’s policy on EVs has been confusing, conflicted and contradictory, hurting both motorists and manufacturers in the process. The Government has signalled a desire to phase out fossil fuels – why then is it extending the cut in fuel duty, all while ramping up taxes on EVs? Businesses can support the transition away from diesel and petrol cars, but only if we have consistency and clarity.”
The Scottish Government’s Finance Secretary Shona Robison said: “This Budget has been absolute chaos from start to finish. Westminster has been consumed with leaks, briefings and out and out incompetence – with Scotland left as an afterthought and families left to pay the price.
“We needed a step change from the UK Government with investment in public services, support for jobs and industry in Scotland and serious action on energy bills. Instead, we got a chaotic mess and the increase in funding for the Scottish Government will not even cover half the cost of the employer’s national insurance contributions brought in this year.
“With UK energy bills £340 higher than the Prime Minister promised even after today’s announcement, the UK Government are not even trying to deliver on the their promises. It is insulting to see the UK Government stand up and trumpet a proposed reduction that does not even cover the increase since they came to office.
“It does not come close to meeting the Prime Minister’s pledge on energy bills – they have not even attempted to keep their promises.
“The electric vehicle tax is the wrong decision for motorists, the climate and for Scotland given its disproportionate impact on rural drivers.
“And there is no serious support for jobs and industry in Scotland. The Energy Profits Levy is to remain in place – risking thousands of jobs in Scotland and in the North East in particular. Yet again, Scotland is an afterthought.
“And while the moves on the two child cap are welcome, they are long overdue and the UK Government has been forced into this position by the Scottish Government and other campaigners. And without a simultaneous change to the benefit cap it falls well short of the bold anti-poverty measures we have been calling for from the UK Government.
“But the complete chaos around this Budget gets to the heart of the fact that we should not be leaving crucial decisions around the economy, public finances and household bills in the hands of a deeply incompetent Westminster UK government. We should take these decisions for ourselves with the fresh start of independence.”
Sara Thiam, Chief Executive, Prosper, said: “There will be some relief across industry that, after months of speculation, there is now a degree of clarity about the direction of government policy. However, there is little doubt that this will be a tough budget for many businesses, compounding the decisions made on tax in the last budget.
“In particular, it is deeply disappointing that implementation of the long-awaited replacement for the Energy Profits Levy (EPL) has been delayed until 2030 or when the sunset clause is triggered. The government should not delay: the EPL is driving serious deindustrialisation and job losses in Scotland now as well as making it harder for the supply chain to invest in clean energy.
“As we have always said, the focus should be on how we maximise our resources to meet our current and future energy needs and economic opportunities. The licensing changes are a step in the right direction, but without a fiscal regime that will incentivise investment, they’ll have a very marginal benefit.
“Key Scottish growth industries continue to be ignored with spirits duty increasing with inflation and the changes to inheritance tax from the last budget untouched – both of which are damaging growth.
“It will be for politicians in Holyrood to decide how the £820m in additional funding for the Scottish government will be spent in its budget in January and whether the pain of more UK tax rises is outweighed by improved delivery of public services in Scotland.
“While higher inflation has flattered the public finances, it shows there are continued difficulties in the cost of living for consumers and the trading environment for many businesses. And although the upgrades to growth forecasts for this year provides some good news for the economy, that will be short-lived with the OBR cutting its medium-term assessment of productivity growth.”
João Sousa, Deputy Director of the Fraser of Allander Institute at the University of Strathclyde, said: “Chancellor Rachel Reeves has today delivered her second Budget, which had a significantly different flavour to last year’s. If the theme of the autumn of 2024 was large increases in spending, punctuated by smaller increases in taxes, this year it’s revenue-raisers that have taken centre stage. The Chancellor’s lack of wriggle room to increase borrowing meant a much more sombre background to this Budget given the worsening economic forecasts.
“While we were initially led to believe that a broad-based increase in income tax rates might be coming, the Chancellor has opted instead for a piecemeal approach – the so-called ‘smorgasbord’. Thresholds for personal taxes (including the personal allowance, which applies in Scotland) have been frozen yet again, which brings more people into higher rates of tax. But there have also been many other smaller tax rises. These include higher taxes on property, savings and dividend income; restrictions on salary sacrifice, a new tax on electric cars; a new high-value surcharge on properties in England; and higher taxes on gambling.
“This is a much riskier way of raising revenue than raising income tax. Not only are these tax increases backloaded – meaning borrowing is actually higher in the short-term – but each tax affects small numbers of people. Those affected are hit much harder and have both an incentive to organise campaigns and to change their behaviour to reduce their tax bill. There is a significant chance that these measures won’t raise as much revenue as expected, as highlighted by the OBR’s uncertainty ratings; if that happens, the Chancellor might well be back in this position next year.
“Rachel Reeves increased her fiscal headroom – the difference between her plans and breaking the fiscal rules – to around £22 billion. This is a step in the right direction – although not quite enough to cope with the general uncertainty of economic forecasts recognised by the OBR. But this increase has also been achieved on the back of what are almost guaranteed to be fiscal fictions: increasing fuel duty again after 14 straight years of freezes, cutting day-to-day spending in a few years’ time and finding unspecified efficiencies.
“The UK Government will also assume the full risk of the special educational needs and disabilities system in England from local authorities, without setting aside any specific funding for it. This flatters the picture in terms of borrowing – a more realistic headroom might be as low as £15 billion, which is still a very thin margin.
“If those spending cuts did come to pass, there would be a cut to the forecast block grant for the Scottish Government relative to previous plans in the years beyond the Spending Review period – making the projected £2.5 billion resource funding gap by the end of the decade larger still. However, in the short-term, the abolition of the two-child limit will mean the Scottish Government will no longer need to spend the £155 million it had set aside for mitigation, and will be free to allocate it to other priorities.
“In terms of Barnett consequentials, the Treasury is reporting relatively small additions to funding: £0.5 billion in resource funding over four years and £0.3 billion over five years on capital. There is no detail yet as to how these break down year by year.
“There is another measure which will affect Scottish Income Tax, which relates to a new category of property income which will be taxed at a different rate by the UK Government (it is currently taxed at the same rate as earnings from work). Income from property is part of Scottish Income Tax; details are in short supply as to what it will mean going forward, but it might affect the block grant adjustment and leave the Scottish Government with a choice to make as to whether they follow suit with a higher rate for property income.”