Scottish Budget 2016 – your analysis

Finance Secretary Derek Mackay

Scotland B2B captures the business community’s response to the first ever Scottish Budget Statement

Finance Secretary Derek Mackay yesterday (Thursday, 15 December) unveiled a budget for growth and public services as he announced new investment in healthcare, education and local services, combined with support for jobs through lower business rates.
Introducing his first Draft Budget, Mackay unveiled a programme that will improve public services, maintain and support jobs and ease the financial burden on families, including:
  • An additional £304 million in resource funding for the NHS, £120 million above inflation and a significant step towards the commitment of an extra £500 million above inflation over this Parliament
  • £120 million for schools to use at their discretion to close the attainment gap in 2017-18 – £20 million more than previously announced – funded from Scottish Government resources
  • Support for jobs by extending the number of business premises that pay no business rates through the Small Business Bonus Scheme to 100,000 and cutting the Business Rate Poundage by 3.7% for all business properties
  • Through the proposed local government finance settlement and local taxation over £240 million of additional spending power to support local government services, with all revenues raised locally being spent locally by councils
  • protection in real terms for the revenue budget for policing, £60 million of investment the workforce and infrastructure necessary to begin the radical and ambitious expansion in the provision of free early learning and childcare entitlement to 1,140 hours by the end of this Parliament
The Finance Secretary also announced investment in new and existing infrastructure projects, to support sustainable economic growth including:
  • completing the Queensferry Crossing
  • Over £470 million of direct capital investment to begin delivery of 50,000 affordable homes,
  • Over £140 million for Energy Efficiency programmes to help us deliver our climate change targets
  • Over £100 million investment in digital and mobile infrastructure, to improve digital connectivity, grow Scotland’s digital economy and increase digital participation, including support for our commitment to deliver 100 per cent broadband access by 2021
He said: “Today I have published a Budget for growth and public services; for our environment and our communities. It delivers increased investment in education, record investment in the NHS, protects low income households from tax hikes and supports more and better jobs.
“This Budget provides support for the economy, for jobs and for household incomes, through a fair and balanced set of tax and spending proposals.
“Closing the attainment gap, reducing child poverty and ensuring equality of access to higher education, will generate long term benefits for our economy and public finances.
“That is why we are prioritising education and providing the resources to match. From birth and the earliest years, through school and beyond, education is this Government’s number one priority.
“This budget also delivers the Government’s commitment to secure the future of Scotland’s health service. I next year we will invest an additional £300 million in NHS resource budgets – £120 million more than inflation – a massive step toward our promise to Scotland’s health service.
“This budget also provides a strong settlement for local government.
“The plans I have set out exercise our new powers responsibly, marking a significant step in the history of the Scottish Parliament. It is a Budget that holds fast to our programme, that delivers on our commitments and protects Scotland’s hard-won social contract.”

What you say 

Tax disparity between Scotland and rUK not good news for business
“The first Scottish Budget Statement has turned out to be a mixed bag for businesses. On the positive side, the announcements on business rates will be welcomed, as will the promised progress on connectivity and the devolution of Air Passenger Duty. However, choosing to create, or rather not to correct, a taxation disparity between Scotland and rUK is not good news for business when competing for talent.
“It can send the wrong messages to those we want to attract to Scotland to fill the top jobs, and create others. This is a perfect example of a policy that sounds good on the ground, but the net long-term impact is negative for the Scottish economy if we continue along that road.
“What we need is very careful consideration given to how taxation policy will play out in the long-term, and equally careful thought applied to spending policy.  This is the first step on annual budgeting – of significant income and expenditure for the Scottish Government, so business will watch with keen interest how they utilise the tools of growth now and in the future,” David Watt, executive director of the Institute of Directors in Scotland
On Income Tax, business impact and Land and Buildings Transactions Tax (LBTT) 
“After campaigning so strongly for many years to have fully devolved tax powers, it is perhaps surprising that the Scottish Government decided to change so little, but the concerns over the health of the Scottish economy and the importance of retaining our entrepreneurs for the future must have been taken into consideration.
“Anyone earning more than £45,000 will be paying around £25 more tax a month than those south of the border, and that gap will increase to almost £70 a month over the next four years. This is disappointing, especially when Scottish businesses are already struggling in the competition to attract and retain the very best talent.
“No consideration appears to have been given to the increased compliance costs to employers that operate in both Scotland and England. They have to ensure they apply the right tax codes to the right employees as it will now make a real difference to their take home pay.  This is an additional compliance cost that businesses could do without at a time when they are already dealing with high costs of regulation and the uncertainty of Brexit.
“There was some good news for business in terms of reductions to business rates and matching these with those in England. An improved package of reliefs will mean that over half of all rateable properties will pay nothing, but we look forward to the outcome of the ongoing review which is due to be complete by summer 2017,” Martin Bell, head of tax for BDO LLP in Scotland
“The Scottish Government’s decision introduces a tax differential in the UK for the first time. From 2017/2018, the higher rate tax threshold will apply earlier for those in Scotland, kicking in at £43,430 compared to £45,000 in other parts of the country.
“Those affected, an estimated 420,000 people, will pay £314 more tax in 2017/18 than their equivalents in England, Wales, and Northern Ireland. If the current policy and trends continue, the differential will increase over time. Employers north and south of the border might want to review their employee population to identify any Scottish taxpayers and consider whether any amendments to their existing payroll, tax processes, and policies for these employees need to be made,” Ian McCall, global employer services partner at Deloitte
“The Finance Minister says that this is ‘a Budget for public services’ and ‘jobs’ but increased taxation powers means that growth in the private sector needs to be a high priority
“The experience around stamp duty should provide a salutary lesson for the Government that increased taxation powers does not directly correlate to more money in the pot for public spending
“Scotland’s productivity and economic growth is lagging notably behind the rest of the UK, an issue exacerbated by the fall in oil revenue. Improving that figure is the only meaningful way to fill a growing budget deficit which is expected to reach £12bn by 2020.
“Scottish business are desperately looking for reassurance over the next year, with Brexit negotiations likely to start, that the Government has a plan to support growth and encourage investment beyond raising taxation revenues.
“Despite these immediate pressures, it would be a mistake to take a short term approach to investing for growth. Given Scotland’s existing strengths in highly productive, value-added industries such as IT and finance, a firm commitment to supporting skills and training and infrastructural investment to enable the private sector to flourish – rather than just seek to protect existing industries and jobs – would be a major sign of a confident growth strategy
“For instance, whilst relocating ACCA’s global administrative centre in Glasgow this year, we have found enormous productivity and efficiency gains in ‘onshoring’ many of our IT and support services, making use of high quality local suppliers. This is strong evidence that Scottish business is more than capable of competing on a global stage when it comes to talent and skills
“What is important is to recognise that both the public and private sector need support in ensuring staff are fully equipped for the technological and organisational innovations we are likely to see over the next five years and beyond.
“This is a social project as much as an economic one. It requires, for instance, ensuring that money allocated for the Apprenticeship Levy is spent encouraging young Scottish talent into the private sector to develop first-hand experience of entrepreneurial business practices and cultivating the next generation of leaders with a firm grasp of financial expertise
“While the Finance Minister promises that the Government will invest more money into skills and training than before via the Levy, we need much more clarity that the private sector will be supported in offering opportunity to enterprising young Scots,” Craig Vickery, head of ACCA Scotland 
“It is disappointing that the Government has not seized the opportunity to alter the bands at which LBTT becomes payable, and in particular in relation to properties above the £325,000 mark above which the rate of LBTT reaches 10%.
“Given the reported decrease in activity levels in this part of the market, Derek Mackay could have used this budget to stimulate activity,” James Paterson, director and property tax expert, BDO LLP
“The Scottish Government’s decision to keep LBTT at current levels is good news for Scotland’s commercial property industry. Since the UK Government’s changes to Stamp Duty in March, Scottish assets have been more tax competitive than properties in the rest of the UK – a positive differentiator for the market, given the amount of uncertainty we’ve seen in 2016. We’d hope to see this translate into increased interest in Scotland’s commercial property markets, particularly from foreign investors, in the next 12 months,” Alasdair Steele, head of Scotland Commercial at Knight Frank
Business rates
“Small businesses are set to benefit from the business rate regime changes announced in today’s draft budget proposals by the Scottish Government.  However, larger businesses will bear the brunt of these new proposals.
“The proposals include reducing the business rates poundage or Uniform Business Rate (UBR) for small businesses by 3.7% to 46.6p and extending the small business bonus scheme to give 100% rates relief to premises with rateable values under £15,000.
“A further change, again in support of small business, is that the large business supplement has been restricted and will only apply to properties that have a rateable value in excess of £51,000.
“Whilst the Scottish Government’s proposals are of huge benefit to smaller businesses in Scotland, larger businesses have been left out of any proposals for reductions in business rates and as such this may deter larger businesses from locating in Scotland,” Moira Walker, head of rating at Ryden
Housing 
“We understand the ongoing budgetary challenges the Scottish Government currently faces. In that context, we welcome its commitment to continue to prioritise funding for key housing priorities such as affordable housing supply, energy efficiency, delivery of enabling infrastructure and measures to offset the worst impacts of UK welfare reform. The commitment to maintain funding for local authority budgets next year will also be welcomed by the housing profession as helping to safeguard the delivery of essential frontline housing services.
“Today’s reconfirmation of £3 billion of funding to support the delivery of 50,000 new affordable homes over the lifetime of this Parliament is welcome. As we work towards meeting that challenging target, we are keen to ensure in particular that the quality of new homes being built is also maintained.
“£140 million in funding for energy efficiency next year is also welcome, albeit with home energy efficiency now officially identified as a national infrastructure priority, we would like to see funding commitments go still further with the aim of achieving the step change needed to tackle fuel poverty.
“We have consistently raised concerns about the impact of UK welfare reform on the housing sector. Most recently, we highlighted the negative impact of the new reduced benefit cap on around 6,700 families across Scotland.
“In that context, we welcome the Scottish Government’s ongoing commitment to offset the worst effects of welfare reform and will continue to work with the Government on the design of a new social security system for Scotland that treats people fairly and with respect,” CIH (Chartered Institute of Housing) Scotland executive director Annie Mauger

 

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