This time last year, just after Scots had finished celebrating Burns Night, Boost Capital became one of the very first to start talking about Scotland’s referendum on independence, and what it might mean for SMEs north and south of the border. Now, we know the Scots voted against going it alone last September. But, Scotland has been promised greater powers, and last Thursday some of these were revealed in the draft Scotland Bill.
Legislative changes affecting SMEs
The much-anticipated publication is the result of months of work by the Smith Commission, an all-party body set up after the referendum to fast-track extra authority to the Scottish Government. Much of the talk since Thursday has been of the limited devolution of welfare payments, as well as Scotland’s ability to vote on key matters pertaining to England. But a number of measures have been drawn up that could have an effect on small firms. These include:
- The current Scottish Variable Rate, the so-called tartan tax that allows the Scots Parliament to alter the income tax rate north of the border by up to three percentage points from the UK rate, will be replaced by a new Scottish rate of income tax, with different levels, and thresholds, many of them decided in Edinburgh.
- From April, stamp duty, which is collected on all real estate transactions in the UK, will be replaced in Scotland with a Land and Buildings Transaction Tax. This will have an impact on commercial property purchases, as well as households.
- The Scottish Parliament will have power over the Aggregates Levy, allowing it to determine how tax is charged against aggregates processed commercially in Scotland. This could affect SMEs operating in related industries, as could moves to devolve licensing of onshore oil and gas extraction.
- Scotland will have greater command over its transport infrastructure, a shift that it’s hoped will improve links to, from, and around the country for businesses.
- The devolution of collection of Air Passenger Duty for passengers travelling from airports north of the border could improve access to Scotland for both investors, and tourists. The SNP proposes halving the current levy, and, ultimately, scrapping it altogether.
Good news for farmers
Some business sectors were more upbeat about the extent of proposed devolution than others. In particular, Scotland’s farmers expressed some satisfaction with the possible changes. Such enthusiasm isn’t surprising given that many in the farming industry have been alarmed by land reforms recently suggested by the Scottish Nationalist Party (SNP) that it’s feared could break up family farms. In particular, some members of the Scottish farming community were intrigued by the proposal of devolution of responsibility for the management of the Crown Estate, which could have a significant impact on farmers operating on the Queen’s land, and those working the seabed.
A decline in confidence, and revenues
But uncertainty about the political future appears to have dented Scottish SMEs’ confidence. Research from the Federation of Small Businesses found that smaller companies in Scotland reported feeling less confident towards the end of last year than 12 months previously. Many put this malaise down to expectations that their business prospects would deteriorate in the coming months, as well as experiencing falling revenues. Retailers were feeling particularly gloomy, the findings revealed. More than a third of all SMEs felt that domestic economic conditions were holding their enterprises back. But a quarter of firms expect to increase capital investment, suggesting that some are beginning to feel more hopeful for the year ahead.
The dangers of devolution
Overall, business groups have warned against devolved powers for the nations and regions of the UK creating gulfs in terms of taxes, and administration, saying that such an outcome would be bad for trade, and competition. The Scottish Chambers of Commerce (SCC), in particular, spoke of the need to maintain a single UK market, while also nurturing specifically Scottish opportunities, and local economic growth.
Liz Cameron, Director and Chief Executive of the SCC, said: “It is businesses that are creating jobs in Scotland, but we need our governments to understand how we are achieving this, and to enable us to develop new opportunities. Further consideration will be required to determine the practical effects that many of the legislative proposals may have on doing business in Scotland, particularly where these might result in additional burdens or costs.”
Things are far from settled yet. The Bill is only in draft form, and is still being debated as it passes through Parliament on its way to becoming law. Much can change during that process. And May’s General Election looks likely to have some surprises in store, and will be a hard battle in Scotland between Scottish Labour, and the SNP. It will be the outcome of that vote – in combination with the powers outlined for Scots in the Bill when it is finally decided – that will determine the shape of business in Scotland in years to come.