Scottish Business Opposing Tax Change

June 14, 2010 Taxation in UK

Business Leaders at Bute HouseRecently the results of several surveys have been published, showing Scottish consumer groups and business owners are apprehensive about the proposed changes expected to be announced in the June 22nd UK emergency budget. Specifically, increases to Value Added Tax (VAT) and Capital Gains Tax (CGT) have been target by researchers as having the biggest negative effects on Scottish consumers and business-owners.

On June 14th the Scottish Chambers of Commerce (SCC) released a report with the results of a survey carried out on Scottish business operators. According to the publication, 47 percent of Scottish firms are primarily concerned with the implications which an increase to CGT rates will have. In particular, respondents feared a subsequent lack of capital availability for small enterprises and start-up firms. Liz Cameron, CEO of the SCC, summarized the findings, saying, “…many businesses are clearly unconvinced of the wisdom of imposing dramatic increases in the rates of CGT during a phase of fragile economic recovery.”

On the same day, international accounting firm KPMG released the results of their National Business Confidence Survey, which aims to gauge the sentiment of national business owners. The results indicate that nearly two third of survey takers prefer increase to VAT rates over lowered CGT thresholds and higher CGT levy rates. According to Russell Hills, head of tax for KPMG in Scotland, the VAT rate rise is a temping move for the Government as it could generate in excess of GBP 1 billion in revenues per month, but the change could seriously dampen consumer spending and economic recoveries. The survey also found that an increased National Insurance Contributions (NIC) rate was the least preferred fiscal policy change by Scottish business owners.

Also, recently, both the Scottish Trade Union Congress (TUC) and the Institute for Public Policy Research issued separate calls to the UK Government to forgo VAT rate increases and instead opt to instate a “Robin Hood” bank tax. According to both groups, a VAT increase would have disproportionately negative effects on low-income consumers across the UK, especially in Scotland. Conversely, a “Robin Hood” bank tax would have a greater impact on the wealthiest sector of the economy.

According to Russell Hills, if instituted, the proposed tax changes could be “painful” for business, and “…the government’s honeymoon period with the business community could be brief.”

Photo by Scottish Government