Raising taxation has sparked fears of discouraging investment, and less money for public services
Challenging the First Minister directly, the president of the Scottish Chambers of Commerce (SCC), Tim Allan, spoke out against careering toward salary raids in next week’s Budget.
Trade bodies have expressed alarm at a widening gap in income tax and rates with the rest of the UK which threatens the fragile economy.
It is feared an increase in income tax will deter investment, spark skills shortages, and actually raise less money for public services.
Scots already face the prospect of missing out on a £340 tax cut provided to the rest of the UK by Chancellor Philip Hammond’s decision to raise the threshold for paying the higher rate of the levy.
The First Minister published a paper last month that outlined plans to raise up to £290 million more in income tax next year, with three out of four scenarios targeting those earning over £24,000.
The First Minister published a tax bill mainly aimed at those earning over £24,000
A high-tax Scotland would be easy to achieve but the damage could take years to repair
But tonight she was publicly confronted over the wage grab as she attended the SCC’s annual dinner at Glasgow’s Hilton Hotel.
In his address Mr Allan said: “Our concern is that, at a time of sluggish growth and faltering business investment, a competitive Scotland cannot afford to be associated with higher taxes than elsewhere in the UK.
“A high-tax Scotland would be easy to achieve but the damage could take years to repair.”
He added: “Unless tax revenues were ring-fenced to drive growth and job creation, the cost for a small nation in terms of lost investment is incalculable. “We want a level playing field on tax throughout the UK to keep Scotland competitive.”
Mr Allan also hit out at stalled plans to cut the cost of air travel saying it was a “disappointment” they were not going ahead.
The Scottish Government was supposed to gain control of air passenger duty from next April and had planned to cut the levy by 50 per cent.
But SNP ministers requested that the devolution of the tax from Westminster to Holyrood is delayed due to issues resolving state aid rules.
“We can’t hide our disappointment that the pledge to reduce and eliminate air passenger duty in Scotland has been postponed, due to legal technicalities,” Mr Allan said.
“The economic case has been made, accepted by Government, so let’s get on with it and remove this growth inhibitor to trade.”
Finance Secretary Derek Mackay is due to deliver his draft Budget next Thursday with the minority administration needing opposition support.
State aid rules are preventing the passage of air passenger duty from Westminster to Holyrood
A deal is thought to be most likely with the hard-Left Greens, who want harsher raids on middle and high earners.
Scots earning more than £43,000 already pay £400 more income tax after the SNP last year froze the salary threshold for the 40p higher rate band. The gap could widen even further in April after Mr Hammond announced it will increase to £46,350 south of the Border.
Scottish Tory finance spokesman Murdo Fraser said: ” This is another expert view from the world of business that Nicola Sturgeon cannot afford to ignore.
“Tax hikes would be a disaster not just for hard workers, but businesses right across the country.
“Neither will forgive the SNP for hitting them in the pocket, should the party choose to do so in next week’s budget.”
Murdo Fraser said the tax hikes would be a ‘disaster’ for hard workers
Speaking at the event Ms Sturgeon repeated her demands for the UK to stay in the EU’s customs union and single market after Brexit.
She also insisted the SNP’s tax and spending plans will recognise the “crucial importance of providing a good environment for business”.
Discussing the Budget Ms Sturgeon said: “We’ll set out how – at a time when our block grant for day-to-day expenditure is declining in real terms – we intend to fund first class public services, a fair social security system, and how we achieve our ambitions for Scotland’s economy.
“In doing that, we recognise the crucial importance of providing a good environment for all businesses here in Scotland.
“The needs of business are too often seen as separate from, or competing with, the goal of building a fairer society – the reality is that the two can be mutually supportive, and that is something our budget will seek to reinforce.”
While at the dinner, Nicola Sturgeon reiterated demands for the UK to remain in the single market
Meanwhile, the Scottish Government’s stewardship of the tax system also came under fire with a report into business rates.
Watchdog Audit Scotland found a £297 million deficit at the end of 2016-17 when the amount of the levy redistributed to local authorities was compared with the sum raised by councils.
The report said: “This means the Scottish Government has redistributed more to councils in recent years than councils have collected in receipts.
“In February 2017, the Scottish Government signalled its intention to bring the account into balance over a number of years but there is no formal plan in place.”
Opposition parties warned ministers against clawing the cash back or cutting council budgets.