Salmond’s lion unlikely to roar

By Ian Fraser

The Sunday Times

July 13th, 2008

The idea that Scotland should be a “Celtic lion” is a neat political concept. When Alex Salmond coined the phrase last October, he made it clear his government had ambition for Scotland’s economy.

Business was impressed. Here was a government prepared to set targets — for example that Scotland’s GDP growth should exceed England’s by 2011 — and adhere to some of the previous government’s ones, such as that tourism revenues should rise 50% by the same date.

Salmond, MSP for Gordon, has a huge fan club among the business community. With his apparent commitment to a low-tax, low-intervention economy, he is seen as “one of us”.

That he worked as a Royal Bank of Scotland economist from 1980 to 1987, and that members of his team — particularly finance secretary John Swinney and enterprise minister Jim Mather — understand the challenges businesses face, fosters a climate of trust.

So when last week it emerged that the government had quietly dropped a manifesto pledge to adopt a “one in, one out” approach to new regulation, it might have seemed the government was playing with fire.

But the business community is relaxed about the scrapping of this policy. They think the government has something better up its sleeve in a radical new approach to regulation, which for the first time will put the onus on bureaucrats to engage with business. The approach is due to be unveiled later this month.

David Lonsdale, assistant director of CBI Scotland, said: “The one in, one out proposal is superficially appealing. But it could give rise to a situation where ministers introduce a new onerous regulation, such as a local income tax, but the only compensatory measure is the scrapping of a fairly innocuous or out-of-date rule which has little impact on business.”

Liz Cameron, chief executive of the Scottish Chambers of Commerce, said: “Even though the one in, one out policy demonstrated that the SNP was serious about this issue, there’s a danger it would have turned out to be too rigid a framework.”

Business organisations are impressed by Salmond’s cabinet and like the fact the government is accessible and willing to prioritise policies likely to boost economic growth.

They are sceptical about health secretary Nicola Sturgeon — particularly after last week’s announcement that the government plans to shut a “legal loophole” in the GP contract that could let private firms run surgeries. They are also unconvinced by justice secretary Kenny MacAskill’s aim to rewrite rules on drinks distribution.

In addition to supporting small business rates relief — which has seen 130,000 small businesses have their rates bills abolished or slashed — business is also generally supportive of the reorganisation of the enterprise networks and aspects of the government’s transport policy (although this was marred by a decision to scrap plans for an Edinburgh airport rail link).

Other positives include the planned reform of government procurement policies, which will make it easier for indigenous small and medium-sized enterprises to become suppliers to Scotland’s public sector. There are plans for a national point of inquiry, via a national online procurement portal, which is due to be launched in August or September at the latest. Business people are also reasonably positive about reforms to the planning system and the new skills strategy.

But there are black marks on Salmond’s copybook. The biggest is the plan for a local income tax. Accountants KPMG says a tax pitched at 3p in the pound could see an exodus of senior business people from Scotland. Sir Fred Goodwin, the Royal Bank of Scotland chief executive, would have to pay a local income tax of £120,000, instead of the £2,338 he currently pays in council tax.

Chancellor Alistair Darling has said the tax would be “a disaster” for Scotland’s financial services industry.

Graham Bell, spokesman for the Edinburgh Chamber of Commerce, said: “The proposed local income tax is of questionable legality and would be extremely difficult and expensive to administer.”

The SNP are aware of the antipathy towards the plan but it seems they aim to push on.

However, some in business remain sceptical about the SNP’s fundamental beliefs. Business has for the most part accepted that the SNP wants to transform Scotland into a lower tax, low intervention economy — even if it accepts that corporation taxes are only likely to be significantly lowered in the event of a break up of the UK.

But some business people question how this can be reconciled with what they see as the SNP’s left-wing tendencies, including a mistrust of the private sector.

There is a widespread belief that the proposed replacement of PPPs with a Scottish Futures Trust may be unworkable. Critics also believe that the SNP’s opposition to nuclear power is based on a pandering to populist notions, rather than on any deep-seated conviction that Scotland’s immature renewables sector can pick up the strain. Many consider the government’s hostility to suggestions that Scottish Water ought to be privatised has more to do with socialist ideology than business pragmatism.

“Nicola Sturgeon’s comments at the British Medical Association conference last Monday were indicative of an attitude towards the private sector that I would describe as worrying,” said Geoff Mawdsley, director of think-tank Reform Scotland.

David Watt, director of the Institute of Directors Scotland, said: “The Scottish Government needs to take a serious look at the public sector which dominates our society. While we need to ensure that the most valued public services continue to be appropriately funded, the public sector is far too bloated in Scotland.

“The SNP has talked about ‘decluttering the landscape’. We are now eager to see some real actions in reducing the public sector, as the private sector needs the people and skills to drive our economy forward. We have to start doing things differently in this country to safeguard the future for the next generations.”

An edited version of this article was first published in The Sunday Times Scotland on July 13th, 2008. Read that online here

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