Greater alignment of UK, Scottish and local government policy is vital to help achieve growth in the economy, according to a report by a leading economist and academic.
Prof Anton Muscatelli’s new paper warns that Scotland’s higher marginal income tax rates could
be a “major disincentive in attracting high value jobs” and says higher taxes need to be balanced
against the focus on growing the Scottish economy.
“An incoming government should consider and actively report to Parliament on the economic growth effects which arise from the divergence/alignment of Scottish and UK tax bands and consider when the opportunity arises to create less distortion,” he says.
Prof Muscatelli’s report calls for a wide-range of reforms to planning, business rates and skills. He drew responses from business, government, civil society, academia, and local authorities and says that “almost universally, stakeholders expressed a view that the policy landscape is fragmented and should be less tangled and more focused.”
The former Glasgow University principal, who has served as an economic adviser to the Scottish government, says the Scottish Government should “simplify and in effect de-clutter” the policy
architecture for which it has responsibility.
“In doing so this may help the Scottish Government, our local authorities and UK Government to better align their responsibilities and policy interventions.”
He suggests adopting “best-in-class”practices in cities like Manchester which have developed their economies around city mayors, but should adapt these for Scotland’s needs, for instance a Glasgow-Edinburgh Arc around innovation to match a similar development in the South-East of England (the Oxford-Cambridge Arc).
The UK and Scottish Governments “must collaborate on exemptions and incentives to help alleviate the core challenges associated with recruiting and retaining talent in Scotland,” says the report.
“Options include modernising historical immigration schemes that encouraged working in Scotland; revisiting changes to the UK’s Skilled Worker visa salary thresholds; and a post-study work visa scheme to allow international graduates to contribute to Scotland’s economy.”
Prof Muscatelli says that in recent years the Scottish Government has used its powers to raise tax revenues in Scotland and to take a different approach to some welfare benefits.
“This has allowed the Scottish Government to increase public spending, but the Scottish Government could have had more (perhaps as much as £1billion more this year) to spend on its public services had Scotland kept pace with the UK’s economic performance,” he says.
“Scotland’s relative economic performance lags the rest of the UK and is missing out on tax base gains as a result. There are however limits to a strategy of raising taxes relative to the rest of the UK in terms of economic competitiveness.”
Prof Muscatelli notes analysis by the Scottish Fiscal Commission pointing to severe pressures on the Scottish budget, not least through higher spending on public services.
“This highlights the urgency of the challenge of re-booting economic growth in Scotland. In order to ensure a sustainable future for our public services Scotland needs to adopt a clear and focused strategy to boost its economic growth – and do so now.
“This urgency is felt even more in Scotland’s regional economies – where economic performance is far from uniform.”
He says that aside from “executing an effective regional economic development policy” the Scottish government needs to address “deprioritisation in economic development funding in Scotland, and this must be recognised as the starting point for change, by government and its agencies, and all stakeholders partners.”
The next Scottish Government, he says, “needs to make Scotland’s planning system and profession a key priority. This will be critical in determining whether Scotland has the means to deliver the developments needed to drive Scotland’s growth.
“The UK Government’s reforms and the Scottish Government’s Better Regulation agenda need to align so far as possible – ensuring a level playing field for UK enterprise and that our regulatory measures are competitive and consistent, precise and proportionate, with an agility to change as technology shifts. This will be key in attracting investor interest and mobile capital to Scotland.”
The Scottish Government should produce a new trade and investment strategy for Scotland which sets out clearly the role of public funding to crowding in mobile capital into Scotland’s regions, he says. It should specifically target scale-up capital and look at opportunities to
deploy pension funds in this area.
He calls for a full review of business rates, targeting enhanced relief to investment projects and premises in priority sectors for growth and comparative economic advantage. This should
be aimed at growing productive businesses.
The Scottish Government should work closely with UK Government and HMRC on how to improve UK R&D tax credits and the scope to incentivise decentralisation of investment in innovation and tech diffusion for productivity gains in firms.
Speaking to mark the launch of the report, Scottish Labour leader Anas Sarwar said: “For two decades, Scottish politics has been an economics-free zone.
“We all want to see social change driven by proper policymaking, but the truth is that we cannot have the social policies we need if we do not have a thriving and growing economy.
“Under the SNP, economic growth has been ignored and the unique potential of communities across Scotland has been held back by an Edinburgh-centric view of the economy.
“If we are to meet the challenges of the future, we need a thriving and growing economy that works for every part of the country.”
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