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Plenary, 06 Oct 2005

Meeting date: Thursday, October 6, 2005

Official Report 780KB pdf

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Business Rates

The next item of business is a statement by Tom McCabe on business rates. The minister will take questions at the end of his statement. There should therefore be no interventions.

Last month, the First Minister announced in his statement on the legislative programme the Executive's intention to cut Scotland's business rate poundage and in so doing to reinforce a competitive platform for Scottish business. He also pledged to consider carefully a specific reduction in business rates for research and development-intensive companies, because we are determined to build on that platform. Today, I will set out to the Parliament a timeline that will enable us to secure that competitive advantage and I will explain how we intend to take our plans forward.

Both those developments will contribute to the number 1 priority of Scotland's devolved Government—growing our economy. Our commitment to building a strong and ambitious Scotland is absolute. A successful Scottish economy is a vital prerequisite for first-class public services and for building a Scotland in which opportunity exists for all. Sustained and sustainable economic growth is about more than just statistical indicators; it is about people, their hopes and their aspirations.

Growth brings jobs and jobs are an important element in ensuring stable and prosperous communities. Growth brings fulfilment to individuals—to employees and employers, to investors and to people in local communities—and it gives confidence to the business community, inspiring companies to meet their full potential and providing a platform for long-term sustainability.

The key to achieving economic growth is, of course, successful businesses. They are the main drivers of economic growth. Strong, profitable, growing businesses are fundamental to Scotland's future success. The role of Government is to help to create the right conditions for a vibrant and growing economy. We want an environment where businesses, from the single trader to the successful Scottish companies that operate around the world, can grow and prosper; we want an environment that rewards people for being enterprising, for taking risks, for developing their staff and for contributing to Scotland's growth.

However, we also want an environment that says to the business community, as it says to the ordinary citizen, "You have a right to certain conditions, but with them come responsibilities." Scotland's business community has a responsibility to stand up to that challenge, to demonstrate the entrepreneurial dynamism that the competitive advantage assists and to speed up our rate of growth and create economic opportunity for more of Scotland's people.

For our part, the Executive is determined to secure that competitive advantage for Scotland and to provide further incentives to improve business competitiveness. An important part of that will be to demonstrate that, wherever possible, we take account of business opinion. Businesses have told us that the existing poundage rate places them at a competitive disadvantage. The First Minister's announcement not only eliminates any suggestion of such a disadvantage, but reaffirms our position of competitive strength compared with south of the border.

In his statement on 6 September, the First Minister indicated that, from 1 April 2007, we will align the poundage rate in Scotland fully with that in England. Today, I can announce that businesses will benefit sooner and that from 1 April 2006 we will invest £100 million in Scotland's economy and reduce the existing gap by half.

The 2005 revaluation showed that, on average, rateable values in Scotland had increased by 13.3 per cent, compared with 17.7 per cent in England. As a result of our policy of limiting increases to inflation or below, the rates burden on Scottish businesses, relative to England, has been falling over the past five years. Taking those factors together with the new lower poundage rate means that businesses in Scotland will now have significantly reduced operating costs. That will give them that all-important competitive edge. My enterprise colleagues and I will continue to stress to the business community that we will look to them to take full advantage of that opportunity for the benefit of Scotland and the people of Scotland.

Removing the poundage gap with England will mean that organisations in Scotland will have an additional £100 million to invest in 2006-07, rising to an estimated £180 million in 2007-08. Those are significant sums, which we will find from within the Executive's overall budget. They are also the amounts by which the business rate income collected by local authorities will be reduced. We will ensure that the change is cost neutral to Scotland's local authorities. We will do all that by using the space created by prudent management to release resources within the Executive's overall budget.

In summary, we will move progressively through 2006, providing maximum benefit to businesses from 1 April 2007. We will announce the actual Scottish poundage rate for 2006-07 later this year, in line with the usual timetable, when we lodge the annual order.

That brings me to our plans to give Scotland a further competitive advantage by reducing business rates even further for research and development-intensive companies. An increase in Scotland's rate of investment in research and development is crucial if we are to continue to develop as a modern, dynamic and knowledge-based economy.

International studies confirm a positive correlation between investment in research and development and higher economic growth, which is why, at the outset of this session of Parliament, we committed to work with businesses to increase their investment in research and development to match more closely our competitor countries in the Organisation for Economic Co-operation and Development. Our best advisers in that endeavour will be the business community. Therefore, the next stage will be to consult on draft proposals. I intend to issue a consultation document containing the proposals before the end of this calendar year and to announce our conclusions by summer 2006.

The measures that I have set out today will give all businesses in Scotland the opportunity to share in our ambitions for Scotland. They will allow businesses to undertake greater investment, recruitment and research and to make an increasing contribution to the growth of Scotland's economy. We are determined to deliver for Scotland the right conditions for dynamic and innovative enterprises to grow and prosper. We want to build on our record levels of employment, which are sustaining a thriving economy and underpinning a productive public sector. In short, we want to see business grow.

That growth will clearly depend on a lot more than business rates. For example, it will depend on the skills of our workforce and its adaptability in an ever-changing environment. That is why Government and business must continue to work together to move Scotland further towards a culture of continuous improvement that generates innovative and dynamic solutions in a competitive world. The Executive is doing its part and we expect businesses throughout Scotland to grasp the opportunity to increase their capacity and to invest in Scotland's future economic prosperity.

The minister will now take questions on the issues that are raised in his statement, for which I will allow about 20 minutes.

I thank the minister for providing me with an advance copy of his statement. I welcome the U-turn that he has announced and thank him as generously and as graciously as possible for accepting a long-standing Scottish National Party policy—there are plenty more that he could accept if he wanted to.

The First Minister in his statement of 6 September made absolutely no reference to the introduction of the measure on 1 April 2007, so any attempt to say that he did is just spin. Now that the minister has announced the U-turn, does he accept that, since 2000, the Scottish Executive has removed more than £800 million from Scottish businesses as a result of higher business rates, which has put those businesses at a competitive disadvantage? The minister said that he wants to create a level playing field, so why does he intend to continue to put Scottish business at a competitive disadvantage by staggering the introduction of the policy over two years? Why is the minister prolonging the agony for Scottish business? Why does he not accept that his Government has been wrong for the past five years and that he should now get on with making good one of the mistakes for which he, the previous Minister for Finance and Public Services and the First Minister have all been responsible?

I would like to say that that was a gracious response, but that would be stretching credibility. I inquire whether the SNP policy to which Mr Swinney referred was today's, last week's or the one to which the SNP will change tomorrow. Has the SNP announced a spending commitment today, will it do that next week or will it ever cost a spending commitment at any time in the lifetime of the Parliament?

We can afford the measure because we have taken a prudent approach to the finances of Scotland's Government and because we have generated a partnership with business in Scotland, which is reflected in the investments to which the First Minister referred during First Minister's question time. That partnership is successful because we have invested in the measures that Scottish businesses have told us are important. That is why we are investing to produce not a level playing field but a serious competitive advantage for businesses here in Scotland. That is why we are investing in infrastructure such as the M74—the kind of infrastructure that Mr Ewing was complaining about so loudly only a few moments ago. That is exactly the kind of thing that Scottish businesses have asked for, that the Executive has delivered and that we will continue to deliver as we produce the dynamic, innovative economy that will produce opportunity for this and future generations in the new, modern Scotland.

I thank the minister for his statement and for the advance copy of it. In light of the figures that we heard earlier showing the decline in Scottish manufacturing exports, the cut surely cannot come soon enough. Over the past five years, Scottish businesses have paid an extra £838 million in rates as a direct result of a decision taken by the minister's predecessor. Every year that goes by, an additional £180 million is paid. Now that the Executive has accepted the principle that rates should be cut, why should businesses have to wait before the full reduction comes through? Does the Executive now accept that it was wrong to increase rates in Scotland six years ago or are all its critics in the business community simply to be dismissed as idiots?

I am happy to say that what Scottish businesses have enjoyed over the past five years is a thriving economy produced by a Westminster Government that has taken hold of the macroeconomic indicators in this country, transformed our fortunes and made us the envy of our partners in Europe. All that economic success and the thriving economy that still exists in Scotland and the rest of Great Britain have been and continue to be enjoyed by the business community in Scotland. We believe that our investment decisions over the past five years were appropriate at the time that they were made and compensated for the dire neglect that we experienced over the Conservative years. Our investment decisions were introduced in a climate of prudence and stability, not in a climate of a United Kingdom chancellor dancing in and out of the Treasury announcing every couple of minutes another hike in interest rates as he tried to rescue a British economy that was falling into tatters.

I am sure that the minister would like to thank the Liberal Democrats for bringing business rates to the top of the agenda. Will he clarify whether the proposals for further help for research and development-intensive companies will be over and above the two-step move to bring Scotland's poundage rate into line with that of England? If so, does he have an estimate of how much money is available or might be required?

There are a number of aspects to that question. I am always delighted to congratulate my Liberal Democrat colleagues. They regularly show unique foresight in the Parliament, as I am sure they will continue to do.

Our research and development initiative will be over and above the closure of the poundage rate gap. I would not want to prejudge the eventual cost. I want to begin a consultation, listen to what members of the business community who are involved in research and development have to say and take the best possible decisions relative to the advice that the business community offers at that time.

In the spirit of partnership, perhaps I should say that I, too, was always in favour of the cut. I welcome the statement, which shows that the Executive has listened to business. Will the minister give me further detail on how the Executive will work with businesses and their representative bodies to ensure that the business rate reduction will result in an increase in competitiveness?

I am pleased to give some indication of our continuing and developing relationship with the business community. Of course, I acknowledge that Christine May always supported the initiative. In the previous roles that she has played in public life, she has been recognised as someone who is forward thinking and open to new ideas and I can fully understand why she has always supported the proposal.

We have an on-going dialogue with the business community. Yesterday, I met representatives of the Scottish Council for Development and Industry and the various component bodies that make up the council. We had an interesting conversation about the implications of the changes that I am confirming this afternoon. I was pleased to hear representatives of the SCDI congratulating the Executive on the move and saying that they feel comfortable with our various initiatives to assist the Scottish economy.

We will do all that we can to ensure that that kind of dialogue continues and that that comfort level not only continues but increases. We recognise the value of the contribution that the business community makes to our economy. As I said in my statement, it is the job of Government to create the right conditions and it is the job of business to capitalise on those conditions. Working together, we will ensure that that happens.

I thank the minister for giving advance sight of the statement. How did the Scottish Executive assess the benefit of an across-the-board reduction in business rates, which is an undiscriminating, blunt economic instrument, against spending £180 million of new money directly to support research and development in Scotland, new sustainable businesses, such as renewable energy companies, or businesses and social enterprises that promote economic regeneration in deprived areas of Scotland? On what basis was a cut in business rates the priority choice for supporting enterprise in Scotland?

I will answer some of those points but first—if you will indulge me for a moment, Presiding Officer—I should state that we decided to go ahead with the measure by not listening to a word that is uttered by the Green party or to the economic policies that its members put forward in the Parliament. If we paid any attention to the nonsense that they utter, our economy would be in tatters and our people would be in despair. It is a cheek for a representative of the Green party to talk about economic regeneration when that party has opposed the M74 completion time and again. The people in the east end of Glasgow who will get relief from the environmental conditions that are detrimental to their health and who will benefit from the economic opportunities associated with that road listen to the utterances of Mr Ballard and his colleagues and wonder whether they are on the same planet.

We intend to continue with our investments in our environment. We will continue to pursue our challenging environmental targets for renewable energy and ensure that they are met. In doing so, we will give another kind of competitive advantage to the Scottish economy, because our investment in renewable technologies and that kind of activity will ensure that, as the emerging economies of the world start to take a greater interest in those technologies, our companies that are involved in renewable energy and environmental technology will be able to sell their knowledge and expertise around the world, just as our companies that are involved in the oil industry do at the moment.

For two and a half years, the Executive has been telling me that there is no money to pay for the proposals under our bill for free school meals, which would cost £174 million. However, it turns out that the Executive has the money, but has chosen to give it to businesses as a nice little earner. What could be more important than the health of the children and young people in Scotland? I ask the minister to reconsider his decision and to fund our proposals to provide free, healthy school meals for all our children.

The Executive has been saying for the past two and a half years not that we do not have the money for that bill, but that we do not agree with that bill and have no intention of pushing resources, through free school meals, to individuals who can well afford to pay for their children's meals and are prepared to do so. We have said that we will target resources to those who need them most, including some of our most challenged communities and schools. In that way, we will ensure that the children in those communities and schools have an opportunity to participate in the vibrancy and success of Scotland's economy so that, in future, they are not excluded from that success and have the opportunities that have been denied to them for too long. We will achieve that not by directing resources to people who can already afford to pay, but by targeting resources appropriately. That is what we intend to do now and in the future.

The minister will be aware of our concern about the savings from the efficient government initiative, given the absence of specific outcome objectives and the lack of statistical data to prove those outcomes. If he is serious about improving competitive advantage and wishes to pass muster with business in Scotland and Scottish taxpayers, I suggest that he gives clear-cut objectives on competitiveness. We know that we are 35th in the IMD world competitiveness league, compared with the UK's 22nd. We are at half the UK level on R and D; on growth, there is a perpetual gap. Will he state clear objectives and commit to publish the outcomes on a regular basis so that we can see whether Scotland converges with the UK on competitiveness?

I am afraid that I do not agree with the assertion that was made at the start of that question and I think that that makes the rest of it irrelevant.

I note that the minister made no mention of small business rates relief schemes. Will he share his thoughts on that with us? Will he guarantee that he will no longer pursue the idea that rates relief schemes for small businesses should be paid for by larger ones?

We have discussed the principle of rates relief schemes. It would be an exaggeration to say that businesses in Scotland are happy about the way in which such schemes are funded, but they recognise some equity and fairness in the current system, which we do not intend to alter. When I met representatives of the business community yesterday, I was asked whether we intended to phase out small business rates relief schemes. I told them that no such consideration had been made. That remains our position. There is some justification for the current method of funding those schemes.

The minister will be aware that the area that I represent has faced major economic challenges in recent years. In spite of that, it has the highest rate of economic activity in Scotland, much of which is driven by new business start-ups and the growth of indigenous businesses. How will the cut in Scotland's business rate poundage aid the growth of indigenous businesses throughout the rest of Scotland and encourage new business start-ups? What measures will the minister use to prove the success of the initiative?

As I said in my statement, we look to the business community to stand up to the challenge and our dialogue with the business community continues. I know that business is committed to doing all that it can to demonstrate the benefits of the initiative to the Scottish economy. It is in its interests to do so and it is in our interests to pursue that confirmation. We will continue to do that. I was pleased to hear Bristow Muldoon speak about the economic success that is enjoyed in his area and I assure him that the Executive will continue to pursue the initiative and the investments—including investments in infrastructure—that will ensure that those successes are maintained and improved in future years.

The minister will be aware that the higher tax in Scotland has been known as Jack's tax, after its author, who introduced it seven years ago as his second major ministerial act—his first act, obviously, was to ignore the Holyrood costs. I ask the minister whether this is a case of Jack's tax—rest in peace. Is there any example of a longer period elapsing between the death notice, which was issued last month, and the funeral ceremony, which is not scheduled to take place until 1 April 2007? More seriously, why should the Executive claim any credit whatever, given that we have had higher tax in our country in every month since the Executive gained the power to set the tax and that we will have a level playing field for only the final month of the first eight years of the Scottish Parliament?

Dear, dear—I am almost depressed. That was a particularly morbid contribution from Mr Ewing. Given his demeanour, perhaps he should consider a career change; he might make a good undertaker.

It is not a question of Jack's tax. If people looked at the matter in the correct way, we could talk about Jack's record investments in public services, Jack's record investments in infrastructure, Jack's record investments in health and Jack's record investments in education. That is how we should consider the matter. The resources that are available to the public sector and the volume of services that are delivered to people have increased substantially. That is how we should consider our thriving economy. We are determined to build on that.

We have heard a lot of empty talk and meaningless statistics from the SNP about competitiveness. Does the minister agree that Labour's continuing economic and political success allows him to deliver a competitive advantage to Scottish businesses? Does he agree that it is up to business to reciprocate positively and to take on board its responsibility to deliver a successful growth pattern?

As I have said several times, I concur absolutely that business has an obligation to respond positively to the change. It must show that the extra investment that is available to it produces a benefit for the Scottish economy.

We have heard much empty rhetoric from the SNP. It might be thought that referring to the events of last Thursday would concentrate SNP members' minds. Perhaps the positive legislative statement and the positive announcements on giving Scottish business a competitive advantage had a small part to play in the wonderful victory in Cathcart last week.

Seventy per cent did not vote.

One would think that Mr Sheridan would have the humility to be quiet, given that his party was decimated last Thursday.

Is the minister proud that 70 per cent did not vote? That is a disgrace.

Order.

Mr Sheridan does not recognise the judgment of the people of Cathcart that he is totally and utterly irrelevant in the politics of Scotland.

I apologise for arriving late but, having read the statement, I am sure that my technical question will still be admissible—although, having heard the minister's performance just now, I am not sure that I wish to ask a question of him in such form.

The reduction in the business rate poundage has been costed at £180 million. Does the minister agree that, as the Executive transfers funds to local authorities to pay the non-domestic rates bills of schools and other public bodies, the cost is far lower than £180 million and therefore a level playing field could be achieved far sooner?

I disagree. I acknowledge that Mr Monteith came late to the debate. He comes late to many things. In fact, he has not even arrived yet at the conclusion that the policies in which he believes have destroyed his party, made it irrelevant in Scotland and blown it apart throughout the United Kingdom. Eventually, that simple fact may dawn on him, but all the evidence is that he is still pretty far away from that. We have costed the proposal properly. I said in my statement that the change will be cost neutral to local authorities and that remains the case.

The minister is right to set great store by the strong partnership that is developing between the Government and business. Will he say a little about how that partnership will meet targets for closing skills gaps, which he said in his statement was important for economic growth?

That is a central plank of the work that my colleague the Minister for Enterprise and Lifelong Learning pursues. He recognises fully that closing skills gaps is a critical component of closing the opportunity gap for people in Scotland. That is central to our approach. I said that we want to draw as many people as possible into economic opportunity. We want to bring as many people as possible into the labour market and allow them to thrive and to make their own economic choices in life. I know that Nicol Stephen is absolutely committed to that and to improving the skills and the educational stock of goods in our society. We will continue to pursue and monitor that. The member is right to identify it as a critical component of the debate.