New tax is 'direct blow' to engineering sector in Scotland

Released as it was on the 19th of December, it came at a time when most of us were galloping towards the festive break with an eye firmly on the prize of the best break of the year in terms of number of laptop closed days. It certainly didn’t get the attention such an important piece of our business jigsaw deserves from me, so please bear with me as I catch up and consider its pluses and minuses.

It’s the start of the year, so in maintaining the positive outlook I predict to hold for the entire year ahead, we should start with the good news of course.

The freeze on non-domestic rates for the smallest businesses is the obvious one, commented by many organisations like ours already, and like them we agree that whilst it’s good news for our smaller SMEs within the lowest rateable band, for businesses above that (and let's be honest the bulk of the tax take is in this category) those will increase in line with the consumer price index, which is less welcome at a time when businesses, like many households are struggling.

What else? Well, a jump from £9.3 million to £66.9m for offshore wind supply chain support is a welcome investment to ensure that the opportunity from energy transition flows to Scottish manufacturers and engineering firms. The pedant in me would love to see the detail of what chunk is planned to flow to actual businesses making that transition, but no looking gift horses in the mouth for now. It’s a good number to see committed.

Digital investment rises from £148.3m to £208.8m and given that this is a bedrock of productivity through automation, a near 41% increase will always be welcomed with open arms, along with a plea that the lion’s share is available to directly incentivise companies to make these critical investments.

The other side of the scales is a test to any upbeat business outlook, even for one as optimistic as mine.

I may be an optimist, but I am also a broken record when it comes to the need to prioritise the value creation for business and the personal career success that comes from apprenticeships. So, no surprise that my first scan is on the skills budget line, and in particular that of Skills Development Scotland who deliver national training programmes, including apprenticeships.

For the fourth year in a row, they have seen their budget cut, from £231m in 2021, to £203m in 2024, a cut of over 12% despite every measure of delivery costs increasing year on year in that period.

The increasing frustration for employers who already pay the Apprenticeship Levy is that whilst its universally disliked across the UK, at least those outside Scotland in theory can access what they pay into fund skills training. This Budget cut further widens the gap between contribution and return, and that was underlined in a post-budget clarification that the Flexible Workforce Development Fund, financed by levy payments returned through the block grant, has been scrapped.

Additionally, the introduction of a new personal tax band for higher earning employees is a direct blow impacting our sector's single biggest concern: attracting and retaining critical skills in Scotland.

The business damage of Brexit leaves us in a place where the only realistic route to increasing our talent pool at the pace needed is to attract talent from the rest of the UK and this simply makes that harder. This isn’t about the top 5% of earners being greedy, and it’s a concern that can be raised whilst fully supporting the need for fairness in society.

Balancing budgets in today’s public finance situation is no easy task, and tough decisions have to be made that not all of us will like.

Nobody would disagree that as a nation we must have and demonstrate a robust, moral compass, in which we look after everyone within our society. However, to achieve this in a sustainable way it should come from growing the wealth of the nation, so that collectively the entire country can prosper.

A social charter delivered principally on the shoulders of taxation to a narrow section of the work force brings significant risk that people, and business will choose to stay or locate in other nations of the UK.

Where are the actions that will promote that growth – for businesses, and consequently for the people who work for them and their families who benefit as a result? When are we going to see more than 2% of our skills and education spend channelled to incentivise apprenticeships that allow principally young people from all backgrounds and academic achievements to earn as they learn, and in our sector enjoy well-paid employment as they train and beyond?

The critical question is not if we can we afford to embark upon an agenda that promotes business growth, but can we afford not to?

Paul Sheerin is chief executive of Scottish Engineering