INDUSTRY leaders have ramped up to the pressure on Kate Forbes to extend business rates relief for Scotland’s struggling tourism and hospitality sector.

In a letter to the Finance Secretary ahead of Thursday’s budget, CBI Scotland said many firms were at a “critical juncture” after almost two years of turmoil caused by the pandemic.

The employers’ organisation said continued support would avoid a shock return to full business rates in April, when the current 100 per cent relief system is due to end.

Ms Forbes introduced 100% rates relief for the tourism, retail, hospitality and aviation sectors for the whole of 2020/21, then extended it another year, to help firms survive a slump in trade.

CBI Scotland also called on her to use business rates to incentivise green investments, and warned against further divergence from UK income tax rates. 

The call coincided with a report by the Fraser of Allander thinktank at Strathclyde University on the challenges facing Ms Forbes.

It said her third budget was shaping up to be her toughest yet, with years of "difficult trade-offs" to follow despite a short-term hike in Treasury funding, as the strain on the Scottish budget becomes “increasingly difficult” until 2024/25.

It said her key decisions this week are on business rates and income tax.

If she freezes income tax thresholds she could raise £140m more than if she were to let them rise with inflation, but that could add to the cost of living squeeze on households.

The Bank of England’s monetary policy chief yesterday warned higher energy bills in the spring would send inflation “comfortably” above 5%.

While if Ms Forbes ends the 100% business rates relief for tourism and hospitality, it could add more than £700m to her budget, but could also set back the economic recovery. 

There is also a middle option. 

In his October budget, Chancellor Rishi Sunak announced a 50% relief up to £110,000 for hospitality and entertainment businesses in England and Wales for 2022/23.

CBI Scotland Director Tracy Black urged the Government to “radically scale up” its funding for workforce training in sectors facing shortages.

A faster rollout of electric vehicle charging points and a smart ticketing system across public transport were also recommended by the CBI.

Ms Black said: “The emergence of the new Omicron variant is undoubtedly a cause for concern and has highlighted the importance of protecting public health while we build economic recovery. Firms recognise that this is a difficult balance for government and will continue to do their part by putting the safety staff and customers first as we learn to live with the virus.

“As we look to rebuild Scotland’s economy in the face of complex challenges and heightened global – and domestic – competition, we need to focus on key drivers of growth to ensure Scotland remains a top destination for talent and investment.

“That means creating an environment where business investment is rewarded, vital skills and infrastructure prized, and significant resources committed to areas – like the green economy – that offer the best chance for long-term success.

“Government alone can’t deliver Scotland’s economic recovery. We need private enterprise, whether from home or abroad, to step-up with the ingenuity, innovation and investment needed to get the economy motoring again.

“A Budget that sends a clear message that Scotland is competitive and open for business would be a real step-forward on the journey to a greener, fairer economy that creates opportunities for all. We’ve had plenty of discussion and debate, now is the time for delivery.”

The Fraser of Allander’s pre-budget report said the Scottish Government’s core resource block grant from the Treasury would be £35bn in 2022/23, up 8% in real terms compared to 2019/20 as a result of extra support through the Covid pandemic.

But in 2023/24 and 2024/25, the resource block grant will be unchanged in real terms according to current UK government spending plans.

As previous Covid support tails off, many of the impacts of the pandemic on health and social care are set to continue, creating a budget squeeze.

The Institute said the Scottish Government was putting huge sums into health, with almost half the resource budget, £17bn, going to the portfolio next year, up 15% on 2019/20.

But the Institute said addressing issues in the sector remained “extremely challenging”, including delivering the Scottish Government’s promise of a 10% increase in capacity.
Giving so much to health could also mean a squeeze on other departments.

The Government’s plan to overhaul social care and create a National Care Service will also be pricey, with current spending commitments “not sufficient” to fully implement all the proposals in the Feeley review, on which the care service plan is based.

The expansion of devolved benefits will also have an impact on spending, the report said.
Ms Sturgeon announced week that the Scottish Child Payment, the devolved top-up for low income families, would start to double to £20 per child per week from next April.

The Institute said the policy would “cost well over £300m when fully rolled out”, but added that, while it would “reduce child poverty significantly, it will not on its own be enough to meet interim child poverty targets”.

It said health, social care and benefit changes were part of a suite of policy changes that implied higher taxes or lower spending elsewhere in the budget.

Report author David Eiser, said: “A core resource block grant in 2022/23 that is 8% higher than pre-pandemic might sound generous, but to deal with the pandemic’s legacy and underlying pressures on public services it is anything but. In this context, Kate Forbes’ third budget may well be her most challenging.

“The challenges are unlikely to dissipate in subsequent years, as commitments and aspirations on health, social care and social security in particular rub up against a budget that is currently forecast to remain flat in real terms between 2022/23 and 2024/25.” 

A Scottish Government spokesman said supporting the country’s economic recovery would be “at the heart” of the budget.

“We acknowledge the tough conditions Scotland’s businesses face as a result of Covid-19, which is why the Scottish Government has provided more than £4.4 billion in support,” the spokesman said.

“This year’s Budget is expected to be challenging as a result of the continued pressure on our public services and the substantial reduction in our funding from the UK Government. However, we will ensure all investment is focused on helping businesses, communities and households as Scotland continues to recover from the pandemic.”

Meanwhile the Scottish Tories urged SNP ministers not to “cave in” to their Green colleagues in Government by cutting spending on upgrades to Scotland’s roads.

The Tories said the trunk road network was in “desperate need” of improvement, with the dualling or the A9 and A96 both essential and long overdue.

The party said any back-tracking on promises to upgrade could leave some stretches of road unsafe, leave rural communities feeling cut-off and harm the economy.

Tory MSP Liz Smith said the budget should include a commitment to delivering £2.2bn previously allocated to upgrading and maintaining Scotland’s major roads.

She said: “The choice for the SNP is simple: stick up for Scotland’s motorists or cave in to their Green coalition partners.

“Large sections of Scotland’s road network have been neglected by the SNP for years, risking the safety of drivers and putting off potential investors in our economy.

“It’s time the SNP finally made good on previous pledges to carry out these essential upgrades. Kate Forbes will not be forgiven if she bows to the extremists Greens.”