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Business Comment: Terry Murden

Do airports and drinks firms really need tax cuts?

NB GinIf the forecasters are to be believed, Scotland’s economy is ready for take-off. All it needs is for ministers north and south of the border to utter the words “tax cut” and it will be boom time across the nation.

Industries ranging from aviation and oil, to whisky and wine are demanding a cut in duty with the promise that jobs will be created in their tens of thousands. It looks like a collective goodie bag too tempting for any Chancellor or Scottish finance minister to refuse.

So what’s the deal?

A report from consultants York Aviation says that halving air passenger duty (APD) – the tax paid by travellers each time they book a flight –  would boost the Edinburgh economy by £1 billion over five years and create almost 4,000 jobs.

Gordon Dewar, the airport’s chief executive, wants the Scottish government to get a move on and set down a timetable for delivering on its promise to cut APD by 50% and thereby ensure Scotland does not lose out on one million passengers by taking no action.

Aberdeen & Grampian Chamber of Commerce and the lobby group Oil & Gas UK are in a long queue of organisations urging the Chancellor to reverse his dastardly 2011 levy on the oil industry to maintain exploration in the North Sea.

The drinks industry, which prays every year for a cut in excise duties, has launched its most aggressive campaign so far. Drop the Duty! is a joint effort by the Scotch Whisky Association (SWA), the Wine and Spirit Trade Association (WSTA) and the TaxPayers’ Alliance.

It is calling for a 2% cut in alcohol duty in next week’s Budget, arguing this would raise £1.5 billion through increased investment across the industry, greater income from corporation tax and VAT, and from the benefits of jobs created in pubs, bars, restaurants, shops and the wider supply chain.

But is the boom really being muffled by a combination of high taxes and regulatory blankets?

Notwithstanding the specific problems in the North Sea, the impact of the eurozone slowdown on exporters and the geo-political crises in Russia and the Middle East, every sector of the economy is reporting at least a slow return to some level of growth. From commercial property (Glasgow Candleriggs development below) and housebuilding to food and drink, there are no shortage of positive stories about companies performing well. Top grade office space is in short supply, homes are being built at a rate close to their pre-crash levels and demand for Scottish cuisine in the year of Scottish food and drink has never been greater.

Candleriggs QuarterWhile arguing that a more benign – and predictable – tax regime is desirable for the oil industry, forecasters acknowledge that it is the price that really drives growth. The Fraser of Allander Institute last week said that a period of sustained low oil prices would create 9,700 jobs across the country. PwC says today reports that across the UK it could be ten times that figure.

The aviation argument is an intriguing one. Edinburgh Airport, and the airlines serving it, warn of a loss of customers if APD is not cut. Yet in the same statement to the media it reports record passenger numbers. Clearly, evidence suggests they are not deserting the airport or Scotland, even with the current rate of APD.

Similarly, the drinks industry is demanding help from the Treasury at the same time as companies in the sector expand. There has been a resurgence in Edinburgh’s traditional gin industry (pictured above) with several distilleries opening in recent months. The ale company Innis & Gunn is looking to bring brewing of its beers back to the capital from Glasgow. BrewDog in the north east is also building a brewery. Inver House, the whisky company, has just raised £10 million from Bank of Scotland for global expansion.

Those that have suffered a setback, such as Johnnie Walker to Guinness producer Diageo, have done so because of overseas contraction or the impact of unfavourable exchange rates, not because of high UK taxes.

Mr Osborne, therefore, could claim these industries protest too much. Unfortunately, he has an election to fight and while commercial factors will not play an overwhelming part in his decision, he may be persuaded to help all those who want it merely to curry favour with them, their employees and everyone else they know ahead of the poll.

Such largesse would go against the grain for a Chancellor who has declared a determination to stick to the austerity policy. Furthermore, the public finances are still in poor shape. He will know that in a non-election period he would not be in a position to surrender to such appeals.

Of course, even if he gives every industry exactly what it wants there is no guarantee that the voters will thank him.

 

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