Institute of Directors in Scotland

Transcription

1 Institute of Directors in Scotland Independence Referendum Policy Issue and Questions (January 2013) The Institute of Directors (IoD) in Scotland represents around 1700 company directors and organisational leaders. These members are drawn from almost all industries and all sectors public, private and voluntary (although more than 80% are private sector). Whilst the Scottish arm of the IoD is part of a UK body, it has a distinct voice in many areas of operation especially representation and policy where there are many significant differences within Scotland. It has already been agreed that on the issue of the Independence Referendum, the IoD view and activity will be debated and developed in Scotland. The IoD is a non-partisan, non-political business focussed organisation which works hard to represent the views of its members always bearing in mind that they are likely to be as diverse as the membership itself. Indeed it is likely that views on constitutional change are more varied than in previous times e.g. 70 s 90 s when business perhaps was not so involved or perhaps more remote form politics and politicians. As far as the forthcoming referendum on Scottish Independence is concerned, the IoD is determined to focus on facts and figures affecting individual directors, their businesses and the Scottish economy and to attempt to steer clear of distinctly political or personal issues and debates. When it comes to the vote individual members will take their own view but they will expect the IoD to have provided them with as much factual information as possible to allow them to make this extremely important decision on an informed basis. There is no doubt that there is significant demand for facts and figures and less for assertion on all sides of the debate. To do this the IoD will take a variety of initiatives on its own and with others to discuss and investigate some of the key issues of importance to business. It will also seek to gather the views and concerns of its members and feed them into the policy development process. It will speak to all the relevant parties and interests involved and where it is appropriate work with others to seek out relevant views, research or information. The end user of the IoD s findings will be its members and other business leaders so the more material evidence it can help produce the better. As a starting point the IoD has formed a short term policy group which has identified some of the key issues and begun to develop some specific questions around them. These questions are designed to form the basis for discussion with the two sides Better Together and the Yes Campaign, as well as begin to develop further thinking on the central issues from a policy planning perspective. They are a beginning for on-going conversations not a conclusion. 1

2 Initially they cover: Energy Entrepreneurialism and business start ups Taxation Security and Defence Connectivity Transport The crucial issue is that people in business want to see a robust business plan for Scotland in the future almost regardless of governance which will drive the nation forward into the 21 st Century and ensure a growing and successful. They want to know what the future environment for doing business in Scotland will be and what the priorities and ambitions of the politicians have. It is vital that as we go into this historic referendum that these and other central issues in relation to our economy are fully examined and addressed and the true facts ascertained this is too important to leave to implication and assertion. The business community must be involved in the determination of the nation s future it must not be left only to public policy makers and politicians. Everyone in the country is impacted upon by the economy and the success of the private sector and so they should all be concerned about the effect of any constitutional change on the performance of the nation s businesses. Business too must demand that wherever possible there are clear answers given to the major questions which surround so many areas of the economic future of Scotland. Business leaders have the right, indeed the duty, to ask searching questions about the issues which affect them, their business and their employees. The Future of Energy in Scotland? Energy is for Scotland as for the rest of the world in particular Europe, a key issue for the future. It affects the domestic and commercial consumer alike and is one of the crucial industrial questions of the future. For the economy to proper there must be a ready and secure supply of affordable energy. To deliver this all industry experts say that we will require a balance of production sources and a joined up grid supply but it is far from clear that there is any clear political consensus about our what our priorities or mechanisms or charging should be. IoD members are for example in favour of well regulated shale gas development in the UK and realise cheaper sources of energy are essential if we are to stem the increase of and eliminate fuel poverty whilst also reducing industries electricity prices. However, some doubt exists as to how shale gas and Carbon Capture and Storage technologies can be applied in the UK. In addition Western European nations are taking their climate change and carbon build-up seriously. 2

3 Binding climate and energy targets are set of binding legislation which aims to ensure the European Union meets its ambitious climate and energy targets for These are known as the " " targets, set three key objectives for 2020: A 20% reduction in EU greenhouse gas emissions from 1990 levels; Raising the share of EU energy consumption produced from renewable resources to 20%; A 20% improvement in the EU's energy efficiency. As David MacKay, Chief Scientific Advisor to DECC, says in Sustainable Energy without the hot air there are three ways in which demand could be reduced: 1. By reducing our population; 2. By changing our lifestyle 3. By keeping our lifestyle, but reducing its energy intensity through efficiency and technology. The recent announcement by the Scottish Government that it will extend the life of nuclear generation gives hope to those who believe that nuclear should play a part in any energy plan. It should certainly reduce the cost to the consumer; make use of established transmission networks as well as take some criticality out of developing new renewable sources. The single energy market can be defined by the Energy Bill which is primarily concerned with creating the legal powers to implement the electricity market reform ( EMR ) operational framework. It places the National Grid in a position of Delivery Body which inter alia will decide on eligibility of proposed developments. Fergus Ewing, Scottish Energy Minister, has expressed the Scottish Government s strong belief that it would be in Scotland s interest to be part of a GB wide single energy market, in line with the increasingly integrated EU energy market. The Scottish Government have substantial differences of policy with the Westminster Government which even on worst estimates of build potential would create the position where Scotland s electricity generating capacity is unbalanced with the rest of the UK. The Scottish Government assert that any surplus of renewable generation could be exported to the rest of the UK and wider into Europe. Questions for both the YES and NO Campaigns 1. How do you propose meeting the future energy demands by reducing emissions to 90% below current levels and by when? 2. What are your plans to create long term sustainable economic value and jobs in the energy sectors? 3

4 3. What is your strategy for reducing demand for energy? 4. What is your timetable for eliminating fuel poverty? 5. Would you propose that in order to obtain the best from a single energy market that all aspects of energy policy become UK matters in the future? 6. What option/risk analysis has the government carried out to demonstrate that its plans represent best value to the consumer? Questions for the YES Campaign 1. In the interest of preserving a single energy market would you agree to adopt the Energy Bill and the EMR and work with the rest of the UK in creating long term sustainable economic value and jobs in the energy sectors? 2. What would you predict the effect on domestic and commercial electricity charges will be if an independent Scotland was part of a single energy market and if it was not? Supporting Entrepreneurial activity in a future Scotland Background According to recent American research paper co, substantially all net new employment In America will be created by companies under five years old. Policy makers here are beginning to understand the importance of such companies both for the creation of new employment and the restoration of economic growth. Scotland has a real issue in the lack of world class companies that have grown from such start-ups ongoing support is critical. Currently the UK government has a range of tools and tactics it employs to encourage investment, research and development of businesses. The key question is how these incentives will be sustained or enhanced in Scotland in the future. Tax incentives The UK currently offers some of the most generous tax incentives of any major tax paying jurisdiction for investment in early stage businesses. These incentives include:- - EIS relief; - Seed EIS relief; - Capital Gains Tax exemption for Seed EIS investment (for the current fiscal year only); - CGT rollover relief; - Entrepreneur relief; - Business Property Relief giving rise to IHT exemption for qualifying businesses; - R&D tax credits; - NIC exemption for new companies employing fewer than ten people; and - VCT reliefs. Will these tax incentives remain in an independent Scotland? 4

5 What can be done to improve them? Business Angel Investment For the past 20 years we have developed one of the most successful business angel communities in the World. Business Angel Investment in Scotland is equivalent to about 5 per year per head of the population compared with about 50p per head of population in Europe. Will the Scottish Co Investment Fund (Scottish Investment Bank) remain in place in an independent Scotland? What will be done to improve it and increase the rate of investment in high growth companies? Venture Capital Investment We only have three venture capital funds resident in Scotland (SEP, Pentech and Panoramic) and they all source most of their deal flow in England where they see far more opportunity. While we have a world class track record in Business Angel Investment, but we have a serious issue when it comes to the next round of investment -for investment between 2m and 5m. If we wish to create a cohort of world class entrepreneurial companies this is a fundamental issue which must be put right. How will this issue be tackled in a future Scotland? There have been numerous Government initiatives to promote the early stage investment market in England including:- - Capital for Enterprise, which is the Government fund of funds ; - The Enterprise Capital Funds; - The Capital for Enterprise Fund; - The Green Investment Bank; - The JEREMIE Funds; - The UK Innovation Investment Fund; and - Venture Capital Trusts. With the exception of the JEREMIE Funds which have a geographical restriction these funds are available across the UK. What will be done in Scotland to ensure that those seeking to raise capital are able to find it here? Promoting Entrepreneurship With the notable exception of the Scottish Investment Bank Scotland has few since devolution to promote entrepreneurship. The Scottish Loan Fund offers mezzanine debt at high interest rates and equity kickers. There is on the other hand much happening at a UK level with organisations and initiatives such as:- - Countless initiatives by BIS; - Start-up Britain; - The Business Coaching and Mentoring Scheme; - The Technology Strategy Board; - The Science Research Councils; - NESTA; and 5

6 - The appointment of a Prime Minister s Enterprise Adviser. What initiatives might we expect to see in Scotland to improve the position? Will there be a Scottish equivalent of BIS? If so, what will be its roles and responsibilities and how will it be financed? Scotland currently receives about twice its per capita share of financing from the Science Research Councils and from the Wellcome Trust amounting to many hundreds of millions annually. What will be done in Scotland to ensure that these various funding streams are maintained? Bank finance The two major banks which control about 70% of the business banking market in Scotland are both currently under pressure to shrink their balance sheets. What action would be taken in an independent Scotland to ensure that we continue to have a functioning banking system that supports our entrepreneurial community? Commercialisation Scotland has a good record in academic research but is not so good at commercialising the fruits of our research. Some of our Universities are actively promoting a new culture of entrepreneurship with some of the University funding comes from the Scottish Funding Council. Scottish Enterprise has also supported such initiatives with Proof of Concept Grants, SMART Awards and support from the High Growth Unit. What will be done in Scotland to provide continued support for these initiatives? What new steps would a Scottish Government take to improve our lowly rankings in the Global Entrepreneurship Monitor? Procurement Our SMEs and entrepreneurial community have major challenges in assessing public sector contracts. How will this situation improve in Scotland as a result of steps that cannot be taken under current legislation? Education and Skills Scotland has had control of its education and skills policies since devolution but we still do not appear to have the right mix of skills for a knowledge based economy. There also appears to be an irreconcilable difference between University education which is free, at least at the point of delivery, and HE funding which is achieved at the expense of critical FE funding which also has a significant impact on skills and productivity. 6

7 How will these issues be resolved in Scotland to ensure that we have a skills base and work force which is able to compete with the best in the world? Potential actions In the Scotland of the future there are a number of initiatives that could be developed to promote both start-up activity and the on-going support of young companies e.g. Emphasis on business, entrepreneurship and citizenship in primary and secondary schools including the relevant training of the teaching profession (or possibly the utilisation of businessmen and women on an organised basis); Improved and free access of business to (bundled) intellectual property created by HE; Enhancement and integration of the activities of the Scottish Investment Bank; Encouragement of corporate venturing to exploit intellectual property via fiscal incentives; Exemption from NIC for all employees of incorporated companies on a scaled basis up to ten employees; Stability of favourable capital gains tax regime for all early stage investors; Local authority programmes to exploit empty retail and industrial premises funded by the Scottish government to provide locations for new businesses on a council tax exempt basis. Will any of these initiatives be adopted in Scotland in order to promote and support company start-ups? Are there any other specific proposals being developed? A Good Tax System Should Be Structured To Address All Spending Needs A common theme of all those involved in debating the future of Scotland is that it should be a fairer more equal society which would suggest that changes to taxation are inevitable given Scotland s sizeable benefits bill. This would suggest changes to personal taxation - hitting the rich harder to increase social benefit and reduce taxation of the lower paid higher taxation on high paid employees. Linked to this the level of corporate taxes would be considered and there is a danger that different levels will be set. Such a move could encourage UK companies to employ and pay its workforce through companies registered outside of Scotland. Any moves to less favourable allowances and draw-down rules on private pension schemes would more than likely have the same affect. Regarding corporation tax here has been some discussion about reducing it but this is quite complex in a UK or EU setting. There are also a number of allowances which businesses can set against corporation tax - the most 7

8 influential being Capital Allowances - and there would need to clarity about their retention or extension of these. The revenue collected from Scottish Continental Shelf - which is absolutely vital to Scotland s taxation system and levels - will also depend on the tax regime adopted by Government as will the corporation tax collected from all foreign companies. Recently attention has been drawn to the ability of multi-national companies to legitimately minimise the tax they pay by applying agreed intergovernment tax protocols. There is further uncertainty over what the level of sovereign bond yields may be. All of this begs the question whether an independent Scottish Government would intend to maintain a balanced budget or if the qualification to its proposed wealth fund when fiscal conditions allow implies that initially they accept that Scotland would have an annual fiscal deficit to add to the debt transferred from the UK. It has emerged that Scotland would expect its fair share of the UK s debt based on a proportion of GDP. The latter impacts on how the market would perceive the risk of a Scottish Government defaulting on its loans. Taxation reform in Scotland would involve initial costs for the government and for business. There would be ongoing costs of managing and maintaining HMRC (Scotland). Such costs would be part of government expenditure. Whilst it can be argued that there may be reductions in the costs of some areas of government it is not what other levels of expenditure may be, including state pensions and liabilities for state and public sector pensions. Questions for YES Campaign 1. Would an independent Scotland comply with the EU Treaty in a manner which would enable it to adopt the euro in due course and if so what would the criteria or tests be to determine the right time to join the euro? 2. Would an independent Scotland seek to form an optimal currency area with the rest of the UK and what would the red-line terms be for negotiating purposes? 3. Having accepted that an independent Scotland would inherit total debt in excess of 75% of GDP and would it pursue an expansionary fiscal policy which would increase that debt and what are the intrinsic assumptions on sovereign debt yields? 4. What evidence is there to show that there wouldn t be significant differentials in the economies of an independent Scotland and the rest of the UK? 5. What would the key fundamentals of tax policy; regulation and collection be in an independent Scotland? 6. What are the tests for fiscal conditions required for investing revenues from oil and gas into a sovereign wealth fund? Questions for the NO Campaign 8

9 1. Can the parties who have joined together in the Better-Together campaign explain what the reforms in tax policy; regulation and collection would be if Scotland remains part of the UK? 2. Can the parties who have joined together in the Better-Together campaign explain how Scotland may depend more on the benefits and burdens of revenues from oil and gas and if so do they agree that Professor Kemp and Linda Stephen s assumptions are factually proven? 3. Have the parties who have joined together in the Better-Together campaign any proposals to revise the Barnett Formula by making grants more responsive to need and if so what? 4. Have the parties who have joined together in the Better-Together campaign any proposals to revise the devolved taxation powers pursuant to the Scotland Act and if so what? Security & Defence While operational collaboration would be achievable across existing UK capabilities post-independence, strategic intelligence assets including, Security Service (MI5), Secret Service (MI6) and GCHQ, are significantly dependent on technical capabilities belonging to UK. This presents a risk that the host national interest would have primacy and consequently act as a filter tointelligence relating to terrorism and crime (including economic crime) being fed to a second tier interest like an independent Scotland. Would collaboration based on these existing UK assets necessitate the feeding of intelligence through channels under the control of a foreign sovereign authority and what safeguards would be available to protect national economic interests? Financial Regulation is core to supporting and protecting Financial Markets. This necessitates an investigatory function that in the UK is performed by the Financial Services Authority. An Independent Scotland would be founded on the maxim of an independent justice system. Would this necessitate the establishment of this capability in Scotland or the devolvement of Scottish investigative powers to existing UK wide financial regulatory and investigating authorities? The UK s defence industry activity supports and is aligned to defence capability. The scale of existing defence related business activity is significant across Scotland and shaped to reflect the UK defence capability. The required shape and affordability of Scotland s defence force post-independence will be strongly influential on defence related commercial activity based in Scotland. A less sophisticated defence force would likely result in a less sophisticated defence industry in Scotland and have a consequential impact on Scotland s economy. Would a less sophisticated defence force also mean a less sophisticated contribution to Scotland s strategic alliance? 9

10 What would be the potential impact of withdrawal of defence industry on jobs in Scotland? CONNECTIVITY There are many aspects governing a Nation that could be encompassed under the heading Connectivity however, for conciseness and focus we have for the moment concentrated on IT Systems and Technology a massive area which grows in importance year on year. IT Systems & Technology: Should Scotland become an Independent nation or as devolution increases, there will be a significant requirement to store and process information for every citizen. Clearly, this assumes you have first defined who are considered Scottish Citizens under the jurisdiction of such systems. In reality there will also be more than one record per citizen and many IT systems to support the Nation and its Citizens, so it will be a very complex matter. These required systems cover areas such as taxation, pensions, welfare and benefits and even car registration. Such systems are currently operated in a unified way by UK Govt. This poses a number of major questions regarding how an independent or further devolved Scottish Government will identify, migrate and transfer data securely and timely to reflect a separate nation as well as having the IT resource and capability to do such and operate such. Fundamental questions such as: 1. What arrangements will be made to share or migrate systems with existing UK government departments who currently hold the data (either short term or for the foreseeable future)? 2. What is the cost of the required IT systems, capital and revenue, over the next 5 10 years? 3. What levels of integration would continue to be required between UK and Scottish national IT systems and how will this be achieved? 4. Do we require to develop separate systems for trading globally (monetary and stock) and an infrastructure that can cost effectively route and exchange electronic traffic, globally. 5. The IoD has many IT experts in membership who may be able to help and innovate a more distinct IT strategy. There is of course a significant second part to the area around technology, which needs to be addressed if Scotland makes the decision to become independent or further devolved, and this relates to the digital infrastructure, which Scotland runs on. The following questions will need to be addressed: 1. What are Scotland s targets and goals for digital infrastructure and connectivity for its citizens? 2. Will this differentiate Scotland from the UK? 10

11 3. Will Scotland be comfortable with all incoming and outgoing internet traffic being routed via London, or will there be a requirement for the creation of a Scottish Internet Hub, with direct connectivity to mainland Europe? What levels of integration and connectivity will be required (from a security and a data integrity perspective) between UK and Scotland? Transport Crucial To The Future Of Scotland Given the geographical placement of Scotland on the northern fringe of Europe, and its sometimes sparse population spread set alongside some severe converging around the cities, top quality transport links within and outside the country s borders are crucial to a thriving economy. The importance of transport and its connections applies to air, road, rail and sea; and highlights some big concerns for the future of Scotland moving further into the 21 st Century. Indeed the disproportionate importance of transport to this nation in the UK is often underestimated and clear evidence of progressive plans will be of considerable value to IoD members and their organisations. Businesses and the economy are heavily dependent on the quality of the transport links available and their costs. This applies to the employees as well as the businesses themselves and vital investment decisions are often dependent on the availability of viable transport links.. Future plans and planning in this area of public expenditure and control is of crucial importance to the IoD and its members. Questions: What do you see as the future of Air Passenger Duty? How do you see the operation of network rail in the future? How will future Scottish rail franchises operate? What are your key plans for improving the road network in Scotland over the next 20 to 30 years? How do you see the future of public transport buses and trams in terms of public subsidy? How will you encourage more direct flights into Scotland? What plans do you have for hi-speed rail affecting Scotland? 11