Written evidence submitted by The Scottish
Retail Consortium (SRC)
1.0 The Scottish Retail Consortium (SRC) is the
trade association of the Scottish retail sector and is the authoritative
voice of the industry to policy makers and to the media. The SRC
brings together the whole range of retailers across Scotland,
from independents to large multiples and department stores, selling
a wide selection of products through centre of town, out of town,
rural and online stores. The SRC is based in Edinburgh and is
supported by its parent company, the British Retail Consortium,
based in London and Brussels.
1.1 The Scottish retail sector employs nearly
250,000 people, equating to one in nine of the workforce. The
sector contributes 7% of Scotland's Gross Value Added (GVA) and
just under 10% of enterprises in Scotland are retailers.
1.2 The sector's presence in Scotland, as an
employer and as a financial contributor, means we are particularly
interested in the overall framework in which it operates. Retailers
require the correct conditions for growth for them to continue
to recruit, invest and trade in Scotland. Additionally, for multiple
retailers operating across the UK, a degree of regulatory constituency
between England, Scotland, Wales and Northern Ireland is important.
It is for these reasons we are interested in the devolution settlement
and the changes the Scotland Bill could implement.
1.3 This evidence relates only to those aspects
of the Bill and the Calman Commission's findings that directly
affect retailers.
2.0 Which of the recommendations of the Calman
Commission on Scottish Devolution are not implemented by the Bill,
and why?
2.1 The SRC is particularly concerned that the
Government has not included the Calman Commission's recommendation
to re-reserve powers over food content and labelling.
2.2 Recommendation 5.11 of the Calman Commission's
final report stated:
2.3 "The Scottish Parliament should not
have the power to legislate on food content and labelling in so
far as that legislation would cause a breach of the single market
in the UK by placing a burden on the manufacturing, distribution
and supply of foodstuffs to consumers, and Schedule 5 to the Scotland
Act should be amended accordingly."
2.4 The SRC believes that this is a sensible
recommendation. The current situation has led to a lack of clarity
about the Scottish Parliament's powers on issues related to food
content and labelling due to the current devolution of these powers
and the inclusion of public health as a devolved matter on the
one hand and the fact that these matters are, largely, the responsibility
of Europe, with the UK, not Scotland, the Member State.
2.5 The vast majority of grocery retailers operate
throughout the UK and their products are the same, with the same
labelling, in each locality. This is hugely beneficial for the
consumer. Customers recognise the products and the information
displayed on packs, thereby fostering confidence in the food they
buy. However, this also means that the efficient and effective
supply and distribution of goods is possible, helping to keep
products affordable.
2.6 We agree with the Calman commission that
a requirement to label or produce food differently in different
parts of the UK will place a heavy burden on retailers, producers
and manufacturers and could breach the single market. We do not
believe this is in the best interests of Scotland, or the rest
of the UK.
2.7 Looking to the future, we believe that there
is potential for the current settlement to produce considerable
activity in this area. For example, environmental labelling is
an area where the Scottish parliament could seek to introduce
legislation applicable only in Scotland. Progress on this issue
would be far better at a UK-wide level and different requirements
in Scotland and other parts of the UK would place considerable
financial and administrative burden on the food industry.
2.8 The SRC would urge the Scottish Affairs Committee
to press the Government on why it has not taken this recommendation
forward.
2.9 In addition, the Calman Commission made several
recommendations on improving the communication between Holyrood
and Westminster and for making changes to the Scottish parliament's
legislative process. With particular reference to the former,
the SRC would welcome improvements to the communication between
Government and Parliaments, not just between Holyrood and Westminster
but also between Holyrood, Westminster, Cardiff and Belfast.
2.10 Increasingly we are seeing four different
regulatory regimes implementing very similar policies. This situation
creates considerable burdens for businesses implementing these
proposals with no clear benefit; the changes are not due to particular
evidence to suggest nuanced changes are required. Better communication
may alleviate the worst of these instances and would be of considerable
value to the UK as a whole.
2.11 Whilst accepting these changes may not require
legislation to bring forward, it would be useful to understand
the Government's response to this recommendation and how it proposes
to take them forward, if at all.
3.0 What provisions are made in the Bill,
which were not recommended or considered by the Commission on
Scottish Devolution?
3.1 The SRC has no comment.
4.0 What are the fiscal and financial implications
of the provisions in the Bill for Scotland?
4.1 The fiscal and financial aspects of the Scotland
Bill are the most significant provisions at this stage and have
considerable implications for Scotland.
4.2 The SRC broadly supports the objective of
giving the Scottish Parliament greater financial accountability.
Since devolution significant policy decisions across a very wide
range of issues are determined by the Scottish Government and
Parliament. The SRC supports the conclusions of the Calman Commission
that these powers should be accompanied by powers to raise an
increased proportion of the revenues necessary to enact the policies
of the Scottish Government. It is for the Scottish electorate
to decide on the financial accountability of the Scottish Parliament
and Government. As for any other government, a responsible Scottish
Government will need to take account of the competitiveness of
Scottish business and the implications for the Scottish economy
in making decisions on fiscal policy.
4.3 That said, the new regime will need to be
structured such that the revenue sources available allow a balanced
approach to be taken so that the fiscal levers chosen to do not
impact on a single economic sector, such as retail, disproportionately.
For example, retailing is a people and property intensive sector,
employing one in nine of the total Scottish workforce (nearly
250,000 people) and paying around 25% of all Business Rates despite
generating 7% of Scotland's Gross Value Added Domestic Product
(GVA). Any fiscal measure that bears on employment or property
costs will bear disproportionately on the retail sector and have
unintended consequences for retailing and its suppliers in the
food, drink, consumer products, distribution and construction
sectors.
4.4 With regards the proposed changes to income
tax, we have some concerns regarding the implications of different
income tax regimes operating in Scotland and the rest of the UK.
4.5 Retailers need Scotland to be a competitive
and attractive place to do business so that they can continue
to invest in local communities and generate more jobs. While over
98% of Scottish retailers employ fewer than 50 people, over two
thirds of retail jobs and three quarters of turnover are within
the large multiples. These businesses make investment decisions
based on maximising their return on the capital invested across
their whole portfolio, throughout the UK and internationally.
Fiscal policy decisions which reduce the competitiveness of Scotland
compared with other jurisdictions would harm the investment in
and growth of the Scottish economy.
4.6 There are two aspects to income tax policy
that could impact on the competitiveness of Scotland as a place
to do business:
— The
effect on wage demands of staff, and hence total wage costs in
Scotland versus other jurisdictions in which retailers operate;
— The
complexity of administration of a different income tax regime
in Scotland and the effect on retailers' administrative overheads.
4.7 The proposals give the Scottish Government
powers to vary the rate of income tax up or down as well as retain
the same level as elsewhere in the UK. A reduced rate could enhance
Scotland's competitiveness and attract businesses and potential
employees wishing to benefit from it. A reduced rate could increase
household disposable incomes and, since one third of consumer
spending goes through retail, would benefit the sector in Scotland
through improved sales volumes as well as holding down wage costs.
Retailers see this is an opportunity for Scotland to increase
its ranking as a good place to do business.
4.8 Were the Scottish Government to increase
income tax levels beyond those elsewhere in the UK this might
lead to increased pressure to adjust wage rates in order to maintain
disposable incomes, and hence increase employment costs. This
would reduce Scotland's competitiveness as a place to base both
shop-floor and back-office staff.
4.9 Where Scottish income tax rates vary, in
either direction, from those elsewhere in the UK there will be
additional administrative complexity and cost, particularly for
those staff who move in either direction across the border. Retailers'
operating systems (in common with other Scottish employers) will
have to be modified to administer the changes, imposing IT, legal,
administrative and training requirements. This could place considerable
burden on head office personnel, especially at the point of first
introduction, handling different taxation regimes once this is
implemented.
4.10 Currently the Scottish Government has few
independent sources of revenue beyond charges for services, Council
Tax and Business Rates. As a result, in setting a budget for 2011/12,
the Scottish Government has proposed a large retailers levy as
an additional charge on Business Rates in order to avoid public
sector cuts. Following a successful motion to annul the order
bringing this in, it is to be debated in the Scottish Parliament
(w/c 31 January 2011). This not only impacts entirely disproportionately
and unfairly on the retail sector, it distorts competition within
the sector by distributing costs according to retail format. For
example, a number of fashion retailers operating from department
or flagship store formats will be hit by the new charge which
represents up to a 30% increase in Business Rate costs, whereas
their competitors operating from smaller format stores in the
same shopping area will not face this charge. This comes on top
of the Scottish Government's decision not to provide a transitional
period when the Business Rate uplift came into effect, unlike
the UK Government.
4.11 A broader range of fiscal tools would give
the Scottish Government a greater range of options in setting
and balancing its budget.
4.12 The SRC/BRC's own retail statistics show
that Scotland has traded below the rest of the UK for the last
few years (see figure below), suggesting the economic downturn
(and government responses to it) has been particularly difficult
for the Scottish economy.
4.13 As a result the gap in performance of the
sector in Scotland compared with the UK as a whole is widening.
Retailing accounts for 7% of GVA compared with 9% in the UK, rising
by 85% since 1998 compared with 126% in the UK as a whole. This
impeded growth is all the more important since retailing accounts
for 20% of turnover and 15% of Services Sector GVA in Scotland
as against 15% and 11%, respectively, across the whole UK. In
other words, retail is more important to the Scottish economy
but is failing to thrive in the same way as elsewhere in the UK.
Fiscal policy choices by the Scottish Government will be critical
to turning this state of affairs around.
4.14 The retail sector has had significant concerns
over the way in which the Scottish Government has supported businesses
during the economic downturn. We are concerned that despite broadening
the Scottish fiscal base, the proposed framework may not be robust
enough to cope with the differing cost pressures across the economic
cycle, particularly given the heavy reliance on public sector
jobs within the Scottish economy. The new arrangements should,
therefore, include some provision to deal with exceptional economic
circumstances.
4.15 The SRC believes that careful and balanced
decisions need to be made in addressing the structural deficit
in public finances and the shortfall resulting from the economic
downturn. The recovery is reliant on private sector growth, providing
increased employment, and supporting skills development and regeneration.
Instead of encouraging this growth and incentivising business,
the Scottish Government is imposing further costs on a sector
that has continued to invest and recruit whilst many business
sectors have stalled. Retailing operates in every community of
any size, unlike any other business sector.
4.16 With regards the other taxes proposed to
be devolved, the SRC is, again, broadly supportive. The proposals
to devolve Stamp Duty Land Tax and Landfill Tax as part of a broader
suite of fiscal instruments would enable more rational and business-friendly
decisions by the Scottish Government. A broad and balanced tax
base has to be set against the need to avoid complexity, perverse
incentives and a punitive tax burden.
4.17 However, we would be concerned if proposals
in the Bill gave rise to a plethora of new devolved taxes and
we are concerned by Clause 80B in the Bill. We would welcome further
detail to understand the full implications of this proposal.
4.18 Overall, any additions to the tax burden
would be ill-advised.
5.0 What further provisions could/should be
included in the Bill in order to further amend and develop the
Scotland Act 1998?
5.1 As per our answer to the first question,
the SRC is of the view that this Bill should be amended to include
the Calman Commission's recommendation to re-reserve powers over
food content and labelling.
January 2011
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