Page last updated at 17:15 GMT, Sunday, 21 December 2008

VAT cut 'saves fewer Scots jobs'

Retailers have been encouraged to pass on the cut in full

A boost to Holyrood's budget would have secured thousands more jobs than the recent VAT cut, according to an analysis by the Scottish Government.

Its economic advisers estimate the tax cut should help about 5,400 Scots stay in work - at a cost of 1bn.

But they claim an equivalent boost to public construction spending would save or create about 10,000 jobs.

Scottish ministers concede the impact may be slower, while the Treasury wants to see its stimulus act more quickly.

A spokesman for the Treasury said the advantage of the VAT cut in tough economic times was that its impact was immediate and temporary.

He said substantial capital expenditure was also being brought forward by the UK Government.

They're going to reverse it next year, so it doesn't really last
Alex Salmond
First Minister
The Scottish Government said it had used Treasury assumptions and an input-output model of the Scottish economy to come to the conclusion that increasing capital expenditure would stimulate jobs and the economy much more than the temporary cut in VAT from 17.5% to 15%.

It claims an increase in capital expenditure of 1bn in Scotland - the estimated share of the cost of the VAT policy - would support 10,000 jobs directly, and an additional 4,900 jobs through indirect purchases.

First Minister Alex Salmond told BBC Scotland: "The 2.5% in the pound is a nice thing to have but they're going to reverse it next year, so it doesn't really last.

"It's a small addition which will generate some jobs but nothing like the amount of jobs that would have been generated by putting the same sum into capital investment - building bridges, roads, schools, hospitals early and better.

"That would have generated far, far more jobs, it would have been a much better thing to do."

BBC Scotland business and economics editor Douglas Fraser said: "First Minister Alex Salmond doesn't think the temporary 2.5% cut in VAT, at a cost of 12bn to Treasury takings, is the most effective way of fending off recession.

"His economic team has crunched the numbers and reckons a Scottish share of that stimulus package, directed to capital investment in public services, would have far more impact on jobs."

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