Fiscal-lite is not credible without tax cuts

Published on Saturday 7 October 2006 01:16

IT SHOULD come as no surprise to anyone that the Scottish Conservatives will soon be presented with a set of new policy initiatives that includes making the Holyrood Parliament responsible for raising a larger proportion of the money it spends.

With more money than they know what to do with (spending has risen from 15.6 billion in 1999 to a projected 32 billion in 2007; total under-spends in that period amount to 1.2 billion and will rise further) MSPs do not appreciate the burden individuals and businesses endure from taxation in Scotland. Their focus is primarily on how to spend, and spend again, with little self-discipline. Prudence is not a word you'll hear often in Holyrood.

If there is a social problem, MSPs of all parties immediately sign up for more money to be spent on it, for a new national service of this, that or the other, to be introduced without any suggestions of whether other services should be cut back or rationalised to accommodate their new well-intentioned initiative. As a result, the public sector continues to balloon in size, taking up more resources and crowding out the wealth-generating private sector that actually pays for everything.

To reverse this process and bring a fresh sense of reality requires that the Scottish Parliament raises most, if not all, of the money that it spends. A new treasury department would be created to oversee Executive spending more rigorously and the financial scrutiny of spending and budgeting, by bodies such as the parliament's audit and finance committees, would be beefed up. The parliament would become far more accountable for its actions and MSPs would have to think twice before spreading their spending commitments like confetti.

The report in Thursday's Scotsman, which I have been assured is well informed, therefore comes as a welcome relief that there is still life in the Tory party and that it may yet be possible to avert its journey to electoral oblivion. What was worrying, however, was the suggestion that the taxes that would be allocated to Holyrood are relatively minor and that there remains a fear of using the existing powers to cut income tax and business rates. It is surely absurd to advocate having more financial powers for the parliament only to avoid using those that already exist, namely the ability to cut the standard rate of income tax in Scotland by 3p and radically reduce or even abolish the business rate.

Tax competition is at last being recognised as a crucial tool in setting the right conditions for economic growth and with such tax-cutting policies the Scottish Conservatives would have an attractive economic platform that would give them a reason to exist and flourish.

The excuse - and let's face it that's what it is - that tax cuts can't be offered by Annabel Goldie in next May's elections for fear of upsetting David Cameron or confusing his message of stability, is so lame that no Zimmer frame could help it stand up to scrutiny.

George Osborne and Mr Cameron have made it clear repeatedly that it is for Ms Goldie and her beleaguered band to make their own taxation proposals. This is not just because they understand devolution and the requirement for separate policies appropriate to each institution, it is because the case they are making for economic stability is built upon the genuine fear that if they offer tax cuts now, they may find that if they get the keys to Downing Street, Gordon Brown has left them with such an almighty deficit that they may even have to raise taxes.

Now I don't quite buy this argument as I think they could at least be making the moral case for why tax cuts are good and are in their blood. Nevertheless, the situation in Scotland is quite different, as any tax cut here would have to be funded through the block grant by making real genuine savings or cutting back on unnecessary expenditure. This will not destabilise the economy - and if done properly should, in fact, lead to greater economic growth and growing tax receipts. Add to this the real worry that I heard often at Bournemouth that Ms Goldie and co are making such a pig's ear of it, not just for themselves but for Mr Cameron too, and one can understand why he would be willing for Scottish Tories to be radical if that's what they need to do to win seats.

To summarise, what's the point of having more powers at Holyrood if the Tories are unwilling to demonstrate that they are willing and able to use the ones they already have?

The proposals then, for what can be termed as fiscal-lite, while in the right direction, are at best half-hearted and without the offer of real tax cuts cannot be viewed as credible.