Full tax powers won't guarantee economic growth, say experts

Published on Friday 23 July 2010 17:36

HANDING the Scottish Parliament full tax-raising powers offers no guarantee of economic growth, could destabilise Scotland's finances and may lead to higher taxes, leading Scottish economists have warned.

In an article in today's Scotsman, members of the expert group that advised the Calman Commission highlight several uncertainties surrounding the policy of full fiscal autonomy being pursued by the Scottish Government, including the impact of falling tax receipts, the prospect of soaring tax rates to pay for a high welfare economy and increasing bureaucracy created by a separate tax collection system.

At the same time, the economists mount a staunch defence of the tax proposals contained in the Calman recommendations, rebutting recent claims by rivals and politicians that the plans, which would see the Scottish Parliament collect some income tax and other revenue such as stamp duty and land fill tax, are seriously flawed and offer no accountability to Scottish politicians.

In recent months, the Calman proposals have come under attack, with economists, including Professor Andrew Hughes-Hallett - a former member of the expert group - pointing out "technical defects" in the system. Critics of Calman maintain that, without influence over the full range of Scottish revenue, the Scottish Government becomes a mere tax collector and cannot hope to effect an improvement in the country's economic performance.

A group of Scottish business leaders have also launched a campaign for full fiscal autonomy, and the Scottish Government has campaigned for the powers to be granted to Holyrood, claiming the Calman plans do not go far enough and could damage the Scottish economy.

In today's article, the experts deny there are flaws in their proposals, but they do concede the plans offer no guarantee of economic growth. Referring to the argument, repeatedly made by finance secretary John Swinney, that fiscal autonomy would aid Scotland's recovery, the group write: "It is at best misleading to infer that granting the Scottish Parliament tax powers far beyond those proposed by the Calman Commission is some sort of pre-requisite to stimulating accelerated Scottish economic growth"

They warn that devolving all taxation to Scotland would "expose the Scottish budget to all variations in all tax receipts", adding: "These can be considerable. For example, North Sea oil and gas tax receipts are expected to have fallen by over 6 billion or around 20 per cent of the Scottish Budget in 2009/10 alone. Instead, the Calman Commission wished to provide the Scottish budget with greater stability."

Commenting on claims fiscal autonomy could see Scotland's taxes lowered, the group writes: "Scotland has long expressed different social preferences to other parts of the UK, and a democratic mandate may well exist to move to a Scandinavian style high tax and high welfare economy and not the tax haven type regime some suggest."

And they point out that a further "trade off" in accepting full fiscal autonomy would be the necessary additional administration that would be required to physically collect the money: "Creating a separate Scottish tax system would generate administrative inefficiencies for both government and taxpayers whilst also allowing individuals and businesses to reduce tax liabilities by arbitrating between the Scottish and UK tax systems."

A spokesman for Mr Swinney said: "In order to deal with the macro-economic situation, Scotland needs the same economic powers as other nations have. That would provide us with the necessary tools to accelerate recovery, boost growth and revenues in the Scottish economy, and invest in quality public services - it is the only alternative to a totally dismal decade of cuts from Westminster."

A spokeswoman for the Scotland Office said: "A high level group with key stakeholders will meet shortly to address issues around the implementation of the Calman taxation proposals."