Finance secretary’s U-turn on his stamp duty replacement tax shows he is not up to the job, writes Brian Monteith
IF IT was not clear before that John Swinney is not as safe a pair of hands as his admirers insist, then this week will show beyond any reasonable doubt that as finance secretary he is out of his depth.
As if the shambles that was the Scottish Government’s white paper was not enough, with its failure to close down the currency issue and its fag-packet budgeting on proposals such as childcare, there is also the fantasy oil figures with all the promises of what the supposed revenue could be spent on.
Now it is reported that this week John Swinney will make an almighty climbdown on his flagship tax proposals to replace stamp duty. This will be all the more embarrassing because Swinney is being forced into such a U-turn because of a pincer movement by the Scottish Conservatives at Holyrood and a Tory chancellor at Westminster.
It is not Labour that has fought tooth-and-nail on behalf of Scottish householders, but the supposedly heartless, beyond-the-pale Tories, how dare they! Indeed the Scottish Labour Party’s silence on the iniquities of Swinney’s proposals has been revealing, suggesting that it too would be happy for Scotland to become the highest taxed part of the UK.
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Let us remind ourselves that the new Land and Buildings Transaction Tax has been wholly conceived and delivered by John Swinney. He is the midwife of his own crisis. Given the powers passed on to him by Westminster through the Scotland Act of 2012, Swinney had the good fortune of a once-in-a-lifetime opportunity to design a property transaction tax from scratch. Stamp duty had many faults and Swinney could start with a blank sheet of paper so that Scotland could have a new tax that would show the world, or at least the United Kingdom, how it could be done.
Unfortunately he has flunked it. For while he did the right thing by introducing a graduated system to replace stamp duty’s antiquated slab system (that had meant going over a particular sale price threshold would make the whole value of the sale liable for a higher rate of tax rather than only the amount over the threshold) he unfortunately got greedy and announced a whopping 10 per cent tax rate on properties sold for more than £250,000.
Scottish Conservatives were quick to point out that this would especially punish families who, through no fault of their own, live in locations such as Edinburgh and Aberdeen where property prices are traditionally higher. The Scottish Tory finance spokesman Gavin Brown kept banging the drum about the iniquity that aspiring families would face, but every time Swinney said he would not shift. His new tax was here to stay.
Suddenly the cacophony got louder when George Osborne joined in too. Without the luxury of designing a new tax he simply announced in his autumn statement that he was changing the rate structure; suddenly the old stamp duty in England and Wales looked a far better tax than the shiny new model being buffed-up ready for launch by Swinney in spring.
The political message was acute and painful. By setting lower rates that climb at a softer gradient, Osborne created a potential tax divide between Scotland and the rest of the UK. Scottish middle classes buying family-sized properties would be rewarded by the Conservatives immediately until the end of this March but punished by John Swinney from April onwards – one month before the general election.
I for one have never believed the claims put around that John Swinney is financially prudent and ideal for his role. Having had a past life at Standard Life says nothing to me about his financial acumen when we know what heads of banks can achieve when given free rein. It is a person’s record that matters and Swinney’s has its weaknesses. It was John Swinney who proposed the unpopular “penny for Scotland” higher income tax rate and it was he who came up with a local income tax proposal that was not local and would have cost every Scottish income tax payer a further 5p in the pound.
Swinney still hopes to introduce this tax, which thanks to income tax changes under the UK government will now have to be set at an even higher rate, bringing misery to Scottish working families.
The recent white paper that was meant to show how an independent Scotland would work if the SNP continued in power had many financial weaknesses. It was established that the extra childcare being offered would actually only be afforded if some 40,000 more mothers than currently exist returned to work to pay the taxes that would fund the idea. Where would the mothers come from?
Much noise was made about how an oil fund could be established to provide long term public investment, but there was no understanding that the past oil revenues had gone towards funding the higher public spending that Scotland already enjoys. The only way to create an old fund would be to borrow the money, tax something or somebody – or cut public expenditure. You cannot spend oil tax revenues twice.
Even that has proven wishful thinking as the oil price has collapsed by more than half, from the white paper’s “cautious” $113 a barrel to less than $50 now – with little prospect of the higher price being seen for a number of years. We should recall that despite many warnings that Swinney’s projections, using the top end of a particular forecast, were outrageously optimistic, the finance secretary insisted they were reliable and therefore dependable.
Using Swinney’s projections, an independent Scotland would have faced an £18.6 billion black hole that would require an emergency loan from the IMF. Add to this last week’s embarrassment of the £444m Scottish Government underspend in a time of austerity and we have a financial secretary who is running out of excuses and looks politically exposed.
The problem for the SNP is that the finance secretary and deputy leader is probably the best that they can offer. Fergus Ewing might have eyes on his role but, thus far, he has been slavish in defending Swinney’s figures. So expect more of the same: more proposals for higher taxes that when faced with the reality of competition from the rest of the UK will force Swinney and the SNP to climb down.
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