Should Scots income tax rate be different from rest of UK?

Published on Friday 22 July 2005 01:42

YES: Brian Monteith

Tax cuts can stimulate economic growth and need not necessitate slashing public spending

OFFICIAL statistics about the Scottish economy don't lie. As a nation, our economic growth is consistently lower than England's. If Scotland's economy had grown at the same rate as England's since 1997, it would by 2003 have been 4.2 billion larger than it was. That's a lot of wealth to raise standards of living or employ the 100,000 people who have lost manufacturing jobs over the same period. And you can't argue with geography: we are further from markets, have poorer infrastructure and saddle entrepreneurs with higher business taxes and more regulation. If there is an area of the economy growing, it is the public sector; one person in four now works for the government or its agencies, highest in the Western world. The electorate has voted for more teachers, nurses, doctors and police, and it's only right they are delivered.

The figures, however, tell another story; more admin staff have been hired in the NHS than doctors, nurses and clinicians put together. To address economic disadvantage and make Scotland a prosperous magnet for entrepreneurs and skilled workers - or for those of us who want to keep more of our hard-earned pay - a cut in the standard tax rate by 3p would make a real difference. Lower personal taxes are, for many, an incentive to work harder and produce more, especially the self-employed, who account for much of our economic activity.

The hard part is not advocating a tax cut but financing it. People are employed and services are delivered using taxes; surely it means swingeing cuts, so brutal that nobody will vote for them?

There are two answers to this, depending on what you believe happens when taxes are cut.

If you believe, as the Treasury does, that tax cuts mean a loss of revenue that must be funded by a reduction in spending, savings will need to be found.

Considering that in the last eight years Scotland's budget has grown by 11 billion - from 15 billion to 26 billion - it is surely possible to find savings of 750 million without the end of public services?

Labour's own finance minister, Tom McCabe has already said the public sector will need to shed jobs - but he will use the savings to fund more spending, while the Tories will, if brave enough, use them to cut taxes and inspire a growing economy. Pegging public spending at present levels, rather than letting it grow, would itself provide significant savings.

Alternatively, if you believe a marginal drop in tax rates can act as an incentive to raise productivity, bringing higher personal and business earnings that deliver higher tax receipts, then those savings are not necessary. In such a scenario there will be a time lag between the cut in taxes that will produce a fall in receipts and the subsequent productivity gains that produce a tax bounty.

This is normally covered by temporary government borrowing, but as the Scottish Parliament has no powers to borrow, it would either have to obtain those powers or reduce its spending for a temporary period - so long as the Treasury agreed to pass on the increased revenue when it arrived. Savings are not necessarily from shedding jobs, but can be achieved by simply doing things differently - like moving Scottish Water into the private sector.

Tax cuts are possible, could rejuvenate our economy and actually lead to a larger pool of finance to support our schools and hospitals. It's a tempting prospect and one that should no longer be resisted.

• Brian Monteith is a Conservative MSP.

NO: David Eaglesham

The Scottish electorate value their public services too much to be tempted by this bribe

IT'S always the easy and attractive option. Go for the wallet, go for the purse. Never mind the quality, feel the width. Cut public spending and, as a result, the public will have more money to spend and they can then buy more imported consumer goods which will increase the profits at Tesco. So far, so good. But what are the other consequences?

Let's be clear, this is not a "no cost option". Let's not be deluded into thinking we can cut public services again and again with no adverse effects. The concept of huge reserves of surplus time and resources lying under-utilised within public services is a fallacy. If ever there was such a time, it has long since been vitiated by the cutbacks of successive governments.

The reality in public services today is of resources stretched to the limit, against a background of underlying reductions in local government finance which already threaten to pare away even more jobs and physical resources. More than ever, core services will be threatened and there is a realistic prospect of some authorities being unable to discharge their statutory functions.

Who cares about statutory functions anyway? When did you last enjoy one of them? The truth is they are all around you and you enjoy them all the time. The whole infrastructure which supports your lifestyle - water, roads, education, healthcare, environmental care; the list is truly almost endless. These services are vital and yet sometimes assumed to be naturally occurring, like tides and wind.

People value the services they receive, either directly or through family or friends. The people of Scotland are not fools. They recognise the crucial role these services play in maintaining our nation's social fabric. They respect the deliverers of the services - teachers, nurses, social workers and countless others. They seek the extension of these services to those in need rather than their reduction.

But if the people of Scotland are offered the choice of more money in their hand and poorer services, which will they choose? Will they be tempted by easy money or opt for the more collective approach to community life?

I contend they will see through the wafer-thin veneer of the proposal and opt for the retention of properly funded public services. They will not vote for a situation where schools have to resort to seeking cash from parents for necessities, or to run lotteries to raise funds for textbooks and materials. They will not tolerate children in care or the elderly being ignored by services with too few staff to cope. They will not accept less frequent refuse collection or fewer libraries, or dilapidated parks, or poor water quality. They know these are the ultimate price of cutting public services and will not accept it.

With much greater disposable wealth available to people in Scotland today, there has not been a reduction in the public consciousness about the needs of others. Witness the huge response to tsunami relief programmes from the people of Scotland in the early days after the disaster. People are sensitive to the needs of others and, while not everyone would volunteer to work in public service, they support those who will undertake difficult, sometimes thankless, tasks. That includes financial support, and that will override any attempt to bribe the electorate with promises of reduced taxes.

If the opposite proposition was put to the electorate, that would be much more interesting.

• David Eaglesham is the general secretary of the Scottish Secondary Teachers Association.

YOUR VIEWS

That's devolution

Certainly, Scotland should be able to set its own rates of tax; surely that is what Holyrood is all about. Naturally we could not expect the rest of the UK to make good any shortfalls caused by bad management of the Scottish economy.

GM FARQUHARSON

Poperinge, Belgium

Feelgood factor

Reducing income tax is an excellent idea as it encourages enterprise, which will in turn create more jobs and in turn create more revenue for the Exchequer. Also, if people have more money in their pocket, they spend more, which will produce higher VAT returns, more money to the Exchequer. Reducing tax is beneficial all round as well as creating a "feelgood" factor.

JIM McALLISTER

MSPs should use it

I think the Scottish Parliament should use the tax if the people of Scotland are going to get on. Scotland voted to have a parliament with powers; the MSPs should use the Scottish tax.

ARTHUR BRAITHWAITE

Edinburgh

Let's get real

Of course Scotland should not have a separate tax system. It is part of the UNITED Kingdom and has been for hundreds of years now and it is about time that everyone got used to it.

CLARE FINN

Time to raise tax

Perhaps the biggest distortion of political debate in the last two decades has been the suppression of extensive evidence of the received wisdom on the public attitude to taxation. Lazy commentators repeatedly claim the public won't vote for tax rises. There is little evidence for this, yet it is routine to dismiss evidence that there is - that again and again, people say they are willing to pay more taxes for better public services.

There is also evidence low tax is good for the economy, which in fact shows low tax is good for the accumulation of profit by fewer people. The low-tax agenda in the United States in the 1990s led to "economic growth" while causing a drop in average living standards.

Political and social imagination is woeful and we have four big political parties with the same general policy - appease the powerful vested interests of financial speculators. Yes, we should be talking seriously about tax. It would be a policy for people and not the caricature of people which is the subject of current 'debate'.

ROBIN McALPINE

Editor, Scottish Left Review

Too soon

I like the fact we have a right to vary income tax. Having that is a must for me. In the right hands, that power could be put to good use. But I don't think tax should be varied at the moment. We're too new into devolution, still bedding down, to exercise that power.

JENNIFER BROWN

Aberdeen

Exercise caution

We would be very cautious about introducing a different level of tax, whether local income tax to replace council tax or setting different income tax levels. We should think about redirecting the money we already get. US states and German provinces have powers over things like sales tax which is much easier to administer in Scotland's shops than trying to calculate different rates of income tax when people move around.

MARK BALLARD

Green MSP & finance spokesman