Nationalists are likely to become unstuck over use of tax and spend powers, writes Bill Jamieson
Who, or what, can halt the SNP bandwagon now? Latest polls point to a landslide victory in the Holyrood elections next May, with the pro-independence Greens also set to gain.
Such an outcome would mark an astonishing ascendancy for the SNP and change both the composition and character of the Scottish Parliament. What could possibly dim the aspirations of the SNP or stand in the way of the full implementation of its polices? It would hand the party almost unlimited power – akin to a souped-up 4x4 revving against the sputtering Reliant Robins of the opposition.
But even monster 4x4s can crash into a wall when vision is impaired. And the horizon for the SNP is hardly cloudless. The continuing rise in support contains within itself the seeds of tensions that could frustrate its programme on two fundamental counts: the securing of a second independence referendum and the introduction of tax and spending changes under the Scotland Bill.
The latest SNP advance is being seen as powerful endorsement of calls for a second referendum within the next five years. And tactically, an early second referendum would be opportune, with the previous big union beasts – Gordon Brown, Alistair Darling, Jim Murphy – all removed or retired from the battlefield. Best, surely, to strike early with the opposition so reduced.
And it would not be long before supporters insist the new “more powers” are insufficient to bring about political and economic transformation desired and that hedging clauses such as “no detriment” would be seen to circumscribe change.
First Minister Nicola Sturgeon has kept all options open – a phrasing that may be hiding a politic circumspection on this issue. The leadership would need to be sure that a second vote would produce a “Yes” result. At present, despite the latest rise in support for the SNP, polls indicate no significant narrowing of last September’s 55-45 vote against independence. This would need to change, for a second “No” result really would bury the question for a generation. And the administration would need to deal with widespread condemnation from the business sector, appalled at the prospect of yet another prolonged period of uncertainty. It would be a confidence and investment killer for business in Scotland.
Even if these tensions are reconciled, problems are set to erupt over the administration’s plans to use the extra tax and spending powers under the bill. These give the Scottish Parliament considerable discretion in the variation of income tax levels and rates.
These powers have assumed greater significance given the party’s strong anti-austerity pronouncements and ambitions for higher public spending. Indeed, it has been the SNP’s stance on these that has chimed with the notable rise in radical Left sentiment across Europe; that has fuelled “Corbynmania” within UK Labour and caused hundreds of thousands of previously loyal Labour voters in Scotland to switch to the SNP. It is now very difficult for what remains of Labour in Scotland to outflank the SNP on the Left.
And among the party’s activist supporters there are high expectations of radical change. Its rhetoric has meshed aspirations that will restore at least in part the “austerity cuts”, that will boost spending on health and child care services, support social care programmes, maintain universal services, tackle income and wealth inequality, fund an ambitious social housing programme, sweep forward with land reform and boost capital and infrastructure investment.
These have been advanced without as yet a coherent strategy or set of priorities – and in a world of finite public spending resources most of the business of government comes down to setting priorities. We do not know how the administration intends to use its new powers beyond the demand for them.
Little has been heard about how Scotland’s growth would be raised to generate the extra revenue to fund the party’s aspirations. And with the dramatic fall in North Sea oil revenues, the need for such extra revenue becomes all the more acute. Almost all, it seems, is to be left to changes in the tax system and to more borrowing powers. But here there are limits.
There are some 2.65 million taxpayers in Scotland and annual income tax receipts are running at some £11 billion, equivalent to a quarter of public sector receipts. There are big constraints here on what the administration can do. There are relatively few higher rate taxpayers compared with the UK. Of the total taxpayer base in Scotland, 86.8 per cent pay tax at the basic rate; only 10.6 per cent pay tax at the higher rate and just 0.5 per cent at the additional rate – both these percentages lower than the UK overall. Additional rate taxpayers make a big contribution to revenues – the 0.8 per cent of the UK population with the highest incomes account for more than 20 per cent of income tax liabilities.
The problem here is that any change at the top end – for example, introducing a higher rate on incomes over £150,000 – would raise a small amount relative both to comparable UK figures and Scottish public spending totals. And there would almost certainly be a behavioural response – taxpayers could choose to work less, reassign incomes, or relocate. There would be a risk that tax revenue, rather than increasing, could fall.
It may well be that the Scottish Government will choose not to make any changes until it has allowed the new system to bed in and had time to fully research these potential behavioural effects. But that in turn would create difficulties. As matters stand, the Scottish Rate of Income Tax (SRIT) is not a devolved tax: income tax including SRIT would continue to be administered by HMRC, identifying Scottish taxpayers and collecting sums due, with the costs borne by the Scottish Government. So a policy of “no change” would be open to the criticism that nothing has changed – except the bill for tax collection.
However, moving quickly to tax changes would run the risk of driving blind, and of a policy crash before reality sets in. Scotland’s tax “car” would be driven straight at the wall – just as in France François Hollande drove his high-tax Renault straight into the wall despite warnings about capital and personnel flight.
Such a repeat would be highly damaging to Scotland. But in the prevailing voter culture at present, such warnings can be issued and with informed research, but few are listening. It may thus become necessary to crash the car before a recognition of reality sets in. And this is as true of ambitious public spending commitments as it is of measures to raise taxes on higher earners.
Thus, however huge that SNP vote, and however large its majority in Holyrood, formidable restraints abound. Explaining these in the face of the high expectations generated will be no easy task.