Alf Young: Double or quits is a dangerous game

I KNOW a bit about double and treble counting, one of the main themes to emerge from initial analysis of the SNP government’s latest spending plans. Alex Salmond and his colleagues have been spitting blood for days over claims that Scottish firms will be paying an additional £850 million in business rates over the next three years, if the new Holyrood budget plans are to be believed.

Their ill-disguised fury is predictable. Scottish ministers are inordinately proud of their small business bonus – the scheme that exempts the smallest businesses from such rates altogether and offers others a series of discounts. Ministers are pushing the coalition in London to amend the Scotland Act to give Holyrood control of corporation tax so the rate charged on that in Scotland can undercut the UK rate, on the assumption that more companies will locate here. The SNP wants to be seen as resolutely business-friendly. Any suggestion that it has buried a smash-and-grab on firms still paying mainstream non-domestic rates in the small print of a 250-page draft budget document was bound to trigger a rebuttal. But the scale of the reaction – culminating in the body responsible for highlighting the expected growth in business rates income being jeered by the SNP benches at Thursday’s First Minister’s Questions and one of its authors being accused by Mr Salmond himself as being little more than a Labour Party lackey – has left even seasoned observers of Scottish politics aghast.

No so long ago our First Minister, bolstered by Holyrood’s first majority administration, was generous enough to acknowledge that he and his party have no monopoly on wisdom. But as the Centre for Public Policy for Regions (CPPR) and John McLaren are the latest to find out, the insights of others are only welcomed by this government if they tip-toe around a whole series of core nationalist certainties.

Tread into those areas even with the gentlest of critiques and the full might of the SNP machine may be unleashed upon you. John McLaren has spent most of his life as a civil servant and in academia. But the brief period he spent in between as a special adviser to Donald Dewar is enough to consign him and the CPPR beyond the pale.

I know the feeling. I worked for the Labour Party for a few years in the 1970s. I haven’t held a Labour Party card since 1980. But in the fevered imaginations of some cyber-Nats I’m still a Labour apparatchik, straining every sinew to do their cause down. Not so long ago a nationalist elder statesman described me on his blog as a “North Sea Oil denier”. That choice of phrase still rankles. Quite what the parallels are between the fate of the hydrocarbon reserves off our shores and the holocaust escapes me.

But I do know a bit about double and treble counting. Back in 2000 I wrote extensively and critically about how Gordon Brown, as UK chancellor, used that tactic to inflate the impact of his spending plans for the NHS and education. At his insistence New Labour had spent its early years in government sticking to the tough spending plans of the Tories, plans Brown’s predecessor Ken Clarke later conceded he didn’t think deliverable.

But when the New Labour hairshirt came off, spending rose sharply. In his 2000 spending review, Brown claimed he was investing an additional £40bn over three years in the health service and schools. He could only make that claim by counting the first year increase three times and the second year increase twice. Add in the third year increase and the total topped an eye-catching £40bn.

However when any government spends new money on a service in year one it has to maintain that increase in subsequent years if the anticipated impacts are to be sustained. That first year increase can’t suddenly be switched to a different spending priority in year two. Or in year three. So Brown’s double and treble counting to generate the biggest possible headline figure was a con. And I said so. Repeatedly.

That didn’t exactly endear me to people I had once worked with in the political arena. But it had to be said. And so does this. While double and treble counting of spending plans is a conscious attempt to inflate the impact of these plans as much as possible, double and treble counting of anticipated tax receipts over a three year period is an entirely different matter.

SNP ministers are going round saying the much-talked-about £850m increase in non-domestic rate income forecast over the next three years “doesn’t exist”. It does. Taxpayers pay their taxes year after year after year. From the figures laid out in line two of table 16.01 on page 229 of their own draft budget, £849m is the cumulative additional amount in non-domestic rate income they currently expect to get from the business sector by 2014-15 compared to what they expect to take in this year.

Ministers are taking two measures that will contribute directly towards that increase. The public health levy on larger retailers of alcohol and tobacco (rateable values in excess of £300,000) is expected to generate £110m over the period. Reform of empty property relief is forecast to bring in a further £36m. But that’s only 17 per cent of the anticipated uplift. The rest, we are told, is coming from inflation (which is used to adjust the annual rate poundage) and growth.

The Scottish Government insists around half the overall impact is coming from matching the rate poundage south of the Border, using the UK Office for Budget Responsibility’s latest forecasts for trends in RPI inflation through to 2015. Predictably, it’s their fault, not ours. Ministers are also anticipating higher rates of growth (and therefore more active businesses and fewer property voids) over the spending review period. Inflation is certainly well above the Bank of England’s target right now and has been for the best part of three years. Will it stay at these high levels over the next three years? Will UK and Scottish growth rates manage to scrape themselves off their current floors any time soon? Does anyone really know?

The expectations for inflation and growth built into these forecasts, whatever their provenance, look truly heroic. If they don’t materialise, businesses may find their rates burdens over the next few years more bearable. But if they do, the budget sums will no longer add up. And local government, which is already taking a hit in this spending settlement, will end up with even less resources coming in. I could go on, but that would be to risk being named and shamed at a future First Minister’s Question Time.