Bill Jamieson: Tax policies turned upside down

WHO'D have thought politicians would be campaigning on raising levies, writes Bill Jamieson

The SNP back the Penny for Scotland campaign in April 1999. Picture: TSPL
The SNP back the Penny for Scotland campaign in April 1999. Picture: TSPL

Dull and predictable though the Holyrood election campaign has proved so far, there is, amid the familiar claim and counter claim, a curious feature emerging.

Not that long ago, competing parties shied away from anything that smacked of a tax increase. Rival parties would claim that their opponents’ manifestos hid nasty tax surprises. Back in 1999 the SNP’s “Penny for Scotland” campaign was widely thought to have cost it the Holyrood election that year.

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That seems long ago now. Analysis by the Left-leaning Institute for Public Policy Research now reveals how four of Scotland’s political parties are openly campaigning on manifestos that make no secret of plans to raise tax.

Indeed, it seems as if there is a “race to the top” so that the party with the biggest tax rise proposals (Labour) can claim to have seized the moral high ground.

The IPPR score sheet so far is as follows:

It says Labour tax rises could generate between £1.1 billion and £1.2bn by 2020/21. SNP income tax plans would raise £300 million. Scottish Lib Dem tax pledges could result in added revenue of £750m, and the Scottish Greens could bring in tax rises of up to £950m.

The Scottish Conservatives have no plans to raise tax at all, while Ukip has pledged a tax cut by introducing a new 30p income tax rate for workers earning between £45,300 and £55,000.

Scottish Labour and the Liberal Democrats want to increase income tax by 1p, while Labour would also raise the additional rate for top earners to 50p.

The Greens have announced plans to create new tax bands and increase the additional rate to 60 per cent.

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The SNP has pledged to freeze tax rates, and will not implement UK government changes to the threshold at which people start paying the 40 per cent tax rate. It has also promised to raise the personal allowance to £12,750 by 2020/21 by setting a zero rate – a move which the IPPR says will cost £130m a year.

How Scottish voters feel about this enthusiasm for tax raising – reaction in the polling booth can be sharply at odds with responses to opinion poll questionnaires - we will not know for sure until 6 May.

But we should welcome the greater candour over tax in this respect: it is a refreshing and healthy change, sparing us from those narky exchanges over “hidden tax rises” and “spending sums that don’t add up”. And who would not wish other than good riddance to those weasly words of previous elections that “we have no present intention” of raising tax or “our proposals will be self-financing” when we knew the exact opposite was true? So on this measure Scotland’s politicians have matured and we should cheer this.

But have we really all fallen in love with higher tax? Is it truly capturing “the moral high ground” when specific types of taxpayers – those already paying the most - are singled out for yet more tax, and large numbers of working age Scots currently pay no tax? And would the tax proposals really deliver the extra revenue and the public benefits claimed?

Passions have been inflamed by the furore over resort to tax havens by politicians around the world, the tax arrangements of the Prime Minister’s family and populist sentiment against “the rich” in general.

This has brought a clamour for transparency and a cascade of income tax disclosure from leading Scottish politicians to show their whiter than white credentials. Whatever next will be waved before us as evidence of modest means and honesty? The hidden wealth of their Boots Advantage Card points? The undeclared discounts at B&Q?

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There’s no lack of justification for the higher taxes now being proposed. Scottish Labour’s Jackie Baillie says that “only Labour has a credible plan to use the powers to stop the cuts to schools and public services”. SNP Finance Secretary John Swinney says only the SNP “is putting forward balanced, reasonable and fair tax proposals that will support public services like our NHS whilst protecting households budgets.” Lib Dem’s Willie Rennie says his tax plans are “progressive”, while Scottish Greens co-convener Patrick Harvie says his proposals are “far bolder than the SNP’s”, and tackle inequality, “while Labour’s do not”.

It is striking that so far not a single word has been said about Scotland’s fiscal deficit, let alone a proposal that would lead to its reduction. The deficit hit £15bn in 
2014-15 and is likely to be repeated in 2015-16, equivalent to some 10 per cent of GDP and among the highest in Europe. Even the IPPR has calculated that the next Scottish government would face a £2bn annual spending gap by 2020.

Nor is anything said about the way income tax has already risen in Scotland – since 1999-2000 income tax receipts in Scotland have risen from £6.6bn to £11.9bn – a rise of 80 per cent.

The rhetorical response is often that the starter rate of income tax is just 20 per cent. But as Eben Wilson, the eye that never sleeps at Taxpayer Scotland, points out, the additional tax we pay for each pound we earn is 32 per cent with both income tax and national insurance included. It rises to 44 per cent if we count what our employer contributes in order to pay wages.

“And when you spend what’s left, that rises to about 53 per cent with VAT takings – in other words, of the turnover you create for the economy an almost equal amount has been taken by the taxman.”

When we’re told that we have generous tax-free thresholds, he points out that the average household spend on food (no alcohol), housing and transport (no car) is £147.60 per week – thus using up £7,675.20 of the income tax threshold on must-haves. “And if you do buy fuel, booze or VAT-able goods this will rise – a lot. In the end, again, the state will tax nearly half of the entire turnover in the economy.

“And on the way, it taxes the less well-off through indirect duties and taxes as much as the wealthy who obtain reliefs; a hugely complex and contorted system that taxes proportionately but rarely in reality progressively.”

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Meanwhile the assumption that ever higher rates of tax on above-average earners will yield the extra revenue suggested by simple arithmetic has now been questioned by the SNP. Behavioural effects kick in. Raising higher rates, it said, “could put millions of pounds of revenue at risk”. At last, Wilson cheers, a supply side win. “We should offer congratulations to our civil servants and academics in persuading our politicians that the evidence is clear.”

So if it’s transparency we seek, the observations of Taxpayer Scotland merit inclusion, all the more so when they are seldom mentioned by those proposing ever higher tax. And this is all the more necessary given our slowing economy and the corrosive, disincentive effect of higher tax on earners and entrepreneurs. Transparency is a two-sided mirror and we should look both ways.