Brian Wilson: Labour income tax row offers voters a real choice

Scotland's finance secretary John Swinney. Picture: Ian Rutherford

Be thankful for small mercies. We now have some political dynamic, as opposed to the dreary constitutional bickering which it has become de rigeur to regard as the meat and drink of Scottish politics.

It is clear-cut enough. To approve slashing council services and – as Cosla puts it – leave “the most vulnerable in our communities to pick up the pieces” – then vote Tory or Nationalist. If you want to pay a little extra – as Unison put it – to “protect Scots from the worst of austerity”, then vote Labour or LibDem.

There are choices to be made. Even if they end up making no great difference to the outcome, that might at least relieve us of the unctuous self-praise about what a uniquely caring people we are, delighted to pay a little more to help the weak in our midst. The proof will now lie in the ballot-box.

In Holyrood, we had the spectacle of John Swinney guffawing at the very idea of a practical alternative to his disproportionate assault on council budgets. Meanwhile, at Westminster, David Cameron was feigning horror at the prospect that Scottish dentists – an odd choice of martyr – might be asked to pay more.

Conscious of the limited influence of the dentist vote, Swinney took another tack. Since the 1p tax rise would apply across all three bands, he presented himself as defender of the low-paid – although not, sadly, of the 16,000 council employees, few of them on princely salaries, whose jobs are on the line.

The claim that using Holyrood’s tax-raising power to put a humble penny on the basic rate of income tax would hit the poor hard (or even hardest in some of the rhetoric), is utter nonsense. It is a mean tactic to use the less well-off as a political shield in order to defend doing absolutely nothing to inconvenience even the highest earners.

I turned to David Eiser, of the Centre for Constitutional Change, for his authoritative rebuttal of Nicola Sturgeon’s assertion that the penny plan is “anything but progressive”. If she and Swinney can challenge his calculations, they must do so. What cannot be allowed is the pretence of acting in the interests of the weak, when it is the weak who will suffer from their cuts.

The Scottish Rate of Income Tax is a flat 10p on all incomes above the personal allowance. Increasing it to 11p would put basic rate taxpayers in Scotland on a 21p rate rather than the current 20p. Higher-rate taxpayers would pay 41p while those on Additional Rate (earning over £150,000) would be taxed at 46p, rather than 40 and 45 respectively.

Using percentages to illustrate outcomes is deliberately misleading since it fails to acknowledge the personal allowance of £10,600. This is best reflected in Ms Sturgeon’s complaint that she would face only a 2.7 per cent tax increase while the low-paid would be hit with 5 per cent. Translate this into cash terms and Ms Sturgeon is saving herself £1,447 a year by rejecting the 1p tax increase.

On the other hand, take the case of a full-time employee on the national minimum wage who would indeed pay an extra 5 per cent of tax. But in cash terms, annual income would fall by only £20, from £11,600 to £11,580. So the “5 per cent” claim is a deception – even without taking account of a rebate to the low-paid, which is part of the Labour package.

So get these figures right. Nicola Sturgeon, First Minister of Scotland, would contribute £1,447 from her handsome salary (and, alas, her household would be doubly inconvenienced) but a minimum wage earner would lose (at most) £20 a year in order to protect £350 million worth of vital services. That sounds pretty fair, and not at all regressive, to me!

Eiser then uses the example of someone on the median Scottish wage of £23,000. Again, they would pay “5 per cent” more tax – but in cash terms, after-tax income would reduce by only 0.6 per cent, from £20,400 to £20,270. Set that against the loss of childcare and home helps, library closures, charges for services which councils will be forced to introduce and the true balance of argument should become apparent.

A Scottish worker on £50,000 would see after-tax income fall from £40,400 to £40,000 according to Eiser. Some may think this is too little and Mr Swinney thinks it is too much. As Eiser summarises the case: “The poorest fifth of Scottish households would experience a fall in net income of slightly less than 0.2 per cent, whereas the richest fifth of households would experience income falls greater than 1 per cent. So a rise in the SRIT is slightly progressive.”

If Mr Swinney and Ms Sturgeon think this modest piece of redistribution is too harsh on the richest 5 per cent (themselves and some dentists included), they should say so. But there is no doubt that the vast majority of the low-income fifth of our society would gain, by paying little or nothing extra while protecting services on which they depend along with 16,000 jobs.

Labour has sought to further protect the low-paid by promising a £100 rebate to those on under £20,000, so that many would actually gain. Swinney’s pretence that this poses a challenge beyond the bounds of contemplation is nothing less than pathetic. Using the levers of government, instead of moaning about not having enough of them, seems beyond his vision.

Wait until we can tax high earners without hitting the low paid, say the Nationalists disingenuously. But therein lies another interesting calculation. A rise only in the higher rate from 40 to 41p would bring in a mere £60m, says Eiser, and “that’s before behavioural effects and administrative costs are considered”. In other words, it would cover barely 15 per cent of Swinney’s council cuts.

So at last we have a genuine, meaningful conflict of values and priorities. It seems the unions, faced with the loss of 16,000 jobs, have woken up to the faux radicalism of Nationalism. We can only hope they don’t forget to tell their members and all in Scotland who depend on council services, every day from now to May.