The shift towards a Scandinavian-style society in Scotland with top class public services – and the higher taxes which inevitably follow – was an issue at the heart of the referendum debate. And as the symbolic date earmarked for Scotland’s declaration of independence approaches next week – had the Yes camp triumphed – tax and spend have again been thrust to the centre of political debate.
Nicola Sturgeon warned at the weekend SNP conference that she would not be following the UK’s government’s planned cuts for higher earners. It sent out the clearest signal yet that Scots could be faced with higher tax rates than fellow workers south of the Border in the years ahead as MSPs take control over income tax rates and bands. Along with this, the SNP leader set out flagship plans to introduce universal free full-time nursery provision for all Scots toddlers if she wins power in May, along with new grants of up to £1,100 to help low-income parents bring up their children.
Ms Sturgeon’s intervention is politically driven. Labour leader Kezia Dugdale, desperate to win back support lost to the SNP’s meteoric rise, has enjoyed some success in seizing the political initiative on the new tax powers being devolved under the post-referendum Smith Commission package. A 1p tax increase to make up for swingeing cuts of up to £500 million in local services has been proposed, while the highest earners – on the 45p additional rate – would see this rise to 50p under Labour’s plans. The Liberal Democrats have also set out plans for tax hikes of 1p.
Of course, the First Minister’s dominant position in the polls means, unlike her party rivals, she will face the responsibility of office after the election in May. She has been notably more cool on the prospect of income tax hikes and pledged to keep the basic rate frozen over the course of the next four years. But changes to property tax under the SNP through the land and buildings transaction tax (LBTT) as well as the recent council tax changes, which see those in bigger houses paying more than they did, show the “progressive” mindset of the party. Wealthier Scots can expect to pay more under any Nationalist regime.
John Swinney also faced an uncomfortable morning last Wednesday when he was warned by the country’s top investment leaders that Scotland’s tax policies and the ongoing threat of independence has resulted in an 11 per cent fall in the commercial property market over the past year – while rising by 23 per cent elsewhere in the UK. This has been blamed on the withdrawal of empty rates relief in April and the changes to LBTT hitting the top end of the market. It is markedly at odds with the SNP’s previous approach to business tax, including the party’s flagship pledge to cut corporation tax by 3 per cent during the referendum in order to stimulate growth, or even the current pledge to cut passenger taxes on air travel by 50 per cent in order to attract new routes to Scotland.
It all has distinct echoes of the independence campaign when heated arguments played out over the prospect of Scotland adopting a Swedish model public service provision and the subsequent debate about whether Scots would be happy to pay for it. And here lies the rub. A slim majority say they would be prepared to pay that extra penny if their money was going towards extra education provision, a recent poll found. That doesn’t mean they would vote for it. Speaking to a pollster is one thing – casting that black X on a ballot paper to give the state a bigger chunk of your pay packet is another.
Tory leader Ruth Davidson has accused the two other main parties of being in a “bidding war” to promote higher taxes in Scotland. The Tories are certainly there on the ballot paper as an alternative for voters who may not fancy more in taxes. The party has pledged not to raise personal taxes above the UK level. But despite the resurgence of the Tories under Ms Davidson, the evidence remains patchy of the party’s prospects of capitalising on Labour’s demise to assume the role of official opposition in Scotland.
Everyone wants to see better, even excellent public services in Scotland over the five years of the next Parliament. But Scotland’s tax base of 2.5 million workers, which would inevitably have to fund much of this, is more fragile then some might imagine. The overwhelming majority (83 per cent) of Scots workers are on the basic rate. A further 15 per cent are on the higher 40p rate with just 20,000 paying the top rate.
Scotland actually has proportionately fewer middle and high income payers than the UK. But it is this group which provides well over 50 per cent of income tax in Scotland and – particularly the latter group – would be more likely to move if they found the tax environment more attractive south of the Border. A recent commission set up by Ms Davidson cited a range of international evidence which suggested that increasing taxes actually leads to a fall in the overall tax take. As well as “migration”, it can also lead to workers “withdrawing” from the labour market as they decide to live on benefits with all the knock-on effect this has on the public finances. The UK’s 45p top rate of tax is already comparatively high, set against an EU average of 38 per cent and 41.7 per cent in the OECD.
Just last week Ms Sturgeon faced some torrid headlines over the growing £15 billion black hole in Scotland’s public finances after the latest GERS (Government Expenditure and Revenue Scotland) figures shed some light on the impact of the oil crash on Scotland’s economy. The next five years will mark a sea change in the way Holyrood operates as the new devolved and assigned revenues leave MSPs responsible for raising about £20bn – or two thirds – of their own spending. The Westminster “blame game” for Scotland’s shortcomings will no longer do. Sturgeon and Swinney must take responsibility for the kind of society which emerges and, crucially, how to pay for it.