Eddie Barnes: Tax could be Yes campaign’s big gun

Picture: PA
Picture: PA
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THE pro-independence campaign has suffered from a serious lack of firepower in its armoury over the past year. The big White Paper is still at the printers.

Sporadically issued papers on key issues such as welfare and pensions have detonated before anyone has had the chance to lob them at the pro-UK camp. But a new paper might just provide Salmond and Co with the chance to get on the front foot.

The Scottish Government’s team of economists on the Fiscal Commission is putting the finishing touches to a paper on a new tax system that could be set up after independence.

On the face of it, independentistas should be able to make some capital. The British tax code is universally recognised as a complete mess, with the official tax handbook weighing in at 11,500 pages, making War and Peace look like a flyer for your local Chinese takeaway.

When, last year, comedian Jimmy Carr emerged as the biggest villain of various tax avoidance scams, it served to draw attention to a system which appears designed to create bad incentives, evasion and avoidance.

So the SNP starts from a position of a system that could do with a serious fix. The SNP also has on its team one of the few people in the country who has a plan to sift through the bewildering complexity. Two years ago, Professor Sir James Mirrlees wrote a mammoth review of the set-up, with the Institute of Fiscal Studies, recommending a total overhaul of the entire tax system. He is leading the Fiscal Commission’s work on tax.

All this provides an opportunity for Team Yes. Mirrlees’ review concluded that a more efficient tax system could lead to enormous savings.

Turning to Scotland last month, the IFS declared that “independence could offer an opportunity for radical and effective tax reform, the long-term benefits of which could be substantial”. Sir Gus O’Donnell, the former head of the UK Civil Service, agrees, noting earlier this year that “our current system has become so complex that there might well be changes that improve both efficiency and equity”.

But there are big risks too. Sir Gus also pointed out that, in any tax reform, there are losers as well as winners. Mirrlees, for example, argues for a reform of council tax based on up-to-date home values (meaning huge extra costs to those whose homes have soared in value) and the abolition of VAT exemption on things like children’s clothes.

Alex Salmond’s cautious team will not go anywhere near a plan which proposes that. But in removing these downsides, any political gain from proposing a new radical vision might be lost too. It is, like everything else, a choice.

Or, as Sir Gus put it: “In theory, Scotland could do better, but the political forces that have added complexity and inefficiency to the system are likely to be just as prevalent in Scotland as in the UK.”