Stephen Boyd: SNP’s tax plan shows stubborn, blind devotion

John Swinney does not visualise a rise in personal taxation. Picture: PA
John Swinney does not visualise a rise in personal taxation. Picture: PA
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AS THE independence referendum is to take place in autumn 2014, it’s reasonable to assume that the Scottish economy will not yet have re-attained pre-recession levels of output and employment.

The Treasury’s average of independent forecasts puts UK growth this year at 0.9 per cent; less than a third of what the Office for Budget Responsibility was predicting only two years ago. Per capita GDP has actually fallen in 2011 and 2012.

Grim as economic data continue to be, it is the trends hidden in the detail of the jobs figures which provide most cause for concern. Underemployment has risen rapidly since 2008 with a quarter of a million Scots currently unable to work the hours they need to make ends meet. Full-time and employee jobs continue to disappear and progress in tackling youth and long-term unemployment is wholly inadequate.

Scottish ministers bizarrely trumpet an entrepreneurial boom on the basis of swelling numbers of self-employed workers and non-registered zero-employee firms, while the OECD quietly notes that the UK’s uniquely high growth in self-employment explains roughly half the income inequality generated since 1975. And no country witnessed a greater rise in inequality over this period than the UK.

The context may be unambiguously miserable but with the “Edinburgh Agreement” signed by David Cameron and Alex Salmond and the referendum question settled, surely now is the time for the campaigns to move beyond process issues and start engaging in a serious, invigorating debate about Scotland’s economic future?

From a trade union perspective, it would be appreciated if some solid ideas were forthcoming on ways in which independence, or indeed additional powers for Holyrood, might be used creatively to develop Scotland’s economy – providing more and better jobs, reducing inequality, poverty and economic insecurity, building a financial system that supports productive investment and nurturing a new innovation system. There’s been precious little of this stuff so far.

Against the background of a struggling economy and a UK government apparently intent on exacerbating not alleviating structural problems, such a debate could prove fertile ground for the Yes campaign. Yet the SNP’s stubborn devotion to low taxes and apparent reticence in embracing anything that hints at radical change seems to constrain imaginative thinking.

Finance Secretary John Swinney’s recent interview on Good Morning Scotland following his Budget was instructive. Mr Swinney “did not envisage” personal taxation rising in an independent Scotland. Business taxation would be cut. Perhaps higher taxes on North Sea oil? Hell no. The message could not be clearer: tax will not rise under independence.

The First Minister sung from the hymn sheet at his recent Jimmy Reid Memorial Lecture. The Scottish Government’s modelling, the audience was told, indicates that slashing corporation tax is entirely reconcilable with increases in social spending. Revenues will increase as firms make the dash north to stick a brass plaque on a wall in Edinburgh.

The SNP’s problem is twofold. First, the magical incentive effects of tax cuts rarely if ever materialise. This is most obviously the case in personal taxation – think of George W Bush’s tax cuts which unequivocally slashed revenue, destabilised the economy and achieved nothing in terms of growth and jobs. It is for good reason that the Laffer Curve – the graph which is said to show tax takes rise as taxation levels fall and has been cited by the First Minister in the past – was once memorably described as the “most erroneous and laffable garbage ever hypothesised”.

Even on business taxation, the SNP has never managed to set out a convincing case for why cutting corporation tax in an independent Scotland would boost growth, jobs and revenues. Their 2011 discussion paper on corporation tax was an excruciatingly awful piece of work; every argument presented was easily debunked.

Second, there is simply no precedent for the socially just, low tax model promulgated by the SNP. Time and again during the campaign nebulous references have been made to Scotland becoming more like the Nordic nations. Well, corporation tax in Denmark, Norway, Sweden and Finland may be only marginally above the UK rate but the total tax paid by business is significantly higher in all but Denmark. All apart from Norway have higher top statutory rates on personal income – by more than 10 per cent in case of Denmark and Sweden. Most relevantly, total tax revenue is much higher in all four countries with Sweden and Denmark collecting at least 10 per cent more of GDP in taxation each year than the UK.

While the Nordics are highly redistributive nations, their tax systems are less progressive than the UK with much higher tax rates on consumption and labour. Indeed, it is not widely understood that the association between tax progressivity and overall redistribution across countries is negative. Redistribution is primarily driven by the level of taxation, not its structure.

Comparative evidence shows that affluent countries that achieve substantial inequality reduction do so with tax systems less progressive than the UK’s. Would Ministers in an independent Scotland sanction the level of both taxes and transfers necessary to make a serious and enduring dent in inequality? There is nothing in the recent report of the Scottish Government’s Fiscal Commission that suggests hard choices can be avoided.

It’s also curious and frustrating that there seems to be little interest in other key mechanisms which work for the Nordics in reducing inequality and providing the conditions for long-term, more sustainable growth: stronger social safety nets, much wider collective bargaining coverage, a concern about the nature as well as the quantity of work, more widely dispersed ownership and innovation systems where risk and reward are more evenly shared.

Of course, it would also be nice to hear from Better Together on how they see Scotland’s economy developing as part of the UK should a No vote be returned next year. The UK’s “financialised” economic model isn’t working. Inequality rockets while social mobility declines. An exceptionally short-termist business culture fails to support patient investment and undermines innovation whilst enabling executives to extract extravagant, unwarranted rewards. Flexible labour markets work for firms seeking to boost short term profits but against the economic security of workers. Can Scotland overcome these deeply embedded problems as part of the UK? If so, how?

The referendum provides a genuine opportunity for a serious discussion on how the Scottish economy can be developed to meet the needs of all our citizens. It must be grasped by both sides.

• Stephen Boyd is Assistant Secretary of the STUC