Brian Monteith: The taxing effort of agreeing a new Scottish budget

A cut in Air Passenger Duty is on the cards.
A cut in Air Passenger Duty is on the cards.
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This week sees the unveiling of the Scottish Government’s budget.

Unusually it is a rather momentous occasion. Beyond all the predictably bitter rhetoric directed towards the evil Tories, or the platitudes about fairness, equality and social justice that tend to accompany such occasions in our holier-than-Westminster Parliament, the Scottish budget has usually been a rather hum drum affair.

This week, however, it will be different, for this week the SNP has to show its true colours, thanks to, yes, a Tory government, the SNP has control of far more taxes than ever before. It will be able to vary not just personal tax rates but the tax bands too. It will also be able to vary other taxes such as Air Passenger Duty (APD).

This presents the SNP with an opportunity to show how they think Scotland’s economy should be directed by the intervention of our vast state machine and from what they have said in the past it is a thoroughly confusing confection. They have signalled for instance that they will not match the Chancellor’s raising of the tax threshold for those earning £43,000 to £45,000, but will only link it to inflation taking it to £43,387. The result is that high earners – the people that our economy badly needs more of – will be penalised for being in Scotland rather than being in Sunderland or Southampton.

But, before you think that the SNP is Labour in disguise, it has also said that it will cut APD by 50 per cent across its two bands for short and long-haul flights. That’s a tax cut estimated to be worth £140 million, although it may of course end up generating more revenues than it costs.

Those high earning Scots that commute to London on the red-eye (and there are many of them) must be chuckling to themselves. They might use their London weekday address as their tax residence to protect themselves from the SNP’s war on high earners and still benefit from the lower air-fare too.

Without such mobility the 370,000 who earn over £43,000 and reside in Scotland will be penalised. The cost to each will be the difference between the two tax jurisdictions and is “only” about £325. But by 2020 the UK threshold will have gone up to £50,000 while the SNP’s threshold will be just under £46,000 – making a difference in tax of some £800. That is not an amount to be sniffed at, but what will be even more painful is the reputational damage to Scotland as we become, officially, the highest taxed place in the UK.

If the country is to grow its tax revenues then it needs to attract many more dynamic, entrepreneurial and high-skilled individuals. Telling them they will be taxed more is not the way to go about that, and this is just likely to be the beginning. What happens when the British Chancellor starts to seriously cut tax in future, as there is every possibility he could do to encourage the economy. What then? Does the SNP repudiate that too, or is it so confused about tax it has not considered that a possibility?

What is an opportunity for the SNP is also an opportunity for the opposition and the comparison between the Scottish Conservatives and Labour could not be more stark. The Conservatives have risen to the challenge admirably by firstly drawing attention to the poor state of the Scottish economy under the SNP, arguing that it is badly in need of help.

Research they have conducted shows that out of 30 key economic indicators Scotland lags behind the rest of the UK in 25 of them. As those comparisons are with the rest of the UK you can be sure that the figures set against England on its own are even worse. The roll call of shame includes GDP growth, productivity, employment and fuel poverty. Scotland has a real problem with creating economic growth, the figure for the second quarter of 2016 was only 0.4 per cent compared with 0.7 per cent for the rest of the UK. If annualised that would be 1.6 per cent against 2.8 per cent which means fewer jobs, fewer taxes paid and less revenue to the Scottish Government.

To counter the SNP’s culture of high personal taxes the Scottish Conservatives have said they will not support the SNP failing to pass on the Chancellor’s tax cut for higher earners, believing it penalises Scots who could be doing the same work as someone in England (such as a headteacher, a doctor or senior police officer) but paying more tax. They have proposed their own cut in APD that is targeted at the long haul market by abolishing it altogether for economy class and cutting it in half for the more exclusive fares. This offers the benefit of encouraging more direct flights out of Scotland and avoiding the journey south to Heathrow and Gatwick. They reckon it would cost £145 million, the cost difference between them and the SNP scheme being of little consequence in a budget of over £30 billion.

By comparison the Labour Party thinks the SNP is too soft on tax and it, along with the support from minority parties would like to see a 1p hike on every tax band while raising the top rate from 45 per cent to 50 per cent. I cannot imagine this sorry situation would have been allowed to transpire if Wendy Alexander was at the helm. Why, even in opposition we would be blinded by her ideas, proposals and consultations for business start-ups, new enterprise initiatives and alternatives to raising taxes that hits working people.

Sadly, just as the Scottish Parliament is gaining new powers to pull economic leavers it once only dreamt of, the Labour Party appears to have a skills shortage of its own at Holyrood – MSPs that appear to know anything about political economy or public finance, or what we might call the real world.

Now that John Swinney has been put in the Education department to clear up the mess left by Fiona Hyslop, Michael Russell and Angela Constance it remains to be seen if his replacement, Derek Mackay is up to the job. On current form Murdo Fraser looks likely to get the better of him in debates but as the SNP is a minority administration it will all come down to bargaining. It is not pretty but in Holyrood real politics on tax is starting at last.