The Scottish Government has faced regular criticism from opponents for failing to make use of Holyrood’s tax raising powers. Meanwhile business leaders and Conservatives warned against setting a differential rate from the rest of the UK.
A line was definitively crossed in yesterday’s Scottish budget, when finance minister Derek Mackay set out a new five band structure for income tax which will see those earning above the average wage paying more.
Mr Mackay’s rabbit-from-hat moment was the claim – greeted with delight by his SNP colleagues – that although he was increasing tax for some, those earning under £26,000 will pay less than their equivalent in other parts of the UK.
To his credit, he included the word “marginally” in his statement. And the qualification is justified – because the advantage for these taxpayers will be less than 50 pence a week. While we will hear plenty from the Scottish Government in weeks to come about the 55 per cent of earners who will be paying less than if they lived elsewhere in the UK, the big difference is elsewhere.
Those over £26,000 will pay more, although Mr Mackay said increases would be “proportionate”. This is a gamble both economically and politically. The middle classes include many of those who generate Scotland’s wealth – who start businesses, or sustain them with their disposable income. Hitting them too hard could be counterproductive. It might also lead to a voter backlash.
But many of us are willing to pay more tax if it improves public services. In the context of a decade of austerity policies, sizeable numbers would be ready to pay more even if only to better protect services from cuts. That willingness is contingent, however, on seeing a visible difference, so the public can be convinced the Scottish Parliament’s tax-raising powers are being used to good effect.
In areas such as health, education and social care, where the Scottish Government’s record is mixed, it may be true to say the problems are not as bad as those faced elsewhere in the UK. But it is hard to justify tax increases on the basis that it will make matters “less worse”.
Mr Mackay said the budget was about “putting fairness at the heart of what we do” and there is an argument that he tried to do that, with a new starter rate of tax for those earning between £11,850 and £13,850, and the increases for higher earners.
The Conservatives’ Murdo Fraser characterised it as an attack on the ambitious, the hard working and the successful, but the question that should be answered by opponents is what would they do differently and which public services would they cut to avoid an income tax rise?
Three of the four main opposition parties went into the Scottish elections arguing for income tax powers to be used, and the SNP’s policies were strongly driven by social justice themes. So in many ways this is the Budget that Scotland voted for in 2016.
The assumption is that the middle classes have the ability to pay more. But cost of living increases, with which wages have largely not kept pace, mean many middle earners are feeling the pinch and where councils have already increased council tax, the middle classes are generally worst affected.
Much will depend on how well the policies this budget funds will deliver. Some such as the focus on the Early Years, will see dividends paid back throughout the life of a child, as Mr Mackay stated. But from political point of view, such long term impacts are not particularly helpful.
Local government funding defied warnings of a £300 million cut, as the Finance Secretary instead announced standstill funding for services and a small increase in capital spending.
This was disputed by Cosla, the body representing councils, which insists the cut to local government services will actually be £153m. More significantly, the pledge of pay rises for public sector workers appears not to have been fully funded, which would curtail any celebrations in councils.
In truth, this Scottish budget was modest in ambition despite the landmark move on tax. And with Brexit dominating the political landscape, the likelihood is that its impact on productivity, workforces, and trade will outweigh any relatively modest tax changes put in place by Mr Mackay.
But it is nevertheless a major gamble on behalf of the Scottish Government. Nicola Sturgeon has three-and-a-half years remaining before she must face the voters again.
That is not long for any beneficial effects of tax rises to prove themselves. After 10 years in power the pressure for ministers to demonstrate improvements is real and intensifying.
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