Something very strange is happening in political discourse in Scotland – everyone’s talking about tax.
The Scotland Bill hasn’t even been passed, but it is having the desired effect of moving the debate from spending, to a debate that includes how we will raise the necessary resources. This is a debate that goes to the heart of the sort of Scotland we want to live in.
Yesterday was a busy day for the taxation debate.
I started the day at the IFS seminar on the recently agreed fiscal framework. The three David’s, Bell, Eiser and Phillips (is it only David’s who do numbers?), took us through the different models for adjusting the block grant the Scottish Government receives from the UK Government to reflect the new devolved tax and welfare powers.
Adjusting it in the first year is straightforward; the tricky bit is indexing future years. The UK government favours the Comparable Model (CM) which recognises that Scottish revenues per capita are lower than rUK, but the Scottish Government objected because it does not account for Scotland’s slower population growth, which is likely to be half that of rUK. The Scottish Government therefore favours the Indexed Per Capita (IPC) approach which increases in line with comparable UK spending and the rate of population growth in Scotland. The compromise reached is that the Comparable Model will be used, adjusted to achieve the outcome delivered by the IPC approach. This holds until a review in 2021-22.
The IFS argument is that while this meets the Smith Commission’s ‘no detriment’ principle, it fails the ‘taxpayer fairness’ principle. While I accept the numbers, I beg to disagree on their interpretation. As a trade union official, I think I understand very clearly what ‘no detriment’ means in an agreement. On the other hand, ‘taxpayer fairness’ is less clear. I would also argue that this is fair because Scotland does not have all the economic levers of central government. A point developed in Jim Cuthbert’s Reid Foundation paper.
The fiscal framework does leave some risks for the Scottish Government. The agreement only insulates Scotland from UK wide shocks, not those that affect Scotland to a greater extent than rUK. In addition, the Scottish Government got fewer borrowing powers than it hoped, both for resource and capital borrowing - some way short of a prudential regime.
Scottish Government Income Tax plans
Next up, we had the First Minister announcing the SNP plans for using the new tax powers. She said that no taxpayer will face a tax increase. However, they will reject the UK government's plan to cut the tax for middle earners by only increasing the 40p threshold by the CPI inflation rate, taking it from £43,000 to £43,387. They will slightly increase the basic personal allowance from the planned £12,500 to £12,750, avoiding this reserved power by the mechanism of a zero rate.
The FM said: "That increase will prevent higher rate taxpayers from receiving a real terms cut in their tax bills, but nor will they see their bills increase”. In addition, the SNP is now not proposing to increase the additional rate, for those earning £150,000 or more, from its current 45p level.
While not passing on Osborne’s 40p threshold tax cut is welcome, the rest of the package does nothing to tackle austerity, respond to the huge social challenges facing Scotland or make tax more progressive. Changes in tax allowances benefit all taxpayers.
I have covered this ground before and my colleague at the STUC, Stephen Boyd, puts it well in a Rattle blog post this week, he said:
“No-one seems prepared to explicitly acknowledge three inescapable truths: if the social and economic objectives of Scotland’s two main ostensibly social democratic parties are to be achieved then total tax revenues will need to increase as a proportion of GDP; this increase will need to be delivered through devolved tax powers (higher transfers aren’t in the offing) and responsibility for funding this increase will have to be shared by more than just higher and additional rate taxpayers.”
As 83% of Scottish taxpayers pay the basic rate, we simply have to get real if we are to meet current needs, let alone address civil society’s shopping list. Labour and the Liberal Democrats have started to recognise that. Others must follow if they are serious about tackling inequality and providing decent public services.
Scottish Labour’s local taxation plan
And finally, Scottish Labour announced that it wanted to scrap the Council Tax and replace it with a tax based on property values. Councils would also get discretionary powers to introduce new taxes including a Tourist tax and a Land Value Tax on vacant, economically inactive land. They would also devolve the surplus from the Crown Estate to local government.
In essence, this is similar to the plan recommended by the Burt Commission and closely matches UNISON’s policy position. Property values are easily understood and assessed, and provide a more progressive and certain local tax. We are always happy when political parties adopt our policies!
Labour has capped the increase at £3000 making it less progressive at the very top. I understand the desire to avoid £5000+ increases, but in the longer term the cap should be phased out. Equally, restricting increases to 3% is fine as a transitional measure, but once the new system has bedded in that should go. Otherwise it means councils have less control over setting the rate. Local democracy is the only proper constraint on a local tax.
After years of inaction we have local taxation proposals coming from all directions. Scottish Labour’s plan is a proper reform of local taxation, even with a bit of political expediency mixed in.
Whatever you think of the various proposals, we are at least starting to have a debate about tax in Scotland. It isn’t always comfortable, but perhaps that’s the point.