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14 December 2017

The SNP’s tax tinkering drives a wedge between Scotland and the Tory government

A modest increase for high earners has emphasised the Holyrood goverment's progressive credentials.

By Chris Deerin

Scotland’s finance minister Derek Mackay has the kind of voice that could be played outside local shops to disperse teenage gangs. It whines, it grinds, it is monotonous. His odd, strangled vowels have a numbing effect on the ears after a while.

Having to sit through a 45-minute Budget statement by Mackay is therefore a formidable challenge indeed. But it must be said: his performance today was, if aurally unsettling, politically masterful.

The SNP have done it. Scotland now has an income tax system fundamentally distinct from the one that governs the rest of the UK. The changes may not have been radical enough for some, and may have been too radical for others, but a principle has been established. Divergence seems likely to become the norm.

It is a curiously cautious kind of radicalism – undeniably centrist, arguably doing the bare minimum, a juggling act of impressive skill. It had been thought the minister might raise the top tax rate from 45 per cent to 50 per cent, but in reality the increase was a single percentage point, to 46 per cent. The same with the next highest rate, which rose from 40 per cent to 41 per cent. In an Osborne-ish sleight of hand a new Scotland-only starter rate was introduced, of 19 per cent for those earning between £11,850 and £13,850, and a new intermediate rate of 21 per cent for those earning over £24,000.

The consequence of all this tinkering, said Mackay, is that although the better-off will pay more in tax than their counterparts elsewhere in the UK, 55 per cent of Scots will pay less next year than those down south. This allowed him to claim that Scotland was “not just the fairest-taxed part of the UK, but for the majority of taxpayers the lowest-taxed.” Neat.

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The responses were predictable – the Tory Opposition argued that the block grant from Westminster is sufficient and that the tax rises should therefore not be blamed on austerity, but on SNP policy choices and its failure to grow the economy. It is certainly true that the economic forecasts published this afternoon by the Scottish Fiscal Commission make for grim reading. It predicts the economy will grow at less than 1 per cent a year until 2022, just 0.7 per cent in 2017 and 2018, rising to 1.1 per cent in the fifth and final year of the forecast. This is driven by an outlook of low productivity in Scotland over the period.

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For Labour, it wasn’t enough. Their firebrand new Corbynite leader Richard Leonard was loud, red-faced and for some reason bouncing on the spot like a over-sugared toddler as he criticised the budget, leading the finance minister to remind him he was already being amplified by the microphone on his desk. Leonard accused the SNP of a lack of real radicalism in the face of continued austerity, which he says is having a serious impact on local services.

The SNP have managed expectations so that the decisions announced today seemed less stinging than they might. They have explained away the relative modesty of the rises by pointing to expert advice that higher increases would only diminish the tax take. This is not an argument that real lefties make.

Mr Mackay says that the extra revenue raised from his changes allows him to plug the gap in the block grant and protect funding for the NHS and schools. Councils have been complaining bitterly about cuts to their funding, so he threw the ball back at them by raising the council-tax cap to 3 per cent, which if levied in full would, he said, generously fill their coffers (while making them, rather than central government, politically accountable for the decision).

Lastly, the SNP have made the breach with the UK tax system, driving a gentle wedge between Scotland and the rest of the country which is only likely to grow with time. They have emphasised their progressive credentials against a Tory Westminster government that is still pursuing a strict fiscal policy and putting Brexit before all else. It is all very clever, politically. The economic consequences remain to be seen.

So, attacked from left and right, Mr Mackay will feel he is sitting in roughly the right place. Nicola Sturgeon’s broad smile as he finished his statement suggests she feels the same.