The world held its breath as conflict erupted between North and South Korea; Ireland braced itself for civil unrest as its government imposed a crushing austerity budget; British students and school six formers took to streets and occupied universities over tuition fees. And Holyrood spent the afternoon rowing over the unspent cost of collecting a tax, the SVR, that no one intends to raise and is about to be abolished. Cover up? Abuse of power? Grow up.
There is a strand of infantilism in the Scottish parliament which occasionally causes MSPs to get things out of proportion. Henry McLeish’s resignation as First Minister in 2000 over subletting his constituency office when he was an MP in Westminster, was a case in point. MSPs get so wound up by petty squabbles that they lose all sight of the big picture, or even the little picture, or even the thumbnail print. Really, the SVR is such a silly issue that I can hardly bring myself to pontificate about it. “The greatest act of political sabotage since devolution”, according to Andy Kerr. Get a life.
The Scottish parliament’s tax powers have not been “abandoned” or “abolished” or “taken away”. The Scotland Act has not been repealed. The Scottish government merely took the decision that it wasn’t worth spending £7m to upgrade the machinery for collecting the SVR or Tartan Tax since there was no foreseeable prospect of it being used. The SNP’s own election manifesto in 2007 specifically ruled out using the tax as did everyone else’s, apart from the Scottish Greens.
Yesterday, John Swinney give a pretty comprehensive apology for failing to inform parliament of this before now – as well he mighty since, technically, this could prevent an incoming government to levy the tax until 2013. Swinney ate his humble pie like a man. But the Labour leader Iain Gray’s claim of a “deliberate, secret disempowerment of this parliament” was risible. Especially after it emerged that the Labour had mothballed the Tartan Tax in much the same way in 2000.
Why didn’t Swinney tell parliament? All he needed to do was drop a line into a budget debate saying that he didn’t think it was worth blowing the annual cost of 275 nurses on a dodgy IT project. Probably human error, no one thought it through, too much going on. Perhaps also the omission arose from a subliminal reluctance to raise the issue of tax at all. A refusal to face up to reality of the Scottish parliament’s existing tax powers, while arguing so vehemently for new ones.
For the real question, which wasn’t of course raised yesterday, is precisely why in the current financial crisis, no party apart from the Greens is even considering using the SVR to raise revenue for threatened services. The Scottish Variable Rate could raise around a billion pounds for the Scottish government. A penny or so would meet the cost of free personal care. Another penny would fill the hole left by the introduction of tuition fees south of the border. But the SVR remains the great unmentionable – a toxic tax. Mr Swinney, is not alone in his selective amnesia. Labour have been proposing an increase in council tax to maintain local services and have called for cuts in the NHS. What they haven’t done is look at the most direct way of raising revenue: though the SVR.
Now, the Tartan Tax has many critics, of which I am one. There has always been a suspicion that it was never really intended to be used since it only allows variation in the standard rate. There is no mechanism for amending the higher rate of tax, above £43,000, or introducing new bands or any of the other adjustments that the UK Chancellor can introduce to make tax less taxing. However, there is no doubt that it is a tax on general income – which everyone agrees is the fairest method of raising revenue. It is the progressive alternative.
And while the SNP reject the SVR today as beyond the pale, they haven’t always had this attitude. Recall the 1999 Scottish election when Alex Salmond called for a “penny for Scotland” to save Scottish public services. You might have thought that a penny for Scotland could be rather better spent today than in the boom years of the late 90s. Of course, the SNP got its fingers burnt in that election. They discovered that, contrary to conventional political wisdom, the Scots are no keener on paying tax than the English. This is still probably the case. Which raises the question of what Scots will make of the new tax that is intended by the Coalition government to replace the Tartan Tax.
Next week, the UK government will unveil the Scotland Bill which is intended, among other things, to implement the Calman commission proposal to give Holyrood the power to raise or lower up to 10p of income tax across the bands. This, of course, is the real reason we had the SVR row this week. The Liberal Democrat Scottish Secretary, Michael Moore, saw an opportunity to wrong foot the Scottish government on the eve of the debate, so he leaked a letter in which he revealed that John Swinney had mothballed the Tartan Tax without telling anyone. It made it look as if the Nationalists were rather poor guardians of parliament’s existing economic powers. This will make it more difficult for the Scottish government to reject Calman out of hand.
The SNP claim that Scotland would have lost $900m if if Calman had been in operation. It is deflationary and ill-thought out. That may or may not be true. But my own view is that Calman presents an opportunity for the SNP rather than a threat. They should use the Scotland Bill as an opportunity to present their own progressive tax alternative to both Calman and the Tartan Tax. Just talking about fiscal separation isn’t good enough. In any federal system, and that is the only serious option right now for Scotland, there has to be a mechanism for fiscal redistribution – for allowing wealthier regions to support less wealthy ones. This implies tax sharing of some sort.
Swinney, Salmond et al are clever guys. They can surely turn this debate to their advantage and secure Scotland’s financial well being. And they might even raise another interesting question. Just how much would it cost to establish the Calman machinery, and how long would it take?