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Mind the gap. SNP realise that Scotland will not be able to reverse Tory welfare cuts.

Gotcha! Labour and the Scottish Conservatives have been laying a fiscal trap for the SNP, and yesterday it looked as if John Swinney had fallen into it.

Challenged on whether or not the Nationalists would reverse the UK Government’s tax credit cuts, he said there was “a significant amount of doubt” about whether the future Scottish Government could in fact reverse them.

Mr Swinney calculates that the UK benefit reforms could lose Scottish claimants some £6 billion by 2020. This is a very large sum to find out of a fixed budget and would mean hard choices or an increase in taxes in Scotland.

Only now is the scale of the UK Government’s roll back of welfare becoming clear. As The Herald reported yesterday, the think tank IPPR calculates that the average family in Scotland will be £200 worse off with 800,000 families losing up to £500 a year.

But why is this a problem for an SNP government that has opposed the cuts all along? Can’t they continue to blame Westminster?

It’s a question of putting your money where your mouth is. Scottish Secretary David Mundell was adamant yesterday that the Scottish Government will have all the power it needs to top up welfare benefits to its heart’s content. But it will have to raise the money to pay for them.

Mr Mundell rejected the claims both of the SNP and the former Labour chancellor, Gordon Brown, that the welfare powers are not genuine, and that Westminster retains a veto on welfare spending.

This must be the most transparent fiscal trap since the Malt Tax in 1713. The cost of welfare is being transferred from the UK to Scotland. The Scottish Government will have to increase taxes significantly if it is to meet its promises about creating a more caring society.
Well, why not just tax the rich? After all, according to Oxfam last week, the top four billionaires in Scotland have more wealth than the bottom 20 per cent of the population. Their wealth increased £25bn last year alone, and the wealth gap appears to be growing faster in Scotland than in England.

The problem here is that wealthy people are rather keen on keeping their cash, and have armies of accountants whose job it is to shuffle their wealth around so that their taxation is minimised.

One of the top four plutocrats in Scotland is the ex Harrods owner Mohammed Fayed. I’m sure Mr Fayed pays his taxes religiously, but you can also be sure that if there is a super-tax imposed on wealth, people like him will reconsider their country of residence.

Rich people can keep a holiday castle or two in Scotland while hopping over the Border to England where it will soon be illegal to increase income tax – at least according to the Tory manifesto last May.

The problem is that “only little people pay tax”, as hotel tycoon Leona Hemsley put it. It will be those on lower and middle incomes, who’ll have to pay the cost of increased welfare in Scotland.

The Tories believe that this will secure their revival. Ruth Davidson is already saying that only her party can be trusted to use Holyrood’s tax powers to actually reduce the tax burden so that middle earners “pay less”.

Labour also believe the Scotland Bill tax powers will be their electoral saviour. Kezia Dugdale has challenged Nicola Sturgeon to restore the 50p tax rate in Scotland on those earning more than £150,000 to pay for higher teacher salaries in poor areas.

The SNP is at pains to point out, rightly, that this is a matter for the future. The Smith Commission income tax reforms will not become law until 2017/18 at the earliest.

However, Nicola Sturgeon is on record as saying that, if the tax powers had been available today, she would restore the 50p band irrespective of developments south of the Border.

Will she honour that pledge in future? It’s hard to tell. It’s a long way off, and though the SNP is keen on its radical image, it is always more interested in retaining power.

There is actually little evidence that Scottish voters are more sympathetic to welfare claimants than English voters. Nor are they over keen on paying taxes.

The Scottish Parliament has had the power to increase the basic rate of income tax by 3p since 1999. No government has contemplated using the Scottish rate. It will be a brave government that ever does.

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About iain2macwhirter

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