Another year, another tax freeze. There were no surprises that Finance Secretary John Swinney declined to drink from the poisoned chalice of the Scottish Rate of Income Tax (SRIT) that comes into effect in April. No governing party wants to increase taxes on the eve of an election.
Nor in his budget speech yesterday did he tread into the minefield of local authority finance by lifting the nine-year-old freeze on council taxes. But to mix metaphors even further, he has also avoided tackling the unexploded bomb of present and future cuts in the local state.
Spending on health is to rise by more than the rate of inflation but council spending is being axed by £500 million a year after yesterday’s Scottish Budget, according to the Convention of Scottish Local Authorities (Cosla). It says this will cost 15,000 jobs.
As usual, Cosla quantifies cuts principally in terms of jobs, not the impact on the older citizens, abused children, people with disabilities and so on, though council bureaucrats will no doubt protect their own.
Mr Swinney was commended for his double-tax freeze, with dripping irony, by the Tory finance spokesman, Murdo Fraser, though the Finance Secretary insisted that he was increasing business rates on large firms.
Nor was Labour’s Jackie Baillie departing from the no-tax consensus, despite her muttering about the council tax freeze being “regressive”. Labour always complains about how the council-tax freeze hurts the less well off but it never quite gets round actually to lifting it.
Kezia Dugdale said in effect during her leadership election: you thaw if you want to; the council tax is not for unfreezing.
Nor did I hear much in yesterday’s lengthy parliamentary exchanges about Labour plans to halt the cut in Air Passenger Duty and the raising of the threshold for higher-rate tax. Ms Dugdale said her plans for these (effective) tax increases on middle-class frequent flyers and middle income earners amounted to a challenge to “Tory austerity”. So, on the face of it, there’s no reason for Labour to abandon its proposals for tax increases just because Ms Baillie is now calling it “SNP austerity”.
It was ever thus. The Scottish political classes like to boast their progressive credentials and they vie with each other in their hatred of the evil Tories. But they are all for social justice just as long as it doesn’t mean increasing taxes. After all, Holyrood has had the power to raise the standard rate of income tax by three pence since 1999; never used.
Perhaps the UK Tories can claim to be more progressive on tax. In his Budget last month, George Osborne not only scrapped the much criticised cuts in working tax credits – thus shooting the Labour leader Kezia Dugdale’s fox – he also lifted the cap on council tax in England by two per cent provided this was used for social care.
Osborne also shocked Daily Mail readers by introducing a second-homes tax: a surcharge on stamp duty payments for second home buyers and buy-to-let landlords. This was quite a radical move that did not go down well in the Tory heartlands.
Mr Swinney matched it yesterday in his Land and Buildings Transaction Tax but, for some reason, exempted second homes worth less than £40,000. Why? There’s a four-bedroom house in Longrow, Campbeltown on sale for offers over £35,000. Plenty of scope there for buy to let landlords priced out of England – fill your boots.
Really, it’s a sorry pass when Mr Osborne starts to sound more socialist on tax than Nicola Sturgeon or Ms Dugdale. Neither dare touch the SRIT or the council tax freeze. Arguably, Mr Swinney has gone the other way, allowing councils to cut business rates.
And I’m not sure Scotland’s councils are in any hurry either to lift taxes in their patch. They complain about the council tax freeze, but happily accept the £70m-odd in compensation from the Scottish Government.
The leaders of Scotland’s biggest council, Glasgow, promised at the last election to keep the council tax for five years. They didn’t exactly fall over themselves to demand Mr Osborne’s social-care percept being applied here. Taxes are just as toxic at local authority level as they are at Holyrood.
Councils know that they receive 85 per cent of their funding from central government and that, to raise any significant revenue at all from council tax (or its replacement), would mean a big hike of at least 10 per cent. Let’s see how many parties put that in their local election manifestos for 2017.
There will have to be a collision with reality at some point, however. Buried in the Budget numbers are big cuts to prisons, legal aid, culture, museums and galleries. Councils are caught in a vice, taking a further 3.5 per cent reduction year on year.
There’s a limit to the extent to which they can pass these on to the arms-length external organisations (Aleos) many have set up to run local services, like leisure centres and even social care. This is a form of privatisation by the back door that would no doubt have been condemned had it been presided over by a Tory government. But neither Labour nor the SNP wants to talk about Aleos.
Of course, at the centre of it all is the council tax which everyone says needs reformed. And it probably does. However, before examining the bizarre hybrid alternatives recommended by the Council Tax Commission, combining local income tax with property tax, they might try to actually implement the council tax they already have.
The main reason council tax is regressive is because property values upon which it is based haven’t been reviewed since 1991: all those years of house-price inflation effectively give middle-class home owners a tax cut.
The Commission on Local Tax Reform estimated that, if council tax were applied fairly on a proportionate basis, payments by the poorest would be halved and the top rate would be 15 times higher than the lowest rate.
You can see the headlines now: “Fury as hard-pressed middle-class families hit by unprecedented tax hike.”
No one wants to talk about this because neither Labour nor the SNP wants to risk antagonising these voters. It’s all very well attacking the Westminster Tories for cutting tax credits, but you won’t hear a squeak about the council tax bonus to the better off in Scotland.
So not only do the parties not want to raise taxes; they want to perpetuate the most egregious form of tax avoidance of all, one that is actually sanctioned by government.
Mr Swinney hinted yesterday that, when he finally gets the fiscal framework sorted for the Scotland Bill tax powers, due in 2017, he might consider increasing taxes on the better off (the SRIT doesn’t allow that in isolation). But we’ll believe it when we see it.
For this election year at least, both the SNP Government and Labour remain fiscal conservatives.
From Herald. 17/12/15