The Scottish Labour leader, Kezia Dugdale, is to be congratulated for putting her money where her mouth is and calling for an increase in taxation in Scotland to raise half a billion pounds for public services. This is heroic stuff. It is a long time since Labour has gone into an election campaign promising to increase taxes.
Along with the Scottish Liberal Democrats, she has broken the omerta on income tax that has cast a dark cloud of hypocrisy over Scottish politics since 1999. However, this may not be the right tax or the right time to raise it. There is a widespread suspicion that Ms Dugdale is entirely serious. Labour is so far behind in the race for Holyrood she could promise almost anything with supreme confidence that she will never be called upon to deliver.
It is, of course, for the SNP Government to explain why it cannot use the Scottish Rate of Income Tax (SRITn) that comes into effect in two months. The Deputy First Minister, John Swinney, made clear yesterday that he rejected Labour’s proposal to raise it by one per cent as this would “punish low income earners”. It has to be applied equally to all tax bands, low and high.
Some say this means it isn’t “progressive”, which is not the case. The rich would pay more. But Labour’s across-the-board hike would also catch a lot of people in the tax net who shouldn’t really be there, including pensioners and people earning less than £20,000 a year.
Ms Dugdale’s novel solution to this is to offer a £100 cash back from local authority coffers to compensate low-income earners for their losses. But I’m afraid Labour’s Jackie Baillie gave a very poor account of this in yesterday’s debate, saying that we should set aside the “detail” of how compensation would be achieved and concentrate on “the principle”. But the detail is everything.
This can’t be a tax “rebate”, as Labour’s Alex Rowley called it yesterday, and nor can it be a social security payment, because these powers are not yet devolved. Also, the cash would presumably be taxed, and might well be counted in when it comes to calculating tax credits. The Green Party’s Patrick Harvie, normally a passionate supporter of taxes, is not convinced and has rejected the plan as wrong-headed and ill-considered.
Anyway, if Ms Dugdale’s penny is being raised to compensate for local authority cuts, as Labour says is the case, why not just lift the council tax freeze? That would seem a simpler way of restoring local government finances than this complicated fiscal money-go-round. As far as I am aware, Labour still supports the freeze.
The reason is that increasing council tax would be electoral suicide whereas calling on the SNP to raise income tax risks is only electoral self-harm. Instead of a hypothetical penny it would involve a real, eye-watering increase of up to 18 per cent in council tax bills.
I’m sure Ms Dugdale is sincere about wanting to address austerity by raising revenue through the tax system. But Labour’s Penny for Scotland sounds just a little dodgy, a little too contrived. Scottish voters are an informed and suspicious lot, and I doubt if many are going to buy it. Any way you look at it, it would, as the SNP says, increase tax on basic-rate tax payers, whether or not the compensation plan worked.
However, I suspect many Scots voters would actually be prepared to pay a bit more tax, even at basic rate, if they could be sure it would go to pay for better education for their children. Scots have always said in most opinion polls that they would pay more if it went to public services. But it has to be fair, progressive and properly thought through. Labour’s plan doesn’t meet this credibility test.
Voters will surely remember that, when the SNP called for a Penny for Scotland in 1999, it was attacked by the-then Labour Chancellor, Gordon Brown, for penalising “ordinary families”.
Yet the SNP’s penny was not an actual tax increase but a tax cut forgone. Alex Salmond’s plan was to reverse the one-penny reduction in basic income tax in Gordon Brown’s 1999 Budget, thus releasing £250 million extra for Scottish public spending. I suspect it won’t take long for the SNP legions on the internet to remind voters that it was Labour, not the Scottish Conservatives, who were then in the business of cutting taxes; except, of course, they weren’t.
Mr Brown’s income-tax cut was one of his oh-so-clever fiscal wheezes. He actually increased taxes – the so-called “stealth taxes” – by more than the income tax reduction. Indeed, all governments in recent years have shunned income tax as a “toxic tax”, the one voters hate to pay.
Instead, when they want to raise money, both Labour and the Tories have looked to VAT, National Insurance, excise taxes, business taxes, tax thresholds and so on; in other words, all the taxes that the Scottish Government cannot raise, and will not be able to raise even under the Scotland Bill reforms that come into force in 2017.
Scottish voters aren’t stupid. They surely detect the cynicism behind the various attempts to land income tax-raising powers on the Scottish Parliament while phasing out the Barnett Formula and devolving responsibility for welfare. The trick is to force Holyrood to finance a greater welfare burden by raising the one tax that Westminster governments dare not use: income tax; indeed, cannot use. The Conservative Government has actually made it illegal to raise income tax south of the Border until 2020 at least.
The Scotland Bill was designed to give the Scottish Tories the chance of a political comeback by saying they will not increase income tax in Scotland. The crunch will come next week when John Swinney has to decide whether he accepts this raw deal or uses the deadlock in the fiscal framework negotiations to back out of it.
I suspect Ms Dugdale’s tax proposal will not gain much traction or votes in the Holyrood election, even though most Scots, even those on low incomes, would probably be happy to pay a penny for schools. Also, she is right to raise the question of when Scotland is going to live up to its supposedly social democratic credentials and actually pay higher taxes.
We need this debate to happen, if only to make clear why the Scottish Parliament needs the full range of tax powers if it is to develop a sensible fiscal alternative to austerity; and, if it doesn’t get them, how it can use the limited tax powers it does have to raise funds anyway. But I’m afraid Ms Dugdale’s penny will not be well spent.
From Herald 4/2/16