POLITICS is often called a dialogue of the deaf, but on Thursday’s First Minister’s Questions it really was. Labour’s Kezia Dugdale seemed unable to hear Nicola Sturgeon ruling out lifting the threshold for higher rate taxation as outlined in George Osborne’s budget. Four times Ms Dugdale asked and four times she got the same message: that the First Minister thought that “fairly hefty” tax cuts for the better off were “the wrong choice”.
Of course, with the campaign for the Holyrood elections effectively beginning this week, the Scottish Labour leader is under pressure to put clear red water between her party and the SNP. She couldn’t accept that, on the Tory budget, they actually were in agreement. That would never do.
Opposition for opposition’s sake is an unfortunate commonplace in Scottish politics, as these two essentially social democratic parties vie for votes. But get used to it: the narcissism of small difference is only going to increase in the next few weeks as the campaign for yet another election gets underway.
Ms Dugdale’s ire is partly because she thinks she got there first. She stamped her personality on the Scottish Labour Conference in October when she announced that she would not lift the threshold on higher rate tax. Nor would she cut Air Passenger Duty as had been proposed by the SNP. She said she would use the revenue released by forgoing these changes to reverse cuts to working family tax credits. This was to be her unique selling point in the 2016 elections which, by common agreement, are going to be all about how and whether to use Holyrood’s new tax powers.
At the time, Nicola Sturgeon pointed out that Ms Dugdale was reversing tax cuts that had not actually been made. She said the opposition parties should concentrate on pressuring the UK Government to drop the tax credit cuts. She was right on that. A Tory backbench revolt in Westminster, plus pressure from Labour and SNP MPs, forced George Osborne to change his mind. In the autumn statement he announced that he would not be phasing out tax credits (though they will still be abolished in 2019 when Universal Credit comes on-stream).
Now that George Osborne has honoured his other election pledge and lifted the ceiling on the basic rate of tax in the Budget, from the current £43,000 to £45,000, both Scottish parties are again in a popular front against Tory policies. This was transparently a Budget for the better off, who also gained through cuts to wealth taxes and the introduction of tax-free savings schemes. How many Scots can afford to put £20,000 a year into an ISA?
There is some confusion about the Chancellor’s reported cut to Personal Independence Payments, but Labour and the SNP are undoubtedly opposed to it, whatever it is. Disabled people should not be targeted for savings when tax breaks are being handed out to the wealthy. Mr Osborne could have saved much more money by reducing the 40 per cent tax relief wealthy people get on pension contributions, which cost the Exchequer over £40bn a year.
Labour and the SNP are also on the same page as far as the “additional rate” of tax is concerned. Both of Scotland’s main parties are on record – in their 2015 general election manifestos – as demanding the restoration of the 50p tax band. Nicola Sturgeon has not actually confirmed that she is prepared to increase it in Scotland alone, in 2017, irrespective of what happens in the rest of the UK. But it is going to be very difficult to avoid doing so.
She will no doubt be the target of further headlines about punishing the “middle classes” as she was last week over the thresholds. Point of information: people earning higher-rate tax are emphatically not the middle classes. Fewer than 15 per cent of top earners pay the 40p rate and Scottish income differentials are flatter than in the south of England. Which perhaps tells you something about why Scottish politics are different. In short, there aren’t really enough rich people to make a significant political impact. Not even Ruth Davidson, the Scottish Tory leader, is talking about cutting income tax rates in this election.
The preponderance of basic rate taxpayers is also why the SNP are not prepared to match Kezia Dugdale’s recent call for a 1p across-the-board increase in income tax, which would hit the real middle classes and everyone earning over £11,500. This policy – assuming it still applies – will probably be Labour’s most difficult sell in Scotland in the forthcoming election campaign. Though Ms Dugdale is correct that, if you really want to raise more tax revenue in Scotland then you have to hit people earning very much less than £150,000.
The numbers who would actually pay the notional 50p rate in Scotland is vanishingly small – around 18,000 people. And of course, many of them will decide not to pay it. Last week’s budget, with its cuts to corporation tax and capital gains, will help businessmen with clever accountants to further reduce taxable earnings by paying themselves in dividends and other devices. Some may even relocate to England.
Kezia Dugdale said at the weekend that the 50p rate will bring in between £70m and £120m, but that is optimistic. And of course, inward investment may be damaged if Scotland becomes a high-tax enclave in a relatively low-tax UK. Economic growth here is already lagging behind England. Lower growth means lower tax receipts.
George Osborne has of course made it illegal to increase income tax in England. Unlike the Scottish Government, he has the full range of taxes to choose from, not just toxic income tax. He opted for measures like the sugar levy and increasing insurance premium tax – the kind of stealth taxes that John Swinney, who now wants to call himself the Scottish “chancellor”, would love to get his hands on.
However, Swinney does have the power to vary some individual taxes, notably Air Passenger Duty (APD). The SNP has been heavily lobbied by the aviation industry to halve this tax on flying. The argument is that it would boost economic activity and tourism – though it seems doubtful that it would have very much impact either way. Do businessmen really care about a couple of pounds on a £200 flight? There are equally strong environmental arguments for not cutting APD. This will be Nicola Sturgeon’s most difficult “sell” in this election campaign.
But a general election fought over the single issue of APD is going to be a grim one for the voters. Labour are of course intending to highlight the cuts to local government imposed by the Scottish Government which they say amount to £350m. And it is true that jobs, schools and social services are being hit by the financial famine, which the SNP say is the Tory Government’s fault.
But rightly or wrongly, local government is not seen as a very noble cause by many voters, partly because they don’t like paying increased council taxes and partly because of past inefficiencies. The reputation of local government is not helped by those officials paying themselves six-figure salaries while presiding over scandals like Edinburgh’s £1bn tramway. Labour cannot afford to be the local government party.
At least, Kezia Dugdale will not use this election campaign to relive the Scottish independence referendum. Labour speakers will attack the “Nationalists” as usual, and jeer about the collapse of oil prices on “independence day”. But they are getting the message that appearing to run Scotland down isn’t a vote-winner. One of the reasons for the absence at Labour’s spring conference yesterday of Jeremy Corbyn and the shadow chancellor John McDonnell was presumably the risk that they might have gone off-message and started talking about the broad shoulders of the Union and how lucky Scotland was to vote No.
The other reason for their absence is that John McDonnell opposes increasing income tax and has even backed George Osborne on the increase in the threshold, which is worth some £400 to those earning £45,000. This would be embarrassing for Kezia Dugdale, who is trying to detach Scottish Labour from the party of the same name in England.
Of course the SNP say that the UK Labour leader’s absence just confirms the “chaotic and divided” state of the Labour Party. It’s tough being Scottish Labour leader and Kezia is damned if she does and damned if she doesn’t. But at least she gives a damn. She is heading for defeat in this election, but she is still the best leader Labour have to offer.
From Sunday Herald 20/1/16