Monday, 11 September 2017

Tax (again)

I've written about tax before and you'll gather from that that I am not antipathetical to targeted tax increases BUT

We are twenty years on from the Devolution Referendum when 63% of the Scottish people voted for a devolved parliament with tax raising powers and yet we have never used these powers.

There are two reasons for this. The Labour reason and the SNP reason.

The Labour reason was initially quite simple. While Labour was in power at Holyrood, we were also in power at Westminster. The political reality always was that a Scottish Labour Government could not imply, by raising taxes here, that a UK Labour Government was itself not raising sufficient tax to fund public services properly. Not just not raising it, to be clear, to fund public services properly in Scotland but logically also failing in that task UK wide. And that political reality was particularly the case when, during, the whole of that period, the Chancellor of the Exchequer was Scottish Labour's easily most favourite son.

The SNP reason is also straightforward. Raising the basic rate of Income Tax is electorally toxic. They know that from experience.

At the first ever Holyrood election, in 1999, the SNP stood on a slogan of "A Penny for Scotland." This envisaged the basic rate of Income Tax being 1% (a penny) higher than that in the rest of the UK. This didn't even involve a tax rise. The UK Labour Government was that very same year proposing a 1% cut in the basic rate and all the Nats suggested was Scotland foregoing that cut, using the additional revenue raised on increased public spending.

The problem was that, put to the test, "Scotland" proved a good deal less keen to "properly fund" public services than past rhetoric (not just by nationalists) had suggested. The Nats got a significant rebuff and by the 2003 election, John Swinney, the then leader, had ensured that the policy did not reappear.

Which it hasn't since.

And indeed, by the 2011 election, the SNP reason had become also the Labour reason. Neither Party stood on a manifesto suggesting raising the basic rate. Nor indeed did any other major Party.

But since then there have been two significant developments.

Firstly, in 2016, Labour did stand on a platform of raising the basic rate by I%.

And, secondly, last week in her Programme for Government, Nicola said

Ahead of publishing our draft budget for 2018‑19, we will publish a discussion paper on Income Tax to open up the debate about the best use of our tax powers. It will:
  • set out the current distribution of Income Tax liabilities in Scotland
  • analyse the implications of different options around Income Tax, including the proposals of other parties represented in the Scottish Parliament
  • set out the importance of the interaction of Income Tax policy with the fiscal framework
  • provide international comparisons of Scotland's Income Tax policy
  • better inform the Parliament and people in Scotland about the choices open to us to invest in our public services and support the economy in the context of austerity and Brexit
The briefing which accompanied this was clear. The Nats would consider the blunt weapon of raising basic rate tax but only if the other Parties were prepared to also dip their hands in the blood. And, by implication, if they weren't, then the SNP wouldn't act unilaterally. Despite being the Government.

Now all of this leaves Labour in an awkward position.

You see, we didn't win the 2016 election. Indeed we didn't even come second. Now, at the time, this was attributed to "circumstances" in general. And, to be honest, that's probably what was the main cause. But we also benefited in 2016 from nobody thinking we were ever likely to win and so being bothered to much to pay attention to our tax policy. 2021 is likely to be a very different election.

And in 2016 nobody thought there would be a UK General Election for five years, so the tax policy of the Scottish Labour Party wasn't of any interest as any sort of exemplar for our likely UK tax policy. In 2021 we will be within a year of such an UK event and, you see, even John McDonnell didn't risk a basic rate increase in our "left-wing" UK manifesto earlier this year. And so that question would then be asked. Including if we'd still maintain higher taxes in Scotland if there was a Labour Government at Westminster.

And you see, the reason Mr McDonnell was not proposing to increase the basic rate (or indeed the income tax of anybody earning less than £80,000) was that he got that this would have been incredibly electorally unpopular. Which indeed is why no Chancellor of any Party has done this since Denis Healey in....................1975.*

But, and it's a big but, the idea of raising income tax is not unpopular within the Scottish Labour Party. Indeed its popularity internally is probably in inverse proportion to its unpopularity with the electorate. Because extra revenue means extra spending. Particularly potentially spending on public sector wages and local government jobs. Which, perhaps unsurprisingly, is a desired outcome of the public sector trade unions, who are our principal funders, and of the many local councillors who co-ordinate much of our activist base.

Now, because they are against "austerity" and would pay more tax to end it, they assume that this view is shared more widely. Regrettably however all the evidence suggests that it isn't. Which is what is got in spades by Nicola. For she also now has a significant cohort of Party members who would equally like higher taxes and more public spending but she has been careful not to commit to actually doing this, just to consulting about considering doing so. Which ultimately she won't. No matter what you think of her she is not stupid.

But of course Labour is currently in a leadership contest where the selectorate is not the general public but rather these same "anti-austerity" forces. So the temptation will be to play to the gallery. Particularly as neither candidate will want to be characterised as "to the right of Kezia Dugdale".

However, this would be a strategic error. Because we are now in a three cornered fight here. And winning the 2021 contest is frankly unlikely to be delivered by simply being to the left of the SNP. And who is to say they would by then be our main rivals anyway? Ruth Davidson has to date been characterised as a one trick ("save the union") pony. A criticism to her credit that she takes on board and is trying to remedy. But the danger is that Labour gratuitously provides her with another string to her bow. "Vote Tory and not only will you remain in the UK, you'll also pay no more tax than anybody else in the UK". And Ruth Davidson isn't stupid either.

Now, Labour might be prepared to take that on, to make the case for higher taxes and higher spending. For Scottish public sector workers to be (even) more relatively numerous than English public sector workers and better paid into the bargain**. And for that to be paid for, significantly, by higher taxes on Scottish private sector workers. But we shouldn't labour under the misapprehension that this will be universally popular (sic) with the Scottish electorate. No matter how well it might play within the Scottish Labour Party.

* That's not the same as raising the total income tax take.  George Osborne (!) did this between 2011-15 by significantly reducing the threshold at which higher rate (40%) tax fell to be paid.

** In writing this blog I have tried to get a figure for what percentage of Scottish Government revenue expenditure ultimately goes on wages. I have been unable to find this. But 65% of UK Government expenditure is spent in this way despite the UK Government also having current responsibility for the big ticket item of almost all  Welfare and Pension payments. So it is not unreasonable to assume the Scottish figure to be significantly higher. 

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