Ian Swanson: Why tax rises and spending cuts are in the post

Derek Mackay faces some tough choices
Derek Mackay faces some tough choices
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SCOTLAND’S Finance Secretary does not have a red box to hold as he poses for ­pictures or an official ­residence whose doorstep he could use for such a photo call.

But for Scottish taxpayers, Derek Mackay’s budget, to be unveiled in the Scottish Parliament on Thursday, will potentially have a bigger effect than UK Chancellor Philip Hammond’s package announced in the Commons last month.

Finance secretary Derek Mackay

Finance secretary Derek Mackay

For the first time, Mr Mackay is expected to use the powers Holyrood now has to vary income tax bands and increase tax rates. That could mean a new 50p top rate for the highest earners and a total of up to six bands to spread the burden.

But even if income tax does rise, the budget is also likely to include a ­continued squeeze on public spending, though Mr Mackay is tipped to lift the public sector pay cup.

Councils are expected to see their budgets cut by a total of around £300 million – even though local authority umbrella organisation Cosla says an extra £545m of funding is needed just to maintain current services in the face of inflation and rising demand.

READ MORE: Scots small businesses oppose income tax increase in budget

Edinburgh has done its calculations, assuming that three per cent funding reduction, and is set to make sweeping cuts as well as increasing parking charges and council tax.

Business leaders have spoken out against tax rises, warning such a move will damage the economy. A survey by the Federation of Small Businesses found 58.3 per cent want income tax rates to stay the same, with 20.7 per cent backing a decrease and 21.0 per cent supporting a rise.

But the Greens – whose votes could prove crucial in getting the budget passed at Holyrood – claim there is “a growing consensus for a more ­progressive system of income tax”.

And this week’s warning from former Justice Secretary and former Edinburgh Eastern MSP Kenny MacAskill about the consequences of budget pressures on the police is a sobering reminder of why proper funding of public services is so essential. Mr MacAskill says officers are being “run ragged” and the police can no longer be expected to attend minor incidents such as vandalism; and he suggests private security companies might have to take over roles like cyber protection or stewarding major events.

READ MORE: Lesley Riddoch: Not just the SNP on trial in battleground budget

The creation of Police Scotland from the merger of eight separate forces was motivated largely by the need to save money, but Mr MacAskill says it has a “huge hole” in its finances and funding is not increasing to keep pace.

He also highlights the amount of police time taken up dealing with mental health issues and calls for the NHS to “step up to the mark” – which is a reasonable point; as he says, police are not trained for the role.

But arguing for the NHS to take on the responsibility only underlines the issue of underfunding. Just last month, figures showed patients in Scotland were facing the worst delays for hospital treatment since modern records began with more than 100,000 people queuing beyond 12 weeks to see a specialist, prompting claims the NHS was at “breaking point”.

After decades when the only movement in income tax rates was downwards, society is paying the price of that policy. The Scottish Government looks set, at least tentatively, to take a different approach this week, but there will still be painful cuts ahead.