Whether you agree with Boris Johnson’s promise to deliver an income tax cut for higher earners, or if he’d thought through the consequences for Scotland, his intervention has sparked a new debate about how much tax Scots should be paying.
From an instant reaction that hiking UK-wide National Insurance Contributions would mean all Scottish tax-payers funding a cut of up to £3000 for the better off in the South, the position became more nuanced when the Institute for Fiscal Studies pointed out that such a cut would produce an equivalent increase in the Scottish block grant and it would be up to the Finance Secretary to pass it on or spend as he saw fit.
With Scotland’s higher income tax band kicking in at £43,431 compared to England’s £50,000, it’s unlikely Scottish tax-payers will benefit directly from any block grant boost from a Southern tax cut. If “No taxation without representation” was the slogan which helped spur on the American Revolution, so far the mantra of the Scottish devolution revolution has been “More taxation with extra representation”, and no sign the upward trend will dip any time soon.
The Scottish Parliament was established with overwhelming support from the Scottish public, but its tax varying powers were never used until a wave of new responsibilities before and after the 2014 referendum meant the Scottish Parliament had to come out of puberty.
The great fear of anti-devolutionists was that handing it more tax powers would just give a green light to an intrinsically left-of centre institution to raise taxes. And with Scotland’s £13bn annual funding shortfall it’s not difficult to see why.
But the weakness of that position was the parliament would never be truly responsible for the money it spent in an electoral sense, that without taxation powers the demands on Westminster to cough up more would be never-ending, but it also conceded that a right-of-centre, low tax position could never win a political argument. In other words it was defeatist.
The promised reduction and then abolition of Air Passenger Duty has been reversed as Mr Mackay was swept along by the Climate Change Emergency, and the first wholly devolved tax, the Land & Building Transaction Tax on property sales which replaced Stamp Duty, has failed to meet expectations.
LBTT was not all bad news and produced reductions for sales below £380,000, £5000 less for the average Edinburgh house price of £262,700, but the projected boost from hefty increases for more expensive properties – nearly £80,000 on a £1m house – has not materialised because it puts people off moving, or persuades corporate movers to rent. Revenue therefore has fallen short in three of its four years, £39m below the £305m target last year.
But Derek Mackay’s reaction to the Boris tax break plan shows why the Scottish Government is reluctant to increase income by stimulating the top of the market with a reduction; because it is more important not to be seen to be giving the better-off an advantage than it is to bring in more money.
Another “tax-the-rich” policy, the removal of charitable rates relief from private schools, is likely to result in lower than expected revenues because of closures and mergers – Craigholme School in Glasgow shuts in August following Beaconhurst in Bridge of Allan last year – and the knock-on of making the schools increasingly unaffordable is the cost of more school places in the state sector.
Boris Johnson’s off-the-cuff plan to raise the higher tax threshold to £80,000 is not wrong because of the impact on Scotland, it’s wrong because there are better ways to cut taxes. Raising the personal allowance, cutting National Insurance and reducing the reliance on tax credits would be a far more effective way of stimulating the economy and demonstrating he was a genuine One Nation Tory. There might even be room for a small increase in that higher tax band.
And that really would put Mr Mackay under pressure.