Mike Danson, Professor of Enterprise Policy at Heriot-Watt University, gives his reaction to yesterday’s [12 December] Scottish Budget, finding much to welcome and areas for improvement
THE Scottish Budget document is 241 pages and so this is a reaction to just some of the headline figures. Within the context of continuing austerity and uncertainty in the finances of the UK and Scotland, and with limited tax raising powers, this looks like a fairly unexciting set of proposals. In many ways that is neither unexpected nor unwelcome, but there is evidence of continuing divergence from the UK Government’s direction of travel.
The freezing of the highest tax threshold may seem a small initiative but, on top of the differences introduced last time across the rates and thresholds and in contrast to the rest of the UK, income tax is significantly more progressive than elsewhere. Capacity of higher earners to switch their employment status from salary to dividend income and to pursue other ways to avoid paying income tax into the Scottish revenues constrains how much further these differences can be made. That means raising more tax from those on above average incomes, including those in the public sector covered by the 2 per cent pay policy.
Alternatives to the Council Tax based on income likewise will be dependent on raising more from those earning between about £30k and £50k, and previous parliaments have tended not to support such moves – so perhaps time to dust off the proposals and analyses from the Scottish Service Tax, Burt Commission and the more recent Commission on Local Tax Reform. I would not be surprised to hear of another cross-party commission or equivalent being established to come up with recommendations for a Burt-type revaluation and reformed council tax, perhaps with a commitment to explore a land value tax; and this would persuade the Greens to support the amended budget.
The Scottish Fiscal Commission are forecasting continuing low real wage growth for all sectors – and below the 3 per cent of the public pay policy, while local government will continue to face significant challenges in meeting existing obligations. Together these mean that public sector unions and others will need to engage with their own analysis and identification of where revenues can be raised to make awards more than 3 per cent affordable. Non-statutory services, support for the vulnerable, those in social care and those feeling the worst effects of UK social security cuts cannot be made to be the victims of tight budgets and it is incumbent on all commentators to propose where revenues can be increased without damaging the social wage and of the poorest especially.
Questions should still be raised over the various subsidies to small and medium sized businesses, as these are not cost effective or efficient in supporting enterprise and entrepreneurship, particularly where these expenditures are not available to the self-employed. That prompts the need for a clearer and more nuanced means to building an industrial strategy for a more resilient economy.
Picture courtesy of the Scottish Government
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