I’ve been in favour of a redistributive tax regime all my adult life but the squeeze imposed upon so-called high earners or the middle class by the Scottish Government in the name of fiscal justice is testing that commitment to the limit.
Today (April 6) marks the start of the new tax year and Rachel Reeves, shadow Chancellor, writes opportunistically in the Scottish Sun about how Scots earning over £29K a year “will now have more taken out of their pay packet than the rest of the UK.”
This is not my real beef with the SNP. Reeves, who does not say whether she’s talking about gross earnings or all income, must be aware that if and when she inhabits No 11 Downing Street, she’ll be forced to raise taxes across the UK substantially to pay even for Labour’s shrunken spending ambitions.
240k children in poverty is no fiscal justice
Firstly I’d be happy to pay more as an elderly Scot living primarily off the state pension and a private sector annuity if I thought Holyrood was investing the monies raised wisely and effectively when the evidence overwhelmingly counters that. I exclude spending, for instance, on the child payment though a quarter of our kids or 24k are still officially living in poverty with no change in the past year or indeed 15 years. Generally, Holyrood has become a byword for badly drafted legislation and poor investment.
Secondly, the goal of fiscal justice is being missed. Scottish relative pay levels have risen to above the UK average (102%) but disposable income per household has fallen in recent years into the low 90s of the UK average. Basic rate (20%) taxpayers in the rest of the UK amount to 87% of the total, while in Scotland around 9% are on the starter (19%) rate and 40% on the basic (20%) rate (see here). As many as 35% are on the intermediate (21%) rate (including me through dividend income now set to disappear). Fewer south of the border pay the two highest rates compared with Scots (14.3% v 16.4%) even with the London effect. It’s the third in the middle that’s being squeezed hardest.
A stealth tax on the middle class
Lastly, while public spending per capita in Scotland is £2K higher than down south, reflecting the generous Barnett formula, the SNP is seeking ever more sources of income. I’ve already commented on the misguided fiscal instrument of doubling council tax on second homes – misguided because it fails to achieve its objective of freeing up affordable housing, especially in rural areas. Its real design appears to be to force the ‘rich’ – in this instance, the middle class – to move out. The genuinely wealthy have developed honed evasion tactics. What’s more, many who stay put will let out their second homes and claim the small business allowance so they pay no council tax at all. Some political and fiscal success, that!
Now, I discover that Scots on middle incomes cannot – unlike their English and Welsh counterparts – claim part of their non-taxpaying/non-earning spouse’s personal allowance (up to £1260 worth £252 in forgone tax) if their gross annual income surpasses £43,362. No such threshold exists in Kensington & Chelsea… It’s just another stealth tax on the middle class.
Scotland’s fundamentals unchanged by devolution
None of this would really matter if the overall effect were to redistribute income to the poor, including the growing numbers of Scots living in ‘deep poverty’ according to the Joseph Rowntree Foundation. It found that the numbers in this category have risen by half in the last 25 years to almost half a million. That’s not all the fault of the SNP which has been in power for 17 years, of course, given the dead hand of UK Treasury austerity. But it does show that 25 years of devolution have not changed Scotland’s socio-economic fundamentals at all or have done so marginally at best.
Equally, of course, all that would change with independence giving the full toolbox of economic and fiscal powers. Ha! Nothing in the past 17 years suggests that the current administration nor any likely successor would be able to deliver significant change: stronger green growth, higher productivity, less inequality/poverty, and greater personal and social well-being. It can’t even deliver a deposit return scheme, let alone close the educational attainment gap as promised since devolution began.
More from David Gow on Bylines Scotland
