22 March 2016

Nicola Sturgeon comes round to Thatcher’s way of thinking on wealth taxes


You may, dear reader, be under the impression that Scotland is not like England. You may have heard it said that the two countries are now so different they scarcely share a common political culture. The Tory shires of deepest England are so conservative, so reactionary, so-bloody-gin-and-tonic that it’s hard to see how they can be part of the same country as communitarian, progressive, red-in-tooth-and-claw Scotland. The Scots, especially the Scottish middle-classes, pride themselves on being, in the words of the late Labour leader John Smith, a “more moral” people than the English.

If you believe all that it may surprise you to discover that we are all actually Thatcherites in Scotland. Or at least most of us are. Earlier today, the SNP – that progressive champion forever championing Scotland – revealed its plans for income tax should it, as is generally expected, be returned to power for a third term after May’s election to the Scottish parliament.

Henceforth the Scottish government will to all intents and purposes be able to do whatever it likes with regard to income tax. That is the consequence of the ballyhooed “Vow” made to the Scottish people in the febrile final days of Scotland’s referendum on independence in 2014. The SNP scoffed that the Vow would never be delivered; now that it has been they have decided to do almost nothing with it.

Steel yourself for this, but, you see, SNP policy on income tax is almost exactly the same as George Osborne’s policy on income tax before he unveiled his most recent budget. Mean-spirited people might use this awkward truth to suggest the SNP are, once again, little more than “Tartan Tories” but that is not quite fair. They are more like Tartan Reaganites.

There will be no increase in the basic rate of income tax in Scotland. The SNP will ensure that the tax-free allowance increases to at least £12,750 by the end of the next parliament (if needs be the party will introduce a 0% band to achieve this). Nor will the wealthiest 0.7% of taxpayers be asked to pay more. Unlike Labour, the SNP has ruled out increasing the additional rate of tax from 45% to 50%. The only difference between SNP and Tory income tax policy is that the SNP will only increase the threshold above which income is taxed at 40% by the rate of inflation whereas the Conservatives in Westminster intend to increase it to £50,000 by 2020.

All very progressive, I’m sure you will agree. Progressive, that is, if you remember that whatever the SNP does – in any field of human activity – is regarded by its supporters as “progressive”.

Of course not increasing the additional rate of tax is a perfectly prudent policy to pursue. There are only 17,000 people who earn more than £150,000 a year in Scotland. There aren’t even enough members of the 1% to fill the 1% club. Nonetheless, the wealthiest 0.7% of taxpayers pay 13.7% of all income tax receipts. The Scottish government now realises that if you increased income tax for these citizens to 50%, some of them might choose to leave. Many of them, alas, would find it easy to move their tax residence to England. If just 1,300 of them did so, a 50% rate would actually cost the Scottish treasury £30m.

If you think you discern the shadowy hand of Arthur Laffer here, your suspicions are correct. Alex Salmond, the SNP’s former leader, often referenced Mr Laffer’s famous curve (which stipulates that above a certain level increasing taxes reduces revenues) and it seems that Nicola Sturgeon has been persuaded that the risk of wealthy people deserting Scotland is too great to be ignored. On this at least, Tartan Thatcherism has won.

This will doubtless disappoint the SNP’s more radical supporters. Nevertheless, these radicals have forever been deluding themselves. The SNP talks leftist but governs centrist. That’s why subjects such as land reform and Trident are so useful to the Scottish government. Almost no-one cares very much about these issues (just 2% think Trident is one of the three most important issues facing Scotland and even fewer care strongly about land reform).

Talking loudly about these subjects gives the impression of leftist-radicalism on largely symbolic matters and distracts attention from the fact that on the issues that really matter to people – the economy, the NHS, education – the SNP is solidly encamped on the Scottish centre-ground. On those rather larger issues, the SNP prefers the reassurance of continuity (even if that means continued mediocrity) to the dangers of anything resembling a daring new idea that might frighten the Scottish middle-classes. (A notoriously easy-to-frighten class of pony, it should be noted.) Even the Scottish government’s land reform bill, though a bad act, was not nearly as bad as landowners feared. They can live with it; it’s the campaigners who are disappointed.

This is all very prudent but not very exciting even if it also entertains those of us who pause to think that, gosh, the risks of wealthy people fleeing Scotland would have been even greater if the country had voted Yes to independence. From which it follows that an independent Scotland’s tax-rates would have been set with more than half-an-eye on whatever the current tax rates were south of the border. Independence would be qualified. (In like fashion, Alex Salmond, that great tribune of social democracy, used to promise that corporation tax in Scotland would be set three points lower than whatever the rate was in the rump UK.)

Even so, the SNP modesty on income tax is an important moment in the history of devolution. It marks the moment when the Scottish parliament left its toddler years behind and began to wrestle with the disagreeable truth that government spending must be paid for. The SNP will continue to want working-class Scots to think of the party as a left-wing cause while at the same time reassuring middle-class Scots that it’s nothing of the sort. You have nothing to fear.

Since elections, even in Scotland, are still won from the centre this poses a certain difficulty for the Scottish Labour party. It has decided to respond by scurrying left in search of a higher cliff from which to jump. Labour, you see, will increase the basic rate of tax (while granting a £100 “rebate” to those earning less than £20,000) and they will increase the higher rate of income tax and they will increase by 5p – the additional rate too.

This may be brave but it is also useful, not least since it will test the proposition that Scots are more left-wing, more egalitarian, more “progressive” people than their counterparts south of the border. The SNP, you see, are betting they aren’t.

Alex Massie is a political commentator