Terrible price we’ll all pay for the SNP’s £1billion black hole
By Graham Grant
AUSTERITY is a relative concept – even the most savage council cutbacks pale into insignificance when you consider rationing or other wartime privations.
The Tory drive to slash the deficit was intended to be more draconian than the cuts that were actually delivered, envisaging a far greater reduction of the civil service.
Whatever your view, ‘austerity’ has shaped the debate about the nation’s finances for the last decade, though naturally it hasn’t stopped government squandering our money.
The public sector in Scotland accounts for a fifth of total employment, and costly state giveaways from baby boxes to free prescriptions are still on offer – waste is utterly endemic.
More worryingly, the austerity we have experienced so far will be small beer compared to what’s to come in the years ahead, as a result of the SNP’s spectacular incompetence.
The Scottish Fiscal Commission (SFC) has predicted slowing economic growth combined with a £1billion hit to the Scottish budget, doubtless leading to further tax raids, more borrowing – and more cuts.
As with most aspects of devolved politics, this is an unintended consequence of an idea that – at first glance – might have seemed reasonable: giving Holyrood the chance to stand on its own two feet.
We would raise our own taxes and keep the proceeds, or if the economy doesn’t prosper, well, we will just have to deal with the fallout, like all grown-up governments; it’s tough, but that’s accountability for you.
Historically, the vast bulk of funding for Scotland came via a block grant from Westminster, but 2016 legislation devolved powers over income tax; quite logically, this was a deal that came with strings attached.
Now, if our tax receipts grow relative to the rest of the UK, we see the benefit in higher revenues, but if the economy slumps and Scotland’s tax take lags behind the rest of UK, then we lose out, and the block grant is cut.
The SFC said in a report last month that the grant could shrink by £1billion over the three years from 2020–21, partly because the forecast for the amount of Scottish income tax likely to be raised has been scaled back.
This prediction was met by the characteristic sound of ministers burying their heads in the sand – most notably the head of hapless Finance Secretary Derek Mackay, a man you wouldn’t trust with the tea round let alone the economy.
He published an optimistically titled medium-term financial strategy promising to set out ‘key financial challenges’, but the Fraser of Allander economic research institute judged that this exercise overlooked major problems – including the projected cut to the block grant.
Its experts also noted the absence of analysis of the cause of the lower-than-expected tax take in Scotland, relative to the rest of the UK, an omission that should astonish us, but is sadly all too predictable from a government that tackles bad news by simply pretending it doesn’t exist.
Nor is the situation helped by the disclosure last week that the actual number of additional rate taxpayers – paying 46 per cent tax on annual earnings above £150,000 – is smaller than the official forecast – in fact, some 5,000 smaller.
Boris Johnson wants to lower income tax for three million workers if he becomes Prime Minister, by altering the 40p income tax bracket (which kicks in when earnings reach £50,000 south of the Border), and moving the threshold up to £80,000.
In Scotland, it’s a different picture – since the start of the new tax year on April 6, everyone earning more than £27,000 is now paying more income tax if they are based in Scotland than they would if they were living in England.
The tax gap widened after the higher-rate threshold was frozen at £43,430 in the SNP’s Budget, while rising to £50,000 in the rest of the UK.
Can anyone seriously envisage Mr Mackay, with his statist track record, rushing to duplicate Mr Johnson’s radical approach?
Divergence on tax of this scale would have grave consequences for Scotland, reducing our already negligible competitiveness, and ability to attract businesses and high-earners, to virtually nil, and turning the tax gap into a dangerous chasm.
Even the Scottish Tories condemned Mr Johnson’s eye-catching pledge – admittedly one that would have to wait until Brexit is resolved, if indeed it ever is – because of the potential knock-on effect for Scots.
The Johnson plan hinges on a National Insurance hike, meaning Scots would pay more in NI without getting the benefit of the tax cut.
Scottish Tory MP John Lamont said it was an ‘ill thought-out plan to hike taxes in Scotland’ which ‘looks more like something Nicola Sturgeon would plan rather than something a Conservative should go near’.
Yet the truth is that real income tax cuts can stimulate economic growth – and if taxation hadn’t been devolved, we would have been spared the hikes heaped on us by Mr Mackay.
The real bogeyman here isn’t, as Mr Lamont would have it, Mr Johnson, but the decision to devolve tax powers in the first place.
Of course, it’s hardly inevitable that all future Scottish administrations will always adopt a Left-wing, tax-and-spend agenda that eschews any notion of cutting the enormous tax burden that has helped to fuel personal debt and put such a massive squeeze on disposable income.
But if even the Scottish Tories can’t bring themselves to advocate tax cuts, this is doubtless the future that awaits.
The fiscal nightmare that Mr Mackay is trying so hard to ignore would have the benefit of getting us all used to the kind of austerity which would result from splitting apart the UK – an austerity which even key Nationalist figures now concede would be unavoidable.
In the meantime, Miss Sturgeon has to convince us that her government has a basic level of economic competence, in order to sustain the argument that yes, things would be difficult for a while (a generation or two, perhaps) after independence, but at least there would be a steady hand on the tiller.
But the evidence of that steady hand is thin – just take a look, if you dare, at the shambolic devolution of welfare powers, leading to a delay in the full introduction of a new benefits system in Scotland until 2024.
Public spending watchdog Audit Scotland warned that the ‘Scottish Government does not yet have a clear understanding of the key things needed to deliver all remaining benefits in the way it intends’.
SNP deputy leader Keith Brown hit back, saying Audit Scotland’s inquiry into the new multi-billion-pound social security agency had been ‘intrusive’. Talk about shooting the messenger…
The SNP wanted all of those shiny new powers, but when it comes to using them, it’s clueless.
If devolved Scotland is on the verge of a financial abyss, just imagine the turmoil after independence, particularly if Mr Mackay and his colleagues remained in charge – we might well be pining for the days when the black hole was only £1billion.
*This column appeared in the Scottish Daily Mail on June 11, 2019.
