SNP PLAN WILL HURT FAMILIES AND BUSINESS
CHRISTMAS is on the way. Decorations are going up on High Streets, the fabulous TV adverts are launching and parents will be helping their children prepare lists for Father Christmas.
However, while the holiday season should be about family and fun, for many there will be real worries in the run-up to the big day. For many households, just staying afloat has become harder this year, let alone splashing out on treats.
For many it’s been a hard year. The fall in Sterling pushed up the cost of imported goods, leading to rising inflation. The British Retail Consortium Shop Price Index shows food inflation at 2.2 per cent, which means the weekly essentials are more expensive than a year ago.
There are other pressures. Last month the Bank of England put up interest rates for the first time since 2007 and for many that will mean higher monthly bills.
We’ve also seen council tax bills go up across much of Scotland for the first time in a decade, and all this comes at a time when most workers are barely getting a pay rise.
Yet perhaps the biggest worry is not that things are tough but that they might get tougher. Earlier this month the First Minister published a ‘discussion paper’ on income tax. Regrettably most of the options up for discussion were not if people should pay less tax, but whether they should pay more, who should pay the most and how much.
It’s really not the sort of menu voters want – most of the options only varied between the unpleasant and the unpalatable.
The paper presents a real concern for the retail industry. Just like our customers, it’s been a difficult year for our members.
Retail sales are stuck in the doldrums. Consumers are being forced to spend more money on their groceries due to inflation, leaving less available for high street shopping.
Consumer confidence is fragile and coming into Christmas, the most important shopping period of the year, this is a serious concern for retailers.
If ministers think this isn’t their concern too, they are mistaken as consumer spending is crucial to growing our economy.
It’s not just the £26billion in sales each year. The retail industry is the crucial cog in Scotland’s economy, linking manufacturers and producers with consumers, and often Scottish businesses with export markets.
It’s not just that higher income tax bills means less money to spend in the stores. A 1p rise in the basic rate of tax will cost workers around £500million. That’s around 2 per cent of retail sales in Scotland.
But it’s not just retailers who could lose out if shoppers cut back. The Scottish Government will be hit too. Putting up income tax might seem a good way to raise revenue. In fact, it may have the opposite effect.
Everyone knows the best way for governments to raise money is through growing the economy. Higher growth means increased income tax revenue without having to raise tax rates. It’s a win/win scenario. From 2019, when VAT revenues are assigned to the Scottish Government, this will only become more true as higher sales translate into greater tax take.
The risk being run here is that the Scottish Government, in trying to fix this year’s Budget difficulties, is really just making life much harder in the future. If income tax goes up, and consumers are forced to reduce spending, that will feed right back through the economy. One of our concerns is the Scottish Government paper just focuses on how much money the Government will get but doesn’t examine those consequences for the wider economy.
It’s these knock-on effects which are important. Shops will sell fewer products and are therefore forced to reduce hours worked by their staff. They require fewer products, which means producers and manufacturers have less demand, and are forced into the same approach.
With lower turnover, it’s harder for businesses to invest. All of these reductions ripple out across the economy, affecting businesses of every type and industry.
This isn’t about a statistician’s spreadsheet. Economic growth matters because it creates a virtuous cycle where workers get wealthier, while governments garner more tax revenue. The reverse regrettably is also true. If income tax rates go up, because of the effect on consumption, over a few years it might bring in less money than before.
This isn’t a call for ever-lower taxes. Of course, there will be times where raising different taxes is necessary. It’s about finding the right tax rate at the right time, which delivers growth and the best funding solution for government.
The Scottish Government should be aware of this. Only last year the SNP was elected on a promise to freeze the basic rate of income tax. That was the correct approach then, and after a year of weak growth and economic uncertainty, the arguments for protecting low and middle income earners is only stronger.
Even if the Government ignores the economics, it should listen to the voters.
In the 2016 election, more than 1.5million Scots voted for parties who promised not to raise income tax.
Right now across Scotland, families are worrying about making sure they have enough money at the end of the month.
It’s hard to see how taking more of that money away through higher taxes is going to help them, or the local shop, or indeed the wider economy. It’s time for politicians to put their rhetoric away, look at the facts, and focus on growing Scotland’s economy.