Sturgeon’s taxing our patience

It wanted some taxes frozen, then some cut. Now the SNP claims income tax hikes are vital. Yet Nicola Sturgeon will take a risk by punishing ambition

TAX. Does your heart sink when you hear a politician talking about levels and means of taxation? Mine does. It’s not just the jargon – bands, thresholds, allowances and so on. It is the childish simplification of the debate you hear from those committed to raising taxes.

First there is the ‘morality’. As in some primary school playground game of ‘Goodies v Baddies’, the speaker who advocates increasing taxes has the high ground.

Their cause, whether overseas aid, child care or the NHS, is irreproachable. To question them is to assault the poor, the young or the sick and lame. To question the effectiveness, let alone the fairness, of their proposal, is beyond the pale.

For them, the end justifies the means which, as history shows, is the primrose path to political disaster.

Then there is the outrage aimed at the target of the increased taxation. It is a process of ‘othering’. There is always someone else, someone who can be condemned as bad – profitable companies, the rich or, worst of all, people who avoid tax. The aim is to reassure listeners that taxes can be painlessly raised and that they won’t feel a thing. The thing is – that is a lie.

Take companies which are making a profit. On the one hand that is literally the point of businesses – they exist to make profits and if they didn’t they would close. Communities all across the country know the pain of failed enterprises losing money and having to close with a loss of jobs and long-term consequences.

On the other hand, just remember what a successful business does with its profits – it pays wages and, importantly, wage increases; and it pays dividends which flow to pension funds to pay a large part of the pensions received by Scots.

By the same token, additional taxation on companies hits people through lower wages and pensions, or higher prices. Companies are not individual plutocrats like the tophatted millionaire in Monopoly – they are made of people.

And that’s the dirty secret of taxation – in the end it is about people. It’s about you and me and how we behave.

Take the faux outrage about avoiding tax. There’s only one real question – who wants to pay more tax than they have to? Has it ever occurred to you that at the supermarket checkout you should say: ‘I’ve been charged too little. I could afford to pay 25 per cent VAT and I demand to! Please make sure that it goes to the NHS.’ HMRC does offer a service whereby you pay it extra tax simply by sending a cheque – you can even specify which government service you want it spent on.

A grand total of 15 people have done this over the past two years. Turns out minimising the tax you pay is a natural human instinct. That’s why tax planning, particularly for inheritance, is so popular and so widespread.

Hypocrisy

Is it wrong to want your family to be comfortable after you are dead? You can say that it is selfish to put the interests of your children over others, but is it selfish to want your children to turn out to be welleducated, hard-working young people with a sense of community and the ability to stand on their own two feet financially and morally? I don’t think so.

This is the third point about the proponents of tax hikes. Not just their smug, selfcentred sense of self-satisfaction, but their hypocrisy – and this is what defines the current debate about the new powers of taxation which the Scottish parliament has gained.

Let’s start with Richard Leonard, new leader of the Scottish Labour Party. His ‘big idea’ is wealth tax. How does he estimate ‘wealthy’? It’s the richest 10 per cent in terms of assets. They, he claims, should pay a 1 per cent windfall tax.

But what are assets? A public sector worker could easily have a pension pot – funded or unfunded – equivalent to half a million pounds just to start with, and a valuable house and savings on top. Is a pension or a home an asset to be hit with a windfall tax? Not so easy, after all.

But the powers of the Scottish parliament do not, of course, stretch to a wealth tax of any form. And permission from any Westminster government is unlikely to be forthcoming.

That is the real point of the Richard Leonard proposal – he wants to be told he can’t do it so he can complain like a petulant adolescent being told he can’t stay out late. This is playing politics with taxation – Grievo Max not Devo Max.

Leonard, though, is an amateur compared to the SNP in the hypocrisy league.

What does the SNP think about tax? When Nationalists want to pose as social democrats, they want to raise it.

Scared by the popularity of Jeremy Corbyn in the General Election and worried about how close they are to losing more seats to Labour, they have discovered the case for using the tax powers of the parliament to raise income tax in a ‘redistributive’ way.

They are signalling broadly they see the case for higher taxes. So, they have concluded that taxation is a good thing?

Not so fast. They were – until recently – committed to freezing the council tax. Why? Because, they said: ‘In tough financial times… [they] sought to provide relief to households.’

The freeze has gone. Is that because times are no longer tough? Hardly. The Institute for Fiscal Studies predicts we are in for nearly two decades of wages being below the level they were in 2008 when the financial crisis hit.

It is simply that the SNP has found a new tax it wants to be against – Air Passenger Duty. This is classic Nationalist policy making, a manufactured grievance with a kilt.

Air travel is massively undertaxed. That is because there is no international agreement on harmonising the taxation of aviation fuel, so it is one major area of carbon consumption which escapes taxation.

Any government that is moderately concerned about climate change would logically be interested in any form of taxation on flights that might have moderate beneficial environmental impacts.

Not so the SNP. While boasting of green credentials – actually a renewable energy sector subsidised by electricity consumers in England – it wants to halve and then abolish the one green tax it controls. Why? Westminster did it. Boo! Scotland can change it. Hooray!

Turbulent

Does any of this matter? We all know politicians play politics. They seek partisan advantage in the smallest quarrels, manoeuvring, they believe, the better to gain or maintain power so that they can change the world. The challenge is that these decisions about tax aren’t minor – they are not just signals of values or virtues, they are economic actions.

Part of the growing powers of the Scottish parliament is a growing role in the Scottish economy. Taxes are about shaping the economy we want just as much as they are about raising revenue – and if the economy is shaped in the right way it generates future prosperity, high wages as much as buoyant revenues.

The trouble is the UK faces one of the most turbulent economic periods in its history with the uncertainty around Brexit, the impact on the value of the pound and the nature of future free trade agreements.

This impacts as much on Scotland as any other part of the country but with the additional fact that the oil and gas industry, which has generated so much wealth, growth and employment for the country, has reached a turning point.

The combination of lower prices, harder-to-reach fields and decommissioning mean it is not just the tax take to the Exchequer that has collapsed – it is also the massive positive impact on the economy of the jobs, earnings and supply chains of the industry. And

FROM PAGE 18

sadly, the anti-nuclear stance of the SNP means that there will be no Torness B or Hunterston C with the 25,000 jobs construction will bring.

Fracking, too, offers a cheap power bonanza but is banned – less because of scientific fact than knee-jerk dogma.

There are deep strengths in the Scottish economy – both in established and emerging sectors – but increasingly a key element of these is that they rely on human capital.

The talent is the business – particularly in the tech industry. And one thing we know about talented people in modern industries is that they are mobile. If they don’t like where they are, they find somewhere else to live and work. This is not just a matter of their workplaces – it is everything about where they choose to live.

House prices are one obvious area and here, too, the SNP has created a trap. Its ham-fisted Land and Buildings Transaction Tax has gummed up the market and made the top end dauntingly expensive.

Taxation is another problem for talent – in two ways. Those who work in start-ups fear a 50p top rate of tax, not for themselves but for their investors.

If the higher rate means they leave a market, they won’t stop investing in start-ups, they will just change the country and cities in which they operate.

The oft-quoted purpose of tax increases is to spend more money on public services such as health and education.

Most people know the bulk of increased public spending often goes on wages – now that can be justifiable as these are human services and there is a need to attract and retain the best. Put aside the fact that the higher rates of tax will have a real impact on senior consultants in hospitals. They are, of course, well paid but that is because their skills and experience are valuable and scarce.

Higher tax rates could easily lead to higher staff shortages in NHS Scotland – after all, a middle-class lifestyle is just as comfortable in North Yorkshire as it is in Scotland. How much more comfortable if your pay packet is a little plumper.

But that isn’t even the worst thing. It might be that wellpaid people would accept higher taxes in exchange for better services. Unfortunately, the way the SNP runs Scotland means this is simply higher taxes for poorer services.

The declining quality of education in Scottish schools is now well evidenced in comparison with what went before. For those who can choose to live anywhere they want, the higher quality education in England is a real draw.

Get taxation wrong – and there are all the signs that the Scottish Government is going to do so – and you kill the golden goose.

There have to be wealth creators for there to be wealth.

Higher taxes for poorer services