‘Higher taxes must translate to better services’
NO SOONER had Derek Mackay delivered his provisional budget than the screeching started. Mass exodus of workers to England! Inability to attract talent ever again! MIDDLE CLASSES TO SPURN PROMOTION!
The cause of such histrionics? The finance secretary had only gone and stuck to his guns by freezing the threshold at which the higher rate of income tax kicks in. Although in his earlier budget UK Chancellor Philip Hammond – who seems to like nothing better than goading the SNP’S Westminster contingent – effectively gave a tax break to the wealthy by raising the higher-rate threshold south of the Border to £50,000, Mr Mackay confirmed that in Scotland it is going to remain unchanged at £43,430. Given that the typical full-time worker in Scotland can only dream of earning enough to pay the higher rate you’d be forgiven for wondering what all the fuss was about.
After all, when your annual earnings come in at only a little over £28,000, the amount of tax being paid by someone on one and half times that – a figure it would take well over a decade’s worth of inflation-linked rises to achieve – isn’t really all that relevant.
The problem is that with Mr Mackay last year introducing two new tax bands at the same time as increasing the higher rate from 40 per cent to 41% he has brought enough complexity into the system for it to have become A Thing.
And we all know that Things are things we most definitely have to get worked up about. Especially if they create the impression that someone living down the road is getting it easier than us. So while the typical Scottish worker will pay just £14 more in income tax than the typical English one next year, because someone earning £50,000 will pay just over £1,500 more there has been an outcry.
While in many respects it is nonsensical to make such comparisons with England, the differentials are also impossible to ignore – and the Scottish Government can hardly claim otherwise given that it will happily make similar comparisons if it suits its own narrative.
Indeed, when defending itself against recent accusations that its legal aid budget has been cut to the point of inadequacy, the Holyrood administration issued a statement noting that “the scope of legal aid remains extremely wide in Scotland, unlike in England and Wales, where provision has been cut”.
Try telling that to the mother unable to access the legal assistance she needs to keep a roof over her and her children’s heads.
Yet to suggest that people will start hot-footing it to England – or turning down career-enhancing promotions – in order to escape or mitigate against a punitive Scottish tax regime seems far-fetched in the extreme, with the cost of doing so likely to very quickly outweigh the advantage. And while the higherrate differential could well make it harder for Scottish employers to attract new recruits from south of the Border – or to compete with English employers fishing from the same pool of overseas talent -– it will not make it impossible.
From family considerations and career opportunities to lifestyle choices and local connections, people make life-changing decisions based on a whole range of factors and not just the rate of income tax they will pay. So while the SNP’S politically motivated claim that free prescriptions and higher education are enough to make Scotland attractive may not wash with a university graduate who enjoys rude health, lower house prices, an easier commute and the ability to go mountain biking every weekend might.
Despite all this, by making full use of its tax-raising powers the Scottish Government has created a significant issue for itself in that from now on everyone – even those who are unaffected by the tax differentials – will quite rightly expect it to deliver greatly improved services. With Scotland due to receive an extra £950m from the Treasury next year to make up for Mr Hammond pumping more cash into the NHS in England, Mr Mackay has been able to allocate £500m extra for the NHS while also unveiling a long-awaited increase to public sector pay.
Yet at a time when roads are crumbling, cities are filthy, major projects are stalling, and teachers are threatening to walk out over pay and conditions, these moves will barely be enough to paper over the cracks in a Brexit-bound country that has the effects of a decade’s worth of austerity written all over its face. Showing a willingness to engage with the Green Party over council tax reform could ultimately lead to improvements in services at the local level, but that would require legislation to be passed first, meaning time is not going to be on Mr Mackay’s side.
When delivering his budget the finance secretary threw down the gauntlet to himself by saying that “freezing the higher-rate tax threshold will ensure Scotland’s health and care services get the full budget increase they deserve”.
Quantifying quite what that means will be easier said than done, but one thing is for sure: Mr Mackay is going to be judged on it.
Mr Mackay has brought enough complexity into the income tax system for the frozen higher-rate tax band to have become A Thing