Scotland’s high tax failure is Britain’s future
On the surface, it might seem that the Scottish nationalist experiment into levying higher taxes north of the border has failed.
The Institute of Fiscal Studies (IFS) believes that rather than higher taxes in Scotland leading to higher revenue, the reverse may have been the case, with less money being available for public services than would have been the case had tax levels stayed the same as in England.
But while the IFS are certainly onto something, there remain plenty in the nationalist camp – and beyond it, among the self-regarding keepers of the socialist flame in Scotland – who will see such conclusions as irrelevant to the debate.
For nationalists, the divergence of Scottish tax rates, particularly those levelled on higher earners, from those applied in the rest of the country was the entire point of the exercise. Scotland being different from (and for “different from”, read “superior to”) the rest of the UK, it was necessary to signal this difference in unequivocal terms.
But by 2017, it was clear that a succession of Conservative prime ministers was simply not going to allow the second independence referendum that SNP activists joined the party to achieve. Faced with an increasingly impatient fanbase, then first minister Nicola Sturgeon decided that the populace had to be distracted from her complete inability to manufacture any kind of strategy that would achieve independence, and decided on the “Oh look over there! Shiny things!” tactic.
So the decision to freeze the tax threshold for higher earners at £43,000 while it went up to £45,000 elsewhere served a twin purpose: it signalled Scots’ virtue and willingness to give more to their poorer countrymen and women, and it provided a distraction from the only political issue that really matters to nationalists. In subsequent years that gap between what Scots and those Brits lucky enough to live elsewhere have to pay the taxman has increased further.
Which should have meant a windfall for Scotland’s public services, right?
That would have been nice, of course, even if, as stated above, the more important point was simply to take more money from rich people because… well, reasons.
But those of us living in Scotland have seen scant evidence that our local services – the state of our roads, the service provided by the NHS, the education our kids receive – have benefited at all from this influx of ready cash.
And if the IFS is right, if the divergence in tax rates and thresholds in Scotland has meant that higher tax rates result in a lower tax take, that is an important conclusion to draw, and not just for Arthur Laffer, who gave his name to the famous economic model that ostensibly demolishes the idea that higher tax levels automatically mean higher tax revenues.
Significantly, it confirms the chancellor, Rachel Reeves’s, instincts (not to mention Labour’s manifesto promise earlier this year) not to raise income tax at either the basic or higher levels. There are some in her party, just as there are in Scotland, who believe that achieving higher levels of tax for higher earners is a worthwhile achievement in itself, irrespective of the level of revenue raised or the number of services benefited.
And if, as the IFS seem to be suggesting, those high earners targeted manage to avoid their increased tax bills by avoidance or other behaviour, doesn’t that just prove that they are morally-challenged? Working class people, after all, are well known for their delight when their personal tax goes up.
There’s a similar, though contested, view that cutting corporation tax would lead to rises in revenue, as it has done under very specific circumstances in the past. When you make the cost of doing business in a country cheaper than it is elsewhere, you make it a more attractive place for multinationals to set up shop and create new jobs. Just ask Ireland.
Donald Trump’s presidential reboot might offer Reeves an opportunity to take advantage of such a strategy in the near future; unlike President Biden, Trump is vehemently opposed to an international agreement to set minimum corporation tax levels. Reeves is rightly worried that the incoming administration’s plans for tariff reform will impact badly on the UK economy, making any prospect of that elusive US-UK trade deal ever more urgent.
Combined with a commitment to outbid our closest competitors in attracting jobs and investment to Britain with a new offer on corporation tax, the next four years of Trump need not necessarily be as economically damaging as many feared.
Unless, that is, we are persuaded that the Scottish example of economic dysfunctionality should serve as a template rather than a warning.