It is not right to say that this is the last United Kingdom budget. Far from it. Nevertheless, the times they be changing. Due to an unfortunate coincidence of parliamentary timing (though doubtless some will see a conspiracy in this) the Scotland Bill will be agreed today. It will, naturally, be lost amidst the budget brouhaha but it is a significant moment nevertheless. The SNP have made their peace with the coalition, recognising that the Calman Commission’s recommendations, imperfect though they may be, are another step towards a more independent future.
Significantly, the Scotland Bill accepts the proposition that it is perfectly feasible, and perhaps even proper, for the different parts of the United Kingdom to levy different rates of income tax. It increases the proportion of government spending in Scotland that may be levied by the Scottish government at Holyrood. The block grant will be cut and Scottish income taxes will be cut by 10p in the pound. Holyrood will be permitted to leave taxes at those rates or increase them to make up the funding shortfall. Other taxes, such as Stamp Duty and the Landfill Tax will also be transferred to Scottish control. The Treasury is loosening its grip, however reluctantly.
In theory, then, there is the prospect f tax competition within the UK. If the Scottish government can make savings elsewhere, it could levy lower rates of tax on both basic and higher-rate taxpayers. Since Scotland presently contributes a lower share of income tax receipts than its population would suggest it should, the case for imposing higher rates of income tax in Scotland than in the rest of the UK seems weak. At least it seems weak to me; it may not do so to most members of the Scottish Parliament. (It is, needless to say, an opportunity for the Scottish Conservatives; whether they have the ability to take it is, as always, a different matter.)
The amount of money involved is not, admittedly, great and the fiscal benefits to the Scottish government of lower taxes are, at best, indirect. Nevertheless, it is the principle of the thing that is significant. (And if Scotland can be granted these powers, how long until Northern Ireland and Wales enjoy similar privileges?) Devo More, or whatever you wish to call it, is happening anyway, no matter how Scotland votes in 2014.
This is, on the whole, worthwhile even though it necessarily further distances Sctland from the Westminster orbit. It also, however, puts an end to a ploy Alex Salmond has deployed to good effect in the lead-up to this year’s budget. Salmond, you see, compiled a £300m list of so-called “shovel-ready” projects that could, he said, stimulate the Scottish economy in these awkward economic times. The Prime Minister, fresh from his own commitment to infrastructure spending, should tell the Treasury to splash some cash north of the border.
It was a typically canny political gambit: if the UK government sent a cheque north Salmond and John Swinney could boast of “delivering for Scotland”; if the Treasury declined to fund Salmond’s list of projects the SNP could complain that the UK government was wilfully ignoring Scottish needs. Heads we win; tails you lose.
This is all braw politics but the kind of ploy that cannot be pursued forever. The Scotland Bill does not, naturally, satisfy the SNP’s expectations but, however hesitantly, it does move Scotland in the direction of greater self-reliance. Next year the Treasury will find it easier to answer SNP demands for additional funding for pet projects by pointing out that the Scottish government has the wherewithal, at least in terms of income tax or stamp duty, to fund them itself.
In other words, normal politics is finally, if partially, returning to Scotland. Tax, or at least the tax the public understands best, is on the agenda at long last. The Tories and the SNP should each welcome this.
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