Lost amid much of the commentary on Kwasi Kwarteng’s income tax and stamp duty cuts is that they will not apply to Scotland. Income tax is largely devolved to Holyrood, as is stamp duty, or land and buildings transaction tax as it is now known north of the border. The Barnett formula, the fiscal mechanism by which the Scottish government is funded, means the devolved administration will be given an additional £630 million as a result of the Chancellor’s new measures. However, Nicola Sturgeon is under no obligation to use it for similar tax cuts in Scotland. She can spend it elsewhere or not spend it at all.
The SNP leader was quick to deprecate Kwarteng’s tax cuts, saying the ‘super wealthy’ would be ‘laughing all the way to the actual bank’. But if she chooses not to match the Chancellor’s plan, the gap between what the Scots and the English pay in tax will widen further. Scotland’s income tax regime has five bands (19, 20, 21, 41 and 46 per cent) and currently someone earning £50,000 per year is taxed roughly £1,500 more than they would be in England. If Sturgeon does not follow Kwarteng’s lead, that figure will rise to almost £1,900. As it stands, a Scot begins paying more tax than his English equivalent once his annual earnings hit £27,850. After yesterday’s changes, he will start paying more when he reaches £14,732.
How is it that tax cuts the Chancellor deems vital to promote growth do not automatically apply in Scotland?
It’s a similar story on stamp duty. English homebuyers will now pay no tax on properties priced below £250,000 and 5 per cent on houses between that and £925,000. Scots pay 2 per cent on homes over £145,000 but under £250,000, 5 per cent between £250,000 and £325,000, 10 per cent from £325,000 to £750,000 and 12 per cent on anything over that.
The combined impact of these and other divergences north and south of the border would be substantial. The Tories in particular are exercised about it. Douglas Ross, the party’s leader in Scotland, says:
‘The UK Government has delivered tax cuts to turbo-charge our economy. The SNP must match these bold plans — and pass on the UK tax cuts to 2.4 million Scottish people.’
Liz Smith, the Scottish Tories’ finance spokesperson, says:
‘It is wrong that Scots already pay higher tax than their counterparts in the rest of the UK and, unless the SNP match these tax cuts, that gap is going to widen, which will further hamper Scotland’s already poor productivity and competitiveness.’
Murdo Fraser, a senior Tory MSP, says:
‘If the SNP/Green government doesn’t follow the Chancellor’s tax cut plans, workers in Scotland will be paying more — and the tax gap for highest earners will be six per cent. At that level we will see significant behaviour change and tax revenues in Scotland will fall still further.’
These are all reasonable points. Whatever the merits of Kwarteng’s tax cuts, failure to pass them on could do severe harm to the Scottish economy. Which is all the more reason to ask: how did we get here? How is it that tax cuts the Chancellor deems vital to promote growth do not automatically apply in Scotland? How is it that the SNP, a party sworn to dismantle the United Kingdom, gets to decide whether the second-largest country within the UK will be bothering to pursue growth? How is it that Tory politicians are having to beg Nicola Sturgeon to use an extra £630 million for tax cuts rather than squirrelling it away in her government’s reserves?
Well, the answer is that income tax (rates and bands) and stamp duty were devolved to Holyrood. When were they devolved? In 2012 and 2016. Who devolved them? The Tories did. They did so because they bought into the theory of infinite devolution, which holds that more devolution is always the answer and, when it turns out to be the wrong answer, the right answer is still more devolution. They did so because it seemed like a quick fix, because it suited the Treasury’s ‘devolve and forget’ outlook, and because the alternative of strengthening the constitutional integrity of the UK would have required time, effort and vision.
Spurning Kwasi Kwarteng’s tax cuts would be bad for Scotland economically but good for Nicola Sturgeon politically. You don’t have to be Carnac the Magnificent to know which one’s going to win out there. But in reproaching Sturgeon for her cynicism, remember there is plenty of cynicism on the go. The Tories say it’s wrong that Scots are charged higher taxes, but who allowed the SNP to do this? They say these tax cuts are vital for economic growth, so why did they put such a crucial fiscal lever in the hands of nationalists? Nicola Sturgeon may be prepared to leave Scots at the mercy of crippling tax rates, but it was the Tories who left Scots at the mercy of Nicola Sturgeon.
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