Scotland’s finances are at a fork in the road: here’s a route that works

This blog was written by Dave Watson, Director of the Jimmy Reid Foundation and originally appeared in The National. 

Tax Justice Scotland is seeking to promote a better conversation on tax policy. As such, the views expressed in this blog are those of the author and do not necessarily reflect the views of Tax Justice Scotland and its diverse supporters.

There’s a bit of extra cash to spend in Scotland next year. Some £330 million more because of increased spending in England. The Scottish Government can also re-invest the up to £155 million it set aside to mitigate the cruel two-child limit, with this scrapped UK-wide. Borrowing limits have also been loosened.

But none of that changes the bigger picture, with a sizeable short-fall projected next year and a £2.6 billion black hole in day-to-day spending by the end of the decade. That’s just to stand still, not to cut child poverty and pollution, nor to tackle the social care crisis or housing emergency.

The challenge isn’t helped by Scotland’s wage and jobs growth lagging the rest of the UK, reducing the impact of devolved taxes. As many of us warned, the structure of the Scottish economy combined with the system used to adjust the block grant to reflect devolved taxes is penalising Scotland’s finances for factors largely outside its control.

In an election year, the temptation will be for the Finance Secretary to follow the Chancellor’s lead: side-step major reforms and apply sticking plasters to strained public services, hoping that, overall, no one kicks up too much fuss. There’s no shortage of advice on what she should prioritise: from tackling poverty, to shoring up council services, to addressing the delayed discharges that are grinding NHS Scotland to a halt.

But to start putting Scotland’s finances on a sustainable footing we need a longer-term view, particularly on tax. Scotland’s productivity won’t rise through wishful thinking. It needs sustained improvements in public services, the replacement of ageing infrastructure and investment in a healthy, well-educated population which capitalises on the green jobs of the future. You can’t build a fair, thriving economy when the foundations are crumbling beneath it.

The Finance Secretary must decide whether to match the freeze on Income Tax thresholds in England and Wales. But to get beyond year-to-year Budget tweaks, we need an honest conversation about tax; not as something to fear, but as the way we collectively invest in the things we all rely on and that support a healthy, prosperous economy.

That means acknowledging, despite all the headlines, the tax take in the UK, as a percentage of GDP, isn’t unusually high. We sit bang in the middle of the OECD pack, with the Nordic nations, France, Belgium, raising more. While we should expect our tax money to be well spent, we can’t expect a Scandinavian lifestyle on British tax rates; it doesn’t add up.

Over time, most of us are likely to have to pay more, but better taxing wealth is essential. The UK’s “mansion tax” – if implemented – could be positive but won’t automatically apply here. With far fewer ‘mansions’ in Scotland, replicating the tax, even with a lower threshold, is unlikely to be a game-changer for Scotland’s finances.

As argued by Tax Justice Scotland, a coalition of over 50 organisations, from frontline community support services to the STUC, Oxfam Scotland and more, the focus in Scotland should be on replacing the wildly outdated Council Tax – a system that punishes those with the least and protects those with the most. Reform was promised back in 2007. Eighteen years later, we’re still stuck in consultations.

Property is not only one of the biggest stocks of wealth in Scotland, it’s also the main existing way the Scottish Parliament can tax wealth that people already own. We need a national revaluation of properties and the introduction of a fair, modern property tax that’s local, proportional, and protects those on low or fixed incomes.

And Scotland can lead elsewhere too. For example, tax reliefs within Non-Domestic Rates could be conditional on businesses taking real climate action or improving the quality of work, including making it easier for unpaid carers, the hidden backbone of Scotland, to move into paid employment should they wish to.

At national level, the Scottish Government could also finally implement Air Departure Tax, embedding a fair Private Jet Tax on those who choose this high-polluting option.

None of this is outlandish. It’s the kind of common-sense approach that would line up the tax system with the country we keep saying we want to build: with better public services, less inequality, and a greener, fairer economy.

We’ve patched, postponed, pretended. Now Scotland must choose: keep letting services quietly crumble, or invest properly in the people and places that make this country tick. That requires an open debate on our willingness to pay for the country we want. And the really big question is whether, in an election year, our politicians are willing to have it.