The Taxing Issues of Tartan Taxes
The Guardian Comment, May 26th 2010
The Queen’s Speech has shown that the intention of the Con-Lib Dem coalition is to be as considerate and thoughtful as possible to Scotland and Wales. To David Cameron this gives him the opportunity to show his reasonable manner towards the two hostile territories. The Scots have been promised implementation of the Calman Commission and the Welsh a referendum on more powers for the National Assembly.
At the same time, the decade of growth of the Scottish Government budget which doubled over the period is clearly over. The public spending cuts announced on Monday by George Osborne and David Laws identified cuts of £332 million for Scotland which are going to be deferred this year into next, and rolled into a total of nearly one billion pounds. It’s the old ‘tough cop, soft cop’ routine, which looks like it will become the modus operandi of the governing coalition.
What then are we to make of this, and where is it all going to end up? The Calman Commission proposals are intended to unleash a new era of fiscal accountability and responsibility. Whereas the Scottish Government has no link between spending and taxation, and thus between its decisions, consequences and economic growth, Calman proposed to address this.
The Calman Commission recommended that Scots income tax would be cut by 10p with the Block Grant cut by an equivalent amount. The Scottish Government would then be able to set its own rate – which if it did so at 10p would return revenues initially to their previous level.
The consideration of these proposals by the UK Government is a defining moment for the UK. It is the death knell of the unitary state, or more accurately, the beginning of the end of the idea of the unitary state in the Westminster village and among Whitehall mandarins. No wonder the Treasury oppose it (and likewise support the indefensible Barnett formula); likewise the SNP for completely opposite reasons (although they like all the parties in the Scottish Parliament oppose Barnett).
Sadly, though the tax powers are not as straightforward or inviting as they look. They could be deeply damaging to Scotland’s public spending, tax take, and encourage a culture of conflict between the Scottish and UK Governments. They do not even advance fiscal autonomy very far, would not have fairness or transparency in them, and would not encourage responsibility, instead aiding conflict and disagreement. In short, they would have the potential of becoming an unpopular, detested ‘tartan tax’ – both north and south of the border.
It is not surprising that Danny Alexander, Secretary of State for Scotland, and David Mundell, Deputy, have paused before rushing to implement these tax powers. They said this afternoon that they have no clear ‘commitment’ to them, but it is their eventual ‘intention’ to implement the tax powers. After consultation with the Treasury and the Scottish Government – with the latter not having a ‘veto’. Sounds like something being kicked into the long grass.
Calman does not take account of the English dimension. It is strangely, rather naively, another attempt by the Scottish political establishment to reprise their ‘finest hour’ of the Scotland Act 1998. At that point, the Scots and Welsh went to the head of the queue of constitutional reform; lots of things which were meant to follow: PR, Lords reform, English regionalism never happened.
This cannot go on occurring without addressing the English dimension and sense of voice and identity. England remains the last nation of the UK governed by the ‘direct rule’ of Westminster and hotch-potch of unaccountable, unelected boards and quangocrats.
Scottish proposals also need to acknowledge the British question: the battered, bruised remains of the British political system. How can a Scottish Parliament exist in a state defined by parliamentary sovereignty in the long run?
Calman’s tax powers need to be abandoned and more coherent and radical proposals examined and brought forward which move towards full fiscal autonomy for the Scots. The adoption of such policies would recast Scottish politics, and have major implications for England and the UK which need to be recognised.
This would offer working in co-operation with English, as well as Welsh and Northern Irish democrats, the chance to finally kill off once and for all the old Westminster system and the rotten edifice of the British political system, once the pride and envy of the world, and now associated with misgovernment, corruption and corporate capture.