The SNP needs lessons from Adam Smith on tax

The SNP needs lessons from Adam Smith on tax

by Murdo Fraser
article from Friday 3, November, 2017

THE SNP’S latest pitch to raid the pockets of hardworking Scots was launched this week, using the gambit of overhauling the Scottish income tax system. “The Role of Income Tax in Scotland’s Budget” was the catchy title Nicola Sturgeon’s civil servants dreamt up for her bid to ensure you pay more into her coffers. 

Peppered with references to the great Scottish thinker Adam Smith, regarded as the father of modern economics, this Scottish Government paper lays out four alternative tax approaches that are designed to form the base of future cross-party discussions on tax. As always, Nicola Sturgeon talks a good game when it comes to collaboration but her track record tells a different story and any prospect of cross-party consensus should be taken with a heavy pinch of salt. 

That said, the Scottish Conservatives welcome any discussion on income tax as we believe our position represents the views of most Scots. Furthermore, a debate on how we fund public services would be a welcome divergence from the usual fare of constitutional grievance served up at Holyrood. 

What was clear from yesterday’s paper was that the SNP is trying to position itself in the middle ground when it comes to tax hikes. We should not be fooled though, its favoured option still adds up to a significant raid on take home pay. 

The SNP’s proposals would result in those earning just over £24,000, less than the UK’s average wage, paying more in tax. If Sturgeon gets her way, police officers, train drivers, doctors and teachers will all be paying more. Worse still, under Labour and Lib Dem proposals, the average nurse would be paying an extra £182 a year.  

Debates on tax are tricky for any government. Despite what the Corbynistas and virtue signallers would have you believe, very few people in Scotland are enthusiastic about paying more tax. Although not scientific in any shape or form, a quick listen to Thursday’s Morning Call phone-in on BBC Radio Scotland showed how averse Scots are to paying more for an SNP Government already failing them in health, policing and education.

Recent polls and studies back up this hypothesis. Added to this is the electoral performance in recent years of both Labour and the Lib Dems – both explicitly committed to additional taxation – who have been roundly rejected by the electorate as a consequence.

The SNP should know better. During his time as SNP leader John Swinney had his fingers burnt in calling for a tax hike – the infamous ‘Penny for Scotland’ campaign. The route to electoral failure is almost always through raiding average earners’ pay.

So with Nicola Sturgeon investing so much of her Government’s reputation on this plan we might expect it to deliver a transformational change to public finances. But it does not even do this. The SNP’s plans, even at their most ambitious, could contribute just an additional £217 million to the public coffers. 

To put this in context, this is an SNP Government that has already wasted £180 million on the failed computer system to manage farm payments, spends £170 million annually on avoidable payments to agency staff in the NHS, and is committed to £35 million for a ‘baby box’ scheme that has no proven medical benefit.

Sending out the signal that Scotland is the highest tax part of the UK, deterring investment and driving away entrepreneurs and wealth-creators, is surely is too high a price to pay for an additional income of just over £200 million when the annual budget at Holyrood is north of £30billion. 

The Scottish Conservative position is as clear as it is simple. No-one in Scotland should pay more tax than those in the rest of the UK. This means no change to the upper bands and a pledge to match the inflation-adjusted increase in the threshold for the 40p rate that applies south of the Border.

With the tax changes introduced by the SNP in April hitting higher rate tax payers with bills £400 more than those elsewhere in the UK, Scotland is already the highest taxed part of the UK. Making this worse is the last thing our economy needs. With growth flat-lining and productivity stalling, the Scottish economy simply cannot afford to put up the “closed for business” sign that these hikes would signal. High earners are amongst the most mobile in society and any punitive change to their taxes could result in significant numbers moving south of the Border. 

It is little wonder that business organisations like the Scottish Chambers of Commerce and the Scottish Retail Consortium have warned of the impact on our economy, and our ability to attract talent, of higher tax rates in Scotland. What a pity that the SNP are not prepared to listen to their wise counsel.

Included within the SNP paper were proposals to increase the number of income tax bands from three to six. Tax should be simple, and increasing the number of bands would result in the system becoming overly complex and difficult to manage. Evidence from around the world shows that we should be simplifying, rather than complicating, our tax structures. 

Creating a system where working hard and getting promoted is dis-incentivised must be avoided at all costs. Complicating tax and making hard working public servants pay more is a sure-fire route to economic ruin, especially when we have a competitor on our doorstep ready to mop-up our most skilled workers. 

The SNP needs to think again on tax. Its proposals are heading in entirely the wrong direction, making Scotland the highest taxed part of the United Kingdom, and the sums that they would raise could easily be met by making savings elsewhere.

Adam Smith famously wrote: “There is no art which one government sooner learns of another than that of draining money from the pockets of the people.” Nicola Sturgeon and her Government need to start learning that draining money from our pockets is not the way to build a successful Scotland.

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