16 December 2022

Will the SNP’s tax-raising gamble pay off?

The SNP is doing everything it can to make Scots see themselves as distinct, even if it costs them more money.

John Swinney gave the Scottish Budget yesterday. Photo by Andrew Cowan/Getty Images

A penny for his thoughts. As he presented the Scottish Budget yesterday John Swinney might have thought back to the SNP’s first Holyrood election campaign in 1999.

Swinney, now deputy first minister, was then his party’s Treasury spokesman, and he and its leader, Alex Salmond, cooked up the “Penny for Scotland” wheeze, which asked voters to pay 1p more in income tax than taxpayers in England. It was an early attempt by the Nats to prove Scotland was a more caring, sharing nation than its bigger neighbour.

At first the manifesto proposal seemed popular, though not everyone was convinced. Charlie Whelan, Gordon Brown’s spin doctor, wrote in the Guardian at the time: “The polls show that more than 50 per cent of Scots are prepared to pay more tax for better services. I don’t believe them; and neither do I believe that Scots are somehow different from the English and want to pay more tax.” Whelan was proved right – the SNP’s haul of 35 Holyrood seats (out of 129) was lower than the party had hoped for, and the Penny for Scotland policy was viewed as one of the key reasons for that. Scots might say they’re happy to pay more tax, but in the privacy of the polling booth…

This week Swinney returned to the scene of his defeat, asking again for a penny for Scotland, and then another penny – although this time (as acting finance secretary while Kate Forbes is on maternity leave) he is in a position to impose the levy rather than pose the question. Both the higher rate (which kicks in at £43,663) and top rate of tax will increase by 1p each, to 42p and 47p respectively (compared to 40p and 45p in England). The thresholds for the basic, intermediate and higher rates have been frozen, ensuring more earners will be dragged into their maw, while the top rate threshold has been reduced from £150,000 to £125,140 (in line with the change made in Jeremy Hunt’s Autumn Statement at Westminster).

The times are very different to 1999, of course; this time the SNP has cover for its high-tax instincts. The British government is raising taxes and cutting spending too in an attempt to reduce the UK's £2.2trn national debt. Meanwhile, the SNP has already used Holyrood’s tax system to show it can get away with charging at least wealthier Scots more than they would pay south of the border.

This Budget, however, went considerably further. Analysis by the Chartered Institute of Taxation has found that anyone earning above £27,850 in Scotland will pay more than elsewhere in the UK. Will the pips squeak? Will Swinney’s plucking of the goose feathers produce a discernible increase in hissing? Many of the better-off in Scotland – there are fewer than 15,000 top-rate taxpayers – have been uncomfortable with the extra tax they are asked to pay, but to this point the difference has not been so great that they have been tempted to change their accounting arrangements or head elsewhere. As a result of the Budget changes, anyone earning £150,000 in Scotland will pay an additional £2,432 compared with this year, which will be £3,857 more than someone earning the same salary elsewhere in the UK.

But it is the hit to middle Scotland, to fund generous public sector pay rises and protect NHS funding, that will be the main political test. As with elsewhere in the UK, most Scots are struggling with their food and heating bills due to inflation, and a government raid on their earnings will be felt more painfully than it would in healthier economic times.

Council taxes are going to rise too. There has been a real-terms cut in local government funding, already squeezed for years under the Nats, and the lack of a centrally-mandated cap or freeze on council tax makes it all but certain that rates will be hiked – though Swinney and his colleagues will handily be able to blame individual councils, many of them run by opposition parties, for that.

Over its long years in government the SNP has proved far better at raising taxes than at growing the tax base and promoting economic growth. Under Nicola Sturgeon it has shown a firm preference for the public sector, has approached the private sector with a long stick, and has rarely displayed much empathy towards wealth creators and entrepreneurs. The result of this is that Scotland has a particularly acute problem with business investment and start-ups. The consequences of Brexit are bad enough, but the constant threat of another vote on independence does little to improve business confidence or the prospects for overseas investment into Scotland.

The Scottish Fiscal Commission, an independent forecaster, expects Swinney’s tax changes to bring in just an extra £129m a year, which is paltry compared to the devolved government’s £45bn resource. The main protection to the Scottish budget has come from UK Barnett differentials of around £1bn, which have staved off the worst impacts of inflation.

That is perhaps not the point. Instances of difference between Scotland and England are being deliberately jemmied wider with every SNP government decision. In one sense this could be argued to be an example of devolution working in practice – allowing Scotland to do things its own way within the safe harbour of the Union was the point, after all. But the Nats, with a firm grip on the megaphone, do everything they can to ensure Scots don’t see it that way, and that they instead come to view themselves as an ever more distinct people. It may be exploitative, it may be unfair and infuriating for unionists, but given the past four opinion polls have shown support for independence in the majority, it may also be working.