DRIVING STRAIGHT TOWARDS A BRICK WALL

Just two days left – and the seven-sided sloganeering, vacuous sound-bites and relentless ya-boo –will be over says ScotBuzz editor BILL JAMIESON

It can’t come soon enough, looking at the scuffles in Glasgow city centre yesterday. Trying to shout down and prevent a political opponent from speaking is an ominous black mark for Scottish politics.

And it’s not the first one.

ScotBuzz has taken no sides in this campaign. We don’t intend to do so now. We’ve provided platforms for writers from Left and Right, and from the SNP.  We are an open platform – and we leave it to readers to make up their own minds.

But on one issue we do take a very firm view.

We don’t believe money goes on trees. And we see no merit on racking up IOUs to voters that can only be met by higher tax and ever higher debt.

As this election campaign has progressed it has felt like a ride on a runaway bus.

Straight ahead is a brick wall.

You hope you’ll hear the squeal of the brakes.

But here we are, two days out, and the bus is still gathering speed – straight towards the brick wall of reality.

No-one doubts the desirability of more money on healthcare, schools, welfare, special needs, higher wages,  local services, better amenities, better transport, and big infrastructure spending.

At the same time all the main parties earnestly protest that they will reduce the deficit and debt.

The SNP bus now has fantastic momentum. Its election manifesto includes higher spending of 0.5 per cent a year to enable “at least” £140 billion extra “investment” in the UK economy and public services; an additional £24 billion for the NHS; a target of 100,000 affordable homes; the minimum wage raised to £8.70 an hour and opposition to the £3 billion cut in disability support.

Little wonder Nicola Sturgeon sweeps all before her. By repeating this extraordinary wish list she gives it a spurious credibility.

But the brick wall is straight ahead.

The Institute for Fiscal Studies has calculated Scotland’s annual budget deficit under ‘full fiscal responsibility’ at £7.6 billion, or 8.6 per cent of GDP – the second highest in the EU.  By 2019-20 it forecasts that Scotland’s annual deficit would have risen to £9.7 billion. This, it says would have to be bridged by spending cuts or a dramatic increase in taxes.

But this has barely figured in the election. For the campaign is about something else. Such figures are brushed aside as unreliable or irrelevant to the greater purpose of a stronger SNP voice at Westminster to pursue anti-austerity policies.

When questions persist as to where the funding will come from to cut Scotland’s deficit, the standard reply is that it would come from higher economic growth here once the Holyrood administration has control over the economic levers to grow productivity, exports and business investment.

But it’s not clear why all these things would get such a boost, when they are all being pushed under current arrangements – and stagnating British productivity remains a puzzle.

And to close the deficit gap to UK levels in the next parliament, the Scottish economy would have to double its growth rate. Even to close the gap in 10 to 15 years would require “a step change” in growth.

So back we come to higher taxes on the wealthy – “those with the broader shoulders should bear the greater burden”. Step forward those with the gilded epaulettes and decorated shoulder boards.

In Scotland we have 2.65 million income tax payers. Of this total, the number paying the top 50p tax rate in 2010 was just 14,500.

These individuals represented just 0.5 per cent of all Scottish income taxpayers (and less than 0.3 per cent of Scotland’s population). Yet they accounted for 12 per cent of total Scottish income tax receipts.

Restoring the top rate back from the current 45p to 50p is unlikely to result in a full pro rata gain as the arithmetic might suggest because of behavioural effects – individuals re-arranging their affairs to reduce their tax liability, or by moving out.

The Institute of Chartered Accountants in Scotland calculated that “another 10 per cent on the top rate might raise about £240 million – or less than 0.4 per cent of public spending here, even assuming higher-rate taxpayers did not leave Scotland or find others ways to avoid paying more tax”.

So, if there are not enough of the top rate “broad shoulders” to “bear the greater burden”, how about those with less broad shoulders currently paying the 40p tax rate? These number around 358,000.

If a heavier tax rate was to be imposed on those currently liable for higher rate tax without a commensurate increase in the rest of the UK there would almost certainly be a “behavioural effect”: individuals would be more tempted to take up employment offers in the rest of the UK and Scottish firms would find it difficult to tempt middle and senior management to relocate in Scotland.

And if the ranks of those “with the broader shoulders” are thus depleted, a Scottish government would then have to call upon those with shoulders, well, fairly close to the average.

An interesting perspective on all this has been raised in a paper by Emmanuel Saez and Thomas Picketty.

Looking at 18 OECD countries between the 1970s and early 2000s, they observe a correlation between reductions in the top rate of tax and increases in top pre-tax income shares. A “fairer” share of tax paid by “the wealthy” would thus be better achieved by lowering top rates of tax rather than raising them.

This is an election with potentially massive consequences – political and constitutional as well as financial. The consequences for “those with the broader shoulders” could become particularly acute if the outcome was a government that was reluctant to cut public spending – or indeed, committed to increasing it further, every year.

One escape route of course, would be higher borrowing. But isn’t this where we came in?

And it is this that makes the runaway election bus all the more worrying. The experience of France under Francois Hollande is sobering: a lurch to higher spending and higher taxes, then the brick wall hit, there was an exodus of capital and people – and an inevitable climb-down.

By then the government’s credibility was broken – and voters betrayed. What social good or higher purpose is served by pretending that the figures don’t matter?

This is what makes this election not just the most intense of modern times – but arguably the most reckless.

 

 

 

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