Craig Hoy is a former Lobby Correspondent and a member of the Scottish Conservative Party
There’s an old joke about a hapless politician’s library catching fire, and the punchline is something like “and in a statement [insert name] said he was very upset because he hadn’t finished colouring in the second book”. This has them rolling in the aisles at Burns Suppers from Ayr to Angus.
I’m not sure how comprehensive Derek Mackay’s library is, or whether it includes any crayons. But I doubt it has many economic textbooks.
In case you’re not aware of Mackay, he’s Scotland’s finance minister. By all accounts he’s nice approachable bloke. But watch your wallet when you’re around him. In his recent budget, which is causing political mayhem in Scotland, Mackay launched a triple tax whammy.
After some serious horse-trading with the Scottish Greens, the SNP unveiled its £34 billion budget plan.
Councils get new powers to impose a levy on workplace parking, the cap on council tax increases from three per cent to 4.79 per cent, and local authorities get new powers to introduce a tourist tax. Mackay’s latest raid on middle-income Scotland breaks some of the cardinal rules of tax and spending, but does it make good politics? I don’t think so.
Firstly, as the AA said, the parking levy is “stupid”. Forcing teachers and police officers to pay up to £400 a year to park at their work is a massive own goal which will come back to bite the SNP. For the lowest-income groups it amounts to the equivalent of a 10p in the pound increase in income tax.
Low-paid workers who have to drive, including many in rural areas, will have no other option but to pay and will cough up reluctantly. Others will vote with their feet. The move will increase competition for parking spaces in residential areas near to factories, offices, and schools. Official car parks could well sit empty while residential streets get busier still. The policy makes no sense, and Mackay will live to regret caving in to the Greens.
The increase in the Council Tax cap will hit households across Scotland. Mackay could have increased direct funding to councils, but instead he sits on the generous settlement allocated from Westminster and forces councils to increase bills.
This comes on the back of a very crafty increase in 2017 when the SNP legislated to increase the multiplier for the top four council tax bands – meaning the average Band H household paid about £10 a week more in tax.
The SNP’s record on income tax is equally duplicitous and depressing. Rather than risk unpopularity by increasing the basic rate of tax, Mackay has fiddled with rates, bands, and thresholds to secure more tax from 1.1 million ordinary hardworking Scots.
The SNP previously slapped a penny on the pound for anyone earning the new intermediate rate of £24,000 andright through to the top band at £150,000, where the rate is now 46 per cent. This means more tax for the many and not the few. To divert attention, in a prior budget, the government introduced new Scottish “starter” rate of income tax of 19 per cent. It applies to the first £2,000 of taxable income, and is thus worth roughly £20 pounds per year.
Much more significant is the decision not to match UK increases to the higher rate tax threshold: a move which pushes more and more Scots into the 41 pence in the pound bracket. Scots now pay higher rates of income tax at lower levels of income. It’s smoke and mirrors on speed, and someone earning £50,000 per year in Scotland will pay £1,500 more than someone on the equivalent salary in England.
Mackay has also ignored warnings that the rich are pretty smart when it comes to avoiding higher taxes. Those with considerable incomes could easily drift south of the border, leaving ordinary households – which includes teachers, police officers and health service workers – bearing the brunt of the SNP’s tax assault.
I doubt if Mackay is aware of the Laffer Curve, which illustrates the theory that the more an activity is taxed, the less revenue is generated. He has been warned that forcing more people into the upper tax bracket could actually reduce the overall contribution. Arthur Laffer’s theory worked for Ronald Reagan and Nigel Lawson, and if it works here then making Scotland’s taxation system more competitive could increase the amount of money the Scottish Government brings in. Yes, a tax cut could increase the tax take.
Mackay’s approach to tax is cynical. But it is also quite political. In Scotland there’s traditionally been a sense that people are willing to pay a bit more tax providing it’s targeted towards issues such as free long-term care, education and the NHS.
Despite the opening paragraphs above, it’s safe to say Mackay is no fool. I don’t believe he grasps the fundamentals of economics, but to date he has understood politics. By increasing taxation and spending, Mackay may have thought he had set an elephant trap for his opponents.
A future Conservative manifesto which pledges “fiscal rectitude” in Scotland could be cynically mis-characterised as a ‘Tory cuts’ manifesto. The extent to which this strategy works will be determined by how over-taxed Scots feel. If the pips are starting to squeak then voters are likely to be attracted by the prospect of tax cuts.
But if polls show the people aren’t quite ready to revolt, then there are some risks in focusing on tax – because tax cuts would be misrepresented by our opponents as inevitably leading to cuts to front-line services. This would be untrue, but when does truth matter in an election?
In positioning terms, we need to shift the needle of public opinion here. The SNP probably believes a ‘Tory cuts’ counter-offensive would work. I would traditionally have agreed, but I now have my doubts. Such an attack would fail to address a very uncomfortable truth for the SNP: across Scotland, they are spending more and delivering less. We see the effects of this in schools, hospitals, and on the roads and railways every day.
If the Conservative Party can effectively hold the SNP to account over its record, then we can change the conversation and turn things to our advantage.
We need to explain why reducing tax would make Scotland more competitive and a better place to live, work, and invest in. We need to explain how smarter spending and more effective policy reform in our public services could increase education outcomes, enhance healthcare, and improve living standards.
Notwithstanding the party’s obsession with independence and a second referendum, I get the sense people are growing very restless with the SNP, and Question Time from Motherwell this week confirmed this. The party’s record on healthcare, education, and crime is not favourable. They are mismanaging our finances and our public services. That’s a pretty toxic combination.
This gives Scottish Tories the opportunity to open up new lines of conversation with the Scottish people. Conversations about how we improve our schools, reduce waiting lists, and make our streets safer. And, yes, conversations about cutting taxes too.