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The Budget that wasn’t

Craig Dalzell – 16th December 2021

This year’s Scottish budget was, quite frankly, the absolute least that could be done by any Government. The irony being that I said almost exactly the same thing last year when I ascribed that budget’s lack of…anything…to it being the last budget of the Parliamentary session. That budget was hardly the time to announce grand new strategies or long term plans. Even a party riding at around 50% of the vote could never guarantee its return into Government after the elections and it would look gauche or presumptuous to decree that they would by making plans for their return.

The opposite should have been the case for this budget. This is the first budget of a new Parliament and is precisely the time to be laying down the groundwork for the long term planning that is to come. This is the time when political capital reserves should be at their highest and it’s possible to do the radical thing. With the new cooperation agreement between the SNP and the Greens, this is the time when the Government can take an extra step and share the responsibility of doing so. I do appreciate that there are concerns about the pandemic in Scotland and – as ever – a budget without sufficient borrowing powers will always be tight though I am intrigued by the observation that last year’s explicit Covid funding appears to have been retained but now “woven through” the accounts instead of appearing as a distinct line. Given news since the budget that at least some of the Covid support that may be coming from the UK Government to respond to the new Omicron wave isn’t new money but merely an “advance” on the Scottish Block Grant, I hope there are contingencies in place to avoid this biting into critical budgets later.

So why is this budget so flat, despite the opportunities? I’ve only really seen three noteworthy policies in the budget and all of them are noteworthy because of what they don’t do, rather than what they do. The first is the change to income tax. All rates have been frozen again and all bands raised by inflation except the Higher Rate which was fixed its cash rate – which combined with changes at a UK level effectively mean a real terms tax increase on folk earning more than £30,000 a year or so but only by less than £5 per year. It’s very difficult to see how income tax could have been adjusted in a way that had less of an effect over doing nothing at all. I really do wonder if the SNP lost the bottle to fight for more progressive income tax when it won the fight to make the changes it did in 2018. Back then, we were told that though those changes were themselves minor, they “shifted the debate” on Scottish taxation and could pave the way for greater changes in the future. That shift appears to have not stuck. Indeed I recall a conversation I had with the Finance Secretary Kate Forbes where I pointed out that any change to things like income tax would be met by wailing and gnashing of teeth by the Conservatives and possibly other opposition parties regardless of what the change was – hence the Scottish Government was as well to price that opposition in and do the radical thing anyway. It appears that my advice has not been heeded.

The second item of note in the budget was the lifting of the cap on Council Tax. After many years of forcing a freeze on the one tax power than Local Authorities have some modicum of control over, “permission” has been granted to raise rates. Imagine for a moment if the Scottish Government had to ask Westminster for “permission” to adjust income tax even if it was technically devolved. This paternalistic approach to local government would simply not be acceptable in most European countries. In fact, in many of them it would be specifically barred by their Constitution as a breach of the right to subsidiarity in local democracy.

 I see this year’s approach to Council Tax as nothing less than cynical electioneering. The Local Authority elections are six months away and the SNP do not have majority control of any of the 32 councils in Scotland. Budgets have been systematically cut almost beyond the bone in many of them and many will have little choice but to increase rates. I can already see election leaflets from councillors seeking re-election campaigning on their opposition to that rate rise or pledging to continue to freeze rates – delete as appropriate. Given the desperate need to address local democracy and local government funding, we should have finally – decades late, but finally – taken this chance to scrap Council Tax altogether and replace it with something fairer and more flexible.

The final noteworthy nothing in this budget comes with regard to the environment. In the year that COP26 came to Scotland, the Scottish Government have actually cut the budget to the Net Zero, Energy and Transport department. Digging down into the details, there are substantial budget cuts to forestry, land reform, environmental regulations, general energy policy, long term research and planning and in active travel. Just months after announcing a national strategy to upgrade home energy efficiency, the budget for fuel poverty and housing quality had been cut by 16% to £2.5 million and now stands at just 0.1% of what will need to be spent every year for the next 25 years if we’re going to retrofit out homes up to the standards that they need to be to meet climate obligations and eliminate fuel poverty. Scotland might have “world leading” targets on climate change but it has yet to lay out policies that show that they are planning to meet or exceed those targets. Such was the conclusion of the UK Climate Change Committee last week. I guess their advice wasn’t heeded either.

So what could we have had in this budget instead of what we got?

I would have started with addressing local government and local democracy. With the elections coming up in just a few months, now would have been the perfect time to announce intention to reform both into a shape that the rest of Europe calls “normal” – you can see my recent keynote speech to SCDN’s Annual Conference for more about what that would look like in practice.

This would involve freeing local government from centralise control particularly around their funding. The Scottish Government’s ability to adjust current taxation might be limited by devolution but its scope to create new taxes and sources of revenue are substantially broader especially when those new taxes are controlled by local government. Immediately, Council Tax should be replaced by a Property Tax proportionate to the actual value of properties (as opposed to what their notional value might have been over a quarter of a century ago). We’ve shown how this can be done in a “revenue neutral” way with regards to homes but also that applying the definition of “property” to land as well turns the Property Tax into a combined buildings and land value tax which could bring in an additional £220 million per year from currently untaxed assets. As an illustration, our paper gives the example of a sporting estate that was on the market at the time of writing for £2.4 million and which comprised a five bedroom house and 1,000 acres of land. It currently pays just under £3,000 per year in Council Tax but under our Property Tax plan it would liable for around £15,000 per year. Conversely, a two bedroom, Band A, house worth around £64,000 could see its annual tax drop from around £800 per year to £400 per year.

Of course, Scotland could go further than mere tax reform. There are solid proposals for new local revenue sources from tourist taxes, alcohol production taxes, Circular Economy inducements like bottle return schemes (something currently being delayed in Scotland due to capitulation to lobbying by companies who happily comply with similar schemes in Europe) and others.

With the opening up of the potential of Scotland’s local economies we can start to seriously tackle Scotland’s problem with land ownership. The reason that land reform is withering on the vine is that communities are still being forced to try to scrabble together the cash to pay inflated market rates to buy land (the closeness between the Scottish Government and those at the centre of Scotland’s largest estates has not gone unnoticed). Instead of cutting funds for land reform and channelling what’s left directly into the pockets of estate owners, the Scottish Government should be recognising what radical land reform would mean in terms of the return on its investment in communities. For a start, we might be having a very different discussion about income taxes if those investments start creating better, higher paid jobs in rural Scotland.

It’s clear that Scotland could be moving in a much more radical direction than it is. It’s less clear why it isn’t. There is backing in the party memberships (overwhelmingly so) for radical change and the segments of the opposition who will complain will do so regardless. If Scotland wants to meet its “world leading targets” on climate or anything else then it needs to start investing like it means to meet those targets. To reflect a saying from the 2014 independence campaign and that moment of ambition for the future:– we’re not that it would be easy; we are saying that it would be worth it.

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