So it won’t be a penny for education, or anything else.
Still, there’s no denying that the last week has been educational. Now we know that the Scottish Government prefers passing on Westminster tax cuts to protecting public services in Scotland. You didn’t know that? Read on.
The first critical piece of context here is that, from its less than usually sure footed reaction, the SNP does not appear to have been expecting Labour’s announcement. The party has lately been responding to Labour criticism of planned spending cuts by asking with breezy confidence how its opponent would pay. It doesn’t seem to have anticipated that Labour would come up with this answer.
While some government supporters were quick to express joy at a “kamikaze” decision, the SNP leadership and backbenchers at Holyrood didn’t sound the way they do when truly delighted with the opposition. Labour’s decision is unlikely to do the SNP any electoral harm, but then it never was going to be short of votes in May.
The governing party’s longer-term need is to retain command of the narrative about Scotland and itself. As council after council turns abstract numbers into actual service cuts, increased charges and job losses over the year ahead, having Labour lined up on the side of using tax to protect public spending and the SNP on the other side (with … you know who) is not so helpful to the story the SNP needs to tell. From that perspective, a message for its lefter-leaning supporters that the party could not reasonably be asked to take all the political risk of being in the vanguard of proposing a tax rise would have worked much better.
To get round this, the SNP leadership has been hurriedly trying on various different social-justice themed lines for size. The leadership’s description of the Scottish Rate of Income Tax (SRIT) as “regressive” had worked reasonably well over the past few months, while it wasn’t too much in the headlines: even the STUC had been content to say so to the Parliament’s Finance Committee. However, by the end of last week voices as diverse as Torsten Bell at the Resolution Foundation, Ben Wray at Common Space and, from the academic world, Davids Bell and Eisner (“arguments that an increase in the SRIT is regressive are wrong”), had all unambiguously deemed the use of SRIT progressive, if only modestly so. An earlier quote dug up from John Swinney didn’t help either.
Osborne’s invisible hand
So Ministers have largely retreated to more solid political ground, simply decrying any tax effect on people on incomes over Labour’s £20,000 cut off for compensation. But there’s some awkward maths lurking there, which has barely surfaced yet. When John Swinney says he is “defending” the take-home pay of low and middle earners, he is actually passing on a Westminster tax cut, due to a £400 increase next year in the tax-free threshold and a slight further expansion of the basic rate band. This means that if the Scottish Government does nothing, everyone on the basic rate (that is, up to £43,000, well above the median) will pay £80 a year less tax. Those paying a marginal rate of 40% will do even better, seeing a flat gain of £202. For those taxed at 45%, the change is worth most, at £233.
This means that, even without Labour’s compensation scheme, compared to the current year anyone earning up to £19,000 would still see their tax bill fall with a 1p increase in the SRIT. They would be more than compensated by the threshold change. Someone on £25,000 would pay £5 more a month than now: around median full-time earnings (about £27,000), a person would pay £7.50 more a month. To be paying at least £5 a week more than now, you would have to be earning over £55,000. Those numbers exclude the tax cut foregone, but still put into perspective some of the more florid rhetoric about protecting the less well-paid. These calculations moreover ignore a point made by Bell and Eisner, which is that many low earners live in relatively well-off two-earner households. Indeed, they note that Labour’s compensation scheme, as currently proposed, could benefit many who are quite comfortably off.
The government has found some traction in criticising Labour’s off-set proposals. Yet, as the numbers above show, an administration which was strongly motivated to protect public services, but unconvinced about the mechanics of Labour’s specific proposals, could easily argue that the impact of increasing SRIT this year will be more than off-set for the lowest paid, and substantially mitigated for many more, by the threshold increases. If it still wished, it might exercise its imagination and look for alternative ways of directing help at lower income households, such as tweaking the (fully devolved) Council Tax Reduction Scheme. That is not the government we appear to have, however.
The First Minister also had a go at portraying the Conservatives as the party of backdoor tax rises, due to their questioning of universal benefits. But that’s not only tortuous but risky, as SNP-led councils, such as Dundee, contemplate raising charges significantly for services as disparate as parking and non-residential social care. The government then tried changing the subject to the implementation of the living wage, overlooking that in local government, and bodies funded by local government, many are likely to see any benefit from that wiped out by fewer jobs or shorter hours.
In short, the main tactic has been to find any angle at all which looks at the earnings side of the equation. Because as long as that’s the focus of attention, conversation is shut out on what might be done with £400m or more of avoided cuts. The ministerial lines on that were simply hopeless, with John Swinney calling large numbers of avoidable public sector job losses “regrettable”. There were challenges too for the party on the ground. Dundee City Council’s SNP leadership welcomed the decision to leave SRIT in the box, even as it peered into a £23m “black hole” (The Courier). The leader of the SNP Group on Glasgow City Council condemned the possibility that the council might have to tear up a three year funding deal for local charities as a potential “disaster” (The Herald). There’s much more of this to come and, while sending the blame back south (in the words of a letter writer to The National, “A Penny for Trident”) will play well with some, it’ll be harder to make work locally when cuts become reality, as long as the opposition continues to highlight the potential for an alternative.
Wray’s careful analysis on Common Space challenged the scale of Labour’s anti-cuts rhetoric by arguing that £400m net proceeds would be too little to fully protect public spending, an argument also put by Torsten Bell. Wray estimated that would cost nearer £650m. But that’s hardly a position the government can comfortably take, not least as £400m is still more than the cost of maintaining the entire prison system: it would unarguably make a big difference.
Notably, Labour does not appear to have been able to look to anti-poverty campaigners for support. Strictly speaking, this is not news. When the Finance Committee held an inquiry into the use of these powers last summer, they received no evidence at all from organisations who are otherwise generally very concerned about the impact of tax, benefits and public spending policy on the poor. Not one third sector organisation argued then that using these powers might be better than foregoing the money they would raise. It is new to observe however that even as the scale and nature of council budget cuts has become clearer, not one such organisation (as far as I can tell) has spoken out this week in favour of using progressive taxation to protect public services: only some of the unions have so far offered support. I find that astonishing: it does not leave me feeling comfortable about the state of Scottish civic life.
The Green Party too played a baffling hand, with Patrick Harvie MSP refusing to support an increase in SRIT while still arguing that we urgently needed to raise the money. His alternative proposal appeared to rest heavily on a wholesale reorganisation of council tax bands in the next 6 weeks or so, by comparison with which implementing Labour’s compensation scheme would be a doddle.
Frit about SRIT
This reluctance to argue for SRIT now as an alternative to cuts carries a longer term risk to the nature of public debate about tax. As the week went on, it was noticeable how many government supporters on-line came out as income tax sceptics, identifying it principally not as a civilised and equitable part of the toolkit for financing public services, but a discouragement to and penalty on hard working types, including those who are not particularly low paid. As one put it to me, he was really a “soft Tory”, though he took polite exception to my saying that his arguments reminded me of the Thatcherite rhetoric with which I grew up, prioritising keeping tax down over investing in public services even as my school crumbled. Another lively and interesting new pro-independence voice, and critical friend to the SNP, tweeted that redistribution is a “flowery word that allows politicians to take more of your money and spend it”. There weren’t many echoes of Keir Hardie’s advocacy of graduated income tax as progressive in principle, or the Atlee government’s Keynsian economics, in all this.
So, it’s all been very educational. However it’s now the SNP who need to learn fast. As negotiations over the fiscal framework run on, it becomes increasingly possible that SRIT will be the only game in town for serious revenue raising not just in the coming year but the one after. So even if the Scottish Government can identify a sub-group from whom it feels confident asking for substantially more, it could be another two years before it is able to do that.
With the Liberal Democrats and Labour declared, the political risk (and it is a real one) of proposing a tax rise has been removed for the governing party. Various people have described SRIT as a trap for the SNP: damned if they do and damned if they don’t. The repositioning of Labour and the Liberal Democrats makes that far less true. Of course most people don’t particularly want to pay more tax, but it is impossible to imagine a safer context politically in which the SNP could propose using these powers, particularly once the cushioning effect of the threshold rise at lower incomes is thrown in. Indeed, this may be the easiest opportunity there will ever be to challenge the assumption that a race to the bottom on income tax is as inevitable as gravity. The SNP might lose a few votes, but it’s implausible that it would be on a scale which would cause them real damage.
Otherwise, the dossier of painful local cuts will fill up. Even if the government finds a way to repair some of this year’s damage to council budgets in twelve months’ time, ahead of the local elections, the narrative in which Scotland distinguishes itself by being more Nordic than Anglo-American in its instincts will have taken a knock. I’ll confess to always having been sceptical about that one, a position I now turn out to share with a surprisingly large number of government supporters. But as I watch councils being pushed – avoidably, I repeat – into advancing the Cameron/Osborne smaller state agenda, ostensibly so that those on median earnings need not pay £7.50 a month more in tax than they do now, nothing would make me happier than Nicola Sturgeon proving me wrong. Whatever we learnt this week, there’s still time for Sturgeon and Swinney to do some revision.
Photo: courtesy of Scottish Government via Flickr Creative Commons