More powers yes, higher taxes no

For some fifty years, Scotland has engaged in a constitutional debate about what powers should be handled at which level.

Following the Scotland Acts of 1999, 2012 and 2016, it has extensive powers over taxation, public services and welfare. There has been less debate on how those powers might be used to tackle the nation’s deep-seated social and economic problems. The Scottish Government has pledged to make Scotland Wealthier and Fairer (and also Healthier, Safer and Stronger and Smarter and Greener). It would be difficult to quarrel with these aims; a much more difficult question is how to achieve them.

Scotland is a very unequal society, as is the UK as a whole. There are those who argue that inequality is the price we pay for economic growth and that small nations, in particular, need to attract investment and wealthy people. In a competitive world, high public spending and taxes will deter them. Yet there is abundant evidence now that inequality is not only a social problem; it can also be bad for economic growth. Small, socially cohesive nations can do rather well in world markets, but only if they have the right institutions and policies. The question is not so much how high public spending and taxes are, but how they are spent.

Public spending may not always be a drag on the economy but can contribute to investment in infrastructure and innovation. It may also sustain ‘social investment’ in education, skills and health. Public spending now may save money in the long term by tackling problems in time. This all sounds eminently sensible, if not obvious. Yet it is notoriously difficult in practice.

Our new book A Wealthier, Fairer Scotland, analyses in depth how Scotland can deliver, given its existing and new powers. We show how spending decisions may help or hinder economic growth. We chart patterns of inequality and note the limitations of using taxes to correct it; more profound changes may be necessary. Scotland’s new welfare powers do allow for a different approach, but not a radical break from Westminster priorities.

The case of child care is used to show how a policy can contribute to gender equality and at the same time yield economic benefits, but only if it is organized in the right way. Preventive spending does promise large benefits but is continually frustrated by short-term political pressures and institutional blockages. It needs to be approached in a new way, including practitioners and their clients in policy making and delivery.

Social investment sounds fine in principle, but are people prepared to pay for it in the short run? We explore public opinion and find that Scots are only slightly more egalitarian than people in England, while support for redistribution has declined across the UK. People will pay for specific services, notably health, but are not keen on redistribution. They want more powers for Scotland but are less keen on different policies or taxes.

Evidence from elsewhere (including the Nordic states shows) that this is not inevitable.  If citizens trust government and value public services, they are willing to pay. If all citizens use the same services, they believe that their own wellbeing is tied up with that of society as a whole.

Since devolution, there has been a lot of consultation in Scotland and much engagement of ‘stakeholders’ in policy making. Yet this tends to be fragmented, with different tables for the economic actors, the social policy groups, the environmentalists and others. What is lacking is the capacity to bring together the social and the economic, which are in practice inseparable.

Continuing austerity, together with the new devolution of taxes, forces government in Scotland to face hard choices for the future, whether it is independent or not. Brexit only reinforces the pressure. Devolution has enhanced the Scotland’s capacity to set its own policies and priorities, but the nation has yet to find the way to respond to these huge challenges.

A Wealther, Fairer Scotland. The Political Economy of Constitutional Change, edited by Michael Keating, is published by Edinburgh University Press.

Post first published by the Centre on Constitutional Change

sceptical.scot will host a panel discussion on Scotland: The Good Society? at the Traverse Theatre, Edinburgh, on April 25 Details here

Comments

  1. TheStrach says

    Interesting piece. However, I have to take issue with you in saying that Scotland has extensive powers over taxation.

    We don’t control VAT, National Insurance, dividend tax, North Sea oil taxes etc. That greatly limits what can be done.

    I agree that higher taxes wouldn’t be popular, especially with living standards about to be squeezed further as the rate of inflation increases.

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