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Independent Scotland: socialist paradise or neo-liberal nirvana? - Spectator Blogs

11 September 2012

11:36 AM

11 September 2012

11:36 AM

Well, probably neither actually. But there’s every reason to suppose that just as some Unionists are fooling themselves when they discount the possibility of dear old Scotia thriving as an independent entity so some backers of independence may be deluding themselves if they think independence is a one-way ticket to a socialist paradise.

That’s the premise of this week’s Think Scotland column, written in the aftermath of Jim McColl’s decision to be out for independence. McColl, Heid Neep at Clyde Blowers and reckoned worth a billion pounds or so, is Alex Salmond’s latest boardroom success.

Admittedly McColl’s support is less than whole-hearted. It’s predicated upon Unionist reluctance to move much beyond the recent Scotland Bill. Independence is McColl’s preferred second prize. Anyway: I fancy an independent Scotland could prove more Thatcherite than the Thatcher years. The revolution will just have been delayed thirty years. A neo-liberal nirvana? Well perhaps that’s putting it too strongly too. Nevertheless:

If some Unionists make foolish arguments that can be distilled to an essence of Too Poor, Too Wee, Too Stupid to be independent so some nationalists err on the other side of the balance. I rather doubt that independence guarantees a Warmer, Bigger-Hearted, More Decent, Better Scotland. By which they mean, of course, a more left-wing Scotland. It may not actually turn out like that.

Even if one allows that a transition to independence passed smoothly, it’s plain that an independent Scotland’s finance minister would enjoy relatively little room for manoeuvre. This is the case even if concerns – quite reasonable concerns, it might be said – about monetary policy are settled in some satisfactory fashion.

Scotland is sufficiently prosperous to make a decent fist of independence. By many measures the country is the third-wealthiest part of the United Kingdom (bested only by London and the south-east of England). All this is encouraging.

Less cheerfully, however, it is also the case that Scotland’s fiscal position is more vulnerable than it might seem at first glance. The SNP, quite reasonably, argues that Scotland contributes her fair share of UK government receipts. According to the 2010-2011 Government Expenditure and Revenue Scotland figures, Scotland contributed 8.3% of UK revenue, more or less in line with her 8.4% of the UK population. If a “geographical share” of North Sea oil revenues are included that figure rises to 9.6%.

All this is quite encouraging too. Poke beneath the bonnet, however, and you quickly discover evidence that not everything is as healthy as it seems. For instance, Scotland contributes just 7.3% of UK income taxes, 6.8% of capital gains tax, 5.8% of inheritance tax and 6.7% of stamp duties. From this I think we may deduce that an independent Scotland would find it difficult to increase taxes on wealth. There isn’t enough of it to tax in the first place.

By contrast, Scotland “outperforms” other parts of the UK – that is, contributes a disproportionate amount of tax – on tobacco, alcohol and betting duty. Perhaps more significantly – since these “sin taxes” make up less than 5% of non-North Sea Revenue – Scotland contributes 8.8% of UK VAT receipts.

So where will an independent Scotland’s revenue come from? A broader or higher rate of VAT is one possibility. So too is increasing property taxes (Scotland contributes just 7.7% of council tax revenue).That will not be popular but it is feasible. Increasing taxes on income might also be possible but only at the risk of encouraging at least some Scots to move elsewhere. Whether one likes it or not those Scots who might find relocating elsewhere attractive are also those for whom doing so is likely to be easiest.

What about corporation tax? Well, excluding oil revenues, Scotland presently contributes 9% of UK corporation tax receipts. That’s encouraging too but it’s also why the First Minister has told business leaders he’d want to reduce corporation tax in Scotland to give the country a competitive advantage and make it even more attractive to foreign investors. This too is sensible, not least since many companies domiciled in Scotland could easily, if they chose, relocate south of the border.

All this being the case – and I think it is the case – it follows that, because of our location on the periphery and because of the size of our what would be our new neighbour, Scotland’s non-oil wealth is a resource to be farmed responsibly and with, to use a favourite government buzzword, some eye on its sustainability. Otherwise those resources risk being depleted.

Perhaps this is what the Labour party fears. Labour’s opposition to independence or more powers of any sort rests upon its belief that competition demands a “race to the bottom”.

It’s true that, on the spending side, Scotland could trim aspects of UK government spending that are relatively unimportant to Scotland (defence, some transport projects) and also true that, notionally at least, smaller government units can be more efficient than larger entities.

[…] An independent Scotland is not likely to be able to afford to be a high-tax country. That is, it seems quite unlikely it can cope with higher taxes than those applying in what remains of the United Kingdom. On the contrary, the logic of the balance sheet demands Scottish taxes actually be lower than those applied elsewhere.

Whole thing here.


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