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John Swinney misses a trick - Spectator Blogs

21 September 2012

2:20 AM

21 September 2012

2:20 AM

There are days when Scottish independence seems a more than decent idea. Budget day at Holyrood is always one of them. I say budget day but it’s really faux-budget day because, at least until now, it’s always been only half a budget. A parliament that may spend but cannot tax is only half a parliament.

So, if not independence then proper fiscal autonomy at least. That would make Holyrood a better, bigger, more responsible place. It might also provide incentives for better public policy. Might being the operative word, obviously.

Nevertheless the reaction to the so-called budget John Swinney delivered yesterday has been encouraging. That is, the public sector unions are unhappy. This is often a useful indicator and this reaction is no exception to that telling general rule.

They are disgruntled because John Swinney – the capable Finance Secretary – announced that those public sector workers whose pay he has the power to control will receive just a 1% pay increase this coming year. According to one Union leader this makes Mr Swinney “[George] Osborne in a kilt“.

Aye well, them’s the breaks. Even so, it should be noted that Swinney’s nugatory pay award only applies to fewer than 10% of government-paid workers (those earning less than £21,000 a year have not been subject to previous pay freezes and many others, including police and teachers, will have their pay awarded through separate settlements).

Swinney’s options were in any case limited. This is a consequence of the present economic climate and of the constitutional arrangements that hamstring his options. His budget is an exercise in shifting funds from one department to another. In the absence of proper responsibility it can hardly be any different. It makes Scottish politics a child0like world in which everything can be spent but nothing need be raised. This is a recipe for bad politics and even worse policy.

Swinney is a good and decent fellow but there was little in his faux-budget that could not have been announced by a Labour Finance Minister. Sure, there might have been a mild difference of emphasis in that case but not, alas, in any broader approach.

I expect little from Labour – still, frankly, the party that needs slaying – but I suppose I hope for a little more from the SNP. (I’ve pretty much given up on the Scottish Tories and know there’s no point in ever hoping for much from the Liberal [sic] Democrats.)

Swinney did his best to make the case for this being a “stimulus” budget and he has shifted some spending from the resource budget to capital spending. That’s all fine, I guess. But since he operates within the parameters of a block grant this is, as he must know himself, little more than tinkering.

Which is why it remains disappointing the SNP has not sought to use the tax-varying powers it already at least putatively enjoys. Putatively, I say, because the Scottish government has not decided to ensure it could ever actually use those powers.

It is true that ever since the (unpopular) 1999 “Penny for Scotland” campaign in which the SNP promised to raise taxes that the idea of using these powers has fallen from favour. Iain Macwhirter explained the consensus a couple of years ago at a time when it became apparent that the government was not inclined to pay the Inland Revenue the money it wanted to keep this a feasible notion :

The Scottish government merely took the decision that it wasn’t worth spending £7m to upgrade the machinery for collecting the SVR or Tartan Tax since there was no foreseeable prospect of it being used.  The SNP’s own election manifesto in 2007 specifically ruled out using the tax as did everyone else’s, apart from the Scottish Greens.

As a member of the Great and Good (though he’d dispute that membership I’m sure!) Iain both regretted this and presumed that the parliament’s tax-varying powers should only ever be used to increase taxation rates.

That was then and this is noo. The case for increasing the standard rate of income tax payable in Scotland is as weak as it ever was. That is, weaker than a Bash Street Kid. The case for reducing the standard rate of income tax payable in Scotland is stronger than ever. Alas, it has not been made. Not even by the Scottish Conservative and Unionist party. Shame on them.

Swinney announced yesterday that amidst much freezing of budgets the NHS would still receive extra funds. Some £263m to be precise. I suppose it is possible this will actually have some beneficial effect but, all things being equal, it seems likely to produce only marginal benefits and even those are liable to be distributed unevenly.

A 1p – that is 5% – cut in the standard rate of income tax however would have been a different thing. It would have given every taxpayer in Scotland a windfall (and permitted a total freeze on public sector pay, incidentally) at the price of what Swinney has splashed on the NHS. I suspect a cost-benefit analysis would favour the tax-cut ahead of more money for an already insufficiently efficient health service. More importantly, cutting tax would be a stimulus for all tax-payers.

But what about the English backlash? Well hooey to that. But, viewed from a nationalist perspective, any such “backlash” could be strategically useful. If the block grant is reduced one might expect a backlash against that. This is so even if the arguments for reducing the block grant are less than reprehensible.

So I think Swinney missed an opportunity. Alex Salmond would like corporation tax to be lower in Scotland than it is in the rest of the United Kingdom (or what remains of it) so why not lower income tax too? Comparative advantages are still comparative advantages even when they’re measured in terms of individuals not companies.


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