Taxing questions
Hands up those of you who voted for devolution ten years ago today? Hands down.
Now, hands up those of you who also voted for the devolved Parliament to have limited tax powers? Hands down.
Finally, hands up those of you who think those limited tax powers will ever be used?
That second question on tax powers caused quite inordinate fuss a decade ago.
It caused uproar, particularly within the Scottish Labour Party, when it was proposed – alongside the general controversy about the entire project.
To the last day of the campaign, Donald Dewar remained sporadically and gloomily convinced that Question Two would fall.
He thought it counter-intuitive to expect people to vote explicitly for the possibility of higher taxes - without any precise indication as to what those taxes might fund.
In the event, of course, the concept of devolution was backed three to one and the tax power – the so-called Tartan Tax - was backed by nearly two to one.
Ten years after (rather a good band, once saw them at the Caird Hall), the concept of devolution is entrenched.
The tax power is all but forgotten. Nobody seriously expects any party to make use of it, either now or in the foreseeable future.
Why? Because it would cause too much political grief and would cost too much to implement – by comparison, that is, with the demonstrable gains.
The Question Two power, remember, was to vary the standard rate of income tax up or down by a maximum of 3p in the pound. Nothing on upper rates of tax. Nothing on the new lower band. No capacity to target.
From time to time, sundry Tories have toyed with the notion of offering a tax cut – only to disavow it as futile, impractical politics.
More recently, the LibDems also looked at whether they might offer a distinctive message with a cut in the Tartan Tax.
They polled discreetly and concluded that it was a non-starter - folk didn’t trust the offer, couldn’t conceive of it happening.
On the Left, we’ve occasionally heard talk of a tax hike in Scotland to fund public services.
Donald Dewar ruled it out for the first Parliament – and nothing’s been heard of it since from Labour.
The SNP, of course, previously offered to spend a penny for Scotland (author - J. Swinney) in reversing a cut in the standard rate implemented by the Treasury (author - G. Brown.)
They’ve long since concluded that they could well do without such courageous politics.
Their emphasis now is upon cutting business taxation to boost the economy.
So why rake all this up again? Because, ten years on, there’s a debate/conversation under way about possibly enhanced powers for Holyrood.
And the really big, serious power that counts would be fiscal.
Should Holyrood have real clout over taxation – or borrowing? Would that increase political responsibility? Might it encourage political diversity – with some parties able to offer credible tax cuts while others float higher funded expenditure?
Or would it be an unacceptable intrusion into reserved powers and broad Treasury control of the economy? Would it damage Scotland’s economy?
Good questions all. One thing, though. We said yes to the Tartan Tax ten years ago. But, right now, it isn’t in itself an answer to anything.
I'm 
Comments
Interesting points Brian.
Myself, Im for full fiscal autonomy. Every penny raised in Scotland stays in Scotland and the representatives of the Scottish government decide where it goes. Therefore ensuring that wee Mrs Mac can get on a bus tae Edinburgh and harangue the MSP responsible for throwing her tax monies away. Not some faceless guy in London that seems to far away to do anything about it(remember the Poll tax). Independance or not Im all for a greater transparency, closer ties to the electorate, with the people having a more involved role in their regions/countries politics, government and policies. Unfortunately Westminster has treated the regions on their periphery poorly (I also know that many areas outside Scotland were equally badly treated including the north of England Wales and NI) and this is what is feeding nationalist support in both Scotland and Wales (I believe if there was an North England alliance they might consider looking out for themselves too).
However Scotlands economy is not identical to Englands and we must be able to implement measures which insures stability and creates year on year growth. We didnt ask GB to do this with limited fiscal measures and would be mad to implement such constraints our own Ministers.
Indeed what if the Nats are correct and they plus their council of economic high-heidyins get the scottish economy moving again, what happens to the increase in tax revenues from Scotland, do we all work harder to send more of our peoples cash to the westminster black whole, or do we get to keep what we work hard to achieve.
Its strange that even without the "Nationalist Conversation" the ability of the present scottish executive/government to highlight issues that should have come under far more scrutiny prior to the devolution debate, just by trying to carry out their day to day jobs is astoundingly clear. Perhaps Labour just couldnt envisage a day when the SNP could win, However when your a member of the scottish parliament you cant blame all the mistakes on the English mps
Another interesting blog Brian.
Having been too young to vote for either devolution or tax 'varying' powers (as it was phrased) I now see the need for the Parliament to use these powers and indeed extend its own powers.
I studied Scottish politics at Uni and, at the time, we determined that it was difficult to judge the success of the SP for two reasons: 1) The inexperience of its members and 2) The lack of powers available to them. Now, 10 years after the referendum, we can see a distinct change in reason one and the possibility of change in reason two.
Fiscal powers would give the Parliament more credence and its members more responsibility as you rightly point out. Only then, when we see if the Parliament can maturely deal with enhanced powers, will we know if devolution has been a success and, ultimately, if the SNP's dream of independence has the potential to become reality.
What Donald Dewar failed to understand that the vote on tax varying powers was an opportunity for Scots to make a statement that they wanted to make the Scottish parliament and the Scottish government to be truly representative, and not simply another glorified spending authority.
Scottish voters were applying a higher and more democratic logic than Westminster politicians in the devolution referendum.
They still do. Every poll asserts that Scots not only want more powers for their political institutions but they understand the importance of tax & spend in representative politics.
It is lesson that Labour has never learned. Their unionist mindset meant they were simply content in creating holding accounts at the Treasury and to hand back the unspent part of the block grant to their London masters.
The system discourages tax cuts. Salmond could cut income tax, could scrap business rates and council tax, but would see a consequent plunge in central funding from HM Treasury.
If you believe in the Laffer curve, cutting tax rates would boost growth, and therefore boost tax revenues like VAT. Unfortunately, these would go to the Treasury. Meanwhile, Scotland would lose public funding- a real zero-sum game.
So, we have no fiscal autonomy, no monetary autonomy, and the benefits of growth go straight to London for redistribution.
All the economic powers of a parish council, really!
Ah Brian:
I think your age is showing through your taste in music. Your right as well they were a good band. Perhaps my age is showing to.
Do you think the Scots people have decided to vote on purpose for creeping independence? Like someone going for a dook in the North Sea. Edging further and further on until they either say "its no too bad once yer in" or run back out blue and chittering
"Dream"? Dream on laddie. Airy fairy language can't be used to describe such a clear and very tangible political objective.
Statehood is obtainable; it just needs the will and the opportunity.
Will it come as the result of a referendum in the next four years - possibly. More likely it will result from a slower process where one advance will lead to the next.
A prize to the first person to use the cliche of "the slippery slope".
Fiscal autonomy would give the executive (the Scottish Cabinet; the part of the Scottish Government holding executive power) the opportunity to budget in a longer term. As it stands, the executive must make a budget based on the whim and fancy of Westminster, with no guarantee or projections from one year to the next.
The ability to collect and spend taxes raised in Scotland is important not only in showing that Scotland is an economically viable country, but also in returning sovereignty to Scotland. The problem arises, however, when Scotland raises taxes and is then instructed by Westminster how much of the monies raised must be placed into the common pot. We're back at the same position.
Interestingly, Brian Ashcroft, Mr Wendy Alexander, believes that Independence is a better option than fiscal autonomy or any tax raising powers, since you can "do a lot more" and further long term budgetry planning.
I don't see any intellectually rigorous argument against the Scottish Parliament and Government being directly responsible for raising the revenue it spends. Such a mechanism is the very essence of democratic accountability and transparency. The fact Scotland has no such controls in the current devolution settlement is not only anomalous, but most likely contributing to the wider malaise of apathy there is in Scottish politics. Spending wealth, rather than creating it, is in no way good governance.
However, one major point to consider is how does this square with the Union? Now, as someone who is not a Unionist, I see the most effective model being an entirely fiscally responsible Scotland, raising all of its revenue and spending it according to its needs. Terms like fiscal federalism and fiscal autonomy are often bandied about - but no-one has ever intimated how they would work in the Union, or how they would contribute to a wider atmosphere of equity, that is lacking in the funding of the constituent countries of the UK. What taxes do we devolve? Which do we reserve? Will the reserved taxes be enough to cover a distinctive "Scottish share" of UK wide expenditures? Alternatively do we devolve responsibility for all taxes to the Scottish Parliament, who then provide a subvention to Westminster to cover a Scottish share of reserved spending?
What happens if an elected Scottish Government withholds such a subvention because it does not agree with the reserved policy proposals of the Westminster Government? Such a funding mechanism would only strengthen the Scottish Government at the expense of the UK one.
As I see it, fiscal autonomy or federalism would only weaken the Union making it both unsustainable and ungovernable - a reason why I think most Unionist politicians would really rather avoid this debate, but know that they cannot.
I was one of many active Greens in Edinburgh campaigning for a Yes-Yes vote. When we were on the doorsteps we knew that the second "Yes" was never really about tax-raising powers. As Brian rightly says it is far too crude. It was much more to do with our confidence in Scotland. If people had voted "No" on tax-powers the doomsayers like Michael Forsyth and Brian Monteith would have seized on it to undermine the devolution process. The second vote was really about saying that we trust our own parliament to make mature decisions about taxation. 10 years on, it seems a non-issue. I'd far rather Scotland had full fiscal powers to tax anti-social activities like pollution and waste rather than simply a tax-varying power on labour.
I pay enough tax as it is, thank you. If I have to pay extra as a 'tartan tax' I'll have to claim working credit!
You state that the Question Two power was to vary the standard rate of income tax up or down by 3p in the pound. That was not the case as the standard rate was abolished during the premiership of the late Sir Edward Heath in the early 1970s. The tax power was to vary the basic rate of income tax up or down by 3p in the pound.
This may seem a technical quibble, and it has to acknowledged that many of those who advocated the tax power referred to the standard rate.
The standard rate applied to all income and a separate surtax tax applied to income in excess of specified amounts. Because the standard applied to all income, the tax power would have been a powerful tool had there existed a standard rate. When the standard rate and surtax were abolished, the basic rate, as part of unified system of income tax, was introduced. There are numerous substantial differences between a standard rate and a basic rate. One of the differences, which has made the tax power both unworkable and unfair, is that the basic rate applies only to a slice of income which slice need not be the lowest slice. That has limited the effectiveness of the power and means that if the power were exercised wealthy higher rate taxpayers would not be required to pay the additional tax on their full incomes. The removal of the collection of tax on dividends and interest from the basic rate has also highlighted the difficulties with tax power, as it only applies to earned income.
If only those who advocated the tax power had not been so confused by their misuse of words, there might have been created a useful tax power.
What a laugh about MSPs workload. yes, they are busier than Scottish MPs but that would barely be difficult! Perhaps if MSPs did not continually interfere in councillors case work they would be less able to justify their numbers. Also, given the extremely light legislative load this term what are MSPs doing? The committee system in the Scottish Parliament is over stated and the poor quality of legislation passed is evidence of that. Self perpetuating MSPs and a sycophantic media have allowed the tenth year of the Parliament to be reported as a success. How about addressing the real issue of an under employed Parliament as part of an over governed small nation, the best one or otherwise
The reason the tartan tax has been ignored is mainly down to the way Scotlabd is funded via a block grant from the treasury. There's no real point in lowering tax as the returns would be hard to measure without proper fiscal autonomy.
Presumably, the Government would have to have tax raising powers in order to implement their Election pledge to abolish Council Tax and bring in a Local Income Tax ( although they didn't say when!) If they obtained tax raising powers, they may as well be given other powers, which would be Independence by another name. Obtain powers by stealth! Mind you, we haven't neard anything about their introducing a Local Income tax, or for that matter, free prescriptions - another Election pledge - so perhaps both have been kicked under the table
The only way to make politicians responsible is to bring all tax raising powers to Scotland.
In the US ,States raise taxes and pay a sum to central government,this makes the State politicians more accountable to the public.As it is for example the State of Vermont has more power than the Scots Parliament.
Of all the soundbites coming from Wee Eck, one resounds around my head again and again.
He said recently that no matter how successful the Scottish economy is, it would make little or no difference to the Scottish people, as any surplus would head towards the giant pot of the UK treasury.
Does this explain why previous administrations haven't tackled the woefully inadequate infrastructure and support for Scottish businesses?
The economy in Scotland has been stagnating for many years and needs a major initiative to kick-start it into growth.
Fiscal powers at Holyrood along with the removal of large chunks of the useless Scottish Enterprise quango would go a long way toward doing this.
In my opinion the powers that Holyrood do have are not used effectively, once they can master those should they look for more powers.
I have been watching the latest developments for some time now and the longer I watch the new SNP administration, the more I realise that independence of some sort is inevitable.
We can no more oppose greater tax-raising powers for Hollyrood and fewer powers for Westminster, than we can oppose the changing of the seasons.
When I was a child, we almost never saw a single Saltire being flown anywhere. Today, it is the Union Flag that is the rare sight in Scotland. Scotland is rapidly changing and I regard debates over whether we should or should not go down this path as becoming rapidly irrelevant.
Hypothetical case - Scottish Goverment increases the tax.
My expectation would be that the Westminster Goverment would correspondingly reduce the amount they pay to Scotland, AND berate the SNP for raising taxes.
Now, should that be "No Taxation without Representation" or "No Representation without Taxation" ?
The requisite portion of the electorate voted to "allow" the power to vary tax, so why not use it. Fiddling around the edges with Income Tax isn't really where the fiscal muscle comes from - it's nice headlines, and wouldn't we all be awfully pleased to see "Scottish Government Cuts Income Tax" ?
The ability to alter the tax structure to encourage business must be something that the Government looks at seriously in the light of "pro-business" regimes in Central and Eastern Europe, and of course not least in Our Celtic Tiger neighbour across the Irish Sea.
Can Scotland be a new "Celtic Tiger" ? First we need full fiscal autonomy and that means....
The I-Word.
The ‘Tartan Tax’ was a proposal which was seen as defining Devolution from Dictatorship, even in the full knowledge that it would never be permitted to be used by the Scottish Electorate, unless of course we were delivered of an Edinburgh Dictatorship as opposed to the previously unacceptable Westminster Dictatorship; the latter being delivered via the inbuilt 412 majority of English MPs at Westminster.
Either Donald Dewar was less of a psychologist than was previously accredited or was his thoughts on question two one of the shrewdest of disclosures under a policy of reverse psychology; either way it does not diminish his standing in my thoughts, he remains as one of Scotland’s shrewdest politicians both historically and of the present day.
brian,
lets be honest here, the tax question was an ADD ON, mostly to scare us timid scots, nobody expected it to get a YES, so it was to scupper the whole thing dead,much
as it did in 19 -79 only it failed,
the real question shou;d independance or the stat. quo.
Great blog as always Brian, but just a wee question:
Could the late great DD (or indeed anyone) "remain sporadically ... convinced"? Surely that's like being occasionally always right...?