I want Derek Mackay to read this so I’m going to start by saying something nice about him.
This column has been known to have a dig or two at the Finance Secretary but make no mistake: he is a skilled politician with legitimate ambitions to lead his party.
When he replaced John Swinney in 2014, commentators questioned whether he was up to filling the shoes of his predecessor, a seven-year veteran of the finance brief.
His debut fiscal statement was slated for its nervous, monotone delivery. One cruel soul called it ‘the most widely reported primary seven class talk in Scotland’.
Sorry about that.
Since then, however, Mr Mackay has grown in confidence and stature while Mr Swinney at education has made teachers nostalgic for the heady days of Angela Constance.
Nevertheless, if he wants to be a successful Finance Secretary and maybe, one day, First Minister, he will get nowhere by making enemies of Middle Scotland and business.
There is a salutary lesson in the demise of New Labour. Middle England at first voted enthusiastically then later grudgingly for Tony Blair — but they voted for him. He understood them, what motivated them and what they were afraid of. They recognised this and, in the absence of a viable Tory offering, stuck with him.
Gordon Brown lacked Blair’s instincts, neglected the aspirational classes — except when he was stealth-taxing them — and within three years had broken the link between Labour and Middle England, consigning his party to eight years and counting of opposition.
Mr Mackay can avoid this by becoming a champion of ambition instead of the aspiration-basher he has behaved like thus far. He will get a chance to show us which path he is taking on Wednesday, when he delivers his latest Budget to parliament.
Speculation abounds that more tax hikes are on the way, a mistake that would hurt the economy — and the Finance Secretary’s political future. Instead, he should unveil a Budget that stands up for Middle Scotland. The following are suggestions of what that might look like.
1) Match the Chancellor’s threshold increase. In his October Budget, Philip Hammond increased the earning level at which the 40p higher rate of tax applies to £50,000. The Scottish higher rate (taxed at 41p) kicks in at £43,430. The disparity is, in effect, a tax on being Scottish. Closing the gap would send a strong signal that the Finance Secretary does not view Middle Scotland as his personal cash machine.
2) Be bold. Last year, the Finance Secretary made Scotland the highest-taxed jurisdiction in the UK with a complex five-band revenue system. It takes a big man to admit his mistakes and this was a doozy. Mr Mackay could undo the damage by restoring the higher and top rates to match the 40p and 45p levied elsewhere in the UK, while scrapping the 21p intermediate rate, which especially hurts those just starting to get ahead. The 19p starter rate — a little relief for the low-paid — should be kept in place.
3) Be bolder still. His fiscal powers allow the Finance Secretary to cut as well as increase taxes — to make Scotland the Tartan Tiger of the UK economy by setting tax brackets below the UK levels. If he did so, Mr Mackay would hang a giant sign at the Tweed announcing ‘Open for business’. Business, capital and skilled labour would flock to Scotland to take advantage of the opportunities that lower taxes and competition bring.
It would be an epic political move, outfoxing the Tories (who would have no choice but to vote for it) while handing tax relief to families across the nation. Mr Mackay would have a use for his £453 million underspend and wouldn’t have to spend weeks in meetings with Patrick Harvie. Win-win.
4) Give retailers a break. The Chancellor cut business rates by a third for high street retailers with a rateable value below £51,000. The Finance Secretary should make a similar overture to Scottish shops under pressure from online retailers.
5) Help first-time buyers. In October, Mr Hammond extended Stamp Duty relief to first-time buyers of shared ownership properties worth up to £500,000. The relief threshold for Scotland’s Land and Buildings Transaction Tax is £175,000. Raise this ceiling and Mr Mackay will deliver an early Christmas present to Scots hoping to get on the property ladder next year.
6) Get hiring, get rates relief. In the United States, the federal government offers a Work Opportunity Tax Credit to employers who hire certain categories of worker — e.g. veterans, long-term unemployed, welfare recipients — equivalent to 40 per cent of the employee’s first-year salary.
The Scottish Government should introduce a similar scheme through the non-domestic rates regime, cutting the rates of businesses that recruit a set number of new employees in the next 12 months. This could be a significant saver for medium-sized firms as well as getting capable people off benefits and into work.
7) Demolish the Housebuilding Tax. Aggregates levy is a tax on the commercial exploitation of sand, rock and gravel and applies whether the material has been dug in Scotland or imported from overseas. Quarrying firms pay £2 on every tonne of masonry and those costs filter down the supply chain of the construction industry. The Office for Budget Responsibility estimates the Scottish share of the devolved tax to rise by around £5 million in the coming five years, reaching £55 million. In the middle of a housing crisis, it is perverse to continue levying what amounts to a housebuilding tax. Scrapping aggregates levy would be good for business and first-time buyers.
8) Send low-income, high-potential children to private school. Much class warrior joy was there when last year’s Budget announced the end of rates relief in private education. School would be out forever thanks to a £5 million tax bombshell. Alas, fresh from sticking it to the ruling classes, Mr Mackay suggested the independent sector simply get discounts directly from councils.
Instead of adding to the financial strains of local government, the Finance Secretary could fund a £5 million voucher scheme for gifted pupils stuck in underperforming schools. Private schools wouldn’t have to hike fees, councils wouldn’t have to dip into the kitty, and some smart, deprived children would get handed the educational equivalent of a winning lottery ticket.
9) Keep in mind skills and demography. Scotland’s population grew for an eighth consecutive year in 2017, bringing it to a record 5.4 million. However, these increases relied almost exclusively on migration from abroad or the rest of the UK. In England, the immigration debate is dominated by the cultural and social effects of population change. That’s a luxury we can’t afford north of the Border, where immigration is a matter of economic life and death. Last year, deaths outstripped births in Scotland by almost 4,000 and our over-65 population reached 19 per cent.
Scotland needs to attract skilled workers to fill big-ticket private sector roles and staff shortages in hospitals and GP practices. These are people with high earning potential and lifestyle expectations; the prospect of paying extra tax is not going to entice a cancer specialist from the Royal Marsden to the Raigmore. The Finance Secretary must remember that the impact of tax decisions goes far beyond fiscal outcomes.
10) Choose your words wisely. Mr Mackay is fond of accusing his Tory opponents of favouing ‘the rich’, as though they were a ghastly class of social pariahs. When such opprobrium is applied to any other group, it is called ‘othering’. Apparently building a business or reaching the top of your profession makes you fair game.
Across the UK as a whole, 364,000 taxpayers (1.2 per cent) earn more than £150,000 but north of the Border it’s only 19,000 (0.75 per cent). If Mr Mackay likes denouncing ‘the rich’ so much, the least he could do is try to create more of them to complain about.
These are just a few policies Middle Scotland would like to see. They will be watching on Wednesday to see whether Mr Mackay is on their side or in their pocket. And they will vote accordingly.
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