The SNP budget is a further stumble towards failed statehood

And it’s disaster for Scotland… If anyone wanted, for illustrative purposes, to devise a caricature scenario of the worst kind of fiscal policy that would destroy an economy, that template would be the latest devolved Scottish budget.

It fits in seamlessly with all the other far-left policies implemented by the SNP/Green administration at Holyrood, a cumulative undermining of Scotland’s economic and social well-being over 16 years. Only Scotland’s situation as a component nation of the United Kingdom camouflages the underlying reality: if it were a sovereign country, it would rank as a failed state.

The country that gave birth to Adam Smith is governed by economic and fiscal illiterates. Millions of Britons are resentful of the UK government’s fiscal policies, which have imposed on Britain the highest level of taxation since the Second World War. In the eyes of Scottish first minister Humza Yousaf, however, Westminster is presiding over a reprehensibly low-tax, free-market jamboree that has irresponsibly drifted away from the statist principles that formerly made East Germany great.

In the world-view of Humza Yousaf and his associates, there is no problem that cannot be resolved by ratcheting up taxation and this Scottish budget is the latest tightening of the vice around the hapless Scottish entrepreneur. That is as it should be, according to the mentality that regards profit as a dirty word and the public sector as the only morally respectable element of society. Here we see that neo-Covenanter mindset in self-righteous operation.

Anyone who wondered at what income level the term “bloated plutocrat” becomes applicable now knows that, in Scotland, it begins at £75,225. The Scottish budget has just introduced a new tax band – the one area of creativity in which the SNP is prolific – raising the taxes of those earning between £75,225 and £125,140 from a 42 per cent to 45 per cent tax rate. Those earning above £125,000 have had their tax rate increased from 47 per cent to 48 per cent.

Scotland is now blessed with six income tax bands, compared to a puny three south of the Border. The Chartered Institute of Taxation (CIOT) has calculated that Scots within the new tax band will pay up to £5,231 more in income tax next year than someone earning the same salary south of the Border. People whose income is between £100,000 and £125,140 will pay an effective rate of 67.5 per cent on the part of their earnings lying between those two figures as the tax-free personal allowance is withdrawn, rising to 69.5 per cent when National Insurance is taken into account.

The increase in the top tax rate to 48 per cent will affect 40,000 taxpayers with incomes over £125,000, representing a rate that is 3p in the pound higher than in England. Despite the relative smallness of the numbers involved, this is a matter of major concern, since it provides an incentive for key earners to migrate out of Scotland, already suffering seriously from a brain drain.

Concealed in the undergrowth is a stealth tax totalling £307m, extorted by freezing the income threshold of the 42p higher rate at £43,663 instead of increasing it with inflation. With extravagant cynicism, Shona Robison, the finance minister and Deputy First Minister, told the Scottish parliament that the changes meant those in professions such as teaching and policing should not see a rise in tax. In fact, those professionals are precisely the middle-income workers who will experience “fiscal drag” when their annual pay increases haul them over the frozen threshold into the higher tax rate.

The Scottish Fiscal Commission has forecast that Scots will pay an extra £1.5bn in income tax next year, compared with what they would pay living elsewhere in the UK. That is an extremely dangerous situation for Scotland, which could face a migration of skilled workers southwards, as well as newly qualified graduates not even attempting to find employment in Scotland.

Yet this threat to Scotland’s prosperity has been aggravated by the imposition of new tax rules that will raise miniscule revenue for the cash-strapped Scottish government. The newly created tax band will produce only £74m in extra revenue, while the 1p increase in the top rate is expected to garner an additional £8m. These sums will hardly cover the administrative and collection costs. This dog’s dinner of a budget is an exercise in fiscal fatuity.

The SNP is attempting to pose as pro-business in this budget, by the expedient of freezing business rates for premises valued at less than £51,000, with a grandstanding 100 per cent relief for hospitality businesses in the Western Isles. That grudging concession contrasts with the UK government’s decision to give businesses 75 per cent rates relief up to £110,000.

The context of this abysmal budget is 15 years of SNP mismanagement. The £1.5bn “black hole” in the Scottish finances that this budget seeks to plug is the least of it. Scotland has a GDP deficit of 9 per cent, compared with 5.2 per cent for the UK. The SNP government’s annual public sector expenditure of £107bn is inadequately supported by tax revenue of £88bn. The £19bn deficit will be covered by the Treasury – a humiliating procedure that highlights the case for independence, in the eyes of hair-shirt separatist fundamentalists.

But the real context is much longer and deeper. During the constitutional struggle for devolution in the 1990s, unionists warned against a “Tartan Tax” if Scotland acquired a parliament with tax-raising powers. When devolution was eventually implemented, with Holyrood given only modest powers of taxation, this threat was surprisingly absent. 

Initially, the Scottish parliament was too busy abolishing feudalism and banning fur farming (only half-way through the legislative process did it emerge that there were no fur farms in Scotland, but they saved face by legislating all the same) to flex its fiscal muscles. But that situation is now history. The SNP has demonstrated considerable ingenuity in deploying limited fiscal powers to inflict maximum damage on enterprise.

The UK higher tax rate is 40 per cent and starts at a salary of £50,271; in Scotland, a salary above £43,663 attracts a tax rate of 42 per cent. What does all this say to potential inward investors and people with highly qualified skills who can command good salaries anywhere? Like a drumbeat, the budget announcements insisted on the prioritisation of “public services” – the same public services, such as education and health, that the SNP has allowed to deteriorate drastically while it obsessed over “IndyRef2”.

Anyone in Scotland whose earnings rise above the £28,850 mark immediately begins to pay more tax than he would do in the rest of the UK. That is Adam Smith’s native land now: fat cats begin at £28,000. During the budget announcements, Humza Yousaf tweeted: “We believe in progressive taxation, the highest earning 5% will pay more so we can invest in our public services. Our tax decisions mean we have £1.5bn more to spend.”

In pantomime season terminology, Oh no they don’t. If the £1.5bn was needed to plug the “black hole” in Scottish government finances, they have already spent it. The man they call Humza Useless is in fact useful in one respect, he is an accurate representative of the essence of the SNP: unintelligent, narcissistic, incompetent, groundlessly aggrieved and wholly detached from reality.

The fiscal demography of Scotland, as of England, shows a high proportion of the population paying no income tax. In Scotland, of 4.6 million adults, 2.8 million, or 61 per cent pay income tax, while 39 per cent do not. The leftist politicians at Holyrood, not only within the ranks of the SNP, have calculated that ratcheting up income tax and punishing entrepreneurs, supposedly for the benefit of “public services”, will be viewed with approval by 39 per cent of voters who do not pay tax, but use public amenities.

That is a considerable proportion of the electorate to get in one’s corner, even before turning on the propaganda about nationhood and independence, which also appeals to taxpayers. The alarming, auto-destructive reality is that abusing fiscal powers and bellowing nationalist slogans has the potential to perpetuate indefinitely a situation whereby half of the population lives parasitically off the other half. Until, that is, those who are being bled white ultimately brush off the leeches and vote with their feet, abandoning a fiscal and educational North Korea to its predicament as a failed state.

This week’s Scottish budget was just one more step along that tortuous route.

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