Meeting of the Parliament (Hybrid) 25 February 2021
Since the Government took charge of Scottish income tax rates, Labour members have been critical of how it has used the powers. For years, the SNP demanded that income tax rates should be devolved so that it could introduce more progressive policies. However, since the SNP has taken charge, we have not seen much more than tinkering around the edges.
I know that the finance secretary will probably tell me that the most well-off taxpayers in Scotland will be paying more than they would in England. I know that she will probably also say that the Government has introduced additional rates and bands. However, in the application of those powers, year after year, it has failed to make the most of them. This year, we see the conclusion of that timid approach, with the lowest earners being given a tax cut that is effectively worth 12p, while the top earners—those bringing in more than £150,000 per year—get a cut worth £33. How is that progressive? How can it be that the Government is proposing income tax rates that provide so little help to those on the lowest pay? Many of them are the very workers whom the Government applauded during the pandemic.
We know that this year’s tax rates are a holding position in advance of an election that is just weeks away, as the Government anticipates more money coming from the UK Treasury to fill the gap. The budget proposals therefore tell us very little about how the Government might approach the recovery from coronavirus in the years ahead.
It would be unacceptable for the burden of the crisis to fall on those with lowest incomes. Although many people on higher incomes have managed to save more over the past year, that is not true for those on low incomes, many of whom have struggled to make ends meet. In the coming years, the Government cannot replicate this year’s approach and hand a larger saving to those who already have far more to fall back on. I therefore welcome the fact that low earners will not see a tax rise next year, and that is why Labour has also welcomed the council tax freeze. When people are facing such a strain on their family finances, we cannot—and should not—ask them to pay more, particularly at a time when the Scottish Government is benefiting from UK Government borrowing at historically low levels.
However, I ask the finance secretary to consider carefully in future how she matches her words about progressive taxation with action. It is only because of the significant increases in spending available from UK Government borrowing that she can meet all her commitments this year. In future years that may not be as readily available and, at that time, the burden cannot fall other than on those with the broadest shoulders.
The coming years will challenge the Government to be more radical and more innovative with public finances. If it wants to maintain all the commitments that it has made, money will have to be found somewhere. We know that the Government already plans to borrow in order to deal with negative income tax reconciliations in future years. We also know that the cabinet secretary has been seeking additional borrowing powers from the UK Government as part of the fiscal framework review.
However, if we are to have sustainable public finances that can provide the basis for economic growth in Scotland, borrowing and taxation will not go far enough. The finance secretary needs to take action to restart our economy and, at the very least, catch us up with the rest of the UK. The medium-term financial strategy makes it abundantly clear that the Scottish Government is overreliant on tax receipts from sectors that are disproportionately affected by Covid-19.
Recovery will mean redressing that balance. It will also mean planning for an economy that is going to look very different from the one that we had before coronavirus. The Government cannot make the same mistakes that it did after the last financial crisis, such that Scotland was still trying to catch up more than 10 years on from that shock. We cannot afford another anaemic recovery.
Labour will not vote against the rates resolution today. However, we do so with a warning that the Government cannot continue with a piecemeal approach to taxation and our overall economy. For future prosperity, we must grow our tax base, help low earners and small businesses, and ask those with the broadest shoulders to contribute a fair share.
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