Tax Analysts Blog

Scotland Makes the Case That Taxes Pay for Things People Want

Posted on Mar 21, 2016

The weird power sharing situation between London and Edinburgh was on display last week when the United Kingdom's Conservative government announced that it would push forward with tax and spending cuts. Scotland's first minister, Nicola Sturgeon of the Scottish National Party, said she wouldn't accept the Conservatives' tax changes and would instead seek to protect spending on education and elder care.

Sturgeon's government will soon have the ability to set its own tax policy, under a bill that has been passed by the Scottish legislature and is awaiting Westminster's final approval. Scotland will have elections in May, and the budget is expected to play a huge role in the campaign. Scotland's Conservative leader is pushing for the state to adopt London's plan, while the Labour Party would like Sturgeon to raise taxes to pay for more spending. As The Guardian points out, this might allow Sturgeon to look like a centrist, moderate leader in the upcoming campaign, which would put the SNP's dominant position to the test.

What is actually at stake in rejecting the budget? Chancellor of the Exchequer George Osborne wants to push some middle-income taxpayers down a tax bracket. His budget would change the starting income for the 40 percent bracket from £43,000 to £45,000. Sturgeon is opposed to this, meaning that income tax payers in Scotland might end up paying about £400 more per year. There are disputes over how much the Scottish budget would actually suffer, but Sturgeon's ministers claim it would lose about £1 billion by 2020.

The Scottish first minister, who is probably more afraid of Labour's challenge in the upcoming election, said that it was preferable to protect the country's free higher education system than it was to pass on a tax cut. She pointed out that students in England and the rest of the United Kingdom can pay up to £36,000 for college. She also noted that Scotland has far more elder care and prescription programs than other parts of the United Kingdom.

Sturgeon has presented voters with a stark choice, something often absent in the United States (where both parties shy away from advocating the direct link between taxes and spending on popular programs). The Conservatives were quick to point out that she was essentially putting a "higher taxes here" sign on the border that would encourage migration and tax planning. This type of migration is, of course, very real, but it's not clear that the tax cut planned by Westminster would be significant enough for middle-income wage earners to actually try to relocate their careers.

The challenge from the left is definitely more dangerous, no matter how badly the Labour Party performed in Scottish elections last year. The Conservative government is not popular in Scotland, and its austerity policies are even less so. It is entirely possible that Labour could use the new taxing power and the dispute over the budget to show that Sturgeon hasn't gone far enough to link tax revenues with popular programs or to resist cuts in spending. Such a line of argument in the United States is largely restricted to Sen. Bernie Sanders.

The United Kingdom has been trying to overhaul its tax policy since David Cameron came to power. That has involved tax cuts on businesses and lower spending. These austerity measures were supposed to return Labour to power last year, but instead Cameron's party won an absolute majority of Parliament for the first time since John Major was prime minister.

However, Scotland is not in tune with the rest of the United Kingdom. Up north, Sturgeon's argument that Scottish taxpayers are better paying higher rates and receiving more services is likely to be more persuasive. It's exactly the case Sanders has been trying to make in the United States, but not one you will likely see made by the eventual Democratic nominee (and certainly not by the GOP's candidate) once the primary season is over.

 

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