Quite a few right-wingers in Scotland now favour more tax powers for the Scottish Parliament. Some of them want outright independence and others think the move will stave it off, but they all reckon that, with more ‘fiscal accountability’, Holyrood will tax and spend less. In other words it will become more right-wing and business-friendly. They’re wrong, and here’s why.
Their logic goes as follows: Scotland is a big-government society because the state here gets its money in the form of a grant from Westminster and so has no incentive to spend it wisely. If Scots politicians are forced to raise the money they spend by taxing the electorate directly, voters will reward them for being fiscally continent. Some even hope that if we give Holyrood more tax powers and we might even save the Scottish Conservative Party! It would have a winnable cause to fight for (lower taxes) and a willing audience (over-taxed voters).
A number of high-profile businessmen, journalists, politicians and think-tankers have now bought into this proposition, and I have to say that I used to agree with them. That was until I started casting around for evidence to back up this idea, and realised there wasn’t any.
In a nutshell. the problem is that autonomy doesn’t necessarily lead to good government.
When you think about it, world tax rates, economic performance, public spending levels and so on are an average of lots of autonomous states. And these states are themselves made up of lots of non-autonomous regions. Some of these regions and states are well governed, and some are not. On average, they are, well….. average. So autonomy has nothing to do with it. For every Switzerland there is a Haiti.
Some people go on to argue that federal systems improve government at the local level. But that leaves us in the absurd position of saying that granting autonomy to a region would improve its governance, but if it then became independent, governance would get worse again.
Actually, free-market political philosophers are rather wary of federalism because you get two (or more) tiers of government competing to bestow benefits on the public (something that clearly happens in Scotland). And breaking up states into smaller units doesn’t help because their governments are still subject to the same ‘public choice’ pressures of dishing out freebies to their supporters. Unless the political unit gets really small, that is, but we’re talking a population in the hundreds here, not millions.
So what does make for good government, if not autonomy? Well, the nature of government is a function of all sorts of things including political culture and the strength of a state’s civic institutions. So when Zimbabwe became independent of Britain, the quality of its government went down, not up.
None of this is necessarily an argument against autonomy, by the way, which can of course have non-economic justifications. I’m not suggesting that Zimbabwe should not have left Britain.
But it’s worth bearing in mind if you’re a Scottish businessman or right-winger who’s dabbling with devo-max / fiscal autonomy / devo-plus etc etc. You have to ask yourself, if more autonomy does come along as a result of this endless argument we’re having about the constitution, which political culture is more conducive to tax cuts, that of Scotland or that of Westminster ?
I can help you there too. For of course we have the evidence of direct experience. Since devolution, the Scottish Parliament has controlled taxes that account for about 15% of its spending. Now, no democratic state is going to cut its budget and taxes by as much as 15%, so in effect the Scottish Government already sets the overall tax rate, if not the full range of specific taxes.
It’s quite wrong to assert that Holyrood has no ‘fiscal autonomy’, therefore. The Scottish Government could cut taxes in Scotland and, presumably, reap the electoral benefits of doing so. But it doesn’t. The political culture is such that the electoral rewards of spending more money outweigh those of cutting tax.
So the burden of tax has gone up, considerably, since devolution, not down, under both the Lib-Lab coalition and the SNP.
And it’s very noticeable that the current UK government’s attempts to control public spending have without exception been opposed by both the SNP and Labour – public pension reform, welfare reform, defence cuts, the lot.
Alex Salmond likes to tease the right in Scotland by saying he’d cut corporation tax. It’s politically very clever, because it encourages the devo-max tendency, causing confusion and in-fighting among the ranks of his opponents.
But if he’s so keen on cutting business taxes, why hasn’t he made a start by slashing business rates? Given what we know about the SNP’s record on tax and spend, who is really more likely to pursue business-friendly tax policies, George Osborne or Alex Salmond?
It’s instructive to witness the rush of left-wingers, from George Galloway to the trades unions, talking up devo-max now there’s a Tory in Number 10. They, of course, see fiscal autonomy as a way of insulating Scotland from London tax-cutters and creating an even higher tax society here.
We should be careful what we wish for.