Why ‘devo-max’ won’t lead to lower tax

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.

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7 Responses to Why ‘devo-max’ won’t lead to lower tax

  1. Hector MacTumshie says:

    At last the genie is out of the bottle.
    Devo Max will ruin Scotland almost as quickly as separation. The problem is demographic. There are simply not enough income tax payers to pay for the huge numbers of people receiving benefits or subsidies. Please everybody look at the figures then take a drive around the central belt of Scotland ACTUALLY going to Motherwell, Airdrie, Coatbridge, Cumbernauld, Irving,the council estates and outlying parts of Glasgow etc. etc. where four fifths of the population actually live. Then a ghastly realisation will occur – those few tax payers mainly work in the public sector !
    Could we please try to get those who favour Devo Max (such as Reform Scotland) to get it ! No government will let the great majority suffer far less starve – so where do you/ they think the money will come from?

  2. countduff says:

    Tom, I really don’t know where to start with this piece.

    First, on autonomy itself. You state that “autonomy doesn’t necessarily lead to good government.” By implication, neither does it necessarily lead to bad government. I suppose what you’re really really talking about is the ideal size of the state unit, and that depends on your view on what constitutes a state. I’m fine with you arguing that Scotland should not be a state, but that’s got nothing to do with an argument over the value or otherwise of autonomy. Otherwise I presume you’d have no argument against European – or indeed world – government. It all reminds me of a philosophical problem called the “Heap paradox” – if you start taking individual straws away from a heap, at what point does it stop being a heap?

    Second, on tax. The 15% of the Scottish budget that it currently has responsibility to raise constitutes council tax and business rates. On Council Tax, the Scottish Government has in fact frozen the level of Council Tax, meaning that the burden on Scottish taxpayers is getting proportionately less that that in the rest of the UK. On Business Rates, your argument that “slashing Business Rates” is equivalent to “cutting business taxes” is disingenuous. Business rates typically amount to about 10% of the total tax burden on businesses. “Slashing” them would have nowhere near the same effect as reducing the rate of corporation tax charged on profits – after all it is profits that we want to encourage in businesses, not property ownership. And of course in Scotland the government may not have reduced them, but it has made a firm (and fiscally responsible) commitment that they will not rise above those in England and Wales.

    Which brings us back to autonomy. What we have now is the worst of all possible worlds – spending power without the responsibility for raising the revenue that allows that spending. The UK Government has already recognised this is flawed by introducing the Scotland Act 2012 which will grant Scotland more fiscal autonomy. Would you argue that this should be reversed?

    There are many arguments to be raised against Scottish independence, but the risks of autonomy aren’t one of them. Essentially I see your argument as boiling down to a lack of belief that Scots can run their own affairs. If that’s what you think, perhaps you should just come out and say so.

    But there can be no doubt that a root cause of the current situation is a complete lack of responsible autonomy in Scotland.

    • tdpcm says:

      I’m not saying anything of the kind, thank you!

      All I’m saying is that, becasue Westminster has a more right-wing political culture than Holyrood, if you transfer power from one to the other, you’ll get more left-wing policies, as we have seen over the last dozen years.

      And autonomy doesn’t of itself make states or regions more right-wing, as some right-wingers in Scotland seem wishfully to believe.

      None of this is anything to do with where the legitimate seat of power for Scotland should be, nor does it imply that Scots can’t run their own affairs (they already do of course, but jointly with the other UK peoples).

      Thank you for forcing me to put my point more succinctly. Should have been a five line blog in the first place!

  3. Ivor Tiefenbrun says:

    He who the Gods wish to destroy they first make mad.

  4. Robert Durward says:

    First class article and a wake up call to the lazy dreamers who never seem to think through their “good ideas”

  5. PJ Darling says:

    Horses for courses? SNP leads Scotland into devo-max / independence and then fizzle out as they kill the economy with their current largesse. A right leaning party comes in and does the slash and burn. They in turn get booted as no-one likes cuts but not before they’ve had a chance to fix things as they’ve had a minimum 6 year mandate as enshrined in the new Scottish constitution.

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