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Scottish policy distorted by focus on tax

Terry smiling headA week ago the Scottish Tories were claiming that a decade of SNP economic policy will leave Scotland with the lowest growing economy for the next three years in the developed world.

Tonight it will be the turn of Scottish Labour to accuse the Scottish Government of failing to boost Scotland’s productivity.

The party’s tough-talking leader Richard Leonard is the latest to address the David Hume Institute as part of a series on the future for Scotland in the aftermath of Brexit.

Mr Leonard will focus on how the Scottish Government could use the powers of the Parliament to increase productivity and create a high skilled, high wage economy.

What he doesn’t say is how the Holyrood government should do this.

Well, it seems to come down to tax, and that’s where Mr Leonard’s plan for boosting the economy seems to be in stark contrast to that proposed by the Tories.

While he demands higher taxes, to raise money for state-backed investment, the Tories believe investment should flow from the private sector and that this will only be encouraged in a lower tax regime.

Politicians of all parties continue to bemoan the lack of progress in boosting growth, and in their feeble attempts to suggest a solution they are forced to concede that, in spite of the transfer of powers to Holyrood, taxation is one of the few economic weapons available to the Scottish government.

This focus on taxation, and similar levies such as business rates, is creating a distorting effect on Scottish economic policy. The Scottish government cannot implement a shift in the money supply, change interest rates or lower corporation tax.

Yet these might be better weapons to have in the economic armoury and may have the desired effect of boosting growth and raising productivity.

After all, the UK government turns to the Bank of England for action on economic stimulus such as quantitative easing and for influencing the direction of inflation, an option not available to the Scottish government.

It has long been argued that as the regions of the UK do not perform uniformly, there is a need for specific policies to be applicable to those areas, but this is only fleetingly pursued. In a properly devolved administration more of these tools would be available to local economies.

Unfortunately, the policies applied when London and the southeast is booming are generally replicated in South Wales or the north east of Scotland when they are struggling. It means that higher interest rates imposed to calm an overheating housing market in one area have a disastrous impact on business investment in weaker economies.

The Bank and other agencies say they take a litmus test of regional economies when devising policy, though there are few signs of any real application of local remedies.

Until such time as that might change we will have to listen to Scottish politicians arguing for higher or lower taxes.

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