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Mackay’s budget could open the door for the Tories

Brian Monteith portraitOn 28 March 1979 the SNP’s eleven MPs voted with Margaret Thatcher’s Conservatives and brought down Jim Callaghan’s Labour government. It resulted in the Tories winning the resulting general election and being in power for an unbroken 18 years. Nearly 40 years later is the SNP’s Derek Mackay about to introduce a budget that will ensure Conservatives become the largest party in Holyrood after the next election?

Could the decisions the Finance secretary announces about taxes in next Wednesday’s budget ensure there is clear blue water between Nicola Sturgeon’s high tax-and-spend SNP and a more prudent tax-cutting message from Ruth Davidson’s Scottish Conservatives?

With more financial powers given to Holyrood – making Scottish governments more responsible for the taxes they levy, the revenues they raise and the spending commitments they make – so the nature of devolved politics has changed forever in Scotland.

The annual budget statement is now a genuine political test for the Scottish Government. In the past, when devolution established the parliament, all that had to be done was to take the block grant provided by Westminster and hand it out to the different departments according to the political priorities of the day.

With Gordon Brown expanding public spending annually and using PFI to increase infrastructure investment even further, it appeared at times the main challenge facing finance ministers was managing to spend all the money.

Underspending was a regular occurrence and there appeared ample opportunity to expand the provision of “free” services or benefits using taxpayers’ money. All that largesse stopped with the financial crisis in 2008, but the SNP had come to power at Holyrood the year before, so it was for them to deliver a more prudent approach.  Their initial budgets, under the control of John Swinney, only had to balance the books. As more powers to vary tax rates came to Holyrood so the setting of a budget has become more complicated – and far more politically risky.

The debate at future elections will be shaped by the need for the Finance Secretary to set the annual budget and determine what tax rates there should be to cover the SNP’s political promises. Opposition parties can then respond to Mackay’s recipe by offering something different on who is taxed and by how much.

As I have written here before, the SNP appears to have devised its taxation policy on the basis of being different from the UK “for the sake of it”. Adopting what is claimed as a more progressive approach allows Nicola Sturgeon and Derek Mackay, pictured, to make bold claims around social justice that might attract voters, but it comes with the risk of losing support amongst those who end up paying higher taxes than if they lived and worked in England.

More risky still, if those higher tax rates deliver a negative impact on the Scottish economy, depressing output and therefore reducing revenues, there will be a financial price to pay in later years that could lead to cuts in public services. 

Taking into account a time lag of about two years from Derek Mackay’s decisions working their way through into economic outcomes and measuring the public revenues, there is a strong risk to the SNP that the party could become highly unpopular just before it faces going into the next Holyrood elections in 2021.

It should be no surprise then that various Scottish business organisations have been warning against Scotland being put at a disadvantage. CBI Scotland wants to see less divergence in tax policies with the UK and a focus on policies that improve productivity and attract migrants.

The political theatre of next week is reasonably predictable. When Mr Mackay stands up to deliver his budget we can expect him to find reasons to claim Scotland has been hard done by, finding some figures that suggest Philip Hammond has not been as generous as he claims. We shall then have Murdo Fraser throwing back a blizzard of his own numbers to demonstrate just how munificent Westminster has been and that if there are any economic problems they are of Mackay’s own making. 

In their response the other opposition parties will seek to find their own messages that give them relevance – but unlike the Tories they are all cut from the same tax and spend cloth as the SNP. They are all likely to back the idea of increased taxes, even though it might simply be different taxes or different amounts.

In particular the Greens want news of a new household tax in return for their political support, but they may have to wait. In the past they have been bought off with changes to the draft budget that they could claim as their own and that script is easier to repeat than introduce a new tax that could prove unpopular.

It is because the Conservatives are likely to be the only party to offer a completely different approach to the SNP that the 2021 Holyrood elections will be interesting. The worry for them must be that Scotland’s public finances might be in such a poor state that repairing the damage done through high Scottish taxes may prove very difficult.

By this time next week we will be able to see how Mackay has squared-off the economic and financial demands he faces with the political realities of minority government. The future of the SNP forming the next Scottish Government are, more than any other minister, in his hands.

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