There is an Alternative to Austerity Economics in Scotland

As SNP members gather for their annual conference in Edinburgh, the message could not be clearer; we must learn hard lessons and rediscover our optimism. So when First Minister John Swinney announced the Scottish government will need to make substantial budget cuts of at least £250 million, and potentially even more to come, you could say that the party’s message was mixed at best. Whilst the ultimate source of austerity comes from brutal budget cuts from Westminster, the SNP’s acceptance of £250 million cuts is not only unnecessary but also short-sighted. There exists a viable and more equitable alternative: progressive tax reforms that could generate substantial revenue without harming the public services that so many people in Scotland rely on.

If the SNP want to build a policy platform on progressive taxation, then they should look no further than the Scottish Trade Union Congress’ comprehensive package of tax reforms that could generate over £3.7 billion annually. These reforms, which are both short-term and long-term, offer a sustainable solution to fiscal challenges created by Westminster, negating many of the severe cuts proposed by Swinney.

The Context of the Proposed Budget Cuts

Let’s start off by addressing the embarrassing levels of disinformation told by Scottish Labour leader Anas Sarwar and the Labour UK Chancellor Rachel Reeves. Taking to social media, Anas Sarwar made the bold claim:

“It’s not just us saying it. Audit Scotland, the SFC, Fraser of Allander & the IFS all conclude that pressures on the Scottish Budget are because of the SNP’s own spending decisions. Scots are footing the bill for SNP incompetence. It’s time for change.”

Out of the four think-tanks cited by Sarwar, only one has placed any emphasis on the Scottish Government’s spending priorities. First is Audit Scotland, who state very clearly that the Scottish government’s fiscal challenges come from “high inflation and the aftermath of the Covid-19 pandemic”. The Fraser of Allander Institute’s own analysis argues much depends on the October budget in Westminster, but due to Labour ending universalism for pensioners claiming Winter Fuel Allowance “the (fiscal) transfer from Westminster will be reduced”. The Institute of Fiscal Studies are a lot more clear on this point, arguing that Labour’s spending plans “leave many unprotected areas of spending and investment facing cuts post-election”, thus “the devolved governments would likely need to make cuts to at least some ‘unprotected’ services.”

Only the Scottish Fiscal Commission make any direct point to the Scottish government’s spending priorities, specifically stating “changes to social security and the linking of payment rates to inflation have increased spending commitments.” Had Labour controlled the Scottish budget, they seem to suggest they would not have given workers above-inflation wage increases and would be less generous with social security during a cost-of-living crisis. In fact they would go even further on their cuts, having this year proposed giving higher earners a tax cut and thus reducing the Scottish budget by £1.5 billion. So when Labour argue for change, the change they are talking about is more austerity than the SNP are passing on.

If you think the above think-tanks are are part of a grand Scottish government conspiracy and your only source of truth in life comes from a Labour official, then you’ll be pleased to hear the words of Health Secretary Wes Streeting. When asked about the cuts made by the Labour Welsh government, he stated very clearly “Right across the UK every part of the NHS is in crisis and all roads do lead back to Westminster because even though this is devolved, decisions taken in Westminster have an impact on the NHS across the whole country.”

If one blatant mistruth from Sarwar wasn’t enough, Rachel Reeves jumped in the very same day to claim:

“The SNP government is as guilty as the Conservatives of spending more than they were bringing in, and now the Scottish government are having to make difficult decisions.”

Yes, you should be deeply worried that the new Labour Chancellor does not understand how the UK Fiscal Framework operates, or that she is telling a whopping lie. Under the Fiscal Framework, the Scottish government cannot legally spend beyond what it brings in through revenue. Holyrood must run a balanced budget every single year, which has been the case for the SNP since they took office in 2007.

The Labour Party are on a austerity high, and its impact on the Scottish budget is on display for everyone to see. But it is not enough for Swinney to simply pass on these cuts to the Scottish public. In fact the groups these cuts will land on (so far) can only suggest that the SNP is attempting to appeal to higher earners. Swinney’s annoucements of returning peak fares to ScotRail, ending free bus travel for asylum seekers, and cuts to the Scottish arts disproportionately effect Scotland’s working and most vulnerable population. It is both bad politics and bad economics.

A Comprehensive Package of Progressive Tax Reforms

So what can the Scottish government do? The STUC’s report on Scottish public services and tax reform outlines a series of measures that, if implemented, could generate around £3.7 billion annually. These reforms are designed to be both progressive and equitable, ensuring that those with the greatest ability to pay contribute the most. The reforms can be categorised into short-term and long-term measures, each addressing different aspects of Scotland’s fiscal needs. Crucially, the majority of these reforms are designed to be implemented at a local level, thus avoidng any drastic changes that could be made to the Scottish block grant.

Short-Term Tax Reforms

The short-term tax reforms proposed in the STUC could be implemented as early as April 2025, generating just around £1.1 billion in additional revenue per year. These measures focus on adjusting existing taxes and introducing new levies that target wealthier individuals and environmentally harmful activities.

1) Income Tax Reforms

The report proposes a series of adjustments to income tax rates and thresholds, which could generate £779 million annually. This includes increasing the tax rate on higher income bands and reducing the thresholds at which these rates apply. By targeting higher earners, these reforms ensure that the burden of taxation falls on those who can afford it. For example, raising the higher rate of income tax from 42% to 44% and the additional rate from 47% to 49% would directly impact Scotland’s highest earners, who are better equipped to absorb the increase. Additionally, reducing the income threshold for the higher rate from £43,663 to £40,000 would expand the tax base, ensuring more high earners contribute their fair share.

2) Increases to Land and Buildings Transaction Tax (LBTT)

The Land and Buildings Transaction Tax is a tax on property transactions, and reforming rates would see a 30% increase in revenue yields worth an additional £240 million annually. This tax is inherently progressive because it targets wealthier individuals who are buying higher-value properties. For example, increasing the top rate of LBTT for properties worth over £325,000 from 12% to 15% would significantly boost revenue. Moreover, this reform would primarily affect those purchasing luxury homes, ensuring that the wealthy contribute more without impacting first-time buyers or those purchasing more modest properties.

3) Increase in Additional Dwellings Supplement

The Additional Dwellings Supplement (ADS) is a tax on the purchase of additional properties, such as second homes or buy-to-let investments. Raising the ADS from 6% to 8% could generate an additional £56 million per year. This tax specifically targets those who can afford to own multiple properties, making it a highly progressive measure. By discouraging the accumulation of property by the wealthy, this reform could also help to address issues of housing affordability and availability in Scotland, benefiting first-time buyers and renters.

4) Scottish Landfill Tax

Increasing the Scottish Landfill Tax by 30% could raise an additional £30 million annually. This tax serves a dual purpose: raising revenue while also encouraging environmentally sustainable practices. By increasing the cost of landfill disposal, this tax incentivises businesses and individuals to reduce waste and seek more sustainable alternatives. The revenue generated from this tax could be reinvested in environmental initiatives, further supporting Scotland’s transition to a greener economy.

Long-Term Tax Reforms

In addition to the short-term measures, the STUC proposes a series of longer-term tax reforms that could raise nearly £2.6 billion annually. These reforms involve introducing new taxes and restructuring existing ones to create a more equitable and sustainable fiscal framework.

5) Wealth Tax

The introduction of a localised wealth tax on households with assets over £1 million could generate £1,416 million annually. This tax would be levied on the net wealth of individuals, including properties, investments, and other assets. The wealth tax is one of the most progressive measures proposed, as it targets the very wealthiest individuals in Scotland. For example, a 1% tax on wealth over £1 million could raise substantial revenue from a small segment of the population while having minimal impact on those with lower levels of wealth. This tax could also help to address wealth inequality in Scotland, redistributing resources in a way that benefits society as a whole.

6) Proportional Property Tax (PPT)

Replacing the current Council Tax with a Proportional Property Tax could raise an additional £783 million annually. The current Council Tax system is widely regarded as regressive, with lower-income households often paying a higher proportion of their income compared to wealthier households. A Proportional Property Tax would be based on the actual value of a property, ensuring that those who own more valuable homes pay more. For example, a tax rate of 0.48% on the value of residential properties could replace the Council Tax while raising significantly more revenue. This reform would make the tax system more equitable and could also encourage more efficient use of housing stock.

7) Land Value Tax (LVT) for Commercial Land

Introducing a Land Value Tax on commercial land could generate £100 million annually. Unlike traditional property taxes, which are based on the value of buildings and improvements, a Land Value Tax is based solely on the value of the land itself. This encourages the efficient use of land, as property owners are incentivised to develop or sell underutilised land rather than holding it as a speculative investment. In urban areas where land values are high, this tax could generate substantial revenue while also promoting economic development and reducing land speculation.

8) Frequent Flyer Levy and Super Tax on Private Jets

These environmental taxes could raise a combined £75 million annually. The Frequent Flyer Levy would impose additional taxes on individuals who take multiple flights each year, targeting those who contribute disproportionately to carbon emissions. Similarly, the Super Tax on Private Jets would impose a significant tax on the use of private jets, which are among the most environmentally damaging forms of travel. These taxes not only raise revenue but also support Scotland’s climate goals by discouraging excessive air travel and reducing carbon emissions.

9) Carbon Emissions Land Tax and Scottish Aggregates Levy

Additional environmental taxes, including a carbon emissions land tax and an increase in the Scottish Aggregates Levy, could generate £31 million annually. The carbon emissions land tax would be levied on landowners whose properties contribute to high levels of carbon emissions, incentivizing more sustainable land use practices. The Scottish Aggregates Levy, which is a tax on the extraction of aggregates such as sand and gravel, would be increased by 30%, raising revenue while encouraging the use of recycled materials in construction.

Together, these long-term measures could raise nearly £2.6 billion annually, providing a sustainable source of funding for Scotland’s public services and supporting the transition to a more equitable and environmentally sustainable economy.

Real Change is Real Leadership

The progressive nature of these tax reforms ensures that the burden falls primarily on those with the greatest ability to pay. By targeting wealthier individuals, property owners, and environmentally harmful activities, these reforms align with principles of a socially democratic approach to economics. This gives the Scottish government more flexability to enhance public services, creating a virtuous cycle of investment that improves outcomes for people in Scotland.

So the question is, will the current Scottish government implement it? Despite the party membership voting in favour of these proposals, Deputy First Minister Kate Forbes repeated the conservative scare story at the SNP’s conference that increasing taxes would force higher earners to flee to England. Even though herself and Humza Yousaf both cited the STUC’s wealth tax with interest during their leadership bids, the SNP as a whole have barely made a peep about it.

The closest we have to this reality is the Scottish Greens, who proudly cite some of these tax reforms in their policy documents and election materials. Green MSP Ross Greer cited some of these reforms in an interview with The National, making the very crucial point:

“The most effective way to make the case for independence is to use every lever available to the Scottish Government and Parliament to make this country fairer and greener. We know that once all those available levers are pulled, this will still not be a fair enough and green enough country because devolution is so restrictive. The point is, do everything you possibly can, it won’t be enough. You can then turn around to the public and say the only way for us to achieve the kind of society that most people in Scotland want is with the full powers of a normal, independent nation.”

Under the leadership of John Swinney and Kates Forbes, the SNP seems keen to become the party of devolution, simply passing on and mimicking Westminster austerity on workers and asylum seekers. If the SNP’s mimicking is deliberate or not I shall leave to the reader. But regardless, the SNP have options to implement real change that people in Scotland so desperately cry out for. Their dis-interest and refusal to engage suggests the independence movement, and Scotland as a whole, needs new political leadership to champion for it.