The tax that dare not speak its name

The Scottish Government can't go on pretending it can't increase income taxes

Thursday's Scottish Budget is the big reveal for the SNP Government - the moment that its socialist credentials, such as they are, become tested in the cold light of economic reality. And discovered to be fiscal sleight of hand. Och we cannae dae anything, bleats the deputy First Minister John Swinney. It's all England's fault, Tory austerity, fixed budget, Barnet, Boris - oh sorry he's gone .

This is of course nonsense, as the STUC general secretary, Roz Foyer - one of Nicola Sturgeon's besties - has unhelpfully pointed out. Mr Swinney has many options. He could increase income tax, revalue property or increase council tax . The Scottish Government could even create new taxes under Holyrood's recently expanded fiscal powers and it could issue bonds to raise money on the international markets.

The SNP insist their hands are tied because the Scottish Government doesn't have the full range of taxes including National Insurance. But the most progressive form of tax is income tax - as the Scottish Government itself argued last year when it voted against Boris Johnson's attempt to increase National Insurance to raise money for the NHS. This claim is bogus.

The Scottish Government has the power to raise the bands and the rates of income tax. So far it has used the former as a kind of stealth tax – not increasing the thresholds in line with inflation and thus dragging more middle earners into the higher rate band. Someone on £50,000 a year in Scotland pays around £1000 more income tax than if they were living south of the Border.

But they can't do that anymore because Rishi Sunak is playing the same game. So the obvious solution now, as Ms Foyer says, is to raise the actual rates of tax. These have not been touched since the Scottish Government came to office in 2007. In 2016, Nicola Sturgeon refused even to restore the “daft” 50p additional rate band on those earning over £150,000 a year. She did so on the grounds that this would bring in less money because people would avoid paying it, or leave Scotland.

This is the Laffer Curve argument beloved of Conservative chancellors who say that increasing taxes on the wealthy can actually reduce revenues, as happened after Labour introduced the 50p band in 2009. Mind you it doesn't entirely stack up in Scotland where so many of the nominally wealthy are state employees: council officials, quango bosses and NHS consultants whose jobs cannot move south.

Roz Foyer says the SNP should increase taxes on everyone earning over £40,000 a year. She is probably right that this is the only way to raise significant revenue. Scotland is not a wealthy country and only 20%, one in five, earn more than this. If you need to raise serious amounts of cash to pay public sector pay demands, then this is where you start. Though somehow I don't think this is going to happen. It would be politically explosive to tax many basic grade teachers and police constables as if they were wealthy.

Indeed, a new mood of fiscal realism seems to have spread throughout the independence movement. I nearly choked on my porridge this morning when Craig Dalzell, head of research with the socialist think tank The Common Weal, rejected the STUC’s call to increase income tax. His argument on BBC Good Morning Scotland was puzzling.

Dalziel said that £40,000 was too low a figure and then added that “if you go a little bit further up that scale and you see pay really take off”. Surely is the whole point. Income tax is the only truly progressive tax precisely because the better off pay more. That's what Common Weal should be arguing.

It seems income tax is now the tax that dare not speak its name. Many university lecturers in Scotland, who enthuse about redistribution, have suddenly realised that they could fall into the higher rate tax net. Certainly, train drivers in Scotland, will cry foul, so will many of the public sector workers out on strike this week for pay claims that would take them over £40,000 a year.

So will the Scottish government do the other thing and cut wasteful spending? This is the great unmentionable among SNP supporters who prefer to believe that the Scottish budget is squeezed by parsimonious Tory chancellors. In fact Scotland gets at least 20% more spending per head of population than England thanks to the Barnett Formula as the Institute for Fiscal Studies regularly reminds us. That is something above £3 billion a year.

Where is that going? Not into the NHS that's for sure where senior officials are talking about privatisation. Perhaps the Scottish government should cap spending in devolved departments as the Finance Secretary, Kate Forbes, seemed to argue in her spending review before she went on maternity leave.

It is time to follow the money.