SNP seeks to highlight limits of devolution amid a pandemic as attention turns towards elections and referendums

As with other recent SNP conferences, detailed discussions on tax policy were absent from the main agenda. Nevertheless, a headline-grabbing policy announcement from the first minister, together with some mentions across a smattering of debates and fringe events, as well as recent debates in the Scottish Parliament – help give us an indication of the party’s approach to tax policy in the lead up to next May’s Scottish Parliament elections.

SNP says NHS payment highlights the limits of Scotland’s tax powers

The most prominent mention of tax issues at the conference came in the first minister’s closing speech to conference delegates where she lauded the Scottish Government’s ‘progressive’ approach to income tax policy.

But, in announcing a one-off £500 payment for NHS workers in Scotland (a payment similar to one made to social care workers in Wales), Nicola Sturgeon both acknowledged the limits of the Scottish Government’s tax-setting powers and set up a political clash with the UK government.

Sturgeon told delegates:

“Because we don’t control the full tax and benefits system, we don’t have the power to make this payment tax free. But Prime Minister, you do. So I am asking you this – please allow our health and care heroes to keep every penny of Scotland’s thank you to them. Do not take any of it away in tax.”

A UK Treasury spokesperson, responding to the announcement, said that the Scottish Government had the power to cover the tax costs related to the payment. They said: "The income tax on these payments is paid to Scotland, not Westminster - and the Scottish government has the powers and funding to gross up the payment if it wishes." Opposition politicians accused the SNP of using the situation to provoke constitutional divisions while the independent Fraser of Allander Institute, in a blog for its website, said the announcement included a ‘healthy dose of politics’ and suggested a more straightforward approach would have been to gross up the payment.

Scotland an ‘afterthought’ to London, Forbes tells delegates

The limits of Scotland’s devolved tax powers were also highlighted by the finance secretary, Kate Forbes, in her conference speech.

Having taken up her post on the day of the Scottish Budget in February – and then dealing with the challenges of responding to the Coronavirus pandemic just a few weeks later – Forbes has been at the frontline of Scottish Government dealings with UK Treasury ministers.

She has also spearheaded the Scottish Government’s engagement with the devolved finance ministers of Wales and Northern Ireland in their calls for greater borrowing powers to help manage the economic challenges of the pandemic. This, she said, had been an issue that had united devolved politicians across party and constitutional lines, but which had been largely ignored by the Treasury.

She told delegates that: “With no meaningful borrowing powers and limited powers over tax, devolution means UK spending decisions are still the biggest factor in deciding the size of the Scottish budget”.

The finance secretary was also critical of the UK Government’s decision – for the second year in a row – to postpone the date of the UK Budget, a situation that last year meant that the Scottish Parliament set its own tax and spending plans without full knowledge of the UK Government’s tax proposals.

Forbes said: “For the second year in a row the UK Government has shown complete disregard for devolution by delaying their budget to March. Scottish finance secretaries are well used to balancing the books with one hand tied behind our backs. But this year, of all years, I’m being asked to do it blindfolded too.”

The finance secretary also addressed these challenges in evidence to the Scottish Parliament’s Finance and Constitution Committee two weeks ago: “We know that it is unavoidable that our income tax rates interact with what the UK Government does on national insurance contributions, for example, and with what it might do on either additional allowances or tweaking incentives.”

She warned that it was ‘unlikely’ that the Scottish Government would have a clear picture of the UK’s tax policy intentions by the time the Scottish Budget is published at the end of January: “Obviously, having as much intel as I can get in advance—and it is unlikely that I will get much, because it is tax policy—will be essential.”

Speaking at an event hosted by Holyrood Magazine and the City of London on the future of financial services in Scotland, the finance secretary said that she had hoped for constructive relationships with UK Treasury ministers (which she said they were behind the scenes), but that she was ‘resigned to the fact that Scotland will be an afterthought. It just is.’

No tax rises for now

While the finance secretary promised to deliver a Budget next month focused on building a better, fairer economy, we can assume that it will be a Budget free from significant new tax rises.

Giving evidence to the Scottish Parliament’s Finance and Constitution Committee two weeks ago, Kate Forbes told the Scottish Conservative MSP Murdo Fraser that she had been ‘very persuaded…that now is not the time for fiscal consolidation’, adding that: ‘now is not the time to increase taxation across the board or, indeed, to cut spending’.

In a further exchange with Scottish Green MSP Patrick Harvie, she elaborated on her views, stating that while Scottish Ministers had tried to use their ‘narrow tax powers’ to make the system more progressive, ‘it is much harder to see a fundamental shake-up of tax systems between now and the beginning of the next financial year at a time of great turmoil.’

SNP MSP John Mason – speaking during the same session in Parliament – pondered whether the income tax regime could be targeted ‘to hit the people who are doing well and support those who are doing badly?’ Forbes said the suggestion was ‘worthy of consideration’ but that any changes to the Scottish Government’s income tax policy ‘would have to lead to increased revenues’ and take account of ‘potential behavioural changes’.

Coronavirus support – anger over the ‘excluded’

During her conference speech Finance Secretary Kate Forbes highlighted the last minute extension of the furlough scheme as an example of ‘Tory indifference’ that illustrates ‘why our Parliament needs the powers of independence’.

Forbes noted that requests for the scheme’s extension were rejected in September and October because ‘there was no money left’ only for the position to be reversed when UK ministers ‘needed furlough extended for themselves.’ “If they had acted sooner, redundancies could have been avoided,” she added.

Forbes also told the conference that the Scottish Government had provided £2.3 billion of emergency support to businesses, “money that didn’t just support high street shops but helped people like the newly self-employed who were ignored by the UK Government.”

The gaps in the coronavirus support schemes is an issue raised regularly by the SNP at Westminster. Alison Thewliss, the party’s lead Treasury spokesperson in the House of Commons, told the Chancellor in November that it was ‘disgraceful and unacceptable’ that there was still nothing for those excluded from the support schemes. “Can the Chancellor tell me why he is still choosing to ignore 3 million people across these islands?” she asked.

Thewliss also focused her remarks on the hard-pressed hospitality sector, saying Scottish hospitality reps had told her 70,000 to 100,000 jobs were at risk. “It would help them immensely if the VAT cuts that the Chancellor previously announced could be made permanent,” she said, adding, “I welcome the additional £2 billion for Scotland, because Scotland has been able to provide hospitality businesses with rates relief, but we need clarity on the future longer-term funding to plan ahead.” She also called for the extension of the £20 uprating of universal credit into the year ahead, and its expansion to legacy benefits.

MSP argues for windfall tax

Speaking in the Scottish Parliament prior to the conference, John Mason suggested that a windfall tax on businesses such as supermarkets and online retailers could be considered as part of the country’s economic response. Responding, Forbes said that she would be ‘supportive of ensuring that those who have done better pay more next year’ but added that the Scottish Government’s tax powers would be insufficient on their own to achieve this.

She said that the business rates regime was ‘really the only tax lever that we have when it comes to increased business taxation’ but that it was a ‘blunt’ instrument that would fail to tax turnover and profits.  Action on the Corporation Tax and CGT regimes, which she suggested may be more appropriate levers, ‘would require the UK Government to do something.’ Forbes spoke too about the prospect of creating new taxes, but noted that these would require UK Government approval and ‘we certainly could not do it (create a new tax and get UK approval) between now and the new financial year’. Forbes said that Wales had explored options for new, national taxes but ‘it had got nowhere with the process’.

'Digital tax loopholes' targeted

On the final day of the conference, SNP members endorsed a resolution in support of building a sustainable economic recovery and calling for the closure of ‘digital tax loopholes’.

The resolution states: “Community Wealth Building and building up both local and national procurement capabilities and supporting our SME base within Scotland will be key to growing a wellbeing economy that works for the people of Scotland. We can ensure that all sectors contribute to this by closing digital tax loopholes to ensure the largest businesses contribute in the same way our smallest ones do. Internationally we must champion Scotland as an exporter and as a great place with skills and ingenuity to do business.”

The motion also commits the party to exploring options for a four-day working week and endorses ‘the vision of independent Scotland building a wellbeing economy based on progressive taxation’.

Dissenting voices on the party’s approach to Free Ports

The same motion also highlighted concerns over the ‘low cost, low wage, low value opportunities’ offered by the UK Government’s Free Ports agenda.

SNP concerns over the Free Ports agenda have been voiced at the highest levels of the party. Two weeks ago at first minister’s question time in the Scottish Parliament, Nicola Sturgeon said their introduction in Scotland would need to align with the Scottish Government’s fair work principles and not simply be used as a way of avoiding tax.

The first minister said the Scottish Government would ‘carry out a full assessment and due diligence’ before deciding whether or not permit their development in Scotland. She told the Scottish Parliament: “If free ports are to be implemented in Scotland, they cannot simply be a vehicle for businesses to avoid paying tax or get around planning permission or other regulations, and they cannot just displace jobs from one area to another.”

But at the conference, some party members expressed frustration that other parts of the UK were progressing with feasibility studies that could leave parts of Scotland – particularly in the Highlands and Islands – at risk of losing out due to Scottish Government intransigence. Other members were, by contrast, vocal in their support of the party’s position, with one suggesting that the Free Ports agenda ran roughshod over the devolution settlement because it intruded on the business rates regime, a policy responsibility of the Scottish Government.

Despite the concerns of some discontents, the resolution was overwhelmingly adopted.

Praise for frontline HMRC workers amid calls for end to public sector pay freeze

Glasgow South West MP Chris Stephens offered his thanks to frontline workers in HMRC and the Department for Work and Pensions in remarks supporting an emergency resolution condemning the proposed UK public sector pay freeze. Stephens – a former Trade Union official – said the SNP would be ‘relentless’ in its support for public sector workers and for ‘pay justice’ and described the freeze as ‘economically illiterate’, citing research showing that 70 pence in every £1 spent by public sector workers was reinvested into private sector businesses.

A fourth term in office beckons

The SNP is almost certain to secure a fourth term in office at next May’s Scottish Parliament election, such is the strength of the party’s standing in opinion polls.

Because of this, the question being asked most right now is whether the party will repeat its unlikely feat of 2011 in securing an overall parliamentary majority (in a system designed to prevent majorities and encourage consensus and coalition) or fall short of this and remain a minority administration, reliant on cross-party support to pass its legislative agenda, as has been the case in two out of three of the party’s terms in office.

In a parliament of minorities cross-party support is essential if the Scottish Government of the day is to be able to pass its annual Budget Bill and, since 2017, the Scottish Rate Resolution that sets the rates and bands of devolved Scottish Income Tax.

In the 2007-11 parliament (when only spending measures were required to be passed by parliament), the SNP relied on the support of the Conservatives to pass its Budget Bills. Since 2016, the SNP has turned to the Scottish Greens for support in passing its tax and spending measures. The Greens have been able to use their bargaining power to extract a number of tax concessions from the SNP, such as freezing the higher rate threshold of Scottish Income Tax at £43,430 and winning commitments to legislate for new taxes on workplace car parking and a tourist tax.

At the time of writing, opinion polls appear to suggest that the SNP could ‘break’ the Holyrood electoral system once again and return to government with a small majority. If it does so, it will further fuel demands for the party’s ultimate ambition, Scottish independence.

Is a second independence referendum inevitable?

In Scotland, it increasingly feels like a case of ‘when’, not ‘if’, a second referendum on independence will take place, although its outcome may not be as clear cut as some seem to believe.

In her closing address to delegates, the first minister made it clear that the SNP would use its 2021 Scottish election campaign to seek a mandate from voters ‘for a legal independence referendum to be held in the early part of the new Parliament.’

The UK Government has already made it clear that it will oppose such a request, referring to comments from senior SNP figures at the time that the 2014 referendum was a ‘once in a generation event’.

With both sides unlikely to deviate from their established positions this side of the election campaign, it will be the outcome at the ballot box in May that will dictate the next steps in this debate, with suggestions that an SNP majority – or pro-independence majority with the Scottish Greens – will make the ‘once in a generation’ position untenable.

SNP members have been cheered by a noticeable and sustained increase in support for Scottish independence during 2020. At the time of writing, there have been fourteen successive polls, conducted since May, that have identified a majority in favour of ending the Union.

However, speaking at a conference fringe event hosted by the think-tanks IPPR and UK in a Changing Europe and prior to that, at a pre-conference event held by the Institute for Government (IfG), eminent pollster Sir John Curtice suggested recent converts to the independence cause may be less enthusiastic once the focus switches away from Coronavirus and Brexit and back towards domestic political arguments.

Sir John said that new backers of independence would not have a ‘long-term emotional commitment’ to the issue and could be more easily dissuaded than more ardent supporters. The Herald reported him as saying: “…because we've essentially spent the last nine months thinking about coronavirus and before that we spent two years worrying about Brexit, we've not really, at least until very recently, had much of a debate about what independence would or would not mean. We can't assume that when people begin to be exposed to considerations and arguments that so far they've not been exposed to, that public opinion won't shift."

The economist and public relations consultant Andrew Wilson, a former SNP MSP and author of the party’s Growth Commission report into the economics of an independent Scotland, said at the IfG event that it would be ‘unconstitutional’ for the UK to block a second plebiscite. Questioned on whether the decline in tax revenues from North Sea oil and gas would represent a challenge to the economics of an independent Scotland, Wilson gave a bullish assessment, arguing that Scottish tax revenues could be sufficient to cover spending on pensions and welfare and that the deficit of a newly independent country could be managed by growing the economy and using the debt markets (he said that the costs of servicing debt were much lower today than in the aftermath of the financial crisis) to fund public investment. But he noted that ‘inheriting a lot of debt’ would require ‘a grown up debate on democracy in Scotland’.

Conclusion

The SNP conference brings the 2020 party conference season to a close, and as the country emerges from the Coronavirus pandemic, attention will turn towards the Scottish Parliament election in May. We’ve been given a taste of some of the arguments that we might expect to see during the opening months of 2021, but these may ultimately be the side show to a much larger – and more prominent – debate on Scotland’s place, or otherwise, in the United Kingdom.

By Chris Young.