Budget stalemate highlights need for Holyrood consensus on new tax powers

By Chris Young

It may not have been part of the formal budget process, but the stalemate that followed Wednesday’s Labour-led debate on the Scottish Government’s tax and spending proposals for 2017-18 was emblematic of the challenges parliament must overcome if it is to pass a budget bill in time for the new financial year.

After nearly two and half-hours of debate, MSPs couldn’t decide whether to be supportive or critical of the Scottish Government’s budget in its current form. The reason behind this is one of simple parliamentary arithmetic. Because it lost its overall majority in last year’s Scottish elections, the current SNP administration needs the support (or abstention) of one or more of Holyrood’s opposition parties for the Budget (Scotland) Bill to become law.

This will not be the first time when consensus will be called upon to save the day. As a minority administration from 2007 to 2011, the SNP was faced with – and overcame – similar challenges.

In 2008, then first minister Alex Salmond and his finance secretary, John Swinney, were able to pass their budget with the support of Conservative MSPs.

In 2009 it faced a slightly trickier challenge when its draft budget – again with Conservative support – was defeated by the casting vote of the parliament’s presiding officer (who by convention votes with the status quo).

An amended budget was presented a week later and passed with the support of Labour, Conservative and Liberal Democrat MSPs. But while the budgets of 2008 and 2009 focused on spending decisions only, this year’s budget includes deliberations and decisions on how this money will be raised, more so than ever before.

That is because, from April next year, the Scottish Parliament will add the power to set rates and bands of income tax to the suite of tax powers (Land and Buildings Transaction Tax and Scottish Landfill Tax) it has had at its disposal since 2015.

As we saw on Wednesday, consensus around the parliament’s new income tax powers remains some way off.

The Cabinet Secretary for Finance and Constitution, Derek Mackay, said that his government’s proposals for income tax (to keep rates and bands similar to their UK counterparts with the exception of the higher rate threshold, which will instead rise at a lower rate than the rest of the country) were “fair and balanced”.

Each of his opponents disagreed in their own ways. Scottish Labour proposed an across the board income tax increase of 1p and the introduction of a new 50p top rate of tax to protect investment in public services.

Their call for a penny increase appears to be backed by the Liberal Democrats. Their leader, Willie Rennie, told MSPs such a move was justified thanks to his party’s record as a member of the 2010 – 2015 UK coalition government. He argued that Liberal Democrat efforts to increase the tax-free personal allowance meant low and middle-income earners were “more protected”.

Patrick Harvie, for the Scottish Greens, has advocated a more progressive approach centred more on a review of the existing rates and bands than a focus on the very highest earners.

The Scottish Conservatives also disagree with the Scottish Government’s tax proposals. They argue that the tax plans put forward will make Scotland the highest taxed part of the UK and have instead called on the government to focus on economic growth and productivity as a way of growing the tax base. As things currently stand, it seems as though the only agreement is disagreement.

What happens next?

The history of 2008 and 2009 suggests that compromise is possible. But if a deal can’t be struck, then the possibility of a snap election, highlighted to MSPs by Willie Rennie on Wednesday, becomes a distinct possibility.

Whether that happens remains to be seen. However, what is clear is that Scotland’s tax powers have taken on even greater prominence, have been thrust front and centre into the political firmament and may play a decisive role in deciding whether a budget can be passed in the coming weeks.

Chris Young is the Scotland External Relations Officer at the Chartered Institute of Taxation