Some thoughts on the implications of Devo Max for welfare, education and health in Scotland.
Proposals for Devo Max in Scotland subsequent to the failure of independence in the recent referendum, emphasise the ability of the Scottish government to develop increased tax-raising powers. It’s important to recognise that the Scottish government has virtually complete control over the form of education and health in Scotland and control over those aspects of welfare which are not part of the income maintenance system. As things stand at present these are funded primarily through an allocation of United Kingdom overall government expenditure determined by the Barnett formula. This allocates higher proportion of overall tax raised revenues to Scotland than would be justified on the needs basis for allocation (see Byrne 2011). The only other source of Scottish government revenue is council tax which is raised by and allocated to local authorities. This has been frozen for some time in Scotland and this, like the failure of any Scottish government to use the very limited tax-raising powers in relation to income which already exist, indicates the timidity of Scottish governments of all political persuasions in relation to increasing taxation.
As I have argued previously (Byrne 2011) the primary beneficiaries of the higher level of public spending in Scotland have been the Scottish middle classes through free university education for their children, higher expenditure on secondary education, higher expenditure on healthcare (the Scottish poor notoriously die young and cheaply), and considerably reduced costs for those requiring domiciliary or residential care in old age. The results of the referendum seem to indicate that it was precisely the relatively comfortable who voted no. Certainly this is the only inference that we can draw from the geographical pattern of voting. Other factors were of significance, but the relationship between marginalisation and yes voting was very clear.
The overall pattern of voting is interesting when we consider the implications of Devo Max. It seems almost certain that any move towards Devo Max will involve a recalculation or even abandonment of the Barnett formula. This means that higher Scottish public expenditure will be dependent on higher Scottish taxation. Attention has tended to be directed towards taxes on oil revenues and corporation tax. It is always important to remember that corporation taxes yield a relatively small proportion of UK tax revenue and that whilst oil revenues do matter, there is no indication that Devo Max will include the allocation of that element of government revenue to Scotland alone. It is highly to be Scotland’s oil. This means that revenues must be raised essentially from taxes on income and domestic property since it is both unlikely and impractical for taxes on consumption and in particular V A T to be varied within what will remain a single consumption market in the UK. Unless, and this is highly unlikely, National Insurance benefits are allowed to vary within the UK, then the scope for variation in national insurance seems at best limited and in all probability non-existent. So the focus will be on income tax and council tax or any successor property tax. Now the problem with income tax is that for the very affluent it is essentially a voluntary payment. Much of the so highly vaunted financial services sector devotes its activity precisely to enabling the very high paid, and in particular the top 1% of income earners (or more precisely households in the top 1% of the household income bracket) to minimise their tax payments. This means that increases in income tax are in practice likely to fall most severely on households and individuals who are in the top 20% plus of the income distribution but not in the most affluent section. This is particularly the case because differential rates of tax between Scotland and England will provide a bonanza for tax lawyers and accountants serving the needs of the hyper- affluent. This is also where the impact of increased property taxes will also fall, although at least here properly constituted property tax system would actually have a real impact on the very affluent. Indeed there is a very strong argument for immediately developing a new property tax system in Scotland. This would not only an impact on domestic property but could also be so devised that it would fit very hard the large landowners and in particular the owners of sporting estates. However, desirable as this would be the main source of income from a properly constituted property tax would be houses.
In a rational society the consequent impact of this on house prices would be welcomed. However, the UK housing market lost touch with rationality a generation ago at least. Nonetheless, taxing the taxing the affluent homeowners of Edinburgh until the pips squeak has many political advantages. Not least it might have a serious impact on private education in that city, and indeed in Glasgow even, which is one of the major sources of inequality in Scottish society today. Extended to Glasgow it would even hit the current deputy leader of Scottish Labour who is so committed to familial retention of privilege that he sends his own children to private schools.
If Scotland is to continue to maintain its present pattern of expenditure on education, health and social care, then the Scottish middle-class will have to pay for it. In an ideal world the Scottish plutocrats, the top 1% who are moving away from everybody else, would be subject to proper levels of taxation. However this is unlikely in a merely devolved Scotland. Of course since it is the Scottish middle-classes who benefit from present patterns of expenditure, then it might be considered to be only fair that they should pay for them. Indeed, given that they mostly voted no, those of us who voted yes in the hope that a new radical Scotland could be created in an independent nation might consider they are getting their just deserts. The crucial point is that Devo Max Scotland with taxation powers is quite likely to face a serious revenue versus expenditure crisis in the very near future.
David Byrne-resident 3 miles over the Tweed and yes voter.
D. S. Byrne (2011) ‘the over subsidised periphery-who benefits?’ Radical statistics 97