Chamber and committees

Folks, we continue our evidence taking on the sustainability of Scotland’s finances with a round-table discussion. I welcome to the meeting Adam Stachura, head of policy and communications at Age Scotland; Dr Judith Turbyne, chief executive of Children in Scotland; Philip Whyte, director of the Institute for Public Policy Research Scotland; Stuart Hay, director of Living Streets Scotland; Ruth Boyle, policy and campaigns manager at the Poverty Alliance; Michael Kellet, director of strategy, governance and performance at Public Health Scotland; and Alastair Sim, director of Universities Scotland. I thank everyone for their written submissions.

Rather than my asking a whole load of different questions, I will ask only one, which will be to Ruth Boyle, to kick us off. Anyone who wants to comment on what Ruth has said, please let me know. We will buzz around the table so that everyone gets the maximum opportunity to speak. I will come in only as and when, which will not be very often. That will satisfy John Mason, because he is always moaning about how much I speak at these events.

Ruth, your very detailed and excellent submission is called “The case for fair tax reform in Scotland”. You will have heard some of what the economists said earlier in the meeting. In your submission, you say that it is important that

“critical national priorities cannot be sacrificed due to a lack of funds”.

You talk about

“new and improved forms of local taxation that target under-taxed wealth, as well as business and polluters.”

You call for

“a fundamental rethink, from scratch, of how the Income Tax system can be best designed”.

You call for a

“cross-party process to replace the current Council Tax”.

You call for “a local inheritance tax” and a “local payroll tax”.

The economists said that we have a small, finite group of people who pay a very high proportion of tax in Scotland, and they have real concerns about behavioural impact, for example, if we were to decide to go down the road of increasing taxes significantly. How can we deliver what the Poverty Alliance wants to deliver on its social policy? How can we fund those objectives, given the constraints that the economists presented to us, not only the fiscal gap that the Scottish Government has now but the impact on higher taxpayers should some of these policies be implemented? Higher taxpayers might leave Scotland, they might decide to work less or they might engage in more avoidance.

Thank you very much. That concludes questions from committee members.

I am going to ask one more question. Given the talk about increasing taxes, I think that the Government is going to play it safe and impose fiscal drag on us all, as both the Scottish and UK Governments did last year. Professor Heald has said that income tax rises are always popular among those who will not have to pay them, but when the SNP brought in the “Penny for Scotland” campaign, which added 1 per cent to the basic rate, our opinion poll rating went down from 48 per cent to an eventual 27 per cent. I was standing in the constituency with the highest unemployment in Scotland, and people who did not have a job denounced us for that, believe it or not, even although one would have thought that they would have benefited.

My question is on an issue that we have not touched on. Yesterday, it was announced that some pension funds, such as the Strathclyde Pension Fund, are so awash with money that they are going to reduce local government contributions by about two thirds over the next couple of years, which will be a wee boon to local authorities. Is there a possibility that the Scottish Government could tap into pension funds to fund some of its capital projects? João, do you want to have a go at that one?

I was thinking about such funding being used for housing, for example, for which there would be a return to a pension fund in the long term. I appreciate that although funds are there specifically to maximise income for their members, some pension funds, over recent years, have looked at whether investments are ethical—in tobacco or carbon-intensive industries, for example.

You can have that when you are the convener.

I was quite keen to have a freeport at Hunterston, in my constituency, so I will certainly support the motion. The reason for that is primarily that, if we do not get the jobs and investment in Scotland, those will simply move to south of the border. Teesside would be a major threat to jobs in this part of Scotland if it were not for the fact that Leith is one of the green ports.

Engagement is important. We have to take on board what the unions also said, which is that the City of Edinburgh Council is not engaging with them. That is a Labour-led local authority. Other political parties as well as the Scottish Government have to think more about engagement with trade unions and others.

However, I will support the motion for the pragmatic economic reason that the alternative would be a drain of jobs and money to elsewhere in the UK.

Minister, do you want to sum up before we go to the question?

At a time of static budgets, how difficult is it to disinvest in programmes or services in the public sector that are less effective, in order to invest in more effective services?

Scotland has an ageing population and declining workforce and the Scottish Fiscal Commission has said, based on current projections, that the funding gap is likely to remain for years. In a paper submitted last year, you suggested that the Scottish Government should look to increase tax revenues by around £3.3 billion, which is hugely significant if we think of Scotland’s current tax burden. For example, someone earning £43,662 a year would pay 42 per cent income tax and 12 per cent national insurance and a lot of the money that they have left would probably go on fuel duty, excise duty, value-added tax and so on.

What would be the impact of raising that sum? I realise that it would not all be done in one go, but what would be the impact on behavioural change? The Scottish Fiscal Commission has expressed concern that increasing taxation to a certain degree results in behavioural change whereby people do not work as hard or move somewhere else.

I will give you an example. Under a previous Conservative Government, Chancellor Osborne limited pension pots to £1 million. As a result, a lot of doctors, including general practitioners and consultants, realised that they would end up paying more in tax than they would gain, so they decided that they would retire early. That was a detrimental behavioural change, and the UK Government is now looking to reverse that policy—and has reversed it, to a degree.

What would be the behavioural change in this case? Last week, we heard that there are only 18,000 top-rate taxpayers in Scotland.

There is indeed, so I will give you plenty of time to answer.

To be blunt, that is a pragmatic thing. People might not talk about it publicly, but Conservative, Labour and Scottish National Party Administrations have not done a revaluation because of loss aversion. The people who are better off because of revaluation will shrug their shoulders, but the people who are worse off will hate you and not vote for you—it is as simple as that, to be perfectly honest. Perhaps people should be more honest about that. There is strong opposition in the Parliament to the Scottish Government’s council tax proposals, and committee members have already spoken out against them.

Your submission talks about

“Exploring every avenue to increase tax”.

Surely that sends a signal to people who feel that, with 14 interest rate rises in less than two years and with inflation hitting not just the public sector but the private sector, maybe the time is not right to do that.

There will be a division.

For

Gibson, Kenneth (Cunninghame North) (SNP)
Halcro Johnston, Jamie (Highlands and Islands) (Con)
Marra, Michael (North East Scotland) (Lab)
Mason, John (Glasgow Shettleston) (SNP)
Smith, Liz (Mid Scotland and Fife) (Con)
Thomson, Michelle (Falkirk East) (SNP)

Against

Greer, Ross (West Scotland) (Green)