Give Scots The Financial Freedom They Are Demanding

For one month the people of Edinburgh have heard their city speak with an accent not their own. In pubs and cabs, on street corners and at all the smartest restaurants, the inflection has been southern England rather than eastern Scotland. It’s been festival time, when England’s arts-hungry classes repair to Edinburgh as if it were a summer residence. Thousands of real foreigners fill the city of course, but it’s the Sassenachs who dominate. By the end of August, even the cash machines are spitting out English banknotes.

Now that the post-festival clear-up is under way, Edinburgh is getting its city back to itself. Rather than fretting over whether a Yorkshireman or Londoner is going to win the Perrier prize for stand-up comedy, the Scottish capital can return to its regular, 11-months-a-year worries.

And they are pressing. The political season about to resume will climax next May with elections for the Scottish parliament. As the old saw has it, it’s not the first election which truly tests a new political institution – it’s the second. Next year we will learn how well this body has secured its place in the Scottish landscape; what Scots think of it and who they want to run it.

A hot issue for the coming campaign has already materialised, with argument raging across the Scottish press. But it’s hardly a question for Scots alone. On the contrary, and not for the first time, the country is debating a question with resonance far beyond the border. Indeed, the current row could take its place alongside the poll tax and devolution as an example of a Scottish debate which blazed a trail for the rest of the UK.

The phrase of the hour is financial independence or, for those keen to strangle the idea at birth by wrapping it up in voter-unfriendly jargon, fiscal autonomy. Proposed by the Scottish National party, it has gained favour with some Tories and Lib Dems. Where it has yet to score is with Labour. And yet the left should be this idea’s natural champions, seeking to apply its logic not only to Scotland but across the UK.

Put simply, financial independence would put Scotland in charge of its own money. Now, Edinburgh gets a handout of cash from London which it can spend as it sees fit. It has the power to add or subtract a little, by raising or lowering the rate of income tax by up to 3p in the pound. But essentially Westminster and Holyrood have the same financial relationship as a millionaire and his pre-feminist wife: he raises it and she spends it.

A financially independent Scotland would take all that responsibility on to its own shoulders. It would have to raise the money it wants to spend, design its own tax regime (not just tweak it at the edges) and collect the cash itself. If it wanted to spend more, it would have to ask the voters to give more – rather than just petitioning Gordon Brown for a larger handout – and pay the electoral price. Once the money was in, Holyrood would send a cheque to London to pay its share of the cost of the British army or embassies abroad – those things the UK provides. All the rest, Scotland would do itself.

Labour has wasted no time trashing everything about the scheme. It says Tories only like it because they see it as a way to curb the state and wind down public expenditure. The imagined argument is that low-income Scots currently vote for a large public sector because they don’t pick up the tab – the well-off taxpayers of Middle England do that for them. If they had to pay the bills themselves, Scots would soon balk and Scotland’s enlarged public sphere would shrink.

As for the nationalists, say Labour, this is a mark of their desperation. “It’s a recognition by the SNP that they have lost the argument for full independence,” says Paisley MP and Westminster minister Douglas Alexander. Now they are retreating even further, he says, reduced to arguing for the pale slogan of “fiscal freedom”. They can no longer fault Labour for the amount of money London gives – up to 20bn thanks to Brown’s latest spending spree – so they have to concentrate on abstract, structural arrangements. “They can’t complain about revenue, they can’t complain about [public service] reform, so they talk about the relationship” between Scotland and England instead, says Alexander.

Still, despite the Labour bombardment, this issue won’t flatten easily. It has too much logic and appeal. To the right, it rings with the prudence and self-reliance that appeal to Scottish Conservative instincts. No wonder Andrew Neil’s Scotsman titles are giving it a good run: it fits with their common-sense notion that no one should have the right to take coins out of the piggy bank unless they are also responsible for putting them in. It would also allow Edinburgh to construct a business-friendly tax regime, luring investment currently drawn to London.

But it is the left that should be financial independence’s loudest advocates – not because it will allow the Tories to slash spending, as Labour alleges, but because it will allow Labour and others to do the opposite. For nearly three decades it has been an uphill struggle for progressives to make the case for active government, still less for the dirty words of tax and spend. The response, both from the right and from sceptical voters, has been that any new cash will disappear into the vast black hole that is the UK budget. Admittedly, Labour is currently engaged in an ambitious attempt to turn that around, with Brown’s effective increase on income tax and his grand programme of extra spending on schools and hospitals. But even the chancellor would admit his task is made much harder by Britain’s deep-rooted prejudice against taxation and spending.

Surely the swiftest way to overturn that bias is by bringing the public sphere closer to home, asking people to throw their coins not into a UK-wide black hole but a local treasure chest. In the words of Andrew Wilson, the SNP finance spokesman who is financial independence’s chief booster: “The only way to win once more the argument for active government is to localise spending and revenue raising.”

There are countries across the world that have already shown the way, asking citizens to stump up, say, 30% on national income tax, another 5% for their region and a couple more for their city or home town. Polls show voters resenting money handed over to the remote capital city, but happy to pay for a new neighbourhood school or improvements to the local park.

In other words, Scotland should have its financial independence – and the rest of the UK should be allowed to follow. Brown’s grand plan, if it works, is only one way to rehabilitate tax and spend. Another, equally legitimate way would be to give Scotland its freedom, freeze or cut income tax for England and Wales, but raise extra funds locally.

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