Focus on growth

Will Peakin: How did it feel to be the first Scottish finance minister in 300 years to set a tax?

John Swinney: It has been a privilege for me to apply the principles set out by Adam Smith all those years ago, and for us to set a tax that is proportionate to people’s ability to pay. 
Our decision to replace the unfair and outdated system of Stamp Duty Land Tax with a more progressive tax, more closely linked to people’s ability to afford the property they want, demonstrates the importance of having tax policy for Scotland made in Scotland.

WP: Should the “progressive approach” to property tax that you outlined be extended to other forms of taxation and in what way?

JS: Land and Buildings Transaction Tax is a much fairer tax than the Stamp Duty Land Tax it is replacing – it will ensure people contribute based on their ability to pay and 90 per cent of homebuyers in Scotland will either pay less or the same amount of tax, with first-time buyers in particularly set to benefit. Our marginal progressive rate structure removes the tax hikes which exist when Stamp Duty Land Tax thresholds are crossed.

New taxation and borrowing powers are a step forward but I believe that the Scottish Parliament should be responsible for the full range of taxes levied in Scotland. It is only with full fiscal responsibility that we can build a stronger, more successful economy. It remains to be seen whether Westminster is now ready to look again at this as part of the promised increased transfer of tax powers following the independence referendum.

WP: Do you agree with Warren Buffett that the rich do not pay enough tax?

JS: I believe that taxes should be set to be proportionate to the taxpayer’s ability to pay – this is one of the four principles of taxation outlined by Adam Smith in 1776 and which underpin the Scottish approach to taxation. I also believe that everybody should pay their taxes as Parliament intended. In taking the devolved tax legislation through Parliament, I’ve made clear that tax avoidance will not be tolerated in Scotland and we’ve taken a simple, clear but robust approach to counteracting tax avoidance. The Scottish Parliament has legislated for a General Anti-Avoidance Rule (GAAR) to apply to the devolved taxes that is stronger than the UK GAAR, which is based on a narrower test of ‘abuse’, while the Scottish GAAR targets ‘artificial’ tax avoidance arrangements.

WP: How strongly do you agree with French economist Thomas Piketty’s call for a “confiscatory” global tax on inherited wealth and an 80 per cent tax on high incomes?

JS: In our submission to the Smith Commission we made it clear that all tax revenues should be retained in Scotland and the Scottish Parliament should have full fiscal responsibility. This would include responsibility, for example, over income tax, national insurance, corporation tax, capital gains tax, fuel duty, air passenger duty and inheritance tax. Responsibility for such a basket of taxes will enable future Scottish administrations to set domestic tax policies in a manner which reflected economic conditions in Scotland and which were more in tune with the choices and priorities of the people of Scotland. It would enable us to take advantage of synergies with existing devolved policies and provide greater opportunities to grow our economy and tackle inequality.

WP: How effective would taxing capital instead of earnings be in supporting economic growth and reducing inequality?

JS: We are clear that having a balanced tax system, and one that supports growth and allows us to tackle inequality, is crucial in Scotland. There are a number of ways of doing that but a key part of supporting growth and reducing inequality is ensuring people have sufficient income and as part of this we need to tackle low pay. We recognise the real difference the Living Wage makes to the people of Scotland which is why we are the first Scottish Government ever to pay the Living Wage to all employees covered by Pay Policy.

We are firmly of the view that employers should reward their staff fairly and encourage businesses throughout the country to support the Living Wage. This is why we are funding a pilot by the Poverty Alliance. The new stakeholder body, the Fair Work Convention, will exert greater Scottish influence over the minimum wage. It’s crucial that we recognise that business productivity goes hand in hand with proper pay for employees. Decent pay improves people’s lives, supports economic growth and tackles poverty and inequalities, which is all part of this Government’s approach to creating a more prosperous and fair society.

WP: Do the latest numbers on employment vindicate Scotland voting to stay in the Union?

JS: The latest labour market statistics show Scotland is outperforming the UK on employment, unemployment and inactivity rates, which demonstrates our commitment to supporting the Scottish economy. Employment in Scotland has risen by 50,000 over the past 12 months – up to the period July-September which included the month of the referendum – highlighting the clear strength of the Scottish economy and the positive economic outlook both in the run-up to and during the referendum period.

I am particularly pleased to see the progress we are making on narrowing the gap in employment rates between males and females. Since 1999, successive Scottish administrations have been able to use the – albeit limited – economic powers of devolution to narrow the gap in economic performance between Scotland and the UK. With discussion on further powers for the Scottish Parliament now taking place, it is essential that we have the full tools we need to support employment opportunities for everyone in Scotland.

WP: Are there any measures taken by the UK Government that have helped more people into work?

JS: We have been clear that the austerity agenda pursued by the UK Government – including the cuts to capital investment and the impact of welfare and tax changes on the incomes of the poorest households in society – have undermined the recovery and delayed the return to growth. However, through the Scottish Government investing in infrastructure, including in transport, housing, colleges, health facilities and schools, we are providing jobs to the construction sector and stimulating growth.

As a result, the latest figures on the job market revealed that Scotland has the highest employment and economic activity rates and lowest unemployment rate of the four nations of the UK. Tackling youth unemployment has been a priority for us with initiatives like our excellent Modern Apprenticeship programme responding to employer needs. It’s worth noting that youth unemployment has fallen by 13,000 over the year. At 56.7 per cent, Scotland has a higher youth employment rate than the UK, which stands as 53.8 per cent. It is also helping more young people remain and succeed in education and helping young graduates kick-start their careers through a range of quality, paid graduate placement programmes.

WP: Do you agree with Professor Brian Ashcroft’s analysis that Scotland’s recovery could soon be “running on empty”?

JS: The latest forecasts produced by Professor Ashcroft and the Fraser of Allander Institute showed another upwards revision in expectations for Scottish growth in 2014. They now expect growth of 2.7 per cent this year, which is the strongest year of growth since before the recession. This is undoubtedly a testament to the strength of the Scottish economy. The institute also sharply improved its forecasts for unemployment this year, prompted by the stronger economic outlook and by recent labour market data, which has shown Scottish unemployment continuing to fall. Next year they forecast that the positive momentum will be maintained, with forecast expansion of 2.2 per cent which is close to Scotland’s long-run trend rate of growth.

With the continued improvements in the Scottish labour market and growing confidence among households and businesses, which is translating into rising investment, the outlook for the Scottish economy is positive. However, as Professor Ashcroft points out, the UK Government’s fiscal austerity risks undermining economic recovery, both in the UK and here in Scotland.  Therefore, I agree with Professor Ashcroft that the Chancellor should use his forthcoming Autumn Statement to boost capital spending to support the UK recovery with appropriate consequentials flowing to Scotland. 

WP: With independence off the table for the moment, what’s needed to keep the economy moving in the right direction?

JS: Since 2007, the Scottish Government has used the full range of devolved powers to grow the Scottish economy. Scotland once again outperforms the other nations of the UK in terms of employment and unemployment. We are taking forward a range of initiatives to foster start-ups, grow companies, and encourage innovation and an international outlook in Scotland’s business community. We are supporting businesses by ensuring that they can access good quality support, including through the Business Gateway, delivered by local authorities which helps over 10,000 businesses a year start up as well as providing intensive one-to-one growth support to existing businesses and local advisory support and expert help.

We continue to invest in entrepreneurship schemes and developing our innovation centres, while our enterprise agencies – something that has been abolished in England – are helping to start up and grow companies. In fact the Ernst and Young UK Attractiveness Survey revealed Scotland secured 82 new Foreign Direct Investment (FDI) projects from outside the UK in 2013, an increase of eight per cent compared to 2012. Our commitment to maintaining Scotland’s position as the best place to do business in the UK is reflected in our business rate policies.

This includes rate reliefs worth an estimated £591 million this year and increasing to an estimated £617 million in 2015-16. The Small Business Bonus Scheme alone has reduced or eliminated business rates for over 96,000 properties in Scotland this year. We continue to work hard to attract investment, boost infrastructure and invest in the skills and training of Scotland’s workforce. The Chancellor’s Autumn Statement is a real opportunity to increase support for Scotland and our economy.

WP: What specific measures would you like to be included in the Chancellor’s Autumn Statement?

JS: I will be writing to the Chancellor shortly to outline the key areas of priority for the Scottish Government. The focus must be on delivering growth and that means increased investment in our economy and in capital spending. It is also time for the Chancellor to recognise that his austerity isn’t helping the economy it is hindering it, by cutting the resources available to people. Further austerity and another attack on welfare from the UK Government could put Scotland’s recovery at risk.

WP: What would the recent drop in oil prices have meant to an independent Scotland?

JS: Scotland has strong economic and financial foundations. We have paid more tax per head than the UK as a whole for each of the last 33 years. The current drop in oil prices reflects in part temporary supply and demand issues in the global commodity market. What is clear is that the long-term outlook for the North Sea remains positive with the sector continuing to make a valued contribution both to the Exchequer and the overall economy for decades to come. Investment peaked at record levels last year and with investment in the industry returning to trend levels, this will reduce field expenditures and in turn boost tax revenues.

Recent industry announcements such as the GDF Suez & BP discovery of the new Central North Sea oil field, which is reported could hold up to 50 million boe [barrels of oil equivalent] and the first oil flows from Golden Eagle field in North Sea with the potential to produce about 70,000 barrels a day by 2015, gives us great confidence in the future and longevity of our oil and gas industry.

WP: Where would Scotland be today if it had not benefitted, as the IFS claims, from a £1bn ‘flaw’ in the Barnett formula?

JS: The Barnett formula is based on the level of devolution of services not on individual revenue streams like business rates. The operation of the Barnett formula is a matter for HM Treasury and the Scottish Government has no control over its design or operation. With the current Barnett formula, Scotland will continue to face cuts to its budget of ten per cent in real terms over the five years to 2015/16 despite the fact that Scotland has generated more tax per head than the UK as a whole in each of the last 33 years.

Even when North Sea revenue is excluded, on a per capita basis Scotland’s national income and tax revenues are on a par with the UK. Whilst all parties are committed to the Barnett formula continuing there will be a requirement for a new block grant adjustment. We believe that further devolution of fiscal powers should be accompanied by a block grant adjustment which ensured that new Scottish Government tax receipts were not exposed to risks which the Scottish Government did not have power over. This would be consistent with the principles agreed by the Smith Commission that cause neither the UK Government nor the Scottish Government to gain or lose financially simply as a consequence of devolving a specific power.