Labour's tax plan shows Scottish politics is changing

There is only one thing in politics worse than being talked about, and that is not being talked about.

The Lib Dems can probably attest to that, and maybe the Scottish Labour leadership should just be pleased the party is still considered relevant enough to provoke the SNP’s outrage.

At least people are listening. When Willie Rennie announced his plan to ‘Save Scottish Education’, the press barely batted an eyelid. A week later, Labour come out with an almost identical plan and the reaction was quite different.

The policies are not exactly the same. Willie Rennie wanted to raise each income tax band by a penny, which the party said would raise £475m, and spend it on education.

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Kezia Dugdale’s plan – a one pence tax rise on each band – was similar, though Scottish Labour did not specify exactly where the money would be spent. More significantly, though, the rise would be offset by a £100 payment, administered by local authorities, to those on less than £20,000 a year.

Labour claimed someone on minimum wage would be better off, while a person earning £30,000 a year would pay less than £4 a week more. In contrast, someone earning the First Minister’s £144,687 wage would pay £1,447 more in tax each year.

Dugdale said: “Given the choice between using our powers or making cuts to our children’s future, we choose to use our powers. We will tear up this SNP budget that simply manages Tory cuts and instead use the power we have to set the Scottish rate of income tax 1p higher than the rate set by George Osborne.”

This, the party boasted, was a progressive policy.

The SNP attacked it on two levels.

First, it said the rebate was not properly thought through. SNP MSP Mark McDonald said: “The reality is Labour cannot guarantee that a single person would claim or receive this £100, but if Labour ever got into power everyone would have to pay more taxes.”

Second, on a deeper level, the party attacked claims the plan is progressive. The SNP said it would make life even harder for families already pressed to their limits. Some started calling it a ‘better together tax’, claiming Scots would be paying for Westminster austerity.

SNP MSP Stewart Maxwell said: “We already knew that Labour’s tax hike on workers would hit low earners the hardest and shift the burden of austerity onto working people – now it’s clear that their plans would completely wipe out the additional pay rises of thousands of public sector workers in Scotland.”

The plan certainly put the SNP on the defensive. Maybe they protested a bit too much. So who was right?

Research from the IPPR found that Scottish Labour’s plans would mean the highest tax rises for the richest by 2020/21, with middle-earning households facing small increases.

The proposed £100 payment, if it is actually possible to administer, would see increased income for the poorest 30 per cent of households, and reduce the tax increase for households further up the income spectrum.

Meanwhile, the Resolution Foundation also took a look. In a blog, the foundation’s Torsten Bell, Labour’s former director of policy, wrote that the “proposals will raise money, although not enough to ‘end austerity’”, finding that, in total, the rise is probably enough to compensate for around a third of the day-to-day spending cuts in the Scottish block grant.

Perhaps more significantly, Bell continued: “This tax rise would be progressive in the sense that the better off would pay a higher share of their incomes in increased taxes than those on lower incomes.”

The analysis suggests the very poorest households would pay little or nothing extra because they tend to pay little or no income tax. Meanwhile, the richest would “pay significantly more, not only in cash terms (with households in the top decile paying around £1,000 more) but as a percentage of their incomes too.”

The Resolution Foundation found, in the bottom half of the distribution, 15 per cent of families would gain from the policy, while over half are unaffected. But a single-earner family on £25,000 would pay £140 more tax.

As Bell put it: “Just because a tax change is progressive does not mean there aren’t hard cases or families losing out that some would consider ‘poor’.”

Clearly, with limited powers, the plan is not perfect. The foundation cites the example of a couple on almost £20,000 each, who would receive £200 from the state, despite having a gross household income of practically £40,000. Around 60 per cent of the spending on the rebate will go to households in the top half of the distribution.

Progressive or not, current powers over income tax make for a very blunt tool. Meanwhile, polling from Ipsos Mori found that 30 per cent of voters would back the penny rise, with 54 per cent in favour of the status quo.

It has been a long time since Scottish Labour’s polling looked good. It may be that Dugdale’s latest ploy is more about damaging the SNP than helping Labour – in so far as the two can be separated.

The last round of polling from TNS confirmed a trend of continued dominance for the SNP. In the constituency vote, the SNP sat on 57 per cent. Labour languish behind on 21 per cent, just four points ahead of the Tories. In the regional vote, the race between Labour and the Conservatives looks even tighter, with Labour on 19 per cent, sitting just two points ahead of the Tories. The SNP, meanwhile, polled at over 52 per cent.

Another poll followed, conducted by YouGov for the Times. It was even worse for Labour, putting the Conservatives ahead of them for the first time on the constituency vote and tied at 20 per cent on the list. The SNP meanwhile was on 50 per cent of the vote.

Perhaps Dugdale has concluded that desperate times call for desperate measures. Perhaps she knows she will not be in a position to implement the policy. Perhaps this is not about taxing the rich to pay for public services, but about making the SNP refuse, publicly, to do so. In these circumstances, Dugdale might as well try and shift the frame of the current debate away from anger at Westminster, and towards a race to the left. That race, she might hope, would better suit Labour.

Yet the Greens were pretty keen to avoid getting tangled up in the plan. The party kicked off its election campaign the week after the budget, and while there were pledges on jobs, energy and education, taxation was conspicuous by its absence.

The Greens will announce fiscal policies in the coming weeks, and though senior figures in the party express sympathy with Labour’s stance – alongside a recognition that something must be done to protect services from spending cuts – they seemed reluctant to use income tax levers as a means of revenue generation.

During the budget debate, Patrick Harvie said: “Wealth must become a bigger part of the taxation picture, not a smaller one. Over the years, we have had many debates on the role of central government versus the role of local government. The proposal to put up income tax by 1p would make local government more, not less, dependent on grants from central government.”

In contrast, the Tories will surely be happy there is now a conversation about taxes.  During the budget debate, Murdo Fraser expressed his delight that his party had, for once, found its fiscal stance backed by others in the chamber.

He said: “It gladdens my Tory heart to hear those self-proclaimed social democrats and political progressives on the SNP benches arguing so vigorously and passionately against increases in taxation.”

The party has always been keen on giving Holyrood greater fiscal accountability and there may be a sense of new opportunity, brought by new powers, for Ruth Davidson’s party. At times the Tories have seemed hamstrung by the confines of a parliament which could spend but not gather revenue – why vote for a party that trades on balancing the books, if there are no books to actually balance?

Regardless of the strengths or weaknesses of the policy, though, it is hard to escape the feeling that it represents something bigger than a penny increase in tax. This coming election will be the first time the Scottish public has ever been offered the choice to change income tax through the Scottish Parliament.

Scottish politics changed in the referendum, and new powers of taxation are one of the results of that change. New powers will transform the nature of the debate yet again.

And it is perhaps in that context that Scottish Labour’s policy is best understood. Dugdale’s announcement got people talking about tax and what we want to do with it. With further, more substantial powers to come, it may be a conversation we have to get used to.