Why SNP's fondness for high taxes risks creating the worst of all worlds

The SNP’s recent approach to Scotland’s finances – ‘higher taxes good, public spending cuts not our fault’ – has unsurprisingly faced criticism from all sides of the political spectrum.

Now, speaking ahead of next week’s Budget, Scottish Financial Enterprise’s chief executive Sandy Begbie has appealed to Finance Secretary Shona Robison to resist calls for “even further income tax rises”.

Inconvenient facts

The reason is one that anyone with an inkling of economic knowledge should understand: higher taxes risk shrinking the Scottish tax base and reducing, rather than increasing, the sums raised. It is well understood that continually increasing taxes eventually reaches a point at which revenues start to fall, as people change their behaviour.

This is particularly true in Scotland’s case, given how easy it is to move elsewhere in the UK. There are also concerns that high taxes are dissuading potential employees from moving to Scotland.

“It may be inconvenient for some,” Begbie said, “but the data strongly suggests that further tax rises would be counterproductive. The government must instead recognise that its divergence policy [from UK taxation] is not working and take action to begin changing course... Bringing even some income tax rates more closely in line with the rest of the UK would be a step in the right direction and a clear signal that the Scottish Government recognises the concerns of business and its ability to grow, invest and attract and retain talent."

Economics is no simple matter and running a country necessarily involves political choices based on ministers’ priorities. But governments need to make decisions grounded on their effects in the real world and not allow themselves to be led astray by ideology.

The SNP must ensure Scotland avoids the worst of all worlds – high taxes combined with low public spending – or the country’s problems may become so great that even Smith would struggle to find a solution.