Why Scotland should ignore the IFS if it is to ever prosper again

Were such an organisation to exist would one not expect it to be broadly in favour of its state sponsors growing and extending their influence?

I ask these questions because they are pertinent to the debate we are about to see open up around how to reset the failing Scottish economy so it delivers prosperity for all. In particular we need to know how the vying political parties would create attractive conditions for the private sector and its employees to grow – so the tax revenues it generates will be available to fund the public sector and its employees.

Without that private sector munificence all the other policies on “free stuff” and public sector services so beloved by our politicians will be absolutely worthless.

The tenor of my questions arises because the first manifesto to be published for the Holyrood elections on 7 May was by Reform UK Scotland last week. Ironically, the party so often accused of not having any policies was first to announce its plans, putting to the sword that particular myth. In turn the manifesto elicited the first critique from the Institute for Fiscal Studies, which likes to frame itself as “independent”.

It was no surprise to me to find that it was dismissive to the point of being patronising, calling Reform’s approach “not credible” and “unserious”.

It was no surprise because I do not consider the IFS truly independent. That is not to say that it cannot, like a broken clock, be right at least twice a day – it did actually agree with Reform on one or two points – but it has a certain outlook, one that disagrees with that of Reform’s leader, the successful Scottish businessman, Malcolm Offord.

Among many policies that shall no doubt generate some debate, for instance on education, health and policing, the real offering that marks out Reform as different is that it wants to return to the three UK tax bands (rather than the SNP’s six) and to cut Scotland’s tax firstly to 1p below the UK rate, and eventually when funds allow, 3p lower.

This naturally leads to the question from the IFS (and everyone else) of how that goal would be achieved when we repeatedly hear from the Scottish Government that it does not have enough money.

Reform’s answer is threefold; that it believes finding savings of 3 per cent from Scottish Government’s £72.1bn budget should be eminently sensible, not least because the SNP planning to increase spending by some 4.5 per cent. Reform goes on to say it would halt spending on Net Zero (about half of which is capital spending) and that all of Scotland’s quangos should be put on notice that they need to justify their existence or be closed down and their spending saved.

Reform argues that the tax incentives it would introduce could lead to Scotland’ s economy growing annually by 1 per cent, growing the economy by £22bn within a decade and raising £8bn in additional tax revenues. It argues it is wrong that Scottish welfare benefits are increased by at least the annual inflation rate while the taxpayers who help fund those increases have their thresholds frozen by Holyrood politicians.

The response from the IFS was to patronise, saying Reform did not understand the funding process of Scottish Government and that balancing the tax cuts with savings could not be attained because of behavioural changes of people affected.

Yet that is just the point – Reform believes Scots would respond positively by returning from working elsewhere, expanding the tax base, while those here would also become more productive.

In truth the IFS and Reform can never agree – because it is not an accounting difference we are witnessing but two opposing world views of how economies work. The reality is the IFS – which receives 76 per cent of income from public funds – is well to the left of the Labour UK Government, believing it does not tax enough and Scottish benefits could be higher.

The IFS director, Helen Miller, is a supporter of ending inheritance tax relief of farmers, and suggested Rachel Reeves had been lenient and should have gone further, saying “Inheritance tax relief for agricultural and business assets unfairly favours those whose wealth is held in these forms rather than others… The changes set out in the Budget reduce but do not eliminate these effects.”

Miller has supported a whole suit of tax increases and campaigned for them. These include a “wealth tax”; making pensions subject to inheritance tax; removing the 25 per cent tax free component altogether from people with large pensions; and charging Capital Gains Tax on second properties after death on top of inheritance tax. Miller was an adviser to the leftist Tax Justice UK, which has resulted in such damaging taxes as the Windfall Tax that has brought the end of North Sea oil and gas exploration and extraction.

For consistency and credibility the IFS should assess the other policy offerings from the SNP, Labour, Conservatives, Greens and Liberal Democrats, but it will always favour more spending as good and a larger state being better.

With Scotland’s economy having a greater share of state spending (54 per cent) that many soviet-era communist countries – and more than today’s communist -run China (35 per cent per cent) is it any wonder it was critical of Reform?

Scotland’s status quo is unsustainable because of high spending – is there anyone else brave enough to change the broken system?

Brian Monteith is a former member of the Scottish and European parliaments and senior advisor to the Tax Reform Council.