Let’s use Holyrood’s powers to have lower taxes than England

Writing on the Conservative Home website last week, Houchen explained the reasons for his success, drawing on his experience in Teesside. In his view, it was his prioritisation of the economy that, above all else, explained why his support held up whilst so many others saw it fall.

As he stated: “Whilst only a minority of people follow the ins and outs of Westminster nonsense, everybody has a stake in our economy”.

He has actively made things better for local people with “Teesside’s transformation, and our Conservative success” hinging largely on “a relentless focus on economic regeneration, creating good quality local jobs and attracting significant international investment,” he wrote.

The cornerstone of this effort has been the creation of the Teesside Freeport, illustrating the importance of fostering a business-friendly environment that promotes growth and job creation.

This is, he said, is one of the most free-market policies ever rolled out in the UK, and it has been wholeheartedly embraced by communities who for decades have voted Labour, and worked in unionised industries.

He concluded that most voters are not driven by ideology. If they see their lives improving they will happily support whichever party delivers that. And that, ultimately, is where political success will come from.

There are many lessons here for the Scottish Conservatives, as we consider the way forward for our party. Getting the Scottish economy right is the fundamental building block of every other part of our political offer. If we can demonstrate to the voters that we have the policies to grow our economy, and therefore improve their standard of living, everything else will flow from that. And we will generate the vital tax revenues we need to fund improved public services.

That need for a clear economic plan is greater than ever. Since 2014, the Scottish economy has grown on average at one-half the rate of the UK economy. If Scottish growth rates were to match that of the UK over a ten-year period, we would see an extra £6-7 billion in tax revenues generated without having to increase tax rates by a single penny.

Unfortunately, the approach of the SNP in government has been to go in entirely the wrong direction, hiking taxes for everyone earning above £28,000. This tax differential is now creating a real burden on vital sectors of the economy, and constraining our ability to deliver the growth that we need.

A whole range of business organisations have spoken out about the difficulty they have attracting talent because of these tax rises. Even in the public sector, in areas such as the NHS, the higher tax rates payable in Scotland, both in terms of Income Tax and LBTT, are becoming an issue.

When members of the Scottish Parliament’s Economy and Fair Work Committee visited Prestwick Airport in the Spring, we were told that it was this tax differential that was actively preventing the expansion of a Ryanair repair and maintenance facility on site, due to the level of wages being paid to aircraft engineers. It was extremely difficult to persuade those at that level to relocate from other parts of the United Kingdom to Ayrshire, because they would be paying higher taxes for no perceived benefit.

It is the same in other sectors, such as finance. Some businesses have even started talking about having to pay a “Scottish weighting” in the form of higher salaries to offset the additional tax, in order to have a chance of attracting the talent they need to work here.

So it seems obvious that this tax differential must be eliminated if we are to lift the restriction on Scottish growth. But I would argue that it is time to go further than that.

We should be using Holyrood’s tax powers not just to equalise tax rates with the rest of the United Kingdom, but to go further, and make Scotland a lower taxed economy. This is a move that would need to be done over time, and funded by the proceeds of growth in the economy, but a clear direction of travel would reassure those who are currently nervous about moving to Scotland because of the threat of ever-higher personal taxation.

More importantly, it would send out a signal to the rest of the UK, and internationally, as to the attractiveness of Scotland as a place to live and invest. Already, in terms of international inward investment, Scotland does well compared to other parts of the UK outside London, but this would have the benefit of making us even more attractive to those looking to build businesses.

We have a real issue in Scotland with an ageing population, with the proportion of those living here of working age and economically active shrinking. By creating a lower tax environment there is an opportunity to deliver a virtuous circle of a faster-growing population, increasing economic growth, and with it higher tax revenues.

Far from being a country where higher earners are reluctant to move to, Scotland could become a place where companies are anxious to locate headquarters, with all the spin-off benefits to the wider economy that would bring.

Ireland demonstrated some decades ago that a policy of reducing Corporation Tax would boost economic growth. We could do the same for Scotland by cutting ourpersonal tax rates below the rest of the United Kingdom, if only we had the right ambition.

Ben Houchen has shown how Conservative policies and leadership have transformed the economy of Teesside, and with it delivered Conservative success.

That is precisely the model we should be following in Scotland.

-Murdo Fraser is the Conservative MSP for Mid Scotland and Fife and a leadership candidate for the Scottish Conservatives