UK Tory Government public finance policies have been denounced by Professor David Heald, Professor of Public Sector Accounting at the University of Glasgow’s Adam Smith Business School.
In answer to questions from Convener Kenneth Gibson MSP at this week’s Finance and Public Administration Commtitee, Professor Heald said:
“The UK desperately needs to have a serious discussion about tax. The Mirlees review, which was organised by the Institute for Fiscal Studies in 2011, tried that, but it fell on fallow ground. Austerity dominated that decade.”
“The interaction of national insurance contributions with income tax creates totally perverse incentives. The UK as a whole needs to think about how big it wants the public sector to be and then show willingness to raise the tax revenue to fund whatever level that is.
“One of the difficulties with Scottish income tax is the issue of the interaction with the higher income tax threshold in England and the national insurance higher limit, after which national insurance goes down. There are completely perverse consequences around what I regard as a very sensitive part of the income distribution.
“The national insurance levy is simply a way, which was pioneered by Gordon Brown in the 2000s, of having a tax that is not called a tax. Strangely, it seems to be seen as better public relations, but it actually creates all sorts of complications.
“Within the devolved settlement, there are obviously relationships between what the UK Government does and what the Scottish Government does. However, I make the point in my written submission that national insurance contributions were completely the wrong instrument.
“I can understand that the Treasury wanted to send out a message that we cannot have higher public spending forever without having higher taxes, and I approve of that message, but that tax was the wrong tax. The circumstances that have arisen since then, with the growing inflation risk and specific issues about energy, have strengthened my view on that.
“We all say that we are in favour of transparency, but it makes me worried when we exploit public ignorance.”
In his submission, Professor Heald, had declared UK public finances “unsustainable on present policies” and said:
“Tax measures, such as the health and social care levy, add to inefficiencies and inequities rather than resolving them”.
Even UK Tory Government decisions on devolved matters have a knock-on effect on Scotland’s taxpayers and public finances.