Investment in public services across Scotland is desperately needed to reverse years of cuts

Our community members are treated to special offers, promotions and adverts from us and our partners. You can check out at any time. More info The stark fiscal choices facing the Scottish Government were laid bare on September 3 when Finance Secretary Shona Robison set out £500m of spending cuts.

As things stand, further spending cuts in next year’s budget appear inevitable. But in every challenge lies an opportunity. The Scottish and UK tax systems desperately need reform to meet the challenges of the 21st century.



The prospect of further damaging spending cuts should now provide real impetus for this to happen. We need to build tax systems that support the delivery of excellent public services, provide a stable platform for economic development, and generate the means to reduce poverty. In designing better systems, what should we consider? First, as a country, we need to confront a stark reality: taxes will have to rise over coming decades.

This is not a popular message of course, but politicians simply must start to acknowledge the truth of the situation. Higher public investment is desperately needed to reverse the impact of years of austerity. An ageing society will continue to increase demand for health and care services.

Wages in the public sector will need to broadly keep pace with private sector wage growth to secure the recruitment and retention of appropriately trained workers. Addressing the climate crisis effectively will entail a range of direct public investments and subsidies to encourage consumer investments such as heat pumps. We need to decide how much of our collective resource and effort should go to meeting these challenges and, in so doing, avoiding the costs of inaction.

Tax is the means by which we will enable effective collective action to be taken. Second, the responsibility for paying higher taxes must be spread across society. We cannot simply rely on taxing high earners and businesses more.

Progressivity – the amount of tax paid by high earners relative to low earners – is important in a tax system but it isn’t everything. The more equal Nordic countries do tax high earners more, but they also rely heavily on the high and stable revenues collected through regressive taxes like VAT. Revenues are then redistributed to ensure those at the bottom enjoy higher living standards.

Ultimately, it is the progressivity of the tax and spend system as a whole that matters, not the progressivity of specific taxes. Third, we need to get serious about taxing wealth. To be clear, new wealth taxes are not an option in the short term - the abject failure of successive governments to reform Council Tax reflects the difficulty of taxing wealth.

But household wealth in the UK has risen from three to over seven times national income since the 1980s, while wealth taxes have not risen at all as a share of that income. Taxing unearned wealth more fairly and efficiently is a legitimate longer-term goal. The UK Government could set an example by reforming Capital Gains and Inheritance taxes.

Finally, tax policy must be evidence-based. The debate in Scotland is riddled with flimsy theories and dodgy assumptions, usually wielded to undermine any move to raise tax on higher earners. Yet, the best recent evidence suggests that there has been no negative trend in net migration to Scotland since the introduction of additional income tax bands and a higher top rate.

Polling evidence also shows a consistent majority of Scots favour higher taxes to support investment in public services. Tax, it has often been said, is the price of a civilised society. A civilised debate is now required to determine what that price should be, who should bear the cost and where and how it should be paid.

Stephen Boyd is the director of IPPR Scotland To sign up to the Daily Record Politics newsletter, click here.