Welfare why the best things in life aren’t free

Unlike a normal election campaign, the referendum has not been dominated by competing claims over personal taxes.

Despite a glut of other policy giveaways, there has been no George Bush senior-style “read my lips: no new taxes” moments from the Yes camp. This is perhaps wise given what might have to come down the line if there is a Yes vote and things don’t pan out as promised by the SNP.

The Scottish Parliament already has tax-varying powers which it has never used. The 1997 referendum endorsed giving Holyrood a mandate to add or subtract 3p to the basic rate of income tax.

From next year it will gain even more power over tax, whatever the result of the referendum, under the terms of the Scotland Act passed by Westminster in 2012. That will force Holyrood to set tax rates and collect a Scottish share.

To carry that out a Scottish tax body Revenue Scotland is already being created, which rather undermines No camp arguments that Scotland would have to set up tax-collecting infrastructure from scratch.

Harder to discount are the Better Together claims the sums in a separate Scotland don’t add up, the deficit would be worse and to balance the books taxes would have to rise.

Chief Secretary to the Treasury Danny Alexander claims the tax burden in Scotland would have to increase by 13%. Helpfully, the UK Government has provided an example of how that might be achieved a basic rate of tax of 28%, VAT at 26% plus a 40% hike in duties on things like booze and cigarettes.

But we don’t just have to take his word for it.

The Institute for Fiscal Studies generally the bane of Danny’s life as they have a habit of proving how independent they are by trashing his government’s budgets agree.

In a report earlier this year, senior research fellow David Phillips wrote of the plans contained in the SNP’s independence blueprint: “While the White Paper contains some measures that could help balance the books, the spending increases and tax cuts pledged or hinted at are substantially larger.

“In a difficult fiscal context, such giveaways make the job of restoring the public finances to health more difficult and would require bigger spending cuts or tax rises in other areas. Thus, underlying the seemingly attractive policies outlined in the White Paper are difficult, unmentioned, decisions for other public services, benefits and taxes.”

Those attractive policies in the White Paper and proposed in a report drawn up by the Scottish Government’s expert working group on welfare include providing much more free childcare, increasing Carer’s Allowance, linking the rate of benefits and tax credits to the rate of inflation, abolishing the bedroom tax and raising the national minimum wage.

Trouble is the IFS says even before those pledges were enacted an independent Scotland would start life worse off, with a £6 billion black hole in the finances due to its ageing population and slightly higher welfare spend.

But much of this doom and gloom doesn’t allow for the possibility of accelerated economic growth sparked by policy changes.

Welfare spending provides a classic example of proving anything with numbers. Better Together say the benefits bill is 2% higher per head of population than the rest of the UK. The SNP say it’s lower than elsewhere in Britain as a share of GDP.

The experts, such as Edinburgh University’s Professor Nicola McEwan, say spending per head is slightly above the UK average, but crucially the gap is narrowing. She also points out that most Scottish welfare applications are processed by offices in Scotland, again questioning UK Government claims that it would cost hundreds of millions of pounds to set up the necessary infrastructure from scratch.

Indeed the Scottish Department for Work and Pensions offices also process English applications leaving the remaining UK with a headache about how to keep their welfare system continuing smoothly.

The SNP are relying on that fact to make Westminster sign up to their plan to continue shared welfare arrangements immediately after independence.

It would certainly be in Scottish interests. It’s questionable how far it would be in UK interests but it’s surely extremely unlikely the UK, proud of a compassionate foreign policy, would turn its back on Scotland’s most vulnerable out of spite.

The SNP and plenty of Yes supporters look to Scandinavia for examples of how differently things can be done. Sweden, for example, offers a generous pension and a cap on the cost of childcare at £113 per month around a third of what the average UK parent pays out. Danish students still get maintenance grants worth hundreds of pounds. That level of welfare provision comes at a cost, however. University College London constitution expert Matt Qvortrup is taking a keen interest in the Scottish debate.

He explained: “In all likelihood taxes would go up considerably if Scotland were to go down the path of the Scandinavian welfare state. Unemployment in the Scandinavian countries is low. This is mainly thanks to laws that effectively force unemployed individuals to either accept work or retraining. The Scandinavian welfare states do not have a state-guaranteed minimum wage. Many of the welfare-to-work schemes currently proposed by Iain Duncan Smith and the government at Westminster are inspired by legislation in Scandinavia. The Scandinavian welfare states come at a price.”

He points out that tax rates in Denmark are 55% and in Sweden 57%. They are slightly lower in Norway at 47% because, like Scotland, they have oil revenues. More welfare seems to inevitably mean more tax. Even just maintaining the current level of welfare might mean higher taxes though the SNP insist they’ll pay the bills by kickstarting the economy with policies made in Edinburgh and swelling the working and therefore

tax-paying population through immigration.

And the White Paper is clear that immigrants will have full access to the welfare system.

So there are two answers to whether you’ll be better or worse off when it comes to tax and welfare if Scotland votes for independence.

In the short term the answer is there will likely be little difference.

In the longer term if a Scottish government pursues Scandinavian style policies you may be worse off in cash terms as the Scots taxman takes more of your money, but in return the government would be expected to provide a better quality of life.