SHONA Robison, Scotland’s Deputy First Minister and finance secretary, has tough calls to make on Tuesday when she reveals her plans to close the estimated £1.5bn black hole in the country’s finances.

The authoritative Fraser of Allander Institute, in its latest report, is as realistic as it is pessimistic. Though a predicted recession had been avoided, growth had been essentially non-existent for two years.

Increased spending pressures and new announcements help account for the funding gap, from the £300m cost of fully funding councils for the freeze in council tax to the £100m pledged to reducing NHS waiting lists.

Of the £1.5bn shortfall, some £800m relates to day-to-day spending and £700m on capital investment. This, the Institute says pointedly, is one of the most challenging fiscal backdrops in the entire history of Scottish devolution.

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While Ms Robison could well wield income-tax powers, these would not be enough on their own, the institute added. Significant spending cuts may be necessary.

Few dispute that the Scottish economy faces many singular challenges, among them the effects of sustained high inflation, an ageing population, and the damaging fall-out from Brexit and the pandemic. Ministers have not been slow to say that real-term cuts to Scotland’s budget are flowing from UK Government real-terms cuts to spending on public services.

Alarm bells are already sounding over the country’s financial situation. The Scottish Government has confirmed a near-£30 million to cut in mental health services. Firefighters indicate that they may go on strike in the New Year if the Scottish Government doesn’t use the Budget to increase funds for the fire service. There has been much more of the same.

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Sometimes it seems that we are running to stand still. Despite expensive commitments to improve public services fewer adults are happy with what is actually being delivered.

The latest Scottish Household Survey says that the number of people satisfied with the quality of their local health services, schools and public transport has declined from 53 per cent in 2019 to a mere 40 per cent last year. Scottish Labour was quick to point out that SNP dominance has weakened every last Scottish institution.

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To Ms Robison, then, falls the unenviable task of seeking to balance the books. Who would be an SNP finance secretary at a time when the party’s fortunes are at a genuine low, and when a general election is on the horizon? Can we expect further spending cuts? And what is going to happen about income tax?

The tax burden is at its highest since the Second World War. If you live and work in Scotland and earn around £28,000, you already pay more in tax than if you lived in England. If you earn around £50,000, you will pay some £1,550 more in income tax than an English counterpart on the same salary.

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Pre-budget speculation has been inflamed by ministers’ refusal to deny a report that a sixth income-tax band is to be introduced, aimed at high earners. The First Minister has previously voiced support for an STUC proposal to create a 44p band on earnings between £75,000 and the £125,140 additional rate threshold. The Fraser of Allander report cautions that once behavioural responses are factored in, a new 44p rate above £75,000 will raise some £40m – a substantial sum on its own, but nowhere near enough to balance the books.

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Some SNP figures are already in revolt, and their observations need to be heeded. One predicts that this could be the party’s Trussonomics moment; another that a new tax band would signal that the country is not open to investment. Many employers are finding it difficult to attract workers: adding to the tax burden will do nothing to improve the jobs market.

There’s an equally valid point to be made when it comes to the high-earners who will likely be targeted by a new tax band. As the Institute of Chartered Accountants of Scotland points out, it could damage the nation’s workforce and reduce forecast income.

Workers could opt to work fewer hours in order to keep their income below £75,000, or refuse to take up better-paid jobs. Wealthier Scots could pay themselves in dividends to pay the London government tax at a lower rate. Higher earners based elsewhere in the UK might refuse to work north of the border.

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Some workers, ICAS even added, might relocate their tax domicile south of the border.
While those on such dazzling salaries can afford to pay more than their share towards the public purse, there is no reason to suppose that they will not take advantage of Scotland’s continued presence within the UK to do what ICAS has said they might. When growth is so stubbornly anaemic, is a punitive new tax-band worth the risk?

The cold fact is that UK taxpayers face more or less permanent increases in taxes in order to meet future bills for pensions and healthcare. The finance secretary declining to introduce a new tax band for higher earners would be belated and welcome recognition that taxpayers, regardless of their income, are weary of being a favoured target when it comes to making up shortfalls.