Tax

Tom Griffin (London, OK): Over at Compass, Tom Copley of London Young Labour points to the historic significance of Alistair Darling's decision to cut VAT while bringing in a new 45 per cent rate of income tax. 

To understand why these changes are so important, we need to look at the history of taxation in this country since Margaret Thatcher came to power in 1979. A key part of her economic policy was the transference of taxation away from income and on to spending. In her first budget in 1979 she cut the top and basic rates of income tax whilst increasing VAT from two rates of 8% and 12.5% to a unified rate of 15%. This put money in the pockets of the rich whilst punishing the poorest who would see little reduction in their tax bills whilst facing increasing prices. Indirect taxes, favoured by Thatcher, always hit the poor hardest.

At ConservativeHome's CentreRight blog, Andrew Lilico puts the same comparison in a slightly different perspective:

In the first Thatcher term there was a major tax reform - switching away from income tax to VAT.  The government attempted to make this seem less inflationary by trying to get us to use a "taxes and prices index", but no-one used it, and the impression of the VAT increase was that it fueled inflationary expectations.  Perhaps we are all much more sophisticated now and the deflationary effects of VAT will be "seen through", but I'll believe that when I see it.  And if that was really the concept, why not cut income tax in the first place?

Of course, Darling's VAT cut is intended to be temporary, but it may nevertheless mark the end of an era.

John Osmond (Cardiff, Institute of Welsh Affairs): Hints from the Prime Minister on future funding options for the Scottish Parliament are rare and usually Delphic in their meaning. So close attention was paid to Gordon Brown’s relatively unambiguous remarks on the theme in a speech delivered to a CBI Scotland dinner in Glasgow in early September.

Although observing that on the whole devolution had worked pretty well, he said he did see one problem: fiscal accountability. As he put it: “The Scottish Parliament is wholly accountable for the budget it spends but not for the size of its budget. And that budget is not linked to the success of the Scottish economy.

Tom Griffin (London, OK): Gordon Brown has been coming around to the case for giving more tax powers to the Scottish Parliament for some time, as Brian Taylor notes, but last night's speech to the Scottish CBI puts fiscal devolution more firmly on the agenda.

"First of all," he told Scottish business leaders, "devolution has worked but I do see one problem. While there have been good reasons why this is so, the Scottish Parliament is wholly unaccountable for the budget it spends but not for the size of its budget. And that budget is not linked to the success of the Scottish economy. That is why we asked the commission to look carefully at the financial accountability of the Scottish Parliament and this is a critical part of Calman's remit."

Tom Griffin (London, OK): The Scottish Government revealed its legislative programme for the next year today. The centre-piece was Alex Salmond's announcement of "abolition of the oppressive council tax in favour of a fair local income tax, bringing much needed relief to household budgets."

Over at Conservativehome, Tory MSP Derek Brownlee raises a number of searching about the assumptions behind the SNP plan for a local income tax rate of 3p in the pound.

Tom Griffin (London, OK): The Scotsman brings us news that the SNP is preparing to do a deal with the Liberal Democrats to abolish the council tax in Scotland.

As the SNP is running the Scottish Government as a minority administration, it needs the support of one of the other main parties to get its plans through. The Lib Dems support the principle of a local income tax, but are adamant that it must be set locally, by individual councils, rather than by the Scottish Government at 3p in the pound.

Jon Bright (London, OK): Gordon Brown has apparently given the green light to Wendy Alexanders' constitutional commission - and has said, crucially, that it can review whether Holyrood ought to have the power to raise some of the £30bn budget that it controls. Full details to be released in an interview on The Politics Show tomorrow at 12. Alex Salmond - and anyone else interested in the future of the UK - will be watching keenly.

Moderator: Cross posted from Normal Mouth's blog.

Normal Mouth (Rhondda, blogger): The recent Varney Review on Tax Policy in Northern Ireland has been greeted in Wales like flatulence in a lift: the emission of something unwelcome prompting the nationalist leaning commentariat to pretend it hasn't happened. Plaid Cymru MP Adam Price, however, is not one to suffer in silence.