Hammond's tax approach seems more attuned to Scotland's spirit than that of Mackay

The LibDems have ruled themselves out of the Scottish Government’s calculations by demanding the SNP should give up independence as a political goal (my counter-demand, if I were in a position to exact one, would be that LibDems should become genuine liberals rather than second-hand socialists). As for Labour or the Tories, we need not even ask. Now it comes down to the Greens, who are never short of ideas, both trivial and not so trivial. Among other things, they want some sort of commitment to a fresh reform of local government, even though the last one took place only in 2003. This would actually be the sixth reform of local government in 100 years – hardly a good omen.

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Still, I should not be so cynical because I agree the system of local government finance needs another shake-up. For one thing it’s nowadays just a subset of central government finance, in a system almost entirely controlled from Edinburgh – but then, democratic centralism is what the SNP has come to be about. From the point of view of the taxpayer, there is a frequent mismatch between personal income and the value of a house, so that poor old widows may be lumbered with penal property taxes. It is hard to see how anybody can approve of this, and I suspect in the end the SNP and Greens will find a way forward.

What troubles me rather is the ambition trailed by Mackay to make the Scottish tax system more progressive, in other words to charge higher rates on income as it rises. Of course, most systems are progressive to some extent and ours is so already. In his last Budget, the minister cautiously diverged above the English degree of progressivity. This time he wants to go further in order to test the limits of the adverse effects – in other words, to see whether pushing up tax prompts evasion and becomes self-defeating. He now has a good opportunity. He can in fact get what he wants by doing nothing at all, and simply maintaining the rates he set last time round.

This is because, in the recent Budget at Westminster, Chancellor Philip Hammond declared his intention for 2019 to bring forward some tax cuts he had originally planned for later years (the one way he relented from austerity). As a stubborn Remainer, he is convinced Brexit can only be bad for the UK economy. 

The pound will slump, inflation will rise, we will all get poorer in real terms, spend less and depress industrial profits, causing also a slide in the investment which is the sole long-term way out of the crisis. Every available economic forecast confirms his fears. He can hardly expect to fend off all the misfortunes, but a tax cut might at least cushion some of them.

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Hammond has in the process set up an interesting experiment in the respective performance of the English and Scottish economies. He takes the classical liberal view that money is best left to fructify in the pockets of the people. Some will just spend it – itself no bad thing in present circumstances. Others will save it, at the individual level in pension funds or unit trusts, while collectively they will add to the pot the UK can call on for profitable investments. They will make us all richer not just by the return on those investments but also by creating jobs for others.

If Hammond is perhaps giving hostages to fortune in the post-Brexit world, Mackay will have none of it. In the Scotland of the present – no doubt a model for the SNP’s ideal future too – the Government is in charge of economic activity. While it does not want to abolish the private sector, there is no doubt in its mind of capitalists and entrepreneurs being mere handmaidens to ministers.

Mackay wrote in a newspaper column yesterday: “The Scottish Government recognises that an innovative manufacturing sector with domestic and export capacity can play a crucial role in boosting Scotland’s productivity performance … I am proud to co-chair a Strategic Leadership Group that will advise us further on how to realise our manufacturing vision. Through the measures outlined, we are taking steps to place Scotland at the forefront of the next industrial revolution, to enable Scottish-based businesses to compete in changing global markets and to empower our people with the skills to thrive.”

Ringing words. As a matter of fact I agree with the aim of some shift back towards manufacturing, in a Scottish economy which now has 80% of its activity in services. I think we may say, amid the lingering effects of the financial crash a decade ago, that manufacturing is a somewhat more stable sector than services. 

And improvements in productivity are often easier to mark up in manufacturing because new technologies constantly come along and every factory has an incentive to improve its own efficiency. To a richer Scotland, whether or not in the Union with England, whether or not in the EU, a stronger manufacturing sector could make a crucial contribution

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I just wonder whether heavy-handed state intervention is the right way to create that stronger manufacturing sector. Manufacturing started to decline in Scotland after the First World War, and no amount of heavy-handed state intervention has made the economy grow as fast as it used to do before that. Over 100 years so many winners have been picked, so much inward investment has come and gone – and still the collective wisdom of the great and good has failed to find the definitive solution to the problem of low growth. Perhaps Mackay and his Strategic Leaders, confident in the omnipotence of the state, have the qualities to bring a century of failure to an end. But the jury may stay out for some time.

Yet Scotland remains an entrepreneurial nation – by history and tradition, but also by the facts of the present day. From San Francisco to Sydney, there is no problem to find Scots making it against all comers in a global economy of ever-growing complexity. They don’t need favours from any state because they can do it all themselves.

I just wonder how many others there may be who have never got away from Kilmarnock or Cowdenbeath, and who have found their efforts frustrated – first by a Scottish banking system that wanted to rip them off and then by a Scottish Government with a deep distaste for their capitalist instincts, unless these can be somehow rough-hewn into its progressive agenda. I still think Hammond, for all his faults, has a better grasp of their needs than does Mackay with his strongly politicised approach. 

But, as I say, from now on we will have the chance to compare and contrast these two luminaries.