Derek Mackay presented his Scottish budget yesterday and for the first time has suggested Scotland have different tax rates from the rest of the UK. The impact is to raise more than £160 million of new revenues, mainly from the well off, as this table shows:
I must be honest and say I have not read all the detail as yet: other work and blogs have prevented that, but I think the proposals demand somewhat more analysis than the FT offered, which was to obsess about some potentially losing out on £30 of tax relief on pension contributions.
So, let's start with the good news. This comes in three parts.
First, Scotland has broken with the rest of the UK. It had to.
Second, it's made the tax system more progressive. Scotland demanded that. It's appropriate.
Third, the money will fund necessary public services and pay rises: both are welcome.
Then the bad news. Again, three parts.
First, the cuts at lower rate are small, but I accept these things take time.
Second, the pension commentary shows the fiasco of not offering full devolution to Scotland on tax: that is the real problem this highlights. The FT got it wrong not to say so.
Third, is that Scotland does not need a tax rise. Its economy is slow. True, some redistribution may help address this, but its modest, and will not change growth as much as might be desired.
So what should have happened? Well, read my White Paper is the obvious first suggestion: these were baby steps taken yesterday in the right direction.
Then realise that Scotland is, because it cannot create its own money, simply a glorified local council bound to balance its books and as a result wholly unable to create the fiscal stimulus that the country really so badly needs.
And in that case appreciate that any government in Scotland has to demand more powers if it is to have any chance of addressing the problems the country faces.
The SNP took a necessary step yesterday and the messaging was correct. But it has to be a lot more courageous to deliver growth for Scotland as well. That's my message. And to those from other parties who might criticise my message is as simple: you would face exactly the same challenge if in office.
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I was waiting to see what you’d think of this!
Given how their hands are tied, I think they did well. (for what my limited understanding of economics is worth). I fear the people who only read headlines and will believe an impression gained from those who will criticise regardless of facts.
After threshold changes, it would appear that someone earning £50K ends up better off than someone on anything between £26K and £40K, whilst someone on £60K is now better off than someone on £35K and £40K.
What do you mean by “better off”?
@ George S Gordon,
If you look at the second vertical column, the £50K earnings bracket shows a resulting *increase* in net earnings of £85. That’s £155 more than someone on £40K (the bracket above in the chart) who it indicates will be *worse off* by £70 ( -£70).
And so on… as per my earlier post.
It would appear that the anomalies I mentioned are to do with moving existing tax band thresholds, but they do throw up strange quirks – assuming I have read the meaning of the chart correctly, of course.
The budget does look like “baby steps” Richard, but the reasoning seems fairly sound –
a) although hard to estimate, the advice was that bigger steps would have led to reduced tax revenue (what do you think?);
b) don’t frighten the horses (and keep your powder dry).
In relation to (a), its worth noting the comment by John McLaren of Fiscal Affairs Scotland (who you met at a Holyrood committee meeting) – many higher rate earners will be hit harder than they would have been by a 3% rise in the rate due to the other budget changes. I’ve yet to see his detailed analysis. Apparently McLaren would favour a reduction in the upper rates to attract more high-income indiividuals and widen the tax base (very Tory!).
Given the lack of fiscal powers, I’d say that the budget is doing a reasonable job in attempting to grow the economy. Of course it also helps that public sector workers will spend their (less taxed) pay rises.
I’ll ignore the many incorrect and misleading messages from the Scottish Tories and the media, except to point out a really obnoxious, but unsurprising, message from one of our MSPs –
Miles Briggs MSPâ€Verified account @MilesBriggsMSP
The big winners from today’s SNP Budget and the new Nat Tax system announced will be the Tax Lawyers. #ScotBudget #NatTax
4:33 PM – 14 Dec 2017
Thanks
And agreed re the last
Well, Tories & Labour are huffing and puffing. Let them bring forward a costed budget so we can scrutinise their proposals. But all we hear is a nasty whining sound.
Remember the public sector paycap is being lifted…
“So what should have happened? Well, read my White Paper” but that couldn’t have happened as the SG doesn’t have the powers as you and everyone else (apart from the Tories, Labour, Lib Dems, MSM, BBC and others suffering from mental constipation) pointed out.
So what should have happened given the reality of being a local council that has to balance the books?
It’s a government, not a council
So it should have asked for appropriate powers and made it a big political point
“It’s a government, not a council
So it should have asked for appropriate powers and made it a big political point”
The only really effective measure would be for Scotland to issue its own currency.
The Yes campaign didn’t even have the guts to definitively offer that option at the Indyref, although, of course, it should have done.
So Scotland was hardly likely to demand its own currency – or be granted it for that matter – at Devolution.
Is anyone talking about this as a option, I wonder?
They did ask for a lot more powers at the Smith Commission, and were denied – more by Labour even than the Tories. I suppose they could have refused the minimal offer on the table at that point, but I guess the politics would have been difficult. All subsequent attempts to get the offer improved during debates on the Bill in Parliament have been refused!
@MrShigemitsu
There was a currency Plan B (and a Plan C) at the independence referendum, and I’m pretty sure a sovereign currency will be the basis of a second referendum. There is certainly a lot of talk about it.
I think you used the term ” Scotland is, because it cannot create its own money, simply a glorified local council bound to balance its books and as a result wholly unable to create the fiscal stimulus that the country really so badly needs”.
Devolution of power is power retained.
?
@George S Gordon,
I’m not remotely Scottish nor have ever been resident there, but if I were, I would be vociferously advocating for a sovereign Scottish currency in any independence campaign.
In fact there can be no true independence without one.
Is anyone talking about this as a option, I wonder?
Oh yes, Mr Shigemitsu, they’re talking about it.
And I agree it was a major oversight in Indyref 1 to not be able to clearly address the future currency issue. George Osborne won a lot of ‘No’ votes when he stated (incorrectly or untruthfully) that an Independent Scotland wouldn’t be allowed to use ‘his’ pound.
Not being familiar with the Scottish Tax situation Richard-how much of that tax operates like a local council that ‘funds’ things and how much goes to UK Treasury where tax doesn’t really ‘fund’ things?
Or is it entirely like a local council -in which case it might even be more vulnerable to control from Westminster.
It is pretty much entirely like a council
Just to clarify, I asked how the SG could do what is set out in your White Paper when it is more like a Local Council, echoing your phrase, which you repeated at 7:40, but at 2:53 you said it was a Government. So, given the constraints, what should it have done, not what should it have done if it were a government of an independent country?
AFAIK the SNP have always argued for full fiscal autonomy, but Labour and the Tories etc fought against that. And Labour set it up originally to blunt the SNP and while they huff and puff about the SG using the powers they have they are being hypocritical, having denied the SG the powers necessary and sufficient (after the Referendum) to do what needs to be done.
And they won’t publish any alternative costed budget under the existing powers and show where they would make cuts.
Furthermore, the devolved administration exists only at the whim of WM, many of whom would like to see it abolished. I can see it happening.
In the context it did what it had to do
But failed completely to make the point on devolution, including running hmrc in Scotland to close the tax gap
I agree with pretty much all of this – the only thing I would say is that Scotland doesn’t need a tax rise from a macroeconomic perspective but it *will* probably need to raise more tax if the SNP are serious about rolling back austerity. The Condem/Tory policy of increasing the personal allowance from £6,475 in 2010-11 to £12,000 or more by 2020 is a huge giveaway going mainly to the better off and has been funded by cuts to essential services. Reversing those cuts is going to require tax increases of some sort (although it should be possible to do this in a progressive manner with the extra tax take falling largely on the better off).
Greetings Howard
I agree with all that
The best tax reform Scotland could make is to scrap Business Rates, Council Tax, Stamp Duty Land Tax, Section 106 Agreements and Community Infrastructure Levy and replace with Land Value Tax. Collect the rent.
The Scottish Land Commission, set up by the Scottish Government, is examining precisely that proposal, and I understand will be carrying out research on how this may be achieved.
Incidentally, I believe that this measure should be called Annual Ground Rent (AGR), and not Land Value Tax (LVT); because it is a rent.
I find this proposal to shift towards more sensible land tax/rent very encouraging. The savagely regressive ‘Poll Tax’ was never properly readjusted; we just made do with Heseletine’s sticking plaster, Council tax because it wasn’t quite so bad. It remains deeply regressive and was only a political fix rather than a serious attempt to address local taxation.
Much as I would love to see LVT or AGR implemented forthwith, I’m satisfied that it is more important to get it right than to get it quickly. Media propaganda will be unscrupulous in misdirecting attention through expressions such as ‘garden tax’ which has already entered the lexicon.
I know of someone with 1000 acres of good shooting land who thinks it shocking that the government wishes to apply a charge on it when he can’t be arsed to use it. That’s a ‘dog in the manger’ attitude if ever there was one: I don’t want it but no-bugger else can have it, because it’s mine all mine. Well it isn’t. It’s a squandered asset.
I have a plan…
No, I think they are searching for a plan; which, if I may say, seems not unreasonable.
Just for illustration …. …. Brexit is the kind of thing you do when you do not search for a plan.
John McDonnell is a long-term member of the Labour Land Campaign and he has asked me to get involved in the policymaking on LVT.
Good news
Ah, apologies! I read “I have a plan” as a facetious, ‘Baldrick-style’ witticism.
It is important that thorough research on the source information on land ownership, identification; on valuation methodology and the implementation process, is carried out carefully beforehand. The law is also quite different in Scotland and England (a matter about which Mr Corbyn at least may not fully appreciate the implications, given some of the remarks he has, a little casually or carelessly offered regarding Scotland in the past).
Carol Wilcox says:
December 17 2017 at 1:49 pm
“John McDonnell is a long-term member of the Labour Land Campaign and he has asked me to get involved in the policymaking on LVT.”
That sounds rather like congratulations are in order, Carol.
“It’s a government, not a council. So it should have asked for appropriate powers and made it a big political point”.
The real (Westminster) purpose of the devolution settlement is to be found in the Smith Commission, and the intended consequences of the fiscal powers settlement are to be found in the Scottish Conservative Party’s elaborately orchestracted response to the Scottish Budget, 2018-19 announcement.
Under the Smith Commission settlement almost the only tax lever that the Scottish Government can exercise with any freedom is the rate of income tax; which of course means, in effect there is no freedom. The capacity to use other fiscal levers is either highly restricted, or negligible. This is not an accident, but the calculatedly deliberate intention of the Unionist parties in the Smith Commission and the final agreement. They knew that most tax increases are politically toxic; so the only fiscal powers devolved are those that focus on the speficic taxes that maximise the potential political toxicity with the public, if ever exercised; the most iconic and toxic tax of all is Income Tax, so that, of course, is the one that is first isolated, then devolved, and devolved ivirtually in isolation. Either the Scottish Government will not use the powers to vary income tax; and hence it can be argued by Unionists that devolution of taxation is pointless; or the Scottish Government use the powers in isolation, as obliged to do, and the damage may prove politically highly toxic. Either way, politically Unionism cannot lose; because the limitations of tax powers devolved make it virtually impossible for a Scottish Government to ‘win’. Hence the hysterical propaganda of Scottish Conservatives against the Budget, to maximise the outrage of the electorate.
The initial reaction of the Scottish public is actually more tolerant and amenable than the Conservatives probably expected, but tax is often a ‘slow burn’ issue and no doubt there will be endless exploitation of every twist, every anomaly thrown up by what is Britain’s Byzantine, dysfunctional, over-centralised and toxic system of both taxation and Government.
Here, in sum, is what the Smith Commission and devolution is actually intended by Unionism to deliver for the Union. A system of Government in which Holyrood is guaranteed not to win; to ensure that Holyrood continues to manage the ‘status quo’ deferentially to Westminster, as the maximum achievement to which it could even aspire; but with at least the prospect for Unionists and Westminster, that any tax changes delivered by Holyrood prove disastrous, permanently reducing the political effectiveness, reputation and independence of action of the Scottish Parliament.
The Scottish Conservatives have two main aspirations behind their alleged undying loyalty to Holyrood: the reduction of Holyrood to local council powers: in Scottish Conservative imagination, Holyrood should be reduced to grappling with every Scottish district council to assert authority over bin collection timetables in suburbia. Beyond that, the gleam in the Scottish Conservative eye, is to destroy the Scottish Parliament’s political authority with the Scottish public entirely, finally; and return to the constitutional position ‘ex-ante’ devolution, with no Scottish Parliament at all. I make that final speculation because I suspect that the real demographic core of loyal Scottish Conservative support has never been reconciled to the existence of the Scottish Parliament, at all. This ‘consituency’ also know that, given its age profile, its over-affection far a past that it remembers badly but nonethless insists in believing it is still living in, and the remoteness of its understanding or grasp of the modern world – it half realises that its days are numbered. It is in a hurry. Much of the rest of the recent Scottish Conservative popular support, that has galvanised the illusion of the Scottish Party’s improbable, current sense of political credibility in Scotland, outside its longstanding, loyal, aged cohort, are merely an embarrassment – to everybody.
As you say:
The Scottish parliament has circumscribed power to raise national taxes, but no statutory restriction on its power to alter local taxes. This is why Carol Wilcox’s point above regarding land value tax is important. It seems to me that, although the reform of local tax would in the short term be politically costly, it’s likely to be essential for the Scottish government to escape the income tax trap other contributors have described. Generally speaking decentralisation by the Scottish government would make Scottish autonomy less vulnerable at times of the Scottish government’s unpopularity.
The big barrier for Scotland in the past to changing the local tax system and council tax in particular was council tax benefit. This benefit was administered centrally by the Department for Work And Pensions. It produced a substantial proportion of the revenue, but as James Purnell made clear, if Scotland abolished council tax, it wouldn’t continue to receive the revenue that it would otherwise have received from council tax benefit.
“The Scottish parliament has circumscribed power to raise national taxes, but no statutory restriction on its power to alter local taxes.”
This seems to me a key point. The introduction of AGR (aka LVT) can be carried out within the powers of the Scottish Government, and this measure is potentially transformatory. This is not adequately understood or reported; either in Scotland or throughout Britain. It is vital that this is explored, and the implementation thoroughly researched. I do not think it is widely understood how important this matter is for the good governance of Scotland, because it does provide something of the fiscal flexibility and freedom of movement the Scottish Government requires. However, given the vicious and frankly irresponsible, factionalist nature of British politics (and media) it is still very difficult to execute.
Hear. Hear, John.
The hysteria in the Scottish Press this week and the extent of the misinformation and lies indicates the desperation of the ‘unionist right’. They can see their edifice cracking as the disconnect between the narrative and the reality becomes increasingly obvious even to those who ‘aren’t interested in politics’.
“Has Scotland got its new taxes right?”
Probably not. Can’t do it all at once, but the howls of (misleading and downright dishonest) protest from the Scottish media indicate that the direction of travel is probably correct.
LVT seems to be presented as the panacea for all our woes, or at least Local Taxation woes, and much of the comment thrown up by Google seems to agree. Should we not be a little sceptical? researchbriefings.files.parliament.uk/documents/…/SN06558.pdf examined many of the arguments pointing out that as well as many advantages there were a number of significant problems, not least the political ones, the usual suspects of winners and losers and marginal seats. And of course the Labour Government decided not to proceed with reform after commissioning a review. Forgive me if I seem uncharitable but, given their record, I don’t think they will do anything differently if they ever get into power.
And, of course, as far as Scotland is concerned, where land ownership and (lack of productive) use is a disgrace (The Poor Had No Lawyers, remember) the “Mugabe-style land grab” (I’ve just read Astor’s Spectator piece – priceless drivel) headlines from the mainstream propaganda organs and the bleatings of titled and not-titled owners of thousands of acres of “sporting” estates will rise to a deafening cacophony.
I think LVT has real value
As one of about 14 taxes
Taxes are like golf clubs: you need a whole bag of them
Not the way I play.
There are no good economic arguments against AGR (LVT). There is a lot of hysterical political propaganda against it, fuelled by the powerful, narrow, tax-exempt institutions and people who can of course fund the propaganda from the untaxed rents they receive.
The fact that Westminster has quite deliberately made it so difficult for Holyrood to use ANY tax powers that it has chosen to devolve, then uses the media and the overblown outrage of the Scottish Conservatives to attack anything the Scottish government attempts to do to raise revenue from the limited levers it can operate; has at last driven the Government to appoint the SLC to examine the matter. What on earth do the opponents expect? You might think Scottish Unionists might figure it out, but it seems (like so much that is common sense), to be quite beyond them.
Westminster cannot stop AGR for precisely the reason that makes AGR so effective, so fundamental and so difficult to avoid or evade; it is based on land; the foundation of any fixed community or state; or any government, local, regional or national. AGR works. It is not original, it has an established history and it is effective where it is used elsewhere in the world.
It fits four very sound criteria for any public charge or tax; it is fair, it is cheap to raise (against other charges/taxes), it is clear and simple; and to repeat – it is very, very difficult to avoid or evade; and that last point underscores its fairness, and its effectiveness. Its time has come, here and now.
It works
Of course they hate it
Presumably the difficult ..or clever bit of LVT or AGR is getting the relative values about right so they are perceived to be fair?
Something which neither ‘Poll Tax’ nor Council Tax were remotely concerned to achieve. That made their implementation relatively simple.
The difficult part is implementation: determining land values contra value of the developments on the land being one of the biggest. Another is, given the present mess of local taxation, that there will be, in some cases, massive changes in liabilities. Pensioners, or some of them, (guilty m’lud) are often characterised as “asset rich and cash poor” so how will us poor dears sitting in a cold, draughty, hard to heat 4 bed worth a million+ quid on prime real estate pay the tax – except when we are dead. And what about our poor offspring relying on a windfall when we shuffle off? And of course, a change of government can undo all the good work.
In her conclusion to an interesting paper on LVT in which she argues that the very advantages of such a tax will ensure it is never fully enacted (in Australia) Julie P Smith says: “Modern governments have proved unable to defend `the public interest’ against coalitions of private vested interests profiting from community-owned land value increments. It is not surprising, as Seligman commented a century ago, that,
`the constitutional history of England is to a large extent a history of the struggle of the people to gain control of the Treasury’ ” (https://www.researchgate.net/publication/4737415_Land_Value_Taxation_A_Critique_of_%27Tax_Reform_A_Rational_Solution%27)
“The difficult part is implementation”.
Of course it is; but that is only because the Byzantine network of vested interests, supported by professions skilled in defending the legal advantages lavishly given to the land interest over centuries; protects the major corporate and individual land-interest even from scrutiny (in which the humblest house-owner has been drafted in to protect vast, non-productive operations conceived solely to extract, preferential, tax-free rents from land). Land in Britain is a tax haven, accessible without the expense of using a haven.
The irony of the 1909 British Budget is that this Finance Bill changed the British constitution. The finance Bill was introduced by a laissez-faire, highly business-orientated Whig-Liberal Government, not a collection of wild land-grabbers. Critically the Bill had an innovative provision for the introduction of AGR, that passed the House of Commons, but failed to pass the House of Lords: because the Landed Interest in the Lords would not pass it. The ensuing political crisis led to the acceptance that the House of Lords would never again defeat a Finance Bill passed by the House of Commons: but the AGR measure which created the crisis was never passed; and never re-introduced. Now that is ‘irony’.
AGR should not be thought of as an additional tax, but rather as one of a select band of tax measures that could even reduce the tax burden of the ordinary, home-owning taxpayer. Why? Because AGR could be used to offset reductions in other “deadweight” taxes; taxes designed to inhibit econonomic activity (especially productive activity, rather than tax-protecting rents); the very things we want to encourage – entrepreneurship, investment and labour.