This article, or one very like it, appeared in The National newspaper in Scotland this morning:
I have worked on the role of tax in society for the last fifteen years. What has motivated my work on tax justice has been my belief that there is nothing that can better shape a society for the benefit of the people in a country than its tax system. This is why I accepted Common Weal's invitation to write a paper in their White Paper series on the tax system I think Scotland might need if it is to succeed as an independent state. Much of what I suggest might also be relevant under devolution.
Most importantly, I make the point in the White Paper that tax is not some technical issue to be left to the geeks in either the accounting or political worlds. Of course a tax system has to work and that requires some technical boffinry but what the system achieves is so much more important than that and requires widespread discussion.
This is why in my White Paper I suggest that after adopting its own currency, which is vital to the success of any country's tax system, Scotland would need to put in place systems of accountability for tax that are absent in the UK as a whole right now. That would require that it have a minister for tax, a select committee on tax in the parliament and what I call an Office for Tax Responsibility. This new office, which would be independent of Revenue Scotland, would report to the Parliament's tax committee on three vital issues. The first would be the effectiveness of the tax system. One of the best measures of that would be its crucial ability to beat tax cheats. Second, it would have to regularly appraise the effectiveness of all tax allowances and reliefs. A vast number of these plague the UK tax system at present, many of them wholly unaccountably and often to the main advantage of tax avoiders. Third, it would have to say if a Minister's stated tax objectives have worked, or not. If Scotland is to succeed as a country it cannot afford the sloppiness of the Westminster approach to tax.
Nor can Scotland afford the cosy relationship that big business and the wealthy have with the tax system across the UK at present. My recommendations reflect that fact. At present UK taxes on high incomes and anything related to wealth are low whilst the vast majority of tax reliefs are intended to make those already well off wealthier by subsidising their savings. That does not reflect the culture of Scotland. Nor does it reflect Scotland's need for revenue. In addition, Scotland cannot afford tax giveaways for those who do not need them. Instead the incentives and allowances that it gives should encourage the type of economic activity that will benefit everyone in Scotland.
What might this mean in practice? Scotland should start with a sensible, but higher rate of income tax. Then it would be necessary to close down most tax reliefs given to boost savings. After that it would be appropriate to tax capital gains as income whilst reform of inheritance tax and its replacement by a wealth tax is long overdue and now possible given the cooperation on tax data that's now beginning with tax havens. VAT would need to stay, but no one can deny that it is regressive and hits those on low pay hard. In that case a new progressive consumption tax that would be charged on flows through bank accounts, and so charge the wealthiest at the highest rates, would be needed to redress the balance. Such a tax might also discourage excessive consumption that field climate change. What is more, if designed properly this tax could even replace national insurance, which is a tax on employment when that is not what Scotland needs.
These suggestions are just hint at the reforms proposed in the White Paper. They are radical, but the fact is that Scotland now shares, and might one day inherit, the failing UK tax system. That system will not meet its needs. If Scotland is to be viable, whether devolved or independent, Scotland needs to work out how to develop its own tax system that meets its own needs. I do not pretend to know all the answers to the questions doing so will pose. But I hope this White Paper begins a useful debate.
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Congratulations on a more than worthwhile review.
Keep up the good work.
Hello Richard,
An interesting report. One thing I am thinking about, how would you define “excessive consumption”, I am interested to check I am consuming in a non-excessive manner. What qualifies as “excessive consumption”?
– what is an acceptable price for bags or shoes?
– cars? is a base model Audi ok? What about a higher spec Peugeot? How about Toyota?
– eating a lot of food? expensive restaurant with small portions? junk food that’s cheap with large portions?
– how much to spend on the kids for Christmas?
– perhaps an annual spend might be better, say 30% of median income?
– what price is ok for a holiday? is cheap to the Far East better than a more expensive lower carbon holiday to Europe?
It’s really hard to work out? Can you put some numbers on it?
Excess consumption could be defined in a number of ways
One is in carbon terms, where anything that contributes to global warming is excessive, and scales beyond that are clearly possible
Another is spending beyond a ratio of the norm considered necessary for sustainable living
You are being prescriptive. I respect choice. I also think constraint essential.
Do I have specific numbers? No, I don’t. But that does not mean that the phenomena cannot be identified and recognised as an issue.
And maybe others do have them: I have not looked.
I’m with Dr Crainshraw on this. Without some sort of ministry providing a proscriptive authority on what is acceptable and unacceptable spending on sustainable living, the system is open to abuse. Some sort of formal proscribed individual selective spend (Slor & Insalate study;1975) would be a first step, although how we would control ‘offshoring’ of unrestricted spending I’m not sure. Maybe bringing retailers into the HMRC reporting regime would be a first worthwhile step, so we would have a way of identifying those over-stepping the mark in over-providing.
I would also concur that some sort of carbon unitary net taxation system to deal with over-consumption would be very welcome.
Adam Smith studied at Glasgow. Perhaps we should call austerity cuts Glasgow Smiles, see Wikipedia.
Reading just now. Something for a fix in the report: on p 6-7 (or 9-10 of the PDF) you state a couple of times there are six reasons for taxation but have only given five, so far as I can see.
Loving the principles, though, basing the system on human rights is so correct I can’t give it enough credit.
I will have it checked
Credible and commendable contribution towards the growing material that hopefully will ensure that serious economics will be centre-place in the case for independence at a second Scottish Independence Referendum
I have just read the paper on the CommonWeal website and am hugely impressed – concise, yet thorough, innovative and with a thrust towards equality, both as a social imperative and in ensuring that those who are due to pay tax do in fact pay it.
I think people should read it as a set of principles (Westminster could do worse than take them on board) rather than a blue print – there are principles to be fleshed out in due course, but it provides an excellent foundation.
Thanks
Much appreciated
“One is in carbon terms, where anything that contributes to global warming is excessive” – so heating my home, using my car or going on holiday all would be banned under your benevolent system. Doesn’t sound much like ” I respect choice”. Sounds more like some sort of control freakery. I suspect that your ideal society would be a pretty joyless affair.
Not all carbon use net increases global warming
Excessive use does
And if you care about your planet how can you enjoy destroying it?
Thanks for the reply. Firstly climate change will not destroy the planet – but make human habitation more difficult. The planet will still be here long after we are gone.
I can’t help thinking that without a definition of excessive use , with some concrete figures then you are holding a population to ransom and the possibilty arises of corruption of those who decide what is excessive and what is not excessive. Furthermore I can’t see that monitoring peoples bank accounts as you suggest”In that case a new progressive consumption tax that would be charged on flows through bank accounts, and so charge the wealthiest at the highest rates,” is the way to a society that i would want to live in.
Basically what you are saying is Scotland can not afford to support itself if we kept or imported the current taxation system.
Therefore you are suggesting to increase taxes and everyone (most) will be paying more tax than the rest of the UK? I don’t genuinely beleive that is the will of the people of Scotland as you more or less claim above. That is an ideology pushed onto the people of Scotland from political groups with an agenda. I am not saying I personally oppose it but I don’t believe for a second Scots want to pay more taxes than their British counterparts. If that was the case then everyone in Scotland must have been thoroughly delighted when the Poll Tax was introduced to us Scots FIRST in the early 1990’s. Yes, I remember it well …..
Quite frankley it doesn’t matter how fiddle about with the tax system, it can be the prettiest looking tax system in the whole wide world but more taxes still means MORE TAX!
Do the Scots really want to be paying more tax just to hand over all their hard working scroobles to a bunch of corrupt Scottish government officials?
I don’t think so.
I am not arguing for more tax
I am arguing that the wealthy pay more
And I am arguing that those who owe pay
That is fundamentally different to more tax
I agree that the rich need to pay more tax and on your white paper you say that the lower paid should pay tax so they feel enfranchaised. I agree with this and I am sure the low paid in Glasgow will feel empowered by this.
But if the rich and poor are paying more tax and overall you are not advocating more tax does that mean the middle class will get tax cuts? That could be a vote winner fire sure.
Well done on publishing a White Paper on the subject. An official government document on this topic was long over due.
I did suggest lower rates
Richard
Your thrust of ensuring a tax culture less cosy than that of the UK, with a resultant end to tax breaks for the well-off is welcome. Puzzled, though, by your statement that
“a new progressive consumption tax that would be charged on flows through bank accounts”.
The cash economy is already a threat to tax equity and an enabler of crime – you would be fuelling the cash culture here.
Better to develop an annual tax on wealth held, rather than wealth consumed.
To ameliorate this, there could be an agreed formula to calculate an overall “reasonable expenditure” allowance for the year, based on the level of last year’s wealth. The wealthier the person, the smaller the percentage of reasonable expenditure. This would then be set against the current year’s wealth, without any intrusive and costly calculations of reasonableness.
Not strictly a taxation issue, but to fight the cash economy, I would also suggest legislation that no contract was enforceable, however formally and legally documented, unless the transaction had taken place electronically (i.e. through the bank, credit card, loan account or whatever) so there is a record and trail.
Chris W Drew
Note I suggest ways of restricting the cash economy
I think these will become more common over time
[…] I was writing the White Paper on Scottish Taxation for Common Weal that was  released yesterday, Robin McAlpine, that organisation’s […]
As a Scot I’m loving your input Richard; and as a tax practitioner I welcome radical thinking and fresh air to start to build a new system. Reduced personal allowance and progressive income tax bands; CGT exemption at £2k, excess at IT rates. Well that should spark some discussion and head-scratching – (and more clients said he selfishly, so long as there’s no MTD in the mix).
Bring it on, as someone once said. We need to start the debate, and with Robin McAlpine and Craig Dalzell at the table it’s going to be a good chat. At what point do we ask Derek Mackay to draw up a chair?
Good to have a start made on real issues to be faced in a revived Scotland.
Two issues occur to me that might be considered – first, what is to be defined as ‘income’ when we speak of Income Tax, and second, what place will taxes on property have in a new system?
On the first, I have a gut feeling that taxing the remuneration for honest physical or intellectual labour is immoral.
On the second, taxing the variation in land and immovable property values has quite a long history and since it is based on assets which cannot be exported or hidden has goood prospects for collection.
Not thoroughly thought through by me, but just ‘thoughts’.
This thing was never meant to be a final solution – it was all about provoking thoughts
Just a point of clarification please on the ‘consumption tax’
– I understand that the basis of this is to reduce consumption rather than raise additional tax? e.g. the tax on tobacco.
– Previously you’ve said (as I understand it) that savings are bad for the economy and spending is good for the economy
– If consumption is reduced then presumably savings will rise?
Have I understood this correctly, and (if I have) how do you explain the contradiction?
Thanks
I suspect there will be many more publicly provided services
Because we need them
I love the idea that taxation should be taught in school, hopefully extended to include the principles of social security. The Scottish Government plans to put human rights at the center of plans for welfare, and it was good to see you detail taxation principles in relation to human rights.
School would also be a good place to start teaching that “tax and spend” is back to front, and debunk the associated myths.
In a response on Twitter a few hours ago, you referred to “evidence of consultant engaged by Holyrood committee on GERS”. I would be interested to follow that up, but can’t find anything in the committee minutes etc. Can you say who that was and provide a link to the evidence?
I will look for it again
http://www.parliament.scot/S5_EconomyJobsFairWork/Inquiries/Economic_statistics_report.pdf
Thanks.