In this morning's video, I argue that the UK's devolved governments in Scotland, Wales and Northern Ireland need proper powers to tax, or they will always be governing with one arm tied behind their backs. Without such powers, a devolved government is a sham, and so too is the so-called United Kingdom.
The audio version is here:
The transcript is:
The devolved governments of the UK need to have devolved taxation powers to match their ability to make decisions about the services that they supply.
It's an absurd situation that it is claimed in the UK that Scotland, Wales, and Northern Ireland all have devolved governments, and yet they have tiny taxing powers in their own rights.
They also have, in effect, almost no borrowing powers at all.
In other words, they are given the task of governing the devolved countries of the UK without having any of the economic instruments of power available to them to achieve the policy outcomes that they wish. It's as if the UK government believes you can manage an economy without having a fiscal policy and without having a monetary policy, and that is complete nonsense. You cannot, as a matter of fact, achieve that goal.
All you can do is become the localised manager of the devolved budget sent to you by Westminster, over which you have no control whatsoever, and which may not be appropriate to the needs of your country.
For example, Scotland has a larger public sector than is the case for England. That is because there are a significant number of activities undertaken in Scotland that are not undertaken in the same way in England, and because, frankly, the public sector plays a more important role in the lives of Scottish people than it does in England. So, the devolved settlement reflects the power structures in England, not the power structures in Scotland, and does not reflect the Scot and does not reflect the cost that Scotland incurs, and therefore imbalances arise.
The same is true of Wales. Wales clearly has a poorer population than England. It does therefore have greater social need than does England per head of population. But the devolved settlement doesn't reflect that fact. The power to correct for this is not there either.
And Northern Ireland has always been a case which is utterly different from the rest of the UK.
So, we have this perverse situation of a pretense of devolved government, but no real devolved economic power.
To achieve real economic power in Scotland, Wales and Northern Ireland, you either give those countries independence, which London is very reluctant to do because these are the last vestiges of empire that it has any significant control over. Or there has to be significant devolution of taxing power.
Let's use Scotland as an example here. Scotland has got more taxing powers overall than have either Wales or Northern Ireland because it has some control over its income tax rates. But the degree of control is quite small.
It raises an additional £1.5bn as a consequence of the additional income tax rates on earnings from work alone that it can impose in Scotland. Otherwise, its devolved taxation powers come down pretty much to the ability to impose additional special taxes, for example environmental taxes, or on local taxation and other such charges, landfill taxes and various other forms of environmental charge.
That is not enough to influence the overall outcome of the spending required for Scotland. It is simply insufficient to devolve this level of power when Scotland very clearly does not want austerity even if the rest of the UK does. And there are some enormous gaps in the taxing powers of Scotland which make the whole system that has been devolved to it quite ludicrous.
For example, if a person runs their business as a self-employed trader, they're subject to income tax, and therefore Scottish tax rates apply to them. But if they then decide to incorporate their business and run it as a company, corporation tax applies, and those rates are set by England. Scotland has then lost control. That makes no sense at all. There needs to be a Scottish corporation tax system.
The same disparity is very clear with regard to investment income. Whilst Scotland has control of income tax rates on income from work, it has no control over income tax rates on income from investment and, therefore, it cannot tackle the problems of inequality that are very particular to Scotland and are serious and need to be addressed.
It also has no control over capital gains tax or inheritance tax, meaning that wealth inequality in Scotland is reinforced by England, and Scotland can do nothing about it even though it would clearly want to.
These differences totally undermine the fiscal credibility of the devolved tax system to Scotland, meaning that, in effect, it is full of loopholes that prevent anybody really enforcing that devolved system.
But worse than that, it undermines the credibility of government, because the opposition parties, who are all Unionist in Scotland, say the SNP government, which is nationalist, is not managing the economy properly, when it has no chance of managing the economy properly because the Unionist parties have denied it the chance to do so by denying taxing powers to Scotland that it needs to tackle the problems that Scotland has.
Now there are plenty of other examples of these problems. For example, the taxation of oil and the taxation of energy because Scotland might well want to have distinctly different policies on these issues from England because it has different priorities, particularly with regard to the use of oil and renewable energy because both are fundamental to the management of its economy in a way that they are not as yet to England.
It may also want a policy on the export of water because, at some time in the future, that's going to be a major Scottish export.
Again, whisky taxation is fundamental to Scotland, but it's controlled by England.
So what we're talking about here is a complete mess up. The governments of Scotland, Wales and Northern Ireland are not really governments in the sense that they have control of their economic policies. They do have control over significant sums of money, tens of billions of pounds or more. But the reality is that they actually don't have the means to balance their books within the scope that a normal government would by changing taxation.
And that means that these countries do not have the governments they deserve, or which it is pretended that they have. And that undermines democracy in each of those places in a way that is deeply prejudicial, not only to the well-being of the people in those countries but also to the credibility of the UK as a whole.
It's time this was sorted.
It's time we had proper taxation systems that were devolved to the governments of each of these countries.
It's time London let go.
And it's time that we actually were mature enough to recognise that the needs in the different devolved countries of the UK are quite different from those of England, who at the moment is still trying to keep the whip hand, quite inappropriately.
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Yesterday an explantation of how tax and borrowing do not fund government spending – they destroy and provide a safe assets for the non-government sector instead.
“MMT explains how governments fund their expenditure by creating new money through their central banks without the need for prior taxation or borrowing.”
Today, a call for devolved governments to have greater taxations powers to give them greater power of their budgets (IIRC)
“Scotland, Wales, and Northern Ireland—lack adequate taxation powers, limiting their governance and undermining the legitimacy of the United Kingdom. Despite having some control over budgeting, they cannot effectively address local needs without the ability to set taxes and manage fiscal policy.”
So is yesterday’s post was correct, is not the answer that devolved nations would need to ability to create money ie monetary sovereignty since THAT, not tax nor borrowing, is what determines the ability to control spending.
Please help this simple sole understand the conflicting messages I receive about the role of tax here. Thanks you, Claire.
Devolved governmnts are not money creators so they do not meet the criyeria where MMT applies.
The explanation is as simple as that.
Because they cannot create miney in their own central bank devolvedd governments have to access tax funds to spend first.
Both posts are entirely correct – the situations are different.
Independence would change that.
@Claire
In the USA individual states cannot create money but they do have taxing power.
This “federal” system works just fine compared to that of the UK.
The states receive well over a trillion dollars from the Federal government though.
It is said that net contributors, on the whole, tend to be blue states and the net recipients red states.
Claire effectively makes my point. Nobody understands how Government works, or that devolution wasn’t designed to be an effective instrument of government for the devolved, but to fix a big political problem for British Government, without conceding anything worthwhile, and to undermine the activities of devolved Government if it looks as if it may succeed. It has worked far better for Westminster that even Westminster could dream, and the SNP are only beginning to realises they have been savagely mugged.
Devolved? Reserved? The electors couldn’t pass a basic test on the matter; but they still pass judgement on the Scottish government, without understanding how the system (doesn’t) work.
I like the idea – but any thoughts on using devolved tax powers to compete within the union for investment?
Or am I succumbing to a myth?
Richard,
Funnily enough I am writing a presentation about ‘The Future’ for Housing Benefit and Council Tax Support, I may have to lie down in a darkened room soon due to becoming over excited.
What strikes me though is that Land and Property Tax is an obvious area for reform, however only Wales has done anything much and thats a rather Vanilla Council Tax MK2.
Given the particular issue Scotland has with large ‘sporting’ estates I would have thought that land Tax was an obvious starting point – and NOT using the Council Tax model, personally I prefer something based on the Northern Irish Rating System for ‘domestic’ property.
I would also suggest looking at tax’s where you can identify where the transaction takes place and clearly both taxes on energy extraction or generation and fuel duty meets these criteria.
I think Scotland could mix the two
“It’s time we had proper taxation systems that were devolved to the governments of each of these countries.
It’s time London let go.”
NO thanks. NO to devolution and NO to London control even if that control was looser (not likely).
Scotland should be independent. We should be a normal country. We are not children to be controlled by the corrupt nutjobs, of whatever stripe, which inhabit Whitehall and Westminster.
England would never allow such a situation to continue if Scotland was the one stealing its wealth whether oil, gas, renewables, whisky, water or anything else. Scotland, a country of about 5.5 million, is subsidising England and always has done even before oil and gas was discovered.
Why the hell should Scotland put up with this Union of Equals(!) Hopefully, that will end sooner rather than later.
I want independence
But better devolved powers make sense too – independence is not going to happen yet
I suspect Scotland rejects Starmer and his genocide-loving, austerity-loving policies. Those that voted for Labour were sold a pup.
More and more people here are sick of mad English governments so who can tell when independence will happen. Happen it will, though.
Mr Bruce, you are searching for a Scottish voter, that in sufficient numbers under the FPTP system (that you aren’t going to change, and is being worked deliberately to reduce turnout in elections, because that suits best the Single Transferable Party), is going to deliver independence anytime soon. It isn’t going to happen. There is a tipping point, but we are not close enough to it; and only the painful process of activists a) understanding the detail of devolved powers, what is needed in further tax powers to exert some real leverage on changing outcomes; and b) educating the public on what powers to argue for further critical devolution. So much time has been wasted, chasing moonbeams. You have been stitched up by Westminster. Get over it. Do something more effective.
The SNP does a terrible job on explaining this key issue of additional tax and borrowing powers; and control over energy – which they should be shouting about; because they appear too distracted or frightened of their own supporters to address this adequately. Richard “gets it”.
The SNP (with a few exceptions) really does not ‘get it’.
That is its problem.
Thank you, I get that bit.
And yet, MMT tells us that taxation destroys money. Thats sounds correct, money goes from deposits in commercial banks (money) to the government where it is destroyed. Money is reduced.
How does that mechanism change with devolution. Either tax destroys money or it doesn’t, if I understand what MMTers believe.
Thanks for explaining,
I would explain, but you have now displayed classic trolling characteristics in your posting, so it’s game over for you here.
The destruction of tax money creates the fiscal space for the government to spend without exceeding productive capacity and driving inflation.
So if the Scottish government wish to spend more they have to constrain spending in the non-government sector, which is done through taxation.
Apologies to Richard if this is an incorrect analysis, I’m just a student here.
That only really works at central government level – although there will be some element of it at devolved level
Then start a second YouTube channel: Coffee & Tea Time with Richard the Account!
LOL! LOL!
It has been considered……
I would actually like my wife to have one as well…
I’ve extended my name as I notice recently another simply calling themselves ‘Hazel’ arrived – and I’m not her!
THANK YOU Richard for bothering to write that clear explanation. Now, can we have a few hundred thousand leaflets printed to hand out in the streets? This could be a tool in our toolbox to educate the resistant ones. As you have noted in other posts we battle against a totally hostile press and media here. Sorry to say to you, a contributor, that I and others have stopped reading the National. The message seems to have got diluted these past years. It doesn’t seem to send the clear message any more. I’ve kept all the very first week of publication, so different.
Thanks
I hate to tell you that there is remarkably little interest in this
That is the slowest moving video here for some time
@Richard
The topic is not transferable and is specific to Scotland. Scotland is in a very unique situation.
Videos on health care, public services, public utilities, state vs. private education, MMT, FPTP, water buffalos, The Grenfell Fire, inquires, immigration, Green Deals, transportation, hereditary peers & House of Lords, BREXIT and the EU, taxation of all types…etc…etc.. are topics which are transferable to any Western Country.
Again, Scotland is in a very unique situation.
Plus, Wales and Northern Ireland
@Richard
Will one independence or complete devolution scheme work for Scotland, Wales, NI or will each independence or complete devolution scheme need to be tailored for the specific country?
They could be similar
But independence will always be indepenence
I missed the one on water buffalos. It mist be a Reserved matter.
@John S Warren
If Richard has not done a video on water buffalo then he needs to.
A video on birds would work very well too.
Maybe…..
It would most definitely upset the YouTube algorithm though
That’s a shame as I am simply trying to reconcile this post with
“Taxes for revenue are obsolete” – from Bill Mitchell and
“There is then no plus in the gov’t account from tax – it cancels what the gov’t owes the BoE and so is cancelled” – from you.
Onwards in confusion. Sorry a genuine question was so tough to answer.
Claire.
I have written a lot about Bill Mitchell
I am not alone amongst those who understand MMT at a high even who think that a lot of what he writes does not beenfit its cause
Bit, I am saying in my video that tax for revenue at central government is not necessary, but devolved government is not central government
That’s it
Thank you so far, but still trying to reconcile what seems to be unreconcilable since I still remember this
https://www.taxresearch.org.uk/Blog/2020/08/28/scotlands-problem-is-not-that-its-taxes-are-too-low-but-that-its-spending-is-just-not-big-enough/
To my simply mind, that headline and the 2020 post was much closer to what MMT is saying. But then again, step away from the descriptive elements of MMT – which are sound – to the prescriptive part as all sorts of contradictions and loose ends show up.
Since you are refusing to accept the point I have made to you several times there really is no point in engaging
My suspicion that you are trolling looks increasingly correct
Sorry I follow your material with interest and remember the 2020 post well. This bit resonated with me when you said
“So George should not be starting his questions with debate on whether Scotland can, in the first instance, raise more tax because that is not what is needed”
I also agree with the dynamics of what happens when government tax people – money is destroyed (as MMT states).
So at the moment Im asking for help with why it’s different because it’s a devolved government. That’s the bit I do not understand (appreciate what that means for ability to create money) as can’t see how that changes the mechanism of tax as described. That’s why what you said in 2020 seems more in tune with MMT
Scotland needs more spending first IMO.
They cannot create currency
They do not have a central bank
They are large local councils
That is it
I keep saying it
There is nothing else to say
@Claire,
Richard is arguing here, that the devolved polities need more control of extant revenue raising mechanisms. He is not arguing for each of them to have separate fiat currencies. Any discussion of MMT is, therefore, moot- on this topic, because the devolved governments cannot create money.
Agreed in all of that and hence why in 2020 Richard argued against starting the argument with tax. Instead he focused correctly IMO on spending.
So we agree that the devolved government has no ability to create money. It also has no independent central bank. But it still has the ability to take money out of circulation and destroy it via tax. So net, net what happens to the growth in the economy if and when it chooses to raise taxes (and assuming that private sector banks are not increasing their money creation)?
It does not, in effect, take money out of circulation when collectng taxes – because it did not create the money
They settle a liability to central government instead that mostly funds devolved government
They can then cancel funds and take them out of circulation
And I am afraid your last point does not make sense to me
You are clearly (and in the vernacular, Claire) “at it”. You are wasting Richard’s time. The Scottish Government is a devolved, not sovereign Government. It can use tax effectively as money; only central government can cancel money. Either you know that already, or you still don’t because you are a troll, or you really are as stupid as you protest that you are. Whichever way you look at it, I no longer care what you think. If Richard doesn’t cut you off now; I can promise you I will not reply to any more Claire, “I’m and innocent, just give me a long explanation I can then waste more of you time claiming I do not understand”.
Claire is not getting another go
As you say, she is a time waster
“So what we’re talking about here is a complete mess up”.
I beg to differ, Richard. It isn’t a “mess up”. It is clinically and coldly deliberate. The taxation devolved was not chosen in order to better govern Scotland, but to make it as difficult to do anything significant as possible; Westminster never had any intention to give Holyrood the power to show how badly it is governed in Westminster. The ‘national’ taxes devolved were chosen specifically, and solely to give the Scottish Government an almost impossible task to vary from England, save in trivial terms.
Critically, income tax rates were devolved solely because they are ‘headline’ rates, and politically difficult to move without severe blowback. The personal allowances were deliberatley not devolved; and so it goes on; all to ensure Holyrood can make no real difference, but will transfer the blame for government failure from Westminster to Holyrood. It has worked.
The electors do not understand the byzantine differences between devolved and reserved powers (even some MPs do not understand – or care). The real test for Westminster is that the scam they set has worked, comprehensively. Scotland is hamstrung, and whoever is in power in Holyrood is blamed by voters. This is perfect from Westminster’s perspective.
This is Britain. Grenfell, Blood Scandal, Post Office Scandal; you really think they are going to deliver the opportunity to a devolved government to demonstrate how badly Britain is governed, and how inadequate Parliament is in serving the interests of voters in Scotland.
I left out the ‘Fixed Budget’ issue. Westminster sets Budgets that are never met. There is no Fixed Budget in Westminster. There can’t be. The government is in control of the currency, and monetary policy (the independence of the BoE is nominal; it can be overruled). The government must always pay its bills. The Budget is not a ceiling. The Government can and does break the Budget ceiling, and just operates an automatic overdraft from the Bank it owns, and always can pay its bills. It has never failed to do so, since 1672 (most historians understand virtually nothing about monetary policy, and have never realised that the Stuart dynasty’s 1672 mistake was a signal of irrecoverable error). The Scottish government, whatever its limitations, has had to meet its Budget for seventeen years, whatever Westminster throws at it, or however badly management the economy and Government. The Scottish Government has virtually no borrowing powers. This is insane. It is also insane to dare to compare the predicaments of Westminster and Holyrood (but so deeply ignorant, careless, lazy and foolish is Scottish economic and political commentary, that they never, ever ask the serious questions). Scottish politics is conducted in a haze of bias, ignorance, and gross stupidity. I have just listened to two hours of sustained drivel on Scottish economics and politics on BBC Scotland’s Sunday news programme: utterly clueless waffle, for two solid hours.
Let me simplify my point. Holyrood has been designed to fail, if it tries to do better for Scotland and its people than is convenient to Westminster. Westminster cannot afford any other out come; because they know that independence would automatically follow any other outcome. So they designed the settlement to ensure Scotland is trapped, and carries the responsibility to achieve anything significant.
This is classic British government management. The same principle applies to regulation to fail. Ensure regulation fails, and the regulator is weak and under-resourced, and fails. Grenfell is simply an egregious example of the process. It is quite deliberate. The gravestones of failed British regulators is both endless in length, and legendary in the scale of the disaster. Only Westminster ever benefits. Holyrood is just the next on the slate. The Conservatives wanted to overrule Holyrood, having spent fourteen years undermining it; and Labour, with GB Energy just continues the process, calculatedly to bypass Holyrood. Scotland has all the energy resources, so Scotland cannot be given control over its own resources; that will never, ever do. So just create whatever rules you like with devolved and reserved powers, and play Scotland for fools; because they are folls to put up with it; but they do.
Agreed
Yes, this is correct in every way.
It’s a perfect description of the Westminster we, in Scotland, know and don’t love.
I’ve written a lot on Scotland’s situation within the union. In my view, it’s not helpful to refer to the Scottish “Government” since this creates expectations that it has the powers of a real government and can solve problems when it doesn’t and can’t. Devolution was designed to keep Scotland under Westminster’s control.
https://dearscotland.substack.com/p/scotlands-devolution-pain
https://dearscotland.substack.com/p/what-brian-wilson-misses?utm_source=publication-search
Agreed
JSW @ 2.42pm:
“You have been stitched up by Westminster. Get over it. Do something more effective”.
Thanks for the patronising advice. My time’s my own and I will do with it what I choose.
As for being stitched up, that happened to Scotland some 300+ years ago.
I was blunt, but not patronising. The arguments of pro-independence supporters are barking up the wrong tree. Voters in Scotland have begun voting for Labour (last election). That is real. The Union is politically ruthless. Fairness has nothing to do with it. It will not stop. The time is long overdue when independence supporters play smarter. What you are doing isn’t working.
JSW @ 9.59am
You don’t bloody know what I’m doing. Stop your assumptions.
As for the arguments of Scottish Independence supporters – we want to be a normal country like other normal countries. Not too much to ask, most people would think.
The problem lies with the country next door. You know, the blood-suckers and wealth stealers.
I am merely following the broad line of approach you have appeared to take in your own comments on this Blog. I have read them over time, and interpreted what I took to be your own theme. I didn’t realise blunt disagreement was illegitimate.
The problem is ourselves. And I think your comment is illustrative. You are pointing across the border and arguing furiously with me. QED: Scotland in microcosm.
I admit I did not see anything untoward in John’s comments.
Agreeing to differ might be good here.
@ John S Warren
“… Voters in Scotland have begun voting for Labour (last election). That is real. ”
That was a Westminster Election.
I’ll allow you may have concerns if that trend is repeated in Holyrood elections.
Personally I’m not concerned especially given Keir Starmer’s propensity for making Labour unelectable.
Why the fuss and furore?
Scotland’s government is just an overblown English county council.
Hmmmm……..
In 1999 everybody looked at the Holyrood Parliament, and nobody gave any thought to what the detail of the financial settlement actually meant, still less intended. Westminster presented a financial structure for Scotland that was intended to be the labour of Sisyphus. Given the structure of financing, no Scottish government could realistically improve the lot of the Scottish people discernibly better than is delivered in England, whatever it does. Most of the real economic power is Reserved, not devolved; including the golden goose – energy (or whisky duty for that matter, which is oddly hard to quantify, but may raise around £6Bn). In fact, given a fixed budget the Scottish Government has managed some limited improvements, but it can only be very limited; and in adversity it is almost impossible. Scotland has only small borrowing power and cannot breach its Fixed Budget. In a cost of living crisis that is an insurmountable burden. The British Government does not operate a Fixed Budget. It can always pay its Bills, and always will.
Scotland only has control over relatively low revenue raising taxes, council tax (a local authority tax) and one part only of income tax (the headline and difficult to move tax rate, but not allowances).
The list of Scottish taxes are Land and Building Transactions Tax, Landfill Tax, Non-Domestic Rates. But not much of Income Tax, VAT, NI, Alcohol Duties, Energy and petrol taxes, Corporation Tax, and on and on.
There is what Scotland should be fighting over. Independence is won on Taxation; I have the precedent.
Much to agree with
Am I correct in inferring on the basis of Richard’s post that Scotland, Wales and Northern Ireland have a smaller scope of taxation authority than each of the fifty U.S. states have?
Yes
Considerably less
Scotland can vary small parts of income tax, but not allowances
They can all vary some local taxation
They cannot alter almost any other taxes
“I didn’t realise blunt disagreement was illegitimate.” That isn’t what is was though, was it?
This is not blunt disagreement “Get over it. Do something more effective” That is you bullying me – a complete stranger. I objected to being ‘spoken’ to like that and that should have been an end to it since, as I said, my time is my own to do with what I please and nothing at all to do with you.
Now let that be an end to it.
I think you are both forthright in your opinions – and that’s fine.
Can we move on?
Happy to do so, Richard, Mr Bruce. I am sure we are now boring everyone.