Tag Archives: taxation

“A Just Scotland”?

Last month, just after discussing “caring capitalism“, I spent the day at an event organised by the STUC to consult on A Just Scotland.

The campaign describes this as a “more equal and socially just Scotland”. This is undeniably a worthy aim but it doesn’t actually say what it means by “just”: equal income, wealth, oropportunity? How would we know if we had got there – and can we ever get there?

I’ll admit to being right outside my comfort zone: whilst I had known that it was organised by the STUC, I hadn’t expected it to be quite so old-world (party) political. As an open meeting, covering such a broad, important topic, I had expected a wide range of views and stances. As it is, I was way to the right of just about everyone else there, and there was a somewhat lazy, unquestionning attitude from other attendees (not necessarily the organisers or those speaking from the platform) that everyone there was a socialist of one form or another.

For me, the objective of “a just Scotland” is way beyond politics. Though prompted by the desire to explore what Scotland could be like following a constitutional settlement on independence (or “devo max” or “devo plus” or – whatever!), and the STUC wanting to help shape political thinking, seeking a just Scotland is also way beyond independence: it ought to be a valid political goal whatever the outcome.

As well as old-school politics, the meeting also felt old-school: there were pre-prepared papers from the STUC, and then points from the floor – but little real discussion: the way the meeting and workshops were managed meant the audience could make their points but not really engage in dialogue with each other. I think a freer discussion might have prompted more debate – personally I’d have gone for an “unconference” format to fully explore the issues and come up with actions for engagement (though you would have expected me to say that). I’m a bit worried that by raising the topic and setting a political agenda: it is too easy to then leave it to politicians to deliver; if that had been a good idea, the STUC wouldn’t have needed to have a series of discussions to set the agenda, because politicians would have had social justice as an objective long ago. (I don’t think this is something one can just lay at the door of the coalition – nor even the 1980s, Thatcherite Conservative party: measured by the Gini coefficient, income inequality increased during the last Labour governments.)

Peter Kelly of Poverty Alliance ran through some frankly disturbing statistics on the impact of poverty, particularly on children. He said 20% of children live in low income households. (The Scottish Government’s figures show 15% of the population in “relative poverty”. Interesting, they also show the Gini coefficient for Scotland to be lower than Great Britain as a whole – meaning Scotland has a little less income inequality. I couldn’t find figures for child poverty on the Scottish Government’s site, despite a link saying they’d be there, but the End Child Poverty campaign shows 35% of families with children in Glasgow are on benefits, and whilst the average elsewhere in Scotland comes out at about 18%, the large population of Glasgow might give 20% across the nation. Of course, defining poverty is one of the ongoing difficulties.)

His main point was that these statistics are not fixed: they are the result of choices politicians – and their voters – make. Low pay has persisted for many years; the gap in education between those in poverty and those not lingers for years, with a youth unemployment rate of 12% pre-dating the recession. He saw these as issues of power and democracy – and addressing them would cut across reserved and devolved constitutional powers.

There were several comments from the floor. Most powerfully, I thought, was Andy Myles from Scottish Environment Link, an umbrella body for environmental NGOs, who said that climate change was more important than constitutional change: that is, in making decisions about Scotland, we should ask what it is we want: Scottish Environment Link have set out what they think [pdf], and they are hard to argue with.

Angus Reid read out his “Call For A Constitution” – and again, it is hard to argue with his goals. (This could be an issue: I agree we should have less poverty, more equality, better care for the environment, and everything… I want it all – but there are bound to be some conflicts: do we just leave it to the politicians to decide the priorities?)

These things are of course the nuts and bolts of politics. Someone else pointed out that the political choice people make in Scotland, whilst similar to north England, Wales and Northern Ireland, differ from those of south England, where much of the nation’s wealth is now concentrated.

There were two workshop sessions and several that sounded interesting, so I picked the two that were most closely attuned to my interests. First up was a discussion on the economy and fair taxation. There wasn’t actually much discussion about taxation – somewhat surprising given how much tax has been in the news recently – and a lot about the economy.

Economic arguments seem to be key in the debate about independence – and of course there are rarely clear answers in economics. STUC is calling for changes to the economic model to make it more just – moving to fair, progressive taxation and a distribution of wealth from the rich to the needy; but I couldn’t help thinking that much of the STUC’s thinking is rooted deeply in the old economic model of 20th century industrial orthodoxy – such as seeking to maximise employment. (The STUC’s job is of course to act for the benefit of its members – those employed, largely in the public sector.) As those present discussed way to reintroduce growth to the Scottish economy, I was once again struck by the thought that if radical change is needed, it won’t be obtained by working within the same old economic models which have clearly failed to deliver over the past fifty years.

In a world dominated by global markets, the options for Scotland – independent or otherwise – are limited. Someone pointed out that there is sufficient wealth in the world, but it is unequally distributed. Of course, in global terms, even the poor of Scotland are probably comparatively well off.

The Scottish government does have some limited tax raising powers: it could impose an additional 3% of income tax (the Scottish government held a consultation on local tax raising powers a few years ago – but using such powers might be political suicide), and it controls council tax (held static for several years – a potentially undemocratic, regressive move) and business rates. The Scotland Act 2012 will give the Scottish government more tax raising powers from 2015, although according to Jon Swinney of the SNP, this will only account for 15% of all taxes raised in Scotland. (The rest will be covered by VAT, corporation tax, national insurance and so on.)

There was much discussion of the the nature of currency post independence. There seem to be three options:

  • maintain sterling
  • join the euro
  • establish Scottish “punt”

The last of these seems unfeasible since it would have no value in global markets: transactions with other economies would probably be denominated in pounds, euros or dollars. But if an independent Scotland had sterling or the euro, it would have no control over money supply and interest rates (we have seen how well this has worked for the smaller economies of the euro over the last five years or so). Scotland would thus not control its economy – and not really be independent at all. (For me, this is the killer argument against independence. Economically, it just won’t work.)

The second workshop I attended was on education, participation and democracy. (The briefing paper is apparently missing from the website.) Education is already wholly devolved, and the Scottish education system has always been separate (and many would claim better) than its English counterpart. The Scottish Curriculum for Excellence (on which I worked several years ago) is designed to deliver learning outcomes appropriate for each learner, for ages from 3 to 18 years (ie pre-school to leaving secondary education) and across all abilities. The curriculum is built around “four capacities” – creating

  • successful learners
  • confident individuals
  • responsible citizens
  • effective contributors

All very laudable, and clearly forming the foundations for a just society, I’d say.

In the discussion, education was suggested as the bedrock of democratic participation, and this is certainly encompassed in the curriculum capacity of “responsible citizens”. But about of quarter of Scots have problems with literacy or numeracy (compared with 16% for England – I’m not sure if the same things are being measured, but it is a guide; for the UK as a whole, about 20% are functionally illiterate). That is quite a big difference, and the Scottish Government has long had a strategy to improve adult literacy. (It also questions Scotland’s apparently superior education system.)

Comparatively low levels of literacy may also hamper economic development – and certainly reduce the options for employment.

It was said that poverty reduces participation in democracy, with a lower turnout in elections in poorer regions than rich. The Electoral Reform Society found a link between social exclusion and political engagement [pdf] – with “near universal association between political participation [electoral and political] and socio-economic status” (p20).

The election for the Scottish Parliament of 2011 had a 50% turnout whilst the turnout in Scottish seats in the UK Parliamentary election of 2010 was 64% – quite a significant difference. The difference is consistent, too: the 2007 Scottish Parliamentary election had a turnout of 52% [pdf], the Scottish turnout in the 2005 general election was 61%. I believed devolution was meant to increase engagement, but apparently this hasn’t happened.

After the workshops, there was a debate between Ewan Hunter, representing the “Yes” campagin, and Kezia Dugdale MSP representing “Better Together” (as the “No” campaign has styled itself). Frankly, Dugdale knocked Hunter’s contribution into a cocked hat – but then she is a professional politician. Hunter failed to address the topic of day – that of a just Scotland – focussing instead on the arguments in favour of independence. He highlighted one of the major problems with the Yes campaign – that voters don’t actually know what they will be voting for: the details can’t be worked out until the vote has decided. Sterling or Euro? Inside the EU or not? In NATO or not? Let alone what the financial settlement with Westminster would be – I’m sure HM Treasury would be more than pleased to offload RBS and HBoS and their billions of pounds of debt.

Dugdale did address the issue of a just Scotland, highlighting the SNP had rejected proposals for a “living wage” (which, lets face it, even Tory London mayor Boris Johnson has signed up to – albeit on a voluntary basis). She proposed to devolve power down to give communities more say (the Scottish government consulted on the Community Empowerment and Renewal Bill during the summer). My only caveat to Dugdale’s contribution was that her party, Labour, were dominant in the Scottish parliament for two terms, and failed to address the issues of poverty and inequality raised by A Just Scotland.

It was an interesting, challenging day; at a fundamental level, I agree with the objectives of the campaign for A Just Scotland, and believe that they are bigger than political parties and the old arguments between right and left; and indeed bigger than the constitutional settlement. Whatever the outcome of the referendum, these issues should be addressed: how to do that is a much bigger question.

Tax: a comedy of errors…?

I have written a bit about taxation before, so it probably won’t surprise you that I have found the ongoing “controversy” about Jimmy Carr’s tax affairs and the political pronouncements by both Labour and Tories (not least David Cameron) pretty irritating.

Let me put my cards on the table. I avoid paying tax! Most people do, I would expect. I am quite happy to whatever tax is due, but frankly I would not want to pay more than I need to, and I take steps to reduce the amount I pay.

All, I hasten to add, perfectly legally. And, whilst the methods I use are a little more mainstream than Mr Carr’s (for instance, using my annual ISA allowance, paying into a personal pension plan, and, in the past, using a limited company to manage my freelance work), they are frankly no different. The government has decided to allow me to save tax in a variety of ways, and I chose to do so; similarly, Mr Carr took advantage of sophisticated but government-sanctioned ways to reduce his tax bill. Indeed, since it is fair to assume that every UK taxpayer at the very least makes the most of their personal allowance (currently £8105 pa) – if only because it is taken into account automatically by HMRC), so to a small extent we all avoid tax.

I might not think it is “fair” that Carr pays so little tax, but it seems odd to berate him for doing what others do, just because he is a public figure. (There may be a bit of hypocrisy if his stage act focuses on others wrongdoing – I am not a fan, and I don’t know his act – but that certainly isn’t “a moral issue”.)

In fact, the most hypocritical person here seems to be David Cameron. He is in the perfect position to change the tax legislation – to simplify the UK tax code, for instance, and remove loopholes that result lawyers and accountants thinking up whizzy (if legal) schemes to reduce their clients’ tax bills.

Instead, he and his chancellor reduced the top rate of tax payable by the highly paid in the last budget. Now, I’d say that IS a moral issue.

A Taxing Debate

Tax is much in the news. The recent budget gave us pastygate, the granny grab and tax reductions – for the highest paid. (It also reduced the tax paid by the lower paid, but that isn’t such a great headline and didn’t seem to feature much in the media coverage.) The London mayoral elections contained allegations against Ken Livingstone (apparently unfounded regarding illegality but possibly guilty of hypocrisy), leading to a “confrontation” in a lift and all mayoral candidates publishing their personal tax details. Tax has been one of the main issues in the Republican nomination race.

Either matching the mood of the zeitgeist – or jumping on the bandwagon – the RSA organised a panel discussion to talk about tax – “Should Tax Be More Taxing?“. There were three speakers from different parts of the spectrum, and the focus was very much on corporate – rather than personal – taxes, and multinational corporations at that, a somewhat more specialised area (although also much in the news).

Mike Lewis from ActionAid‘s main point was that large corporations avoiding tax can be significant and material sums for developing nations. Large, multinational organisations can organise their work to minimise the tax they have to pay: if directors believe that it is their duty to maximise shareholder value, it would be their duty to do so. Avoiding (rather than evading) tax is legal – but multinational corporations can afford legions of tax lawyers to help them stretch the law. Lewis proposed international regulations to reduce corporate tax tourism, but clearly different countries should be able to tax businesses what they want (or need)?

Philip Booth of the Institute of Economic Affairs took the opposite extreme, suggesting that the only way to stop corporate tax avoidance is to stop corporate tax: not as mad as it sounds, since the shareholders and other owners of large organisations have to declare income and pay taxes as individuals. However, Mike Lewis highlighted two problems with this

  1. the owners may live in different jurisdiction from where the work is done or the profits made
  2. the owners can hide their ownership (and taxes!) in tax havens and behind nominee accounts – so this transfers the problem

Richard Murphy of the Tax Justice Network spoke most convincingly, pointing out that despite tax being central to politics in western democracies, there was little informed debate about tax itself – candidates may bicker about the details of tax rates or exemptions, but not about tax per se. Murphy calculates that tax evasion costs the UK £70bn per year. (HMRC estimates that evasion and avoidance together account for £35bn lost to the government [PDF] – see Table 1.1.) If Murphy is right, that’s about 10% of the total tax take of approximately £600bn (the figures are for different years and may not be wholly comparable, hence the approximation…!): that’s a significant amount and could reduce the government’s austerity programme by a lot. Corporate tax avoidance is put at estimated to be £12bn a year – still an awful lot of money (but also legal, if not morally right).

Murphy believes that one solution is to make corporate tax more transparent – by getting corporations to disclose the tax they pay and where in their annual accounts – the hope being that customers and investors will exercise pressure to bring corporations into line. What won’t help is the government cutting the resources available to investigate tax avoidance and evasion – HMRC is losing 13,000 staff as a result of government cuts.

The UK tax system is clearly a mess. And it gets messier every year: chancellors can’t help tinkering (Gordon Brown was one of the worst) and the tax legislation apparently runs to 11,000 pages – too much for anyone to remember! The complexity leads to lots exceptions: politicians like to push their pet projects, the aim being to promote particular ends – way back in the early 1990s when I had to learn about tax for some exams, I remember their being an exemption relating to companies who launched satellites, applicable I think to only a handful of companies and presumably designed to promote high tech industries. The tax system is full of anomalies.

The Institute of Fiscal Studies published the Mirrlees Review, recommending wholesale reform of the UK tax system. Amongst their recommendations (taken from the press release [PDF] – I am not sufficiently masochistic to read the whole thing!) are

  • remove the distinction between national insurance and income tax, and the complexities it creates (unlikely to happen because pensioners are subject to IT but not NI – though tweeking age-related allowances [and hence adding more complication] may be a way around this)
  • drastic reform of the benefits system (and the perverse incentives it can produce – thoughthe government is hoping to tackle those anyway)
  • extend VAT (not a vote winner, especially after pastygate!)
  • reform property taxes
  • align tax on employment, self-employment and corporate taxes (this would remove the incentive for individuals to use companies to account for their income, as Ken Livingstone and many others do)
  • equalise the tax treatment of corporate debt and equity (this might stop companies over-leveraging, possibly one of the many causes of the financial crisis)

Others call for more radical changes – a flat tax rate, for instance, or moving to a consumption tax (neither would work politically, being highly regressive, despite possibly making economic sense).

Clearly something radical should be done, to simplify the tax system, reduce opportunities for avoidance and promote an equitable society. But agreeing what – maybe even agreeing what the objectives if taxation are – seems very unlikely.