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Andrew Smith is a London based Scot. He has previously written about the NO campaign and The Scottish Sun. He grew up in Edinburgh and studied at Dundee, and you can read his blog at www.blackberrybanter.wordpress.com
With George Osborne’s budget on the horizon the usual array of briefings and whispering campaigns are in full swing. The horse-trading is no longer happening behind closed doors; in fact it’s being done very publicly. In the past weeks we have seen the usual suspects in the Tory party being joined by business leaders in urging the government to scrap the 50p rate and the media only too happy to help. The position of the Liberal Democrats is unclear, although recent interventions from Vince Cable and Nick Clegg would suggest that they are happy to reach a compromise.
Whether or not it happens this year it is looking likely that it will happen soon. This raises a host of different questions and scenarios about what the impact would be on Scotland.  We already know that the probable ‘replacement’ for the 50p tax rate is unlikely to affect Scotland without separate legislation, although scrapping the 50p tax rate would.
I am in favour of the 50p rate, if for no other reason than the fact it is worth £6bn to the economy. I am also in favour of a mansion tax for the reason that it will have no impact whatsoever on the great majority of the population and will also bring a lot of money into the economy.
Cutting corporation tax is a shared goal of governments in Scotland and Westminster and is something that will happen with or without independence. The wisdom of this is open to dispute, quite possibly the best line of Ed Miliband’s otherwise lacklustre speech to the Scottish Labour Spring Conference this year was when he said “you can’t have Scandinavian public services on Irish rates of corporation taxâ€, which was an effective way of underlining the contradiction that many see in the SNPs vision for Scotland.
Cutting corporation tax and freezing council tax are may be high profile policies but the SNP 2011 manifesto does not mention income tax once. There is a precedent for the discussion though, of course there was the notorious ‘penny for Scotland’ campaign, but more recently John Mason MSP raised the prospect of raising the top rate and was slapped down by the First Minister.
With all these factors and others being taken into consideration it’s not impossible to imagine that by Autumn 2014 the UK government will have removed the 50p rate, brought in a ‘mansion tax’ and removed tax for the first £10k. Would the SNP approach a referendum by pledging to raise taxes? It’s very unlikely. Would they go into the referendum without touching any of these changes? Where would that leave free tuition, free prescriptions and the council tax freeze?
If policies in Westminster have been moving into more classically neoliberal territory (NHS bill, education reforms and local services provision) then the Scottish parliament has been moving in a more traditionally centralised/ social democrat direction (free prescriptions, free care for elderly, extra tax on bad things and scrapping university fees) all of which are long standing commitments of successive Scottish governments that I fully support. Should the parliaments keep moving in their own directions then it makes the politics of independence seem more inevitable. However, Osborne, who is running the NO campaign for the Tories, will be gambling that if people see a Green Investment Bank in Edinburgh and extra money in their pockets from income tax cuts at both ends of the scale then they’ll think twice about voting for a split.
What do you think? I have looked through the website and can’t find anything about what they want from the forthcoming budget; at the time of writing (3pm on 10th March) the only comments from the press office are about introducing a fuel regulator. Would the Scottish Government oppose scrapping the 50p tax rate and all tax on incomes below 10k? By 2015 could Scotland England have two totally different tax policies? Would the social democrat and neo liberal policy split continue or would it be the starting gun for the race to the bottom?
#1 by Barbarian on March 12, 2012 - 9:22 am
I cannot see a “mansion tax” being brought in. The big problem with any tax based on property value is that it fails to take into consideration ability to pay.
With regards to income tax, I think there should be a flat rate applied across the board, but with strong safeguards in place to prevent any tax avoidance / evasion.
The SNP will be in a difficult position for salaries under £10k, since with their “living wage” policy of £7.20 ph, this equates to £12k annual salary.
I don’t think income tax will be a key issue for the referendum however. And I think both Swinney and Osborne recognise that. But, the SNP will have to provide detailed information on their tax proposals for an independent Scotland.
#2 by BaffieBox on March 12, 2012 - 10:24 am
And this is why political debate in this country has retreated to the trenches, unlikely to be seen again in the near future.
Why exactly should the SNP provide detailed information on any “their” proposals for an independent Scotland? I support independence but I also hope the SNP wont be the government of an independent Scotland so have no interest in what they have to say on the matter, and neither should anyone else. And it’s completely undemocratic and irresponsible to be pedalling the suggestion that what the SNP says now reflects what the electorate get in an independent Scotland.
The policies of an independent Scotland will be the policies implemented by the democratically elected government of the day. That may or may not be the SNP, and we need to stop this conflation of the SNP and independence. It is utterly misleading to debate what the SNP stand for in the context of the independence campaign and it needs to stop.
We will have tax powers: we should debate whether we want to use them independently of Westminster. End of.
#3 by Barbarian on March 12, 2012 - 5:09 pm
It is important, since they are the only main party who is advocating independence (the Greens don’t count).
A case of “everything will be ok, but just wait” won’t persuade too many to switch.
#4 by BaffieBox on March 12, 2012 - 11:15 pm
Im not quite sure where in my reply I suggested it was sufficient to patronise the electorate with “everything will be ok, but just wait.” I quite clearly stated that we should debate the principle of further divergence in power from Westminster.
I’m not quite sure the Greens, or the many Labour, Liberal Democrat and Tories who support independence, would really appreciate their views being dismissed as irrelevant. 😉
Im not quite sure where the NO campaign can go with this strategy when we reach the business end of the campaign and the YES campaign has a far greater reach than just the SNP. Are they hoping this wont happen? How will they attack policies of other parties, or their own parties, or even policies advocated by civic Scotland? It’s such a misguided way of campaigning and short-sighted interpretation of independence.
#5 by Iain Menzies on March 12, 2012 - 10:06 am
Oh Dear Lord!
The 50p rate DOES NOT bring £6bn into the economy. It brings £6bn into the Treasury. This is a rather important distinction. Ditto the Mansion tax, which wont bring anything into the economy.
On the 50p rate, it has to go, at some point, doesnt have to be now, but it HAS TO GO. Why? Cos its only real effect (since dropping tax rates gives greater long term tax revenues) is to put a huge sign above Britain saying COME HERE AND WE WILL TAX THE CRAP OUT OF YOU! Seriously, how can you justify taking half (in reality more than half once you factor in national insurance) of a persons earnings away from them!?
The mansion tax is just nut, never mind that it doesn’t take account of ability to pay but it will apply to very few properties. I would be surprised if there were more than a couple of hundred in Scotland that it applied to.
As for the SNP position, well after the last GERS figures they started going on about how the average Scot would be £500 better off (technically £500 less in debt but hey ho) so i cant see them running about saying we will have 1970’s levels of taxation.
TBH i dont see the 50p rate going before the election, tax rates at the top end were higher for most of the Thatcher years, so i dont see this nice neo-Heath we have in Number 10 getting shot of that anytime soon.
I would be amazed if a mansion tax was brought in. But if it is, then i would expect that it (along with the 50p rate) would be for the chop in the next tory manifesto.
#6 by Daniel J on March 12, 2012 - 11:26 am
“since dropping tax rates gives greater long term tax revenues”
That’s a pretty big assertion, one which I think you’ll find hard to back up.
#7 by Iain Menzies on March 12, 2012 - 11:53 am
Higher taxes retard economic growth…..you drop the rates….the economy grows faster than it otherwise would….and then your taxing a larger ‘pie’.
that was pretty easy.
#8 by Aidan on March 12, 2012 - 3:02 pm
That’s true if your tax rate is north of 80%, below that tax is not a significant hinderance to growth and displays an elasticity of approximately 1. See the paper summarised here for more. http://krugman.blogs.nytimes.com/2011/11/22/taxing-job-creators/
#9 by Iain Menzies on March 12, 2012 - 4:05 pm
I would LOVE to see that summary (no really i would) but for some reason i cant get the page to load.
That being said….it is Krugman…..http://blogs.telegraph.co.uk/finance/jeremywarner/100008311/will-someone-please-shut-krugman-up/
Anyway you have half a point, personal income taxes don’t have as much of an effect in retarding economic growth as other taxes, but its still better if they are lower. And anyway if the cut off point is 80%, would you suggest a top rate of 79%?
#10 by Aidan on March 12, 2012 - 5:26 pm
Actually the paper isn’t him (also, well done for resorting to ad hom this early on, i’m impressed): it’s http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.25.4.165 by Diamond and Saez.
Also, the point is that *any* tax – corporation, income etc. has a Laffer curve but the peak of that curve occurs far further along the tax scale than your argument requires. It is not “better if they are lower” unless you view low taxes as an inherently good thing.
#11 by Iain Menzies on March 12, 2012 - 7:55 pm
but i do view lower taxes as an inherently good thing.
indeed, in a historical context, all mainstream uk party’s view lower taxes as a good thing….for a certain value of lower…..
#12 by Aidan on March 13, 2012 - 11:24 am
That’s a different argument from the one you were originally making though, and implies a commitment to correspondingly low levels of public services.
#13 by Allan on March 12, 2012 - 9:10 pm
Ah, but why should the 50% tax rate go (a tax on wealthy people) when nothing is said about the 20% VAT rate (a tax that affects lower paid people a lot more than wealthier people)? Indeed, why shouldn’t there be an extention of the 50% rate to above £100,000?
BTW, the top rate was set at 40% in the 1988 budget, but was substantially higher in the late 70’s in the days of “squeeze them till the pips squeek”
#14 by Iain Menzies on March 13, 2012 - 10:59 am
But untill the ’88 budget it was about 60%
#15 by Indy on March 12, 2012 - 10:22 am
I can’t see a mansion tax being brought in because it would surely have to mean a revalutation. In fact revaluations are long overdue in both Scotland and England but nobody wants one.
I know people are saying you could just revalue the top bands but I’m not sure it is that simple.
#16 by Richard Thomas on March 12, 2012 - 10:52 am
I like the idea of a mansion tax as it is the thin end of a wedge for a land value tax. I might question the commonly accepted sob stories about the unfairness of such a tax to indigent pensioners living in mansions as generalising from a potentially very small particular but I accept that the Tories are unlikely to swallow any tax that might develop in the way i would wish.
#17 by Indy on March 12, 2012 - 11:22 am
But how many pensioners actually live in mansions?
What is a “mansion” anyway?
We all know what a mansion looks like and it would be easy to walk through some areas of Glasgow and Edinburgh and say goodness look at all these big villas, must be some rich folk around here.
But how many of these big houses are still occupied by single households, far less indigent pensioners? I would suggest that many if not most of them are now sub-divided into flats and the owners/tenants just pay council tax on their share of the house, which is not going to be anywhere near £2million, so they would not be liable for the mansion tax.
In order to establish how many households actually live in properties which are worth over £2million you would have to do a revaluation. And supposing it ends up as Iain suggests and there are actually only a couple of hundred properties in Scotland worth over 2 million? We could easily end up with the revaluation costing more than would be raised in tax.
#18 by Gryff on March 15, 2012 - 4:30 pm
We need a revaluation anyway, your council band seems to depend more on when your house or flat was built and less on its value, even if we didn’t aim to raise any more money through a revaluation, it would be good to apply council tax more fairly.
#19 by Jeff on March 12, 2012 - 11:38 am
For me, the gap could be plugged by savings on Defence spending. Scotland could be as much as £2bn better off a year if it adopted Scandinavian levels of defence spending.
Also, we’ve seen this week in the GERS report that Scotland pays more money to the UK than it takes back so that’s another post-independence saving that will more than offset a mansion tax which, I reckon, won’t actually raise that much cash (though I am strongly in favour of it).
It’s probably this side of the referendum that the SNP has its problems though as silence on these big decisions can’t continue if it wants to be taken seriously. I reckon the SNP would be keen, but not vociferously so, for the 50p tax rate to remain and will stay ambivalent about a mansion tax.
For as long John Swinney can balance his budgets and still pull eye-catching policies like 600hours free nursery care and £7.20 living wage out of the bag, I don’t think the SNP will be too concerned about these taxing questions.
#20 by Iain Menzies on March 12, 2012 - 12:10 pm
depends what you mean by scandinavian levels of defence spending…..Norway is not that far behind (0.2%GDP) the UK on defence spending. Again it comes back to what you want the armed forces to do.
On GERS, the big question about scottish fiscal policy after indy is how much Debt Scotland could sustain. I read somewhere (cant remember where) that its typical for smaller countries to maintain a balanced budget to maintain fiscal credibility.
There is a real question as to how long an indy scotland could maintain current spending by borrowing.
#21 by andrewgraemesmith on March 12, 2012 - 12:50 pm
I suppose the big point is that for current spending to continue the SNP would need to reverse the tax cut, or bring in a new mechanism like a ‘mansion tax’. I ‘m assuming that a tax cut from Westminster would have an impact on the budget in Scotland?
I would support keeping 50p tax all over Britain (and post independence) but if it is scrapped can you see either side going into the referendum with the policy of bringing it back or actually varying income tax rates in the short term?
#22 by Jeff on March 12, 2012 - 1:14 pm
Yes, true, though I suppose any dropping of the 50p tax cut would highlight the shortcomings of Scotland not having full fiscal autonomy and any money raised (and spent) by the mansion tax could carry Barnet consequentials. It’s not necessarily the case that a mansion tax would need to be brought in in Scotland if spending north of the border is decided as a result of spending south of the border (rather than which taxes are in operation). I don’t for sure that that is the case though, and the Scotland Act will complicate things further.
I think if any party is going to go into a referendum with a tax-raising policy, a 50% on earnings over £150k isn’t the worst one in the world to go with. I’d be disappointed if the SNP discarded it while still claiming to be a progressive beacon to the world.
#23 by Indy on March 12, 2012 - 5:04 pm
I think you can pretty much guarantee that the SNP won’t be adopting a policy of dropping the 50p tax rate any time soon for the following reasons,
1) The money is needed.
2) The mansion tax would be unlikely to raise enough in Scotland to compensate for it – very high value properties are concentrated in London and the south east. You can still buy an actual castle in Scotland for less than 2 million if you are so inclined.
3) It would be a v ote loser, not a vote winner. On quite a large scale.
#24 by Andrew Smith on March 12, 2012 - 6:08 pm
I agree that the SNP wouldnt drop it, but do you think that if the UK government were to drop it then the SNP would campaign on bringing it back?
Agreed that the money is needed and it would probably be a vote winner, but it would probably damage their links to big business and potential rich donors for the YES campaign. Having said that i’m not a member, what do you think?
#25 by Indy on March 12, 2012 - 10:50 pm
The SNP isn’t going to campaign on any UK taxation measure. Assuming independence we will inherit the tax system as is but frankly I think we woll have much more to think about than simply what the top rate is. Both the SNP and Greens and probably quite a big chunk of Labour people support a fully integrated tax and benefit system, skirting around the whole Citizens Income idea. Then there is the whole balance between local and national taxation to be looked at, how much of its own revenue will local government raise, by what mechanisms – property taxes, land value tax, local income tax? I think post-independence this will be the major debate. On the other hand if we are not independent it will all be academic cos we won’t decide.
#26 by Jeff on March 12, 2012 - 7:58 pm
But the question is, would the SNP re-implement it and/or campaign on re-implementing it if the coalition dropped it.
#27 by CassiusClaymore on March 12, 2012 - 3:30 pm
Er……rather embarrassing to have to point this out, but taxes do not inject money into the economy.
In fact, they remove money from the economy and recycle it through the notoriously inefficient civil service machine who spend it wastefully and, usually, pointlessly. A fraction of what was taken out makes it back into the ‘real’ economy.
Higher taxes retard economic activity and act as a brake on growth. If you want to boost growth, cut taxes. This has been proven worldwide on a repeated basis. Personally I’d cut government spending by 10% – any private sector business person will tell you that you can always find a 10% cost or efficiency saving somewhere in a large organisation – and use it for fund a cut in taxes. Not just the 50p rate, but also the 40p rate. That could come down to 35p if the government were run correctly.
At the moment, we have Scandanavian-level taxes and US-level services i.e. the worst of both worlds. It’s a joke.
CC
#28 by Douglas McLellan on March 12, 2012 - 6:46 pm
I agree with CC but we have to remember in the UK taxes serve an additional purpose aside from funding government expenditure which is to link envy with a nominal penalty which is applied on those who are better off than others.
If a government or society really wanted to redistribute wealth then there are many options to do so. But they are never carried out. The 50p rate takes in a small amount because its only PAYE and those earning above £150k from just a PAYE salary are very few. Those from whom it could actually take in a considerable sum actually spend over £150k in accountants fees alone to avoid taxes.
#29 by Iain Menzies on March 12, 2012 - 7:56 pm
well said that man
#30 by Allan on March 12, 2012 - 9:15 pm
“If you want to boost growth, cut taxes.”
Unless of course all of those bankers bonuses have been dissappearing into bank accounts all around the globe, in which case they won’t be re-appearing in the economy anytime soon.
So CC, where would your “efficiency savings” come from?
#31 by Indy on March 12, 2012 - 10:55 pm
I think there is quite credible evidence that cutting business taxes boosts growth. On the other hand there is no evidence that cutting income taxes for rich people boosts growth. The reason for that is surely obvious, maybe so obvious that economists overlook it. Rich people can’t actually spend all their money, they have too much of it. That is why it is reasonable to tax them at 50 per cent in my view. They won’t actually miss the money because they don’t need it.
No, if there is going to be a tax cut it should be for lower rate taxpayers not high rate taxpayers.
#32 by Aidan on March 13, 2012 - 10:21 am
Could you please provide some of this credible evidence? Everything i’m aware of shows little to no effect.
#33 by CassiusClaymore on March 13, 2012 - 9:30 am
Allan
That’s a matter of political judgment. Personally I’d start by admitting that the UK is no longer a world power and cutting all the expenditure associated with our current delusions of grandeur – nukes, illegal wars, IMF contributions, foreign aid etc. I’d also tax wealth rather than income, which incentivises the strivers and punishes those who sit on wealth rather than productively recycle it into the economy.
After that I’d move on to removing some layers of government. I’m a separatist (reclaiming the word there) but in a UK context I’d abolish Vince Cable’s and Andrew Mitchell’s departments (BIS and DFID) neither of which do anything particularly useful, and lay off everyone who works there. I’d also identify every single charity which is not actually a charity but is in fact a lobby group, and cut their funding to zero.
In a Scottish context I’d merge a whole load of local authorities -it’s absurd that we have 32 – and have a recruitment freeze, allowing natural wastage to take its course in reducing headcount.
That would be a pretty good start. In my opinion of course!
CC
#34 by Chris on March 13, 2012 - 10:00 am
We could always have a lower mansion tax threshold to reflect the difference in property levels. Say £500k.
Incidentally as the mansion tax is a tax mostly on the South of England (like the 50% tax rate and 3% stamp duty), but the proceeds are spent across the UK and in Scotland through Barnett then there would be a loss to Scotland under full fiscal autonomy or independence.
#35 by CassiusClaymore on March 13, 2012 - 1:35 pm
#29 Indy – for the vast majority of self-employed people, income taxes are business taxes. Sole traders, partnerships etc. do not pay corporation tax. Income tax is not solely a personal tax.