Our email inbox this week has been packed with people sending in their Labour MP’s or MSP’s responses to our questions about the party’s proposals for the devolution of taxation (aka “Devo Nano”) in the event of a No vote.
With the exception of the very first reply – an arrogant, rude, dismissive effort from Tom Harris – until this evening all of them have been the exact same text except for minor variations in the introductory sentences, with some members choosing to insert little digs at this site but others being more polite to their constituents.
But tonight everything changed.
We hadn’t previously heard of Tom Clarke CBE, MP for Coatbridge Chryston and Bellshill, but interestingly the letter he sent to an alert Wings reader was completely different to the others. Steel yourselves while we walk through it, because something goes KABOOM! near the end.
“Subject: RE: Labour’s Devolution Commission proposals
Date: Thu, 3 Apr 2014 16:32:16 +0000
Thank you for your email and I will try to answer your concerns about the Scottish Labour Party’s proposals for the devolution of income tax to the Scottish Parliament. There is a growing consensus that powers which are best placed within the Scottish Parliament should be devolved to it whilst those best placed at a UK level remain in the Houses of Parliament.”
Um, for certain values of “growing”, we suppose. Specifically, negative ones.
“In order to create a more financially accountable Parliament the Labour Party will give the Scottish Parliament the power to alter the rate of income tax by 15 pence.”
This is only sort-of true, as we’ll find out.
“Given that we believe Scotland is better within the United Kingdom we do not seek to compete with different parts of the UK. If we consider the argument that the Scottish Parliament should have the power to lower income tax below the rate set in the rest of the UK and if we applied that proposal to Scotland it would be found to be unhelpful for the Scots from the central belt to the highlands and islands.”
So, fine for the Borders, then?
“Economically Glasgow would be better off if it had the power to lower its income tax rate to a level below Edinburgh but it would either result in a weakened Edinburgh economy or a reciprocal reduction in Edinburgh which would result in less tax revenue for both Edinburgh and Glasgow. This race to the bottom would benefit no one in the long term.
That same principle applies within the United Kingdom, if Scotland could lower income tax below the level set by the UK then we would be undercutting the economy of the North of England.
It is a perfectly reasonable position in that economic competition promotes efficiency and provides economic opportunities but the interpretation of this argument and that position is dependent upon an individual’s view on Scottish independence.”
We’re pretty sure it doesn’t. We’re pretty sure that an individual’s view on tax competition between neighbouring countries or regions is essentially a left-right or socialist/neoliberal ideological debate which is applicable the world over, rather than being in any way Scotland-specific.
“Having the power to raise income tax by 15 pence on the UK base rate would allow a Scottish Government to invest the extra funds which would result from that into Scotland’s hospitals, schools and infrastructure.”
And here’s the meat.
Right then, let’s knuckle down and see if we can understand this once and for all. In so far as we can make any sense of Labour’s plans at all, the “UK base rate” would remain at 20p. The new Scottish base rate would be 5p, with the other 15p then having to be raised by the Scottish Government. That of course doesn’t create any EXTRA money, it just restores what the revenue was before.
(Actually slightly less, because of the increased cost of bureaucracy.)
Labour’s “Devo Nano” paper isn’t very expansive about its proposals, stating only that “We will [widen] the variation in income tax in the Scotland Act by half from 10p to 15p. This will mean that three-quarters of basic rate income tax in Scotland will be under the control of the Scottish Parliament.”
That doesn’t help us much in working out how much the rate could be raised to produce extra money for spending. But, a letter sent out last week by Richard Baker, and subsequently by scores of other Labour MSPs and MPs, asserts that it WOULD also be within Holyrood’s power to increase the basic rate: “it would be possible to use the same power to increase tax, above the UK level, across all bands.”
There’s no mention in either Mr Baker’s letter or the “Devo Nano” report of there being a limit of 15p on the size of that increase. Mr Clarke’s assumption to the contrary appears to rest on the widespread belief that the Scotland Act 2012 provides for the Scottish rate to be up to 10p higher than the UK’s.
But we can’t find a single word in the Act which actually stipulates that limitation.
It’s remarkably difficult to find a clear summary of the ramifications of the Scotland Act 2012 in this respect. We’ve scoured the Act itself and it’s incredibly vague on what the Scottish Parliament’s powers will actually be with regard to taxation when the Act is implemented in 2015/16, saying only “The Scottish Parliament may by resolution set the Scottish rate for the purpose of calculating the rates of income tax to be paid by Scottish taxpayers”, with no mention anywhere of an upper limit on that rate.
The “Devo Nano” report, meanwhile, also says that Labour would introduce NEW “Scottish Progressive Rates” which would enable the upper bands ALONE to be raised even further. Again, no limit is specified. So as far as we can gather, under the proposals Scottish tax rates could be basically anything. Scotland could have a basic rate of 55p and a top rate of 95p, or even 120p. Which would, of course, be insane:
“This would de-incentivise the wealthiest Scots from residing in Scotland however this is the tension within every country, higher taxation results in more Government spending but it also increases pressure on the wealthiest who, in a globalised and interconnected world, can decide to move somewhere else or it can result in recruitment issues for Scottish corporations.
The Scottish Government would be able to keep the Scottish income tax rate in line with the UK and the outcome of that rate would be faced by the entire UK rather than the only Scotland.
I believe that many in Scotland would welcome a higher income tax rate upon the highest earners in order to pay for public services and that is why it is right that this power is devolved. However I also believe that many would find that having a higher income tax rate could result in Scotland becoming less competitive than the UK economy. This question would be answered in an election by the people of Scotland.”
Labour’s stated policy is to keep tax rates uniform across the entire UK. So we’re still not entirely sure, that being the case, what the point (from Labour’s point of view) of devolving powers they won’t be using is.
“In terms of Westminster setting the base rate of tax this is a result of an election by the entire people of the United Kingdom of which Scotland is a part. Based upon current polling the majority of Scots are not in favour of independence so they do not view the elected Government of the United Kingdom as dictating.
Some may wish an election may have had a different outcome but the consensus amongst the majority of Scots is that the UK Parliament is the legitimate Parliament of the United Kingdom, of which Scotland is a part, and that the Scottish Parliament is the legitimate Parliament of Scotland, both share power which has the support of the majority of Scots.”
Hare Declares Victory Over Tortoise Midway Through Race.
“Having this system ensures that the UK cannot undercut the Scottish economy and it ensures that Scotland cannot undercut the economy of the UK. It is a position based upon shared challenges and mutual benefit.
Given that the UK Government has the power to lower the income tax rate for the United Kingdom which occurs during a budget statement. Under this procedure given that the base rate of income tax would be lower the Scottish Parliament would have to alter their income tax rate to incorporate this changes base rate of tax.”
What if the UK government cut the basic rate to 14p? Would Scotland start with a rate of -1p? For every £500 you earned, the government would actually have to GIVE you an extra fiver? If we were David Cameron we’d do that just for the laughs.
“The Scottish Parliament could still maintain a higher rate of income tax but this could only be higher by 15 pence so a correction would have to take place.”
So are we to assume, even though it doesn’t say so in the “Devo Nano” paper, that Labour WILL be applying an upper limit on the variability of the Scottish rate? That would seem like a REDUCTION in power compared to the Scotland Act 2012, which doesn’t appear to set any upper limit.
“This would ensure that the Scottish Government would not become locked into a permanent disadvantage compared to the UK since the income tax rate would not be defined in the legislation granting this power.
In terms of the basic rate and the higher rates, all income tax bands would be variable by plus 15 pence, theoretically the Scottish Parliament could vote to increase each band of income tax by 15 pence beyond the UK level or leave each income tax rate the same as the UK rate.”
Sounds that way. We’re going to add some emphasis in the next bit.
“However, I must point out that given these plans outline the Labour Party’s thinking on this issue and our commitment to a stronger Scottish Parliament the actual implementation planning would be conducted in more detail at a later date. A likely solution will be that the income tax bands will be individually variable by 15 pence above the UK base rates but not below them.“
Woah there, cowpoke! Richard Baker told us a mere few days ago that “The Scottish Parliament could […] choose to lower income tax, below the UK level, across all income tax bands.” You appear to be telling us that that’s cobblers.
“I hope this answers your concerns about our proposals”
Yeah, not so much, poppet.
“and I would hope you accept that the Scottish Labour Party would not advocate a policy which would permanently place Scotland at an economic disadvantage towards the rest of the UK and that the implementation plans for our ambitious devolution strategy will be published in more detail at a later date.”
Hang on. You don’t want to put Scotland at a disadvantage by having higher rates than the rest of the UK, but you’ve also just told us that you don’t want it to be able to have LOWER rates than the rest of the UK.
So what you’re proposing is that… Scotland should continue to have exactly the same tax rates as the rest of the UK? And that’s what you’re selling us as a radical increase in powers for Holyrood? Right.
Tom Clarke MP”
Blimey. So what can we make out of all this? Cling on, readers, we’re nearly done.
So far as we can pick our way through a tangled web of vagueness, assumption and outright contradiction, Labour proposes to drastically REDUCE the flexibility available to the Scottish Parliament over taxation, both in theory and in practice.
– The imminent Scotland Act 2012 allows for Scotland to undercut UK rates by up to 10p and for Scottish rates to be increased apparently without limit. If we discount rates over 100p, that effectively gives Holyrood a theoretical maximum range of 65p within which it can alter the basic rate of income tax.
(The lowest it can make the basic rate is 10p. But it can’t move just one band, so the basic rate always has to be 25p below the top rate, so if the top rate was 100p the basic rate would be 75p. And 75 minus 10 is 65, giving us our range.)
– But under Labour’s plans, the ability to undercut on any rate (basic or higher) would be entirely removed and a new 15p limit would be placed on the ability to increase the basic rate. That slashes the effective range of variance available to Holyrood for the basic rate from 65p down to 15p.
– Only the higher rates could still be increased freely, under Labour’s new Scottish Progressive Rates, but they couldn’t undercut the UK rate. Scotland would have the power to disadvantage itself, but not to advantage itself.
– Except that the higher rates COULD undercut the UK higher rates, so long as the Scottish basic rate was cut by the same amount (if you believe Richard Baker and the numerous other MPs/MSPs who sent out the same letter).
– Except NONE of the rates are allowed to undercut the UK under any circumstances (if you believe Johann Lamont and Tom Clarke), so in fact they couldn’t.
– All of this is moot anyway, because it requires Labour to be in government, and if Labour is in government it’s already pledged not to use the powers at all, ie to keep Scotland’s tax rates the same as the UK’s. So there’ll be all the costs of a whole new layer of tax-collection bureaucracy, but for no purpose.
– And finally, in an attempt to stop anyone noticing any of this, Labour won’t actually reveal its specific plans for enacting the proposals until AFTER the referendum.
Phew! We’re glad that’s all cleared up! Anyone for cake?