Some readers didn’t fully grasp the meaning of our post yesterday evening which shed light on the full tangled horror of Scottish Labour’s proposals for “extended” devolution if Scotland votes No this September. We don’t entirely blame them, because trying to make sense of both the proposals and the godawful leaden writing in which the party’s document explained them is no easy task.
So we’re going to see if we can simplify it all a bit.
POINT 1 – TAX COMPETITION IS VERY MUCH POSSIBLE
Johann Lamont insisted that above all, any changes to the devolution settlement must not enable there to be tax competition between Scotland and other parts of the UK, for the twin reasons that it would cause a “race to the bottom” which would damage both economies, and that it would damage the Union, amounting to “independence by the back door”.
However, the arrangement proposed by Labour actually does nothing whatsoever to prevent competition. In theory it greatly INCREASES the possibilities for competition, because it allows Scottish income tax to be reduced across the board by 15p in the pound, or increased without limit.
Labour want to hide this fact. When we studied the letter sent out by Richard Baker, Siobhan McMahon and Iain Gray, we noticed something interesting: the main part of it was in fact more or less cut-and-pasted directly from the “Devo Nano” document, but with the addition of a couple of revealing lines.
Here’s paragraph 15 of the full report:
“- Labour will give the Scottish Parliament the power to raise around £2 billion more in revenues beyond the recent Scotland Act, so that it raises about 40 per cent of its budget from its own resources.
– We will do this by widening 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. “
And here’s an extract from the letter to constituents:
“- Labour would therefore give the Scottish Parliament the power to raise around £2 billion more in revenues beyond the recent Scotland Act.
– We will do this by widening the variation in income tax in the Scotland Act by half from 10p up to 15p.
– This will mean that three-quarters of basic rate income tax in Scotland will be under the control of the Scottish Parliament.
– The Scottish Parliament could, using the powers of the Scotland Act 2012, and our extension to their scope, choose to lower income tax, below the UK level, across all income tax bands
– Equally, it would be possible to use the same power to increase tax, above the UK level, across all bands.”
Those first three clauses appear four times in the “Devo Nano” report, but the last two aren’t found anywhere, because they reveal that the document’s constant talk of avoiding tax competition on grand moral grounds, which Johann Lamont emphasised at great length on various TV shows last week, is a complete sham.
POINT 2 – TAXATION IS A TOOTHLESS TIGER
But the power to vary Scottish income tax has existed since 1999 without ever being used. Why has it never been used? Partly because it would be politically suicidal – nobody votes for parties who say they’re going to increase their taxes – and partly precisely because it would cause tax competition.
If the basic rate in Scotland was 5p higher than England’s, people would flock across the border in search of work, because 5% is currently the equivalent of getting about five years’ worth of pay rises all at once. It’d be a disaster for Scotland (because we’d lose lots of tax revenue), but also terrible for the north of England, which would face an influx of labour into an already strained economy.
Unemployment would soar, the benefits bill would soar (even working people often need tax credits and housing benefit nowadays), there’d be social tension as people resented the flood of economic migrants, and general unpleasantness all round.
That’s why the 3p power was never used, and why exactly the same – only more so – would apply at 15p. Labour is in public railing against tax competition, while at the same time providing the very mechanism by which it could be ramped up to absolutely catastrophic levels.
It hopes to get away with this on the grounds that increasing the Scottish Variable Rate from 3p to 15p is a bit like your local Kwik Fit having a “buy one get five free” deal on aeroplane tyres – it sounds good but ultimately it means nothing, because you can’t use aeroplane tyres on your Honda Civic, and ultimately you’ll just have wasted your money for no purpose.
The “Devo Nano” paper promises “flexibility” over taxation – the words “flexibility” or “flexible” appear 32 times – but it’s the flexibility of being able to wander freely around your padded cell while your arms are strapped up in a straitjacket. You do technically have some, but it’s the kind that’s no use to you whatsoever.
POINT 3 – WHO’S THAT LURKING IN THE SHADOWS?
Why it’s Kindly Old Professor Barnett, the man we least suspected!
If changing the SVR is so pointless, why bother doing it? Well, firstly because it sounds like an increase of powers, even though it really isn’t. But secondly, because it gets Labour out of a tricky pickle.
Pretty much everyone in England (and indeed Wales) hates the Barnett Formula. They feel like they’re getting a raw deal because Scotland gets higher public spending per head than most of the rest of the UK, and they think that’s what pays for free university tuition, prescriptions, personal care for the elderly and so on.
Now, WE know that’s rubbish, and that Scotland’s higher Barnett spending doesn’t even compensate for the huge amounts of oil revenue we send south every year, let alone mean we’re getting extra money. But the facts don’t matter – English people FEEL like they’re getting ripped off by Barnett, so they want rid of it.
That suits Labour fine, because they take Scottish votes in general elections for granted, which means there’s no point spending money in Scotland to win them. If they could divert that money to England to help capture the handful of marginal swing seats that decide UK governments, they’d be thrilled.
The Devo Nano document pledges to keep Barnett, but only in a drastically reduced form. Shifting responsibility for three-quarters of Scottish income tax collection to Holyrood means that Barnett can be slashed, while still ensuring 100% of Scottish oil money (and the future bounty of renewables) goes to the Treasury.
“The block grant from the UK Government to Scotland will then be reduced to reflect the fiscal impact of the devolution of these tax-raising powers.” (paragraph 340)
As we’ve been saying for months, the No parties’ devolution plans are about more responsibilities, not more powers. Scotland would be left worse off, because the new Scottish HMRC couldn’t raise any more money but would have significant extra costs, causing a net shortfall.
And of course, Labour tell us endlessly what their overarching goal is – to “pool and share resources” so that they can be redistributed away from richer areas of the UK (like Scotland) and into poorer ones (ie England outside the South East). So it’d be a foolish person who put their faith in either Labour or the Tories not to take advantage of the recalculation of the Barnett Formula to bring about that end.
POINT 4 – POWERS FOR OUR PURPOSE
The one area where the Devo Nano proposals are startlingly, almost brutally clear and open is in admitting that their purpose is to subvert the Scottish democratic process, by ensuring that no matter who’s in power, they’ll only be able to enact Labour policy.
“We have however no wish to see Scotland become a tax haven and so have serious reservations about a devolved tax power which would enable an administration like the present SNP Government to indulge in destructive tax competition with the rest of the UK by cutting only the higher rates of tax and hoping to attract rich people to claim Scottish residence.
While this might conceivably increase Scottish tax income, it would be at the expense of public services in the rest of the UK. That is inconsistent with the sharing union to which we want Scotland to continue to belong. Scotland should not try to become another Monaco, attracting tax exiles and living off the backs of poorer people elsewhere in the UK.” (paragraph 358)
“Under our proposals, the Scottish Parliament would have the power to adjust the progressivity of the tax system, in circumstances such as those which have happened recently under a Conservative Chancellor, where the top tax rate has been reduced from 50p to 45p.
Ed Balls has announced that a Labour Government will restore the top tax rate to 50p. The Scottish Parliament, under our proposals, would have the power to achieve the same aims if a UK Government like the present one failed to do so.
This would mean a power to set the new Scottish Progressive Rates of Income Tax applying in the higher bands only, which would be able to secure 40p and 50p rates in the event that the United Kingdom Government proceeded unfairly to reduce them.
This system will ensure also that the Scottish Parliament does not have the power to create damaging tax competition within the United Kingdom by arbitrarily reducing the higher tax rates in the hope of attracting well-off taxpayers from England.” (paragraph 362)
It’s not even subtle. Scotland will not be able to compete advantageously with England, but England will be able to compete advantageously with Scotland, because the rest of the UK will be able to undercut the Scottish top rate but not vice versa, because that’s not Labour policy.
“The Scottish Parliament will be able to alter both the level of tax and the progressivity of the tax system, but without the risk that a Scottish Government could force tax competition within the UK by cutting only the top rates, to the detriment of public services. Labour in the Scottish Parliament would be able to use these powers if a UK Government did not set fair taxes at these levels.” (paragraph 151, our emphasis)
As plain as day – these powers aren’t for the Scottish Parliament, they’re meant specifically for Labour, which gets to be the sole and eternal arbiter of “fairness”. If Labour aren’t in government, the proposals make sure their policies always are.
Hmm. We’re not sure that’s much simpler. But then that was probably Labour’s plan all along. In forcing them to clarify the proposals, we haven’t so much uncovered any new information as blown away the concealing the vast layers of impenetrable wonkspeak waffle the party was trying to hide the gaping holes in the plan with.
The 300-page document can be summarised accurately in just a few lines:
– a huge, five-fold increase in the potential for the UK to be subject to catastrophic tax competition, insured against only by the fact that the policy would be so insane and destructive nobody would ever use it, rendering it in practice completely meaningless and pointless. Net effect: no change.
– a vague, incoherent, fundamentally impossible plan to extricate Housing Benefit from Universal Credit. Net effect: no change.
– to write Labour policy irreversibly into the constitution, forcing Labour ideology on the Scottish Government no matter which party won Scottish elections. (Irreversible because only Westminster can change the terms of devolution, and neither a Labour nor a Conservative government would have any conceivable reason to.) Net effect: no change, forever.
The “purpose” referred to in the paper’s title couldn’t be clearer: to create electoral advantage for Labour in England and Wales by defusing the Barnett problem and diverting money out of Scotland to bribe UK voters with, and to hamper the Scottish Parliament by loading it with pointless bureaucracy, responsibilities and costs disguised as “powers” – while taking many of its ACTUAL powers away and giving them to (it hopes) Labour councils, thereby ensuring that an SNP-controlled Holyrood can never again be a thorn in the side of a Labour government in Westminster.
In practice, then, Devo Nano represents a great rolling back of devolution, in the service of creating “One Nation”. It openly and intentionally undermines Scottish democracy rather than strengthening it. It promises great change, while deliberately devising a situation in which change is impossible.
The party tried to hide the contradictions behind clunky jargon and a leader so inept that people would assume she was just incapable of explaining them, but yesterday’s letters brought them starkly out into the daylight. We can do no more than that.