The levers of the Common Weal
The accusation that the Yes campaign proposes an impossible Scotland of low tax and high spend (often mocked as “Scandinavian spending with American taxation”) is a tactic frequently used by ‘Better Together’ to undermine the economic case for independence, with the implication that services would be cut due to lack of funds.
(Of course, they say that independence means slashing taxes at the same time as saying taxes will rise in an independent Scotland, but we’ll let that go for now.)
It’s an allegation commonly placed at the feet of the SNP (usually by Labour when wielding the old “Tartan Tories” stick, whereas the Tories prefer to insist that the SNP are dangerous neo-Marxists) that looking to offer tax breaks and incentives to encourage development is in actual fact right wing low-tax economics.
But that’s not necessarily the case. Cutting one or two taxes to boost growth doesn’t create a “low-tax economy” any more than cutting out a single sausage from a full English breakfast makes it low-fat.
The true nature of a low-tax economy is that all taxes are reduced, with the purpose of increasing personal wealth and at the cost of decreasing social funding for government services (leading to cuts to those services, supposedly compensated by people having more money to make their own individual arrangements).
Offering tax breaks and incentives is a different approach, pragmatic rather than ideological in nature – it’s a deliberate manipulation of one or two taxes in order to increase revenues elsewhere.
It’s the combined revenues from all taxes which is important when judging what sort of tax regime you’re setting up. The vital aspect is to raise as much in taxation as you intend to spend in services and infrastructure. At present, with Westminster controlling almost all taxation, Scotland doesn’t have very many options to choose from when looking to balance the books.
It’s a situation analysed in the latest report from Jim and Margaret Cuthbert on ‘Economic Policy Options for an Independent Scotland’, an overview of how economic policy can reshape the economy and fortunes of Scotland. However, we’re not going to focus on the highly-detailed report, which speaks for itself. Instead, we’re going to look at how simple changes in fiscal policies – impossible to undertake as part of the UK – can lead Scotland towards the kind of society most Scots seem to want to create.
Independence offers the opportunity to introduce simple, transparent tax rules to replace the current UK tax system, which is a horrifically complicated, inefficient and loophole-ridden scar tissue of ad hoc patches and workarounds. The result would be an independent Scottish government that could work more efficiently to collect what it’s due, or as Alex Salmond put it:
In fact HMRC’s own reports indicate that it failed to collect an estimated £232 billion in taxes between 2004 and 2011 (Scotland’s population share of which would be £19.5bn – or almost £2.8bn in uncollected tax per year). Closing loopholes and pursuing avoidance as a priority, which the UK government seems disinclined to do, would be an alternative to recouping the money from the poor through slashing welfare budgets.
Of course, that’s easier said than done. Even with the advantage of starting a fresh system from scratch, companies deploy armies of accountants and lawyers to detect and exploit new loopholes. So alternatively, taxes could be set at levels designed to increase overall revenues while reducing the burden on the poorest in society.
This would be made possible through reducing stealth taxes and increasing direct taxation, with independence giving Scotland control over the following taxes currently reserved to Westminster:
Income Tax; VAT; National Insurance; Fuel Duty; Alcohol Duty; Tobacco Duty; Corporation Tax; Capital Gains Tax; Excise Duties; Inheritance Tax; Climate Change Levy; Aggregates Levy; Vehicle Excise Duty; Betting and Gaming and Duties; Air Passenger Duty; various other smaller Taxes.
Stealth taxes are regressive since they penalise the poor, by depriving them of a higher percentage of their earnings in tax compared to those better off. (If a poor person or a millionaire buys a litre of fuel, they both still pay the same tax, but the poor person feels it a lot more.) Progressive taxation, conversely, means increasing direct taxes so that those with the widest shoulders bear the biggest burden.
However increasing taxes and ensuring collection are not the only tools that Scotland would find itself able to call upon post-independence. There would also be the possibility to use the tax system to fund incentives, infrastructure and other forms of support to business.
For instance, the SNP currently plan to cut corporation tax to 3p below the UK rate if elected in 2016 – potentially producing a 17% rate in an independent Scotland as the UK moves to 20% from 2015. Scottish Government analysis suggests that this could grow Scotland’s GDP by 1.4% and create an additional 27,000 jobs.
Of course not everyone agrees. Professor Joseph Stiglitz has said that cutting corporation tax “is a gift to the corporations, increasing inequality in our society”. Yet as we’ve seen from many international companies, Corporation Tax is often ‘minimised’ in order to maximise profits and as a result much of the tax that should be collected is in fact avoided.
Increased tax take from personal taxation and spending was discussed by the Jimmy Reid Foundation in their paper on the “Common Weal”, where they argue that an independent Scotland should focus on bringing in more high-skill jobs in order to boost both employment and tax receipts – using short-term taxes on the wealthy, whisky industry and renewables to fund the transition.
However, there are also other options available:
- Foreign Direct Investment (FDI)
Being an English speaking pro-EU member state can have benefits in attracting foreign companies who wish to set up operations to gain access to the free market area. These companies can be supported by providing the sort of highly-educated workforce they require (another reason why free university tuition is an investment rather than a cost); by providing the infrastructure required to be successful; by developing hubs of excellence and associated skills in order to attract and support certain types of business; by offering start-up and development capital; or by offering tax incentives.
- Tax breaks for domestic start-ups
Start-ups boost the economy by taking on new employees and adding to the domestic economy via wages paid, goods and services bought, and through a reduction in the burden on the state as fewer benefits are required to be paid out. Providing support to entice business can have effective payback periods from rising tax revenues, as we’ve seen on this site before.
- Tax breaks for re-investment of profits
Scotland could encourage economic growth by allowing companies to re-invest profits tax-free into growing their business. Estonia has had zero tax on re-invested profits since 2000 which has helped the country to not only boost the local jobs market and domestic industry (and thereby direct and indirect tax revenues), but eventually contributed to Corporation Tax revenues being higher than they had originally been after only five years – mainly due to growth fuelled by reinvestment.
This would be looked on favourably by businesses looking to come to Scotland, as for many companies it’s not shareholder dividends that are of primary importance (since many don’t pay out dividends), but growth and the company’s share price. Allowing reinvestment of profit provides an opportunity to maximise both of those while – crucially – keeping much of the wealth of the company within Scotland.
- Development of infrastructure
Having control over our own finances would allow Scotland to raise or borrow where needed to fund strategic infrastructure projects designed to boost the economy through providing facilities, transport links, educational and research facilities which are attractive to high-skill employers.
The most pressing of these would be in improvements in direct air links to the world, providing connections for trade, transport and tourism; and bringing immediate and sustainable growth to Scotland’s economy. To further support the development of new airport infrastructure Scotland could vary Air Passenger Duty, which at present is a major barrier to new route development, and use it as a tool to encourage growth and extend the capacity of existing key routes.
(Likewise port and shipping services. The main UK ports for shipping of goods are Felixstowe and Southampton by value, and Grimsby and London by tonnage – an unacceptable situation for any largely sea-bordered nation like Scotland, in a world where over 80% of trade is conducted by sea.)
And finally the telecommunications network could be upgraded to bring it more in line with what modern businesses view as acceptable for their IT requirements, rather than the current UK system which ranks only 13th in the EU for speed.
Taxation and spending in an independent Scotland will be as directed by the winners of the first Scottish general election in 2016. But whoever wins, the opportunity will exist for that Scottish Government to use the powers and opportunities of independence to alter our economy and ensure a fairer, more prosperous nation.
I prefer the idea of Scotland being dangerously Marxist. No matter how good the numbers man or how much authority he is given, the corporate weasels will abuse the system in the name of profit. Let’s re-nationalise the lot, and see where we can take it.
Personally I don’t give a monkey’s if the BoE controls our borrowing and monetary policy short term. The real goal, the real prize is and always has been control of tax and spend. The choice of your own government to prioritise where your money gets spent and how your taxes are collected. How best to utilise all of our resources to benefit all of the people.
Now since we are in the middle of a Westminster made austerity Britain, its patently obvious to all that Westminster politics and politicians have failed the electorate of not just Scotland but the entire UK. Their job is our care and on their watch, especially over the past forty years or so, the rich have become richer and the poor have become criminals. It doesn’t get any plainer than this people. The UK political system has failed you personally and collectively.
We have a way to change that and make the public servants start actually serving the public again. Or we could stay with the immaculate economic and fiscal leadership we’re so used to living with. Fixing what’s broke might be too hard.
A single country can’t be truly Marxist, or communist or socialist. It requires the whole world to use those principles for it to even stand a chance of working. Conversely, capitalism requires some sections of the world to not operate capitalism successfully in order to work, it needs a wild area for leverage. The opposite is true for any kind of collectivism. The whole ant colony works together, if only a wee bit did and the rest were effing about with free markets there’d be a lot fewer ants around.
However, that said, the idea that Scotland – a part (at the moment) of a country so entwined in the latest version of capitalism ( believe this is popularly referred to as neoliberalism) – would head in a socialist direction even the few steps that the Commonweal suggests is one of the reasons why there is so much backlash against Scottish independence from Westminster. It cannot be allowed. It cannot show the other areas of the ‘West’ that it can be done.
What happens in the Nordic countries is passed off as a peculiarity of population and climate, other successful versions glossed over. If a country which has been portrayed and requiring subsidy ( I know) makes a success out of independence and enacts the commonweal – can you imagine what happens next? ( we are not just campaigning for independence here because we are not just fighting against the concept of the union)
@Atypical_Scot
And yet the reverse is also true… give politicians complete control over the economy and they will abuse it for their own privelidge…
Surely there is common ground to be sought.
Alex Salmond put it:
“I think the policy of this government should be, when it controls corporation tax, to set a competitive rate and then collect the corporation tax. The policy of successive UK Governments is to set the corporation tax and then not collect it. That seems a very strange thing to do.”
It’s a radical idea, virtually untested in history of UK Revenue collection, so you can see why it causes disquiet amongst certain interest groups.
An excellent article again Scott. It would be great to see a simple, fair and progressive tax regime in my country. And that it was actually collected ( I watched the hilarious Panorama last night – how hopeless is Westminster? ) The fact is I’ll be satisfied as long as it’s done by a democratically elected government of Scotland whatever that brings.
As the reference to the HMR&C reports in the article demonstrate, the official rate of corporation tax is not what really matters – it is the effective rate (what you actually recoup) that counts. This is where simplification + modest reduction can benefit overall. I don’t think you should do one without the other.
Whatever system is introduced I truly hope the focus is on small-medium sized companies. Based on my personal experience, these are the companies that currently get shafted from all angles in the UK.
I find it totally bewildering to think that anyone can argue against this. I expect it from self serving politicians (specifically Labour & ConDems) but not from fellow Scots.
The common weal is the new start that this country needs. A progressive system that serves the interests of all Scots and not an elite few.
We may never get another shot at this in our lifetimes should the unimaginable happen next year. Let’s get the job done.
rabb said:
“We may never get another shot at this in our lifetimes should the unimaginable happen next year. Let’s get the job done.”
It’s not just in our lifetimes, Rab, it is more likely to be for all time.
In the event of a NO vote you can expect that under the guise of “extending devolution” what will actally happen is that the constitution will be ammended to strenghten the Union and make it virtually impossible for a devolved administration ever again to have the power to hold an independence referendum.
See here, for example:
link to bbc.co.uk
@Scott Minto (Aka Sneekyboy);
I see a need for means testing in any/all capitalist models. Especially when attached at the hip to the world centre of greed.
No. means testing is a choice, not a need.
As long as the electorate see fit to continue to fund our Public Services, then means testing has no place to call home… it drives division, robs those who are in need but branded capable of the support they deserve, and devalues society by placing a price on help.
“Once poverty is gone, we’ll need to build museums to display its horrors to future generations. They’ll wonder why poverty continued so long in human society – how a few people could live in luxury while billions dwelt in misery, deprivation and despair.” ? Muhammad Yunus
Next time you hear a Unionist ask how Scotland could possibly afford to exist on its own, just smile then lay out a few monetary facts. Hopefully, you can valianty resist the temptation to point out its not us that should be worried about affordability.
An example of what a small (loss-making at the time) organisation employing about 24 people can face – a £42,000 penalty from the Revenue. I helped my brother-in-law get this false claim down to about £2,500. Much of the original claim was based on what the Revenue’s booklets claimed the law to be. It’s an eye opener to see how they have to interpret things. The system can be so complex, or badly worded, that the tax inspectors themselves don’t actually understand it.
Small companies are easy pickings for Revenue inspectors. They back off / stay away from big firms, especially multinationals.
Good piece Scott, well thought out and informative.
I think Westminster would be running scared of an independent Scotland and its tax systems, in which Alex Salmond has indicted lowering corporation tax, to entice more companies to move to Scotland.
Its a fine balance though, between offering tax incentives, and collecting enough revenue to balance the books, one of which Im sure the SNP are up tothe task, (No other Scottish party is) when independence is gained.
As you rightly point out Westminsters tax system is a myriad of confusion, and bonuses for the well too do and more importantly its unfair on the low paid.
Great article Scott, and it’s merely touching the surface of the possibilities independence brings us in regards to reshaping the economy in order to do things OUR way.
The future is unwritten, as Joe Strummer would have said.
@Scott Minto (Aka Sneekyboy);
I think there might be a strong case for the term ‘means testing’ being treated as something more draconian than other social welfare terms applied in other countries. In France for example, General Welfare is only available to those who made a suitable contribution to the state purse – by no means everyone. France being the most ‘socialist’ country in the west. This anomaly is found across the west in different fluffier terms. It comes down to affordability. In France again, welfare including old age is 500 billion euros = 33% of GDP. In the UK, 2013 (including the cuts) pensions and welfare are 36% of GDP.
I obviously need to see some more affordability assessments as I seem to be missing the manageable in a capitalist system bit. Any links?
Anyone want to get their blood pressure up?
Scottish Independence: The Big Money Question
Fully endorsed by Blair McD but impartial. Nah.
O/T Rev
Something youd never see happen at Westminster.
link to dailyrecord.co.uk
@ Atypical_Scot
Welfare is obviously affordable in a western society or we wouldnt have had a welfare system all these years.
The question is what do you set it at, for what and for whom (dependent on restrictions other than wealth)
Means testing extends that to pesonal wealth and asks those who are paying in to the system to accept they wont get back out of it when they need it. Thats not a clever way of promoting a social funding system.
Of course since you are referring to “something more draconian than other social welfare terms” maybe you could expand on what you are meaning by ‘means testing’ and why you think its inevitable rather than a choice.
Stu said something on Twitter the other day that I disagreed with. I don’t really understand the Land Value Tax that is being discussed, so maybe I got the wrong end of the stick I don’t know. However, it was about paying tax on a valuable asset – a piece of land, or a house, I’m not sure.
Someone tweeted that this was a good way to make sure that nobody poor could own land and they’d be forced to sell it to someone rich. Stu tweeted back that someone who owned something of high value was by definition not poor.
It’s the difference between capital and income, or between possessions and income if you like. Someone owns something of high value, maybe it’s a plot of land, maybe it’s a valuable antique handed down from a grandparent. They simply want to keep their possession, for whatever reason. They have no capital in cash, and no surplus income beyond what they live on. Should they be forced to sell their valuable heirloom merely because they have it, and they don’t have spare cash? Should possessions ever be taxed in this way?
I don’t see it, and I don’t understand where Stu was coming from. Taxing a possession which is owned by someone with modest income and no spare capital is indeed a sure-fire way to force them to sell it to someone rich. Is that what we’re about?
It’s one thing to be forced to sell an heirloom because you need the money to live on. It’s quite another to be forced to sell it when you do have enough to live on, just because the state thinks you shouldn’t be allowed to keep it unless you give them more money that you don’t have.
Is this £232 Billion un-collectable? Is it factually accurate given the comment of Murray McCallum @3.06 pm, where a £42,000 revenue penalty was reduced to £2,400 by reading the damn rules properly?
How can the Tax Justice and PCS estimate be 4 times that of HMRC; £120 Billion against £30 Billion – doesn’t this disparity ring some kind of warning bell at HMRC?
We, in Scotland really are handcuffed to the loonies!
By definition “common weal” surely excludes means testing? Means testing results in a gated community-type society. Such a system reinforces the tendency for the better off to play no part in improving wider society.
@Morag
Andy Wightman’s paper on Land Value Tax
link to andywightman.com
One of the main reasons for wanting welfare back in Scotland is so we can have a proper debate about it. Two of the founding reasons for it, namely a income for when you have outlived your ability to work and that it should be based on insurance principles seem to have been totally subsumed. Like many other things the whole area, taxes to support it, reducing house prices to reduce housing benefit, etc., needs a proper debate.
The recent performances by Sarwar on TV and in the House shew this is not possible at present. Just another example of Westminster not working for us.
Bartronic
The claim against my brother-in-law included 6 years of non payment of national insurance on staff tips. The tax rules applying were those relating to a “tronc” system. I proved that my brother-in-law operated a qualifying tronc system. Yes, it is as dull as it sounds. The lesson is details and clarity really matter when it comes down to someone’s living.
What really pissed me off was that my brother-in-law clearly paid 100% of tips to staff (the way it should be) despite the company making a loss. There was no way national insurance should ever have been assessed as being payable. Many restaurants skim tips for company profit.
Sorry, very O/T but can anyone give me a link to Derek Bateman’s blog which people keep referring to. Thanks.
@Seanair
link to derekbatemandotnet1.wordpress.com
Stu needs to PUT THAT IN THE BLOGROLL.
“Stu needs to PUT THAT IN THE BLOGROLL.”
I will. I’ve just been trying to definitively establish its authenticity first.
@Scott Minto (Aka Sneekyboy);
To set any truly social welfare system up, it must cover all the aspects of living; Health, old age, education, housing, heating, food etc. Everyone deserves all of these things.
There cannot be a level to set it at other than one which allows anyone to have all of these things, no matter how much companies charge for them ie. I cannot for the life of me get the NHS to treat my spinal injury, not because they can’t, but because they cannot afford to. A private company can, and are – with a machine that costs a few grand that is not deemed necessary enough by the NHS for budget reasons – for a substantial fee of course and I can get from Brechin to Glasgow and back for the private treatment in my car – just me – cheaper than a train by a score at least.
Incapable of working for more than a couple of hours a day, cannot claim benefits due to household income ‘cut off’ but have to find a grand a month for private treatment.
Even if I were to receive a social payment, it would be used to pay for treatment otherwise unobtainable rather than for ‘living’. There are hundreds of examples where the costs of obtaining what should be included as social welfare are outwith the system in place but are available privately and like the rail prices, it’s people without cars that pay more to get about despite the relative affordability of communal transport – at the hands of private companies.
If it is truly going to work for everyone, privateering cannot be allowed to inhibit or affect any part of the plan, but if capitalism is to be allowed a part, the social system would have to pay these costs, when multiplied across the board are cripplingly high because there’s money to made from it.
This is where the inevitability comes in.
@ Morag
” Should possessions ever be taxed in this way?”
A thing only has value if it is sold. To be taxed on something which has no value is just plain wrong.
“A thing only has value if it is sold. To be taxed on something which has no value is just plain wrong.”
I’m totally open-minded on the LVT thing. But it seems hard to avoid parallels with saying that you should get Housing Benefit to pay your mortgage.
@ Atypical_Scot
You are talking about services from government being undertaken by government agencies without resorting to outside assistance at all. Thats just not feasible.
While you can keep the services inhouse (staff, facilities, ownership etc…) you cant make the kit they use made by the state… likewise with drugs… you have to but those in from suppliers that make the investement in research and production.
The alternative you offer is a failed model. Nationalising every business. It failed in the USSR.
Why dont we work towards a social democratic model such as that seen in Scandanavia rather than cling to old dogma from the last century? We can see empirical evidence that these nordic style countries are more prosperous, less divided, less inequality and just all round better social rankings.
We can see it can work, it can improve life for the poorest and it can reduce inequality in general.
A thing only has value if it is sold. To be taxed on something which has no value is just plain wrong.
What happens if you are well off but live in a flat? Low land value?
And if you are in a council house in a city centre where tha land value is higher?
Does it not mean that people renting off land owners will be subsidising the system be higher amounts for properties they couldnt afford to buy themselves?
Theres a fair few questions that need answered on LVT.
Talking of tax at the Lib Dems Danny Alexander says they will increase taxes for the richest, round and round and round we go.
Not now of course but when they’re in Government in 2015 I suppose he means, mmm.
Albalha, thank you.
Rev. Stu, I’m not deserting WoS!
@Albalha
LibDems insist raising taxes on those earning over £50k is “definitely” not party policy link to scotsman.com … Its just the poor they hurt!
I think you missed one very significant and surprisingly popular stealth tax Rev., the National Lottery.
“There’s a fair few questions that need answered on LVT.”
Why even bother with Land Value Tax in the first place? Taxing people just the live on the land they already own? Get rid of it, abolish council tax, etc and just have a national income tax instead. Simplify it, give people a discount on all monies they bring in to the country, for example. If people want to make land ownership fairer, then it can be done other ways. For example, why let people buy more than one property? How much land does one man need after all?
What is something worth? Only what one’s greed can sell it for.
@ScottMinto
Well that’s the point, we’re now into the never, never land of the Lib Dem manifesto, tuition fees I hear you say!
And on LVT, have you read the Andy Wightman link I posted?
Havent had time yet, but willl get to it at some point.
@Scott Minto (Aka Sneekyboy);
link to newsinenglish.no
Sorry, you missed one Scott.
If folk can find a spare hour and a half, hear is one of the world’s leading scholars in the Humanities. Apologies for re-posting but I think it is important to listen to those who have a coherent understanding of the issues. Unlike certain commentators and politicians we could mention. Quack, quack, quack….zzzzzzz
David Harvey
The End of Capitalism?
@Atypical_Scot
Its all relative. That article states “new numbers from state statistics bureau SSB show more children living in families with income low enough to be considered below the relative local poverty level” before adding that “Poverty in Norway is relative: Those on low incomes rarely starve or are homeless. But there’s little money for clothing, entertainment, gifts or other items that are important to the social life of a family, especially children.”
Even the figures quoted mean that in Norway someone is classed as in poverty if they only have $540 USD (£340) left after paying for all housing, bills and food.
Over here we have people choosing to ‘heat or eat’, evictions for falling behind in rent due to a matter of tens of pounds in Bedroom Tax…
I would trade our situation for theirs in a heartbeat!
Hmmm…that Land Value Tax is a bit scary….or maybe I’m just not understanding it properly. If I am understanding it properly, I might need to pay up to £8,000.00 per year in land value tax. I’m in an old property, which has very high heating bills, so I know I couldn’t afford both. What’s the answer? Sell? But who would want to buy a property for which you would have to find over £600.00 per month just to pay the “council tax” as well as high heating costs and pay a mortgage on top of that? You could argue that the price of the property would fall, making it more affordable, but the tax wouldn’t.
They helpfully suggest that I could maybe defer the tax and they would just take it from the equity in the property when I moved or died. But if I can’t sell it, I can’t move. So could I find myself stuck in a property that I’ve worked to pay for, but can’t afford to live in because of high taxes, can’t increase my income because of retirement, but can’t sell because nobody wants to pay the high tax on it? By the way, I don’t live in a mansion – just a 3 bed victorian semi – but, it’s in a “good” area, hence high council tax band. Can somebody enlighten me?
“Can somebody enlighten me?”
Nope… and thats part of the problem.
Apologies O/T:
Two young Scots girls have their say on independence. First girl NO camp, second girl YES camp. It’s not difficult to decided who to vote for:
link to youtube.com
YES Scotland
@Scott Minto (Aka Sneekyboy);
Of course that’s true, I would swap too, however I wouldn’t condemn post Marxism too quickly. If CameronB’s video is the one I think it is, it’s definitely worth a watch.
@Atypical_Scot
I will certainly do that, since we need to look at all options and argue the best…
…afterall, isnt that the point of getting control? To change how things are done?
You have a good night.
@jeannie
My understanding from Andy Wightman’s paper is that around 80% of people would pay less with LTV than they’re paying in council tax.
I’ll need to read the whole paper and take time over it but the focus seems to be on a more efficient use of land, making it not worth speculators hanging on to barren, waste land.
@Scott Minto (Aka Sneekyboy);
You too, have a good one – change is the most exciting part of it.
I’m totally open-minded on the LVT thing. But it seems hard to avoid parallels with saying that you should get Housing Benefit to pay your mortgage.
I may be missing something here but I don’t see the parallel at all.
I’m talking about having something you own, own free and clear, and want to keep. Maybe you’re using it (perhaps a valuable musical instrument you play for pleasure), or maybe you just love it (maybe a valuable painting you bought many years ago when the artist was unknown). You have enough income to support yourself, but not much left over.
Why should the state come to you and say, you own a valuable item, you must pay tax on it? In these circumstances the owner has no choice but to sell their beloved item, even though they owned it and they didn’t require to sell it to cover their living costs. I think this is unjust, and I think it’s unjust if the valuable item is land, too.
The idea of Council Tax is to get contributions for local services. People don’t use more services just because they own a more valuable item than someone else, so that isn’t the argument. The thinking is that home value is related to general ability to pay. However, although there is a fair correlation, it’s far from exact. In particular it falls down when someone retires.
What’s so bloody sacrosanct about house or land value that ordinary home-owners should be taxed so heavily on it? Look at what Jeannie said, and I’m in the same boat, potentially, if some of the proposals were implemented. Where do I find £8,000 a year (out of taxed income!) to pay a council or land tax, if my total income is only about £15,000? Where is the justice in that? Why is this linkage to house or land values so important that I have to be forced out of my home?
What the hell is wrong with simply taxing income? If someone has the income, they can pay, that’s axiomatic. If they don’t have the income, these proposals are punitive.
And I’m sure there are better, less blunt instruments to stop land speculation.
“What the hell is wrong with simply taxing income?”
Well, among other things because it lets rich people dodge paying their share, because they might have vast wealth but little income. And also because income is a lot easier to hide.
As I say, I haven’t done the homework on LVT, I’m just thinking out loud and trying to come to a view. I tweeted yesterday asking what the downsides were, and this is the first one I’ve come across. It doesn’t seem like it should be THAT hard to sort out.
I’m a huge fan of Andy Wightman’s energy and dedication to fairness and his blog on land issues makes for stimulating reading. See link to andywightman.com
The land value tax, however, seems to be one of those idealistic American ideas whose practicality in Scotland must be close to zero. If you read the paper quoted above, the immediate impression is one of the huge bureacracy need to administer the tax, and the endless disputes it would bring in its wake.
It’s also a curiously dry theory – which could have stemmed from Dickens’ Mr Gradgrind, which ignores the fact that land and land ownership is an emotional as well as economic issue, and which blithely assumes that development is a social good which drives land values upwards, where we know the opposite occasionally to be the case.
I think it significant that despite the fact that Henry George came up with the land tax theory in 1879, no country, so far as I know, has successfully implemented it in full – although there are, and have been, several variants.
@albalha
My understanding from Andy Wightman’s paper is that around 80% of people would pay less with LTV than they’re paying in council tax.
Yeah, saw that. Just have a feeling I’m not one of the 80%. And if you’re not one of the 80%, there’s a lot to be worried about. There’s almost an assumption that if you’re in the 20%, you must be able to afford to pay a large monthly tax. But you need a sizeable income to do that – and it doesn’t necessarily follow that living in a high value property equates to having a high income. You might just have lived in it a long time and it’s increased in value over a very long period. Wish they’d stop moving the goalposts.
@jeannie
I’m not sure I fully understand either, from the paper looks like the top three bands would pay more.
I suppose there are two areas domestic and business/development.
As @kinivie says maybe a Scottish variant is possible.
If someone is living in a house worth £500,000, and is struggling to pay the bills, downsize!
A nice wee £80,000 flat and £420,000 in the bank? Sounds good to me.
I remember staying in a bunkhouse in Laggan whilst on a backpacking trek. It was a big property, and she ran another business from it. The owner was telling me the night before that business was bad, and she was struggling to pay the bills. She sounded distraught, and I felt really sorry for her.
My sympathy vanished the next morning, when I met her sons, who I had spoke to the night before, waiting at the bus stop.
They were waiting for the bus to Gordonstoun for the week.
There is poor, and there is poor.
When I was in the Inland Revenue in the early 80s, discussions were held between the IRSF and the Labour opposition at that time. IRSF told them there was no need to raise taxes, as long as the IR was allowed to collect the taxes that were already due. I don’t imagine Tony Blair or Gordon Brown thought to speak to them, and I’m damn sure Cameron and the Gidiot didn’t.
About that time, (1980s) the average Compliance Officer in the DHSS brought in around £25,000 pa. After deducting salary, benefits and overheads, probably not much gain.
The average Compliance Officer in the Inland Revenue were bring in about £1m pa.
Guess which department was cut?
Anyone REALLY wanting to do their homework on LVT could start with the bibliography that Andy Wightman provides here:
link to andywightman.com
One of my chief objections to the practicality of the tax (as opposed to the theory) is the fact that what you are likely to have to pay depends on planning decisions which have nothing to do with you. Suppose you are living quietly in an old house and just able to pay the land value tax. Then planners provide a railway station next door and a housing development to go with it. Sudddenly, the value of your land shoots up. Effectively, this means that you can’t budget for the future, because you can’t tell what is going to happen to the value of your land.
Also, the theory proposes that the tax is justified because the community pays for the increased land values resulting from infrastructure development. But there are multiple other ways land values increase – perhaps, as in the case of holiday cottages, precisely because there is NO infrastructure development. And, in the case where land values are lowered by development (as in the case if an open cast mine next door) I find no proposal that the householder is compensated from the tax take… though that ought to be the case.
But the real blockage lies in the need to constantly revalue land, to keep pace with inflation, fluctuating demand, change of use…all kinds of things which didn’t really apply when Henry George came up with his theory. Govts have found it impossible to revalue housing regularly for the old rating system, or for the council tax. Why should land be any easier?
Land Value Tax raises more problems than it claims to solve. Who would determine the value of the land and who would determine the use that piece of land could be put to?
The use would have to be determined by local planning officers. While I am sure every planning officer in the country is as honest and incorruptible as we could wish, I would not like to bet on that always being the case. It would clearly be a temptation to the unscrupulous to do some financial arm twisting to get some real estate re-zoned to a cheaper tax band.
As for the value, we have the example of Spain. They have a tax on property transactions, where the government takes a percentage of the value of the sale. Some people in Spain, being less than happy at paying this took to declaring a lower value for their sales. For example, instead of declaring a sale as being for 200k, they declared it at 100k, keeping half the money off the books and saving half the tax.
The government, realising this was happening, started taxing the transactions not at the declared market value of the sale but at a value determined by themselves. This worked to eliminate the cheating, up to the 2008 crash. Now people find that although their property really is only worth 100k, the government is still treating it as 200k and no one can afford to buy or sell as they would have to pay double the tax.
So what would we have? A country where the rich have even more of an interest in corrupting the planning process? A country where people who have worked to buy their house build up debts which can’t be paid because their house value hasn’t kept up with the tax? Why shouldn’t land owners pull down our historic town centres and put up more tower blocks if that is the most tax efficient thing to do?
LVT would be an unworkable disaster. If you want to know what it would look like, look at what Labour and their friends have done in the east end of Glasgow for the Commonwealth Games, and imagine that being normal for all of Scotland.
@RedStarTrout
Your Spanish example is instructive. It reminds me that it’s common practice among housing developers in the UK to offer big off-the-books discounts on their advertised prices, but to record the sale price as the one advertised, thus giving the impression that their houses are worth more than they are, and hence in general keeping the housing market ‘bouyant’.
I fear it’s the case that the introduction of an LVT would bring all kinds of similarly dubious shennanigans in its wake, quite apart from its fundamental unworkability.
What is wrong with taxing income?
Over the past 30 years, the US govt has moved from taxing unearned income to taxing earnings. It means that those with “wealth”, rather than income are paying less tax. It’s credited with meaning that black people, who only got the vote in the 60s are, as a group, worse off now than they were in 1980, since they are more likely to be supporting relatives as well as working – in fact, it affects all working people this way.
Remember everyone Scott (Aka Sneekyboy) is getting married on Friday – all the best Scott have a great day
If someone is living in a house worth £500,000, and is struggling to pay the bills, downsize!
A nice wee £80,000 flat and £420,000 in the bank? Sounds good to me.
Very probably. Being forced out of the home that I love doesn’t sound at all good to me. I can budget to pay my bills, and heat my house, and repair and maintain my house. Why should I be forced to sell my beloved home to someone rich, simply to pay a tax?
Well, among other things because it lets rich people dodge paying their share, because they might have vast wealth but little income. And also because income is a lot easier to hide.
We seem to be talking at cross purposes here. I’m talking about the equivalent of the community charge, intended to fund schools and road repairs and so on. Why use that to target wealthy people for their wealth? That’s not the context where that problem needs to be solved. Why stick someone whose income, including interest on savings, is only about £15,000 with an £8,000 tax bill just because of the house they live in?
We’re not talking vast wealth here. We’re talking ordinary nice houses that people have lived in and made their homes in for many years, and hoped to spend their retirement in and maybe die in. But to pay for schools and mending potholes, instead of taxing them in accordance with what they earn, this proposal intends to force them out of these homes.
Fund local services through a local income tax, and address the problem of very wealthy people holding on to large amounts of capital in some other way.
O/T Rev. Stu Can I give a wee plug to the Ayrshire Matters Scottish Independence Debate – Should Scotland Be Independent? This Thursday 19th September from 7pm at Ayr Town Hall, The Sandgate Ayr.
Ayrshire Matters have arranged for two local Tory councillors to speak on behalf of Better Together. For the Yes camp we have local SNP MSP Chic Brodie and South Ayrshire for Independence’s very own Bill Boyd.
Ayrshire Matters have a Facebook page here:-
https://www.facebook.com/photo.php?fbid=525459017529649&set=a.484329604975924.1073741828.481791538563064&type=1&theater
Not often we get a real chance to debate with Better Together so for those in Ayrshire please click, share and try and come along. The Ayrshire Post is covering the debate so it would be great to get a good Yes attendance.
Thanks Rev.