Thursday, 6 August 2015

Northern Lights

More maths for the summer. 

Building on last week's post about progressive taxation, the economics team at Late but in Earnest (me) have been trying out the Swedish taxation system on Britain.

Sweden is reported to have the highest rates of tax in the world. Which completely undoes the argument put forward by the Tories that "if you tax people heavily they will leave the country." Have you seen evidence of mass emigration from Sweden? No.

Our team of economists (me, again, with a slide rule and a strong coffee) have simplified the tax system in Sweden by taking the key middle rate - 51% - on all income over 629,200 Swedish Krona (approximately £46,100.) Apply that rate to the UK's wealthiest 10% of households and you raise an additional £9,506 million (£9.5 billion). This would pay for three quarters of the £12bn "funding gap" that Osbameron claim to be able to see.

You could go one further.

Most of the top decile live in London and the South East of England. The poorest people in the British Isles live in the North, in Scotland, in Wales, in Ireland. So you are transferring wealth from Mr and Mrs Top Decile of Kensington to Ms Poor of Easterhouse.

This is what happens between Catalonia and the rest of Spain. Catalonia, which generates a surplus, pays out to eleven other "autonomous regions" across the Iberian Peninsula, starting with Extremadura.  This has been going on since Franco died (1975.) Catalans have been paying Extremadura, Andalucia and the other poor autonomous regions for more than 35 years. As Patrícia Gabancho points out in L’autonomia Que Ens Cal és La de Portugal ("The Autonomy we should have is that of Portugal"): Despite this, the poor regions have stayed poor.

In the British Isles wealthy regions have been contributing (modestly, considering their income) through their tax to support social services for poorer regions. Again, despite years of tax transfers, London is richer than ever while Easterhouse and so many other areas of Scotland remain poor.

In an independent Scotland the better-off burgers of Kilmacolm and Auchterarder would contribute through their income tax to the poorer regions of our new nation state. The danger is that they would pay tax but that the poor regions would stay poor.

So how would you persuade Mr and Mrs Auchterarder that their money is actually making a difference? Is there not a danger that Auctherarder would declare itself independent, to break away from the taxes imposed by Holyrood?

We could - to steal an idea that is becoming common in the charity and philanthropy field - focus on impact. We could use that money to build productive wealth (better schools, new factories, workshops, business start-ups...) in our poorest regions. Productive wealth that would create jobs, salaries and thus more income tax receipts.

Westminster has completely failed to grasp this simple idea; tax wealth and use the money to build a better educated population, jobs, and productivity. Do that and you get a fairer society (like Sweden) and a wealthier, happier society.

Scotland can tax better than Westminster. Catalonia can tax better than Madrid. 

But only when we are independent.

Gabancho, Patrícia. L’autonomia Que Ens Cal és La de Portugal. 1. ed. Palestra. Barcelona: Editorial La Mansarda, 2012.

The details:
Taxation in Sweden (see and combines county and municipality taxes. Rates for 2015 were:

  • 0% from 0 SEK to 18,800 SEK (£0-£1,377)
  • Circa 31% (ca. 7% county and 24% municipality tax): from 18,800 SEK to 443,300 SEK (£1,377-£32,479)
  • 51% (31% + 20%) from 433,900 SEK to 629,200 SEK (£32,479-£46,100)
  • 56% (31% + 25%) above 615,700 SEK (£46,100)

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