Number 4

Remember. Mossack Fonseca, of the Panama Papers, is number four. The fourth largest firm in Panama in offshore tax dodging. Not the largest. 

So the 2.9 terabytes of data squirreled out of the firm and now feeding the news is just a small slice of the action. The Legal 500 lists six firms in Panama that they regard as experts in offshore tax dodging. No, they don't use that term, but it's what they mean.

We are losing between £3.1 billion and £34 bn in tax revenues because of evasion.

It is not the poor who are skipping their taxes. As the Panama Papers underline, it is of course the wealthy. When it is the wealthy who are meant to lead by example from Westminster, the system begins to stink.

The OECD says that 27 out of the 34 OECD countries do not require information on the beneficial ownership of companies. That's a cloak over political leaders and business people. Andy Wightman is doing the right thing in digging out these relationships and questioning them.

Time for Westminster to open up. We need to see the tax returns of anyone who is in power (Andy does this each year), to see who owns the shadowy companies that buy and sell property and companies, and to reclaim from the people behind them the money that they owe to our hospitals, our schools and our social services. A proper transfer from wealth, to reduce poverty.

Fun with numbers

Here's an Easter story.

Imagine that Scotland had been given full powers over income tax back in 1985. Imagine that Holyrood had introduced a package of measures designed to reduce the wealth gap;

• A 60p top rate of tax
• A cap on top salaries in the public sector, and amongst firms bidding for government contracts
• A wages top-up for the lowest paid

These measures had changed the discourse, so that company bosses talked about their social responsibility in boardroom salaries. Fergus Ewing  chaired an annual conference with the Scottish CBI and the unions, and gave a prize for the most innovative way of making pay fairer in companies.

While in the rest of the UK the wealth gap continued to grow (you don't have to imagine that bit. It did), in Scotland the wealth gap was static or mebbe even shrunk a little.

What would have been the effect on the Scottish economy?

The OECD has calculated that the growth in the wealth gap in the UK slowed down the growth of the economy. When you leave the poor to get poorer then they miss out on schooling and the result is that the economy does not benefit from their talents. The UK economy was slowed down by 0.35% per year because Westminster allowed the wealth gap to grow. The OECD figures are based on the growth of the wealth gap 1985-2005, and the subsequent effect on the growth of GDP 1990-2010.

Back to our Easter story. If the wealth gap had not grown in Scotland, our economy would have grown faster.

Now let's do the maths. We will use the same time period as the OECD;

In 1990 Scotland's GDP was £90.9 billion (Source: calculated from Scottish Government)

By 2010 it was £131.8 billion, excluding offshore oil share (Source: Scottish Government)

If we had stopped the growth in the wealth gap, the economy would have grown 0.35% more per year.

By 2010 it would have been £140.9 billion

That would have been an extra £9.1 billion, thanks to the three measures introduced in 1985, that stopped the growth in the wealth gap.

It was a package of measures, so we'll assume that each measure had an equal effect. The 60p tax rate was responsible for one third of the effect, as was the salary cap and the wage top-up.

So one third of the £9 billion in extra GDP is due to the 60p tax band; that's £3 billion extra, as the result of the tax band.

You can see where I am going with this maths now; the Scottish Government has said that it will not introduce a 50p tax band for fear that it might lose £30m in tax receipts (I'm paraphrasing, so do read the full report to see the details.)

But a 50p or 60p tax band as part of a series of measures designed to tackle the wealth gap, could have grown GDP by much more. If you follow the maths, the potential benefit is £3 billion more, against a risk of losing £30m in tax revenues. A 100:1 opportunity. Too good to miss.

This is the upside; by tackling the wealth gap, using tax as one of a range of measures designed to change the discourse about incomes and wealth, you make your country richer.

Let's hope that the new Scottish Government  does the maths.

Disclaimer: So's we're all clear, I am not an economist and I live in Catalonia, not Scotland. So this is just a wee grain of grit for the debate that you are having, and voting on, in Scotland.

References:

Anon, 2014. Focus on Inequality and Growth, Paris, France: OECD Directorate for Employment, Labour and Social Affairs. Available at: https://www.oecd.org/social/Focus-Inequality-and-Growth-2014.pdf [Accessed March 29, 2016].

Swedish Dreams

Politics disappoints. Just when you thought that the politicians had understood a good idea - for example, the idea that we would head toward a Scandinavian social model, with a tax system that captured a wee bit more from people with more, to redistribute it to those with less - you find that they have not. This week's Scottish Budget is a case in point.

Kevin Hague, in his chokka blog demonstrates the point. Mr Hague, who is not in favour of independence but is good at maths (an unusual combination), shows the effect of a one penny increase in income tax. He calculates that a person on a £14,000 salary would take home just 65 pence less per week as the result of the tax rise. Meanwhile someone on £60,000 would take home £9.50 less. That looks like redistribution, doesn't it? People with more, paying more?

Yes, the Scottish Government is hobbled by the idiotic rules that mean that they have to put a penny on everyone's tax bands. They can't do what they say they would like to do which is to increase tax for the better off and leave it as it is for people on lower incomes.

But all through the independence debate we heard the dreams of Sweden. Of building a nation based on a more Scandinavian model, where we all contribute more, and where those with more contribute a lot more.

The SNP is riding on a wave of immense political capital. It would win next May's Holyrood elections even if it were to introduce a policy of boiling poodles. And it could signal to the electorate - including its  middle class, middle income supporters (amongst whom, me) - that yes, everyone has to pay a wee bit more if we want to build the Scotland that we dream of; a fairer, finer, land where people in need, children in poor families, and older people in fuel poverty, can get the help they so desperately need. The Government could have stood up to the cynicism and selfishness of Osbameron me-me-me politics by signaling that Scotland can be independent in thought (and taxation) even if we cannot be independent in law.

But they didn't. Thus we wake, disappointed, from our Swedish dream.

Tax Stupid

Westminster's system of taxation is byzantine. Its complexity allows Facebook, Starbucks, Google (yes, the host of this blog...) and others to dance around the system, paying next to nothing whilst taking profits from all of us.

The system appears even stranger when it comes to Scotland.

This week, John Swinney will publish his budget for next year. This should be an opportunity to tackle poverty in Scotland - to find new and better ways to help people in need. The, excuse me, bleedingly obvious thing to do is to vary tax rates such that people on higher incomes or with greater accumulated wealth put a wee bit more into the communal pot to help out those with less. Simple redistributive taxation.

But Mr Swinney can't do that. Thanks to the recommendations of the Calman Commission (2009), converted into law by the Scotland Act 2012, our Scottish Government has to change all the rates of tax if it wants to change one. These devilish details are in the small print, the stuff that most folk find too boring to read, but in essence they mean that if Mr Swinney wants to add a penny to the tax paid by someone on a high income...he also has to add a penny on the tax paid by everyone on a low income. You can find out why this does not work here and here.


So under the current rules, Scotland can do almost nothing to tackle the blight of poverty. Westminster has, yes, given us powers to change income tax, but it has bound us up like a turkey for Christmas in rules which make those powers meaningless. Rules hidden in the detail that voters will not read - so that Osbameron can continue to crow that "Scotland has the power to alter taxation" even if what he means is "We've stuffed the Scottish turkeys again. Hurrah."


When will Westminster stop treating us like children?

Tax Test

Dear Nicola


It's November, and here in Edinburgh it is cold, wet and windy. Last night I walked past three people sleeping rough just up the road from Harvey Nics. A wee reminder - in the form of a kick in the ethical ribs - that there is lots more to do on poverty.

And what a great time to do it, Nicola. You are going to win a landslide victory next May. Frankly, you have so much political capital that you could propose we all paint our teapots pink and you'd still get in; we'd be out there next day with the candy-coloured paint and the brushes.

Yes, you are starting to move, or be moved; the land reform policies will open up Scotland's acres to more productive, better shared use; but that will take time - 20 years? 50 years? And your focus on education is the right one - better schools and schooling focused on the poorest people will help - but again, that's for the next generation of schoolkids, maybe 15 years away.

We need impact, now. Impact on as many of the causes of poverty as you and all your advisers can lay their hands on. And if that means defying Westminster and working outside the to-be-signed Scotland Act, then #naefear - go ahead and defy them. Yes to better benefits, yes to extra nutrition for kids in school, yes to employment projects, yes to more cooperatives, yes to forcing power companies to cut charges for the poorest people, yes to social housing and yes to a nationwide programme of insulating homes.

Yes to it all, to a full scale war on poverty in Scotland.

And yes to paying for it from taxes.

This is the tax test, Nicola. Are you willing to give up a wee bit of your party's political capital -  to drop from 'Galactic Scottish Superstar' to 'Comet Commander' - for the sake of the war on poverty? 

You would lose some voters (although you would win others) were you to announce that you will raise the taxes of the better-off in order to fund a war on poverty. But that is the proper way to fight the fight; to signal to everyone in Scotland that poverty, and exaggerated wealth, are unacceptable. To put into action your own words about the damage that the wealth gap inflicts on Scotland.

It means adding a penny or two to higher rates of tax, and tackling wealth held in real estate. These will not be enough, and no doubt your economics team can come up with more and better. Those clear signals to wealth - yes, you can be wealthy but you must pay your share -  are as important in building a fairer society as your education programmes for poor kids. Link that new tax income to immediate, visible, demonstrable success in the war on poverty and you will bring us all with you.

Take the tax test, Nicola. Show us what you can do, now.

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.





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

The details:
Taxation in Sweden (see https://en.wikipedia.org/wiki/Taxation_in_Sweden and https://www.nordisketax.net/main.asp?url=files/sve/eng/i07.asp) 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)

Oh dear Lord

The Smith Commission, headed by Lord Robert Smith of Kelvin, has reported.

The Good Bits

1. Lord Smith got five political parties (Conservative, Green, Labour, Liberal Democrat and the SNP) to agree to one document. That's an achievement.
2. The consensus includes an agreement to extend voting to 16 and 17 year olds - young people would* have more of a say in our future
3. The Commission agreed that "nothing in this report prevents Scotland becoming an independent country in the future should the people of Scotland so choose." I'm choosing, and I'm choosing now. Yes please.
4. He added his own view: for example that there should be more local devolution - to local authorities 
5. Scotland would* get a voice on EU business. Bonjour, Monsieur Juncker.
6. The Crown Estate would* pass to the Scottish Parliament - we get Balmoral! Anyone want to squat it?
7. Scotland would* get powers over fuel poverty
8. Payday loan sharks, sorry, shops, would* be controlled at Holyrood
9. We would* get some "formal consultative roles" - for example with telecoms, renewable energy and the coastguard. I have the impression that this "consultative role" was a negotiation back-stop in the places where Conservative, Labour or LibDems would not hand over actual power. 
10. The two governments would "explore" (sounds very, very tentative) the possibility (even more tentative) of a "temporary right" (tentative in the extreme) to remain in Scotland for anyone identified as a victim of human trafficking.
11. We get control over food labelling to include "Made in Scotland". 
12. Oh yes, and we would* get powers over traffic signs. Great. Thanks.

The Not Good Bits

The Commission received 18,381 submissions from the public including, as we say in Catalan, un servidor. When they published their interim report on these submissions they told us that just 259 (er, 1.88%) were submissions "requesting no further powers be devolved." So when the report says:


...what they apparently mean is that the public view would "...NOT influence the thinking of the political parties..."
 
The Scottish Parliament would* have no powers over the regulation of political parties or donations to those parties. Barmy, in the extreme. 
 
We would* get no powers over pensions, and limited powers over benefits. Child Benefit and Maternity Allowance are both "reserved" - i.e. Westminster keeps their sticky hands on them. 
 
Westminster - that bastion of gender equality - retains control over equalities!
 
The political and environmental hot potato of fracking comes to Scotland, but the real money - the licenses for offshore oil and gas - don't. Thanks a bunch, guys.
 
On income tax we get to control the rate...but not the personal allowance, or tax relief or even "the definition of income." So, change the definition and change the reliefs, and the b*&&ers can carry on evading tax like before
 
We don't get control over National Insurance, Inheritance Tax, Capital Gains tax, Corporation tax and "oil and gas receipts will remain reserved." ROBBERY!!
We get to control Air Passenger Duty...but if we cut it, we have to pay the difference to Westminster. The Ryanair policy.  
 
Same goes for fines and penalties. We get to keep them, but we pay the amount back to Westminster. Bl@@dy pointless.

Teacher's Comments

Not really "extensive new powers", is it, Bob? Definitely not the "home rule" that Gordon Brown promised. 
You didn't actually listen, Bob, did you? When 18,381 people sweated nights to write you their six pages of opinion, and when 98% of those people said they wanted more powers, you, and the Commission, simply ignored them.
We get to fiddle at the fringes of income tax, but we can't control allowances, nor even define what "income" is.
We don't get rid of Trident, nor anywhere near it.
And we have once again been robbed. Like the English colony that we are, our oil and gas, that huge opportunity to tackle the poverty of Scotland, has been taken from us. Robbery, pure daylight robbery. This part gives me, as an auntie used to say, the dry boak.


So thanks for trying, and well done with the getting-them-all-to-agree bit. But it's not enough. Not enough, by miles.





*IF the UK Government agrees to implement all this lovely stuff, bearing in mind the forthcoming general election, the views of UKIP and their mates in the Tory party...