Wednesday 17 February 2016

Dancing with Labour's tax plan

Let's give Labour's tax policy another turn around the dance floor before we go for a buster on the way home.  It's a bit boring but worth looking at and you'll get a buster on the way home.  Labour's cunning wheeze is to increase the tax rate of everyone in Scotland by 1% from 20% to 21% - a 5% rise in tax paid for people who only pay basic rate tax (1 being 5% of 20) but less of a percentage rise in the tax paid for those who pay the higher rate of tax.  To be fair to Labour there was some attempt to undo the damage done by giving people back £100 if they earn less than £20,000 (of course, that £100 would be taxed at Labour's new 21% rate so it would only be worth £79) so if it worked it would at least be less awful than it appears at first.

'Independent' reports and the missing briefing

As the tax policy started falling apart in the days after it was launched we were pointed to an 'independent' report supporting the policy but there were some problems; it didn't take into account the tax on the £100 or the fact that it would have to be claimed from councils and it had the £100 bung as being paid twice to a family with two £20k earners while the legendary Duncan Hothersall had access to the original briefing and said it was per household.  He actually posted the section of the briefing that said it was per household (and I should have screengrabbed that) but later deleted that bit of his posting.  It's a pity; I'm sure I'm not the only one who'd like to have a wee look through the whole briefing.

I'd like to see, for example, how Labour judges between the HMRC estimate of what a 1% increase in Scottish tax would bring in and the Office of Budget Responsibility estimate because there's a £15m difference.  I'd also have liked to have seen how Labour intended to reimburse councils for handing out the cash - how far in arrears?

Before thinking about any of that, though, have a look at the biography of the guy who wrote the 'independent' report, Torsten Bell, as it's written on the Resolution Foundation website -
Torsten joined the Foundation in September 2015 as Director. Prior to this, Torsten was Director of Policy for the Labour Party and worked in the Treasury, both as a special adviser and a civil servant.
So you have a guy who left his employment as Director of Policy for the Labour Party in the same month as Corbyn became leader; joined a think-tank headed up by Tory David Willetts and 5 months later wrote a supposedly independent report backing Labour's plans.  Leaving aside the question of how we've come to a stage where a former Director of Policy for Labour can join cause with one of Thatcher's little helpers, how can we possibly believe that a position paper he's written about Labour policy can be an independent analysis since he was writing Labour policy just a few months ago?

Labour then pointed us to "another expert group" backing its plans but that's problematic, too - IPPR Scotland is Russell "Rusty" Gunson and some ad-hoc help from IPPR North (that's North of England, of course, not North of the UK) and he is an old Labour hand.  Like Kezia he was an NUS employee and a researcher for a Labour MSP before scaling giddier heights.  On the plus side, though, here he is playing a set at the Barrowlands - at least he followed a dream once.

If you want to see how Russell arrived at his conclusion that Labour's plans are good the analysis is here - but don't expect much, it doesn't show any workings or explain assumptions.  You might also wonder how IPPR Scotland has got to different amounts for Labour's plans and the Lib Dems' plans for the wealthiest people in the country, given that the plans are identical for people earning more than £20,000 a year.

How the U-turn distorts the policy and the costs that don't add up

How are we doing so far?  Excellent.  So here's some more fun; Labour's volte-face on the households/individuals thing about who gets the £100 kickback makes for some interesting scenarios.  It means that a childless couple on combined earnings of £39,000 could be claiming a £200 handout while a couple with children with a household income from one earner of £20,001 gets zero.  Even more ridiculous is the possibility that a couple with a grown-up child in the house could have a combined income of £59,000 and get £300 back while the couple with school-age children get nothing.  The Broons, with five people in the household working, could be hauling in £99,000 a year and be getting £500 back and so on.

Then there the numbers - they really don't add up now.  The kickback thing was costed at £50m which was raised to £75m within hours as Labour realised that pensioners had been forgotten about.  That included the money for the administration with the heroic assumption that it could be done for £1m because a far simpler scheme handing much less money is done for around £1m - leaving £74m to pay kickbacks.

There are half a million pensioner taxpayers in Scotland (page 26) so at £100 each that's £50m a year.  There are 573,000 working age taxpayers in Scotland that fall into the under £20,000 bracket to qualify for the kickback so that's another £57.3m.  That means that total payments would be £107.3m and that is £33.3m more than Labour's budgeted for the scheme - even if it can get the admin costs in under £1m.  The figure for working age taxpayers comes from 2012-13 because that's the most recent figures the UK Government has published but wages haven't exactly rocketed since then.

You can dig the figures out from the Annual Survey of Hours and Earnings (ASHE) that show that about 40% of Scottish workers are paid £20,000 or less.  Given that the most recent ONS stats say that the Scottish workforce is around 2.6 million strong, that would be about a million who are paid £20k or less but since we don't know from those figures how many are taxpayers we should stick with the just over half a million that the HMRC figures give us.

So if HMRC is right and the take from raising the tax rate by 1% in Scotland is £475m and the kickback payments knock £107m out with the administration costs taking away another million quid (at least), we'd be left with £367m from the scheme and over a million people queueing up at their local council offices to claim their rebates.  For comparison, Scottish income tax rakes in between £11.2bn and £11.5bn for the Exchequer (page 66) so we'd go through all that pain to raise less than a third of one per cent of what London currently soaks up from Scottish income tax payers.

The scheme might not be legal

I'm not done quite yet, though, because the legislation that Labour wants to use to pay the £100 is The Local Government in Scotland Act 2003, specifically Section 20, the power to advance well-being.  Perhaps Labour's researchers should have read on to section 22, and subsection 4 in particular, which says
The power under section 20 above shall not be exercised in a way which unreasonably duplicates anything which may or must be done in pursuance of a function, under any enactment (whenever passed or made), of a person other than the local authority.
Since tax credits, rebates and allowances are the preserve of the Treasury (at the moment - one waits with baited breath for the results of the Smith negotiations) and operate through HMRC councils can't give a tax rebate.  Benefits come under the DWP (councils administer housing benefit and council tax benefits as agents of the DWP) so councils can't do it that way, either.

There would need to be new legislation passed through Holyrood specifically to allow the payments to be made but that is straying into reserved territory and takes us into the detail of the powers of Davie Mundell under the Scotland Act - would he allow such legislation, created specifically to change a reserved decision, to stand?  With Mr Osborne - a vindictive man at the best of times - at his back and raging about the impudence, would the Secretary of State not strike it down?

Tax would be raised for every income tax payer in Scotland (rich people living off the fat of shares, stock options and inherited wealth aren't affected) and there would be no kickback.  Scotland's median wage is around £27k so even if Labour's plan worked it would mean that people on less than the average wage would pay more tax than they would under Osborne's plans.  £20,000 is only just over a quid more per hour than the living wage - it's hardly living the life of Reilly.  If the kickback plan doesn't work - and it looks like it can't - then people on the minimum wage will be paying more tax and pensioners will be paying more tax.  Labour will be asking the lowest-paid and pensioners to pay more than even George Osborne wants them to.

The system is broken - and so is Labour

The moral of the story is that the tax system from Calman just doesn't work for us (you can decide for yourself whose fault that is), it can't be made to work in Scotland's interests.  If you want a tax system that works you need control of the whole system.  Of course, we could have taken that control with a Yes vote in September 2014 but I'm not going to bring that up - I wouldn't do such a thing.

Watching Labour do politics these days is like seeing someone staring at an Escher drawing and calling it an architect's plan for a bungalow.  There's really no need to be quite so incompetent.


Right then, get your coat, I'll buy you a buster, these shoes are kiling me, I don't know why I wear them to the dancing, I really don't, I swear I'll have bunions in the morning...

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