Posterous theme by Cory Watilo

Filed under: Scottish Lib Dems

Just admit you dont care

Well that is a pointed statement. It comes from here:

 

Yet again, twodoctors (aka James Mackenzie, Scottish Green Party Spin Doctor) and I were having a little conversation about how the Coalition government are running the country. It actually started with a retweet by James that stated that the super-rich are robbing the poor. My response was that income tax on the poorest was being removed, which is hardly the actions of a group determined to rob the poor. James then highlighted the fact that the very poorest don’t pay income tax and that VAT is going up to which I noted that VAT is not charged on many items the poorest spend their money on to which James responded with the above tweet. So do I care? I really hope that I do. I am not a bad person, I dont like to see people suffer and I try to help people in my community in certain ways. I left the banking sector for the voluntary sector because, ultimately, I want the world to have been, in a small way, a better place for me having been here.

 

The VAT increase

I confess to believing that the country does need to get its finances in order. I don’t accept that it is correct to increase borrowing to increase spending whilst a reasonable chunk of our spending is actually repaying debt. If the country had been run on Keynesian economics whilst there was economic growth then I could understand the borrow to spend line. But it didn’t happen. And if we borrow more now, there is no indication that we would be able to repay our debts during the next economic upturn before we need to borrow again during a downturn. So I care that our country needs to be on a more sound economic footing and the VAT increase is one tool in addressing that. If we don’t get the countries finances correct then there will be far less money to pay welfare payments to the people who need them. VAT though is only charged on certain things so lets get right to the point James was making. Poor people, defined I assume by James as the unemployed (without hope of a job it is alleged), the unemployed disabled, low-income pensioners and others in similar circumstances who rely on the state to provide them with welfare payments. I suppose the issue is what are the welfare payments for? I confess to believing that they are to provide a basic level of living standard. I would define this as a somewhere to live, food to eat, clothes to wear and other basic things that support hygiene, household cleanliness etc. Now, the welfare payments that cover housing don’t incur VAT so that will not increase. Basic food stuffs, more than enough to provide a wide and varied healthy diet, do not incur VAT and nor does child clothing, books or newspapers. Supermarkets provide access to hygiene and cleaning products at such a low price that the VAT increase would be less than 10p per week. I know all this because when I was last unemployed my lifestyle and the products that I used changed dramatically. The cost of my weekly shop plunged dramatically but I found that I still had all the essentials, just the branding had changed. Yes, I had to turn off my Sky TV, my mobile, my internet access (that was like losing a limb), SORN my car (with a view to selling it if things got too bad) and not eat takeaways. But why should other people pay for any of that anyway? VAT (or indeed any tax) is going to be a greater proportion expenditure of any person without their own income. That cannot be avoided. And in the case of the cost of alcohol, positively endorsed by the Scottish Green Party. But the increase in VAT will be minimal (pennies) to those without an income anyway. Unless they are spending large amounts of their benefit payments on items that incur a VAT charge. Now, there is inflation and that is a problem. Some groups, like pensioners, experience greater levels of inflation than others. And benefit payments are not keeping pace with the level of inflation being experienced. No government has ever managed to keep benefit payments ahead of inflation to ensure than the effects of inflation are not felt by those on benefits. This is hardly the unique action of a rich group of politicians. Again, it is not theft from the poor to struggle, as all governments have struggled, to keep benefits at a level that is both economically viable yet actually practical.

 

Super-rich are robbing the poor

Given that I am not in the super-rich category why do I broadly agree with the economic course set by this government? Aside from my comments above maybe I am deluded (possible I suppose), perhaps uninformed (doubtful) or possibly I really dont care as is the suggestion. But perhaps I am in the super-rich category - after all I am earning more than 80% of the population. This can be seen here at the Institute for Fiscal Studies: Where do I fit in?. Yes, my £29k charity salary means I am earning a lot more than other people. In fact, this government has actually improved the income of many of the people who earn less than I do. By raising the allowances prior paying tax, those earning far less than my super-rich, top 20% earnings benefit. Again, hardly robbing people is it. In fact, it is actually in direct opposition to the Scottish Green Party’s desire to tax the poorest earners more by raising revenue through Scotland’s basic tax powers. Any increase in the basic rate would hit the poorest, hardest. Who would be robbing who then? I actually believe that the only way for a government to earn enough to pay for what it wants to spend money on is through a competitive, clear & collectible tax regime that encourages economic growth. In a global market place where many businesses can be moved abroad out tax regime needs to be sufficiently competitive that the UKs other attractive options for business are not outweighed by heavy taxation. That said, I would like to see all taxes that are due to the exchequer paid to the exchequer and would reduce the number of tax-avoidance schemes and increase the number of tax inspectors to enforce any changes. But we also need clarity and understanding in our tax systems. Punitive taxes on people or companies, just because they happen to be rich or sucessful, will not be helpful. That is the politics of envy.

 

Who are the Super-rich anyway?

The link to the IFS calculator is also an interesting examination of how many actual rich people there are in the country. There is a great cry from the left to tax the rich more. Yet there are not that many of them. Even the IFS state that there are only 2.6m people who earn more that £39k after tax. How much more should a person be taxed. Those earning over £37k just know have to pay 40% tax on anything above £37k and those earning above £150k pay 50% tax on earnings above that figure. But is it fair to tax them more? How much tax is fair? I have no doubt that many on the left feel that someone earning £37k, never mind £150k, has somehow cheated their way into a high income and should pay more tax as a result. Yet it is clear that even when someone comes from a background that offers more opportunities (like parents marrying before they have children) and support (one that values education as opposed to holding teachers in contempt) than is available from a disruptive family on a sink estate, there is still the need to show ability, earn respect, deliver real outcomes and demonstrate a committed work ethic. If someone works hard and does well, surely it cannot be fair that a government wants to take more than 50% of their earnings above a certain level?

 

Services to the Vulnerable

Scotland will have a budget of £28bn in 2011/12. That is not an inconsiderable amount of money. But apparently it is not enough and the fact that I think it is probably also means I dont care that expenditure by councils on front line services are being cut. Yet look at some of the things that we are spending money on. Over £20m spent supporting Gaelic. A language that has never been the language of Scotland. I can trace my ancestors back to around the early 1800s and none of them lived or worked in an areas of Scotland that ever spoke Gaelic. Less than 2% of the country speaks the language. Yet we have official government agencies that support it.  How many care packages can be implemented for £20m? As a nation we are spending £11.2bn on Health & Wellbeing. Over a third of our budget. £8.7bn of that goes directly to local Health Boards. This has increased phenomenally since the first Scottish budget in 1999 when £5.1bn was allocated. Is our health twice as good as it was - are our services twice as good as they were? No on both accounts. Some political parties are now in a death cycle of who can commit to the NHS more regardless of need or outcomes. Reading the Scottish Government Budget for 2011-12 it is not surpassing that the NHS is perhaps not achieving as much as it could with the money that it has. There are several programmes/strategies/plans/routes and even standards that are tied to the funding. The NHS should be concentrating on address some of the more basic health needs in Scotland rather than fashionable issues. Like free prescriptions. I can afford to pay for my prescriptions so when i need a course of antibiotics or other types of medicine I can afford to pay for them. Those on benefits don’t pay for them and, whilst those with longer term illnesses needing support, there was no need to abolish prescription charges. This will cost the NHS in Scotland £70m. Now lets half that for charges for people with long term conditions and on low incomes (no basis for that 50% but I think it works as a crude example) - that is still £35m that could be spent elsewhere in the healthcare budget - again supporting the most vulnerable via partnerships with Social Work. These are just a few examples of where the national Government is spending money in areas that don’t meet the needs of the Scottish people. I would rather that Gaelic was a hobby for interested people instead of a highly funded government pet project. Local Government in Scotland gets £11.5bn. That, again, is a remarkable rise since the start of devolution where the budget has risen from under £6bn. Have our local services delivered extra or better services for the extra billions? I havent noticed. I noticed all the permanent jobs that were recruited under various, time limited and separate funding streams that padded out the already large public sector. I noticed the above inflation pay rises and the increases in the pensions. Hell, more than once I tried to get a council job for those precise reasons. Local government waste millions on publications advertising their own work, spin doctors, consultants and internal reorganisations that last just a few years. I am sorry, but if £11.5bn is actually not enough to meet the requirements of the various Social Work, Housing and Education Acts that dictate most of the council expenditure then Scotland is truly in a devastating state and which will require even more £bns to fix. Yes, there are problems but not on that scale. Both the NHS in Scotland and Local Government in Scotland spend tremendous sums of money on things that are not frontline services. The ire of the left when it comes to a lack of services should not be directed at people in employment or companies employing people and paying our pensions but instead at the organisations delivering the services - why not investigate them? The public sector delivering services directly to the people of Scotland gets £4,000 per head per year. How is this not enough?

 

Do I care? Yes, but in a different way to James I suppose. I care that this country needs to be able to maintain its welfare payments and that the only way to do this is through proper economic management that reduces the debt of the country to manageable levels. I care that I am in the top 20% of earners in this country after a period of unemployment. I care that taxation of low earners makes it difficult to return to work so I am glad that we are reducing the taxes on the poorest people in employment. I care that with careful management welfare payments can get an average person through a week (although there will always be examples of how this is too hard for others). I care that the best way to deal with people in poverty is to create an economy that is focussed on finding them jobs. I volunteer in my community to help others less fortunate than myself. I feel strongly that local services should be used to help the most vulnerable in society (but I don’t care if those services are delivered by the public sector). I care that there is waste in the public sector and that, structurally, the public sector cannot help but bloat itself on any public funds (you should see some NHS/Council ideas for this Change Fund - changes they are not). I do care that some people think that endless taxes and endless spending with no stated outcomes, with no desires to make long term changes think that this is the best way to run a country. I just don’t agree with them.

Let’s be Radical! (Part 2) - Fiscal Federalism, Low Taxes, LVT & LIT

The elections for the Scottish Parliament next year will be hard for the Scottish Liberal Democrats, as I explained here. Being the fourth largest party in the Parliament has been a hard fact to swallow, if only because we are the second largest party representing Scottish seats in Westminster. We need to gain more seats in Scotland and to do this we need to offer the people of Scotland something totally different from the other parties. We also need to offer something positive and hopeful for Scotland because the narrative of painful cuts is a negative one were Scotland is either a victim of the Tories and Lib Dems in Westminster (a Labour point of view) or a victim of the Union (SNP). Neither negative narrative needs to be the correct one – the Scottish Liberal Democrats need to offer a positive and radical vision for Scotland. I believe that we can offer a number of policy agendas that can separate the Scottish Liberal Democrats from the other parties. The first of these policy agenda concerns the tax system and level of taxes in Scotland. By offering far-reaching reform of the taxation system we can offer a radical vision for Scotland. Wednesday’s unemployment figures revealed a sorry situation in Scotland with unemployment rising to almost 9% of the population despite it actually falling in England. This shows the fragility of the Scottish economy which in turn demonstrates how few economic leavers the Scottish Government actually has to use when trying to grow the Scottish economy. The SNP would argue that Scottish independence would free Scotland to run its own economy but recent events in Ireland and Iceland have shown what happens to small economies during international economic crisis. Given that popular opinion is against Scottish independence there needs to be a different attempt to increase the control Scotland has over its economy. In 2006, The Steel Commission published its proposals for Scotland to gain fiscal federalism. Put simply, fiscal federalism would allow Scotland to set the rates for taxes levied in Scotland, have them collected by HMRC and then directed straight back to the Scottish Government (with some money retained for reserved expenditure like welfare payments and Defence expenditure). This would mean that Scotland would be able to set things like income tax rates, VAT, Corporation Tax and Environment Taxes. As Caron at Caron’s Musings points out, the Calman Commission report is a more recent development which recommends a partial level of fiscal autonomy with some powers over Income Tax, Stamp Duty and Landfill Tax. I agree with Caron in that, at best, the Calman Commission should only be seen as a stepping stone to full fiscal federalism. In fact, the Steel Commission noted that full fiscal autonomy ‘exists in no other industrialised country in the world’ so we should not be seeking full fiscal autonomy even when Calman is implemented successfully. Fiscal Federalism will give Scotland a much greater range of economic power and economic policy making ability and we should be saying to the people of Scotland that we want to have a much greater say in how the economy of Scotland operates in the wider UK economy. Using new powers gained from Fiscal Federalism we can offer some Liberal approaches to personal taxation. Income tax allowances can be raised to ensure that the lowest earners are not paying tax and those people on welfare will see a real rise in their economic situation if they take a job. If a person earns the minimum wage working 40 hours a week then they earn £12k a year. That then makes an ideal starting point for income taxes as it is unfair to ask people to work for a minimum wage (as opposed to staying on benefits) yet start taxing them when they have earned less than what is deemed an acceptable minimum reward for their efforts. But making work pay means people need to have a job and the unemployment rate suggests this may be a problem (that said – using jobseekersdirect I can see well over 50 available jobs that require little or no technical experience). However we need to encourage more employers to take on staff and to do that they need to have the money to do so. Businesses in Scotland pay the following taxes – Corporation Taxes, Business Rates, VAT and National Insurance. With Business Rates in particular, we have the almost crazy situation where business are incurring major costs before even a profit is made. This may work where the economy is flying but we should be looking at every way possible to reduce the burdens on business when we are looking to them to employ people. The recent problems with the revaluation of Business Rates in Scotland have shown the gap between the reality of operating a business in Scotland and how businesses are perceived as cash cows for the state. For example, a business can find cheap accommodation that allows them to expand their services but straight away they have increased costs via Business Rates – in effect a penalty on trying to grow a business. This needs to stop if we want a successful economy. There is a solution to the Business Rates problem. Abolish them and introduce a form of Land Value Tax (LVT) on land used by businesses (I propose introducing a Local Income Tax for residential properties – explained below). LVT is a method of raising public revenue by means of an annual tax on the rental value of land. It would replace, not add to, existing taxes. The key part here is the rental value of the land meaning the site alone, not counting any improvements. The value of buildings, crops, drainage or any other works which people have erected or carried out on each plot of land would be ignored and the valuation would be based on market evidence. LVT makes sense for raising money for local authorities in that all land is contributing to their income. It will mean that those companies that buy land speculatively or, in the case of supermarkets to prevent competitors from building a rival store, will have to contribute economically to the local authority. All land in Scotland should be considered either available for use for business in which case it is liable for LVT, have a home built on it which means that it would be residential land (and thus potentially increase the housing supply), or be designated by the Scottish Government as a protected green space (like a National Park). Local authorities could set their own LVT based on their own economic preferences and situations. And that full economic use of all the land within a local authority means that the costs incurred by individual business will fall (except those business that hold land to prevent economic or residential activity) LVT for business properties in Scotland makes sense for a variety of reasons all of which can be found here at the LVT Campaign website. That particular campaign wants a LVT for all land and to use the income from that to replace all taxation. I really do think that there are problems applying LVT to residential properties which then results in problems for using LVT as a replacement for all taxation. One of the problems for LVT on residential properties is that the tax is payable with no concessions, allowances or thresholds. This is exceptionally regressive and penalises those on low incomes not related to where they live, like pensioners. Another argument against LVT can actually be seen from an old argument put forward for its implementation –
‘The landlord who happens to own a plot of land on the outskirts of a great city … watches the busy population around him making the city larger, richer, more convenient. .. and all the while sits and does nothing. Roads are made … services are improved … water is brought from reservoirs one hundred miles off in the mountains and -all the while the landlord sits still … To not one of these improvements does the landlord monopolist contribute and yet by every one of them the value of his land is enhanced … At last the land becomes ripe for sale – that means the price is too tempting to be resisted any longer … In fact you may say that the unearned increment … is reaped by the land monopolist in exact proportion not to the service, but to the disservice done.’ Winston Churchill during debates on the Finance Act 1910, as quoted by Hagman and Misczynski, Windfalls for wipeouts: Land value capture and compensation, 1978
The problem with this argument is that it assumes that the landlord is not the person living there and that the landlord wants the improvements being made to actually happen. Not all people want to live in an area that will be improved to meet societal needs. For example, a retired couple could move to a small village or an area of a city that is not near a primary school but if one were built and deemed successful, thus increasing the value of the land (and ergo the rental income) then they would be penalised financially for something that was nothing to do with them, nor something that they wanted. This is regressive and shows why LVT should not be applied to residential properties. Residential taxes need to be progressive and a local income tax is the most progressive form of residential taxation. Council Tax takes no accountability of ability to pay and since Council Tax benefit is a benefit that takes into account the amount of council tax due as well as income, many people who are asset rich, income poor find it difficult to claim. Local Income Tax is fairer on a number of other levels as well as income. The number of single person households in Scotland is rising yet Council Tax is calculated based on the premise that two people live in a residential property. The single person discount is only 25% which many people may find galling when suffering a break up of a relationship or even a bereavement. Taxes on individuals need to be based on their ability to pay. Coming next, Let's Be Radical! (Part 3) - Corporation Tax and a Renewable's Based Economy

It’s going to be tough – so lets be Radical! (Part 1)

In May the voters of Scotland, fearing a Tory majority in Westminster, increased the share of the vote for the Labour Party across the nation with a number of constituencies giving the Labour candidate over 50% of the vote. The Lib Dem vote at 19% in Scotland hardly set the heather on fire at a national level and the lack of increase in the number of seats won in 2005 (and the loss of Dunfermline and West Fife) was a disappointing result. Scotland rejected the Tories comprehensively in May this year with only one MP being returned and a share of the vote that at 17% compares badly with England at 40% and even 26% in Wales. Furthermore, it is clear that voters clearly differentiate their Holyrood & Westminster votes for the SNP. They were the second largest party in Holyrood in 1999 and 2004 and the largest by one in 2007 attracting around 32% of the vote. This far exceeds the 20% they got in May at the General Election. The election performance of the Scottish Lib Dems has been constant at around 13% of the vote every election since 1999. What all this rudimentary examination of election statistics demonstrates is that next year’s election will be the toughest for the Scottish Liberal Democrats since devolution and will be for one simple reason - the Westminster Coalition with the Tories. The catcall of ‘Vote Lib Dem, Get Tory’ will be heard at every hustings (and will be on every SNP and Labour Leaflet). By the time the election takes place the impact of budget cuts will be clearer and the message being drummed into each voter by SNP and Labour activists will be that they will be the only ones to protect the voters from the evil cut making Coalition Government in Westminster. Of course, this is a lie. Despite the delusions of grandeur suffered by Alex Salmond, he is not the master of all he surveys. The vast majority of what the Scottish Government spends comes from Westminster via the Barnett Formula. Whatever cuts happen in England will happen in Scotland as well. And that is just public spending. Changes to benefits, entitlements and VAT are also solely within the remit of Westminster so Labour in Scotland cannot help people somehow change the impact of the Emergency Budget. Due to the inevitability of the lies, the Scottish Liberal Democrats need to offer the people of Scotland something different and, frankly, something positive. For too long, the Scottish Liberal Democrats, as well as the other parties in Scotland, have been defining themselves as being ‘against’ many things rather then something positive and new for Scotland. We can start by highlighting what we have achieved in government. Even a simple reading of the Coalition Agreement shows the range and depth of the influence that the Liberal Democrats have had in Government – reducing taxes on the lowest earners, increased civil liberties and banking reform. It goes further than just a programme for Government through. As Malc blogged over at Better Nation, the Lib Dems hold the position of Secretary of State for Scotland and can use that position to demonstrate something that neither the SNP nor Labour can offer the people of Scotland – real power and influence in Westminster. Recent events have shown that in practice as Tavish Scott has been able to arrange an additional meeting with the Defence Secretary regarding the construction of two air craft carriers in Scotland. But that influence and obvious power is, unfortunately, not enough. The SNP and Labour will be ‘against’ Westminster (read Lib Dem & Tory) cuts which will be a powerful narrative so we must instead offer an idea for Scotland that is so different from what has gone before that the message is so much more far-reaching and game changing that any comparison with the offering from other parties will seem pedestrian and lacking in aspiration. We need to be Radical. Coming Soon - It’s going to be tough – so let’s be Radical! (Part 2)