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Wednesday, January 04, 2017

Taxpayer Scotland

TaxpayerScotland has reorganised it operations

Our campaign against waste and unnecessary spending is now being handled by The Taxpayers' Alliance

For media response please contact
07933 827522

Our policy advocacy and commentary will shortly be
re-appearing under the auspices of a new institute;

The Centre for Democratic Prosperity


Saturday, December 24, 2016

Merry Christmas and a Happy New Year

 Merry Christmas
to all our supporters

The team at TaxpayerScotland
wish all Scottish taxpayers

peace and low taxes

in the coming year

Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes,
and a tolerable administration of justice
. Adam Smith


Monday, December 12, 2016

Incentives matter in all tax policy

A tax policy proposal crossed our desks this week purportedly offering a way out of our nation’s large deficit. It’s in a presentation by Conveyancing Direct ; we rather hope few have been duped into the impression that it makes any practical sense or tackles the central issue that Scotland faces with its finances.

It promotes the age old chestnut of a Land Tax – an idea that has been around for centuries which lauds the notion that land offers both a very wide tax base and one which cannot be hidden from the taxman. This tax is offered as a way to “reverse the austerity agenda” and “a fair way to fund all public services”.

Pink elephants can look quite pretty; but this proposal contains a number of ugly and major flaws in that it ignores four fundamental principles about tax. This week, as Mr Mackay offers up his first budget for parliamentary scrutiny, it is worth us reiterating those.

The first is an economic principle; that tax rates matter. This Land Tax proposal appears to suggest that extracting an additional £10billion from land values, even while reducing taxes elsewhere, will have zero effect. This is an error, while land cannot be moved about, its value as revenue earning wealth can be adjusted. In that respect, any land tax has to follow the immutable tax rule that unless rates are kept extremely low, those owning land will adjust its uses - and not necessarily in the way the tax designers expect.

The second, and linked, principle is about behaviour. Adjustments by individuals will inevitably apply in different ways across the wide tax base and uses of land. Much of the wilderness lands of America, controlled by the Bureau of Land Management, are gradually deteriorating due to regulatory intrusions (implicit land taxes curtailing the use of land without property), the Bronx in New York City is famous for its almost total destruction in the 1970’s due to rent controls (implicit land taxes on the use of land with property on it), Southern English houses are now being built with bedrooms without room for cupboards and garages into which modern cars do not fit (implicit land taxes through planning induced space shortages).

Land and property taxes, indeed all wealth taxes are extremely powerful in their effects because they do not tax income we already have at the margin – they take the core individual wealth that makes us feel secure, and the wealth of suppliers who take risks because of that wealth. A serious distortion of domestic property markets across the UK is well underway with labour mobility declining rapidly and a new generation forced to rent from a stalling buy-to-rent sector – high property taxes have done that.

These dynamic effects multiply through the reactions of individual owners and, when summed, create a key, wider principle that the total tax burden on any economy matters. It’s not enough to claim that tax reductions elsewhere might bolster incentives in other ways; they will, but the overall distortive effects of additional burdens, especially in land and property wealth, will be detrimental to economic activity. Mr Mackay please note.

The higher our nation's total tax burden is, the slower change and growth take place. There is now a lot of academic work suggesting that any intrusion by the state above 25 percent reduces wealth accumulation at an accelerating pace. Scotland, with a state intrusion around 50 percent performs well below its potential. Adding to this will always make things worse. Mr MacKay, again, please note.

The fourth principle is one of political economy; that the distribution of tax impositions is driven not by logic, but by choices made through political motives. The Land Tax proposal offers a good insight into this process. Lauded as being a genuinely equitable tax, its authors have realised that it cannot be imposed at equal rates to everyone. Rates are therefore adjusted; with marginal land, woodland, arable land, town and urban land seeing progressively higher rates of burden. As such, it reduces itself to absurdity to become little more than an additional localised council tax or business rate based on property land value. Would such de-centralisation ever be acceptable to the central planners of Holyrood who are there precisely so that they control re-distributions of centrally collected tax revenue in support of their centrist plans? All tax revenues entice political action on rates to favour whomever politicians decide are worthy. Localised land tax controlled by a polity composed of local shopkeepers would, through time, no doubt push the burden to urban retail chains and country landowners, a polity composed of urbanites might choose the middle class homeowners and, again, the long-suffering (usually marginal) large land owners about whose lifestyles they know nothing except their own prejudices.

There is, as so often, deep within this proposal, the perception that the poor are poor because the rich are rich, and that the rich are happily ensconced in their castles supping port and counting their gold. The first idea is just plain wrong, the second ignores the huge overheads that stewards of land, flora, fauna, and historic buildings carry in a constant battle to keep cash flow positive. Today, these struggling estates are usually companies rather than families; taxing them merely taxes their workers and customers. That’s a great way to empty the countryside.

It is a stated aim of the Scottish Government to impose taxation equitably, but let’s hope that Mr Mackay is not duped into believing that claims for taxes that apply widely to all means that they will be applied equally to all through time. There are always winners and losers, and it is the politicians' job to make sure their voters are winners and other parties' voters are losers. Taxation is by definition a coercive act by the state for as long as we are free to own earth and earn our own income.

Which leads to the real rub in all this; the issue is not taxation – it’s spending. The proposal for a Land Tax (indeed all taxes) starts from the wrong place. Scotland’s deficit is not something that needs solving through a higher tax burden, it needs resolving through finding out how to spend less and then introduce a lower tax burden which will balance the books over the longer term.

Until the Scottish Government comes forward with a clear set of policy proposals to live within its means, and lays out a clear path into the future that identifies what Scots can expect in tax rates and the burden of distribution, our nation will struggle with lower growth rates, lower investment and a high rate of talent export.

In this environment, Scots will endlessly be treated to the unedifying spectacle of endless political wrangling over how to find more tax revenues and empty aspirations about where to spend them when the reality is that there is no more money that can be extracted from Scots taxpayers. That devalues our nation’s capability, literally and metaphorically.


Wednesday, November 30, 2016

Responsible for progressive enthusiasm

The Scottish Government is taking formal control of revenues from income tax from today. Soon, it will have full control over thresholds and bands. This adds to its existing responsibility over Land and Buildings Transactions Tax.

What is this responsibility? For SNP politicians it is usually couched in positives – control over economic levers, the chance to create opportunity in Scotland, to enhance fairness and equality. Such sentiments are packaged in the assertion that we have a “progressive” government.

But there is another responsibility here; to preserve faith with Scotland’s people that a dedication to being progressive will be successful. Power over economic levers are negative if they destroy economic activity and curtail the freedom of ordinary voters to spend their incomes in ways they see are productive – the people will respond by kicking “progressives” out of office. That’s accountability through taxation with representation. Democracy operating as it should as a constraining force; not as a state-building mechanism.

As dedicated low tax supporters we are resolute in our view that progressivity in taxation can be a force for bad. Over-enthusiasm for using economic levers to enhance endless promises for re-distributions creates many malign unintended outcomes.

We say “unintended” because too often our politicians fall into the trap of thinking that a small additional tax levy will hardly be seen by taxpayers and as an accumulated whole can do great good. This is precisely wrong. Economists have spent a century and more emphasising that behaviours of the moment by individuals are governed by what they see at any moment. We do not make decisions on abstract averages; we consider our actions based on the changing impacts of today.

So, when politicians decide to raise a higher tax rate, or lower its threshold, the taxpayer’s reactions are taken not on the global rate, but the fact that more pounds are missing from their salary docket. That change is weighed up against what future spending plans are desirable, feasible and affordable now that that money is no longer there. Work and spending patterns then adjust.

Politicians ignore this at their peril. A numeric example relating to housing might help. If you are a higher earner and have a city apartment worth £325,000 in Scotland and are saving, perhaps because you have young children, for a larger family house, you will enter the 10 percent LBTT tax bracket.

Let’s say you are trying to invest another £100,000 of new capital into your new home. To save this from spare income you have been taxed at a 12.8 percent NIC and a 40 percent marginal income tax rate before it enters your savings account, so you have already paid more than £100,000 in marginal tax to save that £100,000.

You then pay £10,000 in 10 percent LBTT, plus nearly £5,850 of lower rate LBTT. Add in moving costs and the fact that you will lose around £3,000 in yield by moving your capital into bricks and mortar (while raising your Council Tax bill, energy bills, maintenance et al in your new home) and you are facing an effective marginal tax rate on your purchase of around 20 percent. Is that a good use of £100,000 that has already cost you the same again in income tax to accrue?

The people are not stupid – they will make decisions on the basis of the change they see happening around them and the benefits to their lives of those decisions. For those “progressives” who believe that the control of economic levers allows them to control the lives of many hard-working middle-earning folk there are many lessons to be learned.

Chief among those is that there are reasons why high tax economies across the Western world are growing very slowly, why young people are feeling disenfranchised, and why the poor are not improving their lives because good jobs are unavailable. The politicians spent all our money, badly, on their Big Government state. That’s not progressive.

Less Spending >> Lower Tax >> Higher Growth >> More Jobs


Friday, November 04, 2016

Thanks for not a lot?

Tax progressivity has always been the mantra of the devolved Scottish Government. The consultation by its Local Tax Commission made clear that the option of higher taxes for larger properties was favoured – and the rises for the top four bands is no surprise.

We submitted to that consultation and in discussions we were firm that increased progressivity would not produce the outcomes expected. We are still of this view.

Council Tax payers dislike this tax bill, it’s the largest single outlay to their government that they actually have to find – as opposed to NIC, income tax and VAT which are embedded in pay packets and purchases. As such it has good qualities – it’s transparent and its imposition can easily be weighed up against what we might prefer to do with our money as an alternative. It allows us to weigh up our values against the values of our councils.

Politicians are careful to recognise this by allocating the rises to uses that are difficult to reject – such as closing the educational attainment gap. But taxpayers should be careful; what they say they will do may not be what we actually get for our money.

To understand why, you have to start from where we are now – for many households a council tax of well over £1000 is a real burden – it’s not only the rich who live in larger houses; many have got there through hard grind and foregoing consumption, others are the fabled widows left at home, more are inheritors of family assets. The inadequacy of Council Tax to “fairly” echo the circumstances of those living in diverse properties is well recognised.

As such, the only decent thing to do with Council Tax is to recognise that its rates have to be kept low – the higher they get the more exemptions have to be created and the whole edifice becomes horribly complicated, with more and more people seeing it as unfair. The eight year Concordat was the politicians' answer to this; although they have done nothing about re-designing the spending side of the over-large multi-functional corporatised mini-conglomerates that we call "Local Councils" - oh, that they were truly local.

When taxes are high, and are seen as unfair; trust dissipates and people change their behaviour. In housing, this means large homes are split up into flats, those with wealth stay where they are and buy rental properties; they also lay off gardeners, and stop spending money on updating their kitchens and bathrooms. Some with ambitions reject Scotland’s charms and leave town.

Now a technical bit. What we are looking at here is the rate in change of consumption patterns through time across private and public spending. Around £100 million a year will be raised through these tax rises. This gets added to the annual budget of £4.9 billion in Scottish education. That £100 million is not used on the private activities cited above.

What’s the net effect? Well, no-one can know, but if there is a calculation that could be done it would be between entities who have just produced a 195 page document for teachers on how to teach and a school constitution document that no one can understand; and small-town builders, gardeners, cleaners, florists, interior fitters and decorators trading out of second-hand vehicles. I think we know who, pound for pound, is adding more value.

And that’s the key, the net value added from economic activity is the bit that creates tomorrow’s taxes. Again and again, we have to stress to the Scottish Government that its size is so large that it is actually damaging its own tomorrows by wrecking the supply-side today.

The Scottish Government always talks about fairness – which should correctly be used to mean “deserving”; not shorthand for taking other people’s money for political ends based on values that are wrong.

Of course helping the education of the least able is a good aspiration, but acting on that aspiration using higher tax rates, and centralising those taxes so that taxpayers do not see their local councils compete with other councils and learn how to innovate, is simply bad policy.

How ironic if in attempting to raise funds to help our children and grandchildren improve their lives, our government achieves the exact opposite, by making them poorer. If the response to that is then to borrow yet more money to mend bad policy, we are punishing those children twice over.


Monday, September 19, 2016

Creating dignity and respect

It’s reported that Angela Constance believes the Personal Independence Payment system – which replaces Disability Benefit - needs “radical reform”.

The basis for this appears to be that two thirds of claimants challenging awards are successful; something which the minister believes is not helping to treat them with dignity and respect.

There’s an element of double-think in this. PIPs were brought into being because there was a high-handed top-down approach being used by the DWP on the provision of benefits for the disabled and incapacitated. The PIP was to give more control over special support money to individuals, so that they could tailor best value from it. That, to us, was treating them with respect.

The change was introduced following a clamp down on a huge rise in incapacity benefits being paid as job seeker’s allowance was made less easy to obtain. That is, while PIPs were on offer, they were not going to be offered too easily. That, to us, treats taxpayers with respect.

Few people remember that when assessment of welfare for work began, thousands of benefits claimants simply did not turn up for their interviews. Shortly afterwards, unemployment figures began falling. There has to be a strong suspicion that many on welfare were not treating those who paid the taxes that supported them with respect.

In our land of free money trees, the battle over free lunches is always going to be noisy. It is made doubly so when politicians are able to use vague terms like dignity and respect in way that reflects a priority for vote purchasing over policy practicalities.

It's almost certain that what the Scottish Government means by offering dignity and respect is that they take back complete control over all welfare payments and design a system which serves their political interests with little respect for taxpayers.

The problem with PIPs is not that they are assessed carefully, but that they are not linked in any way to a system of contributions – where self-reliant individuals are allowed to judge the dignity and respect they are offering to those in need against the costs of their decency in giving. Instead, all welfare is offered through a vast monolithic tax pot replete with adverse and contradictory incentives for recipients, taxpayers and administrators alike. In short it is a mess.

The way to sort out PIPs is to expand them to become a guaranteed income entitlement for every individual, but held within a contributory system where the cost of accepting welfare is linked to the cost of thrift to support personal benefits.

It is worth mentioning that most European Union countries use some form of social insurance that follows this principle. Should the “single market” develop into a proper single market for services and Scotland somehow become a member on its own it is very likely that, in time, it will be obligated to allow an opt out from our monolithic system for individuals preferring to adopt the more sustainable social insurance model.


Wednesday, September 14, 2016

A good vision for our money spent on education

At last, a view from the Scottish Government that decisions should be localised to those in the know. John Swinney is to be commended for his clarity of vision for our education system.

Scotland suffers from far too many national monoliths, and taxpayers suffer from the producer interests in workforces and the bureaucracy who then capture the cost base of those entities and spend our taxes inefficiently.

How predictable that our local councils are not pleased to see their power and control seep away. Mr Swinney should reject their assertion that only a joined up one-stop-shop approach can serve all parents properly. Our councils are over-politicised and enjoy their complexity and sheer size through obesity in corporate costs and overheads – at great taxpayer expense. Every Scottish council function needs to become a fully audited cost and revenue centre, sharing overheads if it wants but having them allocated to its own audited budget.

The sop in Mr Swinney’s plan is his educational regions – collaboration bodies to share out power and control among the interferers; rather than leaving decisions to be taken between schools and parents. There’s lots of scope for spending our taxes on meetings there, and for a gradual mission creep by councils and the EIS back into the driving seat to dictate how schools are run. This should be resisted.

One of the great advantages of local council taxation is that it produces a bill for every household – usually the largest one they pay on a regular basis. That’s a good brake on the public sector presumption that our taxes are their money to do with what they wish. They aren’t, they are our money that we accept can be spent through them for collective gain.

If Mr Swinney can find a way to use that money more effectively and with tight focus on the task of taking a wee child and turning him or her into an astute individual with a mind full of learning, he will have done Scotland a huge service. We need them to build our future and pay off the appalling debt raised by our existing public sector monoliths.


Monday, September 05, 2016

How much is the public sector worth?

As we move into a new political season, we think it worth reminding taxpayers just how much our public sector has over-traded. The snapshot of GERS gave us all another view of the last year’s current account, but it is equally as important for us to look at the balance sheet.

For all the heat over GERS, there is very little light on the wider situation that our government has found itself in with respect to its finances – shared as they are at present with the UK as a whole.

It seems to us important for Scottish taxpayers who are now paying 2.8 billion pounds annually on debt interest (4.1 percent of all spending) that the collateral that backs these loans exists. There was a slight frisson of excitement in the City two weeks ago when a tranche of debt refinancing using UK gilts actually failed on the first auction. We should not underestimate the economic damage that a government, faced with a refusal to fund its debt needs, could do if it had to raise interest rates substantially in order to fund its activities. For Scotland, with less taxation capacity to pay such interest, outcomes could be extremely serious.

Governments fund their activities in an particular way. They split their spending into Annually Managed Expenditure and Departmental Expenditure. The first involves costs on spending promises made that cannot be broken; things like pensions, welfare benefits, and other programmes that are considered to be entitlements and will be spent come what may. The second element involves discretionary spending by government departments choosing to spend on initiatives that can be cut, adjusted or increased by the government of the day. The present Scottish Government’s Departmental Expenditure Limits are £30.4 billion – less than half of the total £68 billion budget. It is worth noting that the £12.6 billion shortfall on the current budget balance is 42 percent of this figure.

There is a reality here; should a new economic shock hit Scotland, and the government of the day wish to stick with its plans on annually managed spending entitlements, the discretionary portion of its budget is going to be shocked more than twice as hard if it has to take up the shortfall. That is essentially what George Osborne had to do over the past five years – chopping lumps out of government departments’ discretionary budgets to pay for other entitlements. While described as “austerity” such budget cutting is highly skewed away from the funding that most of the howling anti-austerity brigade consider to be important. GERS tells us that the cash budget for state pensions have gone up by £272 million and of Work and Pension social security cash spending has risen £59 million.

UK Public sector debt, as reported to the EU – what is called Maaastricht debt - is more than £1.6 trillion. A recent publication by the Office of National Statistics suggested that the market value of UK debt – what are called “general government unconsolidated total financial liabilities” – is £2.134 billion with a negative net worth of the public sector of £1,620. What these negatives consist of are the unfunded public sector pensions schemes, PFI legacy schemes, network rail and nuclear decommissioning among other mistakes made by public policy makers.

However much politicians try to spin these figures, the situation is pretty dire, not just in the UK, but all over the developed world – even the USA has set a path towards a trillion pound deficit with its present spending plans.

And for Scotland? Well, a smaller country digs a smaller hole, and if that hole is less deep in proportion (it isn’t) to other countries then it would be easier to get out of. So, again, when we start a new season of state spending promises, with new welfare powers becoming the responsibility of the Scottish Government from today, we would urge that offering more spending promises that result in yet higher debt is foolhardy. It is quite likely that Scotland along with other nations is in fact technically bankrupt. Should anything go badly agley in the next decade, it is relying only on its authority to tax us to hell and beyond, probably through inflation, to save itself from disaster. You have been warned.


Wednesday, August 31, 2016

Gaming the corporate tax system

There’s a lot of tut-tutting going on over the proposed fine of £11billion that the EU wants to impose on Apple Corporation.

Legal beavers are going to make a fortune chewing over this for some years to come. But if you look at the realities, governments have fallen into a huge hole of their own making.

Corporation tax is a stupid tax. Yes, stupid. It pretends to be a just imposition on companies so that they “pay their fair share”. But share of what? Purportedly “the money they are making” – imputed profits. The problem is that this money is not just lying about in a bank account somewhere. Companies manage their cash flow as efficiently as they can and nearly all of them struggle to retain it; free cash is pre-allocated for supply purchases and new capital investments, including additional staff.

When you tax companies, you tax their cash flow. Employer’s NIC, VAT and other levies all cut deep into cash flow – and they bankrupt more companies each year than anything else. So, when you add a tax on net margins on top, companies react by cutting staff, raising prices, slowing investment or lowering the dividends that our pensioners live on. Corporate taxes are enormously destructive.

Now the rub, governments know this. They know it because their tax authorities tell them that working out what net margins might be is really really difficult. Why? Because companies are not like people, they are made up of hugely complex bundles of contracts between suppliers, service providers, specialist licence holders and others; as a result they are all different with different ways, speeds and methods of earning margins through time. There can be no “level playing field” because companies do not play on the same field.

Sadly, governments are stupid enough to think that they can treat them as if they do. A number of things then happen.

First, corporate taxes become complicated – look up Tullows Guide to UK corporate tax, it’s more than 4500 pages long and no-one, not even the best tax specialists, understand it all.

Second, because tax authorities have to run complex rules that deal with complex companies, they resort to agreements – just to get somewhere with their revenue collection. HMRC’s Large Business Directorate struggles away trying to make sense of complicated rules. In essence, HMRC and large corporates share an approach where each tries to game the system for best outcomes. Often, players have worked on both sides, so the game is ostensibly objective, but in reality a cabal-like negotiation that makes a mockery of any idea that our tax system is equitable. It’s all hugely wasteful and enormously unproductive, allowing top professionals to make shedloads in fees.

Third, because of this complexity, smaller companies doing well are given another mountain to climb as they try to generate the cash to grow. And there is a nasty bit here, because they are smaller and they cannot access the specialist help the big players can, the taxman finds it easier to flex their muscles with them. HMRC gets very aggressive with smaller companies that they know they can browbeat into submission on the basis that they know more than them.

And who loses from all this? Ordinary hard-working taxpayers and many others who are not working and so do not pay tax. Governments that tax money out of corporate cash flows are taking money from our future because they make it less worthwhile to take risks, to invest in a future, to work with others to enlarge our contractual relationships.

In Scotland, where 95 percent of our companies are small this destruction by the state is of huge importance. Just look what happened when Ireland cut its corporate taxes – they created a Celtic Tiger. That’s because small concerns grow faster when they are let free. Remember that Apple is only 40 years old; it has grown from nothing to having over 2 million employees today. Stuff happens when governments get out of the way and do not tax enterprise. In Scotland, we need a lot more stuff to happen – and fast.


Wednesday, August 10, 2016

Spending tomorrow’s taxes

Today, yet again, Scottish taxpayers are seeing their cash allocated to ideas that politicians think might stimulate the economy.

Not surprisingly, we are talking here about things like hospital expansion, roads, bridges and the like; construction and capital spending done to a strategic central plan. Initial funding comes from an underspend last year, future funding comes from who knows where including the thought that post-Brexit there might be EU Structural Funds available.

It won’t work.

As we have pointed out before, lead times in infrastructure are long, funding moves towards larger players, many not based in Scotland, spending goes not to the many, but the few, and mostly to pay for financing on equipment, imported materials and imported specialist labour. We will not rebuild Scotland this way.

Isn’t it appalling that all our politicians can offer is to “protect jobs”, not create new jobs or whole new industries, but to support what has been and is struggling? Squandering pork to corporates in construction and quangos of the state is no way to build a wealthy nation.

In this Keynesian process the state builds something else; a liability payable in the taxes of future generations for servicing these new fast-tracked “investments”. Has anyone in the Scottish Government a clue as to the whole life costs of these new structures they propose. Last time we asked, the answer was a flat no, they had not been considered. Anyone for more debt?

These moves are said to help to “build confidence”. Really? Creating an un-costed future liability, accrued from production that will be done at an undefined time in the future, funded initially with £100 million of small beer spare savings adding 1.66 percent to existing projects, and later by money-tree funds of unknown likelihood. Jings … tak’ aboot fechin the larrie.

Taxpayers should shout out loud that two years down the line for some sort of unlikely stimulus is of zero interest or credibility. The Scottish Government now has new powers; they could offer a cut in Land and Building Tax, a cut in Income Tax and a few cuts in daft spending, with a promise of more to come, and we’d have a real and growing stimulus from tomorrow.


Monday, August 01, 2016

Should we let politicians tax us for energy?

There is nothing like politics to make a mash-up of coherent decision making. Mrs May’s decision to “review” Hinkley Point is the outcome of around twenty years of havering.

We are told that this decision is about how we might keep our lights on in our homes, but it is much more than that. It’s about how we feed power at economic prices to our basic food and chemical industries, especially the processing industries that operate day and night to feed, clothe and house us. The knock on effects of expensive energy are felt by every family across the UK. Expensive energy taxes us all.

Does this make Hinkley Point a no-brainer and a gift to every consumer? No, the issue is bigger than that. Hinkley Point is a testament to the UK’s loss of industrial confidence; to the wrapping up of all economic development in a labyrinth of politics created largely by central planning and the tendency of politicians to meddle and introduce price controls in energy markets.

These price controls are ostensibly introduced to offer relief to hard-pressed consumers struggling to meet energy costs, but actually what they do in the longer term is curtail investment and distort realities in demand and supply – at taxing cost to all of us. It would be much better if we always paid realistic prices for domestic energy, and prices were liberalised such that generators knew what investments to make for us to be ready twenty years down the line. Instead we perennially underfund energy production, relying on the state to bring in investment through tortuous contractual arrangements that are perennially unstable and use our taxes unwisely.

One other reality is that the UK used to be a world leader in nuclear power, but after three generations of design we effectively gave up. We could not make the transition from early type developmental reactors to more economic repeating designs.

Where does Scotland come into this? We have a government dedicated to renewable power generation through wind; where large quantities of German and Danish investment paid for by renewable taxes is bringing costs down, but the basic physics of the technology is essentially a hopeless dead-end with servicing costs increasing suspiciously. And from the point of view of making us more knowledgeable about how to create energy, it has been said that for the UK wind power lets us dig the holes and make the tea.

For Scotland, still a producer of specialists steels and high value engineering components, as well as being a nation well-versed in large construction projects, a home developed nuclear industry on behalf of the UK and export elsewhere is worthy of serious consideration. There are some interesting module reactor designs on paper that could be developed in half the time of Hinkley Point; a twenty year programme could introduce a whole new line of work for our nation with enormously profitable and global value. It would also offer an across-the-board tax cut to every business and family in the country.

It is worth repeating two things; that nuclear energy does not produce carbon dioxide and that the number of deaths in the nuclear industry due to radio-nuclides or radiation is so small as to be unmeasurable. Anyone for a Scottish Nuclear Energy Forum to grab this advantage?


Wednesday, July 27, 2016

A fund, localism and best use of our taxes

For all the power seeking stage-strutting that has been going on, it is easy to forget that life continues pretty much as normal. For some that means a daily struggle for cash to live on.

The Scottish Welfare Fund is Scotland’s home-grown fund to help those in real need at times of crisis. It helps people buy daily essentials, including heating. It’s grown from nothing to nearly £100 million in just over two years, with more than 200,000 households benefitting.

There are two interesting aspects about this fund; first, it’s a fund and, second, it’s delivered by local councils. As a fund, taxpayers can see the bill and know that it is not a hidden unlimited entitlement; while local councils are just that, local and in touch with the things that are hurting in their communities.

In that sense, the Fund meets an important criterion for efficient social welfare; that it is based on a limited contribution, overseen locally; albeit provided by a national collective. Is it any great surprise that we are told it has underspent by £1.5 million this year? One other good element of its design is that underspends can be rolled over for future years. It tells us that someone is interested in stewarding our tax money.

This fund supports individuals like those cited by Mhairi Black in her maiden speech in the House of Commons; struggling folk hit for six by a sudden change in circumstances that brings them to their knees. For many hard-working taxpayers this is exactly what welfare should be about, rather than lifelong destructive support creating a way of life reliant on regular entitlements. That the Scottish Government has had to find the money for 200,000 households tells us a lot about the failures of the grand design of the nationalised welfare system.

Localised and contribution based welfare should be the goal of the Scottish Government in its struggle to obtain more control over how social support funds are spent. We think Scottish taxpayers would be better served if there were more devolution of social support provision to Scotland, and then to its localities. It would pull up short those who see the £1.5million underspend on welfare as a bad thing, rather than prudent management of taxpayer funds. And of course at national level it would put a clamp on vote-buying largesse - there's nothing like there being no more money to clamp down on stupid politicised point-scoring taking over from compassion and decency in social support provision.

We think local councils also have a much better idea of the connection between money given out and local trade and jobs. If every penny spent on welfare in Scotland was spent locally and was taken from businesses and individuals locally, the connection between the jobs that higher taxation destroys and the jobs that lower taxation can create would be a lot more visible than today. It would also make the welfare system competitive between providers, the best way to induce efficient use of our money.


Tuesday, July 12, 2016

No growth bunkum will not help equality

The Green Party leader, Patrick Harvie, has described as “ideological nonsense” the idea that a cut in corporation tax will increase revenues. His view is that this will only allow “tax dodgers” to profit, and “leave control in the hands of wealthy corporations” and curtail “efforts to move to a common tax base”. It’s all part of some dastardly plot to “continue with austerity”.

Oh dear, if you want ideological nonsense from a Scottish perspective, it’s Mr Harvie spouting clichés like this that offers it.

There are 361,345 private sector enterprises working in Scotland. SME’s account for 99.4 percent of all these, with 3,870 medium sized, and 2,295 with more than 250 employees. There are only 35 public corporations – wealthy corporations. Many of these are international traders.

So much bile is directed at these large traders , yet is it really likely that corporations like the Clydesdale Bank, AG Barr, John Menzies, Stagecoach and Johnson Press can be found skulking in their board rooms each day working out how to fleece their customers and workers of money? Get real; these people are audited to within a penny in each earned pound and most of them are trying to find out how to make any net profit at all. The margins they do make are re-invested or helping pay the pensions of the elderly.

The lack of numeracy among many of our politicians is repeated in the notion that it is possible to find “a common tax base” for corporates taxes. We explained in a previous blog piece why this is a false crusade because net profits at any one moment are almost impossible to identify for even the smallest trader. Trying to do the same calculation for all sizes of company has led to farcical outcomes with a 4,500 page corporate tax guide that no-one, yes no-one, understands - although many make large fees from pretending to do so on behalf of large corporates in an expensive merry-go-round of negotiations with an over-worked and hence ineffectual (and, more recently, arbitrarily aggressive) HMRC.

Small traders really matter in Scotland. The 99.4 percent that Mr Harvie taints with the idea of being “tax dodgers” are those who create about 1.2 million jobs – that’s 55 percent of all employment. And how do they do that? Well, think about something like a small café or shop, or small jobbing engineering firm or parts distributor:

Let’s say that to earn an extra hundred pounds of revenue you have to spend £50 in wages and £20 on product content. You are trying to work on a retailing margin of 30 percent gross. (We will come back to this figure below). Operating like that:

  • The employer loses £6.40 paying employer's NIC.

  • And then has to pay Business Rates – about another £5 if they are lucky.

  • And then has to pay VAT on the gross margin. Another £6 gone at 20 percent.

  • So, three taxes in, that’s £17.40, leaving £7.60 net margin.

  • You haven’t paid for marketing, office expenses, transport and other things yet. You also haven’t paid yourself. And, crucially, you haven’t paid for tomorrow’s product out of this cash flow, which will actually create a £12.40 loss (£7.60 minus £20.00) if you stick at the same gross margin. This is called over-trading and is the second most common reason for small businesses going out of business.

    You are losing money, fast, so what do you do? You put your gross margin up – to 200 percent or more. You hoard cash, go canny and grow with great care so that you do not run out of it. You don’t hire new staff, or hire them part time, or on zero hours pay; you pay yourself a pittance, and you learn to laugh and be optimistic. Note how you are now part of a more unequal world; small business lives in permanent austerity; but you do it because you love what you do, even although you know your prices are higher than they could be, you are selling less and creating fewer jobs. This is what is called the “deadweight loss” of taxation.

    And any time you hit a new seam of margins, cash-generating business that could make you hire more people, pay them more, expand and invest, what does the government do? It taxes you again on the extra margin you have made. Ironically, VAT is the most common reason for small business to go out of business; so we certainly don’t need Corporation Tax on top to smash their accounting success.

    Taxation on companies is a core reason why economic growth does not happen at a rapid rate. It de-focusses large companies, making them staid and cautious, spending fees on the risk managers of law and accountancy. It hauls cash out of Scotland’s small businesses – entities which have been described as “bundles of informal contracts” between owner-managers, suppliers and workers; the real world of trust and honesty and hard-work.

    And there is a counter-conclusion, practical and certainly not ideological; if Scotland’s 99.4 percent did grow faster, the tax revenue they would create would far outstrip what the state can get today. Think Palo Alto, not Ravenscraig. Mr Harvie is plain wrong on this.

    He also says: “corporate tax competition is one of the mechanisms that has created the profoundly unequal economy we see around us today.” That is total ideological bunkum. In the business sector, it’s the one option that could create more equality through more jobs with higher wages, and higher productivity from investment.

    It’s time to scrap all corporate taxes, they have failed. They have no coherent base, cannot be calculated, favour fat cats with good lawyers, and destroy investment. Above all, they take the fruits of small company imagination and divert them into hoarded cash flow or public sector coffers where productivity is dismal – creating the very inequality they are said to reduce.


    Friday, June 24, 2016

    Keep calm and be international

    As we all digest this morning’s news on the UK wide referendum we can only, as taxpayers, adopt a position of keeping calm and carrying on. Whatever changes are coming are going to be festooned with political babble.

    If you believe in democracy that is no bad thing; all of us found that this was not an easy choice and it is always good to talk through problems; public debate in the UK is good at such things and we Scots are well to the fore in our ability to hold our own.

    For those fearful of what is about to be discussed, we offer the following thoughts:

  • Armageddon is not around the corner. Most of us will still go to work, earn a crust, haud wur wheesht and get oan wi it.
  • The tax revenue that supports the less well-off and the elderly is ring-fenced in expenditure budgets and it is not in the interest of any politician to have to deal with destitution. They will print the money if it is needed. Those who foresee sudden Draconian "cuts" are talking tripe.
  • If the pound falls out of bed, any Scot involved with the world beyond the EU – and there are many of us, we are a global tribe deeply engaged in global engineering and resources – is likely to make more not less income.
  • If the markets fall, the Scots legacy of internationalism embedded in the investment funds that operate from St Andrews Square will protect many of those with savings. Scotland’s capital focus looks far beyond Paris and Frankfurt.
  • What concerns us at TaxpayerScotland are not the uncertainties faced by business, but the uncertainties created by our politicians. Their interests are to seek power over us at the level of their competence, which by definition means locally in Scotland.

    If this means that the debate over Scotland’s future ends up being an argument about how our politicians continue to arrange subsidies in order to buy our votes, that will be a rotten offer for our future. Scots will be drawn into inward facing navel-gazing when we should be casting our eyes to the far horizons of the world in which we have to compete and make our way - whether in our out of the EU this reality stands.

    Now is the time for all Scots to be as international as possible – that’s where the wealth can be earned to generate the taxes that can support all the local services that so many want. And we would add this; there is no morality in adding our own claims for support to an entity that in its southern periphery has nearly half of those under twenty-five out of work and does not appear to know how to resolve that disaster.


    Friday, June 10, 2016

    The watt price of a cleaner world

    The Scottish Government’s “mibbe-yes”, mibbe-naw” stance on fracking for gas is to be expected. The politics of non-majority governance induced by the present devolution settlement do not allow policy clarity. With the Green party as a source of extra centre-left votes, this parliament will see environmental policy somersaults aplenty.

    Yet, it is important for Scottish taxpayers that the fracking debate is not captured by nuttiness or romance. Energy prices affect us all, and energy prices raised by state policy need those increases to be considered as new taxes.

    It is no help to read flyers saying that fracking will “destroy our land and our water supply” or that “within 20 years, Scotland will be a wasteland”. It won’t, it would put a few, quite small, towers and pumps into fenced off production pads in our central belt, and yes, they might smell a bit at times – as Grangemouth does now - and they will produce some chemically treated water that needs containing and processing. The idea that they will taint the drinking water from Loch Katrine coming out of Glasgow’s taps is fanciful.

    Longannet coal station stank too, and pumped 9.5 million tons of CO2 into the atmosphere annually as well as producing 4350 tonnes of ash. But it also produced 9000 Megawatts of power in a year. It’s clarity about that environmental price per watt that matters. Wind power offers the potential for replacing some of those Megawatts annually but as we write today there is little wind and it is providing 0.37 percent of all generated power (0.12GW).

    Even with renewables a source of secure power is needed and the answer, today, has to be gas. We can import it from the USA and elsewhere or we can extract it ourselves.

    For Scotland, taxing ourselves highly to provide power is doubly stupid. As an industrial nation, our needs are not about 60 watt lightbulbs – it takes up to 500,000 watts to run a sizeable lathe making heavy engineering components or a milling machine skimming forgings for infrastructure components like architectural steels. It takes even more to crush rock, or process chemicals that we use every day in the home. We need to get real and think about these things; the core workforce that creates our wealth relies on industrial electrical power. The rest of us rely on their efforts to keep ourselves warm, comfortable, healthy and properly fed.

    Nothing makes us less capable of dealing with environmental issues as poverty. This applies both for individuals and our economy as a whole. Wealth generation is the sine qua non for clean power generation. The smoke haze over the forests of Indonesia and villages of Bangladesh tells us this clearly.

    Raising the price of electricity too fast, while importing the source of energy that creates electricity, is tax policy based on nuttiness. Too often, environmentalists are absolutists focussed solely on environmental outcomes with zero concern for the damage their taxing methods cause to our capability of creating environmental improvement.

    We are not running out of energy, and we are not running out of resources; the price system will see to that. We can, however, run out of money to pay for comfort and improvement to our state of being.

    If the “green” movement wants us all to forego growth, it has to tell us what state we would be living in as a result. If it is one in which sackcloth and ashes are the predominant condition, they need to think again about the smoky haze in the skies above the impoverished; they have little time to think about advances like microwave cookers that use a hundredth of the power of a wood stove; electric fridges that preserve foods and release us all from working in fields and burning dung; and new mechanicals, including electric engines, that replace the badly burnt fuel and particulates from ancient diesel taxis and two-stroke motorcycles.


    Wednesday, May 25, 2016

    Oh please no ... stop this now

    Scottish Enterprise is applauding itself for throwing £120,000 of our money at two Scottish Businesses using the ancient corporatist pork barrel – Regional Selective Assistance grant funding.

    This money will add to private investments made by Dundee-based 71 Brewing and Aberdeen based Fierce Beer. Eleven, yes eleven, jobs will be “created”.

    No they won’t.

    In the very same press release, with no sense of irony, we are told that there are now more than a hundred craft brewers in Scotland, and number are increasing rapidly. So why in the name of Mammon do we need a state-sponsoring agency to be throwing our tax money at these two companies? Is this some sort of joke paradox designed to create skewed competition?

    These companies should be put in the dock for their corporatist greed – we should pour their beer down the drain as tainted. They do Scottish business a dis-service.

    You also have to wonder how much it cost us to assess and release this grant – there will have been a layer-cake of subsidy bureaucrats, clerks and public relations officers engaged. At least their jobs are safe. In the meantime, the taxes taken to pay this bung to business are no doubt extracted from people and businesses a lot less well-off than the owners of the breweries.

    In fact, it is worse than this. On the same day that this part of our government machine is using our money to puff up its prowess at subsidising beer-makers, the NHS in Scotland has been publishing research paid for with our money to tell us that we are drinking too much. It's enough to - er - drive you to drink.

    The international bottled craft beer market may be growing, but is Scottish Enterprise saying that for Scotland’s participants to survive they need state support? Where does that approach to economy end? With higher taxes, slower growth and supported industry – and an impoverished people.

    If we want to keep Scotland too wee, too poor and eternally stupid, this is the way to do it.


    Friday, May 20, 2016

    How not to send a farmer a cheque

    A waterfall of our tax money is being poured into Scotland’s farm payments computer system. The nation will use this to administer 53,000 farm holders’ payments of around £920 million per year.

    Unbelievably, most of the £178 million being spent is now remedial, catch-up funding for a contract that has become a horrendous slow car crash of monumental proportions. The Audit Scotland report on the fiasco will bring tears to your eyes when you read how your money has been squandered.

    For the 53,000 farm holdings being paid it will cost £3,358 each to administer an annual average payment of £17,358.

    The root of this disproportionate overhead arises because with 53,000 farm holdings to be paid, the government’s bureaucrats labouring a standard 228 working days a year will need to clear off 232 farm payments each day - to complicated EU and Scottish Government imposed rules. Coincidentally, there are presently 250 highly paid IT consultants working on how to achieve this rate of sign-off.

    The nature of these farm payments gives us an insight into how governments work and why the cost of administration using IT systems goes through the roof.

  • When the project started the EU had not decided what their requirements were for payments and these changed through the period.
  • The Scottish Government wanted some localised adjustments. This is allowed under EU rules.
  • The contract for the IT work was therefore not for a fixed sum, but to be adjusted as the new regulations were agreed.
  • Additional needs arrived in the form of a land-mapping system that was felt necessary to allow the bureaucrats to do their work properly, deal with the complexity of meeting payment rules, and recording what was done.
  • And, as always, there were other specification changes made by all parties through the programme. Parties that, it appears, did not get on well, or work well, together.
  • Now, it is a tenet of political economy that governments implementing programmes of political importance often fall foul of confused objectives, mission creep, multiple agendas and conflicts of interest. We urge you to read the report, it is replete with examples of these phenomena. Frankly, it sounds as if those involved have been at each other’s throats or in the huff over the past months.

    What is galling for taxpayers is that this farce – which now faces EU fines for not being implemented in time – is still soaking up our money – there are hundreds of contractors working on the project at enhanced rates of pay. All for a system not yet working, serving rules that only last until 2020 and which will no doubt change both through and after this period.

    Can it really be that difficult to create a database of 57,000 people to send them a cheque? It can when the state gets on the job, and taxpayers end up paying for more bureaucrats to look after farmers than farmers growing food.

    Audit Scotland has done Scottish taxpayers a huge service in laying out the horror of the situation. Someone at the very top of the Scottish Government needs to roll their sleeves up and knock some heads together to stop more of our money being wasted.


    Sunday, April 24, 2016

    Reverse the rates and enjoy the multipliers.

    It should come as no surprise that LBTT receipts did not reach their budgeted target, falling £34 million short of the £235 million expected, for domestic sales. Many commentators, us among them, predicted this; super-progressive taxation is famously unproductive.

    However, one year’s receipts and the rush to buy and sell prior to the tax coming into force makes us cautious about carping criticism. These are early days and the housing market is generally slow. Mr Swinney and Revenue Scotland are also on new territory with all the specifically Scottish taxes.

    But there is another, in our view more important, way of looking at this shortfall. Why haven’t receipts gone up?

    If we had a buoyant housing market, with plenty of new home sales, and lots of additional home-mover sales based on a mobile labour market, that would be good news for Scotland. The state always needs reminding that 6 times 10 makes four less than 8 times 8.

    Home sales are undoubtedly depressed at the top end of the market due to the horribly high rates above £325,000. What we do not see are the hidden losses of this depression; the effect on the interior designers, the quality carpet sellers, the garden landscapers, the roofers, tilers, plasterers, electricians, plumbers, odd jobbers and others, even down to the coffee shops in the shopping centres that get visited by new home owners who don’t then find what they want.

    All of these traders, skilled at extracting the hard-earned income off the higher paid professional classes, exchange less and earn less – cutting Mr Swinney’s revenues. Those in lower value houses who might take the risk of moving up to bigger properties and bigger mortgages at low rates spend their money on consumption instead, mostly cars and electronic trinkets imported from abroad from big corporates. New jobs and growth are curtailed, and inequality is locked in as the wealthy deposit their savings into their tax free ISAs.

    All the Scottish political parties, including the Tories subordinate to George Osborne’s appalling actions on property taxation, which will do little more than increase rents in our view, simply have not yet understood that high tax rates damage us all, especially the entrepreneurial middle.

    Our politicians should be talking about how to increase trading, not taxes; tax revenues will come with trading success. The supply side matters more than ever for Scotland, it’s not that difficult for government to produce policies that enhance confidence in trade – it just has to get out of the way and take less from more trades.


    Tuesday, April 12, 2016

    Is this our money or not?

    To those in the public debate strutting the stage of a morality play about tax avoidance we suggest some caution. There are some highly practical reasons in political economy why good tax management may be useful to society as a whole.

    When tax is imposed, because the state has no money of its own, there are two options:

    Either, we choose to accept that some of it will be taken for the common weal.

    Or, we are forced to accept that some of it belongs to the common weal.

    Historically, liberal democracies have avoided the latter option by allowing the people to consent to their government – with the option of discarding it every so often if we do not like what it is doing. This crude “on/off” switch is a line of defence against the power of despotism and the main power of the despot; to take our liberty through taxation and other rules.

    But is this on/off switch good enough? Today, when a large state spends around half of our money, we think that proper democracy demands more. Lobbyists, pressure groups, political parties and other factions dominate the debate about what to do with our money. They all want more of it. Politicians have found it difficult to avoid salving special interests with more and more of other people’s money and our taxes have continually risen. The general interest in the essential truth that the economic freedom of our own property and the spending of our own money is the root of personal and political freedom is gradually lost. Others run our lives instead.

    Tax management to minimise what the state takes is a relief valve for this. If you truly believe that a lot of what the state does is wasteful or unnecessary, or even damaging and so not in the general interest of the people, minimising what you give them is an act of democracy. The action of those with a general interest in looking after their own liberties actually increases the liberty of others.

    The typical actions taken suffer from a shortfall in our language. Tax “avoidance” is too broad a brush and suggests illicit behaviour. Using the term “tax management” for actions within the rules would help defuse that. If we then call more aggressive forms of action “tax engineering” we enter a new debate – again based on practicalities. Precisely why do people use tax engineering to maximise their avoidance?

    For us, you have to start with the fact that even for a taxpayer on the basic rate, once your allowances are used, (and for most of us they are largely mopped up by unavoidable housing, food and travel to work), then a pound spent out of remaining disposable income encounters a total 54 pence tax charge if you are employed. (Two NIC payments plus income tax) This marginal rate becomes a lot higher if you are buying fuel or booze.

    If you are a middle-earner (not rich) paying the 40 percent rate, add the extra 20 percent on as well. If you are a top earner, you join that small band of people who pay most of the direct taxes taken by the state.

    Certain things have happened due to this burden; the articulate wealthy have managed to engineer a set of reliefs from high tax rates, and other engineerings, some involving overseas dealings, to lower their burden. In turn, politicians had allowed these reliefs to expand into a byzantine maze of tax impositions with highly complex reliefs. The net result is that inequalities are often increased and, worse, preserved by the difficulties in changing the tax regime.

    To return to the idea of “force” in extracting taxes; the extent to which this coercion creates actions is not in the hands of government, it comes from what Adam Smith told us is the moral imperative of us all to look after our families first. Where the state does try to call on moral persuasion and beseech us to pay higher taxes it observably falls foul of human nature – unintended consequences follow, like Cayman Island banks. The response to bad tax policy creating bad outcomes should not be to compound its errors by repeating them.

    There is one final practical matter; where investment comes from. The wealthy are really rather important in this matter, it’s their liquid wealth that provides the capital to buy the machines and take the risks that pay the incomes of those who work. Making that investment less available or more costly does not help anyone.

    Too often in Scotland, we are bombarded by the notion that the poor are poor because the rich are rich. But exploitation theory which hypothesises mass immiseration has been totally debunked by the gradual rise in living standards of all through the years. The truth is the reverse: the rich are avant-garde innovators, big spenders - often making mad expensive choices, and are usually habitual employers. We all gain from their actions. Let’s cut taxes and make lots and lots of them; then we can all get richer .. and many fewer will need the support of others.


    Wednesday, March 16, 2016

    A boring surprise or an unsurprising bore?

    We saw the UK budget exercise as a bit , well, odd. It’s highly managerial; as if Mr Osborne left it to worthy Treasury officials to come up with a few goodies to throw like lumps of toast and jam to various people. But from the other end of the telescope we expect that the dire international position clipped his wings and unsurprisingly all he could do was be boring and tinker.

    On the third hand (sic), there is an important rule in public budgeting; constancy. The “long term plan” (all of four years!) continues to do something about the deficit and presumably debt in the even longer term.

    Yet, along with the direction of travel we detect a sense of emptiness and and timidity. Taking a bit away here and putting bits back there does not help develop a sense of pending grand achievement. It comes across as a three hand card trick. Constancy has to be matched by consistency in a developing vision. This appears to be lacking.

    That’s a shame, because we do all need a fillip. Introducing a Sugar Tax without reducing the indirect tax burden on the less well off, increasing thresholds while not creating flatter simpler taxes, engineering yet more regulated savings plans, rules on capital taxation and other endless wrinkles to be written up; it all adds up to, well, not very much. Even the halving of the burden on our oil companies is a half in a supplementary tax; beneficence worthy only of Scrooge himself.

    Managerialism is not the way in our view to develop good tax policy. Simplicity, transparency and equity through rigorous generality is – we must open up much more confidence that the state is our servant, not our manager.


    Wednesday, March 09, 2016

    GERS - focus on Micawber not oil

    In our submission to the Smith Commission we said:

    “TaxpayerScotland is of the opinion that “the curse of oil” is real for Scotland and that a far greater focus needs to be put on industrial performance rather than on the lucky circumstances of our having a gradually wasting asset of an environmentally invasive mineral.”

    In the presentation of the 2014-15 GERS Report figures today Nicola Sturgeon said Scotland's onshore economy - activity not related to the North Sea - was “doing well", with revenue growth of 3.2 per cent.

    We’re pleased to see the focus moving away from oil, and we eschew the option being taken in the political marketplace of carping on about what today’s figures might have meant for a Scotland going independent later this month. Counter factual imaginations help no-one. This GERS Report is actually for 2014-15, next year’s oil receipts will be even lower, we hardly dare think what the net deficit will be, and no doubt Mr Osborne will be fearful of the UK totals too.

    What is extraordinary to us is that our First Ministers analysis of the success of our economy is couched in terms of the growth in tax revenues. Yes, we know that GERS is about the overall “fiscal balance” of tax and spend, but it is the focus on taking more from the productive economy which is so galling. Is that what our present government thinks we all go to work for – to raise funds for their spending programmes?

    At least John Swinney suggested that fiscal barriers should be removed from the oil industry – a bit late, John, the money valves are well corroded out to sea, but if there are barriers to oil success, how about the barriers elsewhere across our economy created by high tax rates?

    What Scotland needs is not more tax revenue, but more production across all sectors. That’s where jobs come from and the new wealth that might sort out the huge fiscal deficit. Somehow, we cannot avoid the impression that all our politicians, from all parties frankly, are all at sea over this unavoidable reality. Our previous blog (below) hopefully gives some insight into the arithmetic of the challenge we face to get on the right side of Micawber. A focus on anything else as this long recession continues will be frankly Mac Awful.


    Wednesday, March 02, 2016

    Perceptions, expectations and aspirations matter.

    The Scottish Government’s new Council Tax structure destroys a valuable link between council services and those that pay for them. As such, it has becomes a pure revenue raising regime; any idea that our councils are charging for collective community services has been lost. Local taxes are now integrated into national policy goals.

    The power of our local councils to tax the wealth and income of households is presently held back only by the Concordat Freeze which is already creaking under the strain of council desperation for more funding. The risk of public spending getting out of control from 2017 as the freeze is lifted is high; offering this gives the wrong signal, our councils desperately need to re-assess their role and operations.

    While the new tax regime may see a small increase in the proportion of funding raised locally, the imposition of an element hypothecated to education and potentially other specific purposes adds yet again to centralised control of local governance. It locks public policy choices to the few senior ministers who control the money to pay for state programmes. Councils are right to be incensed by this; the centre is acting in exactly the same distant way that it, rightly, criticises Westminster for doing.

    TaxpayerScotland believes that these changes are not in the best interests of Scots and Scotland. The government’s own Commission on Local Taxation favoured much greater local spending autonomy - as did many of the submissions to that body. Allocation from the centre of income tax revenue does not achieve this; it aligns local and central public spending interests in a non-competitive combined cabal which will always seek increases in funding. It is worth repeating that the state has no money of its own and taxpayers are the only source of such funding.

    The perception that our government wants to tax us more has now firmly become an expectation that it will do so. They continually ignore the future effects of middle income behaviour changes at their peril. It is more than likely that the increase in burden on high value home owners will increase inequality as highly paid professionals adjust their incomes. Meanwhile home assets that are reduced in value through higher tax crush aspiration, reduce consumption of home improvement services, and destroy the collateral that backs many small owner-managed businesses. That destroys jobs and growth. It does this with double the effect when it is the aspirations of the young talented graduates that are wrecked. We cannot afford more of them leaving Scotland.

    The counter intuitive effects of higher tax burdens are well documented, however the Scottish Government continues to ignore the evidence and believe that it can somehow re-build Scotland’s fortunes through more public sector spending and higher tax.

    Now that we are entering a period where tax competition with the rest of the UK becomes more transparent, the realities of the Scottish Government’s stance on fiscal policy will be tested in due course. TaxpayerScotland is not convinced that the present approach can survive the test of time and the free movement of talent and capital.


    Tuesday, February 23, 2016

    Myopic peering has given one key reward to taxpayers

    Are any of our politicians getting any bed rest these days? Two sets of political negotiations in a week – both taken to a cliff-hanging outcome - suggest not.

    But thank goodness these secretive wranglings are now done; politicians are not really the best people to design a fiscal framework. Peering myopically at rates of change of per capita revenue and population growth isn’t a vote winner.

    If you have a forensic interest in the minutiae of what was being argued about, you can go here and find a good summary. We reckon one in a hundred will truly understand the numbers, which makes it a lot less useful as a sustainable democratic and popular solution – something that is backed up by what appears to be the promise of reviewing the whole arrangement in a five years’ time.

    For us, there has been far too much sparring to find out how best to filch each other’s money to fund future spending promises. But, we have one reward – a properly independent Fiscal Commission is promised.

    TaxpayerScotland has been demanding this institution from the moment the issue of a shared currency arose during the Referendum campaign period. Scotland needs it.

    So, perhaps we will get two things from this - and possibly three. First, the beginnings of accountability for the Scottish Government. If what it does is done badly, taxpayers will know and Scottish politicians will be held to account in our elections. Second, forecasts on tax and spend from a source separate from the spin machine – offering a constraint on aspirational balderdash at last – allowing taxpayers to match expected numbers with actual outcomes.

    And the third? Well, the new borrowing powers should frighten every Scottish taxpayer, so we'd like to see any new Scottish debt backed only by Scottish taxpayer revenues. That might stop our politicians from spending our grandchildren's money before those babies are even born.

    These things can only be good for our pockets, our businesses and Scotland’s future. It will be a paradoxical irony if arcane negotiations about lower revenue per capita in Scotland and Scottish population shrinkage might actually induce our politicians to think much more clearly about a vision to dramatically increase Scotland’s output per capita and the Scottish population; precisely where we think our nation can go with constrained government and lower taxes.


    Thursday, February 11, 2016

    Parliament needs to support The People not special interests

    We are stunned by the news that Holyrood’s Finance Committee has voted against allowing the Scottish Fiscal Commission to produce independent economic forecasts for Scotland.

    Our parliamentarians have let us down badly.

    Over the past years, and right through the Referendum, we have repeatedly called for this body to be beefed up. It is a key measure that would improve perceptions about Scotland’s financial position and encourage confidence in our governance. It would also protect taxpayers from political aspirations and nonsenses that are mere puffery for electoral gain. In short, it would force our political planners to be honest; a constitutional instrument for the people.

    If you read the evidence sent to the committee by an array of experts you will find a professional unanimity - yes, unanimity - that this measure is considered important and highly valuable.

    Around the world, it is the way that modern governments are supported in their struggles to balance their books in the face of endless demands for more spending by special interests. This is an objective observation based on evidence, not a political opinion.

    Voting against the measure were four politicians. We do not argue ad hominem but we think it fair to consider their self-interest. These are former long-term local councillors, public sector employees, and politics graduates steeped in the tax and spend culture of the leftist consensus. They have an incentive to tax us more and spend more for their own political gain, even if objective analysis of their plans shows that their ideas will impoverish Scots across the land.

    That is of course their democratic right as elected representatives, but are we saying that taxpayers – especially those in a state with a single chamber parliament - should have no check in case of error? The proposed fiscal commission has no statutory power to direct fiscal policy; it can only advise politicians of any misgivings about policy and, crucially, inform the electorate of their view. The workings of democracy are as much about an informed electorate as voting powers.

    Scotland, like the rest of the UK, and Europe, and America, has been through the longest recession of modern times. All developed nations are crushed by debt and deficit. Re-kindling growth is very slow, and some economists are saying it could be that we are entering an era of permanent slow-down.

    After the May election, and already in Westminster, Scotland is likely to have representatives in its parliaments replete with those who seek to use public money without much consideration of the financial and tax consequences of their spending. Their vote motives in doing this are hugely powerful. Without a powerful and objective independent fiscal commission to caution against over-spending Scottish taxpayers face great risks to their incomes and wealth.


    Thursday, February 04, 2016

    Hotel taxes are unfair and unequal

    So Edinburgh’s Festival wants a subsidy bung. With numbers dropping and venue costs rising, they say it faces a fiscal cliff. No it doesn’t, it’s being told by those who can attend that its value to them is not as great as was thought.

    Rather than coercing more money out of the business that they rely on for their customers to turn up, they should do what every other commercial business does – shrink and innovate. The Festival has grown by leaps and bounds through lucky happenstance and a great deal of tax subsidy in previous years. It has no more reason to be the size it is than Tesco has to keep all the stores it is selling off.

    Scotland is already one of the most expensive places to visit in the world. It costs a lot to get here, it costs a lot to travel around and it costs a lot to stay here. If we want the Festival to succeed sustainably, we should be campaigning for a cut in VAT for hotels, not an increase. Tourists with more money to spend on things other than hotels might choose to spend it on busier Festival visits. Or they might spend it on attractions outside the Festival jamboree; that competition would let us know what value we are getting for any public funding used for the Festival. And it would also allow the poorer parts of the nation to improve their tourist potential.

    And while we are mentioning the poorer parts of the nation, are we really suggesting that a family from, say, Cumnock who scrape together the money for a family treat of a couple of days at the Festival are being treated fairly and equally? If the cheap hotel with a family room in Edinburgh is made more expensive to stay in to pay for middle class culture vultures the money is going the wrong way.

    Actually, it is worse than that. First, tax-funded subsidies, even those ring-fenced for specific purposes, always end up being permanent, even when they are known to cause economic damage. Second, they also tend through time to get diverted for other purposes by officials.

    Scrap this tax idea. It’s self-serving pernicious special-interest pleading.


    Wednesday, February 03, 2016

    We need to reverse thinking on income tax

    As Scotland’s political parties have announced their tax ideas, we have haud wur weesht. It’s not our business to enter party politics, but to examine what those wishing to fill the seats at Holyrood are proposing, and then try to offer a point of view from taxpayers about that.

    We now know that we have two parties proposing an additional penny on the Scottish Rate of Income Tax (SRIT) – one with an ill-defined and complex clawback, one incumbent sticking with what we have but clearly seeking more progression in the future, and the Tories for no change, but with a position in a new paper proposing an additional complexity – a new middle rate.

    As supply siders who see policies that improve the financial position for all as a way to rebuild Scotland from the ground up –especially for the less well off – we offer these observations. It is proposed that a penny on SRIT would raise around £450 million. No one knows the real figure; economic forecasts for a new semi-autonomous Scottish economy are not yet possible.

    Scotland’s total output is around £135 billion, of which just over £66 million is taken by the state. This output is growing by 0.1 percent per quarter at the moment. That rate taken over a year means we are adding to output by around £540 million annually.

    What those who want to raise SRIT by one penny are saying is that they want to take over 83 percent of all new added output from the efforts of Scotland’s taxpayers.

    Now you can argue, as many do, that this is merely a transfer of money from those who have to those who have not, but consider this; every productive person in Scotland, every painter, every plumber, every welder, every shop assistant, every hairdresser, every quarryman, every fisherman, and so on, is pulled into this money grab. In general, these workers earn less than our quite highly paid teachers for whom the additional tax is proposed to be spent. So, our first criticism is that raising SRIT is likely to increase inequality.

    Ah but, you may say, most of the tax will be paid by the well-off. Well, there are figures around telling us that 0.7 percent of taxpayers pay 13.9 percent of all taxes, but there are fewer than 4,000 top rate income taxpayers in Scotland, and the arithmetical truth has always been that while a few pay a lot, the many many more who pay the 20 percent are the core revenue source. This is the source of Mr Swinney’s hesitation to raise the rate across all bands.

    It is also worth pointing out that in Scotland many of the highest payroll burdens are in the public sector, so you enter a peculiar circular never-never land where the state taxes its own workforce more to provide it with more money - and then complains it has no money to pay its wage bill.

    But there is more to this. Wealthy private sector professionals; bankers, accountants, lawyers have the power to adjust their salaries. Take more tax from them, they will charge more for fees, keeping their net income stable. So, our second criticism, again, is that raising SRIT, especially if it is made more progressive will, again, increase inequality.

    Let’s go back to the £540 million of added production. In fact much of this added output is already being mopped up by the state. The GERS report tells us that around 40 percent is absorbed through tax revenues, with yet more public spending being financed via a deficit – paid for by new debt that raises future tax needs.

    So, any additional SRIT is taken at the margin of existing highly taxed trades that generate the £540 million; and crucially, there are millions upon millions of them.

    Now, whether you are a high earning professional, in a hard-graft self-employed trade, an artisan or a nine to five retail assistant, your knowledge of today’s and tomorrow’s turnover comes from the others who pay you or from whom you buy. And in the private sector these are highly sensitive antennae because, unlike in the public sector, decreased trade and losses matter.

    When the plumber and painter see the lawyer not updating his kitchen, when the fisherman sees prices on the dockside go soft, when the hairdresser sees the shop assistant’s cut their trim and blow dry down to once a month, when the quarryman can’t sell gravel to re-surface driveways, when the welder sees no new work coming in to fabricate new structures, when the accountant reports to his clients that margins are tight across industry, when the banker sees cash deposits shrinking … we could go on and on because this point is vital to understand, removing cash from Scotland’s value adding private sector production is visible to everyone and crucially ….

    Everyone knows.

    So, our third criticism is that politicians are ignoring the reality that all the above trades, artisans and professionals are highly aware of the link between their efforts and the taxes they pay. More tax on top of an already high burden does not, as our politicians keep claiming, create the potential for more public spending. It makes all working Scots more cautious and risk averse. And for an increasing number of economists, when the state is so large, it holds the prospect of actually shrinking our economy and making us all poorer.

    The best way to improve our public services in Scotland is to declare that we are going to constrain our state sector through time, reducing it to at most thirty percent of our GNP. In doing that, we can cut taxation to release both the cash and the confidence for a lot more productive transactions to take place.

    Without raising tax rates at all, the state would have more revenue in due course. We would also be a lot wealthier, with far fewer needing social support.


    Monday, February 01, 2016

    Reforming welfare needs guarantees for all

    An excellent contribution to Scotland’s welfare debate is published this morning by Reform Scotland. They propose that a Basic Income Guarantee should replace the present hugely complex in-work welfare system.

    Their proposal has echoes of our own paper proposing a similar guaranteed minimum income based on individuated welfare accounts. .

    The Reform Scotland paper should be compulsory reading for all. Especially striking are pages 14 to 25 where they decided to list in some detail the numerous schemes, payments and allowances that exist today. This section alone drives the conclusion that unfairness is built into the welfare system; how are the vulnerable to cope with such detailed requirements for support?

    We all know the outcome – an official behind the glass partition struggling to match a thick rulebook with a chaotic life, and failing. And as we frequently point out, and Reform Scotland enumerate in detail, the applicant for support ends up trapped in a form of open prison, often involving social torture, where they cannot get satisfaction from “the system” but neither can they escape it because they are taxed so highly as they earn new income.

    On the other side, working taxpayers are permanently dissatisfied with the amount spent on welfare. The arena of social compassion becomes hyper-politicised and divides us all.

    We would have liked to see a little more attention to linking what we all contribute to the welfare system to what is taken out of it; full transparency about the redistribution money-go-round is in our view essential to good economic governance. An element of transparent contribution from all, on all earnings, would also ensure that all were involved in our own welfare; we do not need a separation between givers and recipients for truly sociable support. That breeds stigmatisation.

    But Reform Scotland should be applauded for tackling this issue - in all its complexity. The question now is to make sure that politicians begin to realise that the present status quo is not only unsustainable but also not fair on the vulnerable and needy.


    Thursday, January 21, 2016

    Runaway Quangos?

    The effort of the “health industry” to police our eating habits is never-ending. It’s reported today that Food Standards Scotland is promoting more work for itself and “experts” on a sugar levy on our food. They are backed in turn by medicine’s Royal Colleges.

    A large cohort of tax-funded officials is hell bent on behaviour modification to reduce rates of obesity, diabetes, heart disease and other clinical ailments. The first three are defined to be the major focus of the NHS to reduce its clinical burdens; so there is a perfect political alignment here of bureaucrats and busybodies.

    But take a step back; the Scottish Government has no plans to introduce a sugar tax. Its politics are different, it represents the people who vote to keep them in power and they know the measure would be deeply unpopular, and for good reason.

    So, as so often, we have tax-funded officials of the state spending our money exploring policy options that are not wanted by tax-funded politicians who have overspent by far and complain that they do not have enough of our money. Such is “social” democratic state corporatism.

    Adding to the indirect tax burdens of the less well-off in Scotland is bad policy. The real like-for-like comparison to make is between today’s reality under high indirect taxation and a reality should a sugar tax be imposed, with all the unintended consequences that would entail. We all know the history of alcohol prohibition, but we should also heed the presence of a large number of contraband cigarettes, cheap duty-free alcohol, cars driven on recycled chip fat and, above all, the frequent use of more or less illicit drugs from glue to methadone across our poorer communities.


    Wednesday, December 23, 2015

    Lower taxes and better infrastructure

    It’s good news that the Forth crossing has opened again – and earlier than expected - for car users, although the damage being caused to east coast hauliers will continue. No doubt a lot of political pressure was put onto the contractors to complete the initial work.

    We have avoided criticising any particular party over this costly crack. We belong to the SNAFU brigade when it comes to the vagaries of metallurgical engineering phenomena on 50 year old bridges. That said, a road toll system would have ameliorated the economic pain of these events.

    There is, however, a wider lesson here about infrastructure investment. Once again, we see that the whole life costs of any infrastructure are often more important than the initial cost. There is a consequence of that for policy and it is this.

    If the rate of increase in whole life costs of a nation’s capital investments are greater than the rate of increase of economic growth then capital spending shrinks the economy.

    This counter-intuitive and counter-consensus insight needs to be kept in mind every time we hear the Scottish Government boast that it is “ameliorating cuts” made by the UK. A blind faith in state capital spending (and that includes physical, social and human capital) is simply not a tenable economic policy for jobs and growth. This is doubly so if that capital spending is made on the basis of higher borrowing; that way, new capital arrives with future losses to us all built into it. Keynesian stimulation has been pure bunk for a long time, and will continue to be so. There are no free lunches.

    How much better to release private energies through tax cuts. If Scotland could generate revenue through more activity at lower tax rates the nation could afford to rebuild its oh-so-worn out infrastructure while also growing the revenues that pay for their future maintenance.


    Friday, December 18, 2015

    Why more tax does not mean better public services

    The BBC aired a fascinating phone-on the day after John Swinney’s budget. It asked the question “Would you be happy to pay more tax?”

    Almost all listeners, with a weighting towards older callers to be fair, said they would - if they could see that the money would go to better public services. There were, hurrah, a few dissenters, mostly on tweets, texts and emails, so perhaps younger, who felt squeezed by high taxes or thought the money would not be well spent.

    Are we disillusioned by this reaction? Not really, because the question promotes its own affirmative particularly among a self-selecting cohort who rely on public services. It also rests on the assumption that more tax would lead to more and better public services.

    If the question instead was “Would you be happy to pay more tax if it meant the state had less money to spend on services in the longer term?” what would people say? We think the answer would be unanimously a negative. Crucially, that outcome would also be closer to the truth should Scotland’s income taxes rates be set higher.

    This counter-intuitive conclusion is hugely difficult to explain to those who only consider what is called a static score on taxation changes. You raise a tax rate, you get more tax revenue, it’s only logical. Sadly, no.

    To get to the truth we must consider the dynamic effects of a tax rate change. If Mr Swinney raises income tax he transfers money to his coffers from ours. We then spend less, what is called the deadweight loss of a tax and a loss that has consequences. Here’s a calculation based on a two pence change in income tax. We do it in two ways – using both a static and a dynamic score.

    In Scotland, the static score would be a revenue gain of around £1.1 billion from around one and a half million taxpayers. This assumes the present regime where the power is available to change the basic rate but no other rates or thresholds. We also factor in here some static loss of sales tax revenue due to the lowering of taxpayers’ disposable incomes.

    What about the dynamic score – the changes that take place through time as the effects of a tax change feed through. This is rather more complex. The best way to illustrate a like for like alternative is to calculate the effect of an identical tax cut of two pence. TaxpayerScotland has access to a dynamic calculation model and here is our conclusion.

    • The additional discretionary income of a tax cut, less savings, would put just over one billion into the Scottish economy. Mr Swinney would get an immediate gain through indirect taxes of around £200 million based on ONS figures of this tax burden.

    • The residual £800 million injection into the private economy would lead to some uplift in investment and wages. The model is far more sensitive to wage effects. We estimate that such an injection could lead to a wage uplift of around £260 million of new money into the pay packets of working families. That in turn would bring in more than £75 million in national insurance.

    • And, of course, these new wages also incur more income tax. We calculate £47 million from additional direct tax receipts. This is why our model is so sensitive to wage changes. Working people pay not 20 percent but 45 percent on their pay when NIC is taken into account.

    • This new income would also add more to Mr Swinney’s swag bag in new VAT payments as these higher wages are spent (less savings held back). Our model estimates this to be £63 million.

    There is one more element we need to obtain a first estimate of dynamic gains to a 2 pence tax cut. All the above applies to the first shift of money away from the state to ordinary companies and individuals – and then in part back to the state again in new tax collections. However, the part that does not go back to Mr Swinney of course supports increased production turnover created by the tax cut.

    Factoring this in across what Keynes would call his multiplier involves calculating how much the state hooks out in taxes on spending and wages that grow along with this second level growth in turnover. We find that these increase Mr Swinney’s take by just over half again. The final outcome of this full cascade of spending and wage payments is an increase in tax revenues of £650 million.

    But, there’s more, the stimulus injection is in fact not yet complete. The turnover increase is not a one off. If the initial tax cut is retained for another year, there is no additional stimulus, but there is a repeat stimulus from the first year turnover which has not been taken away in tax in subsequent years. This also continues to get taxed each year.

    Factoring this in increases the total tax take to Mr Swinney of a two pence income tax cut to, would you believe, just over one billion pounds after three years. This matches the empirical observation that tax cuts take time to take effect.

    Now we need to compare like with like.

    A tax rise of two pence gives Mr Swinney an immediate static gain of just over a billion pounds, extracted from the dynamic growth potential outlined above. Be careful, the state does spend that money so it re-enters the economy, but the net effect of that spend depends on two things, the pattern of spending, and the return to capital of any of that spend which is put into capital projects. No-one actually knows that outcome at any one time but we can surmise its general effect.

    Revenue re-distribution spending merely transfers tax revenue to social support and the pay packets of the bureaucracy as, at best, a zero sum game. In reality, due to different tax profiles in the spending patterns of those on social support and the state it’s more than probable that the economy contracts due to these revenue transfers.

    Capital spending recently has largely been done through borrowing, and the debt repayments required of the state need to be put against the return to these capital projects. We think, if we are charitable, Mr Swinney’s spending on capital projects of a two pence tax increase is likely to be at best neutral for growth at worst crushingly wasteful and burdensome. This is why Keynesian stimuluses do not work.

    What about the two pence tax cut? In this case, Mr Swinney eventually gets his one billion pound loss back in increased tax revenues, although it does take three years. He also gets, after that time, a larger tax base which allows for more robust public finances, especially if public debt is reduced using his higher revenues. In the process a lot more people get jobs, and more capital is created with long term sustainable value-adding potential. It is worth mentioning that here too is a route to alleviating poverty through increased wealth for all. Growth floats all boats.

    If this supply side argument is true, why don’t we simply cut taxes and cut taxes and cut taxes and increase the total national cake more and more.

    The first answer is that there are some investments that are needed for public gain. Succour for the vulnerable, public health and security, and transport are three key infrastructures for any society. In technical terms, there comes a point, if you shrink the state, where the return to capital of public investment does indeed become higher than the return to capital invested for private purposes.

    However, an economy with 45 percent intrusion by the state is nowhere near this point, indeed it is our view that it is far beyond the point where its returns on spending create good value for taxpayers. It certainly curtails growth as many an academic study has shown.

    A second answer is that it is not in the interests of politicians to offer such an approach. With a five year horizon, the vote motive overtakes intellectual sense, it is much easier for them to take our money and spend it back on us while applauding how clever they are in stimulating economic activity and helping all. In this, they are aided and abetted by the mass media who prefer an immediacy of action and an economic “fix”. That in turn, is supported by radio phone in listeners who buy into this apparently easy solution – just spend a bit more money and it will all be ok. Sorry, it won’t, the numbers don’t stack up.

    There is also a simple observation that all phone in listeners need to ask of themselves. Why is it that despite years of raising taxes and increasing public spending we always end up with the state needing yet higher taxes, and always claiming a need for more public spending while always piling up higher debt? Now you know why. They are shrinking our potential to be wealthy.


    Tuesday, December 15, 2015

    Local tax and local spending need to be linked

    The report by the Commission on Local Tax Reform is worth struggling through, if only to remind yourself how difficult it is to keep taxes low, local and easy to collect.

    They are proposing that a number of different taxes be made available to our local councils. But they also pull their punches when it comes to liberalising councils to make local choices. Their discussion instead focusses repeatedly on the idea of greater progressivity, presumably centrally imposed, to achieve “fairness”; a perspective enforced by their remit.

    A progressive property based Council Tax would impinge largely on our wealthier cities and, by their own admission, lead to the need for centrally imposed re-distributions to poorer councils. That's not a localising solution. What they also do not admit is that imposing higher tax rates on the engine rooms of the Scottish economy would curtail growth and introduce unexpected behaviours among those with higher wealth and incomes in our cities.

    We need to remind our politicians of where this debate starts from – a state that takes upwards of forty five percent of our incomes to spend for us. Low tax rates that release the supply side are the only way to create real fairness, by creating the growth that gives our local councils choices to support the vulnerable.

    If the focus is always on the need for more money from a fixed economic cake; that is, the ability to pay is always created by yet more progressive tax redistributions, Scotland will create its own spiral of non-growth as it sucks money out of itself.

    Sadly, the Commission does not even agree that pricing of services gives taxpayers a chance to know whether their councils are performing well. For us, that’s the whole point of localising power to tax, to link what we pay to what is spent for us. Every day, TaxpayerScotland hears of more examples of waste and unnecessary spending. Local Tax Reform should be tied tightly to local spending reform, through better transparency, tighter function by function profit and loss accounts, and real and virtual pricing wherever possible.

    That way, we can free councils to operate under democratic taxpayer oversight, taxing locally to spend locally and competing with each other to discover best practice. The nearer we can get to effective services with priced priorities, the wealthier all of us can be, but especially those who presently have poor economic prospects.


    Thursday, December 03, 2015

    The unseen damage of 'free' university education

    It is encouraging to see a challenge to the “free” higher education shibboleth - and from university academics as well – explaining that social inequality is not being improved through this policy.

    Proper measures of the costs and benefits of student fee support would quickly see that those who are net taxpayers - in the main those with higher incomes - are being subsidised with their own money. Once again we see the outcome of high tax rates; a hidden false re-distribution in which those benefitting have arranged the political economy such that any claimed tax progressivity evaporates through reliefs and entitlements.

    This middle-class subsidy is long overdue for reform. The romance in the ethic of “free” education is simply not a tenable way to provide for need. In Scotland, that need is for a much greater focus on technical training, to allow the less academic to increase their personal capital in technique and technology – we need to develop bright technicians with good numeracy and literacy. The arrival of thousands of eager young people with those skills at the gates of businesses would help bring out the money capital to re-vitalise our productive economy.

    The suggestion of loans with income related payback arrangements would create a far fairer and equitable funding mechanism for fees. We have to remember too that living costs are not free and could also be addressed more fairly if we had some leadership from our politicians on overall student support.

    As so often, we see a hollow commitment from the left when the use of scarce taxpayer money affects their own supporters. Perhaps the most galling aspect of yesterday’s conversation about this issue was that the carefully objectivity of the professors was challenged by student’s themselves.


    Tuesday, November 24, 2015

    Energy machismo does not warm our futures

    The Scottish Government is flexing its muscles over energy policy. Yet somehow we are reminded of Mr Bean on the beach bashfully baring his chest to the incoming tide.

    Scotland’s commitment to 100 percent renewables by 2020 may or may not be a good idea; but it’s undoubtedly expensive. We have an energy minister who declares there are such things as “proven, cheap technologies like onshore wind and solar”. What tosh, the output efficiency and maintenance costs of wind turbines are still as uncertain as ever and the beaches of Troon were not awash with sunlight the last time we looked.

    His civil servants, in the form of our Chief Planner at Victoria Quay, tow the party line through reminders that the Scottish Government’s Electricity Generation Policy Statement of 2013 still stands and that “the planning system should support the transformational change to a low carbon economy”.

    Well thanks; can we have some nuclear power stations please? No carbon there.

    The real issue here is that taxpayers in Scotland are being carried up a path in which a hidden general tax on energy is being imposed on all of us by green factionalism. The key word is “hidden” which is what the “contracts for difference” approach to energy pricing has been designed to change. It was only too apparent that the early subsidies for wind were very generous and a re-appraisal was needed. To complain about cutting these subsidies is to say that energy taxation is a better route to warm homes, which it clearly is not.

    This issue is vitally important because any hidden energy tax is felt much more keenly by the poor; energy poverty is a major driver of inequality and actually kills people each year. High energy prices also punish the resource processing and manufacturing industries that are proportionately more essential to Scottish economic revival and Scottish jobs than the service industries of an overpopulated England.

    The answer to this is not for the Scottish Government to strut its stuff as climate change campaigners, but to turn to democratic methods so that all Scots can join into making decisions about the extent of Scotland’s commitment to reducing carbon consumption. The most democratic information you can get is clear forward pricing where competitor suppliers and the state come clean (sic) on what they can offer taxpaying householders and industry. We all need to be allowed to consider the long-term costs of our options through those prices, and yes, that should include the option of using fracked gas and/or nuclear.


    Sunday, November 01, 2015

    Someone has to pay

    Kezia Dugdale has been honest enough to propose how her anti-austerity spending plans would be paid for.

    That in itself is a welcome change from days before the presence of campaign groups like the TPA and TaxayerScotland; we are forcing politicians to cost their promises.

    What we now want politicians to understand is that continuing to spend more of our money does not lead to the outcomes they suggest. For now, they are stuck in what are called “static scoring” calculations. So they come up with ideas using new tax powers coming to Holyrood reported as:

    “The £440m bill would be paid by not increasing the threshold for higher rate income tax and saving £250m by not pursuing the SNP plan to scrap Air Passenger Duty”.

    “Freezing the higher rate threshold at £43,000 instead of lifting it to £50,000 by 2020 and so leaving higher-earning Scots £1280 a year worse off than in England.

    These static scoring calculations are undoubtedly wrong. They ignore how tax revenues and productive output adjust when taxes are changed – something called “dynamic scoring”.

    Don’t take our word for it, the European Central Bank has a working paper which contains some startling calculations of the effect of raising payroll taxes in Europe. They calculate that the increase in revenue from a dynamic analysis is only 8 percent of the simple static calculation. Capital taxes (and APD can be seen as a tax on leased aircraft capital income) are worse; they forecast only a 1 percent gain.

    For non-economists, this may seem a strange outcome, surely if you raise the rate of a tax, you will get more revenue? Actually,nothing can be further from the truth. . It is explained well here by economist Dan Mitchell. You will usually get some additional revenue (although the gain from income tax rates above 50 percent is minimal at best and possibly negative were mobile Scots to move away), but you also get changes in production intentions and practice. In a very real sense, the state wrecks economic prospects by changing business and individual behaviour. Where tax rates are already high, and in Scotland you need to earn £175 to spend £100, a marginal rate of 58 percent, any additional revenue comes at a great cost to productive output.

    We ignore these Laffer effects at our peril, they literally impoverish the nation through the good intentions of those who will spend some people’s money on other people. Think expensive steel and closed steel plants, think “Linwood no more, Bathgate no more” as the song goes.

    Ms Dugdale says “Someone has to pay”. Indeed they do, but who will this be? Sadly, it is much more likely to be less well-off Scots. Why? Because these measures will reduce Scotland’s already lacklustre growth rates, the one thing that really makes struggling families people wealthier.

    We need new productive output more than anything else. In fact, the best idea Ms Dugdale has had is letting head teachers run schools instead of councils. It’s a great pity that she proposes higher taxes to fund this – we don’t want an army of school leavers on the streets with no jobs. There are too many of those in Continental Europe already. Andy why? Well, the same European Bank Report calculates that the revenue returns to higher taxes in Denmark and Sweden are in fact negative. There’s a lesson for Scotland in that.


    Tuesday, October 27, 2015

    “Tweaking” versus “full financial redress”

    Those pesky Lords have for a hundred years thrown spanners into the work of governments. In general, the throwing has had more impact than what is thrown.

    This tendency is repeated with last night’s amendment to “provide full financial redress” to tax credit claimants affected by new welfare policies.

    It is unlikely in the extreme that Mr Osborne will oblige; offering full financial redress would essentially negate his policy changes. There are losers in these, mostly quite vulnerable people in the sense that they are working on the edge of Micawber with tax credits allowing their net future cash flow to be positive.

    The important words in that phrase are “future” and “flow”. Simply avoiding the hard decision to curb welfare spending is not an option; the state’s paymasters - taxpayers - have no more money and the insupportable burden on all of us will not go away. This is not about a one-time cut in welfare; this is a sea change in approach to curb the massive wasteful redistributive money-go-round, seeking to re-create self-reliant individuals whose inflow of money in the future is always greater than what they spend.

    Lord Lawson, an ex-Chancellor and a tough one to boot, felt that there could be some “tweaks” to the rate and extent of the changes in tax credits and any promise to “lessen” the impact will probably offer some of these – and probably to no-one’s satisfaction. But he too can see that the welfare bill is not only too high, but has been getting higher, with very little benefit to anyone. Polls tell us that many in the general populace think this too. Interestingly, those who feel most vehement about curbing welfare are those taxpayers on lower incomes who do not have large top-ups from the state. “If I get by, why can’t they?” appears to be a shared sentiment.

    That in turn tells us something. Those who make canny life decisions; avoiding divorce – especially after having children, eschewing indolence and staying optimistic enough to create some luck for themselves can, in a wealthy nation like Scotland, stay on the right side of Micawber. The greater prize from these changes is a longer term shift to wealth-producing lives that rev up the Scottish economic engine to the benefit of all. We are not talking trickle-down here; we are talking about more affluence for all, floating everyone’s boat.

    The idea of the Lords of the Left of “redressing” a wrong is simply balderdash; they are imposing a further wrong if they do not allow the chance of a cash-positive future. Yes, there could be “tweaks”, although even phasing the timings of the losses and gains will not help many; and yes, morally the changes need to be defended by the state saying it will temporarily protect any whose circumstances are made horrendous by loss of support. But the key word is "temporarily", these changes are needed.

    The Scottish Government can help in this. They have just begun to implement the new Personal Independence Payment (replacing the Disabled Living Allowance) this year. They have a gaggle of initiatives at present used for the pathetically negative function of “ameliorating welfare cuts” – Ms Sturgeon should bring all these together into a Scottish PIP available to all in need - and managed by each individual for themselves. This could form the beginnings of a positive support system for the vulnerable and struggling, mentored by supporters, and aimed at the positive outcome of a self-reliance that does not take more money from taxpayers, but holds the prospect of increasing the growth of wealth for all.

    Constitutional crises (if this truly is one) are good times to come out with complementary changes that break the mould and weed out bad legacy policy. A fully nationalised, centrally controlled welfare system is thoroughly bad policy. Scotland should begin to dismantle it, from today.


    Wednesday, September 16, 2015

    An equal chance at home ownership

    It’s reported that house sales are increasing, with a definitive skew in activity at the lower Land and Buildings Transaction Tax (LBBT) valuation level. The upper end of the market is very slow with fewer houses sold.

    House prices are increasing much faster in our big cities. First time buyers from the professions have the money, new mortgage initiatives available to help with that burden seem to be having an effect.

    This pattern could be seen as some sort of success for the LBBT, showing that the greater progressivity of Scotland’s rates “help” fairness and equality by forcing the market to adjust in favour of those with less money, but is it?

    Actually, it is much more likely that what is happening is that house prices are staying generally depressed due to high levels of taxation which are changing behaviour and suppressing economic growth. Scotland is the only place in the UK where prices are falling.

    Figures for the buy-to-let market show that this way of storing the wealth of the middle classes is still highly popular; which is why the UK Treasury is thinking of removing some of the tax reliefs buy-to-let enjoys. The buy-to-let market is also of course almost entirely present in big cities with larger populations of young professionals and students. Those professional individuals who do buy for themselves and enjoy higher bottom band thresholds help raise prices ; and so put purchasing out of reach of less highly paid working people.

    Once again, a progressive tax accompanied by reliefs and entitlements is shown to skew behaviour in favour of those with money; its very progressivity and complexity creating unintended consequences counter to what was hoped. The response of the state is to legislate to remove the right-to-buy and so retain its subsidised housing stock, while supporting other lend-to-buy schemes that encourage borrowing.

    House-building in Scotland’s rural areas is still seriously depressed and the shortage of land due to planning restrictions in our industrial towns and cities keeps development there slow. Big house owners are slowing their moves and also their expenditure on house improvements while local taxation levels are re-considered. Jobs and earnings created by a thriving housing market are reduced.

    Low rate, flatter taxes are always more efficient and less distortive than high rate progressive taxes. What Scotland needs is a real supply-side boost in its housing market to generate jobs and growth. The rates and structure of the LBBT are not letting this happen.


    Monday, August 31, 2015

    Empires of the expensive

    An astonishing leaked report came out over this holiday weekend about the Scottish Centre for Telehealth and Telecare (SCTT). This minor quango develops technologies in the tele-care and tele-medicine arena under the auspices of another quango, NHS 24, which most of us know as the 24 hour out-of-hours help line.

    It has more than doubled its staff count from 14 to 30 - nine of them on senior manager salaries. But PWC, the auditors, have questioned whether SCTT is being properly overseen by its parent. They also question whether some of the new staff are being employed at a higher grade than necessary.

    Or in taxpayer terms, a new sinkhole for our money has been created, not well controlled, and our money is pouring into it without much direction or purpose.

    This is a disgrace; but it is also so typical of Big Government. Someone has a good idea usually for political gain – telehealth – a team is tasked to make it happen – a mission – but no one tries to check or review the direction or scope of the mission. Soon enough the objectives become confused but momentum is maintained, the mission spreads like a fungus and taxpayers get robbed.

    Yes robbed, twice. Far too often these nested quangos turn politically useful ideas at their top level into predatory commercial ideas lower down; doing things that private business already does and interfering with those activities. We have seen this elsewhere with “climate change” funds that help set up initiatives that compete with and damage private companies.

    Telehealth is another case, there are many private companies testing out telecare and telemedicine initiatives using private capital. We probably don’t need an SCTT, an organisation which seems more dedicated to using expensive taxpayer-funded staff to apply for and inefficiently spend European grants as it is to actually doing some useful innovation.

    Once again, a small nation has taken on the large nation layer-cake system of governance of the UK; hiding how our money has been spent in poorly defined policy goals invented through a quangocracy. Did the Scottish Government learn nothing from its Intermediary Technology Institutes? We need much flatter governance in Scotland with much more direct accountability.


    Friday, August 21, 2015

    Increasing local tax will reform nothing

    Interesting opinionated leaks are coming from the Commission on Local Tax Reform. Having taken submissions from Civic Scotland this group is now weighing its thoughts to come to its own opinion.

    The Herald suggests that there is an equal proportion of submissions that support a “reformed Council Tax” as submissions from a second faction that supports a new Land Value Tax. In both camps, “reform” can probably be read as a more progressive tax regime, increasing the burden on larger home owners. The goal, inevitably, is “fairness”. With either tax it also surely means raising more revenue from taxpayers for public spending.

    We support neither tax increase. We support a continuation of the existing regime despite its limitations, and we specifically strongly support the Concordat and its freeze on this tax burden. But we also support our local councils being able to generate more revenue by themselves.This was the thrust of our submission to the Commission.

    There are some important issues here. Any calculation of “fairness” between a) bills paid out of income by lower income house renters with b) payments taken on the basis of the capital wealth of home owners is illogical – it creates a tax base straddling apples and oranges. The SNP policy of looking at a local income tax has the merit at least of taxing the same thing; although we hasten to add that its complexities would be nightmare to police.

    It’s worth pointing out too that a wealth tax for the richer homeowner imposed in the same system as a service user tax for the less well-off could lead to all sorts of manoevrings by the well off; from corporate ownership of homes, to renting from granny and, most importantly, to raising their own salaries to compensate for new taxation and so increase inequality. For the talented young and the ambitious, this salary raising is best achieved by heading out of Scotland to a tax regime that does not punish wealth accumulation. So, as so often, higher tax rates could actually mean less revenue in the longer term.

    The loud-and-left faction in Scotland loves to cry “unfair” – but what they really mean is that they think it is unfair that we do not have other people’s tax money to spend. Their world view is based on the idea that governance is about having a huge common pot of money gathered from “the rich” to be spent on lots of things useful to them; the “from each to his ability, to each according to need” approach to public service finance – in which they are the needy.

    Extending this logic would suggest that we put all our income into a central pot and take out what we need. But even in social democracies where the tax burden is 50 percent of national income every observation tells us that that centralised approach flies totally in the face of human behaviour. We all act to look after ourselves and our families first. We should also not kid ourselves that there is no danger of a central state taking more and more power to ration what is allowed and to whom it is distributed. That's a well established road to penury when "they" pretend to pay us and we pretend to work.

    More practically, if what councils are for is to provide services for the collective good, shouldn’t we start by asking what services are necessarily collective? We can then free as many as possible to become priced and supplied through competitive providers - without political interferences. All the evidence shows that this approach produces cheaper, more plentiful, higher quality and innovating services. By allowing choice and improved output, it also lowers taxes and increases jobs, while making living costs cheaper. The alternative, a higher tax burden, does the opposite, it makes our councils slack, and allows them to waste more of our money on politicised service schemes. Many council officials now say that the recent squeeze has really made them think hard about what they do and how they do it. Hurrah to that.

    Council Tax is a cobbled quasi-poll tax to be sure, but it at least has some link as a service charge for our local services and it has seen a lot of reliefs introduced to curb the impact of this big bill on the less well-off. In that sense, it allows all taxpayers to know if our Councils are performing, especially if we limit them in function and do not allow them simply to become agents of national policy, administering centralised funding.

    The real issue in local taxation is how much in total is taken, and by whom, and if there is any way we can reduce that burden to the benefit of all households. If the debate surrounding the Commission is only about how more tax revenue can be raised for public goods then it will be doing Scotland a great dis-service.


    Tuesday, August 18, 2015

    The returns of good sense

    As our politicians gather their thoughts together for the return of Parliament in September, they will no doubt be viewing the Corbynite dynamite with mixed feelings. Will this dark horse steal their “progressive” credentials? Is their core vote threatened? Could he show the SNP up as dull centrists? Could he create potential for a revival of Scotland’s centre right by splitting the left?

    While entertaining party politics – these manoeuvrings detract from a much more pressing issue for Scotland; its economic direction. With oil prices possibly dropping yet further due to a glut in global supply, and a statist stance promoting the preservation of all spending, our government’s financial probity is under serious threat – Scotland cannot afford its own politics. That in turn, as cracks in NHS management and the shortfall in attainment of our schools system widen, portend an inevitable political decline in the present SNP hegemony.

    Scotland desperately needs to attend to its supply side issues – we need our nation to grow; but appear to know not how. The answer is staring us in the face – declare a commitment to a truly progressive tax policy for the powers promised and lobby Westminster to get out of the business of tending our back garden, taxing our local assets on a UK model unsuitable for Scotland.

    Our suggestions for Scotland’s politicians:

  • Income Tax. The Scottish Government should state categorically the longer term goal that no-one in Scotland will ever pay more than a fifty pence marginal rate – inclusive of National Insurance. Higher rate taxpayers already pay more than this, standard rate taxpayers already pay 45 percent - and that’s before any Council Tax on their home or VAT on their purchases. This burden is too high to create economic success.
  • Payroll Taxes. Every possible extension of relief of Employer’s NIC should be made, continuing a trend that has been going on for some years. We need new and growing businesses in Scotland – to do that they need to keep their own cash, not hand it over to the state. Eventually, our government should come clean and amalgamate all these income taxes and show some honesty about the rates it is imposing for our public services.
  • Why? A commitment to all working people in support of hard work, productivity and wealth-creation would allow Scotland to progress, especially the working poor struggling to cope with appallingly high marginal tax rates as they earn their way out of a reliance on welfare benefits. As The Taxpayers’ Alliance have pointed out this week , the present tax regime is stupidly skewed.

  • Corporation Tax. Alex Salmond’s now discarded cut in this tax should be re-adopted as a minimum commitment. It taxes wages and raises prices. Lord Browne’s suggestion of allowing the oil industry to operate within the standard corporate tax regime should be adopted. All supplementary levies should be scrapped – again, arbitrary taxation aimed at one sector is bad tax policy. This commentary from the Centre for Policy Studies tells us why this is now urgent.
  • Air Passenger Duty. Scrap it. A small nation with a large tourist trade on the periphery of a continent does not need this stupid tax. If we want to bow to carbon reduction, let’s do it in a universally co-ordinated way, not through specific taxes on arbitrary tax bases.
  • Environmental Levies. Renewable energy supplementals, aggregate levies, landfill taxes and other “green” overheads need a total overhaul. No government should ever adopt sector-specific taxation unless it is imposed temporarily under sunset legislation and has a pre-published cost-benefit goal. The Law of Unintended Consequences always applies – no state should be allowed to impose taxation and then hide from the dire outcomes of the imposition. If there was ever a reason for a second parliamentary chamber in Scotland this is it – we need our own scrutinising House of Economic Probity.
  • Why these changes? To make a commitment to be truly on the side of those who create jobs and growth. They need our support to be competitive; keeping their own cash would vastly increase investment and do much more for the less well-off across Scotland. Our old industry heartlands in the west need this growth rather than any Corbynite socialist fancies that will only create more poverty and fewer jobs.

    What this is all about is developing confidence in the potential of Scotland’s capital. This capital is not mere money; it’s productive skills, the confidence to do work, to build, to create, to design and to sell value – in short the things that make money. Scotland needs to make a lot more, and we need to do it in Stranraer, Kilmarnock, Partick, Govan, and, yes, Shettleston. And to Alloa, Dundee, Gordon, and Wick. And to Oban, Ullapool, Campbelltown, Tobermory and all our towns.

    Politicians cannot do that, a confident people can. Ordinary people have the sense to ignore politics, haud their wheesht and get oan wi’ it. It’s time our politicians committed to go there and buy the T-shirt. They’d raise more revenue that way; the supply side matters.


    Monday, August 10, 2015

    Don’t presume a public service

    The Scottish Government has just begun the next stage of what it calls a “fair, open and transparent” procurement contract. It’s for the management of the Clyde and Hebrides Ferry services and worth up to a billion pounds. Calmac and Serco are in a competition to win it.

    The 191 page information document about the tender process and requirements continues the public tender tradition of second guessing and risk avoidance by civil servants seeking to compare offers which they themselves codify. Transport Scotland spend tens of thousands of our tax money to dissect what it sees as being required of these services; from how to engender socially responsible employment, through bringing in small business suppliers, to offering a “caring environment” in our ferry ports. As such, this is a rigorous analytical attempt to pre-define the technical, logistical and managerial processes that move the public across our coastal waters safely.

    But is this really open and transparent, and is it in any senses fair? Taxpayers are going to subsidise a goodly proportion of these operations. We are also the consumers of these services.

    The tender is certainly as fair as possible to those tendering, and any proposals are made transparent through being locked into a specific tender structure. But there is a problem, as in this sentence …

    “No matter the outcome of the procurement process, Scottish Ministers will retain control of all of important issues, such as fares and timetables, through the public service contract”

    That limitation essentially discards the prospect of any property right in our ferry services being flexible enough to allow innovation and change. The design of Scotland’s ferry routes is in the hands of politicised ministers – with their specific agendas of “involving key stakeholder groups” and of “getting the very best deal for all of the communities of the Clyde and Hebrides.” Do you too smell vote-buying and the placation of producer interests here?

    It’s wrong to assume that a ferry route is like an old road, not easy to change in route and efficiency. It ignores the fact that there may be other routes and other pricing of services that are not known today, but could tomorrow be doable to the great benefit of remote consumers. We should remember Brian Souter’s proposal to connect Kirkcaldy with Portobello – thrown out by short-sighted local councillors to the detriment of Edinburgh taxpayers and Fife based commuters and businesses.

    Running a centrally-planned set of routes with centrally planned pricing is not in taxpayers’ best interests. It plays into the hands of the big corporates who win the contracts and big unions who work in the business; both claiming allegiance to a “public service”, but which in fact inevitably becomes a service organised in their private interests.

    What a fair and open tender should encourage is the prospect of a number of small operators chasing the tails of the big players; the easyjets and ryanairs of coastal waters who will redesign our ferry services in ways civil servants cannot imagine. That way, the bigger incumbents would also have to innovate and improve their efficiency – giving taxpayers better value for our money.

    We’d also not have to pay dozens of civil servants to plan what need not be planned. Real transparency would avoid central planning and offer passenger-based, not route based, subsidies; and then only on a temporary localised basis. Taxpayers should always know precisely where, and on whom, their money is being spent.


    Wednesday, July 22, 2015

    Don’t sell the vulnerable false promises

    Those who offer complete negativity towards George Osborne’s review of state spending need to think again. We were all warned years ago that there was no more money, There simply is no alternative to this latest review.

    At TaxpayerScotland we are well aware that the Scottish Government’s position, as clearly put forward by Nicola Sturgeon during the May elections, is that just a little more spending would help ameliorate the effects of austerity; that retaining investment levels would increase jobs and growth.

    George Osborne comes from a different angle; he recognises that history tells us that the state is a voracious beast, continually gobbling more money for its services. He also sees that the productivity of those services is too often low, does not improve and that their management doesn’t either.

    In short, his view is that this is a lousy place to invest our hard-earned cash.

    The oddity of the opposition of statists is that their alternative is so blindly conservative and boring. Blind because “a bit more money” has always failed in the past, conservative because they are besotted with the idea that there can be a managerial solution, and boring because, well, because it offers no alternative except to fleece taxpayers for more wasteful spending.

    For Scotland, this is doubly troubling. We are a small country being administered by the systems of a nation ten times our size; yet governed by a political party that claims it wants to run an independent nation. Mr Osborne challenges his administrators to come up with radical ideas, our lot stay beholden to the voracious appetite for tax money of a centralised cabal of civil servants, quangocrats and local bureaucrats.

    Every study of poverty and exclusion shows us that being in work and foreseeing a future of stable earnings and assets is the best road to personal and community stability. A government that proposes higher taxation, more debt and more spending as its route to creating jobs and growth, against all the evidence, is selling the vulnerable false promises. That’s not fair, and it will certainly not help equality.

    The Scottish Government should instead eagerly grasp this chance to look at its entire operations. Mr Osborne’s challenge is to find around one billion pounds of savings; that’s about three and a half pence in every pound spent by the state in Scotland once you take out health, local defence and education. Can that be that difficult?

    The economy is growing, employment is rising, this is not the time to retain a Keynesian demand stimulus, Keynes himself would have said that this is the time to release the “animal spirits” of the enterprising. Actually, retaining present spending levels would be much worse than that, Britain used state spending for decades at the wrong time in the business cycle and only succeeded in raising the tax burden higher and higher to pay for its excesses.

    Those who suffered were not the rich and talented, but the vulnerable poor who have ended up paying crippling indirect taxes and duties on their lifestyles in addition to ever higher national insurance taxes. The response of the “concerned left” to this has always been yet more interventions; alcohol and tobacco duties were the start, fuel escalators followed. Now, sugar tax and fat tax are their latest wheeze, direct impositions that a well sculpted yummy mummy will rarely pay. The so-called free NHS is emerging as a very expensive lunch for the less well off.

    Being left wing, conservative and boring is in itself a lifestyle choice – and largely a middle-class one at that. Our public services are run by the well-meaning middle class who make a good living out of unproductive compassion. Scotland can do a lot better if it takes off its blinkers off and trumps George Osborne with some truly radical ideas on proper democratic localisation and individuation of public services; services that the vulnerable can own for themselves. We have nothing to lose but our tax burden.


    Monday, July 13, 2015

    Anti-austerity , “no more money” and democracy

    A great battle is being fought out by the commentariat. Brandishing distemper brushes of grand opinion they are sounding off about austerity, George Osborne’s budget and democracy. The twin volcanoes of UK welfare cutbacks and the Greek Euro tragedy offer parallel targets for the wrath of the left in their anti-austerity campaign.

    However, in howling their opinion, do they offer an alternative? In our view, no.

    As always the anti-austerity faction is well-versed in the lexicon of outrage, contempt and their compassionate support for the vulnerable. But these sentiments are obvious and easy; where is the hard-headed practical numeracy? Frankly, nowhere; we have trawled the output and there is a significant lack of any recognition of what it costs to continue to run “the system” we have today.

    The key to this disconnection with reality appears to be the idea that there are trees somewhere on which money grows that can be used to prop up the present over-spending welfare system. That is, a bit more tax to create more resources for welfare will help resolve things. There are two problems here, whether more tax revenue can be obtained and whether spending it will achieve anything.

    Let’s look at some of the numbers. The average first income earner, who will either be a skilled operative or a middle manager, earns around £25,600 gross annually. After national insurance and income tax, and a contribution to a pension, their net discretionary income will be around £17,000 net. That’s about £1400 per month to spend.

    Let’s say they have a quite simple middle-middle class lifestyle. That has to pay for a home, food, energy, car, council tax, transport, TV licence, and insurance at a minimum. To those essential overheads are then added haircuts, opticians and dentists, school meals, kids’ sports classes, and quite a few more only partly discretionary overheads. Then there is other elective expenditure; mobile phones, satellite TV and the like that most people consider quite important to their lifestyles.

    We are not done yet, because there is yet more expenditure we can decide to have or avoid. Holidays, quality clothing, school trips, sports equipment, all of which has to be put alongside money saved for disaster recovery like car repairs, gas boiler replacements or painting the house.

    It is no surprise then that many families rely on a second-earner to get them through their essential overheads to their elective choices. In Scotland we spend around £470 per week on average. You can find the actual household expenditure figures here.

    In all of this spending, large quantities of VAT, fuel, alcohol and other duties are paid to the state; in imposing these, the prices which these hard-working families (a term which the Left have begun to hate) pay for goods and services are greatly heightened. One result is that most earning below the average salary can’t actually cope without housing subsidies or tax credits. The tax costs of state re-distributional support have driven many to the edge of a cash flow crisis.

    Now the rub. In these lifestyles all families support equally large quantities of work within service industries. Self-reliant living breeds self-reliant living for others. In contrast, if anti-austerity means imposing yet higher taxes to pay for those not in this self-reliant position, the first effect is to put many of the presently self-reliant on the wrong side of Macawber and in need of subsidy.

    But there is a much more important dynamic reaction. Through time, and because they want to stay self-reliant, those on middle incomes cut back on spending, re-aligning cash out with cash in. However, in the process there is so much tax content in their spending they actually make the shortfalls of the state worse, not better. Growth slows, jobs decline and welfare spending has to increase.

    While this effect is most acute and widespread in the middle where family budgets are tight it is not possible to turn to the “rich” in the upper middle to extract more tax. There are few of them, particularly in Scotland, and they are party to a wide range of avoidance measures designed over the years to keep them saving any surplus to support investment in the very businesses which keep the country afloat.

    This is what is really meant by “no more money”. It isn’t just that there is no more money in the coffers of the state. It is that the capacity of the state to make more money by increasing tax or inventing new stealth taxes is today highly limited. It all goes back to the issue that families live on the edge of over-trading, while governments permanently over-trade. The result over the past few decades has been burgeoning debts and deficits; borrowing our children’s money to support ourselves today.

    Anti-austerity proclaimers need to consider these dynamic effects. You really cannot invent new money. Much more effective would be a localisation of the state welfare apparatus to find out how we can help those in need more efficiently. We realise that not all families can be self-reliant, but in supporting them we need to be realistic about the loss of wealth in taking from one to another. Parsimony in spending, locally managed, is the only real solution for the beneficiary and the giver.

    In all of the above, there is one totally spurious argument; that it is somehow undemocratic to continue with austerity when so many are against it. This is a majoritarian argument, saying that whoever stamps their foot loudest will get the reward of the state paying them off. Democracy is designed to allow minorities to survive the tyrannies of such an idea. Just because a majority votes for a free lunch doesn’t mean it can be served up. The anti-austerity left have to get real and start doing some arithmetic.


    Wednesday, July 08, 2015

    Short, medium and long

    Who would want to be a Finance Minister? They work permanently between the rocks of an electorate seeking state support and the reality of the hard fact that there is no more money. And worse, sometimes the rocks want to be in two places at once – voting like the Greeks for no more austerity but to stay in the Euro.

    When George Osborne steps up the despatch box today he will try to tackle this problem by careful weaseling of measures suited to short term politics, medium term realities and a lot of verbiage about “long term” plans. Taxpayers can do little but sigh in the full realisation that the money which there is no more of is going to be conjured out from us from yesterday’s savings, today’s earnings and tomorrow’s hopes.

    And yet, at least in the UK we have a government that is seeking to balance its books, and talking about (if not achieving) a transparent simplicity. It’s time that was achieved in the short term, so that in the middle term we will see income growth. The long term is usually of little interest to politicians, we need constitutional rules to control longer trends, but at least George Osborne has proposed that he will adhere to some rules. Of course in offering this long-term comfort he is largely seeking to build confidence in the short term that medium term improvement might come about. The politics of economy are strange in their behaviours.

    We’d like to see a real emphasis on simplification of our taxes today, and that includes removing some reliefs for the well-off because that way we can get rates lower for all – the one thing that makes economic growth more possible. We would also like new alignments which reduce the money-go-round of extracting taxes from too many followed by giving the same money back in benefits to too many - minus Big Government’s agency fees.

    Crippling the vulnerable is a real concern, but they suffer the most from the high indirect taxes and duties that the money-go-round has created. No doubt, we will hear foul-mouthed howling from the left if any cuts are made to housing benefit or tax credits, but the reality is that there is a rock and there is a hard place and with no more money we are stuck in between without these changes.

    And as for Scotland, if there is one thing that the political commentariat should avoid later today, it is making the suggestion that yet more taxation and spending would somehow work to combat austerity here. We simply cannot continue uttering grievances about austerity, complaining about shortfalls in Barnett supplementals controlled by English legislators, while ignoring what would be needed if we had full fiscal autonomy. Greek parallels apply, reality will out.

    The total tax burden is too high as it is, with the less well-off suffering most from the high costs of living that it creates. Siding with the madness of the crowd seeking more support while someone else picks up the bill may make short term political sense for this Scottish Government prior to the May 2016 elections. It makes no sense for the medium term success of the nation, and in the long term will only lead to national decline.


    Monday, June 29, 2015

    Is the taxpayer to be consulted or insulted?

    The Scottish government has completed two important consultations over the past two weeks. They’re important for every taxpayer because they are about the framework within which any new Scottish tax responsibilities might operate.

    The first saw the Commission on Local Tax Reform consulting on options for local taxation. The Commission wanted to sound out views on how “fair and effective” the present Council Tax system is perceived to be and what alternatives might be chosen instead.

    The second took further soundings on the role of a beefed up Fiscal Commission; what its role should be and how that could be developed through time.

    You can find our submissions to both consultations on our publications page.

    What has been interesting as these exercises were completed is the array of interests publicising their opinions. COSLA predictably wants more power to create new local taxes and an end to the Concordat freeze. Others too, predictably, want more spent and more re-distribution from richer households. Most also want to get local hands on business rate revenues as well; an issue, to their despair, left out of the consultation.

    The property industry has gratifyingly warned of damaging behavioural effects from higher bands. We at TaxpayerScotland want our Council spending constrained and a great deal more emphasis put on arms’ length contracting and variable priced services. Our councils don’t need more money, they need more enterprising management.

    What we do not seem to be getting is more common sense and logic. In an extraordinarily partisan article in the heraldscotland today the two co-chairmen of the Commission on Local Tax Reform (respectively the President of COSLA and Minister for Local Government and Community Empowerment, i.e. those who spend our tax money) effectively pre-empt the Commission’s own deliberations by branding the Council Tax as being perceived as “unfair”; so much for objective dispassionate consultation to advise our government.

    In doing this, they use the oft-repeated non-sequitur that those with larger homes have larger incomes thus entirely pre-empting, first, the debate about whether this is logically true (it’s not – it confuses capital value with earned income and if acted upon has dire consequences) and, second, the debate about whether Council tax is a payment for services or some sort of generalised bung to a politicised collective to spend more and more of our money on what they want. And yet, they also accept that Council Tax is one of those taxes that we all actually see when we pay it, rather than being an at source deductible. Hurrah for that – when it gets too large we rightfully revolt.

    This partisan lunacy is why the second consultation on the Fiscal Commission is for us so important. It offered a real chance to debate constraints on spending. But wait for it, that consultation is based on a bill that proposes a tiny body that analyses not what our government is spending and so taxing us for, but almost entirely examining Scottish Government proposals to raise more taxes from us. That is, unlike the UK OBR it would have no responsibility to forecast the outcome of tax and spend policies that are the hallmark of all social democratic governments. You can see our response to that on our publications page too.

    It is extraordinary that leftist populism is being allowed to drive policy making. Profligate waste and expenditure abound - we cannot continue to blame others for this and pretend to be governing our country well; can it really be proposed that we emulate the grievance politics of Greece and engineer the same hopeless outcome? Once again, common sense and logic seem to have gone out of the window.

    If there is one thing Scotland needs to rebuild its wealth it is a government that dedicates a lot of effort into breaking the perception that its purpose in life is to spend, spend, spend; while entirely ignoring the collateral damage done by its subsequent need to tax, tax and tax again.

    Note the word “perception”; it doesn’t take that much effort to make businesses and talented individuals uncertain enough about those intentions and invent their own Carlisle Settlement – by moving away.


    Thursday, June 11, 2015

    What the Dickens?

    The Scottish left really does need a reality check. They say that the present UK government is pursuing a policy not seen since Dickensian Times, based on an interview by the Director of the Institute of Fiscal Studies in which he pointed out that budget surpluses were the norm in Dickens’ time.

    As the IFS no doubt knows, in the latter part of Dickens’ life, Scotland saw a period of staggering growth begin. We are talking about rates upwards of 35 percent in some years, and certainly more than 10 percent year after year. Wages rose faster than in England as labour became scarcer and more mechanised, while working hours reduced. A small state – taxing only the wealthiest – was in surplus and inflation was generally low.

    Consider now the twentieth century where a growing government gradually generated repeating deficits that raised overall debt levels. Average inflation rose to a peak in the 1970’s of around 25 percent - that’s prices doubling every three years, while real wages stagnated. Unemployment increased and taxes were widened and rose to affect all – especially the poor, helping to add to the poverty created by socialism worldwide.

    And so the Scottish left wants to discard the 1870’s and recreate the 1970’s? Jings, wit a load o’ bampots.

    To improve the lot of the working people of Scotland, we need to take the state and their taxes out of their lives. Workers today have on average a hundred times the capital that earns revenue at their fingertips as their great grandparents did in Dickens’ day – and access to that capital is far more widely spread across the workforce – creating much higher equality. The difference is that the state grabs 47 percent of that revenue from their wage packets each week, creating poverty and inequality because the less well-off pay so much in indirect taxation and duties. The poor also suffer most from the massively wasteful, unnecessary and highly unproductive spending by central and local government.

    The need for austerity is brought about by exactly these failed policies that the left say they want more of – more spending, more taxation and more government intervention. That’s crazy, we want the people to be creating the wealth, and getting the rewards - not the state. It’s what happened in Dickens’ day.


    Friday, June 05, 2015

    Behind the ranting ... seeking value for taxpayers

    As the Scottish Government continues to rant against Westminster imposed austerity, Scottish taxpayers have been given a sense of perspective by the Audit Commission; its public spending watchdog for local government.

    The Commission has just reported for the second time on East Dunbartonshire Council. It would be easy to say the report is damning, but it is much more subtle than that. It paints a picture full of insight as to how this Council is dealing with eight years of budgetary constraint.

    Summing up in one phrase, you would have to say “slowly and muddled”. The Commission points to ambitious plans but little achievement, a change programme with priorities in disarray, poor understanding of revenues and costs, and reporting to councillors that is opaque.

    To the extent that these revelations, which clearly show that taxpayers in East Dunbartonshire are not getting good value for the taxes they pay for the Council’s services, are coming about precisely because the council is struggling with its costs, we have to suggest that “austerity” is doing us a favour in weeding out wasteful and unnecessary spending. The report allows us to imagine what would be hidden under the carpet if year on year increases in taxpayer resources had been available:

  • Internal controls would have been left lacking
  • Capital assets would have been left as sink holes of spending
  • Procurement practices would have been lackadaisical
  • Management structures would have remained complex, with too many highly paid staff
  • Little appraisal of the value obtained from staff performance would have been done
  • The Commission says that East Dunbartonshire has “responded to these challenges”, but points out that the impact of these efforts are not yet significant. The result is that an earlier anticipated need to save £20 million has now risen to £23.3 million. That is, despite all its efforts, the Council is actually falling financially behind.

    Taxpayers take note; your money is not obtaining best value, but at least efforts are being made locally to induce change to achieve it. Isn’t that a benefit of austerity? We all know that public spending is hugely difficult to control; the tendency to mission creep, the ease of spending other’s people money and simple insouciance about the need to be highly productive all incentivise change.

    You have to wonder how much the moans in Edinburgh about UK imposed austerity are hiding vast quantities of squandered tax revenue at Scotland’s central government level. And could it be that a squeeze on what can be spent will induce change for best value there too? We must always remember that a tax pound not spent by the state is a tax pound that ordinary individuals have in their pockets to create real jobs and real growth.


    Monday, May 25, 2015

    Parking transparently

    Scotland’s local councils still don’t seem to get the idea that full transparency is expected of them by their electorates.

    Since Police Scotland decided they no longer wanted responsibility for our traffic wardens, local authorities have been in charge of this. They are supposed to report this to the Scottish Government, but there is no consistency in the way this is done. For example two councils, East Lothian and North Lanarkshire don’t report at all while Aberdeen does not separate its income within its general trading account.

    We should be grateful to the RAC Foundation for attempting to make sense of this mish-mash of shyness among our councils in telling us what they do.

    Perhaps charging, with its suggestion of market trading as opposed to the “free” services of municipal socialism, frightens councils. It shouldn’t.

    The fact is that charging for council services is not a bad thing IF the electorate is kept fully informed of what is being done and channels are in place to have local views taken into account as to the pricing and total burden. Street space has to be rationed in some way, a priced service which is well audited is by far the best approach – as in all services.

    The transparency needed is simply to show the total burden, the costs accrued to provide the service, and any net margin. The Scottish Government should demand this clarity on our behalf and Councils should recognise that properly accounted transparency is a powerful tool for them. Imagine a local electorate were told that a target margin of, say, 10 percent on parking was to be allocated to care of the elderly. Would the largely wealthier car drivers begrudge this gift to their less well-off neighbours? Hardly, and especially if it was a requirement that the policy was voted on each year within the council to renew it or change it. Transparency can drive such localised choices.

    One caveat, such transparency must also include another element – the total burden of both tax and charges applied by our local councils to our wallets. Our belief is that the use of charges could supplant some of the tax burden they impose. Injecting well audited transparency and prices into local services is a good way to press down on the cavalier ease with which councils are able spend someone else’s money on someone else – a process TaxpayerScotland will be ever watchful about.


    Sunday, May 10, 2015

    Politics, posturing and principles

    In the last few days, we have all learned once again that the democratic process actually involves the rigorous scrutiny of political values, their expression and their foundations. As voters, we have an intriguing ability to cut through posturing and seek principles that echo our values.

    What is so exciting for many in Scotland is that the value of self-determination as a principle is now deeply embedded. Our role as British Scots is changing in its definition. The rest of the UK, and especially England, really does have to come to terms with that. It appears that David Cameron understands this, although he probably does not know yet what to do about it.

    Yet taxpaying voters are right to be cautious. If the discussion about self-determination is merely a gradualist strategy for obtaining independence – we know from 2014 that there are serious uncertainties in the policy choices to achieve that. We should not be convinced by posturing.

    If self-determination is about the ability to adopt a less austere fiscal pathway, and promote enforced equalisations, that too involves choices which will have unintended results. Not all Scots share these priorities.

    There are principles here to which TaxpayerScotland resolutely adheres – not only are there no free lunches, we want the price of any proposed lunch made much clearer, and placed on our politicians’ account. We intend to keep reminding them of those numbers.

    Politicians do us no favours if they adopt postures that promise caring values, but are in principle flawed because the money to pay for them does not exist and can only be found through higher taxes or borrowing which generate yet more dependancy on costly central planning.

    Politicians damage everyone’s opportunities when they forget that what they say they want to do with our money is intrinsically linked to what they can end up being able to do because people and capital are mobile. Slowing economic activity does no-one any favours. This is why we have called for Scotland’s Fiscal Commission to be strengthened to become a proper and powerful Office for Budgetary Responsibility; holding politicians to account and protecting taxpayers from political posturing.

    The need for accountability to highlight the risks of false principles is particularly acute for Scotland. Two examples are telling.

    First, it’s very obvious to those in rUK that we are looking for fiscal self-determination but also looking to retain our favoured Barnett supplementals for as long as possible. If that contradiction is firmly rejected at an early stage, and we think it will be, the grand vision of the SNP of re-building a more balanced British Isles could become very hollow given our present deficit.

    Second, imagine the UK decides to allow more autonomy, but only on the basis of much greater responsibility and decides to federalise our debt obligations. The Scottish Government then has to show that burden explicitly in its budgets and can only use Scotland’s collateral to fund Scotland’s borrowings. Could a Scotland with a growing deficit actually borrow anything further to avoid austerity? If our politicians are not alert to this risk, it is Scottish taxpayers who will suffer. For any taxpayer, a posturing politician with values that have no principled foundation is the road to financial distress.

    But we do not adhere to Project Fear. While, today, the numbers do not add up; that does not mean that they cannot be made to do so. Scotland is capable of earning its right to make choices. However, the very last thing that should be done to balance the books is to raise taxes and increase unproductive spending.

    For us, self-determination is a mechanism for re-designing a nation that can stand on its own, using talent, energy and most of all individual aspiration through liberty to generate new wealth for all. Note that this route to success is not about money, but about human values; we need governance that induces us to value ourselves and in doing so generate wealth for all of us. Support us in our fight for constrained spending and lower taxes to make that possible for all who are poor in Scotland - as a matter of principle, with no party posturing.


    Wednesday, April 29, 2015

    Tax rules, our prosperity and equality

    As stout believers in economic constitutionalism what do we make of the latest promises of the Tory Party to legislate against rises in key taxes?

    On a pragmatic basis, it’s better than the promises of New Labour who declared they would not raise the basic rate of income tax – then promptly raised National Insurance, twice. But from an objective viewpoint, it’s a good win for those like us who want the rule of law to trump democratic expediency in tax policy. We hear so much about “trust” in election campaigns; at last it looks as if some politicians are getting the message that rules are stronger than words, and that parliament has a role in controlling government.

    Of course, for us in Scotland it is very clear that not all want less spending and lower taxes; there are a great many in Scotland who appear to want more spending and appear to believe they will not have to pay the resulting taxes. They want this because they believe this will create equality and allow a more shared prosperity.

    As empiricists we demur, consider this.

  • If you go to the shops today and spend £100 of your money (after paying an unavoidable £200 for the week on your housing, food, energy and transport) you will have had to earn nearly £175 to spend it. £21 will have gone on your national insurance, £24.15 on your employer’s national insurance, £35 will have gone on income tax and you will pay £20 on VAT on what you buy. Your tax rate is actually 58 percent. High tax rates curb prosperity, particularly in consumer markets where the most jobs for the semi-skilled are created. Destroying those jobs creates inequality.
  • The cost of living at these tax rates is very high, and we do not even factor in business rates above; they decrease what you actually get for your £100 spend dramatically. It’s also difficult to produce products cheaply; many end up being imported from cheap labour factories elsewhere. Others that we might make to export are not produced at all because we cannot make them cheaply enough. This leaves 19 percent of Scotland’s potential labour force on the sidelines of the economy, inactive and hunkered down in penury. High tax rates generate this inequality.
  • Within this regime, the less well off, who buy a larger proportion of products incurring duty as well as VAT actually end up paying around the same average rate of tax as the wealthy. The wealthy benefit from reliefs and exemptions, privileges “necessary “ to make them save more (through highly-paid bankers) to provide capital for tax strangled businesses to borrow and, hopefully, invest. Tax complexities generate yet more inequality.
  • The merry-go-round of nearly half of spending going through government creates a vast army of workers paid through the public purse – with average wages 15 percent above those in the private sector, and senior executive salaries in the stratosphere far beyond the hard ground-scrabble of the working employer who generates those payments. Tax re-distributions create privileged inequalities, and slow economic progress.
  • I could go on, but I get angrier and angrier. Yet, today is a good day. Thirty years ago I sat in a meeting of the Tax Limitation Committee in Washington DC, an organisation which aimed to develop a constitutional limitation on taxes and deficits across the USA. When it was discovered that there were members of the press in the room, a third of the delegates stood up and walked out. They were not willing to go public about their views.

    Today, we are going through weeks of election torture in which the issue of spending and taxation has been vociferous and very public. It took a near disaster in 2007 to change the debate, but with an Office of Budgeting Responsibility, the rise of the Institute for Fiscal Studies, and the presence of The Taxpayers’ Alliance and, yes, even TaxpayerScotland, there have been enough voices championing the taxpayer interest that common-sense democracy may be working, and we will eventually get proper constitutionally binding (not just one-term legislative expediency) rules put in place to constrain the state. Long may this trend continue.

    In Scotland, the debate is well behind the global trend, but we all know there are other factors relating to self-determination involved; and the legacy of a hegemonic leftism which has historically always moved into the future looking backwards. Only time will tell what the SNP really think once they have to cope with real responsibility. You can vote for who you like, there is a choice, but it is important to us that you know what that choice is if you are keen on equality. Above all don't get hoodwinked by nice slogans that defy the economic reality of the high taxing state.

    We remain unaligned, but please support our long term aims, constraint on the state and low taxes to create prosperity and equality.


    Wednesday, April 22, 2015

    Beware those bearing gifts

    We have now recorded politicians from all major parties using the word “investment” as a promise to voters – repeatedly in some cases – in relation to both public services and infrastructure.

    Apart from the fact that these future payments are our money being spent on someone else’s idea about what to do with it, we dislike this idea of investment. Is it?

    It’s certainly consumption foregone; have a look at your pay packet and the prices paid for VAT-able goods; but does it offer the prospect of higher income in the future? We doubt it. For economists, the balance of outcomes has to be calculated from the returns that can be made from this money if we are allowed to keep it, as against the returns that might be made when others spend it. There are a few things to keep in mind here.

    First, only the productive create tax revenues. Public services can be productive, we do need them, but wide swathes of them are non-revenue earning. On balance, it is unlikely that re-distributing money to unpriced services, particularly social support, will offer returns greater than the return on our own efforts or those on whom we spend our own money. Knowledge enhancement, from new apprenticeships to universities, is the one area where in the longer term (well beyond the horizon of office-seeking politicians) public money can offer future enhanced returns.

    Second, all investments also generate overheads. The growth of infrastructure overheads is a particular concern here. Where those are assumed to come from tomorrow’s taxes, are not well calculated, and grow faster than the general growth in tax revenues, the state can actually generate a negative return from these investments. Think trams.

    Third, as we have heard ad nauseum recently, is the starting point from where this “investment” is made. Where the investor is so overdrawn that the new investment carries a prior burden of costs far in excess of the taxpayer funding it, the return to new spending is severely diminished.

    Do we have any evidence that these unfortunate realities operate? Well, with respect to growth, every developed nation with a large state sector has spent vast sums on public services yet many of their growth rates are near zero.

    Equally, infrastructure expansion there may have been, yet for years governments of all persuasions have been steadily selling this off to help pay their overdrafts. In Scotland, much of it is noticeably crumbling. NHS Scotland alone carries nearly a billion pounds worth of old and empty real estate.

    As for prior overheads; the Scottish Government’s 2015/16 budget section on Finance, Employment and Sustainable Growth shows us that 84 percent of this budget goes on public sector pensions. And their GERS report shows us that there is a large fiscal deficit.

    We should all beware those carrying gifts of glorious futures based on the bad ideas of the past.


    Thursday, April 09, 2015

    For whom the rail tolls

    Taxpayers heading for work through Glasgow Central this week may have noticed the Action for Rail group demanding the return of our railways into public ownership. We should be watchful of those offering free lunches, especially producer interests purporting to act in the interest of consumers.

    Action for Rail makes no secret of the fact that it is in fact the TUC acting on behalf of the rail unions. Their latest campaign is based on a paper by Transport for Quality of Life suggesting that rail tickets could be considerably cheaper through savings from ending rail franchising. Railway workers have as much right to propose how the railway might be run as anyone else, but equally taxpayers and customers need to assess how their ideas would work in practice. In this, their source report is severely lacking in credibility. The report asserts:

    “It is reasonable to assume that a publically owned train operator taking over the operation on a like-for-like basis will inherit the same cost and revenue base and so will be able to pay the same level of dividends that was paid out to the TOC shareholder, but instead pay it to the government as its sole shareholder”.

    Actually, this assumption is almost certainly wrong, with consequences for their whole argument. It also contains the kernel of a mistaken world view. On the first day of operations, costs and revenues will be the same, but it is what happens thereafter that matters; and what happens depends on the incentives released by their proposals.

    These include a series of claimed savings from public ownership:

  • no franchising costs (a one off saving), no annual dividend income paid to investors
  • eliminating waste through integration through the removal of duplication in management and marketing
  • removing profits taken by subcontractors used by the train operating companies (TOCs)
  • reduction in costs incurred through the “interface” between the TOCs and Network Rail
  • reduction in costs at Network Rail by reducing “friction” between rail-bed operations and TOC operations in a unified infrastructure
  • removal of profit taking by Network Rail sub-contractors.
  • There are a number of problems with these claims. We can look at them in two parts: the presence of franchising and the effect on operations of non-franchising.

    Effects on franchising

    Franchising is expensive. It costs a TOC upwards of £20million to bid, and it costs the government more than £1million to examine those bids. But in fact, that franchising exercise is not lost money; rather it involves a complete review of costs and re-planning of a part of our train network at regular intervals; crucially, the primary focus is on the commercial aspects of the railway, not the political. It’s also competitive, providing management and government with an incentive to seek cost control. Taxpayers know this process is being undertaken, would they know if the state owned the railway? Within the franchises, the management and marketing of services for rail customers is brought to the fore. These costs are vital – they increase the efficient use of the railway. Would the state running a monolithic integrated rail system be able to stand firm against political interferences, buying votes from the producer interest and ignoring customer service? We doubt it.

    With respect to dividends; those favouring re-nationalisation have to say where investment capital for the railway will come from. It can’t come from profits, there aren’t any, and without dividends it will not come from the capital markets. They need to be reminded that in the last days of British Rail, investment in our railways was actually zero; the system was (almost) paying its maintenance costs and no more. If they are saying that investment capital is going to come by competing for funds with the NHS, Defence, Schools and Housing they are either living in cloud cuckoo land or they are saying that our taxes will have to go up to support their jobs in their loss-making industry.

    The alternative is the present franchising system which provides taxpayers with much more information about railway performance than we have previously had. We can see there are some operating margins in some franchises, and we can see the extent of subsidies paid to others. We know that the per mile subsidy across the network has dropped in recent years, we know that more trains are running faster, and we can all see the investment going into stations and rolling stock. This consumes a lot of capital that the state simply does not have. The dividends help pay our pensions.

    Effects on operations

    Parts of the report read like an industrial policy handbook from the 1960’s. System integration, streamlining to create a unified infrastructure, removing administration complexities; these are the buzz phrases of the operational bureaucracy focussed on its train set. Once again, we are hearing the voice of the producer interest.

    The idea that removing profit-making and competing sub-contractors from the network, and returning to some sort of monopolistic direct labour department would save money is laughable. Day one savings would soon be eaten up in featherbedded work practices, lowered productivity and rejection of new technologies; changes that would inevitably be carefully hidden. Operational margins would evaporate where there is no incentive to perform well. We should not forget that when the Central Electricity Generating Board was broken up, it was found to have eighteen layers of management; most of whom were reading each other’s internal memos. Parkinson’s law applies.

    What operational managers in transport always forget is the purpose of their operations which is to move passengers and freight efficiently. They see messy negotiations between TOCs and the network over liabilities for delays, and muddled maintenance and enhancement works struggling to deal with train movements. Operations do not like muddle, but board level management would see these issues as providing vital information. This is how the railway learns to deal with change, and to improve its operations as change takes place. It makes what it does transparent. Multiple managements struggling with multiple changes and introducing innovation in response, despite appearing to be struggling at times, are actually doing the work that customers need, improving the performance of the railway. The alternative is a producer-led industry in which operations managers take the oft-quoted stance that “everything would run just fine if it weren’t for the passengers”.

    Taxpayers are protected by competition between franchises. We are also now able to see a lot more numbers about the finances of the rail industry. The politicians who fund its losses through subsidy are put to account on our behalf when they do not own the industry; they have to defend the support of its continuing losses through the use of our taxes.

    And that’s the rub about rail. It’s a perennial loss-maker that needs taxpayer support to keep going. We need to know about those losses, especially today. With the advent of driverless cars, probably electric, and some of them for public use, the future of the eighteenth century iron horse with its own inflexible permanent way is in real doubt. A new energy-efficient upstart combining plastic, printed circuits and programs is likely to see rail subsidies chuff off into the past. Taxpayers need clear numbers to weigh “investment” in rail losses against new investment in more efficient transport technologies that are financially sustainable.


    Tuesday, March 31, 2015

    Truth neutral before carbon neutral?

    Do we need, or indeed want, a carbon-neutral university? The answer has to be – it depends on who is paying for it.

    Ten million pounds has just been granted to St Andrews along with an eleven million pound loan to build a green energy centre on a 36-acre site at nearby Guardbridge. The university is also putting in four million of its own money.

    Now, there is absolutely nothing wrong with universities doing research on new technologies. Developing technological systems needs institutions of their size.

    Yet there is something worrying here. The initiative rings loud with all the right buzz-words; eco-friendly, sustainable forests, investment in renewable technologies, climate warming emissions … and then; regeneration, jobs, apprenticeships, partnership, and Fife Council. Hmmm.

    Universities are something more than good stewards of the planet; they are the repositories of objective truth. Climate change is a particularly sensitive area needing dispassionate study. The Intergovernmental Panel on Climate Change and some of its feeder research groups have been found wanting in their objectivity. In the same way that large donations by private companies are frowned upon because of the potential for tainted research, you have to ask if tax-funded green energy centres with potential commercial purposes risk pre-adoption of tainted assumptions about the environmental gains of such technologies.

    To be fair, the new Centre is seen by the University as a way of keeping its lights on and its students warm - no doubt also using some hefty subsidies per kilowatt given to renewable energy through feed-in tariffs. But that purpose needs somehow to be separated from the Centre’s role as an experimental investigation into the technical and commercial validity of renewable technologies. We need to avoid the creation of a national “enviro-scholastic complex” based on false science.

    Ideally, St Andrews would commit to reporting a very precisely calculated cost-benefit analysis of the Centre’s activities, written by analysts separated from the operations of the Centre itself and offered up for peer review by academics from another university - Gordon Hughes of Edinburgh comes to mind - and then write that oversight process into any contracts with their funders. Taxpayers worldwide would benefit greatly from some proper analysis of renewables. Separating the academic from the commercial here would really help support truth.

    There is other potential for intellectual and commercial damage in this project in its "partnership" approach. Too often, government funded actions reinforce a perception that anything attempted in Scotland can only be done by government subsidy. What does a young person’s mind take on board from this; that the state is the banker of new business and nothing happens without the state? This is a virus that destroys enterprise and lessens Scotland’s future. Clearly not what St Andrews aims to do.


    Thursday, March 12, 2015

    The direction of travel matters

    The GERS 2013-14 report makes dismal reading. Not necessarily in itself, the whole Western world is in a huge hole of debt, but in its role as a mirror held up against the proclivities of the Scottish Government.

    How often in Scotland do we hear about “ameliorating the effects of austerity”, or “reversing welfare cuts”, of “creating a fair and equal society” and numerous other utterances which in financial terms mean our government spending more money. The only problem being, it doesn’t have any.

    The GERS mirror tells us that we are collecting £9,400 per person in taxes (£10,100 with oil) and spending £12,500 per head. And so, Scotland runs a deficit of around 10 percent against a UK figure of 4.1 percent. A deficit, in addition, that is still being funded by yet more debt, a liability that only the next generation can pay off.

    This is a rotten state of affairs. Any investor, with time horizons a lot longer than any government, listening to the rhetoric and reading the rubric in Scotland about the need to spend more is given a powerful incentive to invest less.

    That’s not good for Scots taxpayers, because in the end, the bankrupt state has huge power and a blind momentum that in turn has the potential to wreak enormous damage.

    The Institute of Fiscal Studies has said that there will either need to be spending cuts or large tax rises. Given the direction of travel today, householders and businesses would be acting logically if they prepared for the latter – which some have put at £800 a head - which for the enterprising could mean a direction of travel to the south of our border.

    The annoying thing about this is that there is another way. On the same day that GERS was published our sister organisation The Taxpayers’ Alliance published “The Spending Plan”. This comprehensive look across all functions of government shows just how much state largesse has to go to reduce the state. The UK needs to take upwards of £100 billion out of each year’s managed expenditure to balance the books in a sustainable way.

    The astonishing thing is that these reductions would relieve ordinary households of a burden of taxation that today buys us precisely nothing – our money only services past debts.

    This is the key insight for all in Scotland; we can aspire to a fair and equal society where collective efforts provide jobs and growth, but the numbers tell us this is mere aspiration, indeed all past evidence suggests it is false proselytizing. We need to constrain the state, lower the tax burden and allow prosperity to be generated by the people. There is a more productive direction of travel available to us:

    Less spending >> Lower Tax >> Higher Growth >> More Jobs


    Friday, March 06, 2015

    “Appropriate” schooling for our taxes

    As our politicians squabble over how best to preen themselves in front of the television cameras in the forthcoming UK election, a far more important battle of ideas is underway in Milngavie.

    It’s billed as being an issue over a school closure, but at root it is an argument about parental liberty; a good example of how a government unable to provide services for which we pay our taxes uses its power to declare a condition of scarcity despite taxpayers knowing better.

    A sense of patronising condescension characterises the stonewalling of the Scottish Government against the proposal by parents to run their own community school. Officials have declared that “current governance arrangements have served, and continue to serve, Scotland’s schools well”, a patronisingly clunky remark that flies in the face of everything the parents say about their school. Similarly, to say “local authorities are responsible for the provision of education” and it is for ministers to support “the provision of “appropriate” schooling to meet the needs of communities” begs the very argument the parents are making; they paid their taxes for nothing.

    This view into the murky world of educational power politics, generated by local parents standing up for what they want for their money, is to be welcomed. The conservatism engendered by a worldview that says that Scottish education is always free, always marvellous and always egalitarian does Scottish taxpayers no favours. England’s education system has become much more diverse and much more innovative following repeated attacks on the “blob” that makes up the educational establishment.

    This battle between those who pay for schools and those who manage them raises a fundamental question; do we pay taxes for our schools to be equalising machines or equal access entities? If the former, who protects us from any bad ideas that the equalisers promote using our money; if the latter, at what level is this equal access decided; by a rationing state, or by contract between the local parent and local school?

    As an example, Swedish schools have become largely contractual entities with localised funding from their parents. A happy outcome of these arrangements is that more money can be put into schools when parents think it “appropriate” for this to happen. In Scotland, we are stuck with such decisions being taken through the local authority and their central blob overseers at great expense of time, obfuscation and top-slicing of our tax payments.

    Mrs Sturgeon is going to visit Milngavie to meet the parents. It’s an important moment for our clearly well-meaning First Minister and an opportunity for her to grasp localism as a touchstone of policy making. But if she arrives only to pat parents on the head and say that the nanny state knows best what is “appropriate”, we will know that freedom for Scotland is so much rhetoric, bounded by the meanness of a state determined to plan, control, and ration everything using our money.

    (We are in a closed election period through which TaxpayerScotland, as an unaligned body, is unable to make any comment that might be construed as supportive of any particular party policy. Our Blog articles will be less frequent during the campaigning period and be limited to general advocacy in favour of constraints on government spending and lower taxes. )


    Wednesday, February 11, 2015

    Easy taxes

    When governments find themselves short of money, there appears to be no limit to what they will consider to obtain the funding for their ideas. General anti-avoidance rules, diverted profits rules, base erosion rules, the targeting of promoters of tax avoidance schemes, special revenue units focussing on the affluent, self-serving intergovernmental agreements and more.

    There are those who evade tax and there always will be; but hunting them down also entraps those engaging in "avoidance"; a word that sounds like a deliberately selfish act, rejecting the acceptance of duty to the collective and the virtue implicit in giving to help others with less. That impression helps politicians sound moral and worthy in their criticisms.

    There is a counter perspective on avoidance; that what Adam Smith called "easy taxes" is important. Easy, in the sense of simple to understand and low rate, taxes are obviously helpful not to disrupt and decrease economic activity; but much more significant is the sense of easy that means not inducing large changes in behaviour.

    This is where all taxpayers should be concerned about governments. They clamp down on behaviours – declaring inequity in payments by wealthy individuals and corporates as unjust - when that very inequity is created by their own impositions. This is the route to thick tax guides, highly paid advisers and devious schemes.

    Such efforts place the state in the role of bailiff; making repeated visits to demand part of our property. It is important to remember that most profit taxes and capital taxes are second taxes on incomes that have already been taxed through payroll, property and sales taxes. What is yet more devious is that these particular bailiffs are known spendthrifts, incapable of controlling their overspending and overdraft, and unable to stop coming back again and again for more. Do we really have duty to support this? Indeed, is it morally virtuous to continue to support it?

    What has this to do with Scotland? Well, our bailiffs are being given new powers to visit us for more of our money; and they too are in debt with a tendency to spending profligacy. But we are a small nation where easy taxes would be easier to create, and we are the home of Adam Smith and, supposedly, common sense. A huge draw to Scotland could be generated by being the nation of easy taxes. There’s investment capital all over the world looking for a home and we have many thousands who would like to see that capital on the ground creating jobs. Would a thriving re-industrialising Tax Haven of the North be such a bad idea?


    Thursday, January 29, 2015

    Energy, transparency and truth.

    The placard slogan; “No to fracking. Not at the cost of my child’s future” encapsulates a serious problem in the energy debate.

    When political values overtake economic calculations, taxpayers should be wary. There appears to be a pervasive belief among some that the alternative to certain energy technologies is a free lunch. The exact opposite is true.

    Offshore wind turbines offer up their energy at a price around £155 per megawatt hour. Fracked gas may cost around £50. We have to be careful, both these prices are snapshots; capital investment costs, timescale risks and changing generation efficiencies will make the gap adjust through time. But that there is a gap between fossil and non-fossil energy production, and a substantial one, is clear; and when that gap is filled by policy mandated by politicians it becomes a tax measurable only by its political value, not the truth of the real costs.

    And some of these truths are not very palatable. Around 890,000 households in Scotland may be in fuel poverty – a figure that is rising year on year along with their energy bills. At the same time, Scottish businesses facing high energy costs are struggling to maintain jobs while competing against others producing with much lower energy costs. Poverty and joblessness as options for our children’s future are two outcomes of a high tax burden that have to be balanced against any fetish with carbon reduction. The politics of the economics here becomes stunningly complex; with a cacophony of interests all peddling their own “truths”.

    The only real truth is that we do not know what the truth is. It appears that the “green jobs” revolution destroys as many, if not more, jobs as it creates, although we do not really know. It looks like fracking gas might lower CO2 emissions by replacing coal production elsewhere; but it may not. It seems that nuclear energy is the only proper answer to energy without CO2, but the costs of the complete fuel cycle from mining to disposal are unclear.

    To find our way through this fog requires a brave politician to lead; to admit that energy costs a lot, and that making the right choice at any one time is probably impossible. Now, politicians are very bad at admitting to uncertainty and that their actions risk failure. They would rather show “determined commitment” about “the right thing to do” and tax us accordingly on the basis of a false conviction - usually plucked from that part of the noisy clamour of special interests that they happen to be influenced by. Placards that distort the truth that not fracking might seriously damage our children’s futures come to mind.

    There is another way. Adopt total transparency about the specific energy futures taxes we all have to pay for secure supply from each particular technology and put those as line items in our energy bills. Then, leave consumers to work out the optimum choice of energy mix for our planet’s future. Millions of consumers can choose their own futures and indeed the tax level that matches their appetite for risk and uncertainty far better than politicians. If that includes fracked gas so be it.

    You can see the prices for renewable energy in the UK here. Note the political wrapper.

    And you can see what we are generating from all sources here. The choice should be yours.


    Thursday, January 22, 2015

    Competition is mightier than dirigisme

    What fun that John Swinney has adjusted the rates of Land and Buildings Transaction Tax even before it collects any revenue for him. The political raspberries on his announcements were predictable, as were his lambasting of George Osborne for stealing his idea; despite there having been criticism of the slab rate approach for many years.

    There are serious points here. First, tax competition works on behalf of taxpayers, not politicians. The rise in the initial threshold and the middle level marginal rate of 5 percent will help keep the aspirations of our talented young professionals and families intact and hopefully retained in Scotland rather than fleeing abroad.

    Second, tax competition has also shown its powers to make politicians do something. It would have been far easier for Mr Swinney and his civil servants to sit on their hands and praise their achievement in smoothing the tax take and improving progressivity in their regime, but instead LBBT (Scotland) 2014 begat SDLT (rUK) 2014 which begat LBBT (Scotland) 2015. Someone has clearly done the numbers and LBBT at high marginal rates with low thresholds was found to be, well, too taxing. The notion of accountability for taxing decisions is slowly taking hold in our body politic.

    It is notable that little was announced about the total revenue expected from LBBT. There were mutterings about the changes being “revenue neutral” but it is well known that any property tax base is notoriously fickle and despite Mr Swinney hammering the very top of the market with what is effectively a “small mansion” tax, this affects only 0.01 percent of transactions. If the tax will now produce less revenue than expected, where does Mr Swinney intend to spend less, or tax us more elsewhere?

    And this is the real issue with this tax. It is essentially dishonest. It taxes an event rather than a predictable money stream and so is vulnerable to behaviour changes. Where it taxes savings it taxes income that has already been taxed; if it taxes capital gain it should be called a capital gains tax which creates its own avoidance mechanisms, including the simple fact that higher marginal rates shrink the taxable capital by reducing gains.

    And the worst of it? If it becomes an important source of redistributive revenue in the name of equality, which the ever higher progressive rates across the UK have edged it towards becoming, it produces contradictory political incentives. On the one side, everyone knows that an extensive programme of house-building would do more to lower house prices and help the less well-off than any other poverty alleviation measure. On the other side, such an initiative would reduce the public revenue from LBBT dramatically. A political dilemma ensues which ties politicians up in knots over decision making and too often they end up doing both things, reducing revenue and increasing expenditures, impoverishing us all.

    LBBT, indeed all property taxes, are bad taxes. We should plan to scrap them.


    Friday, January 09, 2015

    There's fear in the sea air

    You can almost feel the fear of our politicians as the oil price collapse works through to investment reductions and job cuts. A major source of tax has stopped producing the one thing that politicians crave – money to spend.

    It’s notable that the response has been to criticise the present regime and call for a change in exploration tax credits and the supplementary tax regime. That is, tax cuts.

    There is a wider lesson here. Business behaviour adjusts to costs and prices; and when tax costs are high big adjustments become necessary. In that sense, calling for a stable and competitive tax framework is a tautology – higher taxes generate less stable businesses unable to compete.

    Politicians of all parties now reacting to the oil industry’s actions need to consider that the principle applies to all business. It’s known that the straw that breaks the business owner’s back is in around seventy percent of cases the VAT or NIC payments which bleed the cash flow dry that would allow a business to adapt to hard times. When 14 percent of your payroll and 20 percent of margins are sucked out of all trading gains each month the capacity to survive other changes is lessened. It is particularly acute for micro-businesses, artisans and self-employed traders where earnings can change rapidly so resilience is low.

    This is why we need to re-double our efforts to explain the damage that high tax rates do to jobs and growth. Yes, we could lose 25,000 jobs in the oil sector, but how many jobs are lost among the 400,000 who survive on their trading wit in Scotland each year because of high taxes. We think it is likely to be even more than 25,000. We should applaud all those who then pick themselves up again and start over. Most of them do despite being punished by politicians who think they can spend their money better than them; and resolutely refuse to stop doing so.


    Thursday, December 11, 2014

    The wrong focus

    There is a distinct air of unreality in the focus in Scotland on raising revenue and maintaining spending when in the UK even the Labour Party talks about saving billions. With respect to the “cuts”, taxpayers can recognise that austerity has a good side; it forces all hues of government to look closely at everything they do and decide if they should stop doing it. In Scotland, that message seems, well, a little blurred.

    Gobbling our money in Scotland is not aimed at balancing Scotland’s books, it’s to “ameliorate welfare cuts”, “redress the impact of austerity” and “counter the policies that damage the lives of the vulnerable”.

    Alongside that spending our nation has an existing higher business rates tax for large traders, is facing a rise in property taxes, the prospect of a fifty percent income tax and no doubt some other feastings by the greedy state on our pockets beyond these impositions.

    So there is some irony in the fact that on the very day that the UK Labour Party came forward to pledge “sensible reductions in public spending” the Scottish Government was praising itself for its genius in preparing for how it will collect taxes through Revenue Scotland.

    John Swinney has said of Revenue Scotland:

    “Establishing the arrangements for our new financial powers is a large and complex programme of work. Establishing a new tax collection agency from scratch is a major operation.”

    You bet.

    The focus in the rest of the announcement contains real hubris. There are many (costly) red flags that ordinary taxpayers will see in phrases such as; “clear programme structures and well-developed project plans”, “this is a live programme where substantial activity continues”, “a team with expert legal, financial, leadership and operational tax experience”, “detailed phased recruitment plan to deliver the necessary operational staff”, “Technical guidance on the two taxes is currently being consulted on”, “development of IT is proceeding well”.

    Think of the overhead costs here – what happened to Adam Smith’s simplicity, clarity and equity in all this.

    If the rUK aims for a state spending level of 30 percent – akin to that of Australia and Switzerland – where does that leave the Scots? Our fear is that too often the answer will be “heading south across the border”; and not through personal greed, but through self-preservation.

    It’s as if the £12 billion pound deficit made plain in the GERS report did not exist; that somehow Scotland is on another planet.


    Thursday, December 04, 2014

    Thank you John Swinney

    Taxpayers should today thank John Swinney. He took Scotland’s first freedom to tax for 300 years – the Land and Buildings Transactions Tax – and created the first proper tax competition in 300 years within the UK.

    The immediate effect has been to push George Osborne into removing the “slab” system of the old Stamp Duty Land Tax. Immediately, taxpayers can compare two separate regimes. Essentially, because George Osborne has a slightly lower starting point, Scots pay a little less at lower levels. But because John Swinney introduced a jump to 10 percent at £250,000 without an intermediate rate, Scots pay higher tax from middle property values onwards. John Swinney’s effective rate is therefore generally higher through the price range than that in England and Wales. There is therefore transparent competition between consumer choices about property.

    Taxes on property transactions are bad taxes at all times because they tax an irregular event on a small tax base (house purchasers). In Scotland, the small tax base is a particular problem. John Swinney’s high rate of 10 percent from £250,000 is an understandable outcome of the small tax base and, in addition, the re-distributive “fairness and equality” agenda.

    Crucially, tax competition will allow Scots property consumers to evaluate this agenda and how realistic it is to use property tax policy to further it.

    Because Mr Osborne has parked his policy alongside Mr Swinney’s, the latter now has to defend the Scottish Government policy, which no doubt he will do in terms of the re-distributive fairness and equality agenda. Within a year or so, Scottish taxpayers will be able to challenge the Scottish Government on any visible and enumerable effects of crushed aspirations of the enterprising and any movement of the talented away from Scotland.

    These effects will not only affect the jobs and growth agenda but potentially make the fairness and equality agenda counter-productive. How fair is it to be forced to live in a country with fewer jobs and lesser talents? We have to remember that, in general, the poor cannot afford to move.

    In the medium term how home owners react and how Mr Swinney then reacts to home owners will be important. The political economy of competition is such that it protects the interests of consumers of property in the longer term – as long as they are free to move from country to country.

    Competition between the wealthy and their own government is a key advantage of competition – prior owners may well compete by purchasing buy-to-rent properties to take advantage of the lower and lesser rates – leading to transfers of income from the poor to the rich, again counter to the re-distributive goals of the policy. A lot depends on what wealthier people consider property to be for; living in, or a store of capital for old age.

    Tax competition, in general, is good for taxpayers – it makes governments discover what is good for them on their terms; that is, do they choose policies that please us enough to re-elect them? Sometimes that discovery takes a while to get past early rhetoric which is replete with slogans and nonsense. The good thing about competition in markets is that there are numbers to tell taxpayers the truth rather than spin doctors.


    Friday, November 14, 2014

    Tackling middle class welfare

    The Scottish Government claims that £104 million of our money will “tackle the impact of Westminster welfare reforms” in the next budget year. Scottish taxpayers need to know precisely how this money is being spent.

  • £8 million will be allocated to funding advice services. This includes the delivery of an Emergency Food Aid Action Plan which helps organisations combat food poverty in Scotland.

  • Around £35 million will be divided between local authorities to support people affected by the bedroom tax.

  • £38 million will be allocated to the Scottish Welfare Fund and its delivery. This is a last resort safety net that helps people on low incomes access household goods.

  • £23 million funds the Council Tax Reduction scheme which supports vulnerable people in meeting their Council Tax liabilities.
  • Taxpayers should carefully note the words “advice”, “support” and “delivery” above. These are political weasel words which hide a nasty truth; that a lot of this money goes nowhere near the poor, but rather supports the relatively affluent middle who administer the welfare machinery.

    Consider this; how do you square £35 million going to the local authorities with the accompanying statistic that 71,000 households affected by the bedroom tax have recently been helped at an average cost of £50 a month. That's £3.55 million paid out in the last cycle. Even if they help a lot more than 70,000 in the new cycle, there's a lot of that £35 million that's not going to reach those in need.

    And this: the Scottish Government helped 32,000 families through the Scottish Welfare Fund over 2013/14. That would be £1187.50 going to each family were the new £38 million to be spent at the same rate. If more than a thousand pounds of “household” goods have gone to thirty two thousand households we’re buying shares in Bang & Olufsen.

    And this: There are 72 projects supporting 20,000 people through the Making Advice Work programme. That’s 277 people per project. These project managers could meet to advise one client each day through the year and still get four weeks holiday.

    Housing and Welfare Minister Margaret Burgess says the Scottish Government is “taking action” about welfare, tackling poverty and inequalities, “making sure that we continue to reach out to those in the most deprived areas of Scotland”. Reaching out yes, (how caring), but being productive in tackling poverty and inequalities? We doubt it.

    We desperately need real transparency over welfare expenditure; figures on funding that reaches recipients, figures of the number of advisers, deliverers and supporters and how much they cost, the hours they spend on what they do, and whether their “projects” do very much at all would be very welcome.

    Real taxpayer transparency demands the numbers not to be hidden behind the obfuscation of middle-class welfare administrators while they live off the poverty industry. And there is a greater wrong here; these are the professionals with highly taxed incomes, and highly taxed discretionary expenditure, who also live in homes hit by the new 10 percent rate of property taxes. They pay a lot of tax to fund the government which employs them. Those high taxes, particularly indirect taxes, also hit the poor hardest because they make living cheaply very difficult.

    This mad money-go-round does the precise opposite of creating fairness and equality. It’s a form of political gerry-mandering that preserves a social status quo that divides the nation into haves and have-nots. We need to spend this money on lowering taxes.


    Saturday, November 08, 2014

    Transparency in spending our money

    As your “Annual Tax Summary” hits your door mat do a little jig and burl your family around the living room. It’s taken many years of kicking by taxpayer groups to get this far. OK, it’s limited in scope; only income tax and NIC spending is included and so there are (at least) 22 other taxes to go, obscured by thousands of pages of the tax code, but it shows some respect for our efforts.

    These statements allow us to consider the value of what the state provides for its colossal extraction of our hard-earned cash that, in Scotland especially, is far too often used for middle-class funding, wasted in state corporate activity or simply spent unnecessarily.

    It also opens up an interesting observational test that hard-working people can make on their politicians. If your representative considers this transparency to be a gimmick we all need to ask why. These tax expenses are costs that cannot be unchosen; they are forced takings for expenditure that is decided by someone else. They reduce both your economic and personal freedom as you cannot discriminate on what is spent – your moral choices are taken away from you.

    That’s why this transparency is so important; the extent of taxation, the use of taxes, and the success of that use needs to be far, far more visible in this country. This very general annual account is a start; what we’d like to see next is each person’s balance sheet individualized so that we can all see what we gave and what we received.

    That’s not so that we can show people on social support that they are taking more than they give, we are happy to sign up to a common weal to support the less well-off and the non-competent. Much more important is that taxpayers need to know if that giving and receiving is efficient and indeed moral. There is a well-known phenomenon of a tax-and-spend money-go-round in all developed nations whereby middle-class welfare becomes entrenched in the system.

    Taxing us greatly, only to then give us our money back again, is a daft way to run a nation. It’s neither fair and nor does it create equality - as the left keep pointing out while they support yet more of it. Transparency is the first step to curing this lunacy.


    Thursday, September 25, 2014

    Miliband, mansions and the struggling middle

    You have to wonder who is advising Mr Miliband. Mansion taxes, indeed any wealth taxes, are an appallingly damaging way to collect revenues for the public purse. They break every rule about equity in impact, incentives to save, invasion of property rights and unanticipated consequences as those affected change their behaviour.

    They were kicked into the long grass in the 1970’s when an exodus of the enterprising was predicted by the Treasury. Today, when middle-market houses often reach prices that should only really be paid for mansions – especially in the South of England where he needs to bolster his electorial support - this proposed policy looks both vindictive and, frankly, bonkers.

    Some say the policy would be irrelevant for Scotland, where houses worth over the mansion limit are proportionately fewer; but it is the thinking behind such foolishness that matters. The Scottish Government is committed, rightly, to move from a “slab” system of thresholds for its Buildings and Land tax to a progressive percentage system. But we need to remember why Mr Miliband wanted to tax the rich more – to spend more. Given the SNPs propensity to offer to spend more money on anything that will earn votes, there is every reason to expect that a quasi- mansion tax will gradually come into play following the arrival of this tax in Scotland.

    Rates and their thresholds will no doubt be left to capture more and more of the struggling middle class into their net through time. We must never forget that the one thing governments love is our money to spend; there is no purpose to their business without it.

    That, in turn, is why the debate until the end of October, and from then through to Burns night; discussing and then agreeing which new taxes become Scotland’s in any new Devo super-max arrangement is so important. We have always been in favour of a responsible accountable Holyrood; the recent close vote in the referendum gives the people of Scotland the chance to demand that.

    It is absolutely essential that the voices in Scotland calling for more public spending are balanced by other voices saying there are costs to taxation and that the state needs to be constrained in its appetite, no let’s say greed, for our money. We’re one of those voices, and we are intent in building a network of civic enlightenment on behalf of the struggling but self-reliant people of Scotland. Please support us.


    Wednesday, August 20, 2014

    Delight in power to tax and spend

    A clearly delighted John Swinney greeted the passing of the legislation that formally creates Revenue Scotland yesterday, our very own taxman.

    On the same day, the same Mr Swinney refused to rule out using taxpayer's money to buy the last commercial shipyard on the Clyde. Such are the delights of the power to tax and spend.

    As TaxpayerScotland, the other side of Mr Swinney's coinage, at least in the context of policy choices that use his expanding powers to force us to do what he wants rather than what we want with our money, we stoutly urge him to take great care.

    His powers are essentially absolute. If he can get his mates in Holyrood to agree, he could force us to hand over a hundred percent of our income should he wish it. If that seems farcical, we should remember that in the 1970's top earners had to hand over all but 2 percent of any extra income. Today, even the middle earners in our nation are handing over more than 50 percent of their income to the state.

    The brain drain, nefarious tax avoidance and simply not bothering to be productive are all well documented responses to such high rates of imposition. The response of the state to these supply side effects is lamentable; a mixture of more counterproductive spending to mend the damage they create, and more recently worrying general avoidance rules and powers to raid bank balances that aim to serve the taxing bureaucracy rather then any stated goal to encourage growth and jobs.

    Mr Swinney needs to adopt a genuine humility about his new and growing powers. He forgets the supply side at his peril. The incentives for his political colleagues to relish their power to raid our pockets rather than allow the freedom to create our own futures are well documented in the economic literature. He has become our new ruler; he should remember the Arbroath Declaration, it might come back to haunt him.


    Thursday, July 24, 2014

    Enjoy the games - but less balls please.

    There’s a wonderful “Colemanballs” that goes – “if he manages to run faster than the man behind, he can win this”.

    Some of the claims about the Commonwealth Games are of similar hopelessly inept erudition. For taxpayers, they are worth keeping in mind as we enjoy the spectacle. They remind us that we have to be forever watchful of state claims of grand munificence.

    1) The games are a productive investment. Well, they are an investment, nearly half a billion of our money – 80 percent from central government, 20 percent Glasgow. How productive state spending is depends on the returns to capital employed of the money spent on its ideas versus the returns lost from the taxes taken on the funding. It’s more likely that the investment profile is a mixture of lost opportunity and new opportunity for returns that add up to a zero sum outcome.

    2) The games boost spending. They certainly do, but we do not know what consumers would have done with their money without the games. They might spend more on imported over-priced fripperies like funny hats and t-shirts made in Asia, or they might spend it on a new speed-enhancing spandex produced on a machine in the Scottish borders. The best we can hope for is that consumers spend money they would have otherwise saved on things that induce producers to invest more on long-term revenue-earning assets whose overheads are affordable. If they were going to spend it anyway, there is no gain, and if they induce job-destroying imports or loss-making investments, Scotland loses.

    3) The games will re-generate Glasgow’s East end. Sadly, pump-priming is an aspiration loved by the media, not a productive phenomenon recognisable by statistical economics. Putting new infrastructure into an area creates a potential, balanced by the load of whatever debt or deficit from the spending drags us all back. Sustainable economic growth is a much wider phenomenon about knowledge, private entrepreneurial belief and market demand that no state can generate from a planning office.

    4)The games will have a legacy. Yes, but we do not know what it is outside of sporting advantage. We will know that humans can run, jump and throw even faster; we will have some new young sports girls and boys thrilled into (probably temporary) healthy participation; and the sports and media industry generally will gratefully absorb swathes of cash into higher stipends for the elite squad members who are researching just what the human body can do. But let’s not claim that hundreds of new permanent jobs will be created making cabers, bike wheels or even self-opening cans of lager for couch potatoes. Most of the money spent in fact will initially go from average-waged consumers to others earning more than themselves – which is why the games should really only be paid for by private sponsorship and not public tax money.

    Before you accuse me of simply being a dismal economist, I come from a sporting family and sure as heck I am going to enjoy the games. I laughed as hard as anyone else at the dancing Tunnocks tea-cakes at the opening ceremony; and yes I shed a tear at the sheer Scottishness, and Glasgowness, of the visuals, the patter and the general air of cheery involvement that characterises Glasgow. I am proud as hell that my own mother, a gym teacher from Hyndland, played lacrosse for Scotland, and I am proud for my nation to be put up in front of a billion television viewers as uniquely crazy and wonderful. Pink and brown kilts! Help ma boab.

    But let’s not extend Colemanballs into Holyroodballs; we get enough of that through the referendum debate. These games are a celebration of affluence in a wealthy nation coming together with 70 other nations to splash out and joyfully spend some hard-earned cash. It’s a pity so much of that cash is sourced from taxation and then justified by wrong-headed state-centric economics. We need to remember it is also balls to believe that if we spend fast enough we will stay ahead of the economy behind us.


    Monday, July 14, 2014

    Head over heart

    The closeness to the vote in September should not blind us to certain long-term decisions that Scotland needs to get to grips with.

    One such that could affect Scottish taxpayers greatly is avoiding any decision on our future energy needs. Recent National Grid figures show that Scotland is now importing energy more often than it has in the past. We are told that this trend will become more acute as our nuclear and coal-fired power stations reach the end of their lives shortly.

    Professor Paul Younger of Glasgow University warns us of increasingly tight margins on our capacity to generate what we need. He suggests our heads must rule our hearts on this.

    This "baseload" power is of real importance to all Scots. It powers the industry that gives us our jobs, and it powers our homes that keep us comfortable. It also takes a large number of years to build the systems that generate and distribute this power.

    For taxpayers, a lack of clarity in what is planned is not good. Politicians strutting their public stage lauding their green credentials through intermittent wind power of dubious efficacy are no substitute for hard-headed long-term commitment to the energy sources that can actually provide growth, jobs and comfort. After all, it is those things that provide the taxes to pay for public services.

    We'd like to see a firm statement of intent on this from the Scottish Government. Pigs probably won't fly before Sept 18th, and even then a U-turn on a policy that needs foresight upwards of twenty years will no doubt be obfuscated for political reasons. But equally, taxpayers are paying a high price for political ideas in the energy markets so total transparency about our choices is vital.


    Thursday, June 12, 2014

    If you over-tax pay, we have less work

    The latest referendum briefing from the Joseph Rowntree Foundation asks what "challenges that a more work-rich society would pose for a post-referendum Scotland". The word "challenge" in this slightly odd sentence reflects the focus of the Foundation on the challenges of inequalities in the distribution of income.

    They point out that Scotland's situation is becoming better as the recession period is left behind and is not any worse and probably slightly better than the UK as a whole. But one specific finding is that "employment since the recession has shifted away from medium-paying sectors towards low- and high-paying ones".

    The chart below shows the changing pattern of employment before and after the 2008 downturn.

    So, we have a slight shift away from the public sector (after a period of high growth), a shift into financial services and a shift away from manufacturing. This combines with a divergence in incomes as people enter these new sectors.

    We should not be pessimistic; banking, finance and insurance are essential elements in any affluent nation; families rent a great deal of their lifestyle these days. The jobs created are usually indoors, flexible and cerebral. That's good for women who want or need to work as well as the general health. Manufacturing in the digital age is perhaps a false distinction against "services" and it would need a treatise in the effect of digital automation to make any real sense of these shifts.

    But, the changing income patterns tell us at TaxpayerScotland something else; that the market is responding to high taxation with respect to outcomes in income distributions.

    Services are people-centric and we have very high payroll taxes, we all pay near enough 25 percent of all that we earn before we pay income tax, albeit that that now only starts above £10,000. Is it surprising that these new people-centric jobs are lower paid; it costs too much to make them higher paid.

    And in manufacturing, the risks of entrepreneurship today include the need for vast quantities of financial liquidity to grow a company from a micro-concern to a small corporate as corporate taxation, payroll taxation, sales taxation and other taxing regulations take hold. Instead, more and more companies resort to part-time short hours working and zero hours contracts in a slower growth cycle - going canny to stay solvent.

    This is one of the key paradoxes in the world view of centre-left politics. The focus of those like the Rowntree Foundation on re-distribution through taxation, creates the very inequalities they seek to reduce. We need to cut taxes across the board to put more people in work at higher pay rates.


    Thursday, June 05, 2014

    Rummaging around in their own box

    The second report by the Scottish Government’s Expert Group on Welfare is an object lesson in what political scientists call “the tyranny of the status quo”. Written by practitioners in the welfare industry and welfare academia, we think it will be seen as a historic document in fifty years.

    It provides an excellent summary of where we are and what might be managerially adjusted, couched in the worthy, although occasionally anodyne, language of dedicated professionals.

    As such it is stuck in its own box.

    It would be churlish to say that it is completely blinkered; it peers over the wall at our own suggestion for individualised welfare accounts and the insistence of others that a guaranteed income would simplify matters greatly, but then parks them into the tray marked “tomorrow” and returns to today’s dilemmas of disgruntled welfare recipients and a stunningly expensive tax bill.

    Ah, the tax bill. The Group reject the idea of a welfare cap, appearing to assume that such a thing is not necessary. Perhaps predictably we disagree strongly.

    The central political issue is that our welfare system is presently captured by the producer interest, but that interest has no pricing or competition within it to provide a check against the costs of its worthy vision of fairness. Taxpayers are still faced with an open cheque book, and these are our cheques. That’s why we need a cap.

    You can take a look at the promises these allow, using our money, here. To say these highly conservative recommendations live up to the report's title "Re-thinking Welfare" stretches credibility beyond any taxpayers' suspension of disbelief.

    Now, we know there is a lot of politicking involved here so that the Yes campaign can offer hot and cold running compassion, but Expert Groups should have the determination to state some economic truth. This one seems to accept that the costs of modern welfare systems (which they illustrate with figures from around the world showing Scotland is not abnormal) are just “how things are”. Well, as taxpayers we need to be saying it is time they were not.

    While rummaging in their box of tricks to improve this, tweak that and promise the other, the Expert Group assumes that the collective effort they are engaged in has democratic support. That’s because they speak to too many people in, or benefitting from, the welfare industry.

    There is a telling statistic hidden in the report. Officially, only 1 percent of welfare recipients claim fraudulently, however welfare recipients themselves believe that 75 percent of those claiming do not deserve what they are getting. Both figures will be wrong, but look at the vast difference in perceptions and what it tells us about the people’s view of our social support arrangements. They are not seen as fair, they divide us.

    A new Scotland needs to tackle this issue. Our way has been to break up the producer interest by breaking up the box itself – then allowing individuals to re-combine in a bottom-up system where professional providers become suppliers to our custom when we are in need. Our interest in fairness and compassion is then agreed mutually between us as individual human beings weighing up the costs, not by those with a career interest in controlling the institutions of “social support” and “social investment”. Taxpayer power is vital to bring reality to bear.


    Thursday, May 29, 2014

    Unassuming assumptions

    When an ageing shepherd with four children has ten goats and is loaned six more, he has four for each child that he can offer a wealthy future. But if vultures eat four of the next generation at birth and his creditor asks for two goat kids back as interest on the loan he only has two and a half goats per child today and three and half for tomorrow with one from yesterday that is not really theirs. He also has a problem on his hands – he has to sit around the family fire and explain their probable futures.

    Pardon the parable, but this is a way of explaining the stramash over figures about the future of Scotland’s finances presented yesterday by HM Treasury (79 pages) and the Scottish Government (50 pages). Scots can be forgiven for ennui and confusion.

    There are two ideas in economic analysis we should all hold on to. The first, cateris paribus, involves ignoring certain known influences (e.g. stray dogs that eat goat kids) because they complicate matters too much for numeric analysis. The second, mutas mutandis, means adjusting certain things (for example forgetting you owe a landlord goat rent); again to make analysis more amenable to numeric manipulation.

    The word “assume” or “assumption” appears 144 times in the Treasury paper and 61 in the Scottish Government paper. One or two assumptions per page do not make the analysis false, but they do make it less valuable in the sense it of its likelihood of being accurate in its predictions.

    For us, your referendum vote is not about economics, it’s about the power to, and ideas for, the governance of tomorrow in a modern world of free trade and affluence.

    In that sense, the fireside chats offered us by our governments are interesting, but in the end your vote has always been about the best way to choose who has what power over your decisions about a future for yourself; your own vision for a Scotland built by those of us determined on calm and comfort today, or a vision of a better tomorrow our children.

    Less spending, lower taxes, higher growth and more jobs is our vision and we will fight for that independent or not. What we do not accept is that it is the state that can always achieve more goats for all of us. A £1000 or £1400 "bung" is not what this referendum is about; that just shows us what carpet-baggers all politicians can be, giving us back our own money with a cunning smile.

    Tomorrow's growth for Scotland is down to us and our individual efforts and who “us” is depends on your vote. On tax, while you get on with your goat herd building, we’ll not ignore stray influences and we will certainly want some things adjusting.


    Monday, May 19, 2014

    Off the buses

    When public servants grab huge sums from local taxpayers and then award themselves increases higher than those they employ, they put themselves in a position of self-serving privileged grandees.

    The latest rise in pay for Ian Craig, head of Transport for Edinburgh, puts both him and the councils that own the corporatised entity above the people they serve. That belittles their democratic mandate as best-value stewards of our money that they spend.

    If Mr Craig believes he is worth more than a quarter of a million in pay each year, that’s his affair. But to be paid this huge amount, he must be made to face a great deal more risk of loss than he does now. His gross package includes a £73,400 bonus, but little is known about how this is calculated, nor whether he might have his pay reduced in years of poor performance as any owner of a private company would. Performance pay should run both ways and involve a risk of unexpected loss for its incentive effects to work properly.

    Edinburgh Council’s integrated approach to transport does not help here. By owning the buses and the trams they reduce competition that would press down on prices. The council should be looking for ways to increase competition, using their arm’s length relationship with Lothian Buses plc on behalf of fare payers.

    Taxpayers don't want glorified salaries for public service executives; we want efficient cost effective local services for our hard earned cash. Edinburgh's councillors need to step forward and condemn this pay rise and stop the executive gravy bus.


    Sunday, April 27, 2014

    A Confusion of British Industry

    Hurrah to the CBI for its decision to retract its intention to be a campaigner for “Yes” or “No”. . As we said in our previous blog below this could be a moment for re-considering how the CBI thinks of its role and we have a specific suggestion for them.

    Institutions unaligned with the debate do have a valuable role to play as defenders of their true interests, arguing from a logical and objective position rather than sounding like an anxious granny moaning that "it's a' gawn tae go wrong". The public are crying out for clarity – so that they can make up their mind about their vote on 18th September.

    An objective position for the CBI is made extremely difficult by the presence among its members of entities both fully funded from the public purse and dispensing public funds. They need to ask themselves what the effect is, for example, of having Scottish Enterprise, Visit Scotland, Skills Development Scotland, the SQA and Highlands and Islands Enterprise as members.

    In our view, which we repeat again, these ex-members should be politely refused re-admittance to the CBI. They introduce the confusion of crony-capitalism and the use of taxpayers’ money by interests with special access privileges to those who control that money. They divert the focus of industry away from its productive purpose to cosy collaborations that give such quangos yet more reasons to take more money from us and so damage industry further through higher taxation.

    We are not saying we need to put a gulf between the state and private business; but we are saying that those who purport to serve the interests of business need to stand up for its primacy as our wealth creation mechanism and generator of incomes. That includes warning government of its power to destroy wealth, reduce incomes and create unemployment through its taxing power.

    What chance is there of the CBI doing that in a room where some of its own members are both tax-funded and sponsor funders of others present?


    Tuesday, April 15, 2014

    Overworked or overburdened?

    The Reid Foundation has floated the idea of Scotland adopting a four day working week. Their latest paper “Time for Life” explains how this could be organised.

    We have quite a bit of time for the Reid Foundation, they wear their heart on their sleeve and you know what you get from them. Left wing thinking to be sure, but not administrative managerialism; like us they push the boat out on new ideas for a change.

    We love the idea of a four-day week – our rat race push-push-push world stresses people out, tends to discard the non-talented and appears to be re-generating privilege in both the public and private sector. And hey, it would be great to work less and have a three day weekend. What we don’t like is the compulsion in their proposal. They would mandate all employers to disallow too much work, presumably fining miscreants, and demanding money from taxpayers footing the bill if four days proved not long enough for viability.

    They also completely ignore, as always, the role of capital and entrepreneurial capitalists in making our lives easier. The analysis appears to be totally about distributing cake among all, on the basis that cake grows for us to consume in the same way (as a famous Panorama programme explained) that spaghetti grows on bushes.

    Inevitably, the proposal for a transition starts with the public sector where of course taxpayers’ money does grow through a mysterious auto-propagation. No surprise there, but they may have inadvertently joined us in finding ways of constraining the cost of the public purse.

    On the basis that the taxpayer is in fact the employer of the public sector, we’ll accept a four day week in the public sector based on two simple provisos:

    First, that prior to adoption, an independent audit of productivity is done; that is, the value of each work hour is numerically identified against customer evaluated outcomes that can be repeatedly tested. Private industry audits these cost of sales ratios all the time as the basis of their operations.

    Second, that the gross pay (including pensions benefits) received by public sector workers is linked to those outcomes - and so can go down as well as up - while those outcome requirements are also increased by the same amount as the increase in productivity in the economy as a whole each year.

    These measures seem only fair; those on a four day week can operate in the same environment as those not on the four day week with no compulsion involved. The claim is that productivity in a four day week would not necessarily suffer; and indeed could well improve. In this they may be either right or wrong and are likely to be both across differing sectors. What is important for taxpayers is that we find out and we get an equitable deal. If “fairness and equality” is the goal, let’s have that measured and not decided on by those using other people’s money to live.

    Those of a liberal persuasion who reject coercion should be aware of the world view behind this four day week proposal.The raison d’etre of the paper rests on the usual zeal of those on the left who are passionate about the “wastefulness” and “unsustainability” of consumerism. This puritanism has been going on for centuries, yet despite the efforts of hundreds of non-material intellectual critics, the great unwashed who like “stuff” keep on buying, eating and playing with material things. And hurrah for them, they make us all a lot wealthier and much more comfortable in the process as we innovate to meet such puerile desires. There’s a good summary of this dilemma by Prof Daniel Miller writing for the Royal Society of Arts here.

    There’s also a weird contradiction here. We could work less and have three days to do other things; but those other things would probably involve yet more “stuff”, more energy guzzling and more interpersonal trade and interaction. To allow that pursuit of happiness, we’d need more service staffs, more weekend workers and more leisure goods manufacturers. We could import all of these things making us all poorer, or we could all just act poor, wear hair shirts and stare at the sky for a few days. Our hunch is that this might make most of us more bored at which point we’d decide – er – to go back to work.

    By the way, there is another way of letting us all work less hard, cut our taxes so that each hour we work allows us more of our own money to keep. One of the reasons we all rush rush rush today is that we have a behavioural need to retain a certain level of disposable income. When others dispose of nearly half of this for us, we lose the comfort of our own efforts creating our own security. Our new paper on welfare explains how we could achieve this - along with a 10 percent tax cut to boot - you can see it here .


    Wednesday, April 02, 2014

    Stuck in a groove with a broken record

    If you believed everything the Scottish Government’s press relations team told us, there would be already be zero unemployment in Scotland and stunningly rapid economic growth.

    Working under their general precept that “the government is the economy” they have boasted over recent days about:

  • £1.5 million Regional Selective Assistance (RSA) and the creation of 110 new jobs by a global oil and gas contractor, Clough in Glasgow.
  • £1 billion worth of investment using their Non-Profit Distributing funding method.
  • The allocation of UK Budget Barnett consequentials including:

  • £31 million for infrastructure needed to increase early learning and childcare provision.
  • £12 million funding to fund the provision of free school meals
  • £10 million of support for Help to Buy (Scotland) in 2014-15
  • £12 million to enhance support youth employment.
  • £2 million to ameliorate the effects of UK welfare reform.
  • Given that no government actually has any money of its own, this is your tax money, it is worth taking a closer look at these promises.

    The regional selective assistance is a government bung to bring an Australian company into Scotland, operating in one of the world’s most profitable industries. You have to ask why we need to assist such companies – isn’t this really about inter-government competition; using our money to bribe re-locations? If we are really saying that we need to subsidise such successful industries to make them viable something is seriously wrong. It is worth pointing out too that the 110 jobs supported is only a little more than those being created by Andy Murray in his hotel near Dunblane; using his own money earned through hard sweat (and the occasional inter-set banana).

    The non-profit distribution method is simply a way of re-phrasing Public Private Investment schemes – they may not be quite so profitable as the original PPI, but they still have contracts for twenty to thirty years that oblige taxpayers to support state-owned infrastructure. That is, your taxes of tomorrow are being decided on today.

    The same principle applies to childcare provision, free school meals, help to buy and even youth unemployment schemes. These are long-term commitments that involved continuing funding over many years of state supplied services that tend to grow in cost and scope. We have said before that the attitude of the Scottish Government to welfare may sound laudable, but is anyone in Scotland’s political elite going to tell us where their commitment to welfare funding stops? England now has a welfare cap to protect taxpayers; we have an open tap out of which our taxes are flowing unstoppably.

    The only conclusion we can draw is that, as always, the propensity to spend more and more of our money is embedded in the culture of Holyrood. This simply cannot continue without consequences that are unsustainable. With a current deficit of around £12 billion, the Scottish Government really does need to look at its overall commitments and stop boasting about how hard it is working to … well … bankrupt its productive citizens.


    Wednesday, February 26, 2014

    Oh dear, do we really need this?

    The Scottish Government has just given £700,000 of your money to the Scottish Seafood Partnership. In the tortured language of civil service speak this body improves “engagement with stakeholders thereby ensuring a partnership approach to fisheries management and seafood supply”

    Actually what this mini-quango does is second-guess the industry under the guise of “advising” them and ministers. Its last published quarterly meeting – in December 2012 – involved fifteen people, with nine others unable to attend, at a hotel in Peterhead.

    They began by congratulating themselves on their previous “successful” meeting which had “considerable discussion” that its job was indeed “that the SSP was a means to advise Government and other relevant bodies, with a responsibility to seafood, of any necessary issues”. In this they essentially sat around a table agreeing to their own remit.

    They then turned to the business of the day; industry collaboration and future planning. They decided that “growing market perception and identifying market opportunities” and “future planning for a sustainable industry” were a key focus. We think the first probably means making more consumers aware that a variety of seafood exists and how this can be sold to them; although it could be a tautology meaning making seafood traders more aware of who they can sell to and how.

    A summary about the partnership Corporate Plan was then presented and a “one page summary of sources of market intelligence data was provided by Scotland Food & Drink” (another tax-funded quango)” who appear to be involved in – um – their own market development plan for sea food.

    The meeting discussed “joining up the industry” with reference to Marine Scotland (another tax-funded quango in the guise of a Directorate of the Scottish Government “responsible for the integrated management of Scotland's seas”). A little bit of skills training talk was then topped by a discussion about “product quality, premiumisation and adding value to products” – that is, making you and me pay more for a good product.

    Let’s now take a look at the membership of this body . As far as we can see there are seven trade associations, five corporate producers, four quangos and the Peterhead Port Authority involved. That is, your tax pounds are supporting a cabal of “suits”, who are funded already by seafood producers or distributors, so that they can talk about how to make more money from you.

    Actions of this cabal include such fabulously anodyne “actions” as “co-ordination and collaboration” (which is what trade associations do anyway) with “facilitation” being offered by Seafood Scotland “either as a virtual set-up or as a ‘village’ “. No, we don’t know what that means either, but we think it might be something to do with a web site built at your expense onto which tax-funded quango staff can put self-congratulatory copy.

    The partnership also believes that it could be a “provider of practical insight to assist in product development, particularly in how to deliver core premium products”. If we ran the Daily Mail we could turn that into a headline “Quango tells industry how to do its own business”.

    It gets worse; this group would also “like to explore a potential branding device and story to go on all communications … that will help sell Brand Scotland”. Oh no! They want to design a new logo – by committee.

    This is a truly dreadful initiative, and in our view the £700,000 is being completely wasted. The money is a clear example of tax being taken from the poor to the well-off (Sainsbury’s are represented on the body) and that makes the grant both a disgrace and counter to stated Scottish Government policies in favour of equality.

    And more importantly, is this centrally planned communism (which is what it actually is) really the way to improve Scottish industrial performance? I know a man in Mull who gets up every day and drives a tired old boat out into the sea to haul in his catch. He knows a lot about shellfish and seafish; and he knows a lot about where it goes – mostly mainland Europe. He knows other fishermen who also know these things – and they also know the limits of what they can and want to do.

    They don’t need this. And they don’t need it because in their community there are young people looking for work; many of whom would jump at the chance to help out in the fishing industry. But those with the boats would struggle to take on young people at a decent wage because the return to their efforts is not great and with our high earnings and sales taxes it’s difficult to make margins if you take on a young lad.

    So instead of more boats with more people and higher margins, which could pay for quality, marketing and market growth, we have discussions in hotel rooms where well-heeled suits share the bleedin’ obvious with others who are far too often doing exactly the same as them, all spending the money that could give young people work.

    I am sorry but this makes me very angry. Mr Lochead give us our money back. Your strategy is pointless, rotten to its core, and a complete waste of our money.


    Thursday, February 20, 2014

    The pattern of our bedrooms

    Two weeks ago we asked the Scottish Government to come clean on the facts about the "Bedroom Tax". We wanted to know what alleviating discretionary awards were being made and how many were being refused. There is so much stage strutting around this tax, and we felt that taxpayers deserved to know if their money was being looked after. Those figures have now been released in a statistical abstract.

    The global figures are that £16,288,468 was made available by the Department of Work and Pensions for Discretionary Housing Payments (DHPs) in Scotland. The Scottish Government then made an additional £20,000,000 available to Local Authorities in Scotland. So, £36,288,468 of our money has been allowed to help those in difficulty with housing costs. In fact, a cash limit has been set at £33,672,091. The £2.6 million difference can be spent on costs associated with the administration of DHPs, but it cannot be spent on DHPs to claimants. Such is the obtuse nature of public spending controls.

    Between 1 April to 31December 2013 local authorities received a total of 76,230 applications for DHPs and 52,680 DHP awards were granted, with an average award value of £352, and a total spend of £18,555,592.

    Now, what is interesting about these figures are the patterns. Here is the spending broken down by local council area.

    You could look these figures as a typical example of a postcode lottery. If you live in Perth & Kinross it looks like you are on a hiding to nothing asking for a DHP. If you live in Renfrewshire there's jam on the table.

    But in fact, it is much more subtle than that, because within the figures it is possible to calculate how many applications were refused. Thirty percent in Perth and 23 percent in Renfrew to be precise, not too great a variance.

    What is important is that out of 76,230 applications, around 16,000 or 21 percent have been refused. Now, according to Welfare Minister Margaret Burgess this is a bad thing. She says:

    "We have already topped up Discretionary Housing Payments to the maximum amount that Westminster legislation allows to help people struggling with the Bedroom Tax. But we know that this is not enough to help everyone. "

    But just a minute, is the Scottish Government's policy really to "help everyone"? Are they saying that the 16,000 failed applications for support administered by the local authorities are mistakes?

    Margaret Burgess also says: "These figures show the impact the Bedroom Tax is having in Scotland". Well yes, it is showing that nearly a third of those seeking support are judged by the local authorities to be able to find other ways of mitigating the withdrawal of payments taken from other taxpaying members of the community.

    We have no doubt that Housing Officers are genuinely concerned and duty bound to ensure the welfare of those in difficulty; but it does also appear that in many cases they are being discriminating and attempting to avoid over-payment and take care of taxpayers money where they see that self-reliance can be achieved.

    And there's the lesson for the Scottish Government in all this. Localised provision creates sensible parsimony; local knowledge allows kindness and fairness to be optimised for both the paid and the payer. The "Bedroom Tax" is a brickbat policy and we have criticised it as such; but the vast cost burden of our crude centralised welfare system has been destroying jobs and lives for decades and something must be done.

    In these figures we can see the answer; use local knowledge and innovation, plus competition between localised providers, to maximise the efficiency with which the state uses taxpayers' money. This is not a postcode lottery; this is local community finding the best way for everyone to be self-reliant.


    Thursday, February 13, 2014

    Forget the money - it’s the taxes that matter.

    If, as is now expected, Chancellor George Osborne issues a decree today that the Bank of England will not agree to the management of a linked monetary policy for the pound in Scotland, this could be a good thing.

    We have previously said in our paper "Whose Money?" that monetary policy is a false lever for economic management. In a global economy with free capital movements, Britain can no more control money policy than the USA, China or Europe. Monetarism is a constraining tool alone, and it’s very important that it is not used as an inflating device – its only other use.

    That will leave the Scottish Government in exactly the same place as it was prior to any refusal to allow us to use what is technically our own currency. So be it, government spending and tax have always been the basis of the shocks and trends that any country’s monetary authorities have to cater for as they struggle to control devaluation of the currency by expensive political promises.

    So, if Scotland is to have its own pound, probably initially tied to the rUK pound, so be it. For Scottish taxpayers this could be a good thing, especially as we would presumably be free to choose to spend and save in any other currency as well. It would constrain the new Scottish state, and concentrate its minds on what really matters; keeping the public purse in check, removing deficit and debt and allowing us to keep enough of our money to invest in jobs and growth.

    And if we do well? Well, the boot goes on the other foot and it would be the rUK that would have to think about how to deal with the economic advantages being earned by a globally trading, productive Scotland. They might even want to bolster their balance sheet with a few Scots pounds.


    Monday, February 03, 2014

    What price a spare room?

    The “Bedroom Tax” is a bad policy, but that does not mean that redressing its harmful effects can be offered as a free lunch on the taxpayer.

    Of course, it was hugely London-centric of Mr Cameron’s numpties to think that a stricture on spare room subsidies to some people in over-sized accommodation in Hackney was none too bad if there was a small flat available just along the road in Tower Hamlets. However, they handed a political weapon to the Scottish Government who could point to vulnerable diabetics in Biggar being moved, from where they had lived near other family members all their life, fifty miles to East Kilbride where they had no-one to support them.

    But anecdotes don’t make good policy analysis. Yes, there are “victims”; we are told that there are 20,000, 80 percent of them with a disability and 60 percent of them children. But hold up; the removal of the subsidy had to be brought in for a reason, it’s beyond credibility that it was simply a case of nasty party theft. Why bother creating so much political flak for such small economic gain?

    Taxpayers deserve at least some balancing statistics to show that the extra £15 million being proposed to “redress Con-Dem cruelty” is actually being used well. Nicola Sturgeon is proposing a full repayment of all losses – can this be right? Is she saying that every Scottish Council house is optimally filled at best taxpayer value? We think we have a right to know? She’s about to use a lot of our money (if she can get it uncapped) to scrap the tax.

    Ironically, her preferred method of discretionary housing payments distributed by councils is probably the right policy; Scotland’s local housing departments are staffed by decent compassionate local people with knowledge of local circumstances. It’s only a pity that these payments, as so often, are surrounded by 44 pages of strictures and guidance handed down from the Department of Work and Pensions in the usual centralised fashion.

    How much better would it be to keep the cap, to show responsibility over public spending on behalf of taxpayers, but release the choices to locally decided policy? Some people would howl about a postcode lottery in housing support; they would be wrong. We should encourage diversity in thinking on these matters, it would encourage innovation and better use of our taxes.


    Monday, January 27, 2014

    Statics, Mr Balls and Statistics

    Predictably, following Mr Balls’ favouring of a 50 percent tax rate, we are hearing a whole lot of statistics being offered – some of which contradict each other – suggesting that either a 50 percent rate will produce less or more revenue.

    Aside from the fact that this doesn’t do the econometrics profession much good, it also hides an issue central to Scotland’s future. Dynamism.

    Many in Scotland will applaud Mr Balls for his aplomb in coming out and making the case for a high top earner tax rate and to hell with the revenue outcomes – they want to equalise us. But aside from the totalitarianism of that approach, they miss something – it’s based on a static view of the world. You pull an economic lever and things happen and then stay the same – no, they don’t.

    Mr Swinney has repeatedly promised a “modern, dynamic Scotland that offers jobs and growth”. The key lies in the word “dynamic”. A proper debate about tax is not about rates, it’s about how tax rates make us behave.

    Statistical niceties fall apart as economic actors adjust their behaviour to change. So let’s look at some practical time-based realities.

    If you are in a skilled trade in Scotland you are able to charge around £30 an hour in our urban areas for your services. Working 240 days a year for 8 hours a day (and some work much more) you can obtain about £57,600 of revenue - £25,000 above the present 40 percent tax rate threshold. If in the process you do four jobs a day and on average you install £200 of hardware at a 100 percent margin you earn another £96,000. Your total earnings (not taxable income) are now £153,600.

    Of course you operate as such with deductible expenses that usually allow you to try to reduce this burden back to the standard 20 percent rate. But of course those deductibles are the lifeblood of your survival; your vehicle, your fuel, your tools and your phone, computer and wife who does the books. And by the way, you set your margins to cover your costs and price accordingly, so your tax burden feeds straight through to your customers' cost-of-living, Mr Balls.

    So a sole trader can, as they say, turn a dollar, working hard but note, also keeping a ever watchful (and commercially defocussing) eye on the taxman who is ready to pounce should his earnings rise too far above his or her deductibles.

    Now, consider the dynamic. If you show some entrepreneurial zeal and decide to create jobs and growth, your route involves taking on one associate, or maybe two, as a small partnership, usually you also evolve your trading to specialise in specific higher paying skills; maybe you do heating and ventilation, maybe you do network cabling, maybe you engage in specialist flower-arranging, or hair beauty therapies. Very quickly, your turnover means you are paying VAT, you have staff that need to be paid, and their taxes calculated, plus a 13.8 percent imposition on their wages you have to pay, your business premises need their rates paying and they need furnishing, heating and lighting.

    Once again, you have deductibles, but these have transmuted into risk laden business and management overheads. A behavioural change is needed – you need to win through, and you need to make enough margins to survive losses. You work like crazy to generate cash. Now the rub. Why bother? Your turnover is up above £500,000; but your tax bill is now around £100,000 and the spare cash you need to cover your risks and feed a going concern is near, or more likely above, Mr Balls’s £150,000. So what do you do?

    Well, you become a limited company, you lease a big car, you hire an accountant, you spend more on things that can be taken “on the business”, like wives and children and their cars, non-productive but saleable property taken on as a pension option, and you keep your drawings and wage bill as low as possible. In the process, you have taken the view that jobs and growth is not all its made out to be, because you are in charge of the jobs and growth and the very people who say they want that success (the politicians) are taking all the cash gains you make from you – and for which you would normally have other productive plans.

    This dynamic behavioural change is largely hidden from us; it’s about aspiration for a better life, and about the job of working hard to build something from learning a trade, through building a wee proprietary business, to employing others and struggling to grow into a market that wants what you do. And it is everywhere across Scotland, and it’s being damaged daily by political actions (and talk) on tax. The behavioural effect on the hidden productive entrepreneurs in an economy is unseen and unimaginable to politicians; almost all of them have always been salaried workers.

    And there is a paradoxical irony in their talk of high tax rates on high earners. Those very salarymen (and women) are precisely the people who have scarce oligopoly skills and economic political power (unlike jobbing traders and small and medium sized trading industrialists) who can seek to manage their scarcity such that they obtain higher salaries for themselves to compensate for higher rates of taxation. This is why the Chief Executive of Scottish Enterprise earns more than £200,000 a year, why academic professors also earn six figure sums, why our top police officers can offer themselves £10,000 salary increases. I am sure you will note that my examples are all largely paid from the public purse - by taxpayers on average poorer than themselves.

    In short, high taxation for high salaried earners creates income and social inequalities. The salaried earn more, the entrepreneurial hide their cash and pay their workforce less. High taxes on high earners sounds like a good target when you are looking at a top executive, or a quangocrat, academic or a top professional; but they seriously damage the motivation and focus of the real wealth creators.

    The “wee person”; the electrician, plumber, jobbing engineer, shop keeper, beautician, restaurateur, web designer, computer programmer and all those other “doers” that make the world go round, exist in a world of plural competition – building margin-making niches that are soon innovated away and so keep their prices down (to the benefit of all consumers). But they still all pay tax, often to the very people who are paying the higher rates on manipulated higher salaries.

    There’s something mad about that, and we need to get mad about it too … it’s, well, ba**s.


    Thursday, January 23, 2014

    Making councils think and innovate

    Glasgow’s Culture and Sport department is reported to be planning changes to its library opening hours. There is much noise arising over this idea – an outcome of the financial squeeze.

    There will be a focus on the loss of ten jobs, and we should have sympathy with those affected, although they will be well trained and educated with good prospects. But there is another focus; the council is being made to think and innovate.

    Culture and Sport Glasgow has 2600 staff and a budget of £100million. They spend £116 per person with 14 million usages of their facilities each year – which include tennis courts, golf courses, theatres, museums and other collections.

    Politicians opposed to change fear it is the "thin end of the wedge" over cultural and sporting facilities and have called for consultations. Well, we hope it is, and we also think that “consultations” is another term for ducking responsibilities to taxpayers.

    Scotland needs to think about its widespread municipal support for all such activities. Inverness has stopped all support for the Arts but there is still a vibrant cultural and arts scene there. Too often, such subsidised facilities are benefits for the middle classes, paid for by the less well-off.

    Glasgow is to be congratulated on grasping the nettle and beginning to ask questions about how best to organise civic facilities. This evolving debate is really about jobs and growth, and fairness and equality. The working man or woman is paying 20 percent income tax, 13 percent NIC and his employer another 13.8 percent on their wages. No wonder they need a subsidised library. In fact too many of them are sitting in those libraries without a place to go to work instead. They are too expensive to employ and the wages they get are massacred by the tax funded public services that, cruelly, then offer them advice about jobs through the very libraries they visit to get out of the cold.

    Spending cuts matter – they put money back into the pockets of the people. And if they lead to lower taxes on labour, they put those people back into work. Our Councils must always be thinking about that. Artistic and cultural Utopia is all very nice, common weal blessings shared among the community are too; but there is a price to such niceness – and mass joblessness is a price too high.


    Tuesday, January 21, 2014

    The limits to equalisation

    A key element of the economic debate in Scotland is about the imposition of measures which would generate more equality. Some call it the “Scandinavian model” others call it a “Nordic romance”.

    A new piece of work at Stirling University tries to examine some of the changes that might take place were policies promoting equality through the tax system attempted. This should be made compulsory reading for every politician, civil servant and socialist.

    This is a genuinely careful, objective piece of work based on serious statistical analysis. It illustrates very well the difficulty that any government has in going further than declaiming a commitment to “fairness and equality” and actually doing something about achieving such aims.

    At TaxpayerScotland, we have always said that chasing equalising goals through taxation is not only likely to be ineffective, but very often counter-productive. And in Scotland, with a mobile middle class, high tax rates could be seriously damaging.

    The general thrust of the report is that minor fiddling with tax rates would have very little effect on the overall measures of inequality. It is not lost on us, that if those who put equality as the highest item on their transformational agenda for a new Scotland know this, they might be tempted to adjust taxation to impose radical equalisation. They need to read this report – it is carefully and logically written without taking any sides.

    Here is one example from the report which analyses the effect of the imposition of a 50 percent income tax rate for high earners, taking into account a “migration response” – that is, high earners moving out of Scotland.

    “We insist that our model, in quantifying the introduction of the additional rate of income tax, sees a fall in direct revenues (i.e. income tax only) of 75 percent, though we implement this after allowing for the migration response already calibrated.”

    We should remember that 43 percent of all income tax comes from the top 5 percent of earners. While not all the top 5 percent earn over £150,000 in Scotland, and so 75 percent loss of income tax revenue would be reduced at lower salary levels, even losing, say, a quarter or a half of that revenue would knock Mr Swinney’s budgeting for six. We need to recognise that we live in a global world, and we cannot offer ourselves a free lunch just because we are Scottish.


    Tuesday, January 07, 2014

    Another free lunch

    When Nick Clegg ventured to Glasgow for the Lib Dem conference in September he announced that all children between the ages of five and seven would be given hot lunches at school for no charge. It’s not the first time a politician has acted as if money grows on trees, of course, but depressingly it appears the Scottish Government was listening.

    The First Minister has now decided to replicate this daft policy in Scotland, despite the fact that it’s bad value for taxpayers’ money and does very little to help those who are struggling with the cost of living.

    Why is it not good value? Previously this entitlement was aimed at those really in need, now everyone will get a “free” lunch. This means extending the provision even to children whose parents are on higher salaries. That means it is nothing less than a middle class welfare subsidy paid for by everyone, including those on minimum wage. It is an attempt by the political class to pretend they are doing something about the pressure on family finances by promising subsidies paid for with those families’ own cash. One thing you should always beware of in this world it is a politician bearing a free lunch, because someone has to pay for it. And it’s usually you.

    In England the cost of this policy was greatly underestimated. While Nick Clegg was promising everyone giveaways he forgot to factor in the cost of the kitchens needed to cook the meals. Now politicians want to raid capital budgets – the money set aside to build and maintain schools themselves – to cover the cost of their election gimmicks. The pilots of this policy did not lead to any significant health benefits, so taking it up so readily in Scotland has just added another load for taxpayers on top of those for “free” care of the elderly, “free” prescriptions and “free” higher education – with more child care tomorrow promised in the recent White Paper. Even Johann Lamont has asked the crucial question; is this really affordable?

    Mixing policies for schooling with social support may be offered with the best of intentions, but such initiatives always become self-serving and centralised with their own unstoppable and growing momentum. It is very important that the spending on free meals is kept totally transparent and properly audited for proper review. We need to know if the cost goes out of control – it’s our money.


    Friday, January 03, 2014

    What price your Council?

    What a pity that “The Scotsman” decided to headline a poll by the Commission on Strengthening Local Democracy on a purported finding that most Scots are “ready to pay higher council tax bills”.

    Actually, 65 percent against 33 percent said they would “pay more if they were certain the money raised was spent on local services”. But, contrarily, 49 percent against 44 percent said they thought councils “have enough money to deliver … services”.

    As a contribution to public understanding such statistics are less then helpful. And there is a reason – prices and self-interest.

    Polls that ask people if they want more public services but offer that as a free lunch ALWAYS come up with the result that people want more free lunches. Very rarely, a poll is done wherein a price is attached to the additional services. When those prices are made explicit, the figures obtained are completely different; the higher the price, the fewer people want the services. Unless the poll can prove that it questioned a normalised demographic and offered priced options – the question and its results are meaningless. Ipsos MORI deserve severe criticism if they suggested the question.

    The second statistic above is more interesting, showing that people are divided almost equally between those who think Councils have enough money and those who do not. No surprise there, electoral psephology tells us that we are divided equally on these matters; if nearly half of us live off the public purse, half of us will vote for free lunch at the expense of the other half. We are back here to Bastiat’s aphorism that 'government is the great fiction through which everybody endeavours to live at the expense of everybody else.'

    It is rather interesting however that, beneath the article on the Scotsman , the commentariat were almost entirely astounded by the idea that more should be offered to our councils. (There’s a wonderful comment about “the road outside our house looks like Cambodia after a visit by the US air force”). That gives us great heart.

    A greater scandal is that this poll appears to have been commissioned by an entity The Commission on Strengthening Local Democracy funded by COSLA – that is, our local councils.

    So … you are being told by an entity that lives off your money that you should spend more of your money … on them. Now that’s self(ish) interest. A pity, because there is a much more important statistic in the survey – 90 percent of us would vote in local elections if it was clearer how their vote made a difference to local services. And you know, there is a local vote that we can all make, and do make every day that makes a difference – it’s called a price. That’s how we can design our local services - at properly distributed costs to all taxpayers. Price them transparently.


    Tuesday, December 24, 2013

    The joy of giving - when we do it ourselves

    It’s said that Dickens may have invented Ebenezer Scrooge after a walk in the graveyard at Canongate Kirk in which he misread the headstone of Ebenezer Lennox Scroggie as that of a “mean man” when in fact he should have read it as a “meal man” (corn merchant).

    Scroggie was a friend of Adam Smith who is buried in the same churchyard so there is a strange synchronicity here. Here we have the personification of curmudgeonly meanness alongside the personification of progress through growth created by freedom. Such a parallel allows us a parable for Scotland.

    The Scots are a giving people, they give of themselves and they want social giving to be an intrinsic part of who they are and how they act for each other.

    And yet, for dry economists, it’s not as easy as just saying “let’s have a fair society”, we need to generate the wherewithal for all to give, and the history of enforced equality is, frankly, appalling. Our ever dedicated government offers the “jobs and growth” idea along with “fairness and equality” in its statements almost every day, trying to balance Smith against Scrooge.

    There is no easy answer to this dilemma, as Scrooge’s tortured soul discovered. But there is one important difference between the reformed Scrooge and a government. Scrooge chose voluntarily to give Cratchit his generosity and kindness; he was not coerced, the Ghosts of Past, Present and Future simply let him know the outcomes of his wretchedness.

    When you are called Eben as I am (and yes, I did have a grandparent called Ebenezer) you are very conscious at this time of year that a curmudgeonly attitude about taxing for social redistribution can be taken badly by others. But, those who champion the cause of the Cratchits need to know that it is not because we do not get joy from giving, but because we believe that the best type of giving is voluntarily. We think this is a challenge for a modern Scotland, none of us want “de’il take the hindmost” but equally none of us should think that “enforced fairness” will actually achieve its stated aims – history, and Smith, tells us otherwise.

    Scotland may write itself a new chapter in its own history next year. We sincerely hope that - whatever the outcome of the referendum vote - Scotland finds new institutional forms that help resolve this dilemma between progress and fairness. We here are determined to bring something new to that conversation. It is not necessarily true that the two ideas are mutually exclusive and Scotland has a great chance to optimise the possible.

    A Happy Christmas to all – with special joy from a giving time.


    Wednesday, December 18, 2013

    Slanging matches about the unknown

    Who would be a politician when brickbats are being thrown back and forth between the UK Treasury and the Scottish Government on costs and benefits of proposed policies?

    Hounded by the UK, hounded by the media about the UK Treasury, while all the time trying to keep a focus on what those in favour of independence sincerely believe to be right, they could be forgiven for being found with their head in their hands moaning gently.

    But there is a ray of light here for the electorate. What we are debating is the "unseen", the things that would happen if such and such a tax were cut, or some specific spending undertaken.

    As such, the appeal to "give us the numbers" is rather less than useful. There are no numbers. The UK Treasury has only announced in the past two weeks that it is beginning to do some dynamic modelling, and we understand that the Scottish Government now also has a dynamic model in preparation for Scotland. Crystal ball gazing of the statistical kind is less than useless.

    What is helpful for the taxpayers in this numeric desert is that the promoters of these policies have to start talking about principles and how these would impact the world where we live in practice.

    That's why John Swinney talking about the potential of a cut in Air Passenger Duty is good, it's why Alex Salmond talking about the attraction for firms of a Scotland with lower corporate taxation where wealth can be built is good, and why Nicola Sturgeon talking about the dynamic effect of thousands of women creating new income for themselves is good.

    There are a set of principles that would allow Scotland to build itself up, generating new wealth and new jobs for itself by catalysing entrepreneurial energies from a young woman in Moniave finding a job making yoghurt, through three young lads making apps in Dundee, to a well whacked international banker heading for Seoul direct from Scotland instead of struggling onto a flight at Heathrow after an early start in Glasgow.

    These are the real stories of real people. The hard grafters who just haud their weesht and get oan wi' it. It's all very well for the UK Treasury castigating the Scottish Government's white paper on the basis of a tomorrow no-one can foresee, but they really ought to be looking at their own principles of governing us and the role of taxation in it before they spray their criticism hither and thither. Taxpayers deserve better to help them make an historic choice.


    Sunday, December 15, 2013

    Here we go again – Alvin and Robert … please help

    We’ve been ploughing through the documents on the Revenue and Scotland and Tax Powers Bill. That’s the Scottish Government’s legislation that will govern how your money is taken by the authorities to fund what it wants to do.

    Within the UK, Revenue Scotland will initially collect only two taxes from 2015. With a “yes” vote, it would collect them all. While the Bill prepares the ground for the first event, it also sows many seeds for the second.

    To give you an idea of what is going on here, this bill is 126 pages long with 225 sections. The explanatory notes alone use up 52 pages with 315 items.

    It’s going to cost us. A lot.

    Three and a half million pounds more since last week in fact; £1.5m for extra IT investment, £730,000 for Scottish Tax Tribunals, and an extra £1.05m for the Scottish Environment Protection Agency to administer landfill tax to investigate and illegal dumping. Then another £230,000 on investigation and compliance work in its first year alone. All this is in addition to the £16.7 million John Swinney told us some time ago that it would cost to collect our new devolved taxes.

    Parliament has yet to debate the bill, and it is a lawyer's delight. (The apostrophe before the last letter here is probably a euphemism.)

    It will attempt to introduce a “General Anti Avoidance Rule” – described by John Swinney in an announcement last week as “a vigorous approach to combatting tax avoidance”. Let’s analyse some of that machismo. Here are some lines from the Bill’s explanatory notes.

    “the terms avoidance and abuse do not have exact definitions”; “this definition is kept broad so that a wide range of arrangements can be considered” ; “to determine whether they are tax avoidance arrangements”; “an arrangement .. which appears to have as its main purpose or one of its main purposes the obtaining of a tax advantage”; “sets out the definition of artificial”; “sets out two tests for deciding whether a tax avoidance scheme is artificial”; “provides that, …, the burden of proof is on it to demonstrate that there is a tax avoidance arrangement that is artificial”.

    Oh dear, how did we get here? And is this really going to get us from here to what the press puff last week called “a tax authority and a 21st century tax system that meets the needs of our businesses and citizens”. Of course not, once the parliamentarians have chewed over this, we will have invented a mini-HMRC - exactly what we do not need - and costs will mount even more.

    Is there another way? YES! Step forward Alvin Rabushka and Robert Hall (and a few hundred other economists, politicians and other analysts around the world). I mention Rabushka and Hall because they wrote a book called “The Flat Tax” - in 1985 for goodness sake – in which they proposed that the entire, I repeat entire, tax collection for the hundreds of million people in the United States could be done on a postcard. They suggested that the internal Revenue Service (the HMRC of the USA) could be closed down as a result.

    Now, you may think their ideas batty and extreme, but these people are not junior policy wonks, these are senior experienced analytical economists from Hoover Institution. Their ideas have spread around the world, and country after country – especially small countries – have adopted some sort of Flat Tax with the aim of reducing the overheads of collecting taxes and the deadweight losses on jobs and growth of complicated, high taxation.

    Someone, somewhere, in the Scottish Government has to get a grip on this. We need real leadership. This affects the future of every single Scot, and more than that it especially affects the less well-off. In the UK, those below the poverty line still pay income tax, those in poverty need cheaper housing and they also use as much, if not more, plastic packaging - taxed under these “new” arrangements.

    We have repeatedly championed a) a Flat Tax with a threshold raised above the official poverty line, b) getting rid of Stamp Duty to reduce housing costs and increase labour mobility, and c) balancing all Green Tax burdens with matching reductions elsewhere. These actions would produce more equality and fairness than any amount of re-distribution. If we use our new tax powers as proposed in this new astonishingly arcane legislation we risk the wealth of our nation. During the debate on independence we must have the courage to think differently.


    Friday, December 06, 2013

    Autumn Statement Update

    There were welcome tax policy changes in the Autumn Statement yesterday. Another Fuel Duty hike was cancelled and National Insurance was cut for younger workers, for example. And it is really brilliant news that the Government has started to include dynamic modelling to show the real benefits of tax cuts – a cause we have been campaigning for since we were founded.

    But there is a lot more to be done. The public finances are still in a horrible state. The cuts in green taxes and business rates weren't nearly good enough. And – in a new briefing document – the TPA have set out how careful analysis of the Autumn Statement documents demonstrates more clearly than ever how more action is urgently needed in three critical areas of tax policy: developing dynamic modelling; curbing fiscal drag; and cutting the number and complexity of taxes.

    Click here to download our briefing document on the Autumn Statement

    You can find out more about how the incredible complexity of the tax system means the Government has hiked 509 taxes (and cut 209 taxes) using the new online TPA Tax Tracker.

    Click here to access the TPA Tax Tracker

    Information provided by TaxpayerScotland in association with The Taxpayers' Alliance.


    Monday, December 02, 2013

    Put the people first on spending

    The proposal for an independent Scotland to have an Independent Fiscal Commission is a good one. But it also requires a reality check; how do we make it independent? And who is “we”?

    Some of these questions will be discussed this week by Holyrood’s finance committee. Professor David Bell of Stirling University has pointed out that “we need to guard against seeing a forecasting body as a panacea for the uncertainties surrounding public finances”. Like all economists he knows that forecasting is a black art at best, and none too accurate. We would add that the incentives for politicians to fudge the figures and delude even themselves, especially when in a herd, is so high that taxpayers should be highly wary of the gap between announcements and actions.

    We think the time has come for the transparency agenda to be geared up further. The one thing that would aid understanding of what government does or plans to do is to make sure we see the price.

    For past spending that means publishing every single transaction over £50 in an open display on every government agency website. It’s our money; we need to see where it went. For future spending that means interpreting all plans in terms of their funding requirements, interpreted in tax take and borrowing needs. In fact, local government has been good at this, showing how individual spending commitments impinge on the Council Tax we pay – although we rarely get an easily digestible report after the event telling us if they spent what they said they would. They bury the bad news in obscure public accounts.

    Central government has not been as good, and for the good of Scotland it is time this changed.

    Here then is a proper role for the proposed Independent Fiscal Commission, not only to tell the people what our politicians plan to spend, but where it will hit us in our wallets. This institution needs to become a people’s institution through which we vote on the price of plans for how our money is to be spent. In our paper “Whose money?” we proposed a constitutionally protected institution separate from parliament and equal to it in this one area. As such, it would also have the power to suggest a recall of spendthrift parliamentarians should they repeat the errors of the past in letting their promises run away with our purses. If we do go independent and do attempt a currency union, a failure to control tax and spend would cause much Scottish misery. In our view, it is not enough for politicians to say they recognise this risk, given the centre-left consensus in Scotland they need to quarantine themselves from their own mutual infection.

    If the independence debate is doing anything, it is raising some interesting issues and thereby testing our politicians about the limits of their powers. We think it worth reminding them that a good place to start thinking about the over-spending issue is the Declaration of Arbroath and its suggestion that government is contractual and that rulers can be chosen (and unchosen) by the community.


    Tuesday, November 26, 2013

    Will the White Paper give Scots the blues?

    We, like many others, are (right now!) struggling through the extremely lengthy and detailed White Paper on Independence. We can see that a huge effort has been made to explain clearly, and not to make the mistake of defensively answering old questions. This is truly about the future of the Scots.

    TaxpayerScotland takes no corporate view on independence, but we are staunchly insistent that without constraints on public spending and lower taxes the goal of "jobs and growth" offered by the Scottish Government will not materialise. Specifically, we are looking for:

    1) Recognition that any persistent trends in increased public sector spending would threaten the stability of the proposed currency union with sterling, raise borrowing costs for Scotland, and impose an additional debt repayment burden on Scottish taxpayers. We have previously applauded the idea of an independent Fiscal Commission for Scotland and would like to see this body being given real statutory power.

    2) Details of the approach announced by Alex Salmond recently offering a “new industrial strategy that promotes manufacturing”, “growth that can be achieved through targeted policy making”, “business growth through tailored tax policies" which do not involve state sponsored corporatism in which the government is seen to be the economy in a re-run of failed 1970's Keynesian socialism.

    3) Specific and detailed proposals for policies relating to the oft-expressed values of "equality and fairness" that go beyond mere slogans to the implications for tax rates and progressivity in taxation. Recognition that with a highly mobile graduate population and mobile capital in Scotland, policy measures that punish success and enterprise are likely to substantially reduce public revenue.

    4) The prospect of a complete overhaul of what are emerging as reckless policies over renewables, that have little popular support, work to depress industrial competitiveness, offer expensive and inefficient energy that is not secure in supply, do not reduce Scotland's carbon output and destroy our wild land assets.

    TaxpayerScotland favours tax competition, and does not reject the idea that independence might allow better governance for Scotland with decision-making focussed to our nation's needs. We do however reject the idea that the economic growth and re-vitalisation sought by all can be achieved by the state and its bureaucracy.

    Our goal is to introduce lower rate, flatter and simpler taxation for Scotland, with a state sector constrained by constitutional limits on spending. We see these measures as the only source of real long-term growth and jobs, with the less-well-off being the greatest beneficiaries of this realignment to an enterprise economy.

    We'll get back to you later ...


    Sunday, November 17, 2013

    Value for subsidies spent on housing

    There were more than 315,000 council houses in Scotland on 30 September 2013. Wading through the statistics provided in the Local Authority Housing Income and Expenditure Statistical Bulletin tells us a story.

    While council rents are generally static, average expenditure on management and maintenance is expected to increase by £87 per house in a year. Supervision and management costs are expected to be £758 per house in 2013-14, an increase of £59 per house since 2012-13.

    On the other hand, repairs and maintenance costs are expected to be £1,104 per house, which is £26 per house higher than in 2012-13.

    So, just managing our council house stock is increasingly burdensome with rising costs.

    Our councils presently make a surplus of income over costs on their housing stock, a projection of £253.9m is available to use in 2013-14. A great deal of this money - £165.1m in 2013-14 - will be used to fund new capital expenditure.

    However, councils also have debt totals of nearly £3,073m next year, an increase of £273m since 31 March 2013. Our Local Authorities are budgeting to spend £267m on loan charges (which include interest, capital repayment and loan fund expenses) in 2013-14, an increase of £43.7m over 2012-13.

    So, paying for what has been created in the past costs nearly a third of all costs in the affordable housing market. And payments on loans out-run what is spent on capital. Loan charges now take up around 29 percent of all Local Authority housing expenditure.

    But there is a money-go-round here - Housing Benefit, paid for by councils, accounts for a high proportion of council rent income received by councils. Rent rebates provide an additional subsidy for affordable housing provision. How is this done? By transfers from central to local government to make up for shortfalls in what is needed to pay for their housing.

    So in the end, taxpayers from all over Scotland, fund their own housing, through a bureaucracy that has bureaucratic costs rising faster than essential maintenance. We read that to mean that the value for money offered by publically run housing provision is decreasing year on year. It’s time in our view to give some more houses away and put their costs where they belong, in the hands of individual owners.


    Thursday, November 07, 2013

    Knowing when you have had a close shave

    As Scotland heaves a sigh of relief for the second time – the saving of Grangemouth and now Govan/Scotstoun are important events for all of us – what lessons can taxpayers take from these close shaves?

    The first is that the skilled workers in our private industries have changed. There have been frequent “vox pops” with anxious looking staff at works gates over the past weeks, and there is a real understanding that no job is for ever, nor are there any free lunches in global industry.

    The second is that, as far as large scale industry is concerned, the clustering of talent is a vital protection for jobs. The plants that have been retained are hotbeds not of revolution, but of valuable skills running through complex supply chains.

    More importantly, those skills are not those which the state can develop, what does a politician or a bureaucrat know about the special steels for the glands in hydraulic connectors for the drive shaft bearings on ships operating in both arctic and tropical waters. (I use this rather arcane example deliberately to make my point – there is a company in Clydebank that makes them.)

    Highly skilled operatives are vital in another way for Scotland. It is precisely the families with well-paid skilled breadwinners - who bring new spending, a new interest in quality of life, and a need for education for their children to keep up with their success - that Scotland needs to develop its advantages for success.

    And so to taxation. To preserve this virtuous cycle of clustering and upgrading we need lots of thinking; research, education, working out new techniques, making mistakes, sorting those out, teaching new young operatives, refining production processes and so on.

    This is why we need lower corporate taxes, lower income taxes, lower sales taxes. The wealth is there for us, if only a way can be found to curb the state’s appetite for our money. Government needs to get in a queue behind the productive, who will be quite happy to support collective needs once they work out how to build a sustainable future for themselves. In doing that, there will be fewer “needs” around to support. Join us and make your voice heard about this.


    Thursday, October 24, 2013

    Branch Office-itis and the Tax Wedge

    The Grangemouth saga is a ghastly reminder that individuals’ lives are circumscribed by the recognition by others of the value of their productive output. In the wider sphere of global trade, petrochemical plants have been closing as new technology and supply chains change, while polymer feedstock has been a low margin business. Such was the way of steam engines and ships too.

    Within Scotland the phrase “branch office-itis” has been used when large corporations suddenly shut up shop. This less welcome aspect of the creative destruction of capitalism hurts us proportionately more than larger nations. Too many jobs located in one place disappear.

    There’s the rub, and the solution. Spread the jobs we make more widely. Here, a decent tax regime would help us. There is a notion called the “tax wedge” – it’s the gap between what an employer has to pay for labour and the wages that labour actually gets. Remember that the employer pays out of gross margins – so a second definition of the wedge is a deadweight loss created by the state that lowers the demand for labour and the supply of jobs. This is an imposed inefficiency on markets. It is also worth mentioning that in lower wage markets with high welfare payments, labour itself may demand less productive work when taxes are high.

    As champions of lower taxes, we favour flatter taxes, with lower rates and higher thresholds to remove the deadweight losses of tax policy. In Scotland, we think this would set off a massive spurt of widespread growth and enterprise. Note the word “widespread”. No state agency can focus on more than a few specific locations or sectors; history tells us that new ideas emerge from the most unlikely places; Dumfries savings banks, East Ayrshire tarmac, Islay whisky.

    Releasing these energies should be the primary focus of the Scottish Government; sadly, their focus is far too often on saving the specifically un-salvageable – obsolete airports come to mind. In allowing growth through a general reduction in tax, including higher rates, a new widespread dynamism could be released in Scotland. We must have that confidence, the struggling people of the Falkirk area deserve better than to be pawns of their non-local billionaire.


    Monday, October 21, 2013

    Dither and Diversion

    Politicians are an odd breed. They sound so positive and determined, yet their actions can often be sclerotic and perverse.

    Our predicament with respect to energy is a case in point. Taxpayers are reaping today the results of non-decisions over twenty to thirty years. We also have a strange dissonance emerging between the UK government and Scotland.

    Householders can be forgiven for being confused about the news that we are building a new nuclear power station that will offer electricity at nearly double the price of today; but we can be equally bemused that, if we can do this, why are we being offered similar carbon free electricity at three times the price from as yet also unbuilt offshore wind turbines.

    One thing we can discard, and that is the nonsense offered by Nicola Sturgeon that by taking the cost of enforced energy schemes out of the hands of the energy companies and putting them into general taxation, householders will be seeing “a real and lasting cut in Scottish energy bills”. No we won’t, Scottish taxpayers will see a real and lasting increase in their tax bills – with the risk that rather than being identifiable in our bills, this new burden will be hidden in general taxation – particularly its distributive impact which will inevitably cost jobs and hinder growth.

    Such political posturing is simply vote-seeking in an arena that only operates to a five year electoral cycle. And this is the real issue with energy – our present energy predicament is due to historic political interference that swapped market derived pricing for (non) decision-making by central planners. Instead of a gradual rise in prices that would have guided investment, and probably output that would have held those prices down, we have had a sudden three year punishing uplift in prices – essentially a tax on householders created by political muddle.

    The outcome is the loss of an entire industrial capability, nuclear, and the introduction of untested technologies, wind turbines, amid a global rise in demand that is raising energy prices everywhere. Now, in Scotland, we have demonstrations outside our governing party’s conference against wind turbines , while the UK government announces its conversion to nuclear using French and Chinese skills. The Glasgow engineering fraternity should be up in arms at this destruction of their industrial prowess.

    One advantage of the present arrangements is that taxpayers are allowed to see the cost of alternative choices – even from those in favour of renewables who compete on the facts of the matter . Such transparency is beginning to turn popular opinion, and the media, away from the “green” energy fabrication. Scotland’s government faces a real problem in maintaining credibility in these matters, they need to change course. They could start by coming clean with taxpayers; that alone would give them a reason to re-consider their present policies.


    Wednesday, October 16, 2013

    Transparency, Trust and Tolerance

    The social philosopher Friedrich Hayek once wrote that as government grew and its centralised planning inevitably failed, but without government admitting that failure, it would lose the trust of the people. In time, a climate of cynicism would prevail and society would be put against itself, destroying tolerance of others’ opinion.

    When an energy company chief executive suggests that the central plan for energy should be brought into general taxation so that a proper examination of its affordability is carried out, we are hearing a welcome shout for transparency in planning. We have thousands of ordinary householders condemning a rise in their bills, others taking to the streets to condemn the use of wind turbines to light our homes, and scientists and engineers casting doubt on the viability of what has been billed as a sustainable technology. Trust and tolerance are breaking down.

    Transparency over what is being foisted on us should be allied to a different sort of trust; trusting the consumer. Energy prices have risen, consumers react by turning the heating down and the lights off, insulating their homes, wearing more clothes and a dozen other small things. They also accept some precaution about climate change, but en masse tread a rational path between action and adaptation that optimises their comfort and welfare. Government meanwhile usurps its own, usually objective, Auditor General through a report advised by those with a special interest in Renewables (see Appendix 2).

    The key here is price. It’s time we saw the choice of prices more clearly, not only in on-line government sources, but actually on our household bills. Transferring the billions that renewables policy costs us to general taxation would be a start, especially if it were declared transparently as a Climate Change Tax. But why not then go the whole hog and match it with an equal income tax rebate. Give us our money back and trust us to consume sensibly. State our future choices and the prices of those on our energy bills – allow us to buy individual future energy contracts so that we decide whether to use nuclear, gas or windmills.

    If we all decide to buy the cheapest and go to hell in a (hot) handcart, so be it. But is that likely? We can all look out the window at the disturbed weather; we can also see our hills despoiled by hundreds of less than useful turbines pretending to provide energy and reduce carbon. Government needs to trust consumers, and tolerate our opinion on climate versus comfort. Nothing but transparent pricing will allow us to decide the optimum course of action on both, and lower taxes would free us to adopt that chosen course.


    Sunday, September 15, 2013

    Salmond is wrong on the Royal Mail – but so is Cameron

    Leaving aside the political cheek of telling the UK government that it should have no say about a non-devolved matter in Scotland our First Minister is wrong to oppose the privatization of the Royal Mail.

    Yet again, what is offered for Scotland’s governance is deeply conservative, with little attempt to adopt any principle that might tell us what to do. The Scottish Government wants to keep Scotland back in the 1970’s and before.

    Describing the Royal Mail as a public “asset” is like calling a sinking rock a submarine. Sadly, the UK Prime Minister is equally deluded on what we need to do with it – again through political expediency to corral the votes of those in rural areas. But then, he’s a conservative too.

    Let’s get real on this organisation. It’s a delivery company. And so are TNT, DHL, UPS, Citylink, APC, and dozens of smaller others. It’s got a protected status on a rapidly declining market – letters - and does quite well in the competitive parcels market.

    It’s also got the regulation from hell – the obligation to offer a service six days a week, to anyone anywhere at the same price. Lauded by politicians as a benefit for consumers, this “universal service obligation” costs us a fortune. It also has institutional baggage, a unionised workforce with a good pension deal and a resistance to change through productivity measures.

    Royal mail is cited as having an asset through its presence in what is known as the “last mile” delivery network. In short, your postie knows where you live and has a van to turn up and hand deliver an envelope or package to the dog behind the door. We think that is a delusion, those thousands of vans with thousands of staff are in fact liabilities delivering no more (and maybe less) revenue per pound of cost than they used to a hundred and fifty years ago. Worse, there is very little prospect of putting more revenue through that last mile network unless Mrs McCratchie on Ardnamurchan Point starts buying vast quantities (of what?) online to fill Jock the Postman’s van every day. In that sense, the local Royal Mail network is a busted flush with nowhere to go.

    Of course, Mr Salmond (and Mr Cameron) will say that the Royal Mail has an important role in “rural communities and the rural economy.” Well, they jolly well ought to tell us what this role is aside from allowing politicians sound caring to buy rural votes. It sure as heck isn’t about paying its way through finding new ways of delivering physical goods. The present romanticised business model merely hides yet another subsidy, and very often one that transfers tax money from the urban poor to the rural wealthy.

    Selling the Royal Mail off is a mistake; it should be given away to its customers for them to contract out the right to deliver to their home. A set of totally new institutions would replace it, with pricing left free to those suppliers, ranging from small local co-operatives or individuals, multi-service providers, to regional delivery companies or network majors. I’d happily pick my mail up from the local shop if I knew I would be helping my impoverished granny avoid paying for a wee man in a red van coming up the remote track I call my front drive. And if the politicians want us to keep the red vans and pillar boxes, they could offer the brand identity as a prize approved by householder votes for any suppliers who provide a quality daily service; on time and at a low price - as long as those suppliers pay for their own red paint, not the taxpayer.


    Friday, September 06, 2013

    They’re back … and ready to tax us

    An event of some significance for Scotland took place this week with little fanfare.

    In his opening speech to this term’s Parliament, the First Minister announced legislation to create Revenue Scotland, our very own taxman.

    One of its first roles will be to collect Land and Buildings Transactions Tax – the first tax bill in Scotland for 300 years – which replaces the UK wide Stamp Duty Land Duty. Other taxes will follow.

    There is an irony for us here. Our sister organisation, The Taxpayers’ Alliance, is running a vociferous campaign across England called “Stamp out Stamp Duty” to get rid of this tax. How we wish that Mr Swinney would announce its take-over and promptly scrap it.

    The argument against this tax is that price rises are making the tax payable on more and more house sales, and that its lumpy progressivity throws more and more buyers into extraordinarily large payments simply for looking for an extra bedroom for a growing family. Now, there’s a Bedroom Tax with impact.

    It's also a double tax, paid from savings we have already paid tax on, a stealth tax because it raises more revenue as inflation creates higher house prices, and taxes an anticipatable future event which entices avoidance. It therefore breaks all the rules on simplicity and predictability which good taxation policy should adhere to. That's a bad start for our own taxman.

    Mr Swinney has said that he will remove the lumpiness by having progressive rates on any additional value only, but the corollary is that his progressivity will have to be higher to compensate and some have talked of rates of 8 percent and more on higher value homes. We’ve pointed out the costs of this before. Our government’s claim is that what you pay is more closely related to the value of the purchase which makes for a fairer system.

    In the wider context of how Scotland’s state wants to run our country, this tax is a good cipher for the confused thinking about how to generate economic success. Mr Salmond in his opening speech to parliament this week pointed out that the creation of Revenue Scotland marks a move for Holyrood to becoming a “spending chamber rather than a revenue raising chamber” and with the aim of “empowering Scotland's people as well as their Parliament”. The goal, as always, is “to accelerate economic recovery and create more jobs and to mitigate the impacts of economic austerity”.

    The values within these remarks tell us a continuing story. The Scottish state is the economy and spending is more important than anything else. Growth and jobs are provided by government. All this empowers Parliament – but as our masters not our servants.

    And as for fairness, soon enough young Scottish families trying to find more space will move up the state-controlled progressive ladder. At that point, most of them are likely to borrow their tax payment for 25 years on their mortgage. That will make bankers richer, not the less well-off. Is that fairer? Another certainty is that house price inflation will bring many at the entry level into the tax for the first time. Is that fairer? A third certainty is that this new tax will depress house building – an industry that is crucial to creating the manual jobs that will take many people off the dole. Is that fairer?

    We must fight back. It's our money, not theirs.


    Monday, September 02, 2013

    The needy and the poor

    It is reported that the number of Scots turning to food banks for help has doubled in the past year.

    Such a statistic is a condemnation of something – but what? Our inability to feel a sense of compassion for those most in need? The inadequacy of cash welfare? The cuts? A shortfall in re-distribution? The greed of the rich? Everyone has their own opinion and all these reasons have been given.

    Multiple causes cited by multiple interest groups tell us something; specifically, that a one size fits all national welfare system is not working well. Somehow, we have lost a sense of community care – with ironically the all too popular food banks being provided as just that, localised community compassion.

    We think there is a lesson here. That there is a simple truth about compassion, it needs to be personalised. This is one thing the state, with its need to be equitable, and to answer vociferous special interests, and work to bureaucratic processes, is incapable of doing.

    For that reason we support three angles of attack on need.

    The first is to hunt down a way of enhancing the best known way of releasing people from need – getting people back to work. And we are utterly sure that taxing employers 13.8 percent on every wage packet is a lousy way to achieve this. This is especially true for the young and others with fewer skills. We punish them when we raise money (probably for welfare) through this tax.

    The second is to reduce poor people’s other taxes. A start has been made via income tax, but think of the sales duties and tax on everyday items, especially where these affect housing and energy costs. We have to make the cost of living cheaper.

    The third is to localise provision, even if the funding is collected centrally. Ideally this would be by ring-fencing NIC tax payments for welfare and allocating them to a personal welfare fund. That would allow incentives in the form of top ups and sanctions to be applied where they are needed; with the individual. We need to give those who find themselves in need, but willing to fight their way out, as much self-confidence as we can to succeed.

    Of course, there are some for whom, sadly, a poverty of spirit, hope and character pertains. Then we are back to localised personalised mentoring, something which both the food banks and “the social” actually perform in large measure every single day. What we need to do is minimise those numbers, using the measures above to release the able and eager to improve their lives.


    Tuesday, August 27, 2013

    HS2 and Scotland

    Today’s news from The Institute of Directors that its membership doubts the benefits of the proposed HS2 rail link up the spine of England from London is welcome.

    The project may not appear to have much relevance to Scotland but it does; we would help pay for it and if the expense would be wasteful and unnecessary it should not be built.

    There are three lessons here for taxpayers. The first is that politicians, with little knowledge of local circumstances, will tend to choose monumental projects over small cost-effective ones. These public choices are tainted by political interests which too often work against the real public interest.

    The second is that large scale infrastructure always has costs and benefits that are unascertainable prior to the project build, and crucially, whole life costs that are usually larger than the initial capital cost. HS2 appears to have uncertainties far beyond its benefits. The parallels with Scotland’s wind power initiatives are notable.

    The third is that IOD members – who represent the owners rather than the managers of business – have a hard-headed view of the world that benefits us all. They are the people who assess and take the risks using private capital which carry the burden of costly failure. In doing so, they pay more than lip-service to strategic management which public servants love but use as a mantra for bureaucratic processing rather than a method to assess risks.

    Our business owners say that HS2 is a mad scheme on both its cost and benefit side. For Scotland, for business, it would be far better to re-visit the hugely high Air Passenger Duty imposed on us by Whitehall. We need to trade more with Berlin, Baltimore and Beijing and London’s costs (along with the green lobby) are preventing us from doing that.


    Tuesday, August 06, 2013

    Will these future taxes create wealth?

    The Scottish Government has announced its latest Tax Incrementing Finance scheme. This time it is a £480 million pound bung for the Falkirk area – catalysed by £67 million from taxpayers. The other £413 million is “expected” from private investors – largely in petro-chemical related industries within the Grangemouth area.

    Two claims stand out; the first, that this effort will create “almost 6,000 jobs and hundreds of apprenticeships”, the second by the Scottish Futures Trust “that every £1 invested by the public sector has the potential to attract a further £6 from the private sector”.

    The “job” claims are, as always, both vacuous and mischievous. Are these temporary construction jobs, public sector project support jobs, or long term employment opportunities? They are vacuous because these are statistical projections only. They are mischievous because the ignore the suppressing effect of the tax used to pay for them, the re-distribution effects any investment from other areas, and vastly more powerful intrinsic growth effects in petrochemicals that may alter the number drastically in either direction over 25 years.

    The multiplier claim of £6 from each £1 is equally suspect. It’s almost certainly an historic statistical construct; looking forward it can only be a statement of aspiration. Crucially, like the jobs claim, it measures success in terms of financial inputs and not wealth outputs; for taxpayers that puts it in the realm of political posturing rather than real economics.

    The key question for Scotland is how we create real wealth; by which we mean private capital on the ground that generates value adding revenue year by year with the risk of failure being taken by private investors, not taxpayers. Public services are then funded by today’s generation for today’s needs from tax taken on margins from productive work. Tax Incrementing Financing is a great wheeze for those who love to spend from the public purse, but it disguises reality, throwing risk onto tomorrow’s taxpayers. Almost always, it involves whole life costs of infrastructure maintenance that are ignored – and then come back to bite us in higher taxation later.

    The reality is that this is a make-work scheme for the public sector, further entrenching the idea that the state can create wealth and opportunity for Scots. It can’t, it can build roads and bridges and other public amenities because it is in charge of land planning. And when it uses tax incrementing financing it locks our children into future taxation on the basis of what central planners decide might be useful for our lands. They don’t have the knowledge to make that decision.


    Tuesday, July 30, 2013

    Policy, and its costs, for a small country

    While the cats are away, the mice are out to play. There’s an interesting example of the civil servant’s mind just out from the Scottish Government. It’s a new consultation on a “strategy” for our historic environment. Taxpayers should take note as to how this works. It’s a classic approach to central strategic planning.

    Here are the elements:

  • A vision
  • A set of “overarching principles”
  • A set of aims, priorities and actions
  • A detailed description of those proposed aims, priorities and actions
  • Proposals about how to measure success
  • Equality, business and regulatory, environmental issues.
  • Now, this consultation is therefore what you might be call “guided” – which is probably necessary - but it is the nature of the guidance that should worry us. As the document suggests:

    “… success will depend on a range of groups, bodies and individuals working together towards the common purpose …”

    That is, implicit in this approach to government is a multi-agenda, multi-agency approach. And crucially, these agencies that work together are implicitly state funded. And note that these include those parasitic "hangers on" the equality brigade and the environmental regiment. Justification for this comprehensive busy-ness is that the historic environment is:

    “… a crucial part of the national economy. It supports over 60,000 jobs - 2.5 per cent of Scotland's total employment. It contributes £2.3 billion to the economy and brings in 16 million tourist visits every year.”

    There is a canker here, from deep within psyche of the civil servant. It suggests that all this activity is all reliant on the state. It’s not, and it should not be.

    Many of our historic attractions are privately owned or held in private Trusts. It is very important that they remain so, private organisations take pride in what they do and manage such attractions from the ground near their customers. Yes, it’s a struggle, customers have many other things to spend their money on, but the great thing about localised effort is that it’s real, living off the value it can create from those who value it. And they save us all money through their love for their historic asset.

    The policy proposed offers no such incentives – it foresees the combining of two quangos, Historic Scotland and the Royal Commission on the Ancient and Historical Monuments of Scotland – as part of its intent. Our historic environment is a matter for the state supported by taxpayers’ money; administered by “them” for “us.

    We have to ask, can Scotland’s taxpayers afford such a top down approach? We are a small country; we need small localised solutions using creative innovation. If we need to offer subsidies, for example, how about basing it on customer numbers and let attractions compete for those? The alternative is the preservation of our historic environment in aspic, beautifully conserved but distanced from reality by rigid principles and priorities designed by a distant civil servant in an Edinburgh office – all at great cost to us in taxation.


    Friday, July 12, 2013

    The pay issue is bigger than our politicians

    The stramash over MPs pay, and the linked nature of MSPs pay as a result is important. Something has changed and something has become transparent.

    What has changed in this 30 year old debate about how much parliamentarians should be paid is the politicians themselves. All parties backed away from IPSA as soon as its crazy announcement of an 11 percent pay rise for MPs was made public. Politicians know well that taxpayers are struggling and that larding their own bannock is simply not on at this time.

    The thing that has become transparent is that our senior bureaucrats are living on a planet separate from householders. Parliament has tried to pass responsibility for pay over to “Sir Humphrey” and he has dropped the ball badly. They even commissioned research in which taxpayers made it clear they did not support an MP’s pay rise. Then went ahead anyway!

    This is where taxpayers now have to keep the pressure up for a proper sense of proportion. Public sector managers have a fine pay and pension settlement, with annual increments and inflation proofing built in. In the real world such advantages, no, privileges, are nigh on impossible to achieve. Taxpayers have every right to be “guid an’ angry” about this as one of our supporters phoning in told us this morning.

    To be fair, Alex Salmond is one of those who rejected any idea that MSPs should take a pay increase. In Scotland, where we are replete with Council Executives, Quangocrats and others who earn double and more than Mr Salmond himself, we need some sense brought into the matter. We could start with removing the link between MP and MSP pay – a form of hidden coupling on a gravy train that allows Holyrood parliamentarians duck the important issue of the value of what they do for us.

    If you want to make your voice heard, there is a public petition being raised by The Taxpayers’ Alliance. OK, it’s going to be delivered to London, but – horrors – that’s where the link to Edinburgh pay is based. Why not go and sign your name to it?


    Monday, June 10, 2013

    Knowing how to do the right thing

    Politicians often adopt the phrase “the right thing to do”. Saying that shows a determined commitment to resolve an issue. Taxpayers should be wary of this phrase. When applied to an emergency that needs an immediate response, it may offer the only thing that can be done, but when used in support of some new initiative it often covers the triumph of aspiration over reality.

    One such bold initiative in Scotland has been our Intermediary Technology Institutes. These research and development bodies use our money to fire up Scottish brains in our universities and companies – using internal experts to decide what ideas are good and what are not. The program was meant to cost around £450 million over ten years.

    An excellent review as to what happened was in the Herald Scotland this Sunday. For taxpayers, there is a lesson here in a classic quote by a senior Scottish Enterprise director. He said: “We found that technology was important, but was probably less important than understanding the market … we needed to put more emphasis on building the route to market.”

    There are two ripostes here. Anyone with half a foothold in industry could have told Scottish Enterprise that ideas are cheap; it’s the doing of business that is a long term stumble through fog. If they had done any work with universities they would have known too that, sadly, it’s a lot easier to stay in an academic comfort zone than stay up all night working out how to make and sell something. The last people who are capable of doing this are those on large salaries paid from the public purse.

    The second point is hidden in the “probably” within the quote. It is possibly unfair to highlight an off the cuff remark, but this suggests that he is not fully convinced yet that ideas are not everything you need. The “discovery” that the route to market might “need more emphasis” also smacks of a new mission being invented, again at our expense. Milestones, targets and management teams are also mentioned in the article about what Scottish Enterprise have been doing to adjust this failing programme.

    We’d like to offer a suggestion. These bureaucrats and academics should all read a bit of Hayek, especially his ideas on tacit knowledge; that is, things we know to be right, not explicitly, but through experience and implicit understanding, intuition and just knowing that something is damn well going to be right, even although we may actually be wrong because we don’t know enough. That last idea is usually called risk-taking, sometimes ducking and weaving or, quite often, plain pig-headedness.

    Such risk taking and practical manoeuvring is one of the weakest talents of any state- funded institution – which in our view explains why the state-funded technology programme of the Scottish Government is struggling and will always struggle. Crucially, knowing “the right thing to do” is simply not a good way to spend our money. Far better to make sure the money stays with those who are combining ideas with execution every single day. Let them create the development departments and dip into our academic expertise as they decide. Those in the middle spending public funds we can do without.


    Friday, May 31, 2013

    Salmond and Stiglitz

    It’s reported that Alex Salmond has repeated his plan to reduce corporation tax at the heart of his economic programme for a possible independent Scotland.

    Although we are told that one of his advisers, the Nobel laureate Professor Joseph Stiglitz, says such a cut will not lead to greater investment. He believes corporations would take the reduction as a gift – and it would therefore increase inequality. Professor Stiglitz is nothing if not consistent; his concern for inequality has generally been paramount.

    We think the First Minister should stick to his guns. Scotland has a desperate long-term need to generate widespread additional economic activity at all levels of society. Professor Stiglitz’s re-distributive aims are a short-term tactical policy approach that is a luxury when we are starting from such a tired, depreciated infrastructural base as we have in Scotland today.

    The long term need in Scotland is to generate entrepreneurialism. We rank near bottom in the world for this. It’s something we need to learn, incentivised by good returns on the risks and hard work that business requires.

    And we are not talking about corporations here, we are talking about young, small scale, novel innovation across engineering, services, finance, food and drink, on-line services and every other sector of business activity. In short, we need to discover what Scotland can do.

    That needs lower tax rates, allowing higher margins, and more puzzling uncertainties and risks to be taken on. In a globally trading world, that will be noticed, and then the world will come knocking at our door; the Scots made brand is hugely powerful, we need to wind it up to full power.

    We think Mr Salmond understands this – he is not a man to be under-estimated. He too is an economist by degree.

    As for Mr Stiglitz, we would like to know what he thinks of numerous studies that show that corporation taxes are not collected from corporations but from their customers, their workers and their investors. The Taxpayers’ Alliance has recently produced some new research that re-emphasises how damaging corporate taxes are for the creation of wealth.

    At TaxpayerScotland, we are even more sceptical of the value of any corporate taxation – we see so many Scottish companies struggling with employers NIC, twenty percent VAT and the burden of regulations. We believe in the ability of Scotland to thrive, independent or not, if the tax burden is reduced – and we particularly see gains in the new jobs and lower prices that would result from making the earning of money cheaper for small Scottish companies.


    Tuesday, May 28, 2013

    The fleecing of Shetland

    An extraordinary document has come our way. It’s a review of Shetland Islands Council spending.

    Shetland may seem a long way away to us in mainland Scotland, but it has an interesting characteristic; it offers in microcosm a parallel with a nation with its own oil funds.

    In the 2011-12 financial year Shetland spent more than £35.8 million pounds from its reserves – covering off an overspend of £100,000 per day. Worse, this meltdown in its family silver was to pay for day-to-day services rather than capital investment. This unsustainable rate of depletion, if continued, would lead to all its reserves being depleted within five years.

    This sorry state of affairs has been developing since around the turn of the century, when Shetland’s reserves peaked above £450 million. Since then the slide downhill has been dramatic.

    Astonishingly, while reserves were declining during the middle period of the last decade, Shetland had a large increase in funding from the Scottish Government. Then the recession struck, no-one got to grips with spending (it rose 22 percent through the 2009 to 2011 financial years) and the present unsustainable losses took firm root.

    What’s the lesson here for Scotland. That we have state entities which are incapable of controlling their spending, that windfalls from oil will tend to be spent rather than saved, and that Scottish taxpayers are, in the end, always those who pay the greedy piper.

    Shetland has introduced a new “Medium Term Financial Strategy” – it is making some progress, but this also includes around £30 million of fees and charges levied on Shetland taxpayers in addition to their Council Tax. The “strategy” not surprisingly includes as a “learning point” the recognition that fees and charges are important to closing its deficit gap in the future.

    Once again, a local council is showing where its loyalties lie; first, to itself and the things it decides to do as a monopoly supplier, usually at high cost. Secondly, to anyone it can buy a vote from, using other people’s money to spend on them.

    The outcome as always is higher tax, more growth in spending and here, starkly illustrated, an irresponsible attitude to financial sustainability. We need to find a way of curbing these excessive takings. They are, literally in Shetland's case, fleecing us to the point of bankruptcy.


    Friday, May 17, 2013

    Ignore the grandstanding, look at the arithmetic

    On the day after Mrs Margaret Hodge, chair of the Public Accounts Committee, stood on her grandstand and repeated her views about large corporates acting unfairly and without ethics, we offer this little arithmetical homily about “profit”.

    Here’s a story of Maggie Hedge, a hard-working market trader who made good.

    On Monday she set up her stall with £100 of stock to sell at £200, hoping to make £100.

    By Monday afternoon, she had done so well that she needed more stock for Tuesday. So she paid £200 for more stock. So at the end of Monday she had made a loss of £100.

    On Tuesday she did even better. By lunchtime she’d sold nearly all her stock, so she ordered £500 more stock and a new table to sell from for £100. She’d made £400 and spent £600, a loss of £200.

    On Wednesday it was clear she was onto a winner, but there was a problem, her supplier couldn’t offer her any more stock, she would have to order it in from Germany. Taking a deep breathe, she ordered £1000 worth of stock. She’d just earned that much that day, so she’d broken even.

    On Thursday the stock arrived with a note from the German supplier that he would like to help her with other products if she could tell him what she could sell. She thought about it all day as she sold the new stock. She sold a thousand units that day, but spent £2700 on an air fare, a hotel room, more stock for Friday and Saturday, and a wage for her cousin Mary who would run the stall on Friday and through the next week.

    Maggie took Friday off to design three new products and count up her earnings. So far, in her first week, she’d lost £1000, but increased her turnover tenfold.

    A week later she came back to find Mary, not being quite as good at selling, had done ok, but there were 1000 units in spare stock in the store. Revenue for the past week was £6000 and she had spent £4000. Her first profit! She used that straight away to buy stock of the three new items she’d agreed with her supplier. He had found a really creative designer in Sweden to refine the new products. Together, they’d set up a company in Estonia where there was a freighting partnership with a customs clearance house in Felixstowe. They’d store stock on account for her at low cost to drawdown on quickly when needed.

    Then Mary pointed to a letter that had arrived in the post. It was from HMRC asking her to account for her profits and meet her corporation tax obligations. They claimed she’d made profits of £7300 on goods sold since she set up, less £100 for her second table and £500 for Mary. At 20 percent tax rate she owed them £1460.

    Now Maggie didn’t have that cash, she'd just committed it to new business supplies, but she did want to stay in business. So she took action; she laid off Mary, raised the price of her products by 20 percent, and phoned Estonia to slow down deliveries. Then, she booked a meeting with her accountant.

    So now, Mrs Hodge, and all the other politicians out there who want companies to pay their “fair share” of tax, answer these questions:

  • In the cycle of business trading when is this tax fairly calculated?
  • In a globally trading world, with multi-skill supply chains, where exactly is this tax fairly applied?
  • If you cannot answer these questions simply, what’s fair or ethical about then setting up an imputed calculation of tax liability that generates staggering calculation complexities and large fees for well-paid professionals.
  • Can you explain what is ethical or fair about imposing a tax on margins which generates higher prices, less employment and slower growth?
  • Can you state clearly and simply exactly what you think profits are for? Does the state “own” a part of them and has it voted for that part in parliament?
  • Finally, moralising about “evil” activities pre-supposes that a business can have a “duty”. Well, its directors may have, but that only makes sense if that duty is clearly defined within a rule-based legal framework of company law. Are you really saying that tax payments are to be based on what politicians, acting like kings, think is ethical and dutiful? We suggest you read the Magna Carta.
  • TaxpayerScotland believes corporate taxes can never be based on a logically calculable tax base. With a tax guide now thousands of pages long and largely incomprehensible they should be scrapped. Businesses already pay large amounts of tax on their premises, wages and sales – to add a tax that encourages non-productive avoidance and destroys growth and jobs is perverse.


    Monday, May 13, 2013

    Who protects the taxpayer?

    In association with The Taxpayers’ Alliance nationally we have again published “The Town Hall Rich List” – a listing of all those in Scotland’s local authorities who earn more than £100,000.

    In the past, we have been criticised for making such details public; some have seen it as undue intrusion into the personal lives of those we report on.

    We demur. There are some very specific differences that apply to those who earn a living from the public purse.

    The issue is not whether they merit the salaries they earn; you can spend many a baffling hour comparing a well-paid public servant’s apparent value versus footballers, farmers or factory workers; but that will get you precisely nowhere beyond subjective personal opinion.

    The issue is this; highly paid public servants obtain their living at the expense of many others who earn a lot less than them. It takes thousands of our individual household Council Tax payments to pay their monthly stipend. They claim their value to us is based on collective needs that they say have been democratically agreed as requiring taxpayer-funded services to satisfy.

    Unfortunately, most of these services are provided on a monopoly basis – we have no real say in their choice of what we get or its price. Many of us would take our services another way if we were not coerced into paying for them via our taxes. There is also a principle here, monopoly provision is always observably costly, producer centred and lacking in innovation – it’s also devilishly difficult to close down bad provision. Diverse, competitive provision on the other hand has to be forward thinking and tailored to customers – because bad provision creates losses and providers collapse.

    In that sense, good governance suggests that taxpayers are protected best by plural competing services wherever these can be provided.

    Local authorities however continue to adopt the one-entity-provides-all model. And then look what happens. Directors of Infrastructure Services, Enterprise Planning, Neighbourhood Services, Community Services, Corporate Services and so on appear, all earning six figure sums – as administrators of plans - meeting in “cabinets” to design “strategies” across “multiple agendas” with “diverse objectives” – demanding staff levels commensurate with the “complex administrative planning” that makes them so “busy”. And you thought you wanted empty dustbins, good roads, clean streets, nice parks and help for the helpless?

    This is a 19th century model of provision carried forward into the technically complex world of the 21st century and in the process gathering a thick and costly layer of management psychobabble and codswallop.

    We’re looking for a change; a local authority that throws away the monopolistic method and privatizes, contracts out and walks away from much of what is considered important today. Let the schools run themselves, let a roads trust look after highways, let contractors deal with rubbish, parks and toilets. Pull away from daily management of those with chaotic lives, localise compassion, tighten down on wasteful spending until the inefficient providers squeak instead of taxpayers.

    With a small population, Scotland doesn’t need mission statements and integrated plans; it needs devolved actions provided by multiple competing providers. We’d save fortunes … and I for one would happily pay a lot for any Chief Executive who would protect my tax liabilities.


    Wednesday, April 24, 2013

    Currency matters - but we do have choices

    It’s worth noting that the final words of George Osborne’s speech yesterday were “we’re better together”. This was a political speech and the media coverage reflected that.

    That said, for taxpayers this facet of the independence debate is of crucial interest. As always, with the devil in the detail, we need to know how the proposed use of sterling by an independent Scotland might work out for our wallets. That takes us into some seriously technical economics.

    The problem comes from changes in a future that no-one can foresee. Stresses in currency unions arise from changes in circumstances between members that require different policy responses from, and lead to different outcomes within, members of the union – economists call these asymmetric shocks.

    It’s how any independent Scottish government might respond to these that would affect us as taxpayers.

    One thing we should discard; if there is an independent central Bank (a moot point) with a remit only to control the money supply and thereby inflation (another moot point as some have suggested the remit should change to targeting economic growth) there is no barrier to a sound money prevailing in Scotland. In fact, if we run a dry rule based monetary policy, we begin to get near the form of economic constitutionalism that is emerging across the world, where government is constrained by defined rules, and international financial markets punish waywardness.

    The problem of how sound this money remains comes from fiscal policy, and from the point of view of taxpayers this is a good influence, politicians would have to learn that spending profligacy would cause a rapid disaster.

    In Scotland, there are a number of fiscal problems which could make a response to changed circumstances difficult. By the way, it doesn’t matter how big the initial external shocks are, it could start with people in England feeling more confident than us, spending more and growing faster, leading to a creeping and perennial, painful, disadvantage that destroys the currency union.

  • The propensity to re-distribution. Higher progressivity in taxation destroys incentives to produce. The resulting slower growth will not help to balance the Scottish budget. Permanent structural deficits will strain credibility about Scotland being a sustainable entity.
  • Public sector pay. We live with a stupendous pressure for more spending with automatic wage and salary increments and unionised public sector workforces then using consequent threatened job losses as an excuse for wayward action. The Concordat is under increasing pressure as the years go by - if Scotland cannot offer flexibility in a downturn - those sticky wages will wreck a currency union.
  • Our entrepreneurial shortfall and outward migration of skills. We lose too many good people over the border and overseas. Without economic success, that will continue. It's not jobs Scotland needs to create, it is value-adding wealth creation - the jobs come from that.
  • Reliance and misuse of oil revenues. The volatility in revenues has been noted, but actually could be assuaged if it were possible to start a Sovereign Reserve Fund to mop up fluctuations. The real issue is whether these revenues are always used to support the current spending account to maintain an unsustainable public sector. The markets will notice.
  • Energy policy that raises costs. England is starting to build nuclear power stations, Scotland is pouring taxpayers' money into windmills. While we may be squeaky clean in carbon in a decade, we may also be paying 15% more for our electricity and a lot more to support non-jobs in expensive Green energy.
  • All of the above influences would put strain on a currency union, and somewhere in the monetary mix (but too often ignored) is the inevitable need for an independent Scotland to hold and finance debt. Debt markets are competitive beasts; they will hammer any Scotland that looks to be on a downward spiral. It would be ghastly if the Scottish Government’s response had to be a permanent austerity and re-adjustment process akin to that we are seeing across the Euro zone.

    None of the above necessarily suggests that Scotland should not try for independence – this list of problems is surely solvable and we know of several people who want independence precisely because Scotland will have to face up to resolving them. If that resolution introduced a limited government, low tax, high growth society with the wealth to support “fairness” we’d have done something fantastic and enlightened – a great Scottish tradition.

    But you may believe on the other hand that pigs don’t normally fly, and the risk of ending up in the slops trough are too high. That’s your decision, we take no corporate view.


    Monday, April 15, 2013

    Should Scotland continue with this money-go-round?

    Constraints on welfare are raising an important debate for Scotland about social support policies and their costs. The hidden meaning of “Scottish values” comes to mind.

    The widespread howling about housing benefit and the scurrilous timing of debating choices of the Green Party apart, how we approach income re-distributions as a society is crucial to our economic success. The true debate should be about the extent of these distributions and what they achieve. The “more money is needed” mantra of the poverty lobby is stale and unhelpful.

    There is a distinction between the idea of “social” and the idea of “support” in the way taxpayers perceive welfare and special interests perceive it. Numerous surveys have shown that taxpayers generally feel happy to accept welfare payments as a temporary support measure to help out those who are trying to improve their lives (even when they fail, but they do need to try). Poverty groups advance permanent support for those in need as a social imperative; that is, re-distribution for welfare is a societal norm in which all are involved. This has the advantage of avoiding “stigmatisation” of those on welfare – society, in their view, is run fairly on a caring basis that we are all involved in.

    However, for some commentators, the procedure of taking in tax and giving in benefits has grown into an exercise in pointlessness, especially for those in the middle. If you earned £33,605 in 2009/10, the Government gave you £4,518 in cash benefits and took £12,686 in tax, leaving you with £25,437. But, according to the Office of National Statistics, you would also have received benefits in kind – for public services – worth £7337, which would have brought you notional income to £32,774, almost exactly the same as you started with. A quarter of all benefits (£31.8 billion) are now spent on middle class welfare, a 7 percent rise in these benefits up to 2008 was matched by an almost identical rise in taxation. (See page 25 here.)

    This money-go-round of tax and spend is not only unnecessary but also hugely inefficient. Enormous problems have emerged as spending has grown. The tax and benefits system has become crazily complex and bureaucratic, encouraging inefficiency and fraud. The large rise in lowly-paid self-employed people, who often use accountants to handle their annual tax returns, is notable.

    In addition, a cross-societal welfare system becomes less about welfare than vote-buying through retaining the status quo. Middle-class interests strive to keep their wealth and cash; politicians acquiesce. An acrimonious debate about welfare support is made worse by a middle-class interest group seeing the poor as unworthy of permanent support, but turning a blind eye to their own benefits. “Scottish values” become Janus-like and divisive, based on the non-democratic pressure from the poverty lobby for widespread re-distributive welfare that Scots have not asked for and don’t believe in. (Those on welfare support are particularly critical of so-called spongers.)

    Can Scotland escape the unintended consequences of these social ideals? Well, our mantra has always been that lower taxation is the place to start. Not just to give people more money to spend, but to re-introduce the good habit of personal thrift for times of trouble. Now, that’s a Scottish value.

    The middle class would take to this naturally; they are savers by nature in order to retain liberty over their own destiny – there’s another Scottish value. The loss of universal child benefit would be less difficult to take if savings taxes and inheritance taxes were removed; families would care for their own.

    Taking the middle classes out of welfare would allow support to go where it rightly should, to those who are struggling with chaotic lifestyles, ignorance and incapability, the real curses for the poor – and resolved by more than mere money; personal time for personal compassion by those with their own resources to take time to care comes to mind.


    Sunday, March 24, 2013

    A democratic outrage – it’s time to go backwards.

    At the SNP spring conference this weekend, Nicola Sturgeon called constraints on welfare spending “a democratic outrage”. Four out of five MSP’s voted against benefits cuts, nine out of ten the "Bedroom Tax". Westminster’s Coalition is going ahead regardless (and even the Labour Party says it will not reverse things). Scotland, not yet independent, and with welfare not a devolved power, takes its lumps from London.

    No one can doubt Ms Sturgeon’s zeal for social justice and Scots’ democracy. However, we are allowed to ask, are her ideas for welfare provision any good?

    She said that an independent Scottish Government “will take housing benefit out of Universal Credit and restore it as a benefit that is paid direct to social landlords”.

    There are two things about that: it’s very conservative, restoring a failed status quo, and it’s also a centralist approach to welfare provision where the state makes payments for wards of state direct to other council or corporate entities. Is that democratic? It’s certainly not very liberal.

    TaxpayerScotland would dearly like Scotland, independent or not, to have responsibility for its welfare budget – and the taxes that pay for it. Our politicians could then be accountable for any hash up they make of welfare provision. On present announcements, including Ms Sturgeon’s, they would do so, being apparently without any ideas other than the existing, failed, bureaucratic managerialist methods. There is a pressing need for the SNP to explain how the one third of the Scottish budget (around £22 billion) extracted from taxpayers for income transfers to welfare recipients can be controlled, constrained and – one hopes – reduced. We assume that if “there is no country in Europe that should be more confident about its economic future than an independent Scotland”, as Ms Sturgeon claims, then reduction in welfare transfers will be part of our success.

    The labyrinthine managerialism of the welfare system is not well known to those who are not within it, (although often only too well known to recipients struggling to benefit from it). One of our researchers has pulled together a plain English guide to how Housing Benefit is calculated.

    We doubt that many readers will be able fully to get to grips with it. Can you imagine then, what the overheads are to taxpayers of the management of this tangled mess for one third of all households? And remember, this is only one benefit among many, all of which are equally complicated. The new Universal Benefit only reduces 51 benefits to – er – 29, or is it 27, or perhaps 21? The count seems to differ depending on who you ask. (You can see the Child Poverty Action Group’s moan about the continuing complexity here in a 27 page guide.) The “Bedroom Tax” may be a lousy way of reducing welfare, but it’s the inevitable outcome of political managerialism being used to deal with such complexity.

    Scottish taxpayers should expect something else from Ms Sturgeon. She claimed in her speech that we should have “confidence that we can build that better country we all desire”. To do that taxpayers need a lot more confidence about the Scottish Government’s ability to adopt new ideas that make sense. We need to know that she understands the perverse incentives of welfare distributions, the marginal tax rates we apply to those striving to get off welfare, the intrinsic tendency for centralised welfare to be captured by middle-class rent-seekers and free riders, and the leverage effect of a high welfare bill on macro-economic choices in times of recession.

    None of these ideas appear to be part of the lexicon of Scottish governance. No numbers are offered of how an autonomous welfare system might work. Yet these issues desperately need tackling with a complete overhaul of cradle-to-grave welfare that puts individuals first, a truly democratic system based on personalised Treasury accounts offering the security people desire, but with built-in incentives to both thrift and hard work. The central state has failed; let’s not go backwards in any newly free Scotland.

    Instead we get moaning and emotional blackballing of any attempts to even hold welfare spending where it is, at around £115 billion annually in the UK, with remarks such as “£4.5 billion taken from the purses and wallets of ordinary, hard-working people right across Scotland who can least afford it. £1 billion of these cuts are to benefits that directly support children.”

    That’s taxpayers’ money, Ms Sturgeon, taken from other households trying to hold down jobs and not make claims on the welfare system – although all too often part of a money-go-round through your administration and back to themselves; less your “agency” fee. Please stop looking at the problem with one eye, looking backwards.


    Wednesday, March 20, 2013

    The supply side matters

    At last we see a glimmer of understanding from George Osborne that the supply side matters. How we wish that there could be a similar recognition by the Scottish Government.

    Sadly, the Scottish Government’s news feed today has little to say about the UK budget – instead there is lamentation about Common Agricultural Policy payments to Scottish farmers, self-plaudits for payments made to help youth unemployment, a complaint about payments of £107 million that will no longer be available from Westminster, news of a centralised strategic plan on littering, and of course a repeat of the usual mantra favouring capital investment and infrastructure spending.

    It seems that Scotland is another planet. And yet …

    The beer duty escalator has been abolished, a major victory for the MashBeerTax campaign organised by The TaxPayers Alliance (TPA), working with other campaigners for lower beer duty.

  • The freeze in fuel duty is extended, following the freeze last year after the TPA FreezeFuelTax campaign.
  • And then crucially, there are tax reduction measures that allow ordinary Scots to get on with making their own way, without the state interfering:

  • The increase in the Personal Allowance.
  • The cut – at last! - in Employers National Insurance – a tax on jobs.
  • A cut in Corporation Tax to 20 per cent, which will be passed on to workers in higher wages.
  • Targeting specific industries, rather than simplifying the overall tax structure is sadly still part of the UK policy agenda, echoing Scotland’s endless pay-out approach to economic policy choices – and in Scotland’s case always using someone else’s money and threatening more debt and higher deficits. In Scotland we desperately need some better ideas.

    Simple, low rate, easily understood taxes are the key to a sustainable long-term high growth economy. The supply-side really matters. Scotland’s politicians still appear to have a lot to learn.


    Tuesday, March 19, 2013

    Empty room subsidies versus the Bedroom Tax

    The cost of housing benefit is about £20bn per year in the UK. In a country with just over thirty million income-tax payers, that’s around £650 each. On top of that there is the cost of social housing and rent subsidies.

    So this is no free lunch. And how we wish it were; feeling insecure about your own living space is a horrible, anxiety wracked existence. Even the middle-classes who have had the luck to be able to earn their own homes and pay their mortgage will have gone through some early days of flat-hunting, sharing and multiple movings. No wonder, as Scotland’s Housing Benefits minister Margaret Burgess says, “This will undoubtedly be leaving tenants, some of whom could lose a quarter of their housing benefit in April, seriously worried.”

    But how we wish Mrs Burgess would grasp that if Scotland is to gain its cohesive values, she will get nowhere fast with the one-sided carping negativity – no doubt driven by the need to castigate all things British as part of the independence “debate” – that offers zero insight into the dilemma.

    Her message to landlords, local councils and the world in general, is a litany of managerial obviousness packaged with the inevitable millions here and there (four and a half alone on “advice and support” for goodness sake) to succour her clients.

    Is she saying there is no room for making a choice between the need for self-supporting taxpayers to keep their houses and financial security, the gigantic deficit funded to a great extent by a runaway welfare system, and decades of intervention via housing cash entitlements that have achieved nothing but yet more recipients? Is she prepared to engage in that debate in any way? Or only moan for more subsidy for any who need it?

    The solution to housing benefit is to accept that it has increased far beyond what is sustainable and supportable, and then to find a way of increasing the supply of housing. The figures are staring her in the face in her own advice letter. She says:

  • 78,000 out of 105,000 would need to move to one bedroom accommodation in order to avoid the penalty.
  • 23,000 homeless applications would require one bedroom accommodation under DWP’s criteria.
  • So we need about 100,000 houses. But then says she has “given £2.5 million to social landlords to ensure people affected by housing benefits changes have the advice and support they need. That is on top of the £5.4 million we have already provided to advice services to help those affected by benefit reforms.”

    If Mrs Burgess took our nearly £8 million and offered it to each local council planning and building control department to tear up their planning controls, allocate new land for housing, and then go home for a rest, she’d do a lot more for the poor in need of decent housing than through hand-wringing negativity via “advice”.

    I drove through Kilbirnie and Lochwinnoch on Monday. Classic West coast towns struggling to provide jobs, but within twenty miles of a great internationally trading metropolis. Given a chance, these towns could expand and re-build themselves; generating wealth and, yes, new tax revenues for public purposes. But once again, the Scottish Government wants to control everything, dispensing taxpayers’ money to show how its caring re-distributive values make a difference.

    They don’t, they de-incentivise the enterprising, and further impoverish the less well off. Let’s build the houses, Mrs Burgess. At the right costs, freed from state interventions, there’s plenty of private capital desperate to build new homes. It’s time to grow as our Finance Minister keeps pointing out.


    Saturday, March 02, 2013

    Make real jobs not fake jobs

    The dissonance between the utterances of the Scottish Government and the real world continue. The latest report by Scottish Engineering, the trade body for the industry, is fascinating.

    Described as “a mixed bag” by Bryan Buchan, its Chief Executive, it reports a range of ups and downs characteristic of such a diverse sector. You can almost feel the pain as these hard-working firms have apparently seen the first quarterly decline in output volumes since 2010.

    This is the real world. Hard-working folk running small and large companies, struggling to get the skills they need, the sales they need and the ideas they need that will add a bit of value here, a breakthrough sale there, and rustle up the efficiencies that will make them better than other companies from Tillicoultry to Tokyo. Human and physical capital at its daily grind.

    Contrast this with the crowing exaltations of the Scottish Government press machine about their shovel ready infrastructure projects. Each time one of these “ideas” begins, the word “success” is splattered yet again across press releases; about spending plans for cycle routes, roundabouts, forest visitor centres and so on. Yet all these projects are in reality transfers of tax – much of it raised by the companies struggling above collecting the NIC, PAYE, VAT and then Corporate Tax that the government eats up.

    Now the numbers:

    Basic and fabricated metal, machinery, motor vehicles and other transport equipment – a reasonable proportion of the “engineering” sector - provided 22 percent of all Scottish value added in 2010. (SG’s own figures). That’s £2.7 billion each year.

    That’s nearly ten times the £305 million being spent on shovel ready projects over at least three years. So, thirty times the annual rate.

    Engineering provides around 9 percent of jobs in Scotland, that’s about 250,000 pay packets. (The I Mech E suggests that is around 315,000 jobs, but their engineering is a wide church.)

    Shovel ready infrastructure projects in fact probably do not create any net jobs, they just shift work from one place to the other – the Scottish Government describe the effect as “every £100 million supporting around 1,400 jobs”. Let’s allow them 4,500 to be generous.

    If we could release the creativity of the engineering industry to increase business such that it created another 2 percent of jobs, it would create another 5000 jobs.

    If the proportion of jobs to value added remained the same, the engineering industry would have to increase its value-adding turnover by £54 million - a sixth of the cost of Mr Swinney’s plans.

    Of course, the last thing that engineering needs is a Swinney cash subsidy. But Scottish Engineering quite rightly say that cuts in Corporation Tax should be continued. We would add in cuts in Employers National Insurance and VAT too.

    Which would you choose? Somewhere around three hundred thousand hard-working and creative individuals competing with each other to do good work globally, building new turnover that will be sustainable, or a few hundred civil servants with ideas for infrastructure feeding tax money at captive construction companies who, once done with this lot of tarmac will be back for more hand-outs to “support” non-sustainable jobs.

    The supply side matters; Salmond, Swinney and Sturgeon should not be knocking on 10 Downing Street’s door for centralised Keynesian stimulus, but for tax freedom to take the burden off the real people who make real jobs.


    Saturday, February 23, 2013

    They who pay the piper pay the price in jobs and growth

    Council Tax is frozen for another year under the Concordat agreement between the Scottish Government and the Convention of Scottish Local Authorities (COSLA).

    The agreement includes maintaining teacher numbers, and also an additional £23m from the Scottish Government to help fill the gap left by UK cuts to council tax benefit which is being transferred to local authorities at a reduced level.

    John Swinney has said that "alongside this funding we are working with local government to support council tax benefit reform; welfare reform; and health and social care reform, to continue to help protect the most vulnerable in our society.”

    For taxpayers, such a freeze is a welcome relief form galloping taxation. We do need however some reassurance on the new habit among councils of introducing and then increasing charges for parking, trader licences and other facility charges to supplement their revenues.

    A larger question is the structure of Council spending and how effective it is in achieving its goals. There was a huge increase in government spending between 2000 and 2010, reaching over half of our national income.

    It has to be asked - where did that additional money go? One area is increased salaries for local government staff. Across the UK in that decade, we saw the number of staff in local authorities receiving more than £50,000 rise ninefold, whereas it only rose threefold in the wider economy.

    The Taxpayers’ Alliance published some research this week re-visiting those numbers – around five years into recession. TaxpayerScotland has thinned those down to Scotland’s local councils here. The headline figures show:

  • At least 4,500 local authority staff received remuneration in excess of £50,000 in 2011-12 a drop of 421.

  • The cost of council staff receiving remuneration in excess of £50,000 was more than £280 million in 2011-12. This is compared to just over £300 million in 2010-11 – a fall of 10.5 per cent. (UK fall = 12 per cent) Part of this fall is due to the large number of redundancy payments made in 2010-11 which temporarily increased remuneration bills.

  • 27 local authorities reduced the number of officials receiving remuneration in excess of £50,000, but 7 increased the number.

  • Outside London, Scotland had the highest cost of paying staff earning more than £50,000 at £48.99 per resident - £20 a head more for example than in South West England.

  • So there are some plaudits to be given to most of our Councils for their parsimony – with some notable exceptions. It is however, still worrying that so many high salaries being paid across Scotland at such a cost to each council tax payer.

    COSLA and the Scottish Government need to re-visit their mission in our lives. If benefit reform, welfare, health and social care reform really are underway, one of the vulnerable groups to be considered is the hard-pressed taxpaying public. There are still far too many special interests in Scotland pleading for more to be spent in all areas of the public sector.

    If that spending is simply going to increase the size of a well-paid bureaucracy with high salaries, a generous pension and other entitlements then the state is engaged in a middle-class hijacking of compassion for the poor. We need better ways of providing such services at less cost and more productive delivery mechanisms. Too many costly public servants are party to the creation of the very problems they are being paid to resolve – high unemployment and low wages across all our local communities.


    Friday, February 01, 2013

    Food subsidies are driving us to drink.

    The marginal lands of Scotland have always struggled economically. Wild weather, slow communications and lack of capital are genuine disadvantages for the local population. (Wild open spaces, a peaceful environment and lack of a “rat race” can, of course, be seen as advantages.)

    The Scottish government considers it a duty to provide economic support as part of its Rural Development Programme. But how far this support should reach has long been a contentious issue. Hyperbole in its announcements apparently allows two and two to make six in the usual fashion of government propaganda.

    A recent announcement by the Scottish Government about its Food Processing Marketing and Co-Operation Scheme tells a tale. Technically, the scheme covers agricultural produce only; however, the Cabinet Secretary has agreed that alcohol-related applications may now be considered for the scheme.

    This has allowed Isle of Harris Distillers Ltd a grant of £1,923,000 for construction of new malt whisky distillery. That’s a third of the total cost - funded by Scottish taxpayers. Supporters of this grant declare that “everyone in the islands can look forward with real excitement to the prospect of an initiative which promotes the assets of the islands throughout the world and serves as a catalyst for economic development locally.”

    Hidden with this announcement are other grants of £27,187 to an abattoir in Paisley and £156,238 to a well-known brand name food processor in Linlithgow. These are not towns in our mind that could be described as “rural” – nor will today’s meat supply chain feeding them be frequently based on marginal rural land.

    We then have to ask who it will be who distributes any new Harris malt “throughout the world”? It’s more than likely to be a large global corporate, keen to promote the assets of the islands for the benefit of its own globally-based profits that raise little revenue for Scotland. If that is true, it would be rather better if it paid for the investment and not the householders of our struggling industrial suburbs. As it has not, this raises the worrying question of why not, with the answer being that this may be whisky galore that is not actually needed by the imbibers of the USA and China.

    As so often, these grant schemes can be made to sound good, but their impact on economic development is a political claim, without much economic substance. A new malt distillery will provide a few jobs, hopefully not reliant on yet more grants to be sustainable, but the hidden costs of these distributions are damaging in the continuing role they give to Big Government which sucks up tax money whenever it can – killing off more than it creates.

    We talk about “austerity” and “the cuts”; but read One step forward and two steps back – the new report from The Taxpayers’ Alliance and find out just how busy at fingering our wealth politicians can get.


    Monday, January 21, 2013

    Progressivity, re-distribution and capital taxation.

    We have been reading some remarks made by John Swinney to "Holyrood Magazine" in a long interview with its editor. In it, he points to some changes that he would like to make to the Land and Building Transaction Tax, the replacement for Stamp Duty.

    This is one of the taxes that will come within Holyrood's control under the new Scotland Act. Mr Swinney proposes that: "instead of that being organised on a slab block taxation mechanism, we bring the progressive principle into the taxation system so as a result we can illustrate within the devolution system, the values we would bring to a taxation system".

    We're not sure he means "illustrate", rather he means "impose" and the values are those of re-distribution, or at least an ambition for that. Mr Salmond and Ms Sturgeon sing from the same hymn book.

    Now these taxes, howsoever named, are capital taxes; that is, they impinge on the efforts of the past as opposed to the income of the present. There's a lot of academic work that has been done that shows that unintended consequences are greater with these taxes. Apart from it being part of human nature to preserve what one considers to have become part of you - in contrast, say, to income taxes where one's money is reduced at a point of movement towards you - property capital takes time to accrue. That leads to a much higher tendency to avoidance, often using the period it takes to obtain property capital for a financial body swerve.

    So, introducing imposts that are highly progressive - some have talked of rates of more than 8 percent on property purchases - will change behaviour. Scotland has little experience of the horribly expensive prices of property in the South of England. Mr Swinney can perhaps be forgiven for not being aware of a few hard truths which have followed from Gordon Brown's repeated increases to Stamp Duty.

  • Senior management mobility has decreased dramatically across industry and the professions, except where large re-location fees are paid. This has provided competitive advantage to larger corporates over their smaller rivals and reduced the available pool of top entrepreneurial managers for medium sized companies where innovation and rapid growth is most prevalent. These are the companies Scotland desperately needs to encourage.

  • Middle class families are holding onto smaller houses and buying second homes instead for holiday, rental or student lets. The rise in buy-to-let has been a major trend following the rise in property tax. It's much easier to get renters to pay your property tax and this increases the price of smaller homes.

  • Middle class families extend their homes, making them more expensive to buy, or provide collateral for their children to get on the property ladder as early as possible, purchasing low value homes where property tax rates are not an issue. This maintains high prices at the lower end of the market.

  • When the middle of the market does not trade up, the lower levels cannot move to the middle. When the lower levels do not move, new entrants cannot find homes. That's why the property downturn is a downturn in volume but not in prices.

  • Many people who find that it is not worth trading up to a larger home take a side run and decamp to warmer climes. Southern Portugal and Spain are now fully one quarter British; while many stop work, there are many others building new lives in new businesses, a long way away from Her Majesty's Revenue and Customs. Their talents are now lost to us.

  • So let's return to "Scottish values" - a weasely slogan if there ever were one; adopted by those want to tell us what we should be thinking about; that is, supporting re-distributions for the purpose of less inequality among Scots.

    But look again at our list above. Each and every one of these effects has an effect that increases inequality among us. In changing behaviour such that we react by protecting what we believe to be ours Mr Swinney's tax policy creates outcomes the opposite of his intention.

    Mr Swinney, how about reducing property taxes to a single low rate (and slacken the planning rules while you are at it)? Scots everywhere would move house more, the better-off would build bigger and better houses, good managers would hustle from one job to the next seeking success and creating new jobs, and there would be jobs galore in the housing industry. New jobs would create savers and so new house buyers, and there would be more houses to buy at a cheaper price.

    That would allow the equality at least of being a housholder. And by the way,we don't judge a man by the size of his house, we pity him his large mortgage and the work treadmill he gets having to pay for that. If your equality is judged by visible posessions, you have created a world where envy rules and if that's Scottish values ... awa' and bile yer heid."

    Oh, and through these freedoms we might keep a lot more of our best brains in Scotland - competing for a great quality of life against sand, sea and sun.

    Your alternative "illustration" tells us a lot about your values - it illustrates your interest in control based on lousy tax policy. Let us be free ...


    Wednesday, January 09, 2013

    Who knows for whom the tax tolls ...

    It’s never pleasant to have to criticise fellow economists, but the idea of a so-called “Whisky Tax” is rotten to its core. That the proposal should come from two former economic advisers to the Scottish Government is doubly worrying.

    There are some serious issues here that tell us something about the state in Scotland and how it thinks and is advised to act.

    What a message to send to the world! Come to Scotland, be successful and we will tax that success. Not only that, we will pick and choose who to tax on the basis of expediency. We don’t control the UK duties, but we do control the nationalised water supply so we’ll hammer you that way.

    It is a key principle of taxation that it should not be arbitrary, that businesses can calculate potential margins with some certainty; not subject to the whims of the state. Where might this tax end, why stop at whisky, what about other white spirit – vodka and gin for example? Scotland produces lots of that too. Would a water tax be used in the food processing business, or for pharmaceutical companies who use distilled water, or even bottle washing facilities?

    If you want to make business cautious and look elsewhere to invest its money, choose an arbitrary additional tax. Whisky companies already pay huge amounts of employers’ national insurance, spirit duty, VAT and Corporation Tax. They hire labour in our remote regions and they ship exports through our struggling ports. Their recent success worldwide means that they are proposing yet more investment in Scotland. Who would blame them for looking to invest elsewhere if hit with yet another burden specifically aimed at their margins – just because those exist?

    The proponents of the tax appear to have a parochial blindness to globalised supply chains and the potential for unintended consequences of bad incentives produced by their proposals. Parochialism even appears in some cases to extend to xenophobia about “foreign” companies. What tosh!

    The value added in the whisky export business runs all the way from our distant glens, through the shipping lanes and foreign wholesalers, to the expanding metropolitan middle classes across the world. It’s one of the best promotions for Scotland we’ve got with marketing effects far beyond the wee nippy itself; it puts Scottish-ness into minds worldwide. That’s worth millions for Scotland in networking benefits. Taxing those additional gains is a nonsense - and dangerous.

    And one final thing, Scotland does not need more tax revenue, it needs less spending. Once again, the perception is that where tax powers can be found, the Scottish state will use them. That’s a lousy way to run the country. Adam Smith told the world that simple, low rate, easy to collect and equitable taxes are the way to more growth and jobs. He understood economics; these ex-advisers appear not to.


    Wednesday, December 12, 2012

    Dancing for their free lunch (that we pay for)

    The political dance over EU membership for an independent Scotland seems to be emerging as a mix of eager suitor and reluctant debutante. But what does it tell us as taxpayers?

    If one takes the stance of dispassionate objectivity about independence – as we try to do – we have a peculiar reality. The Scottish Government has said it wanted to join the Euro, then it wanted to hook up to Sterling, and that it did not think negotiation was needed on membership, and now it seems it is.

    Pardon us for asking; what exactly do Alex Salmond and Nicola Sturgeon want? The horrible conclusion is that they actually don’t know. Or rather, they don’t have any detailed idea with respect to institutional arrangements, but they are adamantly clear that they want other people’s capital foundations to shore up Scotland’s economy.

    That, to us, shows a distinct lack of confidence. Put this together with a deathly silence over the “moralising” over Corporation Tax – possibly because the SNPs position there is also obscure, would they cut the rate for economic advantage while demanding more from multi-nationals because that is “fair”? Then add in the fact that examination of the latest list of “shovel ready” capital projects appears not simply to be lengthened but thrown into the air and miraculously amended on its return to Earth. It now includes a host of NHS buildings that will have huge whole life costs that, as we found out recently, have not yet been evaluated.

    For taxpayers, what this smacks of is a Scottish Government that is led by zealous (and well-meaning) administrators who are incapable of putting principle before expediency. And that expediency can be laid out in four words “We want your money”; whether that is English money, European money, or anyone else’s money. It does not escape us that “anyone else” more often than not is going to be the Scottish taxpayer after the initial out-of-country bung has been poured into the ground.

    This is the inevitable outcome of the idea that the state can “run the economy” – monument building. How we wish the Scottish Government would look at its non-state sector and see how companies like mobile game developer One Thumb, legal firm MMS, MF Wells the hotel group, and craft brewer Harviestoon are all reported to be fighting well in lousy conditions – ducking and weaving as only the private sector can do; innovating, cutting back while looking forward, taking risks – playing a smart game.

    The opposite in fact of what a unimaginative, inward-looking, self-regarding, cash-hungry state does.


    Tuesday, December 04, 2012

    Where do these values stop …

    Public and political pressure appears to have swayed Starbucks to change its corporate tax arrangements – Britain is an important market to them and they have been taken aback by the accusations of “unfairness” and “immorality”.

    The Chancellor has climbed on the same bandwagon as some other MP’s and the public and offered more money to HMRC to look further into tax avoidance among corporates.

    Having demanded during the Scotland Act negotiations that it be allowed control over Corporation Tax, the Scottish Government has been strangely quiet. Perhaps the contradiction between their hint during negotiations that to attract new corporates to Scotland they might cut the tax using the Irish model, and a hidden reality that they would (as with the Tartan tax) either do nothing or actually raise its rate, has forced them to be mute.

    It is always concerning when politicians raise the banner of morality and declare concern about right and wrong behaviours. Too often they concentrate on populist notions of “badness” - today couched in the term “unfair” - but then don’t take the argument any further than that to the rules of principle which should apply.

    At the risk of being seen to be acting as a toady to the corporate interest, we offer a slightly different take – based both on principle and present practice in taxation.

    First, it is not a valid argument to say that companies should pay Corporation Tax just because everyone else pays taxes. This is akin to saying sheep should climb trees because monkeys do.

    Robert Peston of the BBC offers “we have an interest in making sure that companies that benefit from an educated workforce, a free health service, a solid and reliable legal system and an efficient transport network”. These infrastructures, he says, demand that corporates make a proper contribution.

    His comment misses two key points; corporates are part of our infrastructure too - the major part - and they are different from individual taxpayers; they only exist as collectives that harness the efforts of individuals who pay tax.

    In that sense, all corporate taxation is double taxation. This has a very specific practical outcome; taxing companies involves taxing ourselves.

    Today’s furore too easily ignores that Starbucks certainly do pay business rates, employers NIC and VAT, plus energy consumption and re-cycling taxes. Having grabbed what it can from consumers and workers through these taxes, the state then looks at the net margin of businesses (having already taken 20 percent of that in VAT!) and has a go at taking some of that as well. Is it any surprise that Finance Directors investing millions for our future try to minimise their Corporation Tax liability? If anything, we are being hugely unfair on ourselves through the amount of taxation we take from companies – raising the price of everything we buy from them and lowering the wages of those who work for them. Look at the astonishing price of a cup of Starbucks coffee or a gallon of petrol. That’s high taxes for you.

    Our anger at seeing major corporates reduce their tax liability by taking advantage of the loopholes is misplaced. Starbucks and others who may now agree to pay a bit more in Britain will certainly use double taxation rules to obtain relief elsewhere. They may in the end pay slightly more tax, but more often than not Westminster’s electorally driven outrage will simply shift tax revenues into the UK that would have been raised elsewhere. So much for global harmony – don’t kid yourself that other politicians in other nations will not notice.

    More importantly, large corporates will see these forced imposts as a market entry cost in the UK and invest accordingly. As ever, there are no free lunches in a globalized economy. We tax ourselves through the corporate infrastructure at our peril.

    Our politicians created the hugely complicated tax code which corporates exploit. They have done this because they have forgotten Adam Smith’s principle of simple taxation that is easy to collect. They need to reform the tax system and a first step would be get rid of all double taxation – we are only taking money from ourselves. The moral value of that is dubious at best; it’s the source of a great deal of misery and poverty through unemployment.


    Tuesday, October 16, 2012

    Not quite shovel ready

    The idea that we should invest in Scotland's infrastructure to create economic growth and new jobs might seem to be a "no brainer". We wish it were so simple.

    TaxpayerScotland's latest State of Scotland report examines this idea in some detail, and not without difficulty. The Scottish Government repeatedly conflates the idea of infrastructure investment used as a stimulus to release us from recession, with the idea of infrastructure investment as a long-term tool for economic success.

    "The State of Infrastructure Investment" looks at both ideas. In the process, we show that the Salmond/Winney claim that they have 36 shovel ready projects idling at the roadside ready to put men and material on site is less than true.

    Bill Jamieson picked up on our analysis in the Scotsman on Sunday in a clever piece with a quiet puzzled tone.

    Our report's second part looks at whether modern infrastructure investment is always choice of policy that is necessarily in the best interests of taxpayers. We are less than sure, and tend to the view that a steady rate of investment, performed as much as possible through private capital, is the best for Scotland, its taxpayers wallets and the future.

    We have circulated the report widely into the Holyrood chatter - a contribution to better thinking in Scotland and thinking that will move the consensus towards more taxpayer friendly policies.


    Saturday, October 13, 2012

    Micro firms for Mega jobs ....

    The Federation of Small Businesses has estimated the economic and employment impact of extending the existing regional National Insurance Contribution (NIC) holiday to all small firms in the UK.

    Their calculations estimate the net benefits if firms with up to four employees across the whole of the UK were released from the burden fo the Employers NIC for new staff. Taking a conservative approach they estimate that would generate 45,000 jobs and £1,270 million in added economic activity for the whole UK.

    In addition, this new activity would generate £949 million in additional tax revenue to HMRC for the whole of the UK over a three-year period. This is slightly less than the loss in tax revenue, but they say nothing about how much less would have to be paid in welfare payments for the newly employed.

    Previous surveys by the FSB have shown that employee taxes are a major barrier to hiring, with one in four respondents saying these were a major factor in keeping them from taking on new staff. More than half of all businesses said that a tax break incentive on NICs would be the policy measure that would most encourage them to take on new staff.

    Figures like these always have to be taken with a pinch of salt. But in our view, there is one over-riding value in the suggestion that this NIC holiday should be extended. This would be particularly useful in Scotland.

    Scotland has nearly 25 percent of its young people unemployed. The NIC holiday targets micro-businesses in a scheme that encourages young growing businesses to take on new employees. Young businesses are predominantly set up by younger, go ahead, positive types. There is nothing like sharing a work place on a day by day basis with peers with energy and "go" that could do more to give confidence to Scotland's young unemployed who so often are struggling with a lack of self-worth.

    This is the sort of development the Scottish Government should be shouting from the rooftops for ... rather than indulging in its vast array of makework schemes.


    Friday, October 05, 2012

    Scottish councils spend £40,000 every minute but fail to explain how it is spent

    Councils in Scotland spend £21 billion of taxpayers’ money every year but a new report published today by Audit Scotland highlights a lack of transparency and failure to provide clear and complete information on how our money is spent.

    Audit Scotland’s report sets out how gathering, analysing and acting on performance information is key to getting the best value for money in council services. It says that information provided to the public about how our money is spent is often ‘of poor quality, unclear and incomplete’. Key facts on spending are buried in lengthy reports which make proper scrutiny a difficult task.

    One of the most damning findings of this report is that not one of Scotland’s 32 local authorities has a proper performance and improvement model in place, despite the colossal sums of taxpayers’ money which they are meant to be effectively stewarding.

    It is vital that councils look at their own performance and examine how they can provide services which are of better value using benchmarking data to help them do so. In any well-run organisation, improving performance is the responsibility of everyone, from the Chief Executive to the administrators. Councils should be no different.

    One of the best ways of providing good performance oversight would be for Scottish councils to publish full details of their line-item spending as is now done South of the border. Taxpayers would then be able to compare performance between councils - there is nothing like a bit of open cost competition to maintain downward pressure on spending.


    Sunday, September 23, 2012

    Oh Nick, we’re sorry but ...

    At TaxpayerScotland, we believe that the less-well-off deserve a better deal. But we don’t believe that the way to do this is always by re-distributing more and more to them from the “better off”. We think that is a policy approach that has failed; in most cases such policies have simply not done what they say they do.

    A lot of what actually happens is counter-intuitive and arithmetically confusing. Nick Clegg’s approach to milking the rich is a case in point.

    Whenever you hear the word “fair”, pause and think about who is using it. The idea that the rich are not paying their fair share is his opinion, bit it is not reality in fact. The top 1 percent of wage earners pays 27 percent of all income tax receipts. The bottom 50 percent of earners pay just over 10 percent of total income tax receipts.

    But income tax only is only one tax we pay. The tax burden on the lower 50 percent of wage earners is higher because of these other taxes.

    The top 20 percent of earners pay 5.3 percent of their income in VAT, but the poorest 20 percent pay 9.8 percent of their income in VAT. That sounds unfair, but the top 20 percent take home around 50 percent of all earned income so the total amount of VAT they pay in cash is a lot more than the poorest 20 percent (who earn 2.5 percent of total income). See: http://www.bbc.co.uk/news/business-15519727 for a good explanation.

    What this adds up to is that the "rich" (the top 20 percent) are paying 5.35 percent of 50 percent of all income, whereas the poorest are contributing 9.8 percent of 2.5 percent of all income. So the rich actually pay out a whole lot more cash in VAT as well as income taxes.

    If you then consider, corporation tax, capital gains tax, savings taxes, stamp duties and dividend taxes – all of which tend to be paid by the rich rather than the middle, and certainly not the poor, you can see that the rich are rather important to government revenue – they provide at least two-thirds and probably more of all the money the government gets.

    Now we can still say, as Nick Clegg and his other re-distributors want to, that the rich should be taxed more on mansions, or other schemes they use to preserve their cash and capital, but if we go that way, one thing is certain. The rich are clever, mobile and want to keep their riches - their behaviour will change. What happens if their payments simply disappear? Where are our front line services then? And our freedoms when we are successful? It's also worth mentioning at this point that the money is needed to pay for debts run up by - er - politicians like NIck Clegg unable to control their profligacy. What's fair about that?

    Using taxation to enforce equality is fraught with dangers. It divides us, purports to be fair, but in fact simply allows those with less to be unfair to those with more.

    Far better to find ways of ensuring that the less-well-off build their incomes, their savings, their self-reliance – so that we do not need an army of social support workers and other bureaucratic planners - all mostly middle-earners, and some rich executives - who live off the public purse. That money was supposedly being distributed to the less well-off. It isn’t.

    Nick, we’re sorry. Low tax rates, more jobs and growth, a low need for transfers, a limited government and a free people not beholden to the state for money; that’s the way to look after the poor.


    Wednesday, September 19, 2012

    Welfare and waffle without any winners

    What a shame that politicians have to perform gymnastics at all times. Ian Duncan Smith's latest pronouncements on welfare reform should get an award for doublethink and obfuscation.

    Scotland spends around £21 billion annually on "social support". That's a third of the public sector budget. We have very little say in a lot of this spending; Whitehall holds all the cards in this area.

    It's a minefield for politicians because most of this spending is mandated through an entitlement. They can't change spending course easily. Ian Duncan Smith has been "working very hard" on a general simplification through his universal credit, but even that does little to lower the marginal tax rates any Scot has to pay when trying to extract themselves from poverty.

    A recent speech by IDS alluded to political matters - how the Union was implicit in these re-distributions and how annual increases might or might not be linked to this or that index.

    We're not sure that any of this is getting anyone anywhere. Welfare needs radical root and branch reform; and this would be one area where localisation - and yes, below Holyrood to local communities, or even the individual, is the only way any progress can be made away from the dependancy and damage that social support can do.

    It would be good to see some action from Scottish politicians on this. Not to ask for yet more money, but to take the job in hand as do-able in a big wee country with a small population and try something new for a change. We could make our escape from the Barnett Formula if we could cut the bill by a third. Has anyone in Holyrood got the courage to go that way?

    These sort of ideas are needed if Scotland decides to create its own destiny, rejecting the idea that we need British tax rates and British revenues. A recent poll showed that many Scots are fearful of independence because they think we could not afford to stand on our own. At this cost for welfare, those who pay tax would certainly find it expensive.

    As always, we are agnostic on independence, but if those who want it wish to persuade us of their case, we really do need more than "gae' us mare munny, ye cannae cut wur parish."


    Wednesday, August 29, 2012

    A Clegg bite that Scotland could not afford

    Some proposals by politicians based in London are utterly ludicrous when seen from a Scottish perspective. Nick Clegg's suggestion of an emergency wealth tax is a prime example. We just hope our own MSPs don't become tainted by his nonsense.

    Having grabbed today's money through Income Tax, NIC, VAT, business rates, council tax, duties and levies, savings and capital tax (and yet still over-spent) our political masters now seek to grab yesterday's money that we have put into capital and property to make our tomorrows feel secure.

    In Scotland, it is estimated that we have around 150,000 net tax payers in total. We have very few truly rich people, in the sense of cash rich. We have a larger number of wealthy people - many of them lovingly dedicated to maintaining properties that have large overheads. They are part of the dispersed fabric of sparsely populated Scotland.

    Because wealth is held to feel secure about tomorrow and maintained as a non-commercial act of love, the reaction to any wealth tax has always involved big changes in behaviour. Wealth holders would adjust to maintain their future security and interests. Capital flight on an enormous scale would be guaranteed from the global Scottish tribe.

    A number of countries have abolished their wealth taxes. A wealth tax would be a disaster for Scotland. Nick Clegg has a London centric view of extensive ranks of large homes in the Home Counties owned by salaried workers as targets for his emergency tax. What about the widows, what about the cash poor who choose to maintain a Lutyens home, what about the historic buildings, what about the farm and forest estates, the homes held by businesses, the owners of intellectual property rights, the religious, educational and other holders of property and assets? The diversity of wealth is huge.

    The exceptions to (Clegg's sinfully envious) idea of "wealth" make a wealth tax a nightmare of inevitable unfairness. It also goes right to the heart of the relationship between the state and the people. If we are not allowed to hold our own property to safeguard our futures and express our preferences for our own sense of place then we are all merely herd animals - told what to do by the authorities. MSPs please note - there's no freedom there for Scotland.

    And they call themselves "Liberal" Democrats. Clegg should be ashamed.


    Monday, August 20, 2012

    How to attract athletes like Usain Bolt to the Glasgow Commonwealth Games

    When the Commonwealth Games come to Glasgow in 2014, it is welcome news that HMRC has chosen to suspend its normal tax regime and provide tax breaks to the competing athletes.

    The fastest man in the world, Usain Bolt, said on Tuesday^s Today programme that British tax laws have discouraged him from competing here in the past. Under current rules, athletes competing in the UK are liable to pay tax on their winnings in addition to paying levies on any of their passive income such as marketing, sponsorship and image rights deals. Athletes often have to pay a 50 per cent tax rate on their appearance fee as well as a proportion of their total worldwide earnings. Tax liabilities might even exceed appearance fees.

    Usain Bolt is not alone in his concerns. British tax laws have repeatedly proved to be a handicap on our chances of hosting events and attracting top talent. UEFA admitted in 2008 that Wembley missed out on the 2010 Champions League final for this very reason, while the golfer Sergio Garcia and Wimbledon champion Rafael Nadal have also admitted that they limit their appearances in the UK because of our tax laws. Sporting events aren’t happening in the UK and jobs are being lost because of this.

    Our over-zealous system has undesirable consequences and it’s not just Scottish jobs that will be lost, Scots taxpayers are losing out too. The taxman gets nothing from the sportsmen and women who stay away, the events are diminished, other tax revenues and business margins are lost, and where the revenues still have to be found, so we are left to provide the missing revenue.

    The International Olympic Committee insisted that HMRC suspended its normal tax regime for those competing in the London 2012 Olympics. London simply wouldn’t have been able to host the Games otherwise. And the British Government has also said that tax breaks will be available to the Glasgow-based Commonwealth Games and those taking part in the 2017 World Athletics Championships in London.

    But when the taxman starts creating concessions and special exemptions, where does he stop? Rather than trying to push the water back uphill by granting exemptions for special events, it is high time that the Government realised the damage that its flood of a tax regime is causing to smaller events that simply don’t bother to apply for special exemptions from HMRC as well as high profile events like the Olympics which do.

    It’s not just that we’re missing out on great sporting events. We’re missing out on jobs, business and growth too.


    Wednesday, July 25, 2012

    Cash in hand is in demand

    When politicians start talking about "moral behaviour" the public tend to do a double-take given their past performances.

    But let's give them their due and allow the idea that there are certain virtues that are worth adhering to for the sake of civil society. Not allowing a gradual trend towards tax evasion across trade and industry is one. The reality is that we cannot allow anarchy to emerge with one set of rules for one person and one for another. The law is the law and we all have a duty to stick within its rules.

    But this particular law is unusual. The state has few totalitarian capabilities in a free society, but the liability to pay taxes is one. That said, the amount of tax is a matter of democratic contract which the people agree to on each election. And here is where a second virtue emerges.

    It is statistically observable that as tax rates rise there will be more avoidance and evasion of the obligation to pay taxes. This applies across the board, from the small trader to the international conglomerate. When tax rates are set too high, government is stretching its contract with us - and our behavioural changes show that we all edge towards removing our consent to be imposed on to such a degree.

    The second virtue then is a recognition by the state that human nature itself limits their powers and requires some humility about their impositions on us. Scotland is the home of this enlightenment view, and Scottish politicians should be more understanding of this idea than others - sadly, they are not.

    It's good that we are having this national debate, and doubly good to hear how seriously the BBC and media generally took it - correctly seeing it as a major human interest story. Taxpayers are severely constrained by Big Government and high tax rates. Is it any wonder we adjust our behaviour. Let the buyer of our expropriated tax funding beware, we are not a milch cow - we will revolt.


    Sunday, June 24, 2012

    Jimmy Carr is not alone

    Jimmy Carr has done us a favour. Most would say the favour is to remove himself from his tax avoidance scheme. In reality, the favour is to show us how tempting it is for all earners, as well as those earning high sums, to avoid tax.

    Jimmy Carr is an extreme case. He not only makes a lot of money, he makes it entirely at the risk of his own failure on stage. That's why the media take such glee at his outing; Mr Carr could fall quite quickly and painfully from the grace of high-earning celebrity.

    Is it terribly surprising that tax consultants become parasites on those who have very high earnings? Morality takes a back seat when the tax saved by "avoidance schemes" becomes large and reduces career risk. But let's be honest, all of us, at all income levels, will try to avoid some tax if we can. We buy second hand to avoid VAT, we pay for some minor services in cash and do not ask questions, we use pension schemes, ISA's, pre-registered car purchases and other "dodges". Those who are self-employed perhaps declare slightly less income and slightly more on expenses if we can. Such is the inner being of the free Scot - trying to look after themselves and their families first. We are all made morally culpable by high and complex taxation; in our affluent society it is the "coping middle" who pay nearly all the tax and, to some extent, we have all become Jimmy Carr's.

    These temptations are largely brought about by high tax rates that in themselves have generated complexity because we adapt our behaviour to avoid the coercion of the taxman. There is a lesson here for the Scottish government. Scotland has very little control over its tax rates, and there is a running debate about that. But equally, the Scottish government has not shown any inclination to reduce rates in general across the board, the one thing that we think would improve our economic prospects. Nor has it given Westminster loud laldy over its ridiculously over-complicated tax code.

    If we genuinely want a compassionate, equal, productive, high-employment economy, let's not take delight in Mr Carr's outing, but rather in the thought that the way to curtail avoidance practices is so obvious; make taxes low and simple.


    Monday, June 18, 2012

    Martha and the mealy-mouthed

    Nine year old Martha Payne appears to be doing more than one good turn for Argyle and Bute Council; first with her observations on her school meals and now apparently teaming up with Nick Nairn, the celebrity chef, “to help Argyll and Bute Council provide more nutritious meals”.

    Leaving the quality of meals aside, this episode tells us something important about the relationship between Scots taxpayers and their councils.

    Firstly, we quickly give a loud “hurrah” to Roddy McCuish, the SNP-run local authority’s leader, for admitting the council had been wrong and apologising to Martha for the initial attitude to her blog – looks like his communications department is due for a roasting.

    But let’s look at that early reaction of the Council more closely. They reacted to stop Martha’s publishing because coverage in a Scottish tabloid newspaper called for the school’s dinner ladies to be sacked. The local authority initially said that the nine-year-old was “misrepresenting” the menu options available.

    Fair enough, no doubt the dinner ladies work hard and do their best, but the tone of the council's response was very much “holier than thou”, a highly conservative sense of offended sensibility.

    This is an all too familiar tactic of local councils when pulled up on their performance. Rather than analysing what has been said, they defend themselves come what may. Crucially, they took the press criticism much more seriously than the observations of Martha’s blog.

    That was unwise, not only because, as Mr McCuish recognised, it was an untactful and disrespectful response to a young girl who had no real axe to grind, and indeed does not appear to have been overly critical at any time, but also because it makes the Council sound as if it knows best at all times, does not want to listen, and indeed disrespects those who pay for their services.

    Taxpayers do pay – a lot – for the education of their children – and the role of schools in loco parentis while they are at school. Part of the value for money on offer has to be that those who provide those services respect their clients – the children and parents who pay for them.


    Thursday, June 14, 2012

    Leading the bureaucracy away from its tendency to fat

    An analysis by Audit Scotland of four departmental mergers aimed at saving around £63m, suggests that costs upwards of £42million have been incurred in carrying out the changes.

    Voluntary redundancies and pay negotiations accounted for nearly £40m. But there have been huge other costs as well on non-staff items such as property and IT.

    Two of the organisations, Marine Scotland and Creative Scotland, did not even calculate non-staff costs. Taxpayers are going to have to wait and see if this scandal is repeated with the merger of police and fire services early in 2013.

    The Auditor General for Scotland has called for “strong leadership” to make the important planning decisions needed to stop this happening; to generate a vision with clear goals. We think he is wrong. The leadership needs to come well before any bureaucratic planner gets involved with change in public bodies.

    Intrinsic to all public bodies is a tendency to develop multiple objectives, to work collegiately with other public entities across a range of agendas; operational and aspirational. Many activities become duplicated across the public sector. Missions are expanded and adapted to meet perceived institutional advantage, all fuelled by the easiness of spending taxpayers money on other people. That’s why Scotland ended up with eighteen bodies that our politicians thought could be merged in the first place.

    Waste and unnecessary spending grow out of this obesity of “good things to get done” and our taxes, and government debts, rise accordingly. The leadership needed is from our elected representatives who need to learn to say “STOP” and request that the bureaucracies desist from their missions. They have the tools in clearly defined statutes, plus sunset clauses and rigorous Holyrood oversight in committees to represent taxpayers interests in value for tax pounds being spent.

    Our MSPs need to recognise that undoing government is hugely difficult and as we now know, very costly. The self-preservation instincts of Sir Humphrey make this doubly true. The best way to avoid having to deal with fat-cat public bodies through costly mergers is not to let those bodies get so big in the first place.


    Saturday, June 02, 2012

    Pasties, patsies and principles

    The retreat by George Osborne over his sillier tax proposals is important. These ideas were not only bad politics but bad policy.

    One of the principles of “good” taxation – should such a thing be possible – is that it must be clear, in the sense of the taxed knowing when they should expect a tax to apply. Food has always been a difficult area, because services are generally taxed, while our essential rations are not. That leads to oddities like carry-out versus eat-in food, and cake versus biscuits – cake is not thought an essential to the taxman.

    Then along come Greggs and others, providing warming – many Scots would say essential - food prepared fast and efficiently on the premises. Aha – a food with service content; the taxman leaps, the Pastie stramash begins.

    The retreat that has now taken place is a bizarre political compromise. The tax still applies unless the food is served straight from an oven, or is cooling (congealing?) naturally in a non-heated cabinet. In that sense, the tax now breaks another principle of taxation – simplicity. Our bet is that those clever people from Greggs will now rapidly be working out how to adjust their pastie production such that their staff serve from hot ovens – think of the Health and Safety implications of that!

    One hopes that George Osborne has learned a lesson from this. That is that while “expediency principles” - such as essential versus luxury foods – offered by his officials may sound reasonable, they are always outweighed by more traditional policy principles. He fiddles at his peril because in a world of Big Government all sorts of nonsensical confusions arise. For example:

    Fast food is usually provided to customers by young service staff in early career jobs generating good habits about working responsibility. This supports employment policy.

    Fast food is generally high in calories, so allowing it to be sold at low prices runs counter to Big Government’s obesity policy.

    Fast food is favoured by the less well off, so making it more expensive runs counter to social justice policies – increasing inequality.

    All the above re-introduce yet another principle of taxation – that tax rates should be low to avoid adverse behavioural effects. When they are not low Big Government ends up tying itself into ludicrous knots. In the process politicians look silly and taxpayers know all too well that the somersaults that the bureaucrats go through will be costing us dearly in endless meetings about “policy” - which will in fact be about tax administration.

    Oh dear, that’s yet another principle of tax policy, that the burden of collecting a tax should not be large.

    Low rate, simpler and fewer taxes please George, it’s in your interest.


    Monday, May 07, 2012

    We still want it both ways.

    Government has no money. That’s true in both a budgetary sense, but more importantly true in the literal sense; the only money that governments have comes from the taxes or levies that they impose.

    As the dust settles on the Scottish local elections, taxpayers face yet more efforts by local and central governments to “boost” our economic prospects. North Lanarkshire’s Council Leader Jim McCabe said when re-elected that he will "work very hard to improve things in the area .… We must work hard to provide every young person with a proper education and it's about delivering results the best we can for the cheapest that we can”.

    Well, he got the last bit right, although his method of working very hard (what a cliché!) implies using tax money to do things.

    On the same day, The Insolvency Service told us that 432 firms in Scotland went into liquidation in the last quarter compared with 351 firms last year; a failure rate 40 percent higher than in England and Wales. The slowdown appears to be particularly acute in the jobs rich hospitality industries – the places we do our discretionary spending.

    There is a connection here. Despite loud howling about “the cuts”, government total cash spending is actually growing while private spending is not. It is instead adjusting to high energy prices, higher food costs and other price rises, many of which are created by government action.

    Is it any wonder that, according to the Centre for Economics and Business Research, the Scottish unemployment rate will be close to 10 percent by 2016.

    A really dangerous scenario is emerging, so many Scots rely on the state for jobs and income transfers that we want to have it both ways. We cannot afford “austerity” and risk penury by losing our entitlements, but we also want jobs and income which are both disappearing fast. We vote accordingly for politicians who will work hard at spending our money on – er - us.

    We are not alone in this; the Greek and French elections also showed that it is rational for those in need of government support to vote for more of it. This puts an even greater responsibility on those of us who believe that this is a spiral into destitution to make their voice heard. We need a lot more private profit-making endeavour to be paying new value adding wages, not public tax funded endeavour subsidising us through someone else’s taxes.


    Friday, April 13, 2012

    Council benefits - our debt

    Traditionally, local councils were thrifty. For many years, the Town Clerk held sway over small scale collective community endeavours. No longer.

    Today's local councils are labyrinthine organisations, taking on a multitude of tasks, often given to them by central dictat, and in the process hiring upwards of a quarter of a million Scots.

    These employees deserve our gratitude, they do a lot of good work. But we should be less enamoured of their employers. They have provided extraordinarily generous employment terms, paid for by taxpayers, and far better than private sector businesses are able to offer. In particular, through the years these latter-day Town Clerks have allowed their pension schemes to move from a positive balance of assets over liabilities to a position of financial non-sustainability

    A black hole of future debt for Scotland has opened up of more than £4,000,000,000. As public sector employees retire - or are laid off - in every larger numbers, someone is going to have to pay for this. That someone is the Scottish taxpayer and yes, that includes public sector workers as well, seeing their future wages curtailed by today's profligacy.

    You can see that debt here for each local authority in Scotland, and and for the whole of the UK here,

    Extracting a business from future commitments is never easy. Chief Executives and elected officials in our councils now need to show real leadership. They need to stand up for ordinary families and develop a plan to extricate themselves from debt. They could start by locking all present schemes - contractually guaranteeing what has been allowed up until now - then re-negotiating new arrangements that are based on reality - they only need to look at the private sector to see what those realities are. Private business cannot risk loss, the public sector must stop relying on taxpayers to support its losses.


    Sunday, April 01, 2012

    Telling us how it is ...

    A young Westminster MP, Ben Gummer, has suggested that the UK government should provide all taxpayers with an annual tax statement. A Private Members Bill has been proposed to the UK parliament.

    This would make clear how much of our annual income is taken in combined Income Tax and National Insurance contributions, but it would then set out proportionately how much of that money funds the benefits system, the police, the NHS and other public services.

    In the interests of transparency and accountability, all Scottish MPs owe it to their constituents to give this Bill their support. And more, they should urge Holyrood MSP's to take part in the publication and show all of us how they are using both the block grant and and Scotland's own revenue streams.

    We have rigorously campaigned for greater transparency from Holyrood about how much of our money it takes in tax and how it then spends it. This proposal is an inexpensive way of holding Scottish politicians and civil servants to account.

    Judging by John Swinney's response to the budget itself, Scots taxpayers need protection from Holyrood's propensity to spend and spend and spend. He said, "There was almost no new resources or initiatives, no green light for new, targeted capital spending". Help ma boab; he's been trying that for ever and we are still in a recession. No wonder, with Scots families keeping what disposable income they have to pay for an ever more expensive future - much of it costing more because of Swinney's spending.

    We need everyone in Scotland to be told how it is ... they spend far too much of our money.


    Thursday, January 26, 2012

    Mr Nick Clegg and Mr John D Rockefeller

    How nice to hear a politician suggest the cutting of taxes as Nick Clegg has done today!

    Without wanting to appear too curmudgeonly; they have tried spending on job support, they have tried spending on capital projects, so there really is only one way they could turn now when the desired growth is simply refusing to appear.

    Taxpayers need to separate his two intents however. Mr Clegg declares he wants the taxes imposed on lower earners to be reduced, while this will be paid for by higher earners. We should be wary of the bringer of good news as much as bad.

    There is a famous story of a man who approached Mr John D Rockefeller in a New York Street to ask him a question. Now, Mr Rockefeller - the founding grandfather of the family dynasty - was rich beyond belief. He owned railroads, forests, mines, factories, coalmines and a lot else. To be blunt, he was floating in the crinkly stuff.

    The man walked up to Mr Rockefeller and said "Mr Rockefeller, if you are so rich, why don't you spread your money around a bit?

    Rockefeller looked at him for a moment and then said, "Would you like your share? I could give it to you."

    The man's eyes nearly popped out of his head. "Why sure, Mr Rockefeller, I could really do with it. I'd be rich as Croesus!"

    So Mr Rockefeller reached into his pocket and took out a dime. "Here you are, Sir" he said, "here's your share". Even in the nineteenth century, when big fat cats were proportionately very fat indeed, the actual wealth they had among many millions of others was in fact very small indeed.

    We are going to hear a lot about taxing the rich over the next months. We should be very cautious about this for a number of reasons. But the most important one is that however much you tax the rich, there simply aren't enough of them to make all that much difference to the wealth of the mass of us. Claims to the contrary are just political posturing.

    The reverse of this is that raising the basic threshold for the less well off is inordinately expensive for the Treasury, simply because there are so many of us.

    The great danger of these two influences is that politicians make promises, and then when they come to put them into practice, there is not much money at the top, and there is great need at the bottom. In the end it is always the middle that pays. It is worth remembering that over 90 percent of all tax revenue is paid by those above the bottom 15 percent and below the top 25 percent of the income distribution. We're the milch cows that pay for the large state spending bill that is causing so many problems across the world.


    Tuesday, December 20, 2011

    Give HMRC a KISSing lesson

    It's time that the real issues about non-payment and underpayment of taxes are dealt with. HMG and hence HMRC need a KISSing lesson.

    KISS - "keep it simple stupid" is a mantra of all pragmatic corporate managers. Sadly, civil service managers live in a world of mixed and confused objectives and multiple agendas for action.

    If Scotland obtains some measure of fiscal autonomy over the next few years, this is something that could offer Scottish business a competitive advantage. Today's report by Westminster's Public Accounts Committee on disputes with HMRC shows that such action could add to economic success.

    There is nothing wrong with transparent, low rate, equitable and clear taxes. There are public goods that need to be funded. BUT - we don't have such taxes. We have thousands of pages in something called Tullows Guide to corporate taxation that struggle to describe how taxes impinge on business and provide detail on a vastly complex maze of constraints on and routes to tax liabilities. Even tax experts cannot fathom some of the rules - and that's how they make a lot of money on them, and why HMRC struggles to impose clearly defined taxation on companies - ending up doing some near-dodgy negotiating to get their money.

    That opens up a political can of worms that makes all of us suspicious of corporate motives and methods; especially on the left, where an enormous amount of invective is used up castigating tax avoidance in the corporate world.

    They shouldn't waste their breath. Senior corporate managers are the dullest people on Earth. They aren't conspiring to do dastardly deeds to avoid tax, their are doing what they are paid to do; keep as much cash inside their companies as possible at all times. (And a good idea that is too).

    The Scottish Government wants to bring Corporation Tax home. If it does, they would get more than a prize to filch more dosh from corporates, they would get a chance to re-build trust and transparency in corporate taxation.

    Government - and a Scottish government in particular - could do us all a huge favour if it threw Tullows Guide into Leith Water and started again - at very low rates (even zero) of corporate taxation, imposed on a crystal clear definition of earnings - amenable to easy audit across all companies of all sizes. That's what tax should be, a transparent imposition balanced against the reality that enterprise provides us all with jobs and incomes.

    This is where the debate in Scotland should be - gae's a KISS Alec ....


    Sunday, December 11, 2011

    Havering Crafts

    A little noticed report has shown that Edinburgh Council has wasted a vast amount of money and time in making a pathetically negative decision to the detriment of local taxpayers.

    Friday's Euro stramash hid the news that plans by Stagecoach for a cross-Forth hovercraft service from Kirkcaldy to Portobello have been killed off by a planning refusal.

    Stagecoach wanted to build a pedestrian ramp and passenger facilities for the service on the Southern (Portobello) side. Edinburgh took two years to say "No".

    The refusal tells us quite a lot about Scotland today. Fife Council supported the plans, SEtran, the publically funded regional body for transport in South East Scotland supported it, Edinburgh's own officials thought it was a good idea. The service would have needed some public support initially, but Stagecoach believed that through time it would be self-supporting, with more than three-quarters of a million people using it each year.

    So there you have it, three public bodies, and no doubt many more taxpayer funded consultants and agencies, spending a lot of our money over two years to get nowhere, and apparently costing Stagecoach around £300,000 in a trial run as well. All on the basis that the proposed ramp would be a visual intrusion and create traffic.

    For goodness sake, Scotland is a country with hundreds, no thousands, of ramps, docks, harbours, jetties - all of which have a purpose - to make travel across the many borders from land to sea easier and make movements of people and goods easier. If these councillors had been alive in the 19th century would we have had no deeper sea fishing, no international cargoes into Dundee or Kirkcaldy, no "doon the watter" outings on the Clyde, no cattle or car jetties in the Western Isles?

    A more troubling thought comes to mind. It was fine for Alex Salmond to crow about how much of our tax money had been "usefully" spent to bring Amazon to Fife, and it's fine for Edinburgh to declare how good the horribly expensive and intrusive trams are really going to be for the City, but when an internationally capable private company wants to make our economy hum using its own money to create jobs and new economic activity at no cost to the taxpayer's purse, the dunderheads on "the Cooncil" block it for the sake of a wee ramp, a waiting room and too many folk going about doing their own business.

    The suspicion has to be that if government is not making the decisions in Scotland, nothing gets done. That's the road to penury. Mr Souter's investment capital is globally mobile and it appears he has quite rightly declared himself "scunnered" and taking his knowledge and enterprise elsewhere.


    Friday, December 09, 2011

    Not knowing what we do not know on emissions control.

    Audit Scotland latest report suggests Scotland's policies to reduce carbon emissions are going to cost Scots taxpayers up to £11 billion by 2020. This figure has increased from an £8 billion projection only two years ago.

    If you read the report there are some key points that must raise grave doubts among taxpayers that Holyrood is serving Scotland's best interests.

    It has already been admitted that emission controls raise prices of energy to such an extent that they will curtail economic growth. In July 2011, the Committee on Climate Change advised the Scottish Government that meeting emissions targets would cost Scotland about one per cent of GDP each year."

    Audit Scotland themselves say that three-quarters of the required emissions reductions may be achieved for half the total cost. They also point out that new and cheaper methods of emissions control are being found all the time.

    Our view is that we should not be rushing to achieve targets that are more ambitious than those of the UK as a whole and a complete review of the targets should be undertaken. Economic growth that is desperately needed for new jobs is being put at risk by the costs. Vast distributions of income are taking place between consumers and producers of energy with doubtful results. Transport emissions are still rising.

    Audit Scotland's report makes it clear that the data collected on emissions is often two years late and of uncertain accuracy. With 35 separate emissions control policies to be evaluated, there is very little known about how effective the measures being taken by the Scottish Government are - except that they are costing taxpayers dearly.

    Put more succinctly, we don't know what we don't know on emissions control. To base key policies that affect the wealth of every Scottish household on such poor knowledge is bad government at best and totalitarian at worst. Taxpayer Scotland has called for a five year moratorium on all emissions control measures so that more sensible policies can be considered.

    Some will call us "climate change deniers". In fact, we think that some proper thinking on the issues and what can be done more effectively on a slower, more deliberate timetable would be better for Scotland. Wealthier nations can make choices, impoverishing us through bad plans can only degrade our potential to act sensibly.


    Wednesday, December 07, 2011

    The user pays - a bed in Edinburgh

    A bed in Edinburgh looks like being more expensive following the proposed imposition of a "bed tax" to help pay for the annual Festival.

    The Festival has become a real burden on a Council that has a lot of other things to pay for - notably over-spending on trams.

    As such, a charge like this, if properly defined and limited, may just be a better way of paying for the Festival than using the proceeds of Council Tax; although if it has to be by a tax it might be better to load the charge across a wider tax base than just the hotels.

    A few aspects still need to be clarified first by Edinburgh Council:

  • They need to come clean on precisely what the tax revenue will be used for and that should be festival related expenses and no more
  • .
  • They need to state the costs and benefits of the tax as they see them.

  • They need to declare that the tax replaces the revenue they would have spent from general Council funds on subsidising the festival. This must not add to the tax burden of Edinburgh businesses.

  • They need to re-audit (and provide total transparency of that re-audit) after each festival so that we can all examine the costs and benefits each year.
  • The new tax is only justifiable if it will be revenue neutral and distributively more efficient. That is, those who benefit from the festival should carry the costs of the festival, rather than poor people paying for rich people to go to subsidised cultural events.

    We hate the idea of any new tax, payment for the festival should ideally be made from ticket sales alone on the basis of "user pays". However, cultural events do have externalities in the form of extra overheads to the City, and gains to non-participants who benefit from the presence of more visitors. As in all tax policy, clarity and specificity of burdens and benefits are vital and need to be the Council's goal.


    Sunday, November 27, 2011

    Who pays the Green Piper?

    The 17th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP17) opens in Durban, South Africa, tomorrow. Stewart Stevenson, Scotland’s Climate Change Minister, will we there to see if any progress can be made beyond what, so far, has usually only been agreement to disagree.

    Mr Stevenson will take with him the hopes of a plethora of organisations from across Scotland, all devoted to their own special interest in preserving .... well what exactly?

    "Green" devotees abound in Scotland, with objectives that range from the protection of crags and corries, to the flow country, to bats, bumblebees and butterflies. We have inherited one of the most beautiful territories on the globe and it is not suprising that so many want to keep it pristine and beautiful

    But taxpayers always need to be wary of interest groups. "Green" campaigining is one of those areas where the provenance of the money that funds these pleadings needs careful examination. Too often, the money being used is taxpayers', and while many of us may agree that a lesser-spotted stoat is a worthy cause, we may have better uses for our money that in the longer term would be better for that stoat than today's shout by a wee man in a well-worn duffle coat.

    Recent research by this office has shown that around eight out of ten entities that could be clearly classed as "green lobbyists" make no mention of their source of funding on their web sites, nor often elsewhere when they publish. That's neither fair nor honest. In some ways worse are entities such as the "National Access Forum" and the "Paths for All Partnership" which, despite being imbued by a worthy heartfelt sense of purpose, state baldly that they have been set up by Scottish Heritage to advise the Scottish government.

    We have some serious doubts about this branding of apparently independent organisations when they are too often in reality re-branded state entities. Taxpayers deserve to be informed with total transparency who it is that is telling them things, so that they can judge the democratic polity on the basis of who is paying the Green Piper.

    Without transparency, the temptation for the state to preach for its own purposes, usually at extra expense to the taxpayer, is a real danger to our wallets.


    Saturday, November 19, 2011

    Your tax payments; How much? How often?

    In any debate over the level of taxation there is always a difficulty. Those who benefit from tax redistribution see the benefit of their lump-sum subsidy, while those who pay the taxes into the general government fund do not really notice an additional small dribble of payments into the state treasury.

    This core imbalance of beneficiaries against payers is what allows politicians to spend more than they should. Voter interest is maximised by offering payments out, not by curtailing payments in.

    However, once it is explained exactly how much taxpayers are in fact paying for state services, opinion changes. In Scotland, few people recognise that we generally pay more than 50 percent in tax on everything we buy. The state has successfully hidden its multiple taxation by denying us transparency about their "takings".

    The biggest con-trick is the triple whammy of Employers National Insurance, Employees National Insurance and Income Tax. Added together these taxes, for all of us in work at least, add up to around 45 percent. (We have to say around, because direct taxation is imbued with free allowances, claw-backs on benefits-in-kind and an array of other issues). Add in VAT and we have a tax take above 50 percent.

    It's vital to the work of TaxpayerScotland that we get the message across that what you see in apparent tax treatment is not what you are getting. To that effect, we have hooked up our site to a new tool to enhance transparency - the Tax Buster application.

    Go and have a look by clicking on the shopping bag icon on the right. We think you will be surprised at what you find out. Then tell a friend or colleague.

    Data promise: Registration is used to collect some data about you so that the calculations can be tailored to your circumstances. Your name and e-mail will not be used for any further communications or provided to third parties


    Wednesday, November 16, 2011

    Strong armed Amazons

    It's great news that South Fife will see another 1500 jobs being generated from the opening of the new Amazon warehouse. It would be curmudgeonly to react in any other way. However, what are the realities of such inward investment?

    One reality is that Scotland has at least 100,000 young people unemployed, probably more, and there is something like a quarter of a million underemployed and non-working adults. Latest figures suggest 8000 more people have become unemployed through 2011.

    The £4.3 million bung provided by Scottish taxpayers to entice Amazon to settle here is labelled largely for "staff training". The other £6.3 million appears to be in the form of some sort of capital grant to help build their premises. That's around £6500 per job created - if the full 1600 get created in the end.

    So the reality is that all that effort by dozens of civil servants, on very large salaries, has produced very few subsidised jobs at considerable cost. Worse, the full cost is hidden. The £10.6 million spent on South Fife has been taken from a whole array of businesses and families in the form of tax - redistributed through highly paid civil servants - to a highly successful corporation.

    What's the net effect? Probably zero at best, and if any of the smaller businesses or individuals from which the money came were potential entreprenurial success stories - growing faster with recruitment rates per pound invested higher than Amazon's, then the net effect of spending our tax pounds would in fact be negative - shrinking Scotland's future economy.

    Politicians enjoy the praise that comes from visible large "successes" such as that lauded in Fife. That's why we have pictures of the First Minister howking cardboard boxes about with Amazon logos on them. It's very difficult for them to see, or gain kudos from, thousands of small hard-working Scots taking on a few folk here, an assistant there and, most importantly, a school leaver or other young novice worker who has not yet entered work.

    Cutting tax rates, especially National Insurance, would in our view be a much better way to spend £10.6 million. It requires optimism, not always a favoured character trait of the socialist mind sadly, but there is a reward from that, a gradually increasing rate of employment - especially among the young.


    Sunday, November 13, 2011

    Scotland in Europe

    What do the recent ructions in the Eurozone tell us about our position as Scots in Europe - today and for the future? Specifically, what are the realities of our prospects as taxpayers with existing and future European liabilities?

    The first point for us all to recognise is that all European governments have over-spent. Combined with the understanding that governments have no money of their own, we need to recognise that this means their debts are in fact our liabilities as payer of last resort through our future taxes. We may not be in the Euro, but we do pay.

    Were these future tax obligations both small and limited, this might not present too much of a burden; however, they are not small and crucially, they are not limited, indeed in cases like Greece and Italy, for as long as they are in the Eurozone it looks like repeated injections of cash are going to be necessary to keep them solvent. Again, we may not be in the Euro, but we will pay.

    Now imagine a go-ahead new upstart - Scotland - had the power to decide whether to re-join on new terms, remain on present UK terms or leave the Euro club. What would be required of Scots taxpayers for economic success if they were offered membership by our newly autonomous politicians?

    We could start by deciding to work hard, become immensely productive and compete head to head from our peripheral geographic position with the best that Germany could offer, paying our way in value added and taxes paid. To put it the other way around, we should avoid being like the low-productivity non-taxpaying Greeks, a route that leads to national bankruptcy inside the club.

    We could then take a close look at the present propensity of Scottish politicians to see the state as the economy, to spend on "creating jobs" that do not then appear, to accelerate capital spending and lots of other "supportive" activities. These measure are not working, we need to take a new hard line on limiting spending to allow Scotland to grow.

    We could look at our unemployment levels, particularly our emerging story of the unemployable kept out of work by numerous benefits, and agree to re-structure the incentives of the welfare state to generate work-eager people.

    We could re-visit our complex, contradictory and non-transparent tax system that hides the fact that most Scots are paying 50 percent of all their income to the state - but don't know it. Meanwhile the better off have found ways of avoiding over-taxation. Unfortunately, in the process they end up avoiding productive activity in favour of preserving their capital.

    Add all this up and you have a weird contradiction. As pointed out above, we are in deep debt to our own liabilities as taxpayers of last resort in today's and tomorrow's Europe. But these debts have arisen as a result of the very policies that are failing Scotland. Can it really be right that going into Europe to obtain support through capital subsidies and income transfers would be successful? That choice would only perpetuate our present failed statist approach to economic development.

    Europe has always been a "rip off". Put bluntly, It's a centralising, bureaucratic, statist, non-democratic socialistic idea that is costing all European taxpayers a lot of money. It is now failing. If it turned itself around to be a democratically de-centralising, constitutionally self-limiting, liberal-minded free-trading area it might adopt constraints on government that would offer taxpayers in Scotland a better future. Until then, we should be more than cautious.


    Monday, November 07, 2011

    Who pays for clean energy?

    Energy costs are another good example of what is seen and what is not seen. Scottish taxpayers are being promised a low carbon future, but at what cost?

    The answer to that is actually extraordinarily difficult to work out. Energy watchdog Ofgem calculates that environmental costs account for 4 percent of gas bills and 10 percent of electricity bills. With the average household spending £424 on electricity per year the levy amounts to £42 for every household annually in the UK. It is likely that that figure is higher in Scotland.

    The problem is that the definition of "environmental costs" is becoming more complicated by the day. There are clean energy requirements that add more costs to generation, there are obligations about non-fossil fuel power generation, there are subsidies for both - and additional subsidies for householders (usually the wealthier middle class) to put in solar panels.

    Some things are certain. A barrel of crude oil or gas taken from the North Sea is taxed, the power providers are both taxed and subsidised depending on the method of generation, householders' utility bills are both taxed and subsidised if they are elderly or in need. This is a great playground for politicians and civil servants to follow incentives that serve them in their need to be seen to be doing something about climate change.

    What is important for taxpayers is that we demand transparency in this merry-go-round of tax and subsidy. In the end, it is only taxpayers that pay these costs - everyone else is passing them on to everyone else. TaxpayerScotland will be commenting further on this morass of complexity as a result of our latest research programme. We need an independent view on what the state is telling us.


    Wednesday, October 19, 2011

    One track minds in the political class.

    Politicians like to ask us for our "trust", claiming that they are "working very hard" on our behalf and are "determined to do the right thing".

    Two bits of news today tell us that however much they declaim their interest in offering practical support to ordinary tax-paying households, their real interests are self-serving and statist.

    The publication of an inflation rate hitting around 5.6 percent technically triggered formulae for calculating rises in pensions and benefits from next April. It also triggers a similar formula for an increase in property taxes (rates) for business premises in the same month.

    It is now reported that the Treasury in Westminster is trying to wriggle off the hook of its promised beneficence in welfare support. However, has there been a squeak of concern for a 5 percent plus uplift in business taxation? Pah!

    The latter imposition is in the gift of the Scottish parliament. There is an expedient informal agreement that Scots business rates will rise at the same rate as those in England.

    There are two lessons here worth repeating:

    1) Business taxation is in large measure not paid by business. It's paid by consumers in higher prices, workers through lower wages and less jobs, and savers through lower dividends. What is "swallowed" by business exists, but is minimal.

    2) When inflation is in on the rise, the impact on some businesses is also minimised because there is scope to put up prices. This is one way that printing money ("quantitative easing" to the body politic) leaks out into the wider economy of ordinary taxpayers. The trouble is, due to competition, the ability to raise prices varies [- with less competitive sectors able to raise prices more. This is the real scourge of inflation, it distorts markets. Medicine, utilities, and other high value premium goods and services cream off our income streams; more expensive "stuff" gets more expensive.

    That really hurts the poor, those on fixed incomes and those without any ability to increase their incomes.

    If the Scottish parliament had any sense, they would look at the 5.6 percent hike in prices and reduce taxation to compensate for the effects of that. That would put the vicious cycle above into reverse. Businesses that held prices would grow faster, competitive market players would mop up the excess liquidity from printed money, driving the creation of new trading patterns, new jobs and new capital formation. It's the last of these that, eventually, soaks up excess money and squeezes inflation out of the system.

    Until this happens, inflation is a friend of the politician. It also allows them to escape from debts of their making by stealing tomorrow's earnings today.


    Sunday, September 25, 2011

    Swinney and his Big Footprint

    It didn't take long for commentators to latch on to the fact that Mr Swinney's spending review included two new tax burdens.

    The intent to impose tax on empty properties and a Health Tax levy on larger retail businesses use tax-raising powers that are exercised through Scotland's local authorities - while triggered through central planners in the Executive.

    Some in the media described these measures as "being in the small print". In fact Mr Swinney clearly declared his intentions - which will have to be agreed to by Holyrood - in his Spending Review address. This is more a case of a big print from his interfering busyboots being stamped on top of business success.

    What he did not state was his reasoning for the new impositions. And why? Because it simply does not make sense to ask businesses to pay more for buildings they are not using, nor does it make sense to punish retailers struggling with higher VAT and shoppers reluctant to spend money. His new tax is also not equitable, why should larger businesses pay more if the purpose of the tax is to improve public health? Are booze and ciggies from the wee local off-licence less toxic?

    By imposing more tax on larger more successful businesses Mr Swinney sends a message that enterprise and effort will be punished in Scotland. As the Centre for Public Policy in the Regions points out in a commentary on the review, these measures are quite likely to increase unemployment in the retail industry and reduce growth.

    Unfortunately, the pressures on Mr Swinney to take more of our money when faced with public sector interests promising impending Armageddon because of "the cuts" are difficult for him to ignore. Mr Swinney is not on the side of individual taxpayers.

    Once more, Holyrood has shown us that it is not in control of events but controlled by them. And the problem is that business people notice this. We are caught in a time where confidence is low and risks appear high. Mr Swinney can build as many bridges, roads, railways and other capital works projects as he likes, but none of these will light the spark of determined energy that thousands upon thousands of private business of all sizes can generate. Energy that really would bring strong growth, more jobs, fewer Scots with chaotic lifestyles, cultural advance and the long term economic success that all our politicians desperately want to create.

    The revenue account "cuts" that the public sector faces are around one pound in ten. Better that Mr Swinney had increased those to two pounds in ten and handed individuals and businesses the benefits through tax cuts. We'd do better things with that money than the centrally-planned state.


    Wednesday, September 21, 2011

    A review – and not much more

    One of the more fascinating aspects of our present crisis is to observe how those with a determined commitment to do good harness their self-belief to totally inadequate ideas.

    The body politic is re-infused with Keynesian-ism. The "-ism" is important because Keynes himself would have laughed out loud at the fallacies being practised. Today’s ideas about “accelerating economic recovery” are constructs of a consensus that is a relic of 1930’s collectivism, not Keynes himself.

    Keynes was a mathematician, not an economist. His beady eye would have looked at Mr Swinney’s calculations with some disdain. The problem, he would say, lies in the arithmetic.

    Scotland has a public sector turning over a bit more than £60billion in an economy of £111billion. Mr Swinney proposes to switch 0.75bn of his budgets to capital spending “as a key driver to create new jobs and sustain long-term growth”.

    Let’s look ahead at that long-term growth. If Mr Swinney’s “ambitious programme of reform” led Scotland’s economy to grow at three percent per year for twenty five years we would double our national income to £220bn annually. If the proportion of tax and spending were retained through that growth, the 55 percent the state takes now would grow from £61billion to £110billion. If in that period Holyrood took no greater share of the growth we might in nine years no longer have a deficit in the public finances. We could even be offered tax cuts after that and maintain a balanced budget!

    Is there any likelihood of Mr Swinney’s 0.75bn – 1.75 percent of all that is spent by government in Scotland – creating 3 percent growth and so put the public finances back on an even keel.

    The answer requires a belief that for every pound transferred to public investment works, five will be generated in added value. There are some problems here; every pound transferred is taken from “resource spending” elsewhere – we would have to know a comparative return to capital of the resource use and capital use; every pound spent is more likely to end up in lumps of steel concrete and tarmac, machine tools and other capital items, much of which are sourced outside Scotland.

    While Keynes himself said that in times of difficulty digging holes in the ground and filling them in again was better than nothing, he used this idea to drive home the importance of financial liquidity in a time of severe monetary contraction and deflation such as the Great Depression. We don’t have a liquidity problem or a monetary contraction, we have a confidence problem with incipient inflation.

    Growth emerges from a capital cycle through something called “capital deepening”. That’s a general increase in the use of physical and knowledge capital that spreads value-adding capabilities through an economy. However much Mr Swinney tries to create this effect by shuffling money around he is doomed to failure. Money is not capital. Only when governments recognise that allowing capital to flourish across all of society is the key to success will we see the vigorous economic growth that we need.

    And how do we let capital flourish? By getting government out of the way, by returning the fruits of our efforts to us, rewarding effort through which we obtain learnt intellectual capital and saved monetary capital. And we do that …. by lowering taxes.


    Tuesday, August 30, 2011

    Don't take the free lunch - the bill comes later

    "Take the money" is a long held axiom among those who don't produce their own by adding value through the use of their own capital.

    The sentiment is usually used when the receiver of largesse knows in their heart that what is being asked for the hand-out is actually not quite kosher. Propaganda campaigns that writers don't really believe in, government training programmes that are recognised as pretty much useless, ill-considered "green" initiatives that are anything but environmentally sound - we all know them when we see them. Too often we succumb and taint our principles by accepting the bribe.

    Where does the Barnett formula's largesse fit into this? The Treasury's annual Public Expenditure Statistical Analyses show total public spending per head in Scotland last year was £10,212, compared to £8,588 in England - a funding gap increase of 15 percent

    The trouble is that public spending largesse has a down side. It incentivises the nimble-minded to go for the cash option, to find a way of hoovering up government spending for personal gain. No customers, no risks, no need to worry about shareholders wanting a return on capital. This destroys private initiative.

    That's not good for Scotland. It leaves us at the mercy of yesterday's budgeting and tomorrow's cutbacks while living beyond our real means. It's another credit card - in the form of an English loan. Far better that Scotland should find a realistic public budget that reflects out capabilities in producing wealth from our own capital. Even better if that public budget were hauled back from its present astonishing deficit to release us to generate more real wealth tomorrow. That way, we can compete globally, stand proud, ignore the English, and conquer the world.


    Monday, August 15, 2011

    Smokescreen or Smorgasbord?

    Who should control Corporation Tax in Scotland? This week, the SNP will announce its views.

    Gratifyingly, it appears that the debate offered will be based on the idea that with localised control the rate of this tax might actually be lowered.

    At the same time, the Institute for Chartered Accountants of Scotland (ICAS) has warned that cutting corporation tax would have severe effects on the public budget. That might appear to be stating the obvious, but it does raise an interesting point; when a tax cut is offered, how do you calculate the ongoing effects?

    The answer has to be no-one really has a clue what the effect would be. The English could retaliate, other European trading partner countries also. A host of small businesses could say that their cash liquidity is so improved that they will invest in new plant and jobs, or their directors could all pocket the money and buy fast cars.

    Add to that the thousands of pages of regulations relating to the accounting of profits and the imputation of tax on those profits, plus the fact that exactly where a corporate profit is actually made is a moot point and you can see that a truthful economist would say that their head was spinning and they cannot vouch for the success of the proposal - or even what it actually might mean.

    Except .....

    ICAS is wrong to focus on the static balance between tax revenues and public costs. And the politicians are wrong to concentrate on the "spit in the eye" of a competitive rate that will pull more of a global economic cake into Scotland.

    Reduced taxes are always a good thing, because they put control over productive knowledge in the hands of those who have it. A lot of "leftish" organisations have made great sway of the fact that corporations avoid paying taxes. Of course they do, it's their job to retain as much of the proceeds of harnessing what they knew yesterday to create more knowledge and wealth tomorrow - wealth that will benefit us all.

    Corporations are remarkably long-sighted - much longer sighted than any politician or special interest group seeking tax funding. If we want Scotland to be long-sighted, we should support any proposal that cuts Corporation (or any other) tax. Lower taxes always put the money where productivity lies. That does not imply a shift of cash from ordinary people to corporations, rather it goes the other way. New wealth, based on knowledge, generates new capital that means new jobs and new income revenues. Corporation taxes are not actually paid by corporations; they are paid by consumers in higher prices, workers in lower wages and investors in lower dividends.

    Cut that tax and consumers, workers and savers benefit. The politicians and accountants can generate a lot of wind about the balance of cash within the national economic cake, but we know that the amount of human capital is what really matters for our futures - that's what bakes a bigger cake.


    Saturday, August 06, 2011

    Standard or Poor? Scotland's Junk rating.

    The USA has had its credit rating reduced from AAA status. With a two trillion annual deficit, they had it coming, even if they do have a fifteen trillion dollar economy.

    That set us pondering, where do we think Scotland's rating would be? Now, a range of factors is used to decide on a rating, so we cannot be over-exact, but we can point to a probable rating.

    Here are the ratings of the EU nations with Scotland put in as a separate entity.

    Diagram based on figures provided by the Scottish government in its GERS report for our Net Fiscal Balance 2009/2010. The EU figures come from Eurostat.

    As you can see, Scotland's position is dire. Our overdraft lies between bailed-out Ireland, and bailed out Greece. Both have the bonds backing their deficits rated as Junk and their ratings at Ba1 and Ca respectively. That may sound backwards as Irelands deficit is vast, but clearly Ireland is thought to be more likely to be able to pay back some of its borrowings than Greece.

    This reversal in actual ratings is telling. Greece low rating is not just about today's deficit, but about its ability to cope with financial stress should any new downturn take place. We all know the stories of Greeks sloping off work early, not paying their taxes, retiring at 50 and so on. These destroy its rating as a good bet for lending money.

    What about Scotland's ability to cope with financial stress? Think about this:

  • We have such a high proportion of public spending already that there is little scope for more stimulus to slow a downturn - there is simply no more money around to be spent.
  • Our local authorities already have £10 billion of debts. They are already spending their savings, trying to deny the end of years of profligacy.
  • We have high unemployment levels with less than half the population paying tax. There is no prospect of any substantial revenue to be gained by raising tax rates.
  • We have so many people dependant on state welfare that any further downturn would require proportionally more money to support them than in most other countries.
  • We have to service our share of huge debts owed by the UK as a whole. We support a proportion of around £9.5 billion of a UK total of around £940 billion.
  • Add that all up and put it on the desk of a Standard and Poors rating agent and I think we would get a rating similar to Greece with any Scottish bond issues considered as Junk.

    Many people comment that this new crisis is a "market failure" - on Question Time today someone even asked if the panel thought that we were seeing the collapse of capitalism.

    Actually, what we are seeing is the opposite. This collapse in confidence is a result of government failure and is, if anything, the collapse of socialism. For decades, year after year, modern social democratic governments have been taxing us up to the hilt and then spending a little bit more. Alongside those visible over-spends, they have hidden additional spending, and made promises on future benefits from Ponzi schemes like state pensions. The outcome has been creeping national debts reaching crippling levels. Markets have now added up the tally, and they don't like the burdens they see on the lender of last resort - taxpayers - one little bit. When tomorrow's consumers have their incomes pre-allocated to yesterday's overspending through high taxes and inflation, there is little chance of economic growth and progress.

    The hidden reality here is nothing to do with independence, although it points to enormous difficulties should it be attempted. Scotland's taxpayers cannot support their present level of government in Scotland, the nation is essentially reliant on the rest of the UK for support, especially if any further economic shocks emerge. What is galling is that Scotland's politicians at both central and local level appear to have no idea that their over-spending imposes such risks of default. We need to balance our budgets, pay down debt and free the productive to build a better Scotland. Why should taxpayers accept giving fifty percent of their incomes away, only to be told that their credit worthiness has the value of Junk?


    Sunday, July 17, 2011

    Shock Horror! Economists agree ....

    There is a cliche that you can put ten economists into a room and get ten different answers on a single question. But is that true?

    The Institute of Economic Affairs (IEA) was founded in the mid-1950's and caters for economists of a liberal persuasion. That is, those who feel that there is an intrinsic value in private property, open markets and flexible prices as underlying bulwarks that support liberty and promote human progress.

    What is especially interesting about the IEA is that it's academics are not mere number crunchers. Rather, they concentrate on the effect of incentives and interest-group behaviour. It's a perspective that Scotland's great economists and philosophers were deeply imbued with in the period of the Enlightenment.

    When the IEA combines this worldview with some top level numerate academics, sparks fly. This is because the institution is beholden to no-one, taking no public money, serving no special interest, but instead bringing together independent minds capable of "thinking the unthinkable".

    They have now done it again with their latest publication, "Sharper Axes, Lower Taxes". In it they evaluate the (feeble) efforts of our present government to get rid of the truly gigantic burden of debt and tax we live under.

    We have no hesitation in recommending this to everyone in Scotland concerned with the excesses of Westminster and Holyrood. For us, the vital thing is that it reinforced our core view that lower taxes would increase Scotland's economic growth rates and allow this fiercely proud country to change - letting Scots people improve their lives outside of state subsidy and dependancy. Years of the latter has done nothing for ordinary Scots. It is time to think outside the box like the IEA and try another way.

    You can download it free or, even better, pay for it; you'll be supporting some top-end people to think about how best to get us out of the appalling economic mess we are in!


    Monday, July 11, 2011

    Localism can mean lower taxes

    Scots taxpayers are not well served by Holyrood if every time a proposal to localise services is opposed by blinkered minds in the Canongate Bunker.

    Recently, we've had opposition to more localised planning, opposition to the Crown Estates giving power to local communities over their coastal waters, and opposition to local police forces. At other times, there has been repeated managerialist opposition to letting local councils go their own disparate ways in the provision of public services and of course we always have the old canard about "postocde lotteries" in health.

    What this is really about is power, Holyrood's inmates hate to see power taken away from them. Their vision is to find ways of gaining more control - so that they can "take Scotland forward" as the SNP says. Statism rules - a tired old conservative creed - and it is costing taxpayers a fortune.

    For taxpayers, localism allows local knowledge to operate in service provision - and most of us know in our guts that that is the way things should be. And in Scotland there is a real opportunity here. We are a small population country with a big land territory. There's room for experiment, for real imaginative ideas, for people in Tobermory to organise their comforts differently from those in Easterhouse. Instead, taxpayers suffer when government is allowed to practise centralist discretion without local knowledge.

    Why do the politicians and the people hold such contrary views on this? Politicians generally mean well and want to do good. But we're back to managerialism here; in "doing good" politicians cannot risk seeming to be muddled and offering disparate outcomes. Their bureaucratic servants are even more in need of tidiness. The result is a concentration on grand central strategies on economic development, on caring for the sick, on alternative energy futures and so on.

    What politicians forget is that centralised strategies generate multiple objectives in the political marketplace, public choices become imbued with "multiple agendas" - workarounds to you and me, born of centralisation itself. That's why you end up with large meetings of public servants with every known skill under the sun attending and a few diversity and sustainability officers thrown in for good measure - all of them paid from the public purse. In those meetings, no-one can move on, too many people know too much about too little and no-one takes a decision for fear of offence. Our money is inevitably wasted.

    At a local level, localised knowledge can be harnessed, and localised effects are less difficult to accept. Yes, you can get bullies on the parish council, and you can even get self-seeking manipulators, but they only win through if your local constitution for decision making is badly drawn up. Built in safeguards protecting the right to private property go a long way to preserving the liberties of those under threat from the powerful laird.

    Holyrood needs to re-examine its attitude to localism. It offers a great chance to build a Scotland that is different; that is forward-looking, that adopts change and then adapts to it. Taxpayers deserve the chance to keep their money locally, we know better how to use it than those who can tax us for any daft scheme built on wrong-headed central planning.


    Friday, June 24, 2011

    Who’s side is Swinney on?

    John Swinney has condemned plans to deal with the £9 billion public pension deficit. He argues that asking public servants to pay more puts pressure on hard-pressed households.

    It’s worth dissecting that claim as it reveals a lot about Holyrood, its unaccountability, and its attitude to the Scots people.

    1)The balance of interests.

    There are almost exactly half a million people who pay into public sector pensions in Scotland. Just over another half a million are deferred members or receive payments from the six main schemes. That’s what social theorists call a “constituency of interest” of about two-fifths of all those who work in Scotland.

    Mr Swinney knows who he has to keep happy when he has to choose between an organised group interest negotiating on behalf of a million public servants and a dispersed interest of individuals who work from Wick to Wigton as catererers, carpenters and clerks. Holyrood has to kowtow to the public servants, taxpayers are just financial fodder.

    2)The numbers don’t add up.

    Now add to that the fact that Mr Swinney appears to be blind to the numbers when he talks of the effect of asking public servants to pay more. Look at the dark blue bits on the histogram below in proportion to the lighter areas.

    The darker areas as labelled as “Employers’ contributions”. However, taxpayers are the actual financiers here, this is our contribution to public servants’ pensions. We pay in a lot more than our “servants” do. You can find the figures here (page 4)..

    Now, the frightening bit. There is a £15 billion pound deficit in these schemes. And the deficit is due to get worse. The light blue line below is what is going to be paid out, the dark blue line is payments in from public servants and (mostly) us taxpayers. You can find the figures here (page 24)..

    3) Who gains, who loses.

    Let’s go back to Mr Swinney’s “hard-pressed” households of the public servants. While it is obvious that making them pay more will not be pleasant for their household budgets, he is also arguing that making them pay more into their pensions will be bad for the Scottish economy. As he puts it:

    “At a time when consumer confidence is low and we need to kick-start the economy, we believe that it is wrong to require employees to increase their pension contributions”

    Adding just over 3 percent to higher paid staff pension contributions may have some effect on discretionary spending, but only because there are so many public servants. Mr Swinney could remove any effect by reducing three in every hundred jobs. Given that higher paid staff are likely to be older this is hardly a large imposition.

    Far, far more important is the other side of the equation; the confidence, expectations and finances of all taxpayers and the businesses that support them. This is the only place where Mr Swinney’s “kick start” is going to come from. And what he does not understand is that confidence and expectation is far more important than finances.

    Businesses and individuals do not look at their finances today; they look ahead, evaluate risks, sum up their prospects, analyse the possible against the probable, and take decisions accordingly. What Mr Swinney has not grasped is that we can see the rotten state of his overall finances. We can see that “there is no money left”, that there will be even less in the future, that he is on the road to ruin if he does not stop overspending and reducing Scotland’s £15 billion public deficit. ,

    Mr Swinney needs to ask himself, why should new businesses, existing businesses and more consumers ever invest and spend if all that is going to happen is that government will take fifty percent of the wealth we generate and be forever and increasingly in debt?

    Any government “stimulus” isn’t a stimulus, it’s just a transfer of money – usually from the more productive to the less productive. The only way to improve our finances is to put more capital on the ground that will produce long-term added-value revenues. That needs government to shrink – and fast, whatever the trade unions say.


    Sunday, June 19, 2011

    A glimmer of hope please Dave

    David Cameron says it would be madness to take up Ed Balls' idea of a temporary VAT cut to help boost the economy.

    There's no doubt that with the gap between spending and revenue so large, and interest payments to fund the deficit so burdensome, our need is for a massive claw-back from Big Government.

    But in the end that clawback is not going to be achieved by government. It's going to be achieved by ordinary working people, small businesses and corporates alike. Innovation that allows more productive working, starting new revenue earning businesses, cutting costs out of existing ones - these are the measures that will close down the deficit - by increasing tax revenues; boosted massively by inflation.

    It is important to remember that there are actually no substantial cuts due in real government spending, only a curtailment in its growth. We doubt whether in fact we will see any actual reduction in gross expenditure in real terms. With inflation running at 5 percent the political consequences of holding spending down even to zero growth are severe. It will take a lot of backbone not to cave in and use some of the proceeds of inflation as a sop to the public sector unions over the next three years.

    That leaves the private tax earning sector as our only hope of recovery. This is where David Cameron's robust rejection of Ed Balls' proposal for a cut in VAT in purely technical terms was ill-judged. What private business needs is hope; entrepreneurs are naturally optimistic, and they take a long term view. The Prime Minister needs to declare a vision of the future that includes much lower taxation. He does not need to give a time scale, as in so much of politics his role is to offer leadership and committment - but workers and business need to believe that better times are ahead for the taking. A billion small improving actions by millions of individuals that set up a future of growth would result from stronger economic self-belief.

    The VAT increase to 20 percent was a misjudgement from the start. It increased inflationary expectations, and it added a burden to household budgets in straitened times. There is also evidence that it is closing many smaller business down; holding back the 20 percent of additional cash generated from the added value of sales in a cash-starved business for a full 12 weeks to pay it to the taxman is extremely difficult.

    Cameron should have courteously acknowledged Mr Balls' conversion to lower taxation and declared that his full intention is to follow his new found zeal for lower tax at the earliest opportunity - to release hard-working people and businesses to create the future that Big Government singularly failed to achieve.

    My goodness! It would have been an act of agreeable consensus - two politicians aligned in letting the people free to build their own futures!


    Wednesday, June 08, 2011

    The Police and Us

    Is it likely that a single police force in Scotland would be more efficient? We doubt it, and now a report by the ReformScotland group backs this view up.

    It is very difficult to combat central government when it decides that the way to resolve an issue is to "streamline" it, or "rationalise the control of operations". The management psychobabble that surrounds bureaucratic planning uses language that always sounds strategically wise and operationally sensible. Governments have all the guns and all the time in the world (plus our taxes) when it comes to a battle of ideas.

    But look at the actual nature of public service management and something else quite different emerges in the process by which decision making is done, and those decisions are then put into practice.

    The key word is "bureaucratic". Governments organise activities to try to make them become like a well-oiled machine. To do this, they employ an army of administrators to deal with daily issues; most of them at desks, all of them using our tax money, but not actually on the front-line.

    Anyone who has run a business knows that when you mix human endeavour with the real world, pre-laid out administrative processes always go out of the window. This is the equivalent of the army maxim that the only thing you know about plans for battle is that they will need to be changed when you meet the enemy

    In the policing world, operations are peculiarly linked to street-level activity, where police interact with the public. "Stuff happens" is an apt description of the policeman's daily grind. In such a world, localised administrative flexibility is by far the best approach to achieving results that satisfy the localised need.

    And there lies the enormous error in thinking that policing might be made more cost effective and efficient by centralising it.

    All that centralising will do is centralise the administration of policing. It will distance the machine from the shoe-leather on the street. In the middle there will be a multi-tier system of well-meaning but inordinately ineffective police administrators, all dedicated to trying to work out how best to deal with localised issues and eating up our taxes doing not very much.

    The result will be increased inefficiency, ponderous operational procedures and, in all likelihood, deep dissatisfation among the public relying on local police to do a good job of work. Our taxes will have created not very useful jobs in the police and destroyed more jobs in our communities, leading to yet more crime ... so we would need more police ... you get the picture.

    Read ReformScotland's report here. It suggests keeping policing accountable at Local Authority level. We'd like to see it go even more localised than that if at all possible. If we can get a good linkage between taxpayers and the police paid out of those taxes, we would see proper visible transparency and accountability.


    Sunday, March 20, 2011

    Creating youth unemployment by taxation

    Having spent the day enjoying the hospitality of one of Scotland's great public institutions, (for good reasons I am not naming it) I am stimulated to note again how much unemployment can be created by taxation.

    This attraction is loved by individuals and families alike. It's large enough to have its own catering and refreshment facilities and - it being a bright (but cold) day with a hint of spring - they were mobbed.

    Many of us wanted a quick bite to eat - and the most obvious place was a refectory style eatery offering soup, sandwiches, hot meals and other snacks and drinks. That list is relevant because there were precisely two people available to serve a permanent queue of nearly a hundred people. (I counted them.)

    As we waited (almost) patiently, it soon became clear that the entire servery was near breaking point. Most people wanted soup or a hot drink, the two things that required the staff to fiddle about with ladles, bowls, cups and hot water. They were doing the best they could, but were nowhere fast enough to cope.

    Soon, something else became apparent. The sound of frantic water sluicing, cutlery crashing and crockery stacking from a distant kitchen could be heard. Voices clearly in some distress were raised. Not only were the serving counters struggling, the kitchen was unable to keep up with the demand for crockery and cutlery.

    Eventually, after a few minutes, the manager appeared. It was she who had been doing the washing up. With her, a male assistant; somewhat damp and fraught looking. Clearly they had been hard at it to help out. Good for them. She bustled about for a minute or so, watching those serving and urging speed from one other single staff member who appeared - apparently from nowhere. In fact, he was struggling to keep up to fifty tables clear for new customers. She then grabbed a huge pile of plates and a box of cutlery and dashed back into the kitchen.

    The woman behind me in the queue then muttered, "This is daft, it's the perfect weekend job for young people, and they have no-one here to help".

    And you know, that woman was right, but the real question is why was this place so short of staff? First, this attraction is publically funded and free to enter. That means it is bound to be over-subscribed and, without generous resources, its facilities will be short-handed. Second, every person you take on in this country costs their employer at least one and a half times what they are paid because of taxes, regulation and other overheads. They become expensive to take on. These things together mean that the young people who could be learning how to work in places like this where little training is needed are never taken on. They are instead forced into unemployment, while customers wait in queues.

    Next time a politician tells you how wonderful it is of them to offer something for "free" -spending your tax money to subsidise an institution, ask them how many jobs they are destroying by over-taxing one group of people and re-distributing that money to thinly rationed public budgets elsewhere. I really felt for the manager - she was working like a slave -thanks to bad political decisions. A hard worker like her could turn that place around and make it work if her political masters would just get out of the way and stop taxing our kids so much to work.


    Monday, March 14, 2011

    So you want it clear and simple?

    A colleague of ours has just got a non-domestic rates notice from his local council. It tells us all an interesting story about those who tax us.

    It's for a small commercial rental property that he owns. He's not rich, he scraped together just enough to buy it after his mother died and left him a little money to add to his life savings. He sees it as part of his pension fund - with a slightly better return than most private pensions wrecked by stealth taxes. He runs his investment as a business, available for 365 days a year, not using it himself.

    His rates bill provides an initial six month calculation - 183 days - apportioning a total rateable amount. This is then multiplied by a rateable value in the pound.

    Then a "transitional relief limit" is applied to a "transitional relief" to calculate a "transitional chargeable amount". (Keep up at the back there).

    The property is subject to Small Business Rate Relief - which is then calculated for the 183 days.

    Then, for some reason, the entire calculation is done all over again for the second six months of the year. But this time the Small Business Rate Relief is first taken off then added on again and a final amount stated as a Total Charge.

    Even more bizarrely, the direct debit of an equal amount that he has paid monthly over ten months in the normal way in the past has been laid out instead as six months of zero payments and four of a larger amount; except that overleaf in the "how to pay" notes it states that he has to pay over ten months in monthly instalments.

    Now, one of the principles of taxation is that it should be kept simple and that it should be "easy to pay" - in the sense of not having to have a degree in mathematical accounting to work out what you owe.p>

    These rates are neither - the calculation is arcane and obscure, the requested payment method is opaque. This is wrong for obvious reasons, but there is also something more sinister here; the gross amount payable is far higher than the final net amount he has been told to pay.

    What this says is "we, your local council, have a hold over you, but we are being nice for now and not demanding all that we could do". This allows them to claim they are being jolly nice, helping small owner businesses; despite generating enormously convoluted and expensive collection costs.

    Extortionists use this technique to retain control over those they fleece - they give you a black eye while taking your wallet, but kindly remind you that you should think yourself lucky ... because if you don't pay up on demand next time, you will get your legs broken as well.


    Friday, March 11, 2011

    Reversing out of Ponzi schemes taxes us all

    The state’s Ponzi schemes – local authority and national state pensions – have had their time called by the Hutton report. Lord Hutton has been brave; he is suggesting that a line is drawn now over the vast liabilities that public pensions have generated. About time. It’s too easy for public sector actuaries to cover their eyes at future pension debts because they know that the taxpayer is there to bail their schemes out.

    Now, taxpayers have had enough. Again and again we need to repeat that there is no money left. Public sector unions will howl, but the reality is that every family has enough public sector pension debt hanging over it to destroy all our livelihoods.

    We need to reverse out of the public sector Ponzi schemes - now. Public sector employees, like pensioners, have been conned by the state. The numbers just don’t add up. There aren’t enough new taxpayers around to pay for what has been promised.

    How do we do it? Hutton is a start – at least, he proposes to stop the rot now. The reality is that we need more – and quickly, because we have a moral imperative. As presently planned, this generation is still depending on our children and grand-children to pay for state excesses.

    We favour a further lock-off – an opt-out. There isn’t room to expand on this here, but the general principle must be that new entrants into any scheme that has been Ponzi-built must choose another option – protecting them both against a future failure of any state sponsored Ponzi scheme and protecting future generations from further extortion. The private sector is five years ahead of the public sector in this.

    The alternative is more tax – ordinary taxpayers are the only people who can pay a surplus of public sector promises over income; and yes, a lot of those taxpayers are also public sector employees – but if they are not supporting their own futures from their own contributions they divide us all by extracting their future comforts from the rest of us. That’s hugely divisive – surely not what the well-meaning egalitarianism-imbued public sector stereotype employee wants from his or her efforts.

    ** "Ponzi" schemes are non-sustainable investment deals. A Mr Ponzi, early in the 20th century, sold vast numbers of assurance policies to gullible investors on the basis of promises of high-returns. Initially, he kept to his word, providing good returns on his "investments". However, soon enough, the dividend cheques thinned out and then stopped. It turned out that Mr Ponzi's scheme was a pyramid; he could keep paying early investors as long as he got new investors into his scheme. When he ran out of new investors, there was no money to pay the "returns" he claimed he could make. State pension schemes are generally scams of this sort, relying on tomorrow's taxpayers to pay today's obligations. They would be illegal in the private sector, but the state gets away with it because it can force our taxes from us.


    Saturday, March 05, 2011

    Cutting tax is not a new cost

    George Osborne has announced over the weekend that England might get ten new enterprise zones. The way this is presented is skewed to ensure government control over business.

    This policy, aimed at stimulating growth has been widely billed as "costing £100m over four years". That is, by allowing business to retain its own money, cutting their rates, and not loading them up with planning and regulatory burdens that cost money, the policy wonks - and some in the media - mischievously imply that millions will somehow be given to business by government.

    Let's get this the right way around! This money is generated by those businesses and taken away by the government in taxes. They are not giving it back, they are just not taking it away.

    In admitting that this might improve growth, the politicians are implicitly agreeing that taxes destroy economic growth and jobs. The same is implied by the National Insurance holiday given to new start up businesses in some areas. If that helps provide more jobs, why don't they go for a global cut in NIC and get people back to work?

    The answer is that our government considers that its job is to plan everything - so that it controls what gets done. This same attitude prevails yet more in Scotland. Politicians worldwide hate to "let go" - Scotland's government particularly so. Amid all the talk of "cuts", it's vital to keep repeating the message that curbing waste and unnecessary spending to allow lower taxes is a good thing - indeed probably the only way out of the vast overspend by the state. Politicians know it to be true, these "controlled releasings" from the tax burden tell us that, they just don't want to let go of their planning power. Holyrood has a chance to do better - let's make Scotland one bif Enterprise Zone - and put people back to work.



    'Government is the great fiction through which everybody endeavours to live at the expense of everybody else.'
    Frederic Bastiat