Budgets

Three things you might have missed in the UK Budget

/ Dr Craig Dalzell / Leave a comment

“To implement a budget is to apply one’s ideas about life and spending to the real world.” – Zachariah Renfro

This blog post previously appeared in Common Weal’s weekly magazine. Sign up to our Daily Briefing and Weekly Magazine newsletters here.

If you’d like to support my work for Common Weal or support me and this blog directly, see my donation page here.

A stock photo of two small stacks of GBP coins of various denominations.

There’s been plenty to talk about in the UK Budget this week and the media has been largely focused on the smaller gestures designed to push attention in precisely that way. Dropping the gas standing charge (as well as hints at dropping the electricity one at some point in the future) are welcome as will be the direct £100 support payment for households in lower Council Tax bands (why this will result in payments going to fairly wealthy people in undertaxed houses and not to poorer people in overtaxed houses could be the topic of another article but I’ve written a lot about Council Tax Reform lately) but they aren’t the same as the reform needed to pull people out of fuel poverty. Instead, I’d like to point some attention at three stories that caught my eye in the budget that might have passed you by.

Less emphasis on Foreign Direct Investment, but more Public Private Partnerships

One of my constant gripes about the Scottish Government is its obsession with Foreign Direct Investment (also sometimes called Inwards Investment) as a means of economic development. I get why it happens especially in Scotland (due to a lack of public borrowing powers at Holyrood, and their lack of support for Councils to use their borrowing powers as a substitute) but this should be a problem to circumvent rather than one to be boosted. And we know the cost of it – tens of billions of pounds are extracted from the Scottish economy every year to feed the profits of the companies that “inwardly invested” here.

It’s a problem at the UK level too, albeit less so. The UK’s level of profit extraction is only slightly below the expected average for a state of its GDP per capita, rather than one of the worst in the world as is the case for Scotland. Where Scotland lost almost 5.6% of our GDP to net profit outflows in 2021 (still the most recent data we have despite Scottish Government promises to update it), the UK only lost 0.15% of its GDP to the same outwards extraction (about half of the difference can be attributed to Scottish profits being extracted to elsewhere in the UK, for example by London-HQ’d companies, but this doesn’t account for the gap beyond that).

The UK Government, in contrast to the Scottish Government, has decided that this is a problem and the budget promises to try to boost domestic investment, recognising that keeping the returns on those investments within the country is better than seeing them drift away (not that they’re promising to reduce FDI though, they still tout the UK’s place as the “second best” place to invest within the G7).

It’s not a completely rosy picture though. The “domestic investment” they want to focus on is on AI data centres and in the military. I spoke about the dangers of the former at a recent event with Pensioners for Indy and we wrote about the issues with Public Private Partnerships in the military in our Daily Briefing this week. I’d encourage you to watch the former at your leisure and to read the latter after you’ve read this. In short, PPPs are likely to be as much of a disaster for the UK’s military bases and for the long term financial security of the country as they were for the legacies of crumbling hospitals and schools that the previous rounds of PPP were but will be used anyway not to boost investment but to hide the cost of war from the public.

Income Tax for Mayors

If you were blindsided a few weeks ago when John Swinney came out with a proposal to radically reform Local Government in Scotland, so were we and so were a lot of folk who have been deeply involved in local reform for a long time (Lesley Riddoch discusses it in her podcast here). It’s not to say that it’s a bad plan (though it’s not nearly detailed enough yet) but the timing, I highly suspect, has much more to do with Andy Burnham than with Swinney having a sudden Damascene conversion towards the principles of subsidiarity and municipalism.

I believe that Swinney started to feel threatened by the idea that Burnham’s push for more and stronger regional mayors was creeping into Scotland and that they might even be forced upon him. Pushing back with democratic regional councils was a sensible counter-measure and one (subject to it being done right) I actually agree with. Putting power into the hands of a single person isn’t democratic, and so mayors (or, in Scotland, Provosts) cannot and should not hold executive power.

The budget more-or-less confirms those suspicions with English mayors being given a share of business rate income from their region and then, from 2028, a share of income tax raised in their region too. They won’t have the power to change income tax rates, but this will give mayors a substantial budget to deploy and their own discretion. There’s a serious risk of personal fiefdoms growing as a result. It’s far easier to lobby and corrupt one person than it is to corrupt half a council.

There’s a question over how this will work in the substantial areas of England that don’t have elected mayors (which will probably be answered by pressuring them to create the office) or how it will work in the three other nations which have very different setups and, of course, where income tax in Scotland is already substantially devolved. There is a good case to be made for regional or local authorities in Scotland to retain a share of income tax and there have been proposals in the past for a local income tax. As Scotland develops its local government reform, these issues will have to be sorted out to ensure that public services across all local, regional and national areas are sustainable and fair.

But that still doesn’t mean I want a couple of mayors having unilateral control over 20% of my income tax bill.

“So the situation is that in half a decade or so low income carers will no longer go into debt over earning a little on the side, but they’ll still be taxed at a higher rate than the very richest people in the country.”

Carer’s Allowance Reform

This is one of the items from the budget that leaked ahead of time (I’m old enough to remember when a Budget Minister would resign rather than see a single word of their budget appear in the press before it could be presented democratically to Parliament, but those days are long gone in favour of Chancellors leaking good news stories mixed in with catastrophic stories that can be “rolled back” on the day and replaced with mere “bad news”).

Right now, if you’re a carer in receipt of Carer’s Allowance and you deign to try to earn some income in addition it it, you are subject to extremely tight earnings limits. Go a single penny over that limit and you don’t just lose future allowance, but the government will actually claw money back off you. This is a particular problem where carers do freelance work that they can flex around their caring responsibilities as getting a lump sum for a project can easily push them over the weekly limit where a salaried sum spread across the year would not. However it happens, putting carers into debt over as little as a penny of “excess” earnings is not acceptable and the UK Government has finally realised this.

Instead, they have proposed a reform where carers will see their allowance taper off as they earn above the threshold just as it does with some other social security payments like Universal Credit.

There are a couple of kickers though. The first is that this won’t come in until after the next election (IT problems, apparently, which carers must continue to pay the price for). The second is that the taper rate will be £1 for every £1 earned above the threshold. In other words, carers who earn more than a pittance will face, effectively, a 100% income tax rate until they have earned more than their carer’s allowance. This is simply utterly wrongheaded.

Even Universal Credit “only” tapers at 55%, so that low income workers lose 55p of their social security for every £1 they earn.

Meanwhile, the top rate of income tax in the UK is only 45%, so someone earning more than £126,000 or so gets to KEEP 55p of every £1 they earn…and they’re salty enough about that to be pushing for it to come down.

So the situation is that in half a decade or so low income carers will no longer go into debt over earning a little on the side, but they’ll still be taxed at a higher rate than the very richest people in the country.

I think we need a rule that states that social security taper rates can never be steeper than the top rate of income tax. If the Government wants to tax carers at 100% then they should be willing to apply a 100% income tax on the very highest earners too. Since that is rather unrealistic, then carers should be taxed at not more than what the government thinks millionaires should be taxed at.

Even better would be to accept that all of these restrictions are really designed to punish poor people into compliance (I see the Government also wants to bring back face-to-face assessments of disabled people with the aim of ‘proving’ that those who can’t comply were probably faking and can have their welfare cut. We’re only a decade and two Labour leaders on from I, Daniel Blake but it seems that the outrage against welfare sanctions has faded enough for the government to bring them back). Instead of taxing carers who are trying to make ends meet in addition to providing care, we could have a Universal Basic Income that supports everyone to do what they want and need to do, including provide care, and start paying workers – especially those in undervalued jobs like care – enough to live on.

Conclusion

A “breathing space” budget this may have been but it was one with enough hidden edges to give pause to anyone who read below the headlines. The next question will be for the Scottish Government to respond to it with their own budget early next year. Some things, like the £100 energy payment, are likely to be copy and pasted but I already see landlords lobbying to avoid additional taxes coming their way for their English counterparts. This should, of course, be resisted and Scotland should perhaps go further and continue pushing for a housing sector that provides homes, not passive incomes for the already wealthy.

I’d be interested to hear your views too though. Was there anything beneath the headlines that stood out to you, good or bad? What do you think the Scottish Government should do in response?

The pension triple lock became a problem that a double lock won’t solve

/ Dr Craig Dalzell / Leave a comment

“You’re mugging old ladies every bit as much if you pinch their pension fund” – Ben Elton

This blog post previously appeared in Common Weal’s weekly magazine. Sign up to our Daily Briefing and Weekly Magazine newsletters here.

If you’d like to support my work for Common Weal or support me and this blog directly, see my donation page here.

A pink piggy-bank wearing glasses and staring at a calculator

Andy Burnham has injected a case for optimism into the UK political sphere and has genuinely proposed some interesting ideas for the future. More crucially, as I point out in In Common in The National this week, his approach to making policy – by taking a step back and doing the detail work before trying to launch the idea – is the complete opposite of the Scottish Government’s approach of announcing an empty “Framework” then trying to backfill the detail on the fly. The Scottish Government could learn a lot from his approach to building a National Care Service just as Burnham should learn the lessons on why the Scottish attempt failed.

This attitude doesn’t necessarily extend too all aspects of the plans announced at the Labour conference this week and I think the one that is likely to have the longest term impact is the dropping of the state pension triple lock.

The triple lock is the mechanism by which the UK state pension was automatically uprated each year by the highest of the previous year’s rate of inflation, average rate of wage increases, or 2.5%.

It was brought in in 2010 by the Conservative/Lib Dem Coalition Government and it did have noble reasons behind it. It has often and for many years been pointed out that the UK’s rate of state pension income is amongst the lowest in the developed world. Pensioner poverty for those reliant only on the state pension was becoming a major political scandal and it was urgent that the state pension be increased.

The doesn’t tell the whole picture because it doesn’t include private pensions and other income but we’ll come back to that. It’s also important to note that the increase in the state pension came around the same time as rapid rises to state pension age and increasing protests from groups like the WASPI women and so an increase to the rate of pension was somewhat of a sweetener to offset the fact that people would have to work longer before receiving their pension.

And finally, it cannot be ignored that there was a very deliberate political element to this. The reason why the Conservatives were for increasing social security for older people and were and still are against increasing it for younger people comes right down to the voting patterns of those two groups. Political parties of all colours play to their respective bases when they can or must.

With that preamble being necessary to start to grapple with this very complex issue, we can now look at Burnham’s reform. To replace the triple lock with a double lock of only uprating pensions by the highest of inflation or 2.5%, without automatic reference to wages.

This means that if wages are consistently higher than inflation and if inflation remains above 2.5% (despite the Bank of England’s target to keep it around that level) then pensioners will not get any poorer with relation to prices but they also won’t get any richer in relation to workers.

There are a lot of “ifs” in that aspiration. For a start, I believe that the fear that pensioners were getting drastically wealthier as a result of the triple-lock is based on a faulty reasoning. This did happen in the past few years because of the very particular circumstances of the Covid pandemic. When we went into lockdown, wages dropped quite drastically for a lot of people while supply chains took a massive hit. This meant that in the lockdown year, even though inflation outstripped wage growth (wage decline at its worst) both were below the 2.5% triple lock floor and pensioners became relatively wealthier compared to both prices and workers.

“It’s a bit like your landlord saying that instead of them increasing your rent by £200 next year, they’ll only increase it by £100 so now you have £100 to spend on dinner tomorrow night.”

After lockdown, shifts in the economy caused a massive spike in wage growth not (mainly) because people wanted paid more to come back to work but because “returning to normal” suddenly was a big proportional spike up compared to the layoffs and furlough funding of the previous year. Pensioners benefited from wage growth going to 7% and rapidly outstripping prices. Then, in 2022, the invasion of Ukraine plus other geopolitical factors (and outright corporate profiteering) have seen inflation blow past the steady post-Covid wage increases and have again seen pensioners do well out of the whole process.

All this is to say that the last few years broke the triple lock model in a way that wasn’t envisaged when it was created (you can read more about this in our 2021 book All of Our Futures). I’m not convinced that moving from a triple lock to the double lock is a solution to the problem nor am I convinced that the problem they are trying to solve is one that is likely to happen again as it did in 2020.

Burnham is essentially gambling that wage increases will stay both higher than inflation and higher than 2.5% per year. This is the only way that the state pension will increase slower than it would under the triple lock but that scenario has also been a rarity in the years since the 2008 Financial Crisis. He also undermines this objective by stating that pensions won’t lose value in relation to wages in the long term. This makes sense if the objective is indeed to avoid model-breaking short term shocks, but it doesn’t make sense if the long term goal is to have pensions grow at a slower rate than wages.

His claim that he can use the “saved” money to fund a National Care Service is obviously a political sweetener itself – people are often happier with a bit of policy pain if they think something good will come from it – but I don’t see how that can add up either.

It’s trying to predict both inflation and wage growth decades into the future. This is perfectly valid as a modelling exercise and to do things like try to work out the potential impact on pensioner income and to the Barnett Formula as funding shifts from a reserved policy to a devolved one (or vice versa), but it’s harder to say for sure that you can “use” money that isn’t even a real saving but merely a slower-than-otherwise increase in future costs. It’s a bit like your landlord saying that instead of them increasing your rent by £200 next year, they’ll only increase it by £100 so now you have £100 to spend on dinner tomorrow night.

The triple lock served a purpose of reducing pensioner poverty but I’m also not convinced that either it or the double lock are fit for that purpose without making changes to the other side of pensions – the private sector.

When I said that the UK’s state pension is among the lowest in the developed world and that this doesn’t tell the full story, it’s because a large amount of total retirement income in the UK is derived from private pensions and from the “housing ladder” (wealth built up in housing that can be released by “downsizing” upon retirement). In All of Our Futures, we found that the UK’s total pensioner income was closer to the average of developed countries (so, still not great) but that around half of it comes from private pensions or housing wealth.

There is a very good argument to be made that the Thatcher era that created the marketisation of housing as a capital growth asset and which unleashed the previously restrained pension financial sector and turned them into GDP-boosting risk-machines allowed the UK to deliberately keep its state pension low for only the cost of turning housing and the financial sector into economic bombs that have gone off repeatedly and are likely to do so again.

So continuing the job of reducing pensioner poverty while maintaining fairness across generations and between pensioners and workers is not going to be possible without reining in the financial sector and private pensions while also decapitalising housing.

There are solutions. We should re-socialise the housing sector by aggressively replacing private rented housing with social housing (which will reduce the problem of pensioner poverty for those who retire without owning a house to downsize from, while reducing the wealth inequality caused by landlords who bought their houses when they were cheap). We should better regulate and seek to replaced the private pension sector with a public-owned workplace pension scheme (see Jim Osborne’s work on this which is closely in accord with but much more developed than the work we could do in our book).

And we should replace the state pension with a Universal Basic Income at not less than the same rate as this would help to deal with issues such as regions of the UK where high deprivation means people working during ill health or dying before state pension age (creating a tax transfer from poor areas to richer areas with higher life expectancy). A UBI would also help end the discrimination of “retirement age” where people who are able and do want to work past an arbitrary timeline are more than welcome to do so.

The most vital thing is that any attempt at social security reform – be it pensions or anything else – must not be used to divide society either young against old or workers against retired people. All this does is distract from more serious divisions such as the reasons why the super-wealthy have left us all poorer or how tech oligarchs are literally stealing the future of this planet out from under us.

I have a great deal of hope right now thanks to Burnham’s new optimism. I hope it rubs off elsewhere too and we start to see more exciting and better thought through policies from all governments. Early signs are good, though we must make sure that areas like pensions are treated with the respect due to the sheer complexity of the task of making sure that wherever we live, within the UK, within an independent Scotland or anywhere else, we build a country that all of us can be proud to grow older in.

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How to break an investment bank

/ Dr Craig Dalzell / Leave a comment

“You may well ask: when the bubble finally burst, why did we not let the bankers crash and burn? Why weren’t they held accountable for their absurd debts? – Yanis Varoufakis

This blog post previously appeared in Common Weal’s weekly magazine. Sign up to our Daily Briefing and Weekly Magazine newsletters here.

If you’d like to support my work for Common Weal or support me and this blog directly, see my donation page here.

A broken piggy bank spilling coins onto a white surface.

The Scottish National Investment Bank is back in the news this week with its annual accounts showing that annual losses have been mounting again. A series of high profile failures of companies that it was exposed to (such EV charging infrastructure company Trojan, the laser company I used to work at M Squared Lasers, and satellite company Orbex) have contributed to an annual loss of £138 million and the fifth consecutive year of losses for the state-owned company. There are serious questions looming over the survival of the bank if many more of these losses undermine its financial foundations.

This is really bitter news for us at Common Weal as SNIB is very much our baby. We were the ones who first made the case for patient investment financing in Scotland and we were the ones who wrote the first comprehensive blueprint for how the bank could operate. We were also the ones who led the campaign for the bank against opposition from the Scottish Government that was so firm that we redesigned the way we fight political campaigns to get it pushed through.

We were, of course, cut out of a lot of the development work after that point. We responded the consultations and we attended the parliamentary evidence sessions but the SNIB that came out the other end of the whole process did so with substantial deviations from our original blueprint. We believe that those deviations are at the heart of why the bank is in trouble today.

One of the first big changes was to the governance structure of the bank. We envisaged a tripartite structure. The first would be the actual governors of the bank who would manage the day-to-day operations. The second would be Scottish Government Ministers who would own the bank, would be the people the governors reported to for reasons of democratic accountability and who would set the Missions that the bank would have to meet with its investments.

The third would be an Advisory Council made up of trade unionists, industry specialists, staff representatives, members of non-government political parties and other civic representatives who would monitor progress towards the Missions and would recommend changes to them if required. The stakeholders would also be able to make recommendations about the level of funding the SNIB was receiving from Government and about how much the SNIB could loan out at any one time.

The change came with the third part, the Advisory Council. Essentially, the Government didn’t want anyone other than themselves to be able to tell the bank what to do so when the SNIB was founded, the Council was dropped entirely as a part of the governance model. After several years of our campaigning, Government eventually relented and set up a Ministerial Advisory Group but ensured that it couldn’t talk to the bank directly – it would report only to Ministers.

It took years again for the Board to be formally launched at the tail end of 2024. It has met together only five times since, the last time being in February of this year. It’s also worth noting that Common Weal was not invited to join the Advisory Board.

The second change came in the Missions. The Missions of the Bank, as developed by Ministers without the guidance of an Advisory Council, are brief, vague and don’t have specific targets associated with them and some seem to run contrary to the bank’s core purpose of patient, long-term finance. This is particularly true with their Innovation mission that drives so much of their funding.

The problem with the bank’s focus on start-ups is that they are hugely risky. You can’t pick winners without also picking losers and so losses have to be expected. The bank shouldn’t be getting attention for seeing some of its investments not pay off but because those failures are risking the integrity of the bank. This is the most important change that the government made to the bank that deviated from our blueprint and it’s the one that may well cause it to fail.

We recognised the risks of this kind of lending and so our plan was to ensure that the bank could afford to fail. We said that there should be three tiers of lending in the bank.

The first should be in social housing. This is extremely long term funding, not expected to make a profit for the bank for decades, but it would do much for the fundamentals of the Scottish economy and for the bank itself. In our paper Good Houses For All, we called for the SNIB to fund essentially unlimited social housing on a demand-led basis and in a way that would disrupt and outcompete the rest of the housing sector on both quality on price (meaning that developers of private rented and private owned houses would have to up their game to keep sales).

There are other ways to fund this kind of housing – like Local Authorities borrowing from the Public Works Loan Board – and these can and should be used too, but a Mission for the bank should have been to receive enough rental income from its share of social housing investments that it could cover all of its day-to-day running costs. The bank would never be able to go bankrupt so long as people in Scotland needed a roof over their heads.

“As it stands, the bank is just about “all-in” on tech and has invested little in energy and essentially nothing in social housing.”

The second tier of funding would be into public energy. This is more capital intensive than housing and it’s a bit riskier, but investing in public-owned or community-owned energy would also bring in larger returns than housing. The goal of this tier would be to bring in enough relatively stable revenue to expand the bank as well as to reshape the Scottish economy to bring down energy costs and free up our own money to be used elsewhere (not only has growth in our wages stagnated in recent decades, the share of our household income that is being absorbed by housing and energy costs is rising, meaning we have less to spend elsewhere even if our wages are keeping up with inflation).

Only at the third tier of funding should we be looking at investing in the innovative tech sector. This is important for the future of the Scottish economy but the bank must be resilient if some or even all of these investments fail. It wouldn’t be so bad if the “investment” mission was linked to the Scottish Government’s industrial and economic strategy but because we don’t even have one of those, the bank is effectively just taking random punts based on potential short term gains or which ever company can charm them with the juiciest story about their cut of the “next big” tech IP (this is probably how my former laser company got their money, their pitch at the time would have involved words like “laser”, “space-based”, “quantum” and “nanotechnology”).

As it stands, the bank is just about “all-in” on tech and has invested little in energy and essentially nothing in social housing. It doesn’t look like a patient finance investment bank. It looks like a business accelerator fund with less of an idea of what it wants to be than, say, Scottish Enterprise which is essentially being forced to compete with a SNIB that appears to be actively working against them. Without the energy and housing tiers supporting the fundamentals of the bank’s portfolio, it might only take a few more high profile tech sector collapses (perhaps due to the AI data centre bubble popping) to bring it down entirely.

The truth is that the Scottish Government never believed in the potential of the Scottish National Investment Bank. They formed it because they were pushed into a corner by our successful campaign but that didn’t mean that they were forced to make the bank become a success. So instead of following the vision given to them, they designed the bank to be captured by the same banking elite that caused the problems in our investment landscape that the bank was supposed to solve.

This could be fixed before the next big crash. It’ll involve redeveloping the Advisory Board to let it do its job, revamping the missions along the lines we’ve suggested here and probably replacing a good chunk of the governance board of the bank where those currently in can’t or won’t adapt to the changes demanded. The bank has to re-focus its investments to secure its own foundations through housing and give itself a stable expansion platform through energy. Once and only once this has happened can it start aligning itself to Ministerial investment strategy and resume investing in the industries that would take us towards those objectives.

We’ve never complained that the bank is investing in things that might fail. Failure is inevitable in investments. The bank should be resilient in the face of those failures. It should be a bank not chasing headlines due to its annual statements but focused on what it will help Scotland become in the next decade or even in the next century. Failure in investments is inevitable. The failure of the Scottish National Investment Bank should not be.

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What Scotland can learn from the world’s first UBI

/ Dr Craig Dalzell / Leave a comment

“In a country well governed, poverty is something to be ashamed of. In a country badly governed, wealth is something to be ashamed of.” – Confucius

This blog post previously appeared in The National, for which I received a commission.
If you’d like to support my work for Common Weal or support me and this blog directly, see my donation policy page here.

(Image Source: Wikimedia)

I like to say that in politics everything seems impossible right up until the moment it becomes inevitable. What this means is that in hindsight, it’s easy to see how something happened even though the campaign had to fight through a mire of “it’ll never happen” almost all the way.

Few campaigns exemplify this maxim for me better than the campaign I’ve been a part of for more than a decade for Scotland to introduce a Universal Basic Income. What began as a campaign so outlandish and so seemingly utopian that we may as well have promised the Moon and the stars has reached the point where, in theory at least, there is currently a Parliamentary majority in favour of the principle of a UBI (The SNP, Greens and Lib Dems all support one in principle and Scottish Labour supports the weaker idea of a Minimum Income Guarantee though I do not believe they’d vote against a UBI if it came to it), even if the barriers to actually implementing one largely prevent it from happening quite yet (barriers largely within the power of the UK Government to remove…we’ll come back to that in a bit).

But still, elsewhere in the world, the impossible truly has become inevitable. This year, a news story happened that has been covered extensively outwith the West and Global North but which you almost certainly haven’t heard about. In November, the Marshall Islands became the world’s first UN Member Nation to announce the implementation of a full Universal Basic Income.

It’s still not “a lot”, even for the local economy, but it will be enough to make a meaningful difference. The UBI is set at 200 US dollars per quarter plus a system of additional rates for people who live in the more outlying islands in the state as well as for retirees, people with disabilities and others who qualify for a top up. It is expected that the system will have a gross cost around 8% of the state’s GDP for the foundational UBI. The payment can be made in the form of paper cheque, direct bank transfer or via cryptocurrency – the latter garnering some attention in crypto circles despite only a dozen or so people opting for this method of payment.

The UBI is largely being funded externally. The Marshall Islands are a sovereign state that is in a “free compact” with the USA – the UK equivalent would be something like an Overseas Territory like the Falkland Islands, albeit with more power over foreign affairs than the UK allows its former colonies – and the bulk of the money will draw from a trust fund set up by the US as part-compensation for the damage wrought by nuclear weapons testing.

We don’t (yet?) have a wealth fund like that but let’s consider what a UBI could look like if Scotland followed the example of the Marshall Islands.

At 8% of GDP, Scotland’s UBI would translate to around £3,200 per person per year or about £60 per week. This is around half of the maximum amount of Universal Credit so it probably strains the definition of “basic” at this level. And yet, we’ve seen in Scotland that even smaller payments, like the £27/week Scottish Child Payment, has already made a massive difference to those who receive it.

The gross cost of an 8% of GDP Scottish UBI would be £40 billion per year or about a third of the total Scottish public sector expenditure budget. But this is misleading on the face of it for the same reason that it would be misleading to judge the Marshall Islands’ UBI on its gross cost.

In Scotland’s case, the implementation of a UBI would require an overhaul of existing social securities. An independent Scotland would be free, of course, to design the system from the ground up but a devolved Scotland would have to renegotiate the Block Grant and devolved Fiscal Framework with the UK Government so that the UBI could part-replace Universal Credit or the state pension without being unfairly clawed back (the failure to agree this scuppered plans for a Scottish UBI pilot scheme a few years ago). Transferring, say, a third of the existing social protection budget into the UBI would reduce the gross cost by around £11 billion.

And then there’s the Scottish tax system. The principle of universality underlying a UBI states that it’s much easier to ensure that no-one who needs it doesn’t get it and that no-one who doesn’t qualify for it doesn’t cheat the system if everyone gets it unconditionally – from the poorest to the richest. Of course, those who “don’t need it” can simply have their total income tax increased to tax it back off them. A simple way of doing it would be to set a line – perhaps at the UK Minimum Income Standard level of around £31,000 per year for a single person with no children – and tax the UBI back off those who earn more. As this would cover around half of Scottish income tax payers – 1.5 million people – this would reduce the gross cost again by another £5 billion or so.

We could close the gap further by making the tax progressive and by targeting wealth as well as income via a land tax and reformed property taxation so that those who earn and own much more than most of us could “pay for” the UBI of several people.

As people spend their UBI, they will pay VAT and companies that receive extra custom due to people being able to afford to buy things will pay corporation taxes (both are currently reserved taxes and therefore raising complications around fiscal transfers under devolution). We could also look at using devolved taxation powers to target Scotland’s keystone exports of energy, whisky and salmon (sectors which are highly foreign-owned and therefore also export their profits from Scotland, contributing to a loss of more than £10 billion per year from Scotland).

Taking these into account reduces the total actual bill for a Scottish UBI from “impossible” to a scheme that starts to look just about possible even under devolution (so long as Westminster abstains from its effective veto over implementation). But there’s one final aspect of a UBI to consider. The cost of poverty within the current system.

If we consider the cost of healthcare resulting from poverty-related conditions, the loss of productivity from poverty (the chronic stress of poverty makes for less productive workers and blocks the ability to take risks such as entrepreneurship), the cost of delivering expensive services such as crisis care for homeless people rather than simply making affordable housing a human right, the additional costs of administering “means-tested” social securities which sometimes exceeds the cost of the benefits being withheld because the punitive nature of the system is part of the point.

This kind of poverty may well be more expensive than the overall net cost of a UBI sufficient to eliminate it. At this point, we see that a UBI isn’t an impossible utopian dream, but becomes a moral imperative that must happen if we are to continue to call ourselves a civilised nation.

The Marshall Islands have proven that the impossible can become inevitable. I look forward to the day that Scotland inevitably does the same.

The Scottish Government wants to avoid reforming Council Tax

/ Dr Craig Dalzell / Leave a comment

“I hate paying taxes. But I love the civilization they give me” – Oliver Wendell. Holmes

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A stock photo of a street in Glasgow emphasising a row of above-shop flats

Image Source: Unsplash

In the run up to the 2021 Scottish Parliamentary Elections, the SNP published their election manifesto with a promise to hold in depth discussions about reforming local taxation, culminating in a Citizens’ Assembly on the subject. After they were returned to Government, they embedded that idea in the 2021 Programme for Government and explicitly elevated the idea that Council Tax reform would be part of this discussion from an idea to an promise.

I remember this being an exciting time in Scottish politics. I was still riding the high from being an expert witness in the Scottish Climate Assembly (and didn’t yet know how badly the Government would let them down). After multiple years of failure to reform or replace one of Scotland’s most badly broken taxes, this was finally a change for politicians to admit that they were part of the problem, to step out of the way and to let citizens tell them what to do instead.

It was never going to be that simple. Despite the success of the Climate Assembly to produce radical ideas – or because of that success in the face of the politicians’ unwillingness to relinquish power and implement those ideas – the promise of a Citizens’ Assembly before the 2026 election dragged on. It was never formally dropped, but Nicola Sturgeon’s Government did not appear to take any action towards setting it up.

When she resigned in 2023, time was tight for the Humza Yousaf Government to pick up the policy. One lesson from the Climate Assembly was that they can take a year to plan, several months to undertake and then a year to properly analyse the results. By his tenure, there was still time to create the Assembly but he’d be passing the job of actually reforming Council Tax to the next Parliament.

And then he, too, resigned. Without once to my knowledge even mentioning the Assembly and not doing much at all to reform local tax by other means (other than his disastrous ad hoc announcement of a freeze to rates during a local government revenue crisis).

And now, in the waning days of the Parliament and with zero time to implement anything new at all, John Swinney’s Government still hasn’t formally cancelled that 2021 manifesto promise but they have clearly decided that they’ll break it.

Instead of a Citizens’ Assembly, his Government has put out a very standard public consultation on some options that they’ve considered around reforming Council Tax while also stating that even if they accept one of them after next year’s election that we shouldn’t expect any actual change to the tax any time within even the next Parliament. We’ll submit our formal response to that consultation and you can too here, but I wanted to use my column this week to discuss their proposed options.

The first thing to say is that they’ve effectively ruled out replacing Council Tax entirely.

The Scottish Government has presented four proposals for reform of Council Tax. This first is the most minimal change possible, though it’s one that has been advocated for as long overdue. The current Council Tax isn’t based on what your house is worth now but what it was worth in 1991. Keeping the current rates and bands but revaluing houses to ensure they are all in the correct and appropriate band would fix problems that have crept in over 30 years of rampant but uneven house price speculation (I’ve seen houses worth £30,000 and worth £300,000 both marked as Band D for Council Tax).

This has been designed to be “revenue neutral” with the current system and as such doesn’t do much to cut taxes for people already in appropriate and low bands or to raise taxes for those appropriately in high bands. It does fix the problem of possibly half of Scotland being in the wrong tax band but this effectively means a lot of upheaval to the system for comparatively little actual gain – even where that gain is necessary.

Two intermediate steps are to change the current 8 Band system to a 12 Band system with one aimed at keeping taxes more or less the same for folk in lower band houses and adding addition bands for the extremely wealthy at the top and the other being more “progressive” by reducing tax rates slightly for lower bands and and increasing it for upper bands.

And finally, there is a 14 band system that looks much like the 12 band “progressive” proposal but with a slightly greater cut for lower bands and a slightly higher increase for upper bands.

The problem with all of these proposals is that the banding system for Council Tax is inherently unfair. Not just in its present form where a house worth 10 or 100 times more than a cheap, Band A house will still only pay about 3.5 times more in Council Tax, but even if the bands were reformed or extended as the Government has proposed here, that problem will always exist.

The very rich who live in houses in the top band will always pay less than their fair share of tax and that means that those in the poorest households will always pay more than their fair share. Even the 14 band system would only apply a maximum differential rate of about eight times as much Council Tax for a house sitting near the bottom of the highest band (starting at £1.83 million) compared to one sitting at the top of the lowest band (£65,000).

This means that a house worth more than 28 times another will only pay about eight times as much tax. What the Government is claiming is a more progressive tax proposal than the current system is still nonetheless deeply regressive and its claim of being “revenue neutral” still means, in effect, the poor are paying a massive tax subsidy to the rich.

“Nine out of ten houses in Scotland are worth less than £400,000.”

Instead, we argue for a proportionate Property Tax similar to the one used in many countries in Europe where the property tax is based on a percentage of the current value of the house – doing away with bands entirely (One could argue to make things even more proportional and add surcharges on very expensive houses in the same way that we don’t pay a flat income tax rate but a progressive one based on how high our salary is – but let’s make the case for a flat percentage tax first, then we can discuss going further). This removes the inherent problem of banding. A house worth ten times as much will always pay ten times as much tax.

One of the arguments against property taxation as opposed to taxing income is the “ability to pay”. It’s often held up that there will be asset rich, income poor people stereotyped as a lonely widow living in her mansion after the kids leave the family home. The truth is that while I’m sure that there will be people in a situation like that, there are better mitigations available than holding the rest of the country back from reforming and replacing an outdated tax system.

The consultation document itself considers a couple of these such as phasing in the tax over several years to make it easier for people to adjust their finances to copy with any increases or allowing people to defer the tax for several years – perhaps until the sale of the house or the death of the owner, though this may result in people having to face a large lump sum tax bill when that time comes.

Another option, one that we may suggest in our response, might be to limit the increase someone pays due to the transition to some percentage of their income or to expand Council Tax discounts to cover people in that situation. Over time though, this would become less of a problem. House prices in general will adjust to reflect their tax bill and houses that are currently overvalued may reduce in price as a result of a high tax burden attached to them (something that wouldn’t happen if we abolished property taxes for a local income tax as some have suggested).

A final point to make in this column is the fact that people don’t really understand just how unequal property wealth actually is in Scotland. This can be seen in the Daily Express’s claim that the Scottish Government’s proposal would mean a tax of up to £6,600 on “hard working families”, without mentioning that this is what would be paid only in the biggest change proposed (the 14 band system) and this rate would only apply to the most expensive houses worth more than £1.83 million.

Very few “hard working families” in Scotland live in £1.8 million houses. In fact, thanks to this consultation, we now know how many households live in worth £1.83 million or more. This band would cover just 0.02% of houses in Scotland – fewer than 15,000 out of Scotland’s more than 2.6 million homes.

In fact, as you can see in our Graph of the Week this week, we can plot the various government proposals (in this case we’ve just plotted the most and least progressive of the four) in comparison to how much more or less people would pay in Council Tax compared to a fair Property Tax. If we moved to our Property Tax then a small house in Band A could see its tax bill halve, while a £2 million mansion would see a substantial increase of £6,000 or more. The “breakeven” point between the current Council Tax (and, in fact, all four of the Government’s proposed reforms) is a house worth £400,000 that is or should be in Band F.

This threshold is at about the 90% percentile of house prices. Nine out of ten houses in Scotland are worth less than £400,000. That means that nine out of ten households in Scotland are currently paying more than their fair share of Council Tax and would benefit from a fair percentage based Property Tax. It also means that all four of the Government’s proposed Council Tax reforms would tweak but would not remove this inequality.

The Scottish Government is, in effect, continuing to protect Scotland’s top 10% of property owners at the expense of everybody else. This is a key lesson that we will be including in our response to the consultation and I hope you will too.

The Council Tax is outdated, unfair and needs to change. The argument of that fact was won more than a quarter of a century ago. That the Government accepts the need for a progressive and fair tax but still cannot bring itself to propose one is a dereliction of duty. That they’ve broken a manifesto commitment to let the people come up with a solution instead is a democratic scandal.

And that they’ve stated that even if they win the next election, they’re not going to implement the solution in the next Parliament just means that this consultation looks like it’s much more about delaying change for another decade rather than righting the wrongs of the lack of change so far.

We can do better than this, especially when the solutions are already clear and understandable. Please submit a response to this consultation and do make clear to your local MSPs that you want to see Council Tax fixed properly, fairly and for the ultimate benefit of All of Us.

The Only Way To Fix Council Tax

/ Dr Craig Dalzell / Leave a comment

“When it comes to decreasing inequalities of wealth for good or reducing unusually high levels of public debt, a progressive tax on capital is generally a better tool than inflation.” – Thomas Piketty

This blog post previously appeared in Common Weal’s weekly newsletter. Sign up for the newsletter here.

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In the run up to the 2021 Scottish Parliamentary Election, the SNP – like most other political parties, published their manifesto of the things they promised to do if returned to power after the election. They’ve since deleted it from their website but it has been archived here. In that, one of their promises to the voters who put them back into office stated that they would run annual Citizens’ Assemblies during this Parliamentary term “to help find consensus on issues where people have sharply divided opinions…such as such as reform of Council Tax.” Making that issue in particular more than a mere suggestion, a few pages later they stated clearly that “We are committed to reforming the Council Tax to make it fairer…We will ask a Citizens’ Assembly to consider the way forward alongside the question of wider powers for local government.”

After the election and their return to Government, they held one Citizens’ Assembly on Climate Change (the process of which showed an outstanding example of the future of democratic governance but the outcome of which was a single new policy promise, later broken) but didn’t hold any others. The Citizens’ Assembly on Council Tax Reform was never formally cancelled, but no effort or resource was ever put in to organising it. There is now no time to hold such an assembly before the end of the Parliamentary Term and no ability to even throw one together at the last minute given that neither the Programme for Government nor the final budget covering a full year of the remaining term mentioned such an Assembly.

This week, the Government published their proposal for a replacement to this manifesto promise. A series of “public engagements” this Autumn consisting of three key elements:
• A formal public consultation process.
• A number of public events or ‘town hall’ meetings held over the autumn months, ensuring a reasonable geographical spread and diversity.
• A set of focused discussions with key stakeholders and experts.

This strikes me as remarkably similar to their “engagement” series on land reform in 2022 where the “town hall meetings” included gathering a dozen or so members of the public into a hall named for one of Scotland’s largest landowners to tell them that they were going to try to limit the scope of the land reform bill to only cover the management of the very largest estates in Scotland so that they could keep the costs of the reform to a minimum. They’ve since reduced the threshold of that management in the proposals for the current Bill but it is still far too high, far too limited and far too easy to evade.

This is a column about that Council Tax reform though – I’ll happily come back to Land Reform in a future column.

To say I have little faith in the SNP (or any other political party in Scotland right now) actually making meaningful steps towards reforming this badly outdated tax would be an understatement but we are an impartial think-tank and we are very much one of the “key stakeholders and experts” who should be at the table later this year (I’ll let you know if we get an invite) so fine – I’ll once again lay out the options for reform and explain why the only possible rational option is to adopt our policy paper on replacing Council Tax with a Property Tax based on the present value of a home.

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Scottish Budget 2024 – Still Spinning Plates

/ Dr Craig Dalzell / Leave a comment

“Our economic models are projections and arrows when they should be circles.” – Wade Davis

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image_2024-12-12_094119113

Finance Secretary Shona Robison must have breathed a sigh of relief at the UK budget the other month (covered by me here) but if she did, it was the shallowest one she could get away with. The extra money from the UK that has gone into this year’s Scottish Budget has largely been accounted for in terms of public sector pay deals and reserved tax rises applied to those wages (not that I’m complaining about those pay deals – quite the contrary, even with them many public sector works are still lagging behind fair pay after over a decade and a half of austerity) or has gone into replacing cuts from last year’s budget so it’s clear that despite the relative expansion to Scottish finances there still wasn’t going to be a huge amount of play in the figures to do much more than work a little less hard to keep all of the plates spinning in the air.

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UK Budget Review – 2024

/ Dr Craig Dalzell / Leave a comment

“Death, taxes and childbirth! There’s never any convenient time for any of them.” – Margaret Mitchell

This blog post previously appeared in The National, for which I received a commission.
You can read my donations and support policy here and if you’d like to throw me a wee tip to support this blog, you can here.

image_2024-11-06_110201644

The first budget of the new Labour Government and the first in 14 years is one that would have been more hotly anticipated if it wasn’t for the fact that the Government leaked so much of it to the media ahead of time – in direct contravention of Parliamentary procedure and in a way that would have seen Ministers resign not many years ago – and would have seen Labour complain about had they still been in Opposition. The Speaker rebuked them thoroughly, but – of course – lacks the power to actually sanction anyone involved (in Holyrood, the Presiding Officer could have technically cancelled the budget speech but even when the Scottish Government has leaked material like this, they’ve managed to stay on the side of a mere threat).

Nevertheless, the budget was delivered and it’s worth us taking a look at just a few of the things that happened that will affect Scotland.

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PfG 2024 – Serving Scotland

/ Dr Craig Dalzell / Leave a comment

“When the dispute over the Means Test was in progress there was a disgusting public wrangle about the minimum weekly sum on which a human being could keep alive.” – George Orwell

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Serving Scotland, what exactly?

The Scottish Government’s latest Programme for Government, titled “Serving Scotland”, is little more than a list of platitudes covering some of the most brutal public service cuts in years coupled with a paring back of all sense of ambition in what should be a critical year of laying groundwork for the next election (if you take a short-termist political party view of things) or the rapid ramping up of actions to halt and mitigate climate change (if you’d prefer there to be a liveable biosphere in the next couple of generations).

The PfG is divided into four of the Government’s overarching strategies so it’s worth picking them apart one by one.

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It’s Time To Tax Scottish Land

/ Dr Craig Dalzell / Leave a comment

“All I wish to make clear is that, without any increase in population, the progress of invention constantly tends to give a larger proportion of the produce to the owners of land, and a smaller and smaller proportion to labor and capital.” – Henry George

This blog post previously appeared in The National as part of Common Weal’s In Common newsletter.
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Last week, I had the pleasure to address SNP members at the Revive Coalition’s fringe meeting on land reform where I presented Common Weal’s proposal to bring a land tax to Scotland. As the meeting wasn’t filmed, I want to discuss the issue here for the benefit of members (and non-members) who couldn’t be there. I am also delighted that after our fringe, members gave overwhelming support to two motions that would enable such a tax. Taxing land in Scotland is now solidly SNP policy and the Scottish Government should bring forward a Bill to enable it at the earliest opportunity. With the Scottish Government pledging to bring in fresh cuts of in excess of £500 million, to ignore a tool that would almost entirely avoid the need for them is simply unacceptable.

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