We Need To Talk About: Hypothecated Taxes

Hypothecated taxes are designed to undermine the NHS – Prof. Richard Murphy

There’s been an idea floating around recently – mostly pushed by the Lib Dems but floated elsewhere too – that the solution to NHS England’s current, catastrophic crisis is an additional income-linked tax (either a new tax or an addition to income tax or National Insurance) which would raise money specifically for health spending.


Queuing for bedspace in an English hospital

Other schemes have been suggested, like an addition to income tax to be spent on education. This idea of having a dedicated tax which raises revenue for a specific purpose is known as ‘hypothecation‘ and here is why it is a terrible idea.

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We Need To Talk About: A Negative Income Tax

First up, my apologies for going a little dark on the blog recently. Last month, I promised my thoughts on Scotland’s currency options going into the next independence campaign. That promise has turned into something a little bit larger than expected and will be coming soon. I think you’ll like it.

income decile

Scotland’s Income Distribution 2013-14

In the meantime, I’ve been pondering on some possible options regarding how we could reform Scotland’s welfare system, especially in the light that the UK has been explicitly called out by the United Nations for breaching human rights obligations due to the suffering caused by Austerity, inequality and the unfair and miserly welfare system in which too many find themselves trapped. The use of sanctions has been singled out as particularly cruel with countless cases of hardship and even deaths being directly linked to their use.

Both the Greens and Common Weal have been steadfast supporters of the policy of Citizen’s Income (or Universal Basic Income), a policy which is rapidly gaining traction around the world and is starting to look as if its time has come.

Under this policy the entire welfare system – with all its inequalities, complicated means-tested targeting, exceptions, exemptions, loopholes, paperwork, cheats, dodges, admin errors, fraudsters, bureaucracy and people simply missing out entirely because they don’t know they’re owed money or do but don’t, can’t or won’t claim – is done away with and replaced with a simple, regular payment to every citizen. You can’t claim money you’re not owed (except possibly by claiming for a dead relative or for kids you don’t have) and you can’t be missing out on money you don’t think you’re due. By the way, unclaimed money in the UK welfare system outweighs fraudulently claimed money by more than a factor of 10 and is dwarfed by tax avoidance by up to a factor of 100!


A Universal Basic Income also gives everyone a stake in the system and a guaranteed safety net if and when it is needed (in much the same way that the NHS is open and free at the point of use even if you can afford private care).

One of the downsides of Basic Income is that it does involve a large amount of money transfers. If we wanted to give all 5.3 million citizens of Scotland a Basic Income of, say, £73.10 per week (~£3,800 per year, the same as the current Jobseekers Allowance) then it would involve a monetary transfer of £20.1 billion per year which is only a couple of billion less than the entire social protection program for Scotland (which, of course, pays out a rather larger sum than £73.10 per week to many people such as pensioners and those with disabilities). Now, of course, this doesn’t imply that Basic Income would cost £20 billion per year. The idea would be that some threshold income would be set above which the income would be taxed back off you until the costs balanced and then onwards till you were a net contributor and helped to fund others (or, as an alternate POV, you were paying into the system to cover yourself for the times when you needed to withdraw). Regardless, the scale of the monetary transfers may be a significant bureaucratic barrier but so is the current piece-meal system that it would be replacing.

I fully support Citizen’s Income as a policy for an independent Scotland but we can’t do it now as we don’t have powers over welfare. I’m not keen on putting grand plans on hold till that day though so I’ve been giving thought to how Scotland could achieve a similar goal of a universal safety net using powers that we have right now. We don’t have power over welfare but do, finally and after great trials and tribulations, have powers over most of income tax.

This led me to thinking about a project advocated in 1968 by the economist Milton Friedman. The Negative Income Tax.

The concept is this. Instead of just having a low earnings threshold below which you pay zero tax (The UK Personal Allowance fulfills this purpose here) why not a threshold below which you receive a tax refund?

In this scheme Scotland could set an income threshold, say £16,500 – the equivalent of a full time job on the Living Wage. If you earn less than that in a year, the difference between what you earn and the threshold could be taxed at NEGATIVE 23%. If you only earned, say, £10,000. You would receive as a stipend 23% of £6,500 which is £1,495. If you earned nothing in the year, you’d receive 23% of £16,500 which is around £3,800 – The same as the current Jobseekers Allowance. The tax rate of -23% was chosen specifically to create that latter situation. One could easily imagine different rates or even a progressive system to cover people who fall seriously below the threshold proportionately more than those who only fall slightly under.

This system wouldn’t be a perfect substitution for Citizen’s Income for a few reasons. Most significantly, it is a lot easier to abuse or cheat the system by under-reporting one’s income, for example. If rates and thresholds are set inappropriately it may also lead to disincentives to work at around the threshold where someone converts from a recipient to a contributor though in the simple scheme proposed here this is less of an issue.

Negative income tax does have an advantage over Citizen’s Income by reducing the volume of monetary transfer though as only those who are earning below the threshold receive the stipend rather than everyone.

So how much would this cost? To find out, I’ve done some modelling using available income statistics, in particular the breakdown of income percentiles for the UK (percentile resolution income data for Scotland doesn’t seem to be easily available. If anyone out there knows of someone who does have it then please contact me, I’d be very interested in seeing it) .

Income Percentiles

One shocking thing about the UK is that the threshold we set, of £16,500 per year (which is, remember, the amount that said to be required to maintain a decent standard of living) is not reached until the 32nd percentile. Almost one in three workers in the UK are not earning enough to live on.

If we now add our negative income tax to this model to see how much a median person within each percentile would receive it looks something like the following.

Change in Income - No UR Tax

Something to bear in mind it this income percentile data only includes people who have at least some kind of earned income. It does not include the unemployed or those who are unable to or are not seeking work, the “economically inactive”. The ONS estimates that these two groups together make up around 21.6% of the UK working age population. If we factor that group into the figures modeled here (and assuming that Scotland’s figures are roughly in line with the UK’s which will be good enough for this back-of-envelope calculation) we can estimate that the negative income tax would cost Scotland around £2.4 billion per year.

This is where things get a little tricky for the policy idea. The obvious answer to meet the costs is by adjusting the upper rates of income tax to render the scheme revenue neutral. The problem is that the UK (and Scotland) are predominantly low wage, high inequality countries. We’ve already stated that if you’re on the absolute basic wage you’re already earning more than almost a third of other workers (and this doesn’t include those earning nothing). If you pay the 40% Higher Rate, you’re in at least the 86th percentile – the top 15% of earners – and if you pay the 45% Additional Rate (assuming you are even taking those earnings as “income” and aren’t transferring money into dividends or using more arcane accounting wizardry to minimise one’s tax bill) then you are in at the very least the top 2% of earners. This doesn’t leave a very large tax base from which to levy the required funds (This was one of the reasons that the policy advocated by the Greens for the return of the 50% rate was based on reasons of income and wealth equality rather than revenue raising and did not make any spending predictions or promises based on additional revenue from this band).

If one DID want to raise income taxes to find the £2.4bn then doing it solely through the Additional Rate simply would not be possible. Even raising it to 95% (and assuming that everyone pays it) would only cover half of that bill. In order to do it with the Higher Rate, both Higher and Additional Rates would need to be raised to a minimum of 58%.

Now, a normal, independent country would not face this problem because it would be able to tailor the other half of the balance sheet as well. If a negative income tax is replacing welfare spending then the welfare budget would decrease and the balance sheet would..well..balance. But in Scotland’s case, welfare is reserved so what becomes a simple exercise in government policy which would pay for itself and hugely benefit the poorest in our society becomes a constitutional question and a financial bung of £2.4 billion per year to Westminster. Whilst we have the “powers” to adjust our tax rates, Scotland just simply does not have the ability to use them in any kind of effective manner. Those who demand that “we use the powers we have” whilst blocking the levers which would otherwise allow us to do so should reflect on their actions and words. I’m thinking particularly of our Secretary of State “for” Scotland, the “Right Honourable” David Mundell who, as we remember, has not only taunted the Scottish Government towards “using our powers” but has also threatened to tax any welfare top-ups the Scottish Government might be willing to grant. I hold no great hope of Westminster’s generosity extending to them returning saved welfare money in order to pay for a negative income tax.

I’m open to suggestions at this point. If anyone can square this circle, please…please tell me. I think I’ve found a policy which, on paper, would be within Scotland’s current powers to implement but I can’t find a way to make it work within the pitiful financial constraints of our devolution. I don’t want to have to “wait till indy” to get some of this vital work started nor am I content knowing that people could be helped but cannot be because of Westminster’s refusal to either do it or to hand over the reigns to someone who will.

This shouldn’t be such a difficult process. Only in Scotland, within the United Kingdom, in the 21st century, where we’re told we’re incapable of governing ourselves, whilst those who say that they can govern stand by and either do nothing or actively work against us, does it become one.


An Arbitrary Failure


The relevant passage from the Smith Commission Report. Page 28.

David Mundell, who is currently crowing that the Smith Commission has been delivered “in full”, has just blocked a key element of it.

All of the Smith parties agreed to consult on the possibility of allowing Scotland to issue post-study visas for visiting students to allow them to continue working (and paying taxes) in Scotland, the country which educated them, after they graduate.

Mundell has just blocked that proposal without such consultation and before the Scottish Affairs Committee looking into it has even had a chance to report back. (Story here)

One of the most upsetting moments in my own personal indyref campaign was hearing from a young lass whose partner was one such visiting student. He had come to Scotland to study engineering and, after falling in love both with our country and one of its inhabitants he decided that he wanted to stay, to build his career and to make Scotland his home. Just two weeks after his graduation, the UK Government rewarded his endeavour with arrest, incarceration in Dungavel and deportation.


Protests outside the Dungavel Detention Centre. Source: Wikipedia.

This is not how a civilised country should treat other human beings. Instead, we should be encouraging those who, after all, pay significant sums of money towards their education to find a place within Scotland should they choose to do so. Many will find high paid, highly skilled and highly sought after jobs. Many others will start businesses of their own and CREATE those same jobs. Even the graduates who choose to leave Scotland will, if they are treated with respect, go on to strengthen our trade and business links with the countries to which they go. Something to bear in mind with respect to the UK’s worrying trade deficit combined with a currency value currently at the lowest level since the Tories took power and which is rapidly approaching the weakest value it’s had in 30 years.

Think about it David. If you were incarcerated and forcibly ejected from here simply because you had graduated, would you look upon this country favourably afterwards? Of course not. Would you consider sending your kids to study in a country which threatened to do the same to them? Of course you wouldn’t.

As Smith notes, this policy doesn’t require any additional powers to be devolved, indeed the similar Fresh Talent scheme used to be implemented in Scotland between 2005 and 2008 and was rolled out successfully to the entire UK until 2012 when it was scrapped by the Coalition government.  Mundell’s decision therefore seems especially arbitrary, short-sighted and, frankly, smacks of nothing less than a jumped-up Governor throwing his weight around simply because he thinks he cannot be challenged.


Unweaving Tangled Skeins

The Old Clock Square in Hom, Syria. Left - Before the war. Right - The ruins of the war.

The Old Clock Square in Homs, Syria. Left – Before the war. Right – The ruins of the war.

 It seems certain now that within the next few days or weeks the House of Commons will, for the second time in as many years, be asked to vote to go to war in Syria. I have no doubt that the picture painted will be one of us plucky Brits bravely defending ourselves against an utterly inhuman, utterly irredeemable, utterly evil and, most importantly, completely monolithic force and that after a short, sharp military action peace will be restored and reign supreme. The difference between this time and last is that last time the evil monolith was the Assad Regime. This time, it’s ISIS.

 We always seem to be sold war on such simple terms. Often, we seem to buy it because of them. But the world out there beyond the red-top tabloids is rarely so black-and-white. The conflict in Syria is less so than most.

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Four Conservative Policies Which Attack Your Human Rights

Somehow, it doesn't seem so bad when a comicbook supervillain says it.

In my previous post, I outlined the Conservative plan to strip you of your Human Rights and replace the ECHR (Full text of the Convention here: http://www.echr.coe.int/Documents/Convention_ENG.pdf) with a British Bill of Rights. I maintained then that I didn’t believe that the Tories actually want to remove, in general, any of the rights within the bill but do want to give themselves the power to remove your rights selectively whenever it chooses to.

We will still have to wait to see what any proposed British Bill of Rights actually contains to see if this prediction bears fruit but while reading up on this it has become quite clear to me that several imposed or proposed policies skirt a very fine line with regard to the articles within the ECHR. I’d hazard a guess that if any of your Human Rights are to be removed then the following would be the ones to watch.

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We Need To Talk About: Human Rights

“For too long, we have been a passively tolerant society, saying to our citizens: as long as you obey the law, we will leave you alone.” – David Cameron, 13th May 2015

Well, that didn’t take long, did it? No sooner than a few days after the news that we’re to endure another Tory majority government (albeit one with a majority only barely greater than Major’s 1992 fragile win) and we see what’s in store for us. Almost first on the agenda, an aggressive move against our civil liberties and a move to withdraw the UK from the European Convention on Human Rights.

To understand the significance of this we need to look at the history of the convention and why it came about.

Like much of the early history of the European Union and other such institutions, the ECHR was birthed from the recoil from the horrors of the Second World War and was drafted by the Council of Europe in Strasbourg in 1949. It sought to match the then newly drafted Universal Declaration of Human Rights and was part of the wider strategy by the Allied nations to ensure that no government or country could attack its own or any other populace with the severe violations committed during the war. Over 100 parliamentarians from twelve countries, including the leading role played by the UK, drafted the 59 Articles of the Convention.

Some of these articles are so self evident; such as the right to marry and raise a family, protections against torture, the right to life and freedom from slavery, that it may be a wonder to some that they have only been put into such a convention within living memory. And yet, Cameron would sweep them away. What could possibly scare him so?

Certainly Article 7’s clause against retroactivity may yet cause him problems due to the debacle in 2013 when Iain Duncan Smith’s Workfare program was deemed unlawful until the government decided by fiat that it was and always had been. (See: http://anotherangryvoice.blogspot.co.uk/2013/03/dwp-retrospective-law-fascist-workfare.html)

Even Article 16, which prohibits EU nations from considering other EU citizens as “foreigners” has serious implications for his attempts to restrict welfare, the right to work and the right to free movement within the European Union.

But from what’s been said just this week, it seems that what Cameron is most interested in is avoiding a repeat of the 2009 instance of the near-breach of Article 15 on derogations from the Convention in extremis. In that case (A v United Kingdom: http://hudoc.echr.coe.int/sites/eng/pages/search.aspx?i=002-1647) it was found that while the UK was right to apply to partially suspend the convention in the wake of the Sept 11th attacks the measures it actually took (extending detention without trial and control orders to British citizens as well as foreign terrorists) were disproportionate.

I rather suspect that Cameron’s attempts to replace the ECHR is less about removing the rights entirely but about allowing the government the “flexibility” to bend the rules whenever someone becomes an inconvenient embarrassment much like the case of Abu Hamza al-Masri who spent ten years successfully arguing that it would be illegal to extradite him to a torture using country to face prison conditions which would be considered degrading under British law and where he could possibly face the death penalty (i.e. The United States of America). Now, al-Masri was not a pleasant person and when he finally was deported he was duly tried, found guilty and incarcerated for his crimes but to scrap the entire basis for our human rights just to speed up the getting rid of such inconveniences is simply beyond the pale. It opens us all up to the time when we, too, become an inconvenience. As Cameron has stated, it is no longer a matter of whether we break the law or not.

Our Human Rights are just that. They are Rights. They are not suggestions to be ignored by the government at will. They must be protected and we must oppose the government’s inhumane attempt at authoritarian control.

It has long been the last defence of the proponents of the police state that those who have done nothing wrong have nothing to fear.

It is time for those people to step up now. Read that quote in the opening again. That defence has been shattered by the Prime Minister’s words today. What is your response now?

Further Reading

The Full Text of the ECHR: http://conventions.coe.int/treaty/en/Treaties/Html/005.htm

The Scottish Government’s adoption of the ECHR: http://www.gov.scot/Topics/Justice/law/human-rights/Europeanconvention

More on the ECHR and Scots Law: http://www.scottishhumanrights.com/careaboutrights/howaremyhumanrightsprotectedinlaw

The implications for Scotland if ECHR is abolished: http://www.scottishhumanrights.com/careaboutrights/howaremyhumanrightsprotectedinlaw

14 Myths about ECHR spread by the press: http://rightsinfo.org/infographics/the-14-worst-human-rights-myths/

How abolishing ECHR could lead to indyref2: https://commonspace.scot/articles/1322/michelle-donnelly-why-abolishing-the-human-rights-act-won-t-make-britain-any-more-sovereign-and-could-be-the-road-to-indyref2

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Just a Few Words on the Ongoing Crisis in the Mediterranean.


On the 15th April, 1912 a ship sank in the Atlantic. Of the 2224 crew and passengers, many of them migrants searching for a better life, over 1500 died when the Titanic went down.

As of the 20th of April, 2015 an estimated 1500 migrants searching for a better life have drowned in the Mediterranean this year.

The former humanitarian disaster etched itself onto our collective psyche. Inspired books, folk songs, films, exhibits, and memorials and resulted in changes in international law to ensure that it never happened again.

History will judge us most harshly if we turn our backs on this one.

For a few more words, here’s Frankie Boyle’s take on things: http://www.theguardian.com/commentisfree/2015/apr/20/britain-criminally-stupid-race-immigration

“We have streets named after slave owners. We profited from a vile crime and feel no shame. We fear the arrival of immigrants that we have drawn here with the wealth we stole from them. For much of the rest of the world we must be the focus of bitter amusement, characters in a satire we don’t understand. It is British people that don’t learn languages, or British history. Britain is the true scrounger, the true criminal.”

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