Scotland’s Problem: Low Taxes

IS there anything new to say about the latest GERS figures?  Perhaps.  According to GERS, the nominal Scottish tax income was 65.9 billion, including North Sea oil revenues.  That works out at 37.4% of GDP.  Which by international standards is a very low slice of the national cake.  Which suggests that if an indy Scotland did have anything like the deficit claimed by the Unionist camp, the cause is not Scottish inefficiency or poverty. Rather, it is a function of the neoliberal British state and its obsession with low taxes.
Let’s compare that 37.4% to what other counties take as state income.  We will use official OECD stats for 2015 (the latest on their website but it has only gone up since then).  These figures cover all revenues collected by all levels of government.  In Germany the state took 45% of GDP in revenues, France (53.2%), Denmark (53.2%), Norway (55.3%), and Sweden (49.3%).
So: all significantly greater takes than Scotland.  By the way, the OECD figure for the UK puts state revenues at 37.7% of GDP (in 2015) compared to Scotland at 37.4% (in 2019).  So much for all that rubbish about Scotland being the most taxed part of the UK.
My real concern is the huge gap between the percentage of GDP taken by the UK state (which really determines the Scottish take) and the amount other jurisdictions capture to pay for their welfare state and infrastructure investment.  For the record, the gap (in points of GDP) between Scotland and other countries is as follows: Germany (+7.6), France (+15.8), Denmark (+15.8), Norway (+17.9), Sweden (+11.9)
I confess I redid the French and Danish calculation because even I could not get my head round the fact that both those nations take a truly massive 15.8 percentage points more of GDP in state revenues compared with Scotland.  The gap with Norway is even larger at nearly 18 points of GDP.  This, ladies in gentlemen, blows any talk of a structural Scottish budget deficit out of the water.  The problem, if there is one, lies in the low, neoliberal tax regime pursued by the Tory government on behalf of its City friends and backers.
Let’s imagine an indy Scotland garnered taxes and other revenues at the same level as the rest of capitalist Europe, and in economies far more successful than the UK.  Suppose we set state revenues at the French/Danish level of 53.2% of GDP.  That would yield the Scottish Government (all levels) an income of £93.9 billion, not £65.9 billion.
That’s an extra £27.7 billion more that the GERS figure for Scottish state income.  This income would provide a budget surplus of £12.6 billion, not a deficit of £15.1 billion.  In fact, the surplus would be 7.2% of GDP, not an 8.6% deficit. Theoretically, we could actually afford to spend more, cut taxes, or do both.  It compares to the UK deficit of 2.5% of GDP in 2019-20.
Let’s do that again using Norway as the comparator.  If an indy Scotland raised revenue at Norwegian levels (55.3% of GDP) it would garner an extra £31.4 billion in cash each year, yielding a budget surplus of £16.3 billion, or 9.3%.  I dare say, if we did run such a surplus, we would be the most credit-worthy state on the planet.  And we could use our spare cash to buy huge diplomatic leverage.
Unionist critics (especially neoliberals) will claim that higher tax levels will cripple the economy.  The blindingly obvious reply is that the countries we are using as comparators have regularly outperformed the UK. The explanation is not hard to find – they can afford to invest more in training, research and welfare.  The neoliberals have the argument the wrong way round – higher state revenues, provided they are productively used, actually stimulate economic growth.
The next counter argument carries more weight.  Raising Scottish state revenues to French and Scandinavian levels might be difficult to achieve instantly.  It might lead to the self-interested or the malicious removing their capital from Scotland.  Also, raising taxes and charges might divert cash from existing productive use into state coffers, reducing investment and consumption in the short run.  How do we answer these worries?
Capital flight can be addressed provided we have our own Scottish currency and central bank.  Witness how Iceland successfully blocked capital flight after the 2008 banking crisis. This brings us back (yet again) to the hopeless notion promoted in Andrew Wilson’s infamous Growth Report that indy Scotland should keep the pound sterling – the very arrangement that virtually guarantees capital flight.  Sterlingisation is a policy that needs to be junked.
Capital flight aside, I’m more concerned with how the mechanics of the transition from present low levels of tax might impact on distribution and consumption. Could we really take a chunk of GDP (say the equivalent of 5% of GDP to start with) and transfer it to the state?  I think it is possible.
I’d suggest we start by raising a wealth tax on land, which is pretty difficult to avoid and won’t depress consumption.  If wealthy landowners balk at paying up, ScotGov can seize the assets and rent or sell them off.  Also, present taxes on oil and energy production are actually extremely low by global standards and can be raised.  Again, we can just tax away the utterly daft electricity subsidies that UK Labour and Tory governments have promised big global energy conglomerates such as EDF. We can also extend the coverage of VAT over luxury items and raise import taxes.
At the same time, by directing more government purchasing power to domestic manufacturers, we can actually create new revenue streams.  Take one example.  Perhaps the greatest economic failure of the SNP Government has been in not creating green jobs (and therefore more taxpayers).  Back in 2010, the then Economic Secretary John Swinney promised a jobs bonanza from the expansion of offshore wind farms.  Earlier this year it emerged that only 6% of the promised 28,000 direct jobs had actually arrived.  Official Office for National Statistics figures show there were just 1,700 full-time jobs in the offshore wind sector.
Suppose we had created 28,000 new wind farm jobs.  Around 28% of the cost of employing the average worker on £28,000 ends up with the Treasury.  We have lost at least £200 million a year in income tax and national insurance payments from these non-existent workers.  Any creative Scottish administration could certainly get revenues closer to Scandinavian levels inside a couple of parliamentary terms if it were free to grow the economy and create local jobs, on its own terms.
For inexplicable reasons, Finance Secretary Kate Forbes has just abandoned plans to produce an annual “economic case” for independence.  This is a horrible own goal that the Unionists will use against us.  It is particularly silly, as the economic case for independence is very strong.  It is neoliberal policies set in London that are the problem.

Comments (40)

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  1. Murray says:

    It’s always the same old ,same old rubbish. Half a story with none of the truth, let’s have the full tax take for the North Sea to see what percentage the Westminster Mafia are hiding .

  2. Andy Anderson says:

    Thanks, George for this interesting way of examining GERS figures. The continuing failure of the Scottish Government to collect and publish relevant statistics for Scotland is moving from negligence towards criminality against the independence cause.

  3. Douglas Wilson says:

    Thanks to George for shedding some light in the week of the annual GERS pasting of Scotland by the rabid right wing English media, a time-worn tradition by now…
    As always needs to be pointed out, the UK is the most right-wing country in Europe by miles..
    By miles!!!…
    The Tories, the Labour Party and the SNP are all on the right wing of the political spectrum, it’s a question of degree…
    It is also worth pointing out that the kinds of taxes collected in Scotland, like the Community Charge, do not exist in neighbouring EU countries..
    The Community Charge – a flat rate charge with some minor variations depending on the size of house you live in – is the successor tax of Margaret Thatcher’s poll tax.
    The poll tax – a flat rate tax levied per head to pay for local services (libraries and garbage collection say) irrespective of income or ability to pay- is a medieval tax in origin. It was the tax which wicked King John inflicted on English peasants back at the time of the birth of the Robin Hood myth (although it’s possible I just made that up)…It is the most primitive form of tax taking, unfit for a modern society…
    That the SNP have maintained the Community Charge, the marginally fairer successor tax to the Poll Tax, is a major betrayal of Scottish voters who marched against Thatcher’s poll-tax, who refused to pay it and, in many cases, even went to prison as a result – for example, Tommy Sheridan.
    How can Nicola Sturgeon who is a working class woman from the same generation who refused to pay the Poll Tax have sold out so much she goes along with betraying the SNP manifesto and keeping the Community Charge?
    It’s just wrong and is very bad politics by the SNP…

    1. Douglas Wilson says:

      PS: If it wasn’t for the mass activism of Scottish civil society back in the 80’s and 90’s, there wouldn’t be a Scottish Parliament in the first place and Nicola Sturgeon and John Swinney would be humdrum local councillors or similar if they were lucky. The Office of First Minister of Scotland was won by the common working people of Scotland, through their activism and commitment to a fairer society, and it is time the SNP hierarchy started remembering that fact and reflecting it in terms of the policies they enact into law…

      1. Douglas Wilson says:

        As a marker for just how right-wing the poll tax is – and any levy based on the principle of a flat tax for local services – the notorious Esperanza Aguirre, the godmother of the corrupt PP ruling party in Madrid, introduced an annual flat tax on all residents of Spain’s capital for the collection of garbage.
        But the matter was taken to the Spanish Constitutional Court where Esperanza Aguirre’s PP government lost, the tax being ruled unconstitutional by Spain’s highest court…

  4. Clwyd Griffiths says:

    Uk companies and multi national companies operating in Scotland pay corporation tax, does GERS take into account that that tax revenue is coming from a head office in London and apportions the tax paid as Scottish contribution? And what about all the other stealth taxes, does GERS note them as Scottish contributions?

  5. Alex Mitchell says:

    Denmark has a land tax. It is truly difficult to understand why the Scottish Government has failed to open debate and gain consensus on this. It can be implemented with existing powers. George makes good points, but this time has not mentioned the allocation of UK expenditures that will have no relevance in an independent Scotland.

    1. Wul says:

      It’s only “difficult to understand” from the point of view of a country run for the benefit of it’s citizens.

      From the point of view of a country run like a holiday playground and tax haven ( land, forestry, shooting estates) for a small band of toffs who wrote all the laws to benefit themselves, it is quite easy to understand.

      Our government is either scared of, or beholden to, this small band of descendants of thieves, robbers, slavers and murderers.

  6. Ian McCubbin says:

    Excellent George, nailed it and put to bed. Lets hope the Tory Referee reads it and learns.

  7. Donald McGregor says:

    I like this. How though do the figures that are being percentaged stack up? Are they true figures? I thought one of the key arguments against GERS is that the figures are skewed because some wonky items are credited to London while others are debited to Scotland?
    It’s difficult from these figures to suggest that Scotland’s economy is anything other than the same as the UKs?
    So do we now accept GERS and just get on with Indy? This adds to my absolute lack of understanding of what I should/ could be offering to potential converts in idle conversation.

    1. Iain says:

      It gets harder every year to argue black is white.
      Especially when every SNP politician backs gers

  8. Craig Fraser says:

    People should download HMRC disaggregated tax and NIC receipts report released December 2019 and HMRC block Grant transparency report released July this year. £45 Bn collected, £30 Bn returned by block Grant this is a net figure returned as £9 Bn is collected by devolved taxes? So gross block Grant is £39 Bn

    1. Donald McGregor says:

      Got links for these Craig?

      1. Craig Fraser says:

        Hi Donald

        I noticed the following
        *HMRC disaggregated Tax and NICS report page 12 tax collect £45.120 Bn 2017/18
        *HMRC Block Grant Transparency report page 8 £30, 906 Bn 2018/19 minus £12.5 Bn adjustments
        *HMRC Block Grant Transparency report page 9 FAQs states Q: Why are there totals ‘before adjustment and after adjustment’? A: basically Westminster reduce our block grant by the amount of devolved taxes attributable to Scotland? They are in effect giving us our own money back. And we are supposed to be grateful?

  9. Ian Hopper says:

    The MMT take would be iScot gov with own currency could increase its rate of money creation into economy through increased public spending, then match this with increased tax take to cancel as much of that new money when and as was required to control inflation. The productive capacity of the real economy being the limiting factor.

    Where the taxes fell would depend on where the inflation risk needed them to be, then what other social or economic outcomes (redistribution, incentive etc) were wanted..

    Either way an independent currency is key.

    1. david black says:

      Tragically Growth Commission thinking has dragged the SNP hierarchy back to the logic of the Chicago School. The inward investment model (see what it’s done for ownership of our once native whisky industry!) has a major downside – profits are expropriated and annual accounts made up in London, the British Virgin Islands or Luxembourg, were taxes are (or are not!) paid. One conundrum is that our much deracinated big banks and pension funds would as usual threaten to relocate their HQs to Oligarchopolis-on-Thames in the event of independence, but I’m sure we could handle that.

  10. Mary McCabe says:

    Isn’t it time we taxed unproductive land? Land can’t be removed from Scotland the way capital can. And taxing it encourages landowners to either develop the land (so as to pay the taxes) or sell it (thereby diversifying ownership). It’s win-win.

    I moved a resolution at SNP Conference a couple of years ago to look at taxing unproductive land. The resolution was passed unanimously.

    The other day I asked the Scottish Land Commisssion what progress had been made since. They said they were working on it.

    1. Iain says:

      Who would buy this taxable non-productive land? Out of interest?

      1. Mary McCabe says:

        Community buyouts are very popular. Once a community buys a swathe of land it often gains a healthy population and becomes developed.
        One of the most common barriers to buyouts is raising the price asked by the landowner. Putting a tax on the land will in itself cause the price of land to fall. And land left unsold will still raise taxes for the Government.
        In urban areas, too, there are plenty of plots of “waste” ground. In some cases ownership is unclear. If the land was taxable, effort would be put in to identify the owner.

    2. Ray Bell says:

      It depends what you mean by unproductive land. If you look at a satellite image, then it’s obvious most of Scotland consists of mountain tops, rough country and inlets. There is a big difference between unproductive land in Midlothian and Buchan from the same in Moidart and the rougher bits of upland Galloway. That’s got to be taken into account.

      On the flipside, the Duke of Buccleuch makes a similar argument. While a lot of his land is rough Border country, he also owns land in and around Dalkeith which must make him a mint.

  11. SleepingDog says:

    It makes sense to use taxation to cut down excessive consumption, political influence and corruption, elitism and all the associated evils. We might express this in various forms, such as a ration between (adjusted) minimum and maximum incomes; and/or with regard to planetary realism, what limits individual shares of Scotland’s resource footprint (adjusted) impose. Individuals and (family) groups will need very little private income if the country brims with public wealth, services and commons. Therefore it should be possible to present a rationale for a very low calculation of what may be considered excessive.

  12. Mary McCabe says:

    I was horrified when Kate Forbes was asked repeatedly if she would produce the economic model GERS for an Indy Scotland which had been promised by Derek Mackay and she repeatedly gave the stock answer that she was too busy with Covid. So would she do it next year? No, she would still be too busy with Covid.
    There must be some way of putting pressure her on her from OUR side -because the Unionists certainly will.

    1. Douglas Wilson says:

      Hi Mary

      Kate Forbes is yet another one of Nicola Sturgeon’s highly dubious appointments.
      Nobody is doubting the intelligence, talent and professionalism of Kate Forbes, but she has no experience of office and is very young to be in such an important post. It is unheard of in European politics for someone her age to be handed such an important portfolio.
      In the middle of a Covid crisis and on the verge of independence, we have a person with no experience in one of the most important jobs in the land.
      Again, the suspicion is that Nicola and Murrell appoint people who they know won’t rock the boat…
      Whichever way you look at Sturgeon’s cabinet, it is not one chosen to win independence…

      1. Douglas Wilson says:

        As for Ian Blackford at Westminster, he still hasn’t laid a glove on Boris, and no matter how provocative his tartan ties and tweed waist coats may get, he’s never going to seriously discomfit them…
        It was an embarrassing sight to see him demand a referendum from Boris just a few months back if the SNP win big next May…
        “You better give us a referendum when we win big in May, Boris, or, or, or…”
        “Or what, Blackford? Whatcha gonna do about it, boy?”
        “Well, I’ll, I’ll, I’ll…”
        All of this at the same time as Blackford was briefing the Spanish press that the SNP would never hold a referendum which wasn’t agreed beforehand with London, or so I read in El Pais,subtitled these days ever so modestly as “THE GLOBAL NEWSPAPER”…

  13. Ray Bell says:

    Alright for George Kerevan to say as he is pretty well off. The fact is many ordinary people are already taxed up to the eyeballs – they struggle to pay council tax, their cost of living is driven up by VAT, carbon taxes on utilities etc. The majority of the cost of petrol/diesel is government tax, which affects people’s transport costs whether they use buses, or have to have a car (since public transport is inadequate across Scotland)

    I know it is common on the left to argue for higher taxes, but we should be arguing a lot more about who gets taxes and where, and what current taxes are spent on. Most taxes today are wasteful, and end up paying for vanity projects, bloated managerial salaries, junkets and things which are of no use to ordinary people. The carbon taxes are often a con too, since a lot of that money doesn’t go to environmental causes, and they hit poor people the hardest.

    1. Ray Bell says:

      p.s. I know someone might make an argument about electric cars, so I’ll pre-empt it. The infrastructure for electric cars outside the Central Belt is still inadequate, and that needs to be sorted. Also a huge chunk of the electricity cost is also tax. So same problem again.

    2. Alan McNaughton says:

      Ray, George & I are Not wanting to increase the Taxes on at least 90%+ of the Alba population! So Your spurious argument is so Right Wing & Won’t be acceptable in Alba!

      1. Ray Bell says:

        I wonder if you or Mr Kerevan have ever visited Scott & Company? They used to have an office down in Leith, now it’s in Edinburgh New Town. This is where people get sent when they can’t pay Edinburgh council tax. You go down a small set of stairs into a dingy room with two counters and you usually get served by a blonde woman or an older man with greying hair. I doubt Mr Kerevan knows much about that side of life. Nor do you. But hey it’s right wing to bring that up apparently.

        Or maybe you could talk to people whose gas has been cut off because they can’t afford it. A lot of that gas bill is fuel duty. Another tax which is not income or wealth related but hits the poor hardest. Tell us again how it’s right wing to discuss how tax burdens often fall hardest on the poor!

        I also don’t think it’s right wing to question how tax is spent. A lot of UK tax goes on nuclear weapons, wars or the royal family, and just raises the cost of living. At the local level it goes on fat cats and quango type groups, brand managers etc. Or moving Scott & Co. to a New Town office. People want decent healthcare, schools, roads, libraries etc, not to put someone on a six figure salary. Tell me how it’s right wing to point that out? If you’re going to have high taxes, you need accountability, protection against corruption, proper safety nets and something back for every tax payer. Why should poor folk pay rich people to go on fact finding missions to Florence or Seattle?!

        1. J Galt says:

          Yes it’s very “right wing” to talk about protecting poor people, which after this “event” we are all living through will be the majority in Scotland.

          Nobody would would wish more than me to see the Duke of Buccleuch’s pips squeaking, however that is not how it would work without radical change.

          For the majority of Scotland’s population Scotland’s economy is a basket case – yes there is vast potential – however there would have to be an enormous effort to equip Scotland’s demoralised and poorly skilled population to realise this potential – once that has happened we can talk about a greater “take” by the state.

          Also the way government spends has to be sorted out, for example – the Ferguson/Calmac scandal, paying £230m (and counting) for two poorly constructed ferries, years late, that should have cost around £95m on the open market – a disaster purely down to the Scottish Government and it’s agencies.

  14. Alan McNaughton says:

    YES! Once again I agree with George Kerevan! He agrees with Me that an Independent Alba Will be able to Get the Crown Land Rents & Introduce a Wealth Tax on All Properties Worth £500,000 or More, that Includes the Value of the Land that the Properties are built on!

  15. florian albert says:

    Those furthest away from the voters are usually those most keen to raise taxes. The SNP’s political success, from 2007 on, was built round the policy of freezing Council Tax. This policy remained in place for close to a decade. The SNP has tinkered with the tax system but been unwilling to make the sort of change George Kerevan is proposing. There is little likelihood of it changing radically for the foreseeable future.
    Similarly, there is very little evidence that the Scottish people would be willing to pay taxation at the level imposed in France. (Not incidentally, recent French presidents have been trying to reduce this level.)
    There are different reasons for this reluctance, some reasonable, others selfish. Many Scots know that they pay taxes for services such as schools but then have to pay a premium to buy a house where their children are likely to get a better than satisfactory education. Others see taxes being used to pay for a massively over-budget Parliament building and an unwanted tram line. They do not trust either the Scottish government or local councils to spend more revenue wisely.

    Since George Kerevan hopes to raise some £9 billion in tax, can he explain how much will be raised by his proposed wealth tax on land ?
    Will it be a one off – ‘windfall tax’ – or an annual charge ?

    1. SleepingDog says:

      @florian albert, yes, we know who consistently object to paying taxes: criminals, royalty and the anally retentive. We are familiar with the “low-tax” tribe with their predilections for bungs, bribes and backhanders. The point is to throw their silhouettes into sharp relief with the acetylene torch of taxation, and lop off their excess, fiscally-speaking. Excessive consumption has commonly been viewed as a vice in these islands, and it can be again, without lapsing into puritanism. General population peer pressure shifts rapidly once a state of emergency is felt.

      1. Ray Bell says:

        And those who struggle to afford them. Scotland’s taxes fall on the the lower half, not the superrich who can afford fancy accountants.

        1. SleepingDog says:

          @Ray Bell, that is a fair comment, and why I put “low-tax” in quotation marks. The tax burden in the UK falls disproportionately on those with lowest incomes and wealth. Far more fraud is perpetrated by tax evaders than benefit cheats, according to Citizens’ Advice Scotland:

          I do think there could be (in relatively corruption-free societies) a reasonably strong correlation between high tax and democratic heft, simply because of the taxation-representation link. If a BBC licence payment granted voting rights, we might see this in action. However, unhealthy overconsumption can still be a problem even in lower-earning brackets in the ‘developed’ world. My view is that taxation should abolish the rich, not punish the poor.

      2. florian albert says:

        You describe those who are reluctant to pay tax as royalty, criminals and the anally retentive.

        The first are a negligible grouplet, the second, thankfully, a small minority and I do not feel qualified to comment on the third.

        You have to ask why the SNP persisted for so long with a policy – the council tax freeze – which benefited, not the groups you refer to – but the large and prosperous section of the Scottish population; the property owning middle class.
        Like I say, it is easy to propose high level of taxes when not involved in electoral politics.

  16. Lorna McAllister says:

    Effective collection of the taxes which are currently avoided by the richest would be very helpful. All loopholes need to be closed.

  17. Andy says:

    I would suggest we ought to have some good detailed conversations around and understand more about Modern Monetary Theory (MMT see Richard Murphy, Time Rideout, Stephanie Kelton, et al for more detail). The theory outlines the proposal that an independent Scotland must have its own sovereign currency (Scottish Pound or Merk or whatever we decide to name it), and a Scottish Reserve Bank. Therefore, as a currency issuer Scotland would be able create money out of thin air (exactly what WM and the BoE did for QE and the Covid19 costs) to spend into the economy on the programmes that would benefit society – infrastructure, jobs for work needed, UBI, etc. My understanding is that under MMT higher taxes are only required when we have full employment and there is a need to withdraw money from the economy to dampen the risk of inflation. Worth looking at and joining the Scottish Currency Group on Facebook to find out more here

  18. william robertson says:

    I understand that oil which is taken direct from north sea and not landed in scotland is for tax purposed for VAT registered in London and accordingly do not feature in the GERS figures.Equally I understand that imported Oil [oils not produced from north sea]are for tax purpose registered in ABERDEEN meaning we bear the negative VAT within GERS figures.Again my understanding is that these are historical realities and that the Treasury is rearranging the tax arrangements.And ofcourse they will be benificial to Scotland.
    The 12 mile limits appied to the Isle of Man and the Channel Islands would mean that non of the Oil finds fall within the Shetland and Orkney 12 mile limited.The Scottish and equally the UK Limits of 200 miles keep them within the UK/Scottish tax area.
    Lastly the area around Rockall disputed by Ireland was made part of Inverness shire in 1970 by the then Labour government

  19. Pete Lloyd says:

    Increase tax on oil? That seems like a good idea when the use of oil and value is sinking fast. The UK and Europe are going all-electric for transport in the next ten years. Even Saudi Arabia is trying to change from an oil based economy.

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