Reforms for Recovery

We will beat this virus. Once the virus itself is under control though, there will still be economic consequences to mend. It’s already widely commented that failures of planning in Westminster and Washington have needlessly exacerbated the impact. At the end of 2020, the World Economic Forum revealed that “9.8 million fewer Americans were in work at the end of November compared to February”. The same week, the Financial Times reported that Westminster vacillation and refusal to clearly commit to extending furlough schemes had fed into an additional 370’000 redundancies across the UK in just three months.  For those still in work, reduced furloughs, unsteady contracts, and even something as simple as increased heating bills for folk now working at home through winter all add to the pressure.
The risks of abandoning necessary measures too early speak for themselves. Rather, clear plans for relief during and recovery after the pandemic.
Easing pressures on tight incomes is important, both individually and societally. The individual benefits are both manifold and I’m sure self-obvious. As a society all our incomes, pensions and wages are the fuel that drive Scotland’s economy. When times are bad for working and lower-middle Scotland, when people have less to spend, less is spent. When there is less business to go around, it is smaller and local businesses that bear the brunt of the knock-on effect. Quality jobs and businesses suffer whilst the Amazon’s of the world slip in to fill the gap with dodged-taxes, dubious wages and record profits for the American billionaires or whoever is at the top. It is not strictly coincidence that Britain’s billionaires have seen their wealth increase by 27% during the crisis as high streets struggle. Or that the ten richest men in the world saw their collective wealth increase by nearly £330billion over the course of the pandemic alone whilst whole ecosystems of small and medium businesses around the world have faced financial drought.
Hence the overall importance to the country as a whole of easing pressured incomes for both relief now and recovery afterwards. Wealth rarely trickles from the top downwards, but prosperity lifts all when it wells from ground upwards.
The reforms to encourage this don’t just happen by chance. There’s a growing majority sense that if Westminster won’t act, we should have the powers to do so ourselves. Many such necessary powers are still held at Westminster, but could it be that some of Holyrood’s most distinctive issues since devolution could offer real help in the meantime? For a prime example, with seeds sown in the 1990s and roots grown in the Rainbow parliament, replacing the Council tax with an income-based alternative could help the pro-active recovery plan we need.
Proposals to scrap John Major’s old council tax and bring in a new local income tax have been a steady feature of the Scottish political landscape for years. Perhaps even from before the council tax was even finalised as the stop-gap replacement for Thatcher’s Poll Tax. In many ways it typifies the kind of policy that early devolution was tailored to reform. At Holyrood, it was Scottish Socialist Party MSPs who first formally proposed an income-based replacement to the council tax in 2004. Polling showed around 77% of the country supported some form of income-based reform. Indeed, less than three years later a local income tax was a key plank of the Scottish National Party’s winning 2007 manifesto for government. What followed was the council-tax freeze. Certainly, a welcome first step whilst it held but minor tweaks are no substitute for true reform.
Let’s be honest, the phrase “local tax reform” may strike boredom into the hearts of some, but the potential results of something as common-sense as linking tax to our ability to pay are electrifying. Such a model is common across parts of Europe for good reason.
It’s simple. When incomes fall, our ability to pay falls. When incomes rise, our ability to pay rises. Whilst flat-rate, property, or location-based models cannot easily adapt with the individual, income-based models do. Consider the proportion of a state pension a council tax bill can represent. Often too high and wildly variable. The narrowness of current Council tax bandings, and their disconnect from ability to pay disproportionately drags costs upwards for those on lower incomes. The same process artificially drives them down for those on higher incomes. In 2015, for example, figures showed that the top twenty percent of earners were asked for an average of less than 1.7% of their income in Council tax, versus an average demand of 5.2% of income for the twenty percent at the lower end. It is perfectly reasonable to suggest those figures should be more consistent.
An income-based model with a good tax-free threshold on initial earnings can do exactly that. Level out those percentages by reducing bills for those who lose disproportionately highly from their income whilst adjusting upwards those who currently pay disproportionately little.
The iniquities of the current model rise to extremes where incomes are more tightly pressured. The Citizen’s Advice Bureau published statistics in 2005 that 25% of all debt related cases they worked with involved Council Tax Debt. By 2009 that had risen to nearly 33%. Now the CAB has issued repeated warning that entering 2021 these case numbers are set to skyrocket.
At a time when higher rates of unemployment and underemployment require fending off and rising bills come nipping at the heels, linking tax bills to ability to pay could be a welcome relief for all concerned.
Exact details and models vary. For example, the Scottish Socialist Party’s proposed model would see around 70% of households lessen their bills to some degree. Others prefer a lesser change. Some models also seek to increase the overall tax revenue at the same time to help fund those universal public services that have proven so important during this pandemic. Others aim for simple fiscal neutrality. You’ll notice then, that this is not an expensive reform. If anything, you could even use it to pretty equitably increase public funding.
For all that the current landscape is so dominated by massive global issues, we should never forget the diversity and ingenuity of our own political landscape at home, nor miss how much it can help us through the current quagmire.  We’ve seen the importance of school meals in England’s national discourse over the last few weeks they have during times like these. Free School meals were themselves another reform formally moved at Holyrood during the Rainbow Parliament by SSP MSPs again with themes and elements then adopted by subsequent SNP governments and indeed now embraced by many others across the board. How many such prescient reforms for today already in circulation, raised by different voices across the country? The new normal that emerges from the end of this can see a better deal for working and lower middle Scotland at its heart. Exploring the next chapters of some of devolution’s most distinctive questions could be a valuable step on that road to recovery.


Comments (7)

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  1. Julian Smith says:

    “increase the overall tax revenue at the same time to help fund those universal public services that have proven so important during this pandemic”. I agree that taxation must be made fairer but we need to make a conscious effort to stop framing taxation as paying for public services. Richard Murphy gives a very succinct explanation in this shirt video:

    1. Julian Smith says:

      “short” video.

  2. Greum Maol Stevenson says:

    Who is “we,” and what does it mean to “beat” the virus?

    1. Zoonotic Huawei says:

      Good question Greum.

  3. Keith MacDonald says:

    Re “Polling showed around 77% of the country supported some form of income-based reform. ”
    Yea, sure. That probably means around 77% are going to be bitterly disappointed. Like an honest attempt to balance the books. A truly independent Scotland comes at a price. Getting the super-rich to pay for it is a fantasy, as they can move their companies registered office, and their address for tax purposes. That just leaves the same 77% of “ordinary” people who have to pay more.

    Re “the Scottish Socialist Party’s proposed model would see around 70% of households lessen their bills to some degree”.
    Models can be used to support anything you like. I have a model where the price of oil in Scotland is magically twice what the rest of the world pays, Scotland’s deficit is magically wiped out, and Santa Claus delivers a sack load of cash to every household. Would you buy that?

  4. Zoonotic Huawei says:

    All of the problems mentioned in the article stem from lockdowns. Bellacaledonia supported those lockdowns and even called for them to be deepened and extended.
    The lockdowns were not an inevitable consequence of the virus reaching Scotland.They were a political choice. Sweden chose not to lockdown and just recorded one of its lowest mortality years in its history.

  5. SleepingDog says:

    Sure, wealth evaporates upwards under our current political-economic system, as it is designed to do. But in the tax mix, do we really want to be getting rid of a wealth tax, however approximate? The old anarchist distinction between wealth (stuff that contributes to healthy living) and riches (excess that poisons the planet, deprives others, corrupts democracy etc.) may be a good guideline. And while the rich tend to have ways to avoid paying tax, houses are particularly difficult to shift or hide or disguise the size of.

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