Scotland can increase taxes on income but still doesn’t have the power to go after the super-rich’s wealth – that is controlled by the UK Government and it has been shameless in allowing assets to be hidden, writes Kenny MacAskill.
Budgets north and south of the Border are coming around again. Once more there’ll be demands in Holyrood to increase the higher tax rate. Facing such calls last time from both the Greens and Labour, Derek Mackay, the Finance Secretary, pulled a remarkable rabbit out of his hat, reducing income tax for lower earners but restricting the increase on higher rate earners to 1p. It was actually quite inspired, took most people by surprise and was generally well received.
Of course, the Tories fulminated about a tax on aspiration and other such absurdities. As if that modest increase was going to deter anyone from coming to Scotland, let alone those doing reasonably well and already benefitting from lower taxes on other aspects and better services in Scotland.
Their clamour, indulged by their English counterparts, to compensate military personnel affected by the increase was surely the height of their unbridled charlatanism – demanding it for a very small officer class coming north but ignoring the plight of the “poor damn squaddie” sent south. Some things never change though and looking after the rich while neglecting the poor is par for their course.
Despite the Tory outrage, the roof didn’t fall in after that Scottish budget. Higher earners have neither declined to move north nor has a southward exodus of the wealthy taken place. The flight of the super-rich hasn’t been from Scotland over tax but from the UK over Brexit. Even shamelessly by those that supported it but choose to leave the consequences to be faced by those without the resources to flee.
It appears that any reduction in estimated tax take that’s occurred hasn’t been due to attempts to evade payment but rather through over-estimation of the numbers in that category in the first place. So, Derek Mackay’s pragmatism has worked well. A point of principle has been established that those with most should contribute most, especially at a time of hardship for many.
This year he’ll face calls to up it yet again. Tax the rich till the “pips squeak” as Denis Healey, when a Labour Chancellor, once reportedly said, though he always denied it. Knowing the Finance Secretary, I’ve no doubt he’d be sympathetic to that and in that I’d agree with him. When Healey was talking tax rates really did bite.
Not the supposedly punitive 46 per cent here in Scotland but 83 per cent and more if investment surcharges were added in. It took a while for Tories south of the Border to later lower them to the levels they now stand at. Revenue was needed and a social consensus had to be maintained that the rich should pay most.
But, that consensus has been abandoned not just in the UK but in many places around the world as a race to reduce taxes has taken place. The “Laffer curve”, viewed by some as the template, whereby lower taxes for the rich bring in more for all, has never worked. The rich have got richer, the poor poorer and the gap between the two has become a chasm. More importantly, an increased tax take there has not been. So, for the sake of fairness and the well-being of all, tax there must be and it must place a higher burden upon the wealthy.
But, that’s where the taxing times begin. The Scottish Government’s Council of Economic Advisors has warned against a further increase in the top rate, arguing that it would be counterproductive. That group isn’t the Taxpayers Alliance or any other organisation funded secretively but acting openly in the interests of the super-rich. Instead they’re a bunch of “wise owls” with knowledge, experience and a commitment to the common good. Their advice has to be heeded.
There comes a time where head has to rule heart and pragmatism has to take precedence. Otherwise, it’ll be a self-inflicted wound where ideology will restrict needed funds for distribution to the less well-off. That’s not just the result of the border with England but the reality in a global world. Those with money and, often though not always, skills can be mobile. They can choose where to live and work. Efforts need to be made on a wider scale than simply Scotland to get a fairer tax system. That’s not just within the UK, but the EU. It’s why many of the super-rich clamoured for Brexit – to undermine such international cooperation and restore the race to the bottom, leaving not just the poor damn squaddie but the low-paid worker to face the brunt.
Mackay will face criticism for it and that’s shameful. Those seeking a fairer society need to realise that it’s not wages that’s the issue now but wealth. The number of high-rollers is limited and frankly most folk don’t care that footballers or others can earn large sums, just that they should pay more than the rest of us.
The real issue is that wealth and other assets face considerably less tax generally and that’s compounded by clever accountants. Tax can be avoided entirely by placing wealthy abroad in tax havens. Added to that have been reductions in inheritance and other taxes on wealth. The Scottish Finance Secretary has little or no powers over most of those areas, yet that’s where the gap between rich and poor is really widening.
Of course, Labour and the Greens may well castigate him for his timidity but that’s the luxury of opposition and low politics, as they won’t face the invidious position of having to deal with the reduced tax take.
But, their real shame will be that in attacking Mackay and making a higher tax rate the issue, they let the super-rich off the hook. Those areas beyond his control are where efforts should go. Westminster has been shameless in allowing assets to be hidden and opposing international efforts to close loopholes. No wonder organisations like Transparency International castigate the UK.
So, if Labour and the Greens really want to redistribute wealth they should shift their calls from wages to wealth and support the pragmatism of Derek Mackay. Let’s tax the wealthy’s assets not just high-wage earners’ pay.