Welcome to my Blog

I am a semi-retired former Scottish trade union policy wonk, now working on a range of projects. All views are my own, not any of the organisations I work with. You can also follow me on Twitter. I hope you find this blog interesting and I would welcome your comments.

Wednesday, 31 August 2011

Bankers at it again

The bankers and their big business allies at the CBI are at it again - lobbying against regulatory reform of the banking system. The proposals, due to be published on 12 September, are aimed at ensuring taxpayers are not liable for any future losses or bank collapses, including ring-fencing banks' retail operations.

CBI Director General John Cridland said taking action now could starve businesses of the capital they needed and damage the economic recovery. However, Business Secretary Vince Cable has said the reforms will go ahead. He described the CBI's line as "disingenuous in the extreme. Banks are in a way trying to create a panic around something which they know has got to happen".

The 'spivs and gamblers' as Vince cable once described them are at it again. The only amazing thing is that these reforms have not already been introduced. The banking crisis was in 2007 and if you read the Treasury's response, it sounds like the CBI might get a better hearing there. 2015 or later for legislation?

The US at least has the Dodd-Frank Act. Even that was watered down by the usual suspects bemoaning the increase in regulatory powers, claiming it should all be left to the market. Even Adam Smith and Milton Friedman turned away from “free banking” to support, albeit limited, financial regulation and legislative reform in the wake of banking crises in their lifetimes. Smith’s views were influenced by the 1772 crisis and the failure of the Ayr Bank in Scotland. Friedman’s views by the U.S. banking crisis of 1930–1933.

Others predicted the resistance to change. Joseph Stiglitz in his 2009 book 'Freefall' used the plumbing analogy (p295):

"We called in the same plumbers who installed the plumbing - having created the mess, presumably only they knew how to straighten it out. Never mind if they overcharged us for the installation, never mind that they overcharged us for the repair. We should be grateful that the plumbing is working again, quietly pay the bills, and pray that they do a better job this time than last."

In the afterword to the paperback edition he called the Dodd-Frank Act a "Swiss cheese bill - seemingly strong, but with large holes." The man certainly knows how to use the English language! He also correctly predicted the "rewriting of history" that the usual suspects have been busy at in both the UK and USA.

I will leave the final word to David Hillman, of the Robin Hood Tax campaign:

"An out of control banking sector is no basis for economic recovery. Banks should be made to pay for the damage they caused and not be allowed to repeat the mistakes of the past. We must not be deterred by bank lobbyists whose idea of 'economic recovery' means increasing bank profits. We can protect jobs and help those hit hardest by the financial crisis if we ensure banks pay their fair share back to society."


Tuesday, 23 August 2011

Scottish Studies

The announcement by Alasdair Allan, Minister for Learning and Skills that a new topic, Scottish Studies, is to be taught in schools has caused a lot of debate. Maybe because it is the media silly season, after all Mike Russell made a similar statement in June without quite the same level of interest.

Alasdair said research showed there was widespread support for the plan, which he said would correct an “abnormal” situation where Scottish history and literature was not routinely taught. “You would anticipate that there would be a wide variety of material about Scotland made available in Scottish schools, but it has to be said that, although things have been getting much better, many people’s experience is of learning not much about Scotland.”

I have to say that I fully agree with that. Interestingly, similar points have been raised in England about how little of their history is taught in schools. Whilst we should of course learn about international history, that doesn't mean our own should be marginalised. I was fortunate to have an wonderful history teacher who gave me a lifelong passion for the subject. Others have not been so fortunate.

For those who view this as a nationalist plot, if it is, it could backfire. In my experience many Scots have a very romantic view of Scottish history, full of heroic myths that sadly are rarely true. The Wars of Independence, Jacobite risings and others are widely seen as Scotland v England matches, when the reality was much more complex. Teaching history properly can only improve our understanding of the past and move away from simply viewing Scotland as, that country that isn't England.

There is also a lesson for some politicians. Knee jerk reactions that it is all a nationalist plot is just not clever politics. It just plays negatively and turns the voter off politics. The research showed widespread support for the idea and a simple vox pox with friends would confirm this. Of course there is a political motivation, but that doesn't automatically make it a bad idea. My advice - take a deep breath next time you are invited to do a media reaction interview.

Wednesday, 17 August 2011

Corporation Tax

The long awaited Scottish Government paper on devolving Corporation Tax has been published. It has been some time coming given the FM raised the issue in May and this is a long standing SNP position.

UNISON Scotland is not only a strong advocate of devolution, but we would generally be regarded as in the 'devolution max' camp. This is reflected in our evidence to the Calman Commission and elsewhere. However, we have opposed the devolution of Corporation Tax and I can see little new in this new paper to justify this proposal.

So what are the problems?

  • The bottom line is that there is little evidence that cutting taxes on business creates new jobs. If there is a link, it is marginal and there are more cost effective ways of using the same money to create more jobs. Most of the savings are likely to go into big company profits and shareholders pockets.
  • Like the UK Government's enterprise zones, at best this might displace jobs from one part of the UK to another. Turning Scotland into some type of tax haven is not the basis for a strong economy with real jobs. At worst it will simply lead to 'brass plating' were companies notionally move their headquarters to Scotland, but no real jobs are created.
  • Devolution of taxation is not a free lunch because there will be a corresponding cut in the block grant. Northern Ireland estimates have just increased to £400m and it would be much more for Scotland. The Treasury estimate is £2.6bn although I agree with the Scottish Government that this is an over estimate, but still around £800m. Even if the Scottish Government is right that the lower tax rate will lead to a higher yield, there will be several years during which public services will have to be cut to fund the gap. Obviously this is the worst time to take such a risk. In any case the evidence for higher yields (Laffer Curve) is again slim.
  • Lower tax rates in one part of the UK could come up against state aid rules and what is known as the Azores judgement. In essence Scotland could face an additional cut in public spending. The cost to the block grant could be as much as £1 to 1.5bn. That's a lot of schools and hospitals.
There are many other arguments against this policy articulated by a range of groups across the spectrum. While I would always treat the views of PwC and the CBI with some scepticism, the same does does not apply to tax experts like Richard Murphy. In his commentary he said:

"The SNP’s policy on this issue comes from the economics of the madhouse. The trouble is they plan to release the mayhem, that’s intended to create on the UK economy. It’s an act of gross irresponsibility on their part. But worst of all it’s a betrayal of the ordinary people of Scotland to try to turn that country into a tax haven right now, at cost to those who need strong government and not business run amok with greed."

The only winners from this policy will be big business. The losers will be the rest of us through cuts in jobs and public services.

Monday, 15 August 2011

50p tax rate

So the Chancellor believes that we should consider scrapping the 50p higher rate of Income Tax. This is payable on income above £150k per annum and covers around 0.5% of UK taxpayers.

We have had a flurry of the usual suspects, in an obviously concerted move this morning, to wheel out the arguments. Even a Tory MP from England on BBC Scotland. Credit to Stewart Hosie MP for pouring scorn on his arguments. The tax rate is not competitive, tax efficiency, avoidance and evasion, and the most laughable, they will all flee the country. Even a large degree of scepticism it would appear from the other side of No.11, with Danny Alexander and other Lib-Dems sounding less than enthusiastic.

Of course the Cabinet millionaires will emphasise the tax efficiency argument rather than the role tax has in redistribution. The High Pay Commission has predicted a massive increase in top-end incomes over the next 20 years. Those earning £150,000 or more a year currently represent just 0.5 per cent of the population, controlling 5 per cent of national income. But trends suggest that figure will rise to 14 per cent of the national income - one in every six pounds earned - by 2030.

Even Adam Smith in his book A Theory of the Moral Sentiments said:

"The disposition to admire, and almost to worship, the rich and powerful, and to despise, or, at least, to neglect persons of a poor and mean condition, though both necessary to establish and maintain the distinctions of ranks and the order of society, is, at the same time, the great and most universal cause of the corruption of our moral sentiments."

Following the state of the economy and riots on the streets of England, the Chancellor might want to re-read his right wing icon on this issue. We now know, thanks to research by Wilkinson, Pickett, Dorling and others, that the fabric of society is strengthened when the 'distinctions of rank' are replaced by greater equality, social cohesion and trust.

Dorling's book Injustice - why social inequality persists was part of my summer reading. I doubt if it was on the Chancellor's list. As Dorling points out, the current day Adam Smith Institute was founded with donations from rich individuals who thought we were becoming too keen on ideals of equality. In Britain inequality in wealth fell from the late 1920's through to 1981 when the richest 10% held an all time low for their group of 'only' half the nations wealth. This came about because of progressive taxation, inheritance tax and higher wages fought for by unions. Things didn't change until Freidmanite policies were introduced by British and US governments in 1980. Two-thirds of the wealth increases in the US in the 80's and 90's were in assets held by the richest 1% of the population. They owned 40% of the wealth while the poorest 40% owned 1% of the nations wealth.

Adam Smith referred to this as a moral issue, another subject the PM has had much to say on in recent days. Dorling highlights that the psychological impact of inequality drives one family in three into mental health problems. Anxiety and depression is the most common mental disorder in Britain today, with almost 9% diagnosed. A fifth of children have a mental health problem in any given year. Instead of addressing the causes we indulged in mass medication and drug company profits soared.

So if the Chancellor is concerned about tax efficiency, look a little harder at tax evasion and avoidance. For the moral and economic justification, tackle inequality. Progressive tax is a key element of that strategy.

Wednesday, 10 August 2011

Waste to energy

While we await the Scottish Government's substantive response to the Hyrdro Nation consultation, they might want to take a look at what is happening in the Netherlands. Dutch public water authorities are upgrading existing sewage works into energy generating 'factories'. The aim is eventually to make sewage plants 'NEWater' factories, producing nutrients, energy and water. For example, global resources of phosphorus are shrinking and the price increasing.   

The Dutch plan is made possible by a very different approach to wastewater investment than the short termism of UK water regulation. They take a long term view of investment tied into their legislative commitments to reduce energy use by 2% per year until 2030. They take a 30 year view of investment rather than our five year cycles. They also have much greater collaboration between the water and waste sector and have government investment in R&D.

Unlike the privatised industry in England, Scotland could follow the Dutch model. Scrap the costly regulation system that seeks to ape the privatised industry down south and go for a new long term model that develops new technologies like NEWater. A 30 year plan means you can look strategically at the asset base and adopt radical solutions. There is increasing collaboration between local authorities in Scotland over waste management, so a collaborative link with Scottish Water is much easier. The Hydro Nation paper already identified the opportunities for better R&D and this would give an opportunity to apply these technologies.

It would also make a real contribution to energy efficiency as Scottish Water is the biggest user of energy in Scotland. Making the public sector duty to reduce carbon emissions a reality.