A Taxing Problem

The Paradise Papers are the latest confirmation that when it comes to tax there is one rule for the super-rich and one for everybody else.

The Paradise Papers are the latest confirmation that when it comes to tax there is one rule for the super-rich and one for everybody else. Perhaps the most powerful moments in Panorama’s account of massive tax avoidance and its facilitation by a network of British Overseas Territories were the reminders from expert authors on the issue that a painful cost was being borne by the rest of us: benefit claimants and public service users facing cuts and public-sector workers who have tolerated almost a decade of real-terms pay cuts.

These latest revelations come in the wake of the leak of the Panama Papers in 2015, which revealed similar patterns of global money flows. They also follow the publication of Thomas Piketty’s acclaimed Capital, which reviewed two centuries of self-perpetuating accumulated wealth. The real story of our times isn’t inequality between wage-earners, it’s that of a new gilded age where a very wealthy minority hoard their wealth in seemingly tax and inflation-proof assets. Our debate on taxation has some way to catch up.

High-profile public discussion on tax in the UK has largely revolved around income tax. Honourable exceptions include Ed Miliband’s much pilloried pledge for a ‘mansion tax’ on properties valued at over £2 million. Before and since then, however, most political debate has centred around relatively marginal increases or decreases to income tax. At the recent general election this centred on Labour’s call to increase rates on the highest earners. In Scotland, the debate over income tax has recently picked up pace following the extension of devolved powers to adjusting bands and rates. Scottish Labour kicked this debate off in earnest during the 2016 Scottish Parliament election with a promise to raise an additional £690 million by increasing the basic rate to 21p, the higher rate to 41% and raising the 45% rate to 50%. At the time this was met with hostility by the SNP, with Nicola Sturgeon asserting that the Scottish Government was refusing to “pass on” the effects of Tory austerity by raising tax in Scotland. Quite the purpose of devolution for self-declared social democrats, if not to pursue divergent and more egalitarian ends, is unclear.

Following the 2017 general election and the perception of left-wing competition from Jeremy Corbyn’s Labour, Sturgeon has mounted a cautious volte-face. The SNP has cautiously moved towards marginal tax increases. One proposal involves broadly following Labour’s 2016 policy, introducing a 50% rate above £150,000 and rates of 21%, 41% and 42%. The Scottish Labour leadership contest has also been marked by discussion on tax but with different focuses from the candidates. Anas Sarwar has largely followed the dominant line of thinking on the subject at Holyrood. His proposal of raising £700 million is a marginal improvement on both the 2016 Scottish Labour manifesto and the SNP by promising a more thorough redrawing of the tax burden onto the highest earners. However, Sarwar’s proposals also demonstrate the limitations of the mainstream tax debate in Scotland at present. This is not helped further by it being packaged primarily as a nifty way to take some relatively low earners out of tax.

On the other hand, Richard Leonard’s candidacy promises a radically different message through a “once in a generation” conversation about tax. His ‘ten point plan’ advocates reforming local government taxation to include the value of land as well as property. Thus, Leonard’s campaign is bringing ideas that have been put forward by heterodox economists firmly into the Scottish political mainstream. Like Sarwar, Leonard has also promised to raise tax on the wealthiest, but more intriguingly outlined the possibilities for a 1% windfall tax on ‘the 1%’. Leonard’s team estimate this would raise more than £3 billion, but perhaps the political principle of taxing the assets of the rich is as important as the direct fiscal consequences.

But the response within Scottish Labour has not been entirely positive. Both Anas Sarwar and Jackie Baillie, Scottish Labour’s Economy spokesperson, have claimed the proposal would require UK government permission. This is disputed by Thompsons lawyer Patrick McGuire, who acknowledges the requirement of an Order in Council but argues that this would not present an insurmountable barrier. McGuire states that, as ever with challenging wealth and power, this is a question of political will, concluding that: “Constitutionally, if the Scottish people called for an Order in Council under s80B that Westminster refused we would be at a crisis that no one would want or tolerate.”

Under Richard Leonard, there is the strong possibility that ‘Unionist’ Labour would be prepared to take a stand and assert Holyrood’s power to redistribute Scotland’s wealth as it saw fit. His proposals significantly redraw what is technically but, even more crucially, politically possible in devolved Scotland. A tax agenda that moves far beyond income would assist in better funding public services but more fundamentally, it is also a vital part of constructing a meaningful democracy. Recent events have revealed just how far from any real public accountability the rich really are. Richard Leonard’s ambitious strategy for industrial development under public direction, and his plan to subject the wealth of the richest 1% to effective taxation, represent a serious threat to the vested interests of Scotland’s wealthy few and offer real change for the many.