It’s not often that I find I have to apologise to bankers. But in an article last week on the 50p tax row I said that the additional rate on those earning above £150,000 was essentially a “bankers tax” because, with their bonuses and inflated salaries, they are the only group in Scotland who earn those kinds of sums. I was wrong.
It is true that, in the UK as a whole, the financial sector is the largest group who paid the 50p “additional rate” before it was axed by George Osborne in 2012. But not, apparently, in Scotland. According to the Her Majesty’s Revenue and Customs, most of those earning over £150,000 are not bankers after all, but senior public sector staff. Indeed, in Scotland there are more in the health and social work sector alone earning above £150,000 than in financial services.
If that is true – and we need more research on public sector earnings – then it is a serious issue. We knew about the hundreds of senior consultants, local government officials, university vice chancellors and suchlike who have been paying themselves inflated salaries. They have been justifying this by comparing themselves with spiralling pay of private sector CEOs. That was bad enough.
But if it is the case, as some claim, that a majority of people in the top 1% in Scotland are in the public sector, questions need to be asked. How can this be fair, when salaries for ordinary people have been flatlining or actually falling since 2008? The median full time annual salary in Scotland is only £27,000. That means half earn less than that. Many part time workers earn very much less.
Can a government really justify taxing their very modest salaries in order to pay public sector bureaucrats earning over £150,000 a year? More even than the First Minister of Scotland. It is very difficult, though not impossible, for governments to regulate pay in the private sector, but in the public sector there is surely no excuse.
It sheds further light on the the reluctance of Nicola Sturgeon to apply the 50p tax rate in Scotland. It would surely be bizarre if the taxpayers of Scotland, who are being required to fund these salaries, then find that the Scottish government is refusing to honour its promise to tax the top 1% fairly by restoring the 50p tax band.
Nicola Sturgeon insisted last week that it isn’t worth applying the 50p rate to those earning over £150,000. She said that most would avoid paying it and that the tax return might even be negative. But if these are public sector employees then this argument surely falls down. Directors of social work can’t just arrange things so they set up shop in England for tax purposes. And if they were doing this it would be a national scandal.
And even if the wealthy are likely to try to avoid paying tax, that is no reason not to try. Taxation is first of all about fairness. You cannot base a taxation system on the principle that those who avoid paying it shall be rewarded while those who do pay are penalised. That is an insult to every honest citizen who pays their taxes on demand.
This is why many independence supporters found it disturbing to hear Ms Sturgeon, at First Minister’s Question Time, apparently echoing George Osborne words from 2012 when he axed the 50p rate. She said that it even might raise zero “because of the mechanics by which people avoid paying tax”. Many were further dismayed when she said that the 50p rate could only be effective if introduced “UK-wide”. This was an argument repeatedly made by Gordon Brown during he referendum campaign.
By Thursday, Ms Sturgeon had changed her tune somewhat and insisted that she hadn’t ruled out imposing the 50p tax band for the rest of the next parliament, only for the year 2017/18 when Holyrood’s new taxation powers come on stream. She said she would put the proposition to her economic advisers thereafter. But one suspects they will come back with the same answer given her, clearly, by the Finance Secretary John Swinney: that we need to placate the wealthy to prevent them jumping ship.
It’s a difficult decision of course, taxation always is, but it a crucial one. It goes to the very heart of what it means to be Scottish and what it means to be independent. Put simply, if we are to have the same taxation policies in an independent Scotland as we have in the UK, then where is the “better nation”? Small countries like Denmark have top tax rates of up to 60p and do very well. Even Mrs Thatcher accepted a top tax rate at that level in Britain for most of her period in office.
But this isn’t just an independence issue; it is also for the here and now. Fifteen years since the former Holyrood minister, Wendy Alexander, promised to abolish child poverty by 2020, Scotland remains a deeply unequal society. It is something we have tended to ignore with all the self-congratulatory talk of Scotland being a land of the Common Weal and Jock Tamson’s Bairns.
On some measures, inequality is actually getting worse. One in five Scots live in poverty. Severe poverty, according to the Scottish government’s own 2015 report, is rising. Working class children have no better prospects of being admitted to university than fifty years ago. Oxfam reported recently that at the top 14 families in Scotland earn more than the bottom 30% combined.
There are those who argue that this is all a distraction. The best way to eradicate social ills and increase prosperity is to promote economic growth by encouraging enterprise. This requires low taxes, free markets and less regulation. It is the essence of the neoliberal economic philosophy that has dominated the UK for the last thirty years.
And it has demonstrably failed. All that has happened is that the top 1% have doubled their share of national income to 15% and have corralled 53% of the wealth. We have an economy that is now dominated by work that is low paid, low skilled and insecure. Quantitative easing has inflated asset values, benefitting property owners and placing home ownership beyond reach of a generation.
If the independence movement was about anything it was about changing all this. The 1.6 million Scots who voted Yes did not do so because they wanted independence for independence sake. Like Nicola Sturgeon, they are not “existential nationalists” but saw independence as a way of creating a more just society. Now, I don’t believe Nicola Sturgeon has been converted to Thatcherism or neoliberalism. But last week shows that even a politician as gifted and high minded as the First Minister can be battered into submission by the apostles of the market.
It is very difficult to argue against economic orthodoxy in government when you are confronted with civil servants, economists and senior business figures who seem to believe it self-evident that governments should not to raise taxes on the wealthy but tax middle income families instead. And it becomes more difficult still when the First Minister is surrounded by public sector bureaucrats and senior consultants in the NHS who are all earning very much more than she is.
The remedy is political. The independence movement cannot be placed in the charge of a single party. Yet, for understandable reasons, the broader Yes Scotland campaign was collapsed into the SNP after the referendum. Other parties exist, like the Greens and Rise, but they are very small by comparison. Civil society as a whole in Scotland needs to exercise eternal vigilance. Otherwise Scotland could wake up after the next referendum and find that it has left the UK but is still living in it.
From Sunday Herald