Scottish Government, tell the truth about your attitude to wealth

by | 17 Nov 2022

The Scottish Government claims it can't tax wealth because of lack of powers but would consider it if it had them. Neither statement stands up to scrutiny.

It is with enormous frustration that I have to read the Scottish Government’s justifications for its failures. They really drive me up the wall. Let’s take ‘taxing wealth’ as a case study since public finances are today’s crisis and ‘we can’t do anything’ is the Scottish Government’s response.

Taxing wealth is a long-standing concept in left thinking. Because we tax income but not really wealth, the very wealthy have managed to pay remarkably low effective tax rates (sometimes none). This is a very big deal in London and that is where a lot of the UK’s left thinking comes from.

As is often the case, the Scottish Government then plays games with this. ‘Oh, if only we had the power we’d tax wealth’. But would it? Would the Scottish Government tax wealth if it could? And would that provide the ‘magical solution’ that solves our financial problems without bothering ‘ordinary voters’?

To answer these two questions we need to define wealth. Politicians (and rather too many on the left) behave as if wealth is kept in bank accounts. It absolutely is not. It is almost all held in assets – and there the big ticket items are property, high-value physical assets, pension funds and various forms of equity ownership (like shares in a company).

The richer you are, the bigger the gap there will be between your income and your wealth. The bigger that gap, the more scope there is to tax the wealth. And in London that is large. London is the home of many of the world’s oligarchs, has many of the world’s highest property prices, has the entire City of London financial system and all of the rest.

In London (and the South East) an awful wealth is held by the top one per cent, or in fact the top 0.1 per cent. Some Middle Eastern oligarch will own a billion-pound tower block and it is just sitting there waiting to be taxed. They have the assets, the liquidity and the scale of wealth to make it look easy.

But that’s just London. Elsewhere in the UK the pattern of wealth looks different. Simplifying a bit to state the obvious, you need to tax 1,000 millionaires to generate the same tax revenue as one billionaire. So since London has 66 billionaires and Scotland has ten (proportionately more), we’re singing, right?

Well no, we’re not. Because Scotland’s billionaires don’t have their billions in Scotland – they’re in London or overseas, their giant corporations are mostly not registered in Scotland. Taxing them is much more difficult than it seems – the richest person in ‘Scotland’ is Danish and qualifies because he owns land here. Is he going to hang around and pay enough wealth tax to solve our fiscal problems? (Well, him and nine others…)

The vast majority of that wealth is in the form of pension funds and property – that is where Scotland’s wealth lies, and the property element is highly taxable

London is the home of the super-rich, so the shape of wealth elsewhere is different. We saw this a few days ago when a Fraser of Allander report showed how wealth in Scotland is much more spread across the top ten per cent rather than a small super-elite which is easily taxable.

The vast majority of that wealth is in the form of pension funds and property. That is where Scotland’s wealth lies, and the property element is highly taxable. A ‘Scottish wealth tax’ and a ‘Scottish property tax’ are not quite the same thing, but they’re not far off – people who have pension wealth also have housing wealth, so property is a solid proxy for wealth.

And of course Scotland has a massive, enormously unjust anti-wealth tax in the form of the Council Tax. It is taxing the least wealthy at a rate five times higher than the most wealthy. The Council Tax is a wealth-protecting tax.

So that gets us towards the first question – would the Scottish Government tax wealth if it could? The answer is a giant, screaming ‘no’. It can reform the Council Tax any time it wants. It promised to (because the Scottish Government says a lot of things) but didn’t, making instead the tiniest possible tweak and getting back on with hanging out with its rich lobbyist friends.

What if the Scottish Government was honest and said ‘we would possibly tax the absolutely-rolling-in-its but we’re not going to touch the just-plain-minted folks’? Would that then be honest? Well, let’s have a glance at who is absolutely-rolling-in-it.

The richest person in Scotland holds all the wealth he has here in in the form of land. Is the Scottish Government taxing land? Quite on the contrary, the First Minister has assertively warned at least two Cabinet Ministers (to my knowledge) never to mention land taxes in her presence again.

The second richest people in Scotland are whisky magnets. Is the Scottish Government taxing the inordinate gross profits of the whisky industry in Scotland? It can (in a slightly roundabout way), and the SNP trade union group has tried repeatedly to get the proposal on the agenda of the party conference where it would receive overwhelming support. I think we can make assumptions about who is preventing it getting on the agenda.

The third richest person is a pharmaceutical mogul. That can’t really be taxed, but is the Scottish Government taking firm action to limit the absolutely undue role pharma companies play in Scotland’s NHS which could save serious money? Nope, that’s not a vested interest that has been challenged at all.

The fourth richest person in Scotland is an oil baron. Is the Scottish Government encouraging more tax to be taken out of the gross profiteering of the oil industry? Well, demanding a tax cut for the oil industry was damn near the first thing Sturgeon did in office. The last time the SNP had a chance to support a tax on the oil industry? Spring this year. It very actively didn’t.

I could go on like this, but here is the reality – the Scottish Government is a million miles from honest when it says it has no capacity to tax wealth and, worse than that, in every occasion where it has had the opportunity to tax wealth it has not only failed but it has curled up with the wealthy and the super-wealthy to protect them. That is the reality.

The Scottish Government is a million miles from honest when it says it has no capacity to tax wealth

So if there was a government willing to tax wealth and not lie about it, would that be a magical solution for Scotland? No, it just wouldn’t. Scotland isn’t stuffed full of multi-billion pound skyscrapers owner by incredibly cash-rich Saudis. There is no easy, painless way to raise tax unless you happen to start as an effective tax haven like London with a financial centre as dodgy as London’s.

The Scottish left is often wrong about this; we have a different pattern of wealth ownership than the UK as a whole (which really just means London) and so when we tax wealth we tax people who will notice it. Which means there are limitations on what we can raise.

We (Common Weal) think the realistic amount which could be raised by a land tax could be up to about £500 million. We propose that it be done via a Property Tax which would also make tax on housing proportionate to the real value of the house. That would tax wealth (though we propose keeping it revenue-neutral at first so as not to double-hit people in one go).

It is estimated that a whisky tax could generate up to about £1 billion. Along with a package of smaller and more modest taxes, tax rule changes and other steps it might just about be possible to raise £2 billion in Scotland, all from wealth. But in my view that is the ceiling and it would probably be a bit less than that in reality. (But note everything we’re taxing here is an immovable asset so there is no avoidance problem.)

But this won’t be pain-free. People who are not stratospherically wealthy will have to contribute more. That’s what taxing wealth in Scotland means. It isn’t the long term solution – the long term solution is the dreadfully named ‘predistribution’.

Predistribution means that rather than waiting for income inequality to happen and then taxing the wealthier and transferring it to the poorer you use public policy to reduce the income gap in the first place. This is incredibly efficient at raising tax because the rich can’t dodge it and you don’t end up with a mass of poor people who pay nothing.

Here is an illustration of what this can achieve; if Scotland had the same tax rates as it has now and the same total amount of personal income that it has just now but that income was distributed across the workforce with the same profile as a Nordic country, it would generate about £5 billion of additional tax. Without raising taxes. Or even increasing average wages.

This is the long-term solution, a task the Scottish Government talks about but hasn’t even tried to do (it talks Nordic but its economic policy is neoliberal and so income inequality has got worse in the last ten years). And that’s before we begin to talk about the fact that a National Energy Company could be generating at least £3bn for public finances if the Scottish Government hadn’t preferred fire-sale privatisation.

So please Scottish Government, give us a break from your dishonestly and just own up to the fact that you are not interested in taxing wealth in Scotland and so will continue to be content to see public finances being slashed while grandstanding about how progressive you are and posing on TV asking London to hand you money you want it to generate by doing the things you refuse to do here.

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