Recalculating the Living Wage

I very much welcome the increase in the minimum wage to £7.20 an hour announced by George Osborne in his budget a few weeks ago, and that it would be set to rise to over £9 an hour by 2020. On the face of it, this 2020 figure would probably be in line with the Living Wage as calculated by the Living Wage Foundation.

When first introduced in 2011 the Living Wage was £7.20, and since then has risen by 25p in 2012 and by 20p in both 2013 and 2014 to now stand at £7.85. If that same annual increase were maintained for the next six years, then it would indeed be just over £9 an hour by 2020. Although, to be more precise, the Low Pay Commission (who recommend the minimum wage rate to the government) have been asked to ensure that the minimum wage reaches at least 60% of median earnings by 2020 ... which will probably be more than £9 an hour.

As a target sum, this would comfortably beat Labour's manifesto promise of £8 an hour by 2020, and be equal to what Plaid Cymru and the SNP had proposed. The LibDems didn't make any commitment. Only the Greens proposed something better: that the minimum wage would rise to £10 an hour by 2020.

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The problem, as everybody realizes, is that the Tory increase in the minimum wage is going to be offset by cuts in tax credits. In some cases families will be worse off, although not in every case. There is a good article on this here by the Social Market Foundation. They assume that 60% of the median wage will result in a minimum wage of £9.35 an hour, and on that basis this is the worst case graphic from it:

     

But it is better for others, as this graphic shows:

     

The question I asked myself was to what extent the proper Living Wage, as calculated on behalf of the Living Wage Foundation, would need to be adjusted to take account of the fact that tax credits would now be cut. But in doing this I discovered something which surprised me, which I think most people will be unaware of, and which is the main reason for me writing this post.

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The way that the Living Wage is calculated is set out in detail in this document. When the calculation was first made in 2011 the £7.20 rate it set was accurate, but the increases in the Living Wage since then have been limited by a formula which states that it should not increase by more than 2% above any rise in average earnings.

The effect of applying this cap is quite startling. This is from the conclusion at the end of the 2014 calculation:

Based on the above calculations, the ‘reference’ level of the Living Wage, reflecting actual minimum living costs, is £9.20 in 2014, but the applied Living Wage, resulting from the capped increase, is £7.85.

The difference is a huge £1.35 an hour.

I suppose I can understand the rationale behind the cap. The aim of the LWF is to get employers to become accredited Living Wage Employers; and in order to make a long-term commitment, it was helpful for there to be some method of cushioning large increases. Back in 2011 it was probably reasonable to assume that wages would rise following the worse ravages of the recession caused by the 2008 financial crisis, but wages haven't gone up by very much at all. So it's proved to be a false assumption. Whatever good intentions lay behind imposing this cap, the end result is that the current Living Wage of £7.85 is now way below what it should be in order to meet actual minimum living costs. Instead of rising by about 65p or 70p each year, the Living Wage has only risen by 20p or 25p each year.

Now consider what will happen over the next five years. It seems pretty obvious that the calculated Living Wage is going to rise further. In part this will be because of the effect of reductions in tax credits, but on top of that there will be the usual cost of living increases. What is currently calculated at £9.20 will certainly be over £10 an hour and probably closer to £11 an hour by 2020.

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The definition of the Living Wage, as taken from calculation document, is "the wage that produces enough income after taxes, benefits and tax credits to cover [a family's] expenses." So it is clear that the next calculation of the Living Wage will need to take the reduction in tax credits into account. This will be a major change, and therefore will provide a perfect opportunity to reset the calculation without the cap imposed in previous years.

I'm sure this will result in a large rise which will make some accredited Living Wage employers think twice. But I think it's a bullet that needs to be bitten. If the Living Wage doesn't actually reflect what minimum income is needed to cover expenses, it is meaningless.

Rising wealth inequality

With a hat-tip to Bella Caledonia, I think these videos are worth sharing as widely as possible.

     

     

I'm sure we've all seen many tables which compare average incomes in the UK with those of the rest of the OECD, and we generally get the impression that the UK is comfortably in the middle.

But the fact that the UK has such a huge gap in income between the richest few percent and the rest of us artificially inflates the UK's position in these tables, with the result that the poorest 20% in the UK are significantly worse off than the same 20% in the rest of the OECD.

This is from the High Pay Centre blog:

What would the neighbours say? How inequality means the UK is poorer than we think

 
Analysis of OECD figures suggests the poorest fifth of the UK population are the poorest in Western Europe
 

The poorest fifth of UK households are significantly worse off than the poorest fifth in other Western European countries, according to analysis of Organisation for Economic Co-operation and Development (OECD) data published by the High Pay Centre think-tank today.

The High Pay Centre examined the ‘OECD Better Life Index’ which estimates the average net disposable household income for the world’s richest economies, as well as the average for the poorest and richest 20% of households in each country.

In the UK, the incomes of the poorest fifth of households have an average income of just $9,530, much lower than the poorest fifth in other North West European countries such as Germany ($13,381), France ($12,653), Denmark ($12, 183) or the Netherlands ($11,274).

In fact, the poorest households in the UK are closer to the poorest in former Eastern bloc countries Slovenia and the Czech Republic than to the poor in Western Europe. This is despite the fact that the OECD estimates average incomes in the UK ($25,828) are similar to Denmark ($25,172) and the Netherlands ($25,697). The UK’s average is inflated by the incomes of the top 20% of households - at around $54,000, the third highest in the EU. In Belgium, the Netherlands and the Nordic countries, the top 20% make between $44,000 and $49,000.

The High Pay Centre analysis also notes that if the UK’s total income of around £1 trillion was divided in the same way as total incomes in Denmark or the Netherlands, 99% of UK households would be better off by around £2,700 per year.

High Pay Centre Blog, 16 June 2014

The full report is here.

Hopefully, this information will help put the repeated stories we get about the Welsh economy being on a par with eastern Europe into perspective. A significant part of our poor economic performance is not intrinsically to do with us, but is a failure of the UK state to distribute wealth (for although household income figures are different from regional income figures, there is a correlation, because the super-rich in the UK tend to be concentrated in London and south east England).

Much of the argument for Wales remaining part of the UK is that we are able to "share resources", as Unionist politicians have become fond of saying in the context of the Scottish independence referendum. But what is the point of being in such a union when it is clear that the UK doesn't share them ... or at least doesn't share them to anywhere near the same extent as happens elsewhere in Europe? And what hope is there for the future of the UK when the inequality between rich and poor is rising rather than falling?

Borrowing, Taxation and Barnett

There are two types of borrowing. One type of borrowing is invariably bad. A couple of examples of particularly unwise borrowing are that Labour funded the abolition of the 10p tax rate in 2008 by borrowing (or didn't fund it at all and simply left it as a deficit, which amounts to the same thing); and the decision by the Welsh Government in May last year to fund the backlog of road maintenance by co-ordinating the borrowing powers of local authorities in Wales (see here). Apart from short-term borrowing in an emergency or to smooth fluctuations in cash flow, borrowing is only good if the investment produces a return, or avoids the necessity of paying a greater sum for something else.

But even if borrowing meets these criteria, there is a second question to be asked: Who benefits from the return on the investment, or from not having to pay greater sums of money for something else?

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Take building a new school as an example. Imagine two small schools each with surplus places, both housed in old buildings which with a considerable backlog of outstanding maintenance work, and with little of no insulation costing a small fortune in energy bills. It would clearly make sense to invest in one new building with minimal maintenance costs and with vastly reduced energy requirements, which would pay for itself in maybe 15 years.

In this instance the savings in energy and maintenance costs would be retained by the local authority, so it would make sense for the local authority and the Welsh Government (because a large part of local authority income is distributed through the WG) to borrow the money to pay for it. Wales would pay the costs of financing the investment, but in the long term the financial benefits of the investment would accrue to Wales.

Now that the Welsh Government has been given borrowing powers, we should have no hesitation in setting out a long-term programme of investments of this nature, because they will pay for themselves and Wales will get an overall financial benefit from the investment. There is in fact a huge backlog of investment of this sort in Wales because we, very wisely, did not expose ourselves to PFI to the same extent as England and Scotland have done ... not that we had more sensible ways of investing, we simply didn't invest to anywhere near the same extent at all, which is why our backlog is now so big.

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But let's take another example: new roads. The decision to build a new road such as the proposed new motorway around Newport, or a maybe a new bridge over the Menai, is not only a matter of doing a benefit-to-cost ratio analysis. It is also a matter of questioning who gets the benefit and who pays the cost.

In the case of a new road the benefits are not direct, but indirect. A new road might well mean fewer delays, and time is money ... but whose money? In the first place it will go to increase the profits of businesses who rely on the route, or enable those companies to expand and take on more workers, or attract new companies to locate on or near the route. These are good, positive results for the companies and workers concerned. But there will also be an indirect return through more workers paying income tax and national insurance, companies paying corporation tax and national insurance, and shareholders paying tax on dividends. If those extra workers had previously been unemployed, then there will be savings on social security benefits. If there are more vehicles on the road (which inevitably happens when any new road is built) there will be more vehicle excise duty, fuel duty and VAT from fuel sales. In other words there are any number of indirect ways to get an economic return on investment to build a new road.

However all the indirect returns I've just listed will go to the UK Treasury in Westminster, not to the new Welsh Treasury. This means that the Welsh Government are playing a mugs game if they use the new borrowing powers they have just been given to build a new M4 at Newport, a new bridge over the Menai, or any other similar scheme. Yet this is exactly what they say they want to use the these borrowing powers for, and what the media reports have focussed on relentlessly.

All that will happen is that Wales would end up paying interest on the construction cost (which would mean having less to spend on other public services) while the economic return from the investment would, albeit indirectly, be reaped by the UK Treasury rather than by us.

The lesson is clear. Borrowing cannot be separated from taxation. It is therefore economic madness for the Welsh Government to welcome one, but reject the other. Strictly speaking, the Welsh Government doesn't actually need the power to set rates of taxes, but there does need to be a mechanism by which taxes, all taxes, are apportioned to Wales. The principle that should be applied is that if an investment results in an increase in the tax take, that increase needs to go into the coffers of the Welsh Treasury, not the UK Treasury. However once there is a system of apportionment, it would be only a very small and uncontroversial step to then take control over setting the rates of these taxes.

     

But this raises another question. Since it is economic madness for the Welsh Government to borrow money to pay for things like new roads because there is currently no mechanism for the economic return from the investment to accrue to Wales, how should projects like new roads in Wales be funded?

The answer is that it must be done by a consistent application of the Barnett Formula. In essence, the Barnett Formula is very simple: if the UK Government spends money in England, it must then give the devolved administrations a proportionate amount for them to spend in Wales, Scotland and the Six Counties.

This issue came to the fore only last week with HS2. At first, it looked as if Wales had got a Barnett consequential on the first, albeit quite small, tranche of Treasury expenditure on HS2. Then there was a flurry of claims and denials, but in the end (I think this article by Jon Antoniazzi is probably the most helpful) it became clear that we had got it, although whether the sums were worked out properly and whether the consequentials will continue in future is still open to question.

I am in no doubt that Wales, Scotland and the Six Counties should get consequentials on capital expenditure of this sort. In fact I believe I was the first person to call for Wales to get a Barnett consequential when HS2 was given the go-ahead in January 2012, and I'm pleased that others have picked up that baton both in Plaid Cymru and now in other parties as well. I don't think it's valid to argue that places not served by HS2 should accept that someone has to be first and wait their turn, because of the long timescales involved. Wales' turn might not come for another 50 years. After all, we should remember that electrification of the main line from Glasgow to London was started in 1959 and it has taken more than 50 years to get a commitment to do the same for the main line from Swansea to London. The problem is that there are no rules in place to ensure that Wales, Scotland and the Six Counties get our share of money spent in England, because the UK Treasury acts as judge and jury in its own cause.

A Barnett Formula that was properly and consistently applied—which would require some sort of arbitrator independent of the UK Treasury to ensure fairness—is at present the only fair way of funding capital projects such as new roads. The principle is that because the return on investment accrues to the UK Treasury through an increased tax take (and reduced benefits expenditure) as a result of increased economic activity, then it is right that the UK Treasury should bear the cost of any borrowing required to pay for them, not the devolved administrations.

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My fear is that in our euphoria over being granted borrowing powers, nobody seems to have grasped this. Even in Plaid Cymru, we put out a press release welcoming borrowing powers for Wales that said:

"Borrowing powers have great potential to revive the economy across Wales, they could allow us to revolutionize our transport and communications infrastructure in all parts of the country. Broadband, the reopening of Beeching-cut rail lines, a national house-building programme, investment in school buildings and a home energy efficiency scheme are all shovel-ready schemes which will create jobs."

Plaid Cymru welcomes Silk announcement, 1 November 2013

We cannot lump all borrowing together in this way. All the things listed above are good (I especially like the re-opening of rail lines) and probably have a positive benefit-to-cost ratio. But that is not the only question to ask. In considering what schemes should be funded by Welsh Government borrowing now that we have been given the power to borrow, we must also ask the question whether the return on that investment will accrue to Wales or accrue to the UK. If the bulk of any return on the investment will go into the coffers of the UK Treasury, that borrowing should continue to be funded through the UK Treasury and given to us as part of the block grant and Barnett consequentials.

The Welsh Treasury should be careful to use its new borrowing powers only to fund schemes that will bring an economic return to Wales. New and improved schools, hospitals and home energy efficiency schemes fall into that category. New roads (unless they are toll roads) definitely do not.

There is no problem of viability

My previous post about HMRC tax receipts from Wales inevitably raised the old question about whether Wales can "afford to be independent". In one of the comments I made the point that one plank of the argument for independence in Scotland and Catalunya is that they can afford to be independent; but for us in Wales the argument is that we cannot afford not to be independent. In fact I would go so far as to say that Scotland's current prosperity—if that were the only thing that mattered, which it isn't—would in fact be an argument for it remaining part of the UK. On purely economic grounds, Wales needs independence much more than Scotland does.

As this runs contrary to much of the way the debate on Scottish independence has been framed, I thought it might be good to quote what E F Schumacher said about why a smaller country like Wales would want to be independent from a larger and comparatively richer state. This is from a lecture entitled A Question of Size given in 1968 and included as one of the chapters of his seminal book, Small is Beautiful.

Imagine that in 1864 Bismarck had annexed the whole of Denmark instead of only a small part of it, and that nothing had happened since. The Danes would be an ethnic minority in Germany, perhaps struggling to maintain their language by becoming bilingual, the official language of course being German. Only by thoroughly Germanizing themselves could they avoid becoming second-class citizens. There would be an irresistible drift of the most ambitious and enterprising Danes, thoroughly Germanized, to the mainland in the south, and what then would be the status of Copenhagen? That of a remote provincial city. Or imagine Belgium as part of France. What would be the status of Brussels? Again, that of an unimportant provincial city. I don't have to enlarge on it. Imagine now that Denmark a part of Germany, and Belgium a part of France, suddenly turned what is now charmingly called "nats" wanting independence. There would be endless, heated arguments that these "non-countries" could not be economically viable, that their desire for independence was, to quote a famous political commentator, "adolescent emotionalism, political naïvety, phoney economics, and sheer bare-faced opportunism".

How can one talk about the economics of small independent countries? How can one discuss a problem that is a non-problem? There is no such thing as the viability of states or of nations, there is only a problem of viability of people: people, actual persons like you and me, are viable when they can stand on their own feet and earn their keep. You do not make non-viable people viable by putting large numbers of them into one huge community, and you do not make viable people non-viable by splitting a large community into a number of smaller, more intimate, more coherent and more manageable groups. All this is perfectly obvious and there is absolutely nothing to argue about.

Some people ask: "What happens when a country, composed of one rich province and several poor ones, falls apart because the rich province secedes?" Most probably the answer is: "Nothing very much happens." The rich will continue to be rich and the poor will continue to be poor. "But if, before secession, the rich province had subsidized the poor, what happens then?" Well then, of course, the subsidy might stop. But the rich rarely subsidize the poor; more often they exploit them. They may not do so directly so much as through the terms of trade. They may obscure the situation a little by a certain redistribution of tax revenue or small-scale charity, but the last thing they want to do is secede from the poor.

The normal case is quite different, namely that the poor provinces wish to separate from the rich, and that the rich want to hold on because they know that exploitation of the poor within one's own frontiers is infinitely easier than exploitation of the poor beyond them. Now if a poor province wishes to secede at the risk of losing some subsidies, what attitude should one take? Not that we have to decide this, but what should we think about it? Is it not a wish to be applauded and respected? Do we not want people to stand on their own feet, as free and self-reliant men? So again this is a 'non-problem'. I would assert therefore that there is no problem of viability, as all experience shows. If a country wishes to export all over the world, and import from all over the world, it has never been held that it had to annex the whole world in order to do so.

E F Schumacher, Small is Beautiful, 1973 – Part 1, Chapter 5

I would expect Small is Beautiful to be on the bookshelves of most people who read Syniadau. But if it isn't—or if you believe that small bookshelves are beautiful—there is a pdf version here.

Disaggregated tax receipts for Wales

While reading this story about the proposed Scottish Oil Fund that will be established when Scotland becomes independent, I noticed that HM Revenue and Customs had only yesterday published, for the first time, a set of "experimental" figures which estimate the tax take from the four nations/regions of the UK. The links to the documents are on this page.

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For Wales this is a major first, and its importance cannot be overestimated. This information has been produced for some time for Scotland in the form of GERS (Government Expenditure and Revenue Scotland) and for the Six Counties in the form of NINFBR (Northern Ireland Net Fiscal Balance Reports) but the Welsh Government has never asked for or itself produced an official equivalent for Wales ... although estimates have been produced by Oxford Economics and by the Holtham Commission.

I know Gerry Holtham has urged the Welsh Government to follow the example of both Scotland and the Six Counties, and he believes they have not done so because the situation is so serious in Wales that they think it would be better not to tell the patient exactly how bad things are. That's one way of looking at it. The less charitable explanation for their refusal to do so is that no government would want to draw attention to how bad things are because it would only increase public pressure on them to do something about it.

For me, it is only by finding out exactly how bad the economic situation is in Wales that we will be able to properly direct our efforts to improve it. And indeed this is reflected in Plaid Cymru's renewed emphasis on our economic performance in launching Offa's Gap last year. Owen Donovan did a comprehensive analysis of the situation here.

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This is what HMRC say about the information they've now published:

This publication apportions total UK tax receipts, tax credits and benefit payments administered by HM Revenue and Customs to England, Wales, Scotland and Northern Ireland.

It attempts to measure the true economic incidence of taxation, based on the underlying activity, which can often differ from how or where the tax receipts are collected. Actual administrative data is available for capital gains tax, inheritance tax, stamp duty land tax, child and working tax credits and child benefit; for the others, the estimates are arrived at using best available data and statistical techniques, including assumptions and adjustments where necessary. The numbers in this publication do not represent an estimate of the tax revenue that would be raised if each tax was set at the devolved level.

All statistical methodologies have an inherent degree of uncertainty and, for this publication, a variety of alternate methodologies could justifiably be applied, each leading to a different estimate.

The full data are available on the page I linked to above, but I have extracted the cash and percentage figures for Wales for 2012-13. Wales has 4.8% of the UK population.

Based on actual administrative data

Capital Gains Tax ... £64m ... 1.6%
Inheritance Tax ... £83m ... 2.7%
Stamp Duty Land Tax ... £139m ... 2.0%
Child and Working Tax Credits ... £1,545m ... 5.2%
Child Benefit ... £573m ... 4.7%

Based on estimates

Total Income Tax (Gross of Negative Tax Credits) ... £4,763m ... 3.1%
National Insurance Contributions ... £3,689m ... 3.6%
VAT ... £4,170 ... 4.1%
Corporation Tax (onshore) ... £830m ... 2.4%
Bank Levy ... £30m ... 1.9%
Bank Payroll Tax ... £0m ... 1.9%
Fuel Duties ... £1,311m ... 4.9%
Stamp Tax on Shares ... £4m ... 0.2%
Tobacco Duties ... £451m ... 4.7%
Spirits Duty ... £143m ... 4.9%
Beer Duty ... £183m ... 5.4%
Wine Duties ... £139m ... 3.9%
Cider Duties ... £27m ... 8.4%
Betting and Gaming ... £68m ... 4.1%
Air Passenger Duty ... £8m ... 0.3%
Insurance Premium Tax ... £124m ... 4.1%
Landfill Tax ... £50m ... 4.5%
Climate Change Levy ... £35m ... 5.5%
Aggregates Levy ... £22m ... 8.2%
Customs Duties ... £103m ... 3.6%
Other Taxes ... £17m ... 4.8%

Total receipts

Total ... £16,337m ... 3.5%

It's not a pretty picture. We have 4.8% of the UK population, but generate only 3.5% of the UK's tax receipts. In terms of the big taxes, we generate only 3.1% of income tax, 3.6% of NI contributions, 4.1% of VAT and 2.4% of corporation tax.

However it must be emphasized that many of these figures are based on estimates, that these estimates are each based on a particular methodology, and that different methodologies might result in different figures. This why, for example, the Scottish Government produces GERS instead of relying entirely on UK Government figures. It is now open to the Welsh Government to do the same thing if it believes that using different methodologies will present our fiscal situation in a better light.

In terms of political reality, the publication of these figures is almost guaranteed to spur the Welsh Government into producing a GERW because they no longer have the option to hide how bad the situation is from the Welsh people, and will now have to spend effort trying to make the situation appear less bleak in order to lessen the pressure on them to improve things. Some of it will be justified (for the UK Government has no incentive to make things look good for Wales, and may well have made wrong assumptions that need to be corrected) but some of it will be spin. We will have to decide which is which, in just the same way as people in Scotland have to decide between differing interpretations of Scotland's overall fiscal situation. That's politics.

However the importance of the publication of this data by the UK Government (and the intention is to publish them every year) is that official figures are now in the public domain to be analysed, discussed and argued over. It is only by facing up to how bad things are—and what, in particular, is bad—that we can target our efforts towards making things better.

The economic rationale behind investment

The only way that investment makes any economic sense is for it to either pay for itself in the long term, or avoid the necessity of paying a greater sum for something else.

In the case of investment in transport infrastructure, for example a new road, the reason for doing it is that it will make it easier to do business. As a result the businesses affected will make more profit and/or employ more people; and perhaps new businesses will be set up or relocate from elsewhere in order to do the same.

When the public sector makes the decision to build a new road, it will (unless it is a toll road) aim to recoup the money borrowed to build it through an increase in tax receipts. If the companies affected are more profitable, the government will get more corporation tax. If the companies affected employ more people, the government will get more income tax and national insurance. If the people these companies take on were previously unemployed, the government will save money by no longer having to pay them benefits.

These are the ways in which public sector investment can pay for itself. It's a question of doing the sums to see what those benefits might be, and balancing them against the cost of the investment. If the sums add up, fine. If they don't, there is no economic justification for building the road.

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Now let's look at the specific case of a new road in Wales. The Welsh Government might well be granted borrowing powers that would enable it to pay for a new road, but how can it expect to recoup the cost of that investment? Any extra corporation tax will go to ... the Treasury in London. Any extra income tax and national insurance will go to ... the Treasury in London. Any money saved by no longer having to pay benefits will be kept by ... the Treasury in London.

The Welsh Government pays, but all the benefits go directly to the Treasury in London.

The current Welsh Government is working itself into a frenzy of excitement because it is likely to be given powers to borrow. But in terms of paying that money back, it is relying on a handful of minor taxes like aggregate levy, stamp duty, landfill tax and air passenger duty (and it could only do that by increasing those taxes, even though the indications are that they would reduce stamp duty and air passenger duty).

Yet, at the same time, it has turned its back on devolution of corporation tax, income tax, and the benefits system. To the extent that the Welsh Government was willing to take responsibility for these things it would get an economic return on any wise investment that it made. If it took control of 50% of income tax, it would get 50% of any increase in income tax that came as a result of the investment. If it took control of 66% of corporation tax, it would get 66% of any increase in corporation tax that came as a result of the investment.

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Like an 18 year old who is about to get their first credit card, the current Welsh Government can see what it wants to buy and has worked out that it will just be able to pay the interest out of the receipts from a few minor taxes. But it doesn't have the foresight to realize that the far larger additional income stream that could and should be used to pay off the debt and result in greater prosperity for Wales is going to be channelled straight into the coffers of the Treasury in London instead, to be shared across the UK as a whole.

This is why borrowing powers must be linked to taxation powers. It's not only about being able to afford the interest payments; it's about whether the investments we make will be of overall economic advantage to Wales. An arrangement under which we pay 100% of the cost of an investment but only get 5% of any return on that investment is economic madness.

The Darling of the Tory Party

Labour MP Alistair Darling was given a standing ovation at the Scottish Tory Party conference in Stirling today. Both parties are welcome to each other, of course.

I'll confine my laughter to this particular piece of idiocy from his speech, as reported in the Scotsman:

A shared currency would also render the SNP's plan to undercut UK corporation tax by 3% impossible, he said.

Scotsman, 8 June 2013

I've touched on this subject before, but it clearly needs repeating. A shared currency does not mean having to set identical or near-identical rates of tax. If poor Alistair thinks that a 3% differential in the rate of corporation tax is "impossible" he needs to take a look at what is happening beyond the boundaries of his narrow little world.

These are the rates of corporate tax in the countries that use the euro:

Montenegro ... 9.0%
Cyprus ... 10.0%
Ireland ... 12.5%
Portugal ... 12.5% to 27.5% (mean 15%)
Slovenia ... 17.0% (reducing to 15% in 2015)
Estonia ... 21.0%
Slovakia ... 23.0%
Finland ... 24.5% (reducing to 20.0% in 2014)
Austria ... 25.0%
Greece ... 25.0%
Netherlands ... 25.0%
Luxembourg ... 28.6% on commercial activity (5.7% on IP and royalties)
Spain ... 30.0% (but 28% in the four Basque provinces)
Italy ... 31.4%
Germany ... 30.2% to 33.3% (15.8% federal plus 14.4% to 17.5% regional)
France ... 33.3% (15% for small businesses)
Belgium ... 34.0%
Malta ... 35.0%

Source

The largest differential is 26%, which is nearly nine times greater than the 3% difference proposed by the SNP. And there are considerable variations between geographical neighbours: the difference between Portugal's 15.0% and Spain's 30.0%, or Slovenia's 17.0% and Italy's 31.4%, is about five times greater than the 3% difference proposed by the SNP.

But if a red mist of insanity descends at the mere mention of the euro, look at the other currency unions in the world. Does Togo need to have the same tax regime as Benin? Does Grenada need to have the same tax regime as Saint Vincent and the Grenadines? Does Panama need to have the same tax regime as the USA?

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In fact, there can be differences in the rate corporate taxation within states. In Germany the local rates of corporate tax vary by 3.1%, and the four Basque provinces have a rate that is 2% lower than in Spain. Every state in the USA sets its own corporate taxes in addition to federal corporate taxes.

Closer to home, the six counties are still looking to set a rate of corporate tax that is lower than in the remainder of the current UK.

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As Alistair Darling used to be Chancellor of the Exchequer, it's rather more likely that he was telling barefaced lies rather than speaking out of ignorance ... and that no doubt explains why the Tories were so pleased with what he said.

Thatcher made things worse, not better

In the last couple of weeks, I have been amazed at how much re-writing of history has been done by the Tories to justify what Margaret Thatcher did when she was in power. Here is one blatant example of it from Amanda Platell on Question Time last night:

     

What she said may well have got a huge round of applause, but it was completely wrong, as this table shows:

Ten Largest Economies by Nominal GDP
	1970	1975	1980	1985	1990	1995	2000	2005	2010	2015
1
2
3
4
5
6
7
8
9
10
Source

The UK was bumbling along as the sixth largest economy in the world for the decade before Margaret Thatcher came to power in 1979. When she left office in 1990 the UK had not risen in the rankings at all, but in fact dropped to seventh, overtaken by Italy. The UK did rise to fourth place, but only a decade after she had left office.

The UK's economy and its place in the world suffered as a result of Margaret Thatcher's policies. She did not rescue the UK, she made things worse.