Welcome to your new beliefs — a resource for SNP members.
It must be confusing to be a Scottish nationalist.
You wake up in the morning bitterly and aggressively opposed to a Labour policy then, before you even finished your tea break, Nicola Sturgeon comes along to let you know you now believe the opposite (just as vehemently).
That has just happened on the issue of progressive taxes so, in the spirit of helping SNP politicians and activists, I thought I’d write this to help them to better understand, and argue for, their brand new dearly held beliefs.
First some history. At the risk of triggering some sort of red-pill style reaction I’d suggest SNP members skip this section.
The SNP’s position on higher taxes for the rich has been farcical.
Nicola Sturgeon, during the referendum attacked the UK government for cutting the top rate of tax, using the first TV debate of the campaign to shame Michael Moore asking him: “you’ve cut the 50p tax rate for the richest, is that something you’re proud of?”
As First Minister, launching the SNP’s manifesto in 2015 Nicola Sturgeon promised “we will also back fair proposals to raise extra revenue. It is right that those with the broadest shoulders pay a little bit more. That’s why we will back the restoration of the 50p tax rate for the highest earners.” She repeated this promise in both in the UK and Scottish leaders’ debates.
Nicola Sturgeon was also clear that she backed a 50p top rate both at Westminster and Holyrood after the power to set incomes tax rates was devolved to Scotland. She told the Scottish Parliament that, when the power was transferred, “I would raise the top rate of income tax to 50 pence.”
Given this, it is extraordinary that when the power to increase taxes on the wealthiest was transferred to Scotland, Nicola Sturgeon completely changed her mind on a 50p top rate, saying “it would be reckless. It would not be daring. It would be daft.”
In the 2016 budget the Scottish Government set the top rate of tax for the first time. In the budget debate Labour forced a vote on raising the 50p top rate. The SNP blocked a Labour effort to bring back the 50p top rate, only winning the vote thanks to the support of the Tories.
Earlier this year, without any shame, the SNP once again used their manifesto to proclaim “we support an increase in the Additional Rate from 45p to 50p across the UK as a whole from 2018/19.”
So… the SNP attacked the Tories for cutting the top rate of tax. They demanded the power so they could set the top rate at 50p. Then, when the power was devolved, they voted with the Tories to block setting a 50p top rate of tax.
For a party that has built their success on pretending their nationalism is really socialism, it has been amazing to see them argue that Scotland can only have a higher top rate of tax if the Tories decide to tax the richest.
Labour forced the issue in parliament a few weeks ago and the SNP couldn’t even whip their MSPs to vote for their own manifesto policy on tax.
Now, under the guise of seeking consensus, the SNP Government are looking for opposition parties to give them the excuse they need to break their election promises. To oppose higher taxes during an election, to have used the issue to defeat your opponents, and then to ask those you crushed for help to implement the policy you opposed, that takes the kind of chutzpa that only the SNP can muster.
The nationalist government now appears without principle or purpose on the question of tax. This is an opportunity for those of us who have been arguing for more progressive taxes, but only if we can win the argument.
Labour should make sure the SNP pay a political price for their cowardice and broken promises, but not at the expense of doing the right thing, that is to say, Labour policy.
Ok, SNP folk can start reading again now that unpleasantness is done with.
So, you now believe in progressive taxation. Welcome! Here are 5 arguments you might find helpful.
1. You now agree that there is nothing sacred about the current levels of taxation.
In my lifetime the top rate has almost halved due to political decisions. We can choose to change it again.
Margaret Thatcher had a reputation as a tax cutter but taxes increased under her as a proportion of GDP. What she did was to reduce taxation of income and increase it on consumption, something that hit the poor harder. The result was a tax system that was far less progressive. In 1979 the top fifth in society paid nearly 38% of their incomes in tax while the poorest fifth paid 30.5%. In 2015 those at the bottom are paying a higher proportion than the top, 35% versus 38%. You can now argue this is BAD.
The Tories cut the top rate of income tax from 83% to 60% in Thatcher’s first budget after coming to power. 7 years later the Tories reduced it to 40%. Labour increased it to 45% in Alistair Darling’s first pre-budget report and then his 2009 budget announced the 50p top rate. The Tories then cut the 50p rate in 2012.
So remember, while yesterday you believed that changing the top rate of tax was reckless and daft, you now understand that actually the top rate has changed a lot over the years. Changing it again is not a big deal. Congratulations, doesn’t that feel better?
2. You no longer believe that higher taxes on the richest damages the economy and disincentivises hard work.
You can tell people that you no longer believe this argument because it is at odds with the evidence of what has happened to economic growth over the period when top rate taxes were cut.
The UK and other countries which cut the top rate have not grown faster than countries that did not. The data also shows that the share of income of the top 1% has increased in countries where top rates were cut but remained broadly static in countries where it hasn’t. See the table below produced by Piketty & co (they’re academics but resist the pavlovian urge to attack them, the experts are now on your side so you can agree with them).
The benefit of lower top rates of tax has been to the individuals at the top, not to the economy as a whole. That doesn’t of course mean that raising taxes will have the opposite effect but it does suggest that the current rate of tax for the richest has not benefited the economy as is claimed.
In states that did not cut top rates the distribution of the benefits of economic growth is far more even, as per this next table from an OECD study.
The evidence also suggests there is little link between the top rate of tax and incentives to work harder. Research by the Congressional Research Service (the US equivalent of the House of Commons Library, sorry I mean SPICE) found that hours worked actually dropped as the top rate of tax was cut in countries around the world.
Hopefully these facts are helpful when you take to twitter to abuse people for believing the things you yourself argued for yesterday.
3. You no longer think that the richest will move to avoid paying higher taxes.
This argument you used to repeat was that the richest will simply avoid paying a higher rate by moving to another country.
Your new objection to this argument should be obvious: a party of government shouldn’t use their own failure to close tax loopholes to justify not collecting the taxes owed by those who are most able to pay them. For the rest of us paying the tax we owe isn’t optional so why should our government accept that it is for the richest? That makes sense, right?
The tax-avoidance excuse also fails to account for the fact that increasing the top rate of tax would still leave our rate below comparable economies. If higher tax rates are really going to push people out then most other comparable countries do not have a tax rate that would act as a pull factor. Half of OECD countries have a top rate of tax higher than ours.
With all this in mind it’s probably best that you delete all the tweets where you argued that higher rate tax payers would move to England, just in case , you know, it looks like you have no principles on this issue.
4. You no longer believe that higher taxes on the rich don’t raise more.
This is another difficult one to get your head around because Nicola Sturgeon used to say this a lot. Try banging your head against a wall or playing Hue and Cry at full volume until the memory of this fades.
The first thing to note here is that Tories have kept the higher top rate of 45p introduced by Labour. They claimed when this rate was introduced that high earners would change their tax arrangements to avoid it, however they clearly now don’t believe it is an inefficient rate of tax as they have kept it in place. There is little evidence that 45p is the optimal rate for the richest taxpayers. In fact there is a growing argument from economists that the optimal rate is closer to 80% — though nobody is suggesting raising it anywhere near that.
If you want a fig-leaf for why you have had your mind changed for you, the SNP’s own Council of Economic Advisers have argued that the optimal top rate of tax is significantly higher than the present level. For example, sir Jim Mirrlees suggested a rate as between 50.4% and 64.5%.
If you need another argument you could also go back to when you were for higher taxes on the rich, remember, back before you were against them, then for them, then against them? In 2012 Nicola Sturgeon claimed that lowering the rate to 45p was “a tax cut that will cost more than £10 billion over the next 3 years.”
Until today both the SNP and Tory governments use the experience of the 50p top rate introduced by Labour to suggest that ‘behavioural effects’ mean the rich will shift income around to avoid paying. It is important to remember that the 50p rate was in place for a matter of months making it easy to manage income to avoid paying. The rich (correctly) bet that Labour would lose the election and that the Tories would get rid of the higher tax rate. Over the longer term it is more difficult for people to continue to hide their income.
I look forward to seeing you use some of these facts. If you find it uncomfortable to use arguments coming from me, just pretend they came from an angry loner who lives in Somerset instead.
5. This isn’t just about raising money.
Sometime in politics you can think about people in terms of class rather than nationality. I know, I know, but stay with me here!
Inequality between the rich and the poor saw a steady decline after Labour introduced measures like the Minimum Wage and Tax Credits. The Tories will tell you that that fall in inequality has continued — but they won’t tell you that it is because the fall in incomes since the financial crisis has been lower than the fall in incomes of higher earners. The exception to this trend is the incomes of the top 1% which have continued to run away while the rest have suffered.
So this isn’t just about rich v poor, it is about the very richest racing away from the rest of us.
By the SNP Government’s own figures inequality is sharply increasing in Scotland. The most recent figures showing the largest increase in inequality since devolution, driven partly by large increases in the incomes of those at the top.
Inequality impacts us all. Higher inequality is linked to higher obesity, crime, educational achievement, mental ill-health and unhappiness. Contrary to what you were arguing yesterday, it is inequality, rather than higher taxes on the rich, that is a risk to our economy and society. It fosters social tensions and enables populists to pursue an economic nationalism (sorry forgot I was talking to you) that leaves everyone poorer. It undermines faith in the system we all pay into, so called ‘fiscal consent’, if the rich aren’t paying their fair share then why should the rest of us pay?
While our political leaders act as if they are powerless when challenged to make the richest pay more, it is easy to become defeatist, to believe that gross inequality is somehow inevitable in a dynamic economy. It isn’t.
Countries that did not choose to cut the taxes paid by the richest have enjoyed similar economic growth to us but have very different gaps between the top and bottom. The difference in income between the top 10% and the bottom 10% of households is five-fold in Denmark, seven-fold in France and Germany but it is 11-fold in the United Kingdom.
The difference in income between the top 10 per cent and the bottom 10 per cent of households is five-fold in Denmark, seven-fold in France and Germany and 11-fold in Britain. Like them, we can choose to be different.
I know that yesterday you believed that Scotland could only have a different income tax policy if the Tories taxed the rich in England, but doesn’t it feel great to argue for using the powers you used to pretend to want?
The arguments for more progressive taxes and redistribution are best made by those who have always believed in them, Labour activists, but I hope this hastily written blog has been of help to you as you’re told what to think in the days ahead.