Taxing Times: A fair tax model for Scotland

Iain Lawson, former member of the SNP’s National Executive and serving Estonian Honorary Consul in Paisley, posted the following on his Facebook timeline prior to the Scottish Independence Referendum:

“Accountants are unhappy about the Scottish Government tax proposals. I can understand this, what would happen if we had a simplified tax system without hundreds, if not thousands of loopholes?

“Let me tell you from my experiences in Estonia, accountants have to find new ways of making money other than devising tax avoidance schemes.

“Companies have to pay the true tax based on their true profits. What’s not to like?”

This set us thinking at that juncture and we have put quite an amount of time and thought into considering future models of a Scottish tax system and it prompted us to try to crystallise 3, 4 or even 5 years of musings into some semblance of order.

With Kezia Dugdale’s utterly ill-conceived Scottish Labour flagship 1p tax hike policy seeming to have been based on sums scrawled on the back of a fag packet, now is perhaps the time to take a proper look at a future model of taxation in Scotland.

A fair and transparent taxation system is a relatively straightforward thing to devise and implement whilst a complicated and opaque system is symptomatic of an arrangement pandering to vested interests in a scatter-gun approach with a certain lack of joined-up-thinking.

So here goes…

Corporate Tax

A great deal of column inches have been written about Corporate Tax (CT) so let’s begin there. During the IndyRef the arguments were pushed along by HMG to our way of thinking and not led by Holyrood. What do we mean by that? Well, the main thing that was talked about in terms of lowering the CT rate was what it will cost the economy in terms of lost revenue. Yes, that is true if you let that isolated fact stand alone but if you then consider the grander purpose of lower CT then that argument is rubbished.

In plain and simple terms, if CT is lower then, all other things being equal, there is the creation of a clear incentive for inward investment to generate new employment opportunities. These new opportunities see people in work whose salaries attract personal income tax (PT) and national insurance (NI) plus the logical local spend of this newly created wealth. This leads to downward distribution to retail businesses – among others – and a corresponding entrenchment or expansion of earnings and existing jobs in that sector with corresponding CT, PT and NI enhancements from these secondary businesses. It’s a very simple “trickle-down” progression which need not have a logical end as long as we can establish interconnectivity between the various elements of the economy. Of course there will be spillage in that our Scottish economy will not be hermetically sealed! But the fiscal drivers will be domestic.

This type of scenario is what has driven the Irish economy along. Don’t put all the blame on the boom and bust of the property bubble and the economic crisis as that was a universal phenomenon which just happened to be exacerbated in the Republic because, to a great extent, much of Ireland was starting from a far lower base than most of Western Europe. The CT rate of 12.5% has been a huge success story with so many foreign companies flooding into Ireland to take advantage of a light fiscal touch and an educated workforce. There is also a fallacy abroad about Ireland in terms of CT which needs to be cleared up. The 12.5% rate only applies to trading income – non-trading income is taxed at 25% so Ireland is an unsuitable place to park so-called offshore assets as there is no advantage to doing so. Or more precisely there is no advantage to the Irish state as this type of income does not offer trickle-down benefits to society so it is correspondingly penalised.

There are plenty of models out there in the EU which are attractive and pro-business. The Estonian model gets a lot of mileage for its 0% rate on undistributed corporate profits. But there is also the 5% flat rate on profits under €290k for the so-called Lithuanian “micro company” – a very competitive small business vehicle. This model is already being marketed beyond Lithuania’s borders as a tax-efficient holding for businesses with a quasi-transnational footprint – crucially once a business has been taxed for CT in one member state of the EU then there is no remaining liability for further taxation in another member so paying 5% in Lithuania is a better choice than some other jurisdictional levies. This suits Lithuania today.

Luxembourg has several attractive business formation models and it’s no accident that an increasing number of multinationals lodge their IP there with a sub-6% income tax rate on royalties arising. It’s a hoot when HMG and HMRC squeal about Luxembourg VAT on things like Amazon but at the same time fail to tax the big boys at anything like statutory rate – just witness Pfizer’s eagerness to become UK domiciled and the whole Google farce. Luxembourg has cleverly switched its company regulations in a rather fluid manner as EU legislation develops and will undoubtedly continue to do so. For anyone not familiar with Luxembourg Ville, a huge financial zone has been built in an entirely new part of the city on the plateau of Kirchberg. This is a purpose built quarter which houses a great many international banks, accountancy firms, auditors and insurance companies along with conference centres, EU institutions and retail developments. All of this in a zone that conveniently reaches towards the airport.

Maltese corporate taxation could teach us a thing or two with what is, at face value, a high CT jurisdiction – 35% – but with rather generous rebates for legitimate operators that can be reduced to an extremely palatable 5%.

Personal Income Tax

If there is one area of government policy that is guaranteed to get virtually everyone excited it is personal taxation. This is an area fraught with dangers at election time for any potential leader of HMG and many a UK General Election has been won and lost on personal taxation policy.

But, in principle, PT need not be such a thorny issue. It is the very complexity of the system as laid down by the Chancellor of the Exchequer and administered by HMRC that creates such electorally charged issues.

A flat rate PT regime as a jumping off point for Scotland would be a very pleasant culture shock to my experience. There are various schemes in operation throughout Europe and although some are very attractive at face value such as 0% in Bosnia we need to have some form of realism about what taxation is actually collected for. If we wish to have a healthy state sector then we require healthy input and that starts with realistic PT.

If a future Scottish Revenue Service (SRS) would pursue a fundamentally flat rate scheme it would offer so much clarity but the key point to the layman would be that when an employer tells you that you will earn £X per week or per month then you will be able to calculate with some degree of certainty what your take-home will be – something quite unimaginable with HMRC.

This is an area of taxation where clarity should be welcomed by all-comers. As Iain suggested, it is the accountants who are the winners with the opaque regulations of a tax system that runs to 11,000 plus pages.

Then the flip side of the coin might be offered.

Are you sure that your accountant is as well versed in absolutely up-to-date HMRC regulations as he needs to be to offer you a full service? We am not sure if that question can be universally answered with a “yes” by all of us. One of us had the personal experience of a fairly young and generally go-getting accountant who was on the staff of a leading Aberdeen law practice a number of years ago. He was well versed in saving clients’ money through judicious financial planning of estates and trusts. But at the same time he was costing his own employer thousands of pounds every year, as was pointed out to him one evening, because he was not up to date on the latest allowances for company cars.

The silly stuff is in the detail and that is the largest part of the problem.

So, as a wise man once said, KISS – Keep It Simple Stupid!

National Insurance

Traditionally we don’t look at NI with anything close to the same keen gaze as we do other forms of deductions. It’s just there. It comes off before tax and that’s that. It doesn’t seem to hurt so much. But NI is just a PT by any other name. Only in this case it looks after a narrowly defined area of benefits which are closely attached to the person such as pension, healthcare, unemployment cover etc. Therefore it is impossible to calculate a gross rate of deduction without factoring in NI. In some jurisdictions NI is not levied separately and the PT figure is indeed the gross deduction but that varies.

Whilst we would argue for flat rate PT we would, conversely, argue for a sliding scale of NI. This proceeds from the premise that some of the different elements in the NI payment might be permitted to be comparatively less steeply increased but pension provision can never be enhanced enough if the individual concerned can afford the contribution. Private and employer pension provisions are other beasts entirely but an affordable and properly funded state pension to the individual can be something new that Scotland gives as a reward for a productive working life, something that is impossible to imagine with HMRC and the DWP at the helm.

Capital Gains Tax

The situation regarding Capital Gains Tax (CGT) varies greatly from jurisdiction to jurisdiction. In France capital gains can be taxed at up to 60.5%, in Germany there is an effective rate of 28-29% depending on state, and in Switzerland it is possible to avoid CGT altogether under some circumstances in some cantons.

In the UK the base rate is 18% with a rise to 28% for higher rate tax payers with exceptions for certain types of investment such as ISAs, gilts and principal private residences.

Many countries, including some in the EU, do not levy a separate CGT. Instead they regard capital gains as straightforward income to be taxed at the prevailing CT or PT rates.

Inheritance Tax

As the author of the 2010 Conservative Party Manifesto and, at that time, the Chancellor of the Exchequer-in-waiting George Osborne made an explicit pledge to raise the threshold for Inheritance Tax (IHT) to £1 million in the UK. He reaffirmed later in 2010 that the increase would take place “in this Parliament” but despite that this promise has completely disappeared without a trace.

IHT is a tax on death. It is a tax imposed on the survivors of those people who have done reasonably well in life and salted enough away to leave something to their kids and their grandkids. It’s not adding insult to injury, it’s adding insult to death!

This is another political football that is kicked around at Westminster election time but the net result never seems to be anything too radical and the threshold has crept up well below the numbers indicated as appropriate.

Employment Costs

The primary employment costs are similar to those as described under NI, namely pension, healthcare and unemployment contributions although this can and does vary from one country to another.

The levels of employer contribution can be fairly light in some tax regimes and the flip side of Estonia’s 0% CT on undistributed profits is a social security contribution of 33% over and above an employee’s gross income. As an example an annual gross salary of €10,000 paid to an employee in Estonia would see the employer actually make gross payments of €13,300. Other examples of employment costs are 31% in Hungary and 23.75% in Portugal.

So that’s the main components of direct taxation. From the point of view of indirect taxation, we should consider mainly VAT.

Value Added Tax

The case of VAT in the EU is a little different from the main direct taxes. Variability of rate of VAT is limited in that the lowest regular rate is 15% with reduced rates available in various sector down to as low a rate as 0%. The application of reduced rates and the sectors in which they can be levied are dependent upon negotiation but as things stand currently the UK has the highest number of zero-rated categories.

The current issue of using low VAT jurisdictions for e-business and mail order invoicing purposes, such as Amazon out of Luxembourg, is set to change soon with the burden of VAT becoming fixed by the address of the purchaser and not the vendor. So there will be no accrued advantage in operating from a low VAT base as the invoice will have to reflect the relevant VAT rate at point of delivery of the goods. For instance a package of new books shipped to Ireland from inside the EU will attract a 0% rate commensurate with the Irish exemption but the same package delivered to Denmark will attract a rate of 25%.

These new regulations will iron out a few bumps in the VAT system and point companies squarely towards CT advantages. So we can look forward to far less VAT-vectoring in transnational trade within the single market in the future as there will be no distinct advantage unless the local VAT rate alone offers justification for business location.

A Scottish Revenue Service

We are convinced that the future SRS should be a fairly light touch organisation. By this we do not mean that they should be lax with regulation. What we do mean is that the level of transparency should be such that only a fair-to-middling level of accounting competence would be needed to be able to see all businesses report to full satisfaction with no need for clarification and cross-referencing with the SRS.

When the taxation regime is built in a fundamentally simple and straightforward manner with concrete rules and minimal exceptions then the possibility to be “creative” disappears. If the rules are foolproof then even a fool should be able to get it right by definition. Also if errors are made then the offender should be admonished or punished accordingly in an “across the board” manner.

A Potential Tax Model for Scotland

What follows now proceeds from what we have written above and is only our own model for a taxation structure in Scotland. This bears no relation to the Scottish Government’s White Paper, Scotland’s Future, or anything that John Swinney has said and can be ripped to shreds at will if anyone so desires. We are not going to try to tackle the issues of Excise and Duty payable on fuels, tobacco and alcohol etc. as this is a different area of subject matter. We also do not consider Council Tax here as that is a local tax which will be dealt with in a future study.

1. Corporate Tax – We see the need for a benevolent CT system to attract foreign investment and jobs to our country. We also see a benevolent CT regime as an enticement for undecided parties to reaffirm their commitment to Scotland as a place to do business. To this end we would suggest something of an amalgam of the examples described earlier.

We would take the Lithuanian micro company model and impose it as a workable analogue across the board. Let all companies have their first £250,000 of profit – distributed or otherwise – taxed at 5%. Further to that we would impose a continuing CT rate at 5% above £250,000 on undistributed profit without ceiling and have distributed profits taxed at a rate of 15%.

2. Personal Income Tax – We need to be realistic in our assessment of what is both viable and fair in the PT rate for Scotland. We would favour a flat rate with a reasonably high initiation point. We suggest a taxation threshold of £15,000 with everything under that level of income being 0% rated. All income above £15,000 should be taxed at a flat rate of 22.5%.

There is the question of allowances for married couples or civil partnerships. We would replace this with a unique “pooled allowance” which might permit any two permanently interlinked individuals to enjoy a joint taxation threshold that is substantially higher than the single person’s allowance. This pooled allowance could offer a 0% taxation threshold of £25,000 across the two incomes in a relationship. This may not sound astoundingly generous but if the scenario sees, for instance, one person working and the other staying at home to look after children then the working partner will enjoy a further £10,000 of income at a zero rate which, if the salary is equal to or more than £25,000, will equate to £2,250 more in the pocket every year.

Furthermore, we would offer a revolutionary incentive to those on a pension – We would make pensions exempt of all PT for a period of at least 10 years. That’s right, completely abolish taxation on pensions for the time being. In the intervening period there can be a debate on how best to address the issue of taxation on pensions but we would favour a pledge of a high threshold and shallow entry such as nothing taxable below £30,000 and even then only at a rate of 5% with a step up to 10% at £50,000. The vast majority of pensioners will be unaffected by any return to taxation and those who will eventually be taxed will be those best able to afford the contribution. As an example someone with a pension of £40,000 would only pay an annual amount of £500 in PT and in the case of a pension of £60,000 that figure would be £2,000.

3. National Insurance – As mentioned earlier we would favour tilting NI contributions in the direction of pension provision, but that should not be at the expense of other sectors that the payment is intended to provide for. Our base NI threshold would be at £12,000 – let the first £1,000 every month be free of contribution. At £12,000 the rate of NI would be 4%. At £15,000 when PT kicks in we would see NI rise to 5%. Then at every £5,000 increment from there upwards we would add 1% to the NI rate – 6% at £20,000, 7% at £25,000, 8% at £30,000 etc. – up to a maximum contribution rate of 15% at an income level of £65,000 and above. All contributions up to 8% would be split as required between the different sectors that NI is designed to provide for but anything beyond 8% should be explicitly ring-fenced as supplementary state pension provision. The entry to this NI system is not nearly as steep as the UK version. The cost will eventually dig deeper but only on the basis of affordability.

The current UK system kicks in at an income level of £153 per week or £7,964 per year at a rate of 12% but then drops to 2% at a level over £805 per week or £41,860 per year. Unfortunately, that level of NI contribution sees both too steep an entry point and too shallow a rate reduction. The earner is penalised too abruptly at too low an income but when he or she can most afford it the rate is relaxed. This will always create deficits in the key areas of public spending that are most critical to us all at our times of maximum vulnerability – old age, illness and unemployment. A graduated and increasing NI burden has the potential to secure better provision for our times of need,

4. Capital Gains Tax – We favour a taxation system where capital gains are lumped in with conventional income taxation. CGT should be scrapped completely. Resident natural persons who have investment accounts would be able to realise capital gains on some classes of assets tax free until withdrawal of funds from the investment account. For resident legal persons (businesses) no tax would be payable for realising capital gains, but only on payment of dividends, payments from capital (exceeding contributions to capital) and payments not related to business. In this latter case capital gains would be taxed along with other income at the base CT rate of 5% up to the threshold of £250,000 and at 15% above that but only if actually paid out as specified.

5. Inheritance Tax – More revolutionary stuff here with IHT and follow the lead of Australia and New Zealand – scrap it completely. It can fairly easily be argued that the means of collecting IHT would be at least as costly as the actual tax take. Scotland is not the Home Counties after all and the number of qualifying estates is relatively low by comparison. It can also be fairly easily argued that by having accumulated an estate sizable enough to attract IHT then the person concerned was likely to have been taxed more than adequately whilst building that estate.

Therefore, remove IHT completely and do not tax the dead!

6. Employment Costs – This is a difficult one as we need to be fair and equitable to society in general without scaring off employment opportunities. At the same time we need to recognise that there must be a reasonable level of contribution from an employer. In the tax year 2014/15 in the UK the rate was 13.8% for all earnings above £7964 with a few exceptions. Bearing in mind the CT benefits as specified above we would levy a flat rate of employer NI contribution at 20% from an entry level of £12,000 – the same threshold as for employee NI contribution. This is certainly higher than the existing UK system but is more than compensated for by other allowances in the general system.

7. Value Added Tax – VAT is of course a transactional or consumption tax that is indirectly collected and disbursed along the supply chain of products until eventually being levied upon the end user. The system is fairly standardised within the EU in terms of its administration although not, as pointed out earlier, regarding its levels. We would argue for the lowest headline rate of VAT as permitted by the EU at 15%. We would also argue for the retention of the UK’s zero-rated sectors on what are regarded as essential items. The reduced rate can be as low as 5% and that would seem to be a reasonable level.

Summing Up

So that’s the theory. We should aspire to a highly transparent and completely linear system of contributions which creates scenarios that are easily read by the contributor.

When it comes to arguing the features and benefits of such a system it is very important to treat this model as a whole and not to separate out the different components as doing that simply creates obfuscation. Westminster has skilfully managed to separate employment costs from the taxation equation and stand them up as separate and problematic issues, or more accurately, in our frank opinion, the Scottish Government has not offered a persuasive, inclusive narrative for reconciling taxation and employment costs in a joined-up manner. As Westminster drags each issue away from the body of the whole it is quite easy to interrogate one element as unsustainable but that is all about contextualisation and the boys from London are the undoubted experts in this form of misleading subjectivity.

We believe that part of the blame for this is not through any fault of the Scottish Government getting hauled off-message and nor do we believe it is because of a lack of consideration of the issues. Instead we feel that it is in some part down to John Swinney’s more cerebral approach to his portfolio. He’s not a Bullingdon brawler in the manner of George Osborne or as combative as Boris Johnson. Instead he attempts to argue reasonably and rationally with no aggressive intent. By trying to tell the truth in an inclusive and rounded manner John Swinney does not make the sound bites that the media crave and the electorate hangs onto. This is not a criticism of the Finance Secretary as he has been singularly successful in getting to grips with the big picture of Scottish finances with one hand tied behind his back and the other wrapped in a boxing glove!

So maybe we need to contradict ourselves here. Maybe we need to cherry-pick some of the good stuff out of the whole and rub it into the faces of the media until a little of it sticks and they pop their heads out looking for more. Whatever it might be, it should create a media and Unionist feeding frenzy. But that is good. Then we can bring in the heavy hitters such as Nicola Sturgeon to underline the interconnectivity of the entire system.

When Michelle Mone and her ilk bumped their gums durng the IndyRef campaign there was a lot of irritation but some uncertainty as to why she was actually totally wrong. She was NOT totally wrong. Yet! The inclusive narrative had not yet been presented coherently. When it has been presented coherently then we can all be certain that she, among others, is the complete stooge that we knew all along.

We would ask everyone to be interactive here and offer as much constructive criticism as possible. The model outlined is only a hypothetical model. Tell us how to improve it!

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With David Cameron in Brussels to secure an EU deal to put to the UK electorate, let’s remind ourselves what happened in December 2011 when European Treaty reform was on the table. Call-me-Dave played a blinder; at least in his own eyes he did…

There have been some wonderful quotes emanating from all angles following David Cameron’s veto of European Treaty reform. The UK media has been fairly congratulatory but Europe has been almost universally condemnatory.

So what’s the flavour? From Cameron himself, “I said before I came to Brussels that if I couldn’t get adequate safeguards for Britain in a new European treaty, then I wouldn’t agree to it. What is on offer isn’t in Britain’s interests, so I didn’t agree to it.”

Well that’s all fairly straightforward isn’t it?

And the old pals across in Europe were fairly kind in their reactions.

Nikolas Sarkozy came back with, “We would have preferred a reform of the treaties among 27 (nations). That wasn’t possible, given the position of our British friends. And so it will be through an intergovernmental treaty of 17, but open to others.”

José Manuel Barroso followed the same line with, “We would have preferred, of course, a unanimous agreement … This was not possible, because this required unanimity, so I think the only alternative that was left was to do it through this kind of intergovernmental treaty.”

Angela Merkel meanwhile preferred to concentrate on matters which DC seemed to be oblivious to, “We have made good progress, especially with regards to the debt brake for all states that will be part of this new treaty and more automatic sanctions.”

Darling David has stuck to his vaguely hypnotic mantra that he was “protecting” the City but this seems more and more disingenuous as every moment passes and the implications of separation from mainstream Europe become less appetizing for the financial sector. He reminds everyone that the EU, Frankfurt and Paris are jealous of the City but Lord Heseltine put it all into perspective with his own succinct putdown, “In saying he wanted to protect the interests of the City, there is no way you can protect those interests by floating off into the Atlantic, frankly.”

I’m not inclined to agree with Tarzan too often but he has nailed it here. The UK needs to be inside Europe and not on the outside looking in.

Another one that I am not too inclined to agree with – no let’s rephrase that, one that I NEVER agree with – is Douglas Alexander with his assessment, “The roots of Cameron’s fateful decision lie in his failure to modernise the Conservative Party. He promised to leave the European People’s Party, and ever since he has been following his party, not leading it.” That is pot calling kettle black as the Labour Party is the long-time master exponent of weather-vane politics as so brilliantly championed by Anthony Charles Lynton Blair. However Alexander has speedily cut to the nitty gritty here and what we see now is a Conservative Party leadership being chivvied along by the Eurosceptic backbenches. Suddenly the City is not the relevant factor and it is the MPs stacked behind DC in the Commons.

But what about other views from Europe? The Austrian Chancellor, Werner Faymann is quite kind with his, “The British Government is called upon to compromise and to represent their own country. But to simply present conditions and to say either/or, that’s a blatant contradiction to the spirit of the European Union,” and that’s a pretty common thread although the level of dissatisfaction varies quite a lot.

A less charitable tack is taken by Franco-German MEP Daniel Cohn-Bendit, “Cameron is a coward,” whilst German CDU MEP and European People’s Party foreign policy spokesman, Elmar Brok, led with, “If you’re not willing to stick to the rules, you should keep your mouth shut.”

Make no mistake, 26 EU members see Cameron’s intransigence as one of the grandest betrayals in modern history. His constituency in Europe has evaporated overnight and we can be certain that the White House is silently fuming as they wanted the Euro issue put to bed to give Barack Obama the chance to take centre stage as the 2012 US election campaign cranks into action in the first week of the year. Obama’s initial summing up of Cameron upon their first getting acquainted is sure to become common currency before the dust settles. And for those with short memories that line was, “What a lightweight!”

Back to London and Lord Oakeshott opined that, “He went to Brussels with a set of impossible demands. He wasn’t there to negotiate; he was there to stage a walk-out. LibDem leaders must stop Cameron kowtowing to the Tory right and force him back to the negotiating table.”
He is backed up by Tim Farron who chips in with, “The idea of this being any kind of victory for us is just madness. We have lost massively. It was a lose-lose situation and unsurprisingly we lost, while making ourselves isolated from our colleagues in Europe.”
I’m not one to give the LibDems credit for anything at the moment as they sold themselves and the country down the river in an unashamed power grab in May 2010 but this pair are not entirely dumb. If Nick Clegg really is as disturbed as he privately makes out that he is then this is his moment. He can bring down the coalition by withdrawing his party’s support immediately and calling a confidence motion in the Commons at the first opportunity.

Of course that is unlikely to happen as he is far too comfortable with his feet wedged firmly under the Cabinet table at No. 10 but maybe Nick might grow a bit of backbone. Who knows?

Anyway back to the words that matter and Foreign Secretary William Hague assures everyone that, “We’re not separating ourselves from the European Union.”

Well it does not look like that from the continent. Cohn-Bendit insists, “Now we must put pressure on the British and force them, by implementing tough regulations on financial markets, to decide if they want out of the EU or if they want to stay inside,” and EPP vice-chairman, Manfred Weber, helpfully adds, “You can’t be a little bit pregnant,” which nicely sums things up.

So what of the implications of this in the sphere of Scottish politics and the debate on independence? In The Independent Jane Merrick points out, “Some believe that Cameron’s isolation in Europe could make it even easier for Scotland’s First Minister, Alex Salmond, and the Scottish Nationalist Party to secure independence – and eventually, perhaps, to join the euro.” She then quotes a ‘senior’ LibDem as saying the following, “So Scotland walks away and joins the euro and leaves the Little Englanders having finally got their Little England. The Little Englanders think we will be like Switzerland, but with nuclear weapons. Actually, we’ll be like Norway, but without the oil.”

An Upper Volta with rockets for our generation! Classic! Who said the LibDems have no sense of humour?

How Westminster helped squander Scotland’s black gold

by Kevin McKenna

It is over a year since Kevin McKenna published this piece in The Guardian and it occurs to us that nothing has changed in the interim and the truths starkly illustrated are just as valid today as they were in January 2015. Therefore we make no apology for republishing the article in full.

As an illustration of why the Labour party in Scotland might be wandering in the wilderness for many years to come, last week was a classic. The new party machine seems to have decided that the SNP government is vulnerable on collapsing global oil prices. This strategy is underpinned by a narrative that says: “If Scotland had voted for independence we’d have been up thon creek of ordure without a propellant.” Perhaps, but it’s a risky strategy and one that has quite palpably not been thought through properly.

The gross mismanagement of Scotland’s North Sea oil bounty by successive UK governments has left this country more vulnerable in the face of collapsing oil prices than it otherwise ought to have been. If there was ever an argument for gaining Holyrood control over North Sea oil revenues then this was it.
Kezia Dugdale, deputy leader of the Scottish Labour party, has continued to bait the SNP over the oil price, as she did in a wretched debate on the issue at Holyrood last week. Instead, she ought to be more concerned by the thousands of jobs that may be at risk in the sector and about the concomitant threat to the general economy of the north east.

For another senior Labour figure, the Lanarkshire MP, Frank Roy, the prospect of many people losing their jobs seemed to be a source of some glee. Following BP’s announcement that several hundred jobs are to go in its North Sea operations Roy, the MP for Motherwell and Wishaw, had this to say: “BP are announcing job losses tomorrow. How can that be? Swinney told us a massive oil boom was on the way.”

Labour in Scotland needs to stop using this threat to the jobs and the economy of one of Scotland’s most robust economic regions for political point-scoring. Instead, it should acquaint itself with its own complicity in Westminster’s deception in concealing the real extent of the oil revenues it finagled from Scotland for three decades.

In 2013, Denis Healey, the former chancellor of the exchequer, revealed what many had all along suspected. In an interview with Holyrood magazine he said: “I think we did underplay the value of the oil to the country because of the threat of nationalism but that was mainly down to Thatcher. Thatcher wouldn’t have been able to carry out any of her policies without that additional 5% on GDP from oil.”

For several decades, the Westminster machine concealed the fact that Whitehall persistently broke rules on impartiality by providing the Labour party with information to combat SNP claims on Scotland’s ownership of North Sea oil. Bernard Ingham, talking of his days as director of information at the Department of Energy, admitted he had “sought for a long time in briefing to undermine SNP claims to North Sea oil. Indeed it is part of my standard ‘sales patter’.”

Neil Kinnock, David Steel and Alistair Darling have all recently admitted the irresponsibility of Westminster’s refusal to establish an oil fund from North Sea oil revenues when times were good. This act of folly, in which all of them were complicit, has left a part of Scotland’s economy exposed. George Osborne’s oil tax strategy throughout the last decade – “screw as much out of the bastards as possible” – has cost a lot of people their jobs.

Three years ago, in an interview with the BBC, Malcolm Webb, the chief executive of Oil and Gas UK, said: “We’ve had three massive tax hits in the last nine years; that just cannot go on and it’s given this country a terrible reputation for fiscal instability.”

Margaret Thatcher’s so-called economic miracle was more a lie than a miracle and rested almost entirely on North Sea oil revenues, a fact that both she and Labour, in collusion, concealed from Scottish voters.

These revenues allowed her to pay off entire workforces in the coal-mining, manufacturing and steel industries, thus destroying these communities. She used around £75bn in oil revenues to help solve the UK’s balance of payments deficit and then sat back and oversaw huge economic growth in the south-east even as the north-east and north-west were twisting in the wind after the redundancy cheques ran out.

Even a cursory glance at how Norway managed its oil resources shows how incompetent and morally bankrupt was the Westminster government’s North Sea oil management. Both discovered oil in the same difficult marine environment and both are subject to the same effects of oil prices declining at the same periods.

Therefore, if the argument used by opponents of independence is to be believed, then the economy of Norway, with a population size similar to Scotland’s, should suffer more than the UK’s following a slump. Let’s face it – they don’t have Westminster’s “broad shoulders” or “deep pockets” to protect them. Crucially, though, they also don’t have the greed, stupidity and venality of Westminster.

Each time the price of oil has fallen in the last 30 years, Norway emerged not only not only richer the year after the trough but became richer still than the UK. Between 2008 and 2009, the oil price fell by nearly 50% per barrel to an average of nearly $60 a barrel. Yet the following year Norway’s wealth had increased yet again.

Mark Carney, the governor of the Bank of England, and someone who really ought to know better, also clumsily stuck the boot in. “It is a negative shock to the Scottish economy, but it is a negative shock substantially mitigated by the fiscal arrangements in the UK,” he said.

Learn the history of the North Sea, Mr Carney, and in particular the dismal performance of the government that employs you. And while you’re at it you could tell us why in the years following a low oil price Norway’s economy has been in far better shape than the UK’s.

Running to stand still

This is a reblog of the Wings Over Scotland article published yesterday (February 8th) as we think it is essential to emphasise that Scotland is being intentionally hung out to dry in the preparation of the Scotland Bill 2015-16. Thanks to Rev. Stuart Campbell.

A revealing moment from a meeting of the UK parliament’s Public Administration and Constitutional Affairs Committee last Tuesday, featuring the former Secretary of State for Scotland, Lord Forsyth of Drumlean.

Who knew eh?

The PACAC’s hearings aren’t transcribed in Hansard, so we’ll just put that line in writing for ease of future quoting:

“My own view is that it has suddenly dawned on… the Scottish Government that the effect of these changes will be that Scotland will have less money and may find itself having to put up taxes in order to stay where it is.”

Just so we’re all clear where we’re up to.

Denial is not a river in Egypt

Following the piece published on Saturday looking at a potential Brexit scenario there has been a bit of background noise but the oddest feedback came through a Facebook group which goes by the name of Sensible Politics Debate.

I realise that the LEAVE camp is not unwilling to put confusing and plainly false information out there but I am still trying to get my head round how much of the rubbish I saw posted had been caused by official LEAVE propaganda and how was down to genuinely stupid people.

I’ll give a few short examples of this denial of clearly verifiable information and its replacement with utter nonsense.

One contributor named Liliana led with the assertion that the UK hardly exports anything to the EU and, anyway, that market is stagnant. She then indicated that only 5% of UK exports go to Europe. An interesting number. Now I am not the biggest fan of the Office for National Statistics but a report issued by that body last summer states the following:

“The UK has traditionally had strong trade links with the EU. Despite changes in the composition of the global economy, the EU in 2014 accounted for 44.6% of UK exports of goods and services, and 53.2% of UK imports of goods and services.”

Could Liliana have possibly meant 50%? No, not likely, she was just quoting made up numbers.

In fact reading on from that initial ONS quote the report points out the following, “Faster growth in the value of UK imports compared to exports with the EU has resulted in the UK’s overall trade balance with the EU deteriorating (value of imports exceeding exports), with the trade deficit widening notably, reaching £61.6 billion in 2014 compared with £11.2 billion in 1999.” But let’s not permit the facts to get in the way of a good porky from Liliana, eh?

Rob simply stated that under EU treaty obligations and WTO rules there had to be a good deal. Really? Nothing guarantees that at all.

Vanessa insisted that, “by staying in the EU we are guaranteed to adopt the Euro, be part of TTIP, and VAT on food will most certainly be introduced. The EU are already threatening the latter. If we go, the EU falls apart.” What can one say about such levels of ignorance? The euro? Forget it. TTIP? The Conservative government would sign up to that in a heartbeat and Better Together made a huge deal of hushing that up in our own referendum in 2014 due to the implications for NHS Scotland so don’t blame that on the EU. VAT on food? Europe certainly wants to look at reviewing VAT exemptions but as there is nothing that Brussels can do to enforce anything under current regulations then it is certainly never going to be a done deal. Vanessa then went on to insist on the matter of tariffs that, ”No country will introduce them. It’s foolish to even suggest it. Wow! Just take a quick look online Vanessa and the prevalence of tariffs is abundantly clear. As for the EU falling apart, that is Eurosceptic wishful thinking on such an inflated scale as to be clinically certifiable.

I was genuinely amazed at the preponderance of what Stephen Fry might refer to on QI as General Ignorance. If this is the level of discussion that is being conducted out there on the ground then I might have to reassess the extent of my own fears about Brexit. If this blatant misinformation is being widely distributed then there could be a real chance of LEAVE doing considerably better than I might have imagined to be likely. I have to hope that what I encountered is a localised clique of very misinformed and very malign individuals as opposed to a concerted campaign of untruths.

With that in mind please can I ask that those of you who find this blog useful or in any way informative to share it with others who might take something from what we are trying to offer here.

Looking Forward to Brexit? Welcome to Minsk…

In early September 2003 the Estonian Kanal 2 TV channel aired a program to explain a few details about the upcoming referendum on that country’s membership of the EU. The host was well-known politician Toomas Hendrik Ilves (now the President of Estonia) and the guest was a leading figure from the European Parliament. The show outlined to the viewing audience the implications of the outcome of their referendum and near the end the host asked his guest, “If Estonia votes No then what is Plan B?” The answer from Europe was unequivocally clear, “There is no Plan B. If you vote No then you are with Belarus.”

Well that was pretty stark and Estonia, much as expected, voted by 2 to 1 to join the EU and the rest is history.

Consider this though, outside the UK and with very few exceptions the EU is immensely popular even if it is certainly recognised as flawed and imperfect. The EU is the target, and indeed the source, of much dissatisfaction from the Black Sea to the Baltic to the Bay of Biscay but that does not alter the fundamental need that is attached to the institution of the Single Market. There are 27 members out there who could not conceive of a Europe without the EU, warts and all and a number of candidates for entry waiting impatiently in the wings.

Why in the name of anything sane would the UK seek to leave the EU?

Only last week there was a major role-playing exercise conducted by real-life senior political figures. The scenario which was acted out was the pre-amble to a UK European referendum followed by negotiation of a Brexit following a vote to leave the EU. Malcolm Rifkind played the role of PM in the first part of the role-playing. However, under the assumption that David Cameron will resign should he lose the referendum, Rifkind was replaced by Norman Lamont in the second part of the war-games. When the issue came down to carving out an exit deal the UK faired rather badly.

Let’s take up the narrative as described by The Economist:

“Lord Lamont, a former Tory chancellor of the exchequer representing Britain, argued that an ‘amicable divorce’ was in everybody’s interests. Britain could negotiate a trade deal similar to Canada’s, liberating it from EU rules, including free movement of people. He even volunteered to pay something into the EU budget. 

“Yet other countries were unimpressed. John Bruton, a former prime minister representing Ireland, said Brexit would be seen as an ‘unfriendly act’ and would threaten the peace process in Northern Ireland (Enda Kenny, Ireland’s real prime minister, made a similar point after meeting Mr. Cameron on the same day). Steffen Kampeter, a former deputy finance minister representing Germany, said Britain would not be allowed to cherry-pick the benefits of membership without the costs. Mr. de Gucht noted that a new trade deal would be negotiated by the European Commission and national governments with minimal British input. He and others added that they would try to shift Europe’s financial centre from London. 

“The starkest warning came from Leszek Balcerowicz, a former deputy prime minister representing Poland. He said the priority would be to deter populists in other countries who wanted to copy Brexit. For this reason Britain would be punished by its partners even if that seemed to be against their interests.”

Why indeed would the EU wish to make a Brexit easy for the UK? The OUT camp tells us repeatedly that it would be in Europe’s best interests to reach a good accommodation with the UK as these islands have such a large share of trade with the continental Union.

Conversely it would seem to be the ideal opportunity for those countries which regard the UK as a bothersome rival in various markets to level out the playing field. The previously stated opportunity to shift financial markets away from the City of London is only the most blatantly obvious tip of a huge iceberg – every British company currently relying on exporting to the EU had better start to consider what the impact might be to their bottom line if Brussels imposed tariffs on their products and/or services. For instance, why would Europe offer British carmakers such as Land Rover Jaguar favourable terms to compete with the major manufacturers in France, Germany, Italy and beyond? There is no logic to such easy assertions from OUT campaigners.

In fact, Brexit would almost certainly be viewed from the continent as a fundamental betrayal of the European Project. Under those circumstances why would the betrayed offer a get-out-of-jail-free-card to the betrayer? Again there is no logic to the assertions of OUT.

Part of that impending betrayal has further geopolitical implications. Many of the 2004 expansion countries of the EU have a perpetual eye to the east and that has become more acutely focused since Vladimir Putin has been conducting his adventures in Crimea and Eastern Ukraine. This is primarily an issue for NATO but a Brexit would certainly send the wrong kind of signal to the Kremlin. For Moscow to imagine that Europe is unravelling all by itself would offer a green light for all kinds of alternative scenarios in the Baltics for instance. This is not a suggestion that Russia might invade Estonia, Latvia or Lithuania but it would open up a whole new Pandora’s Box of opportunities for Putin to interfere in his ближнее зарубежье, his so-called “near abroad,” which would suit him just fine and play massively well to domestic Russian public opinion.

It is certainly the case in modern politics, especially in the UK and the US, that joined-up-thinking has been consigned to the dustbin in favour of sexy sound bites. It suits politicians to treat each policy subject in splendid isolation and to utterly disregard any and all other attendant issues. This is insulting in the extreme to the electorate who are supposed to suck up this intellectual incoherence but that is what the IN and OUT sides of the argument are both offering – complete and utter intellectual incoherence. To expect the wider electorate to make an informed decision on the future of the UK’s involvement with Europe whilst being deprived of a coherent narrative examining all the implications is both disingenuous and dangerous. The IN camp is following this route as they really don’t know what, if anything, of substance David Cameron can secure from Brussels whilst OUT simply wants to polarise opinion and sow enough seeds of doubt to make IN just too big a risk to entertain.

But just in case there is any room for doubt let’s go back to the top:

“What is Plan B?”

“There is no Plan B. If you vote No then you are with Belarus.”

For Europe IN is the only way and OUT is the non-existent Plan B. So here’s to Britain and Belarus…

Welcome to the Scottish Economic Analysis Unit

Back in the spring of 2014 when the Mainstream Scottish Media was ramping up the attacks on the YES campaign a few of us decided to start the Scottish Economic Analysis Unit. The idea was simple, answer key questions as openly and honestly as possible using that rather unique tool which the media was finding rather elusive – facts!


As we look forward to the Scottish Parliamentary Election in 3 months time with the European In-Out Referendum likely to follow in short order it is time that we start writing again.

Since 2014 we have existed only on Facebook and Twitter but it’s now time to add a blog to that.

Please read and share our views with as many as you can and please, please, please ask questions. Always questions.