31 October 2015

Kezia Dugdale: Doctoring with a cudgel...

Can Scottish Labour "reverse" Tory tax credits cuts, like-for-like? That's a money question, and an administrative question, but it is also a legal question. Scottish devolution is subject to an increasingly complicated set of founding documents and diktats. I sympathise with the bamboozled public. I sympathise with the bamboozled commentariat too -- at least to some extent. Much of the detail of the Scotland Bill has escaped without analysis - except in the most general terms - because the detail of the thing seems simply too complicated and too dreary. 

This aversion to detail has serious drawbacks. We are left with a population, unable to discern where power - and responsibility - sits. But we are also left with a public discourse in thrall to lazy misconceptions and downright ignorance. Microeconomists like to point out that information asymmetries inevitably empower some people and disempower others. What you don't know not only can hurt you: it can screw you over mercilessly. That's one of the reasons I try to shed a little light on tricky-seeming areas of law here. Ignorance, and maintaining public ignorance, is fundamentally a conservative impulse. Trust me, it says. I'm in the know, and I know best. I reject this outlook entirely. 

Understanding the politics of devolution increasingly demands that we understand the law of devolution. Regrettably, most of our key commentators and opinion formers still haven't the nearest, foggiest clue about how the powers and reservations of devolution are delimited. And more frustratingly still, they tend not to stir themselves to find out. Instead, they spend their time discussing political tactics, impressions, aspirations, court politics -- and as a result, allow politicians to peddle guff unchallenged. 

You can understand why. It is quicker, zestier - and simply more fun - to ask whether policy X knocks Kezia Dugdale off course, or if policy Y puts Nicola Sturgeon in a tough spot - than doing the dogged, drearier work of asking: is there any legal basis for this policy, and how the hell do we fund it? This isn't a partisan point. Nationalists have used press and public ignorance of the limits of the Scotland Act to pull a trick or two in their time. But we're poorly served - misled, really - if we allow it to continue.

This lamentable tendency is much in evidence in the reporting of today's speech from Kezia Dugdale, pledging to "restore", "cancel" or "reverse" Tory tax credit cuts. The first question you might ask is a simple one: are tax credits devolved now? No, they're not. And is the new Scotland Bill proposing to devolve decision-making on either the child or the working tax credit to MSPs? No, it isn't. So how the deuce is this flagship Scottish Labour policy to be delivered? 

Here we have to go back one step further, and consider a couple of even more basic questions -- "what are tax credits anyway? And how is George Osborne proposing to change them?" Administered by HMRC, introduced by the Labour government in 2003, working tax credit is paid to the low-paid to alleviate in-work poverty. Child tax credit is also available, on top of child benefit. But isn't Osborne proposing to abolish tax credits? Not quite. As he set out in his summer budget, the Chancellor's plan hinges on reducing the overall spend on tax credits by increasing tapers and restricting entitlements. The key passage:

"From April 2016, the government will reduce the level of earnings at which a household’s tax credits and Universal Credit award starts to be withdrawn for every extra pound earned. In tax credits, this point (known as the income threshold) will be reduced from £6,420 to £3,850 ... The government will also increase the rate at which a person’s or household’s tax credit award is reduced as they progress in work, by increasing the taper rate in tax credits from 41% to 48%."

Decode that a bit. Say you earn £6,420 per annum this year. You are entitled to your full award of tax credits. But what happens if you earn £7,000? For every £1 you earn beyond £6,420, your maximum entitlement to tax credits will be reduced by 41 pence. If Osborne's summer budget plans ever materlise in the spring of 2016, this means a sharper taper of 48 pence in the pound applying to income above the income threshold, which will bite a far more modest levels of earnings. It is this new calculation which will strip out appalling sums of money from the industrious poor. 

What should immediately strike you is: this isn't a straightforward clawback of benefits by the Treasury. Gavin Kelly is good on this. "Restoring" tax credits from Holyrood isn't a question of popping an extra £200 into the balance for each qualified applicant. Each individual case will have to be calculated on its merits. This is gruesomely complicated. Someone would have to do the calculations. And under the general principles of the Smith agreement, the bean-counting money would have to come out of the Scottish budget. 

And worse, Holyrood will have only the crudest tools to begin to mitigate this impact -- even if the money could be found to begin to do so. Whatever Labour hope to be able to do -- it can't be to "cancel" or "reverse" the effect of tax credit cuts. The Scottish Parliament just doesn't have the power. So what will the Scotland Bill let Holyrood do? Well, for starters, it gives MSPs power to make provision about some disability, carers and industrial injuries benefits, maternity, funeral costs and cold-weather payments - subject, albeit, to unjustifiable restrictions. The Bill will also give MSPs some power over income tax. They will be able to establish and vary a Scottish basic rate of tax, and the higher bands. What they will not be able to do, however, is to set the personal allowance or other more nuanced forms of tax relief.

This is all well and good -- but there is nothing here which would let First Minister Dugdale pursue the scheme she has outlined today. Instead, she would have to rely on section 21, which proposes to give the Scottish Parliament power to "top-up" reserved benefits with discretionary payments. However, this power only allows Holyrood to funnel funds to those who are already "entitled to a reserved benefit". It doesn't allow MSPs to create new entitlement schemes. And critically, those whom Osborne pushes beyond the scope of the social safety net cannot be caught by a Scottish policy intervention under the Scotland Bill. Nor is David Mundell proposing to give the Scottish Parliament power to devise and administer its own welfare schemes, following its own lights. Ebeneezer Scrooge lives.

As devolution expert Alan Trench observed on Twitter earlier today, this means that Holyrood could devise some kind of "income supplement" and foot the bill, but this couldn't be administered through the tax system as credits are at present. This Scottish income supplement would inevitably be subject to different rules, criteria and thresholds. Jehovah only knows what it would cost to introduce. Jehovah only knows where the money is supposed to materialise from. We can make a shrewd calculation, however, that any wheeze to mitigate the impact of Tory tax credit cuts, penny for penny, in every individual case, would be impractical and ruinously expensive.

The chancellor's tax credit changes are brutal, but surgical. At best, the Scotland Bill will give Holyrood a club to doctor to the injury Osborne's reforms will create. "What do I care?" says the hard-pressed worker, glad of any mitigation for their situation, and their lost tax credits. Quite so. But whatever this is, it isn't ""restoring", "cancelling" or "reversing" the Chancellor's unjust, disproportionate and unfair tax credit policy. Holyrood doesn't have the power. And it's pure fiction - political spin - to claim otherwise.


  1. My understanding of the tax credits system is that any extra income (and this proposed Scottish top up would certainly count) will be counted and reduce your tax credits. By lifting one end of the seesaw like this Kezia's future Labour Scottish Government would end up lowering HMRC's payments until they end up having to cover the whole of each family's Tax Credits payments out of the Scottish budget. Is that how pooling and sharing works?

  2. Perhaps I misunderstand what you're saying, but I believe that Peat Worrier just explained that the SG doesn't have nor will have the power to 'top up' the tax credit system.

  3. Can only hope the Scottish government is a bit more sprightly about publicizing the limitations of the Scotland bill in this respect than it has been.

    These legislative handcuffs will not be shoogled in the face of the Scottish electorate by the MSM or the state broadcasters any time soon, so I don't quite know how this information is to be cast before a wider audience, which does not/cannot access it online

    Thanks for this. You never fail to inform.

  4. Yes, that's what I thought, but wasn't sure. And the Scotland Act isn't final yet you never know, Mundell might have some surprises up his empty sleeve.

    The Scottish Government (SG) is entitled to communicate with the public, and use Cicil Service resources to do so. What will be needed once the Scotland Act is finalised is a clear leaflet to be delivered to every household, perhaps in the form of a FAQ. It could be audited and signed off by whoever is appropriate, in some cases Audit Scotland perhaps.

    Such questions as "Can tac-credit cuts be reversed?"
    "No, this will not be in the legal power of the SG".

    That will prevent such false claims, or show them up for what they are.

  5. What is your point here Andrew? Simply that Labour are engaging in some form of political spin? So what? Yes, I am sure that your beloved SNP always express their policies in exact and precise terms, no matter how complex or convoluted and never engage in any form of political spin whatsoever. As you rightly point out, the hard-pressed worker will only care about the effect of Labour's policy on their wallet/purse. The idea behind Labour's policy is that they will reverse, as best they can, the effects of George Osborne's withdrawal of tax credits. Labour can do this through the general power to top up benefits set out in the Scotland Bill, no question. Even if it is not an exact like for like replacement for the lost tax credits, at least Labour are proposing to do something to mitigate the loss felt by low-income workers. This is a whole lot better than the response of the SNP, which is to do nothing. Cheers Swinney.

    1. you are seriously telling us that you read the article and could not understand his point?

      The point is that we don't have the power to cancel or reverse Osbornes cuts. Anything labour would do would require to create a process that simply does not exist in Scotland. It would have to be robust enough and ready to hit the ground running. With the staff to man it and budget to support it. It would need the money to be on hand to deliver the aid, once you had identified who needed the help and by how much. With Osborne cutting the budget to welfare this means a direct cut to Scotland's ability to mitigate something it actually does not have control over in the first place. Labour would have to take from Paul to pay Peter. So even if it did have a plan in place and means to make it work, it would then have to approach Mundell for permission to approach the Tories in Westminster for Scotland to "use" its power. What Andrew is saying is that Labour are making promises it can't keep.

    2. First point, don't assume that Andrew's interpretation of the Scotland Bill on this point is infallible. Second point, the Labour party is quite comfortable to take from Paul to pay Peter, especially when Paul is a top rate tax payer and Peter is a low-income worker. This policy is called redistribution. I know it may seem quite alien to some people, but it's the only honest way of achieving a fairer and more equal society ;)

    3. Take from the top rate tax payer? Have you any idea how much will come from this source? Recent estimates suggest £8 million pounds hardly enough to pay for the set up let alone use to mitigate Westminster reforms.

    4. If you are unconvinced by his interpretation, perhaps you could be so kind as to provide your own detailed analysis of what *any* Scottish Government would be able to do within the bounds of current powers, and those currently proposed in the Scotland Bill (excluding any imaginary proposals that Fluffy may or may not have "up his sleeve").
      As for 'redistribution', that is an extremely crude tool which, IMHO, serves only to punish those fortunate enough to be earning good money from their job. Better to compel employers to pay an actual living wage as a minimum, and to plug all the holes in the corporation tax systems so that companies are contributing their fair share.
      Of course, the problem with this is there are so many vested interest in politics, across all the parties (although some more so than others), that this will be difficult to achieve.
      Just to be clear, I have NO PROBLEM contributing my FAIR share, and I expect the same from everyone else, global corporations included.

    5. 1st point. He has actually taken the time to study the issue. I have yet to hear your counter argument based on the facts as they stand.

      2nd point. Even if you were correct (given the state of the Scotland bill, I'd say this is unlikely)- again I ask you to consider that you are talking about a process that simply does not exist in Scotland at this time. It would have to built from the bottom up and you could not even begin this process until the Scotland bill becomes law. That won't be until 2018. It would take something on the order of 2 years to put a complex process like this into place. It could take until 2020 to 2021 before your great plan could even begin to work.

      3rd point - Scotland's control over taxation is only over 40% that parliament decided it could collect. Westminster pockets the rest. That means any increase implemented, even if it was the high earners, would mean that a large proportion of the money raised will end up in Osborne's coffers, not Holyrood. Which means if the IFS report that the most that can be raised is 8.5 million - your party will get less than half. Which means your plan to hose the rich simply won't work.

      As Andrew said, Jehovah only knows were you'd have to find the money.

  6. How typically sad, let's just have a pop at the snp. Perhaps Swinney is not making grand statements as he is a rational individual who realises that in this joke of devolved settlement there is little that can can be done, but hey the red Tories were adamant last year that we are better together so I guess we either are getting the best of both worlds or just having to take one for the team. As for guff about labour making a difference to their wallet don't make me laugh, why are we even having to listen to this tripe, Labour had the chance to block this last week and what did they do, they abstained again, party first as usual. Wake up will you. Sad.

  7. "So how the deuce is this flagship Scottish Labour policy to be delivered?"

    In the headlines of the Daily Record.

    I Vow it.

  8. The calculation used here for the effect of the changed to Tax Credits doesn't take into account the lowered threshold. This means that someone working the minimum 16 hours per week on the new minimum wage of £7.20 would lose over £500 per annum. That's the bottom end of the scale, mind you - a single person on minimum hours.

  9. Since the matter hinges on the need to raise more revenue, does anybody know just what the Scottish Parliament's powers are with respect to new taxes?

    Mexico has introduced a soda tax on sugary soft drinks, so could Scotland do the same? Leading on from that, Edinburgh in particular is pretty much infested with expensive bikes and their Lycra clad, posturing riders. Could a bike or Lycra tax be introduced? Many world cities have a tourist tax, so could something along those lines be introduced in Holyrood?

    My question is not whether or not any of these are desirable to the readers here, but whether Holyrood has the powers to create them.

  10. I believe Kevin Davidson means that any extra income given to benefit recipients would then be treated as income by hmrc and the recipients tax credits would be reduced accordingly. So if the Scottish Govt created a payment system to give people £10, the recipient would promptly lost £4.80 of their tax credits meaning they'd only be better off by £5.20, and so on.

  11. why don't they (SLAB) do something more to halt the progress of this universally condemned move by the Tory Govt? Last year they sided with them, This year they are meekly accepting new Tory budget cuts, and inventing unworkable but populist pollicies to negate them! Absolutely crazy.

  12. What a wonderful world the SNP live in. The Labour Party would face all kinds of difficulties implementing a reversal of Tax Credits. The SNP would face no difficulties at all implementing their plans to abolish poverty, whatever these are?

  13. https://eurofree3.wordpress.com/2015/10/19/mayne-meediar-and-britains-dysfunctional-family-of-nations-4/

  14. In public choice economics, the revenue from a tax is crudely given by the formula "tax rate x number of taxpayers". So, for a tax to raise lots of cash, it has to either be rather severe or to encompass many taxpayers. It's normally either one or the other. The political realities make high tax rates difficult to impose, so to raise the cash, it becomes inevitable that the target is a substantial number of taxpayers, say middle earners.

    If Labour is really serious about reversing Tory cuts, then its options are rather limited: either a massive tax hike on top earners, which would leave Labour short, or a pummeling of the more numerous middle!

    Take your pick.