2 February 2016

Questions, questions

It is a finnicky detail, but an important one. Today, Kezia Dugdale has announced that Scottish Labour wants to increase income tax by 1 pence in the pound across all tax bands. Under the scheme, anyone earning over £10,600 or so will find themselves making a greater contribution to the Scottish exchequer. Wealthier folk considerably more. 

From a legal point of view, this is entirely in order. Under the Scotland Act 2012, Holyrood sets a single Scottish rate of income tax to be paid by Scottish income taxpayers. So how does it work? Under the 2012 Act, you take the UK tax bands determined by Westminster and knock 10% off them. Holyrood has the discretion to add a single supplementary Scottish rate over and above this, which applies to all bandings. To add 11% to the upper rate of income tax, MSPs have got to add 11% to the basic rate too. 

Notice a few important things which the 2012 Act doesn't let MSPs do. They've no control over (a) the extent of the tax free personal allowance (b) the number of tax bands in operation (c) when these bands kick in and (d) obviously cannot - at present - increase only the upper rates of taxation. But importantly, the Scottish Parliament also cannot introduce additional forms of tax relief into the code, or add permissible deductions or provision for rebates to the HMRC rules, even for Scottish taxpayers. Nothing in the Scotland Bill, before Westminster, will change any of this. For the moment, all MSPs can do is move the overall income tax slider up or down.  

This is why I'm more interested in Scottish Labour's attempt to sweeten the bitter pill of making even those on very modest incomes pay more tax, by promising the following:

“We would establish, with local authorities, a £100 annual payment to the boost the income of low paid taxpayers. This will account for just £50 million of the half a billion pounds this change will raise but will mean that we can boost the incomes of low paid taxpayers.”

Labour are defining a "low paid taxpayer" as "taxpayers" earning less than £20,000 a year. They suggest "one in five tax payers will end up better off financially" for the modest expenditure of £50,000,000 a year. The Guardian and Daily Mail characterise these payments as "rebates" for the low paid. The Daily Record calls it "cashback." Kevin Hague calls it a "refund", though Kevin rightly stresses that "the precise mechanics of how this would work are unclear". The BBC and Holyrood magazine characterise the proposal as a "payment," but offer nothing more by way of detail than Labour's press release summary.  

So what might the legal mechanics of this critical element of Kezia Dugdale's platform be? Let's be clear about a few things from the get-go. Firstly, and as-per-ruddy-usual, the Scotland Act doesn't provide a straightforward legal mechanism to realise Scottish Labour's ambitions. Holyrood has no authority to order HMRC to fork over a £100 repayment to those earning less than £20,000 gross salary per annum. This is so, even if the Scottish Government is good for the money it would cost and willing to pay the funds. This will remain so, even after the Scotland Bill comes into effect.

Holyrood has no legislative competence to introduce such a scheme, as "taxes and excise duties" remain - broadly - reserved. So this is no "rebate", no "tax refund". And critically, it couldn't be administered through the tax system, with all of its convenient access to the financial information of hundreds of thousands of Scots. 

Although is - doubtless - convenient political shorthand for Dugdale to link the two, what the Labour leader is proposing here is an entitlement scheme quite distinct from Holyrood's decision-making on the Scottish rate of income tax. Such a payment seems to fall within the - generally reserved - domain of social security. This is defined as "schemes supported from central or local funds which provide assistance for social security purposes to or in respect of individuals by way of benefits,"

“Benefits” here is defined as including "pensions, allowances, grants, loans and any other form of financial assistance." And providing assistance for social security includes "providing assistance to or in respect of individuals ... who qualify by reason of low income." Although Scottish Labour want to dress this up as a rebate or a refund -- it bears all the hallmarks of a social security benefit. If the Scotland Bill passes and comes into force, section 26 should lend Kezia a hand, but until that day, it isn't clear how Dugdale can bring her £100 payments about. The timelines for realising these powers may, or may not, neatly splice with the tax hike she is proposing. 

And because this isn't a tax repayment, there are obvious wider practical implications worth considering. Labour indicate that local authorities will shoulder the burdens of adminstering this policy (so no universal credit supplement, this). So how is it envisaged local authorities will collect the relevant financial data on potential beneficiaries? A "rebate" might suggest a convenient calculation, completed automatically by the taxman's computer, which coughs the cash directly into your bank account. But local authorities don't have this data. Will the low paid be expected to take the initiative to make some kind of local government tax return to establish their eligibility? 

And thinking of that, have administrative costs been factored into Scottish Labour's £50 million estimated costing for this policy, or is this simply an estimate of the total cash which those earning under £20,000 will be entitled to? If these figures don't include administrative costs, why not? And if they do include administrative costs, what data are these calculations based on? What assumptions have been made about the number of individuals eligibile? What's the breakdown? 

One reason why you might struggle to tell me that is that you're still a little fuzzy on who will, and who won't be, entitled to this £100 benefit. In which case, that £50 million estimate looks even shooglier. HMRC estimates that around 2.56 million Scots pay some income tax, the overwhelming majority at the basic rate. Are those earning less than the personal allowance (£10,600 in 2015/16) being classified as "taxpayers" in this scheme, entitled to an annual £100 supplement, along with those who earn £15,000? Pensioners, students, weans? Or will only those who cross the threshold of the personal allowance see the supplementary £100? But even if we're only talking about these taxpayers, making 512,000 people wealthier while taxing them more might seem a difficult circle cheaply to square.

Not insuperable hurdles, then. But questions, questions.

20 comments :

  1. These are "small details", according to Blair McDougall. Eat your cereal.

    https://twitter.com/blairmcdougall/status/694506534072684544

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  2. Is it still the case that any increase in the Scottish tax rate will automatically lead to a reduction in the block grant? Or has that mechanism been abolished in the 2012 act?

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    1. Short version: still up for discussion in the fiscal framework process. Murky.

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  3. "A penny for Scotland". Your thoughts?

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    1. Skeptical. You can't analyse tax-take only in terms of its progressiveness. Should the low-paid be paying more? Calman tax is an extremely blunt instrument. On the other hand, however, a left of centre politics must be prepared to defend the principles of taxation, and of higher rather than lower taxation in pursuit of collective goals. If - once - the Scotland Bill comes into force, these become acute political concerns.

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  4. Westminster block grant will go down a penny every year

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  5. Even if the £100 payment (Per person or per household? What happens in households where two or more people pay income tax?) could be administered through local authorities in Scotland, wouldn't it have to be treated as extra income for the purposes of calculating UK income tax, and entitlement to UK administered benefits, such as Working Tax Credits? A person may get £100 from their local council in Scotland but have to declare this as income and could end up losing some of their Working Tax Credit or having to pay income tax on the £100!

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    Replies
    1. An important question I ought to have incorporated into the original blog. Getting a bit of airing today in Holyrood, I notice.

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  6. I take it, Sir, that you carry no loose change? Otherwise you would have scrutinised the smallest in value coin of the realm and realised that it was one penny, not one pence. Incidentally, since I'm being pedantic, pence is actually a collective noun rather than a plural - which is pennies. Just thought you might like to know...

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  7. Is the £100 rebate paid retrospectively, pro rata throughout the year or by some other arrangement? If someone earns £20,001 will they lose the whole £100? Without access to information about benefits in kind, details of multiple income sources such as share dividends, bank interest, multiple jobs etc how will the eligibility for the benefit be established. If someone is expected to earn less than £20,000 and they receive the £100 benefit pro rata or in a lump sum during the year, will they have to repay it if their earnings exceed the £20,000 threshold due to a bonus, overtime payment or pay rise late in the year?

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  8. If this is paid as a benefit then, unless I've missed an announcement to the contrary, the benefit will be clawed back by DWP for anyone in receipt of tax credits or universal credit and possibly other benefits. David Mundell was asked about this in the Commons a couple of months ago and refused to say whether Scottish-only benefits would be clawed back. Under current rules they would be so Labour's proposal may fail to improve the position of a great many people who it intends would receive this £100. I wonder how much of the £50 million is likely to end up in the coffers of DWP instead of in the pockets of low income people in Scotland?

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  9. Saw Kez STV,it's not automatic,you will have to apply for claim,a bureaucratic administrative nightmare,with costs on top.

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    1. And your application will presumably have to include proof of your entitlement, which will presumably have to be verified by local councils, which will cost quite a bit of money and even then, the £100.00 will be assessed as extra income for the purpose of calculating entitlement to Working Tax Credit or Universal Credit and for the purpose of assessing income tax liability.

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  10. LPW, see the dodgy comment from some idiot and delete if you can.
    Oh and there are surely, 'too many unanswered questions' when it comes to abythjng regards liebour, they will never, be in a position to steal more from the people of Scotland again.

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  11. I think Kezia just reads the script form WM when she gets to FMQs..not before. Interesting that somehow community care grants were moved to Local Authority, yet it is a Social Security benefit? I winder if Local gov got funding to administer THAT?

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  12. Is there any consideration of the separately assessed and taxed spouse who earns less than £20K but where the income of husband (or wife) is higher ? For example where a couple's total income is £60-70K but one partner earns less than £20K . Can't see refunds in such cases being hugely popular with punters on £21K.

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    Replies
    1. From what has been placed in the public domain by the Labour Party -- the proposed £100 is personal, like your income tax.

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