3 November 2015


Halloween's blog had a necessarily negative theme. Some correspondents felt I was being unconstructive in emphasising the limits of Holyrood's powers instead of the opportunities to blunt the impact of the proposed changes to tax credits. Holyrood has no direct authority over tax credits rates and tapers: this we know. If the moneys can be found -- and that is a big if -- some kind of income supplement could be funnelled towards some of those likely to lose out under Chancellor Osborne under the Scotland Bill powers.

But in pledging to "restore" tax credits clawed back by the UK's Tory administration, Kezia Dugdale depicted as fait accompli something which may well prove impossible on legal, cost and administrative grounds. If Dugdale had taken to the stage at her party's Perth Conference, and pledged only to do her darndest to devise a scheme which would mitigate the impact of the proposed cuts as best she was able, I'd have nothing to complain about, bar the funding question.

But she didn't. "Scottish Labour Government will restore the much needed tax credits" she said. Folk - folk on tax credits - listening to Labour's new leader in Scotland will have a lively expectation of a like-for-like, penny-for-penny restoration of their fortunes. Many, perhaps most, will assume that the Scotland Bill makes all this easy, makes all this just a matter of political will. But it doesn't.  

I take the point: exaggerated pessimism about the Scotland Bill powers is not helpful. But neither is the indifference to practical, workmanlike questions which has characterised much of the discussion of Kezia's bold conference move. We shouldn't underestimate the new powers, and overlook an opportunity to good, in the grim determination to see the blackest side of our devolution settlement. We shouldn't hobble ourselves and evade responsibility for what we can and should change. But practicalities matter.

There is nothing social democratic about false hope. There is nothing social democratic about convincing the low paid that Tory tax credit changes are easily and cheaply remedied with a strike of the First Minister's pen. They're not. As I wrote on Saturday, I'm sure folk struggling on low incomes will appreciate whatever help they can get from Holyrood. But I'm also sure that they'd have little patience with politicians making grand, uncosted pledges which are unlikely be honoured, even if Scottish Labour are swept to power in Holyrood in May next year.

"At least Scottish Labour are offering empty promises. Will the SNP match our uncosted pandering?" Where powers lie is not an arid constitutional matter. It isn't unconstructive to point out that achieving - even desirable outcomes - is likely to be difficult, beset by Treasury caprice and penny-pinching and the usual frosty hierarchical relations. I like living in hope as much as the next fellow - more probably - but as slogans go, "where there is a will there is a way" has all the statecraft of Noddy in Toyland. Try convincing the Treasury to exempt our firefighters and police force from VAT. See how far living in hope takes you with David Gauke, coiled like a dragon on his hoard. 

A few questions then, in a constructive spirit. Firstly, how will the entitlements of individuals be established in Kezia's "restoration" scheme? As I outlined at the weekend, George Osborne's tax credit changes involve accelerating the taper and reducing entitlements to tax credits on a much lower threshold. This is a dynamic assessment, varying from year to year. Holyrood can do nothing about this. Tax credits - while they remain - are reserved matters. From an administrative point of how, how does Scottish Labour envisage this will work? What rules will apply? A simplified compensation scheme might be devised - but almost inevitably, it would result in some losses from the tax credit changes not being compensated by a Labour administration. 

Would this live up to the "reversal" of cuts promised? With the best will in the world, it is difficult to see that it could. The more complex the scheme of entitlements, with greater variables, the greater the headache from an administrative point of view. Time, personnel, money, development. At what point does the cost of administrating a new entitlement to mitigate tax credit cuts represent a poor use of public funds, robbing Peter to pay Paul? There must be limits. Even if you are sympathetic in principle to the notion of mitigating tax credits cuts - there is nothing churlish about asking this question.

A hard line cannot be drawn between the desirability of a policy intervention and the cost of its implementation. The two must be part of a sound analysis of whether tax credit mitigation is the best way to use the Scottish Government's limited resources. That is a political judgement, for sure. But we treat Scottish Labour like a child, and not a government in waiting, if we attend only to their good intentions and fail to ask how they will bring the bacon home.

HMRC currently administers tax credits, but they are due to be folded into the universal credit at some point in the as-yet undetermined future. Under the new Scotland Bill, Holyrood will be able to supplement this with "top up" payments to those who are already entitled to reserved benefits. Osborne's proposed tax credit cuts will come into force in 2016. A Labour administration in Holyrood seems unlikely to have access to HMRC's services. 

So who would administer the tax credit mitigation?  That notoriously streamlined, efficient, on-time and on-budget decision-maker that is the DWP? Who will bear any additional administrative costs?And what is a realistic timetable for implementing these plans? Could it be done immediately? That seems highly unlikely, not least because Kezia Dugdale's proposals to fund financial mitigation of tax credits will only come into effect in 2017 or 2018 on current projections - a year after the tax-credit changes may bite. We'll see. What is the transition plan, if any? Has anybody contemplated any of this at all?

An air of complete unreality has characterised much of the discussion of this proposal. The state doesn't turn on a dime. It doesn't matter a damn what the Scotland Act says, it the apparatus for realising its powers is not in place. A little contemplation, and a little look back on recent experience confirms this. Massive welfare schemes involving complex entitlements being applied to individuals in different circumstances can't be conjured out of the air. What is Labour's plan? Cast your mind back to 2010. Labour - understandably - did their dinger after Holyrood's tax-raising powers - effectively - lapsed. They remained on the statute book. Under the Scotland Act, MSPs could still vary tax rates. But in reality, HMRC wasn't in a position to deliver up a roll of Scottish taxpayers. 

Leap back another year to 2009. The failure to secure HMRC cooperation in the collection of the new local income tax scuppered the minority SNP government's plans. Bedroom tax mitigation was made possible by the infrastructure of local government discretionary housing payments, and big boosts to their budgets (but only after a lengthy period of petitioning the UK minister to change the rules to make it possible). What is the plan with tax credits? If the DWP can be persuaded to administer any changes, what is the probable time-table?

"We'll come up with something" just isn't good enough. It is complicated. Very well, it is complicated. That isn't a reason to abandon the whole scheme. But there has been no indication whatever that the new Scottish Labour leadership has even contemplated these questions before rushing out it tax credits pledge. The fiscal framework negotiations between the UK and Scottish Governments are still ongoing. These will be critical. All is in flux, constitutionally, fiscally, on social security policy. John Swinney's caution here seems eminently rational. Pessimism of the intellect and optimism of the will is generally a sound combination. All Kezia Dugdale has offered the Scottish people thus far on tax credits is optimism of the intellect, and optimism of the will. The "sunshine of socialism", I suppose. But when cold budgetary winds are blowing -- this is cauld comfort. A government needs its pessimism too. It keeps you grounded. It stops you making rash promises you can't honour.  

I am sure Kezia Dugdale's heart is in the right place, but the tax credit fait accompli she presented is as hollow as it is misleading. Many commentators seem perfectly content to nod along with this, declaring it a canny strategy which puts pressure on the SNP from the left. Mibbe. But if it does so, it is only because of the electorate's innocence about the distribution of power in our constitutional system, and the reluctance of our political analysts to take Kezia Dugdale seriously, and to ask her serious questions.  Some modest mitigation of tax credit cuts might be possible. If it can be done without creating an administrative monster, the Scottish National Party should seriously contemplate it.

But waving a blank sheet of paper, sans plan, sans scheme, sans any sense of the political struggles and trials which will beset your best-laid, best-intentioned plans? That isn't the "sunshine of socialism". It's a will-o'-the-wisp. 


  1. "exaggerated pessimism" is always "unhelpful". Realism, and justifiable pessimism are not. SLAB's promise (if they are ever in power again) to "restore" tax credits to those families adversely affected is simplistic, populist and unworkable. It reminds me of the stuff we did at school debates, where we had to pretend to represent political parties, It often sounded good, but totally lacked substance and maturity.

  2. Er, she said "Scottish Labour will restore the money scottish families stand to lose"

    1. She said both. And the section I quoted received far greater media traction.

  3. Excellent stuff. I particularly liked "The "sunshine of socialism" which is currently what most Labour Policies are designed to produce since it won't ever be in power to actually deliver them. Next Labour will be promising the Moon and our local heroes in the media like the good little poodles they are will sit up and say what a good idea that is and claim it will put pressure on the SNP. But why is pressure on the SNP a good thing?

  4. I would like to think that Jim McColl and JK Rowling will fund a full fiscal impact of Scotland Bill so the public are made aware thats its a fiscal trap that rather than allow Scotland to thrive it will impoverish

  5. After this, I'm going to be automatically adding the subtitle "all the statecraft of Noddy in Toyland" to Kezia Dugdale's name. I'm still struggling to get over your image of Johann Lamont throwing a primed grenade into a septic tank.

  6. To mitigate the Osborne cuts in Scotland , ANY party just needs to put in a place a Land Valuation Tax . It could legally replace the council tax immediately and would not require a huge amount of administration. As its benefits make people realise how held back we are through taxation being concentrated on earnings (of all levels) and not wealth or assets.

    1. Tax credits are not council tax. It's true that people on tax credits may well be on council tax credit as well, but it's an overlapping Venn diagram, not a valid way of recognising who is entitled, and to how much, in terms of tax credit losses.

    2. "ANY party just needs to put in a place a Land Valuation Tax "

      That has happened in Greece. Houses and land now stand abandoned. The State is de facto about to nationalise much of the country. No-one wants to buy that property with the threat of further taxes looming.

      The taxation of land is the lazy resort of those who lack the will to levy and enforce taxes on an income basis.

      The windfall to the Greek state was £3bn. The damage to tourism, construction and agriculture immeasurable. With the departure of many building trade workers, that will prove irreversible. The further loss of revenue from those spheres cancels out the gain.

      In metropolitan Athens (pop.3.75m), 3,600 properties were sold in 2013.
      In Scotland, that figure topped 100,000. 70,000 pro rata.
      The new land and buildings transaction tax has yielded less than zilch.

      Calls to tax land have more to do the small minded Robin Hood political appeal. Envy has no vision.

  7. What a superb Arnold Böcklin picture at the top! Well, well worth clicking to see it bigger. Yeah, I had to look it up. Oh, I love the article as always. More power to your keyboard LPW.

  8. The newly minted Northern Ireland implementation agreement ('A Fresh Start - The Stormont Agreement and Implementation Plan') includes a section which commits the Northern Ireland Executive to implement welfare cuts ('reforms') and Tax Credit cuts which have been legislated for in Great Britain, apart from the 'bedroom tax', by giving consent to the UK parliament to temporarily legislate on welfare matters, the Westminster powers lapsing in 2016.

    It also allows the Northern Ireland Executive to top up benefits and Tax Credits for a period of four years, with £240 million allocated for topping up Tax Credits. It shows what can be achieved when a devolved administration has control over welfare benefits and Tax Credits.

    The Northern Ireland Executive is also set to get control over corporation tax rates, with a view to bringing them down to the level in the Irish republic (12.5%) by 2018, although this proposal is conditional on the Executive implementing the newly signed agreement in full and committing to a 'sustainable budget'.

    "Section B: NI Executive Financial Reforms and Context:

    :: Previous commitments to reduce the number of Executive departments from 12 to nine by May 2016 and to cut the number of MLAs from 108 to 90 by the Assembly election after next go ahead.

    :: Executive will be handed power to set its own rate of corporation tax with the intent of reducing the rate to the 12.5% levied in the Republic by April 2018. The move is dependent on the Executive committing to a sustainable budget and implementing the rest of the Fresh Start agreement.

    Section C: NI Executive Welfare and Tax Credits Top-Ups:

    :: Reforms to the benefits system introduced elsewhere in the UK from 2012 will finally be rolled out in the North through Westminster legislation, by way of a Legislative Consent Motion approved by the Assembly. An Act enabling Westminster to legislate on welfare in the North will lapse at the end of 2016.

    :: Executive has agreed to allocate £585m over four years (a six-year period was originally agreed) to top up welfare payments. £345m will cover welfare claimants and £240m will support those impacted by changes to tax credits. This policy will be reviewed in 2018/19.

    :: A working group chaired by Ulster University professor Eileen Evason will decide exactly where the money will be spent.

    :: The controversial so-called “bedroom tax” will not be introduced in the North."

    More information here: http://www.irishexaminer.com/breakingnews/ireland/here-are-the-key-elements-to-the-new-stormont-deal-706297.html