Guest Blog by Fred Harrison, Land Research Trust.

Austerity has caused deep anguish for people across Europe. They did not cause the depression that followed the financial crisis of 2008, but they are paying the price. Scotland’s government has announced its determination to cushion the austerity effect by spending more money on low-income people. But where is the money to come from?

Governments from Ireland to Greece think that, by selectively raising some taxes, they can increase welfare spending. In reality, that strategy compounds the trauma. Tax increases, whether on high-end properties or top incomes, inflict yet more costs on everyone. Those governments claim to be democratic. And yet, when it comes to taxation, they ignore the principles of transparency and accountability. They refuse to disclose the scale of the damage they inflict on people at large.

That damage can be audited. Taxes on wages, and on the profits of enterprises, destroy jobs and reduce national income. Governments try to disguise these effects by spreading the burden widely, hoping that people do not notice. But people are not stupid, which is why distortions have measurable effects on the economy.

In the US, for example, Prof. Martin Feldstein at Harvard estimated what would happen if marginal taxes were raised by 10%. Government would receive extra revenue of $21 billion, but the loss to society as a whole would amount to $43 billion. A bad trade-off! (1)

But there is an anti-austerity strategy that can fund itself. That is the outcome from switching to raising the same amount of revenue with a different composition of revenue-raisers. By raising the revenue from pure economic rent, which is the value of the services provided by nature and by society.

The net gain to national income stem from the “better than neutral” effect, in the phrase of Nicolaus Tideman, an American professor of economics. By reducing revenue from taxes on wages and/or profits, the damage done by these taxes is reduced. And by replacing that revenue with income from rent, no distortions are imposed on the economy.

Tideman and his colleagues calculated this effect for the US. They wanted to know what would happen if government raised $1 from land taxes instead of the same dollar from existing taxes on wages and business profits. The  extra gains from that switch ranged from about $1.25 (substituting land taxes for Social Security taxes) to about $2.25 (substituting land taxes for property taxes levied on the value of buildings). (2)

So it turns out that we can have our cake and eat it! We can run a revenue-neutral budget while expanding the aggregate income available to be shared between the public and private sectors. In Scotland, that would result in more jobs while providing government with extra resources to help the vulnerable sectors of society.

How to construct such a strategy will be explored at a conference in Glasgow next Wednesday, which is open to the public. Evidence from two professors of economics – one from Strathclyde, the other from California – will reveal the enormous gains that the people of Scotland would enjoy if Holyrood embarked on a real anti-austerity programme. In fact, it’s the only anti-austerity plan in town.

 NOTES

(1) Martin Feldstein (1995), “The effects of Marginal tax Rates on Taxable Income: a panel study of the 1986 Tax Reform Act,” Journal of Political Economy 103 (3).

(2) Nicolaus Tideman et al (2002), “The Avoidable Excess Burden of Broad-Based U.S. Taxes,” Public Finance Review 30 (5).

The Scottish Government has announced the remit and membership of the Commission on Local Tax reform. I am very pleased to have been nominated as a member of the Commission on Local Tax Reform and look forward to meeting the other Commissioners on Monday at our first meeting.

The Commission will be co-chaired by Local Government Minister Marco Biagi and President of COSLA Councillor David O’Neill. The Commission will meet for first time on February 23 and will report to the Scottish Government and COSLA in the autumn.

Marco Biagi said:

“The Scottish Government believes the current council tax system is unfair and we are acting on our manifesto commitment, and the recommendations of the Local Government and Regeneration Committee, to look at alternative approaches to local taxation.

“The Commission on Local Tax Reform will consider progressive, workable and fair systems, taking into account domestic and international evidence on tax powers and wealth distribution, the autonomy and accountability of local government and the impact on individuals who pay the tax.

“The members bring a broad range of expertise and experience and I look forward to starting this important work.”

David O’Neill said: “A great deal of work lies ahead, but this Commission is a chance to take a step back and think about the best way to pay for the local services that communities rely on every day.

“Across Scotland people are looking for the debate to break new ground, and that’s why I am determined that this Commission will be listening to people and organisations from all parts of the country, and setting out what it would take to give our local communities a real say about what matters most to them, and the best way to pay for it.”

The Commission’s Remit is:

“To identify and examine alternative systems of local taxation that would deliver a fairer system of local taxation to support the funding of services delivered by local government. In doing so, the Commission will consider:

  • The impacts on individuals, households and inequalities in income and wealth;
  • The wider macro-economic, demographic and fiscal impacts, including housing market and land use;
  • The administrative and collection arrangements that apply, including the costs of transition and subsequent operation;
  • Potential timetables for transition, with due regard to the 2017 Local Government elections.
  • The impacts on supporting local democracy, including on the financial accountability and autonomy of Local Government;
  • The revenue raising capacity of the alternatives at both local authority and national levels.

In conducting its work, the Commission will engage with communities across Scotland to assess public perceptions of the emerging findings and to reflect this evidence in its final analysis and recommendations.

The Commission will be supported by an independent secretariat comprising staff seconded from COSLA and the Scottish Government.

The membership is as follows (the Scottish Conservative Party has declined to take part).

  • Councillor Susan Aitken, SNP Local Government Convenor and Leader of SNP Group, Glasgow City Council;
  • Councillor Catriona Bhatia, Leader of Liberal Democrat Group and Deputy Leader, Scottish Borders Council;
  • Marco Biagi MSP, Minister for Local Government and Community Empowerment (Co-Chair);
  • Councillor Angus Campbell, Leader of Comhairle nan Eilean Siar and Leader of the Independent Group at COSLA;
  • Councillor Rhondda Geekie, Leader Of East Dunbartonshire Council and Leader of Labour Group at COSLA;
  • Dr Angela O’Hagan, Research Fellow in the Institute for Society and Social Justice Research and Convenor of the Scottish Women’s Budget Group;
  • Isobel d’Inverno, Convenor of the Tax Committee of the Law Society of Scotland and Director of Corporate Tax at Brodies LLP;
  • Mary Kinnonmonth, Manager of Dundee Citizens Advice Bureau and Member of Citizens Advice Scotland Board of Directors;
  • Dr Jim McCormick, Scotland Advisor, Joseph Rowntree Foundation;
  • Councillor David O’Neill, President of COSLA (Co-Chair);
  • Don Peebles, Head of CIPFA Scotland;
  • Alex Rowley, MSP for Cowdenbeath and Shadow Minister for Local Government and Community Empowerment;
  • Andy Wightman, Writer and Researcher, representing the Scottish Green Party.

 

I will be using this blog to explore in an open manner some of the issues to be resolved in devising an enduring and robust system of local taxation. The focus is very much on what to replace the Council Tax with but of course that replacement could involve not just a better system of domestic property taxation but the repatriation of non-domestic rating, sales taxes, local income taxes and other sources of local finance.

I am very clear that we need a new system of local government finance. Any new property tax should be designed in such a way as to endure over the long-term. It should be more reflective of land and/or property values, more transparent and be capable of contributing a greater proportion of autonomous local finance than is currently the case. Local finance and taxation is a vital part of rebuilding and strengthening local democracy.

Finally, this job is unpaid. On the face of it, this means that I will have to inevitably devote less time some of my other unpaid work on, for example, land reform. However, I plan to launch a crowd-funding appeal soon that will allow me to continue (and indeed increase) the time I can devote to that topic in what is a vital year ahead.

Later this afternoon I will publish a link to the Commission’s website. Meanwhile I welcome all views on the challenge that lies ahead.

The latest developments in the story of Parliament House (see previous blog) are as follows.

ONE

Scottish Green Party Councillor Gavin Corbett has had meetings with senior officials in the Council and shares his thoughts here.

TWO

The Leader and Deputy Leader of the Council (Andrew Burns and Steve Cardownie) have tabled an urgent motion for the Corporate Policy and Strategy Committee on 24 February 2015. It will require to be ruled urgent by the Convener if it is to be considered. The full text can be read here. it concludes by recommending that the Chief Executive of the COuncil writes to the Scottish Government Permanent Secretary to seek a voluntary resolution of the issue.

There is quite a bit of interest in this motion.

Under item 5, the Committee is invited to note that in June 2008 it was resolved that a review of common good would only be carried out if and when property was being sold. The motion omits to mention, however, that the question of Parliament House had already been raised in my report of April 2006 in which I asserted that Parliament House should have been included in a list of common good assets that had been supplied to me in 2005. The Council’s responded by preparing a Review of the Common Good for a meeting of the Resource Management and Audit Scrutiny Committee on 12 October 2006 in which, under the heading “Parliament House/The Old Royal High School”, it said nothing about Parliament House but narrated the history of the High School (click here for relevant extract).

I replied in a further paper here in which I argued that,

“It should be noted that Parliament House and the Old Royal High School, as listed on page 3 of my October Report are not the same. Parliament House is located off Parliament Square opposite the City Chambers. The Old Royal High School is on Regent Road.

Parliament House was ascertained by Hunter and Paton to form part of the Common Good in 1905 (p.31). I know of nothing that has happened since then that would have removed it from the Common Good but perhaps it has. If so, it would be useful to have the information.”

The 12 October 2006 Review, however, was withdrawn and never tabled. As I wrote at the time,

“Then I waited. I looked at the agenda for the 12 October meeting but there was no mention of the Common Good Review. Likewise, at the next meeting on 16 November, there was no mention of the issue. What had happened? Why had the Review of Common Good in Edinburgh not been tabled?

As of today (25 November 2006) I do not know the answer to this question. Hopefully I will know soon.”

I never did find out. But in December, a paper was tabled at the Executive of the Council which says nothing about the investigations reported in the October 2006 review. Then in January 2008, a further Review was published which this time contained exactly the same wording under the heading “Parliament House/The Old Royal High School” and said precisely nothing about Parliament House.

We now know from item 1 in the motion tabled today that the Council knew in April 2006 that Parliament House (in its mistaken view) did not form part of the common good and was not owned by the City. My report was tabled in April 2006 So why, in 2006 and 2008, did the Council not divulge that Parliament House was not (in its view) owned by the City and, instead, stay silent on the matter? DId they know and rather not admit it?

THREE

Given that Scottish Ministers had no prior title to Parliament House, it would have been normal practice for the Keeper of the Registers of Scotland to have withheld indemnity for that part. In other words, the Keeper would say, “maybe you (Scottish Ministers) do indeed own it but I am not satisfied that there is sufficient evidence“. The state guarantee granted in the Land Register would have been withheld and the title would have been open to challenge by the true owner (City of Edinburgh Council) for ten years i.e. until November 2015.

Why did the Keeper not withhold indemnity? I asked the Registers of Scotland this question today and they provided the following statement.

“When the first registration application was presented the Keeper undertook a detailed examination of the prior titles. As one might expect with such property the Sasine titles were mostly old and contained fairly vague common law descriptions. Notwithstanding the evidence of title that was presented in support of Scottish Ministers, we sought additional assurances in respect of a small number of other bodies who may also have been able to demonstrate an interest to the area in question – this enquiry reflected the historic nature of the evidence of title that was presented. That included Edinburgh City Council. We asked Scottish Ministers, as applicant, to confirm the position in relation to these other bodies. All of the bodies identified confirmed they had no right title or interest to the area in question. Accordingly, we considered an exclusion of indemnity was not required.”

That’s all for now.