Scotonomics: Taxing wealth is still taboo in the UK

Common Weal’s Taxing Land in Scotland and Richard Murphy's Taxing Wealth Report 2024 point to the need for a new tax regime across the UK. Taken together, they show the significant potential in rebalancing our tax system to be more progressive.

There is certainly room for manoeuvre to change the overall tax take and the distribution of the tax level in the UK. According to the Office for Budget Responsibility, the UK has lower taxes than the EU average, the other G7 nations and the average for “advanced” economies. Regarding progressive taxes, it wasn’t until the late 1980s that higher rates of 45%, 50%, 55% and 60% were removed for higher earners.

Both papers make progressive tax recommendations. Common Weal focuses on a land tax, and Murphy’s scope is much broader, covering all of the assets of the wealthiest in society. But they are cut from the same cloth.

Murphy’s intended audience is clearly the UK Labour Party, which will almost certainly be in power after the next UK election. Common Weal focuses on Holyrood and the current SNP administration. The fact that a similar message is being sent to UK Labour and the SNP tells you all you need to know about the broad political consensus in the UK: taxing wealth is off the agenda.

I won’t spend too much time on the Labour Party, as we have seen how keen they are over the past few months to mirror Thatcher’s economic legacy. Rachel Reeves’s (above) plan to target “non-doms” is not the thin edge of the wedge but rather the limit of their desire to tackle the UK's huge income and wealth inequalities. Richard Murphy has his work cut out!

My main focus is on Scotland.

The Scottish Government has very limited tax-raising powers and has entered into a no-win scenario when it comes to raising income taxes. Research by the Scottish Parliament Information Centre (SPICe), published in 2021, found that income tax changes by the Scottish Parliament between 2017 and 2020 raised £900 million in revenue. However, the net benefit to the Scottish budget over this period was only £170m. In order words, more than 80% of that tax effectively went straight to Westminster. That’s the “no-win scenario”.

The Scottish Government does have the power to raise new taxes, however, as summarised by Common Weal: “The process itself is difficult and ultimately subject to approval and veto from the UK Government which, at the time of writing, is ill-minded to accept requests from Scotland to further diverge tax structures from the UK and would almost certainly refuse such permission.”

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This partly explains why the Scottish Government is unlikely to use its tax-raising powers. However, it does not explain why it does not support progressive taxation at a local government level or why it seems incapable of regulating taxes in a newly independent nation.

Taxation plays a central role in every economy. You cannot manage an economy or plan an economic transformation without considering the role of tax. And yet…

The almost embarrassingly short (52 pages) Delivering Economic Prosperity pamphlet in March 2022 mentions tax only once and in the context of productivity leading to increased tax revenues. This, remember, was the Scottish Government’s outline for a new Scotland as part of the UK. No new taxes here.

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But what about after independence? The current government bemoans the lack of tax-raising powers, so we should all know what to expect. And yet…

In the 112-page Building A New Scotland: A Stronger Economy With Independence, tax is again off the table. Not just wealth tax but any new taxes. There is no mention of “land tax”, “property tax”, “wealth tax” or reforming council tax. The only mention of a new tax in an independent Scotland is “windfall taxes” and restructuring corporation tax for oil and gas companies to underpin the Government’s Building A New Scotland Fund. You can read our thoughts on linking our future prosperity to fossil fuels by clicking here.

The report does say that an increase in exports will increase tax revenues, as will a growing economy, but there is no talk of new taxes or a more progressive tax regime.

It is worth noting that within this document, a strong argument is made about taxing wealth: “A low tax, low regulation approach to the economy – grounded in ‘trickle-down’ economic theory – is being imposed upon us” from Westminster.

The report dedicates almost a full page to ripping apart the argument that low taxes spur growth. But all of this is clearly window dressing. As standard, it is full of economic contradictions.

Under the current settlement, we only have one alternative: if Scotland is to have a more progressive tax agenda, it must be delivered by local authorities and it must target the wealthiest in society. This is at the heart of Common Weal’s proposals and they receive our full support. But for this to be effective, the SNP must support taxing wealth, not just income, and there is little evidence of this. They must also devolve powers to local authorities. They dislike the latter even more than they do the former.

Land is central to a just transition and a wellbeing economy. It is inconceivable that a progressive land tax is still not front and centre of a new prospectus for Scotland within the UK and as an independent nation again.

Richard Murphy joins us for a LIVE episode of Scotonomics on Wednesday, April 17. Further information here.