How Westminster limits what Scotland can do with wealth taxes

IMPLEMENTING a wealth tax in Scotland would require “careful navigation of constitutional constraints”, a new report has said. The independent review, commissioned by the Scottish Government, authored by Ipsos and the Fraser of Allander Institute at the University of Strathclyde, said that if Scotland sought to bring in a similar system to Switzerland then proposals would need to be evaluated “within the realities of Scotland’s embedded position in the UK’s fiscal architecture”. In Switzerland, there is no federal-level wealth tax, but instead individual cantons and municipalities levy an annual wealth tax on residents’ worldwide taxes. The SNP said the report shows how Scotland is “constrained by a broken Westminster system”. READ MORE: ‘Frustration’ over Scottish bonds plan with no provision for independence In Scotland, there have been suggestions that local authorities could levy wealth taxes in a similar manner. The report also argues that Scotland’s position differs “materially” to international examples because of its limited fiscal autonomy and Westminster’s control of several taxes, including capital gains tax. It also says that implementing any wealth tax in Scotland “would likely require coordination with, and, indeed, approval from, the UK Government”. “This means not only the actual legal introduction of the tax, but also what consequences – if any – might come from it in the fiscal framework,” the report adds. “This would of course depend on whether the UK Government were planning to introduce a wealth tax.” It adds that a Scottish wealth tax would “likely lead to a block grant adjustment”. READ MORE: Argentina fined over Falklands World Cup banner during England semi-final “Whether the UK Government would insist on a change to the block grant even in the absence of an equivalent tax in the rest of the UK is entirely speculative, but cannot be ruled out,” the report reads. “This would have consequences for how much a wealth tax in Scotland might increase the Scottish Government’s spending power.” The SNP and STUC have both said that they would support pursuing implementing a wealth tax through local powers if a Scotland-wide or UK-wide tax was “unachievable under the current constitutional framework”. However, the report suggests that it is “unclear” how local authorities could introduce an effective tax that would “grant them access to the information necessary to administer such a tax – especially without any framework legislation operating at the national level". Scotland, it adds, cannot “independently redesign the broader capital tax framework within which a wealth tax would operate” due to its position in the UK. READ MORE: More MPs join crossparty campaign urging Andy Burnham to reject Rosebank It also says it is unclear what would happen to revenues if the wealth tax was implemented at a local level, as they “must be spent locally”, so would not raise any money for the Scottish Government – unless they put in place an equivalent cut in local government grants. “But this is not stated clearly in any proposals,” the report says. “What is clear, however, is that either coordination within the wider UK fiscal framework or carefully designed mitigating measures would be necessary to ensure that any proposed wealth tax is not only legally feasible, but also resilient to the distinctive economic and institutional challenges arising from Scotland’s position within the UK,” it adds. Political economist Richard Murphy told The National he agreed that it would be “very difficult” for Scotland to bring in a wealth tax in the current constitutional settlement. “When Scotland is independent, I still wouldn't suggest it had a wealth tax,” Murphy said. “I've long argued that a wealth tax is the best way of taxing wealth apart from all the others. In other words, it's just about the last tax I would consider when trying to tax wealth, because we can raise a lot more money than a wealth tax can do by changing other taxes, like equalising capital gains tax and income tax rates, by looking at reform for inheritance tax, by imposing national insurance on all income from work at the same rate, and by charging national insurance on unearned income like rents and interest and dividends. “So much more income from wealth could be collected in Scotland by doing those things, which are very simple to do, rather than charging wealth tax, which is always going to be a nightmare to do, because you've got to find the data.” SNP MSP Paul McLennan told The National: “Small independent countries across Europe are consistently shown to be leading the way in terms of standard of living, education and health. “While the SNP has consistently taken a progressive approach to taxation to raise the revenue required to deliver our vital public services, the reality is that we continue to be constrained by the broken Westminster system. “With the fresh start of independence, Scotland can make its own fiscal choices for the good of all of Scotland and build a wealthier, healthier and fairer country anew." Scottish Greens co-leader Ross Greer said that wealth in Scotland is being “hoarded” by billionaires, landowners, oil barons and property tycoons. “The richest 2% have more wealth than half the population combined,” he said. READ MORE: Tory MP who oversaw Westminster staff names removal fails to say he employs wife “Rather than wasting time on endless reviews and discussions, the Scottish Government should fix the taxes already under its control. “That means scrapping and replacing the Council Tax with a system where the wealthiest people in the biggest homes start paying their fair share and those in the lowest value properties see their bills go down. “Using the powers we already have to tax the super-rich is key to growing support for independence. Those ‘soft No’ persuadable voters need to see Scottish self-government working for their community.” He added that the report makes it clear that Scotland can “tax wealth more fairly right now” and use the money for the common good. “If the SNP choose to do that, rather than kick the issue into the long grass again, they will have the Scottish Greens’ support,” he added. “But it’s equally clear that Westminster is once again holding us back from making real progress on legislation that could improve the lives of millions of people. “If we want to build a greener, fairer Scotland, we need the full powers of a normal independent country. To achieve that, we need to use all the powers we already have.” STUC general secretary Roz Foyer said that if Holyrood does not have the powers to make tax “fully functional” then it should be devolved. READ MORE: Jeremy Vine dropped as host of carers awards ceremony after backlash “Despite local authorities having some revenue raising powers, it’s clear that a complete revamp of local and national taxation policy, which could enact forms of wealth taxes, are absolutely vital,” she said. “The case for a wealth tax has become irrefutable. We estimate that a modest 2% tax on Scotland’s 10 richest people alone could raise almost £500 million a year, potentially funding more than 11,600 teachers, 12,900 nurses, 13,500 firefighters, or 17,000 home care workers. “If the Scottish Government is serious about building a wellbeing economy and eradicating child poverty, the work of campaigners across Scotland calling for a wealth tax, must be realised.” Share