Mythical magic money trees and why we should increase the Scottish Rate of Income Tax

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A Penny for Scotland

All taxes are justified by one of two bases: raising revenue, or shaping society. Many taxes do both. Cigarette duty is a tidy little revenue raiser, in addition to discouraging people from smoking. However, other taxes, such as National Insurance, have no discernable sociological purpose – they simply exist to raise money.

There is something of a perennial myth perpetrated by politicians, in particular on the left, that by hammering the rich we can fund seemingly limitless public expenditure. In Scottish Labour’s candidate selections support for a restoration of the 50% tax rate on top earners has become something of a shibboleth.

Telling voters that you can finance significant extensions in public expenditure through “hammering the rich” is a lie.

My own back-of-the-envelope estimates of how much revenue would be raised in Scotland by a 50% tax rate on incomes over £150,000 is a maximum of around £40 million, but more likely somewhere in the ballpark of zero. There’s also every chance that it could cost the Scottish exchequer money.

In Scotland, 18,000 people pay additional rate tax at 45%. John Kay points out that although for most people it is not difficult to identify if they live and work in Scotland, there is ambiguity for some – and they are heavily represented among the 18,000. If only 1,000 of these individuals were to succeed in establishing that they are resident in, say, London, rather than Scotland for tax purposes, the erosion of the tax base would completely eradicate the gain in restoring the 50% tax rate; if 2,000 did so, the move would actually cost significantly more revenue. It’s quite likely that Taxable Income Elasticity will be significantly higher where differentials exist between Scotland and the rest of the UK.

Just because it doesn’t raise any revenue doesn’t mean we shouldn’t do it, because taxes have a social purpose as well. Higher marginal tax rates could go some considerable way to reducing income inequality, for example. But politicians who tell you that higher marginal tax rates are a magic money tree are either ill-informed or dishonest.

If your aim is to raise revenue, then the only way to raise any serious money is from a broad base – the basic and higher rates of income tax. HMRC estimates that a 1% increase in the Scottish Rate of Income Tax (SRIT) would raise £475 million in 2016-17. To put this in context, that would wipe-out all cuts to local government budgets, and still leave around £150 million in change.

For someone working full time earning £7.20 an hour that amounts to an extra 58p per week. At £20,000 a year a 1% increase in SRIT would cost £1.78 per week. Someone earning £50,000 a year would pay an additional £7.50. A 1% increase in the SRIT would fall most heavily on high earners while asking comparatively little of middle-earners. The 1.9 million Scots who don’t earn enough to pay income tax would still pay nothing, but the public services upon which they are dependent would be secure and fully funded.

In defence of polling and why Labour really is doing terribly

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chris leslie cat smith

Critic: “Labour’s doing terribly in the polls, isn’t it?”

Corbynista: “Look how badly wrong the polls got the last election – you can’t rely on polls.”

This is the stock reply of the loyal Jeremy Corbyn follower whenever someone points out that Labour is doing abysmally in the polls. This week’s Daily Politics saw one of Jeremy Corbyn’s biggest critics – Chris Leslie – square off with one of Corbyn’s true believers – Cat Smith – who used the exact defence above.

The fact that polling companies did not accurately predict the outcome of the 2015 election is now being used by Corbynistas to justify burying their heads in the sand. It’s true that polling companies weren’t entirely accurate – they never are. They are, however, a good deal better than political instinct, “what I’m hearing on the doorstep”, or “a feeling in my water”. Polls may not be perfect, but they’re not nothing – and they’re better than any other measure of political success, save for actual votes.

Polls can usually identify when one party has a commanding lead over another. Labour’s political dominance in the years following the 1992 election therefore made predicting the winner of an election a fairly easy exercise. In the run up to 2015 the narrative that the two main parties were neck-and-neck was borne out by the polls – with the polling average for both parties from the start of April through to election day being exactly the same: 33.6%. As it transpired, the polls were doing what they almost always do and overstating Labour and understating the Conservatives.

So the Corbyistas are right – the polls are probably wrong. The trouble for Labour is that the polls are very seldom wrong against Labour. Since 1959, Labour has only ever been understated in election polls twice: in February 1974 by 0.7%; and in 2010 by 1.6% (which could, in part, be explained by the ‘Cleggmania’ phenomenon).

elections polls

From 1992-2010, the average error (that is to say, the average difference between Labour and the Conservatives election-polling average and the actual result) is 2.6%. In 2015, that error was 3.3% – above average, but still lower than the 3.6% error in 2001 or the 4.7% error in 1992. Excluding the 2010 election, the average error is 3.1% ­– which places the 2015 polls well within the range of normal. In the past six general elections, election polls have, on average, understated the Conservatives by 2.1% and overstated Labour by 3.1%. The standard deviation in both the Conservative and Labour figures (the error in the error, if you like) is 1.8% and 2.7% respectively – which is quite low. In other words, though the polls are usually wrong, they’re usually quite consistently wrong. Save for 2010 – where the polls understated Labour by 1.6% ­– the polls in the run up to all other elections polls have overstated Labour by at least 2%.

So Cat Smith is right – the polls probably are wrong. But what she and the Corbynistas seem to forget is that they’re far more likely to be overstating Labour than understating. Labour’s 7.5% polling deficit in the polls probably isn’t right – but the true deficit is a lot more likely to be 12.5% than 2.5%.

Scottish Labour’s list selections: a democratic travesty

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The Scottish Labour Party is currently in the process of selecting its regional list candidates for the forthcoming Scottish Parliament election. In previous elections the process has received little attention, owing to the expectation that Labour would win almost all of its seats in individual constituencies. However, with yet another rout predicted for Scottish Labour next year, the regional lists have become hugely competitive – with all bar-one of Labour’s incumbents seeking re-election aiming for a place on a regional list.

It has been apparent for some time that the regional list selections would be hugely competitive. Nevertheless, the process for selecting candidates appears to have been given little thought. For example, while a system of gender-based ‘zipping’ has been applied in order to ensure that candidates alternate by gender as they descend the list, no provision has been made for ensuring that women appear at the top of half of the lists. So if Labour wins five seats in Glasgow and West of Scotland (I am aware that this is ambitious), and three each in the others – and men top every list bar Lothians (which will be topped by Kez) – then the ratio of men to women would be 17/11.

However, even more worrying is the system used to rank candidates on the list – or the ostensible lack thereof.

The Party will use a simple single transferrable vote (STV) system to select candidates, the operation of which readers of this blog will doubtless be familiar. While this system is used around the world to elect representatives, including in local government elections here in Scotland, it is quite unsuitable for ranking candidates for party lists. The difference is that while in elections for councils the order in which members are elected doesn’t actually matter very much – when determining a ranking it is the order that is the whole point of the exercise.

The system that is to be used for selecting regional list candidates will require members to rank candidates, and any candidates meeting the quota will be added to the list. If more than one candidate is added to the list at that count then the candidate with the higher vote share will be placed higher on the list. However, with 12 candidates to be selected in most regions this could see candidates securing top spaces on some lists with as little as 8% of the vote. This means that candidates who have a small but solid support, and a large number of divided opponents could secure places near the top of the list even if the overwhelming majority of members find that candidate utterly objectionable. Preferences will be practically meaningless when it comes to selecting the top spots.

Consider the below example, where we’re selecting 8 candidates. Female B is has a small but solid support base of 12.5%. Most of the rest of the party absolutely despises her. Nonetheless, under Scottish Labour’s system Female B will secure the top spot on this regional list.

List selections examples Sheet1

Single transferrable vote is supposed to be a preferential system – but allocating the top list spots in this way utterly fails to reflect those preferences.

A better system might have been to use a Borda count method. Somewhat embarrassingly, readers will probably recognise this system as the one used to pick the winner of the Eurovision Song Contest. Under this method, members’ preferences correspond to points, with candidates ranked according to their points total. Expanding upon the above example, assume that first preferences are worth eight points, second preferences worth seven, and so on. In this example, the candidate winning the plurality of second and third preferences comes top of the list. In general, the candidates that rank highly are those with much broader appeal. Female B, by comparison, being detested by the overwhelming majority of the selectorate, doesn’t make it onto the list at all. Female B is Jedward – all-but guaranteed to get 12 points from the UK, but poorly regarded by the voters more broadly.

List selections examples

We’re all familiar with the drawbacks of the Eurovision method. Some decent tactics from groupings of candidates could well see them dominate the tops of the lists without resounding support, however the support necessary to do that under Borda is still far broader than that which would be required to do the same under the present rules.

So who does Scottish Labour’s current selection rules benefit? Because preferences won’t count for much near the top of the list, having a broad support base won’t matter. In general, people with a decent core of support without much local competition will do well. This probably benefits constituency incumbents over list incumbents – as they’re more likely to have a solid core of first preference votes from the seat they’ve represented for many years. It will also benefit constituency incumbents who have had few boundary changes over the years (like Elaine Smith) compared to those who’s seats have suffered substantial revisions (like Paul Martin). It benefits areas with a large contiguous political community over those that are more fractious – therefore favouring Fifers over those from the rest of the Mid-Scotland and Fife region.  It benefits Rhoda Grant, and David Stewart – who faces strong but divided opposition from Sean Morton and John Erskine. And it favours men in the North East, with Jenny Marra and Lesley Brennan slugging it out in Dundee, helping ensure that the first and therefore third slots go to men. If the left was organised I would say that it certainly benefits them, but from what can be seen from the shortlisted candidates that organisation is lacking.

And who are likely to be the biggest losers? The vast majority of members whose votes will go utterly wasted, and whose lead candidates will have been selected by a system that better resembles a lottery than democracy.

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