Craig dips below the headlines surrounding the UK Budget to pull out three policies that you might have missed.
There’s been plenty to talk about in the UK Budget this week and the media has been largely focused on the smaller gestures designed to push attention in precisely that way. Dropping the gas standing charge (as well as hints at dropping the electricity one at some point in the future) are welcome as will be the direct £100 support payment for households in lower Council Tax bands (why this will result in payments going to fairly wealthy people in undertaxed houses and not to poorer people in overtaxed houses could be the topic of another article but I’ve written a lot about Council Tax Reform lately) but they aren’t the same as the reform needed to pull people out of fuel poverty. Instead, I’d like to point some attention at three stories that caught my eye in the budget that might have passed you by.
Less emphasis on Foreign Direct Investment, but more Public Private Partnerships
One of my constant gripes about the Scottish Government is its obsession with Foreign Direct Investment (also sometimes called Inwards Investment) as a means of economic development. I get why it happens especially in Scotland (due to a lack of public borrowing powers at Holyrood, and their lack of support for Councils to use their borrowing powers as a substitute) but this should be a problem to circumvent rather than one to be boosted. And we know the cost of it – tens of billions of pounds are extracted from the Scottish economy every year to feed the profits of the companies that “inwardly invested” here.
It’s a problem at the UK level too, albeit less so. The UK’s level of profit extraction is only slightly below the expected average for a state of its GDP per capita, rather than one of the worst in the world as is the case for Scotland. Where Scotland lost almost 5.6% of our GDP to net profit outflows in 2021 (still the most recent data we have despite Scottish Government promises to update it), the UK only lost 0.15% of its GDP to the same outwards extraction (about half of the difference can be attributed to Scottish profits being extracted to elsewhere in the UK, for example by London-HQ’d companies, but this doesn’t account for the gap beyond that).
The UK Government, in contrast to the Scottish Government, has decided that this is a problem and the budget promises to try to boost domestic investment, recognising that keeping the returns on those investments within the country is better than seeing them drift away (not that they’re promising to reduce FDI though, they still tout the UK’s place as the “second best” place to invest within the G7).
It’s not a completely rosy picture though. The “domestic investment” they want to focus on is on AI data centres and in the military. I spoke about the dangers of the former at a recent event with Pensioners for Indy and we wrote about the issues with Public Private Partnerships in the military in our Daily Briefing this week. I’d encourage you to watch the former at your leisure and to read the latter after you’ve read this (and if you’re subscribed to our weekly newsletter but not our Daily Briefings, please sign up here). In short, PPPs are likely to be as much of a disaster for the UK’s military bases and for the long term financial security of the country as they were for the legacies of crumbling hospitals and schools that the previous rounds of PPP were but will be used anyway not to boost investment but to hide the cost of war from the public.
Income Tax for Mayors
If you were blindsided a few weeks ago when John Swinney came out with a proposal to radically reform Local Government in Scotland, so were we and so were a lot of folk who have been deeply involved in local reform for a long time (Lesley Riddoch discusses it in her podcast here). It’s not to say that it’s a bad plan (though it’s not nearly detailed enough yet) but the timing, I highly suspect, has much more to do with Andy Burnham than with Swinney having a sudden Damascene conversion towards the principles of subsidiarity and municipalism.
I believe that Swinney started to feel threatened by the idea that Burnham’s push for more and stronger regional mayors was creeping into Scotland and that they might even be forced upon him. Pushing back with democratic regional councils was a sensible counter-measure and one (subject to it being done right) I actually agree with. Putting power into the hands of a single person isn’t democratic, and so mayors (or, in Scotland, Provosts) cannot and should not hold executive power.
The budget more-or-less confirms those suspicions with English mayors being given a share of business rate income from their region and then, from 2028, a share of income tax raised in their region too. They won’t have the power to change income tax rates, but this will give mayors a substantial budget to deploy and their own discretion. There’s a serious risk of personal fiefdoms growing as a result. It’s far easier to lobby and corrupt one person than it is to corrupt half a council.
There’s a question over how this will work in the substantial areas of England that don’t have elected mayors (which will probably be answered by pressuring them to create the office) or how it will work in the three other nations which have very different setups and, of course, where income tax in Scotland is already substantially devolved. There is a good case to be made for regional or local authorities in Scotland to retain a share of income tax and there have been proposals in the past for a local income tax. As Scotland develops its local government reform, these issues will have to be sorted out to ensure that public services across all local, regional and national areas are sustainable and fair.
But that still doesn’t mean I want a couple of mayors having unilateral control over 20% of my income tax bill.
“So the situation is that in half a decade or so low income carers will no longer go into debt over earning a little on the side, but they’ll still be taxed at a higher rate than the very richest people in the country.”
Carer’s Allowance Reform
This is one of the items from the budget that leaked ahead of time (I’m old enough to remember when a Budget Minister would resign rather than see a single word of their budget appear in the press before it could be presented democratically to Parliament, but those days are long gone in favour of Chancellors leaking good news stories mixed in with catastrophic stories that can be “rolled back” on the day and replaced with mere “bad news”).
Right now, if you’re a carer in receipt of Carer’s Allowance and you deign to try to earn some income in addition it it, you are subject to extremely tight earnings limits. Go a single penny over that limit and you don’t just lose future allowance, but the government will actually claw money back off you. This is a particular problem where carers do freelance work that they can flex around their caring responsibilities as getting a lump sum for a project can easily push them over the weekly limit where a salaried sum spread across the year would not. However it happens, putting carers into debt over as little as a penny of “excess” earnings is not acceptable and the UK Government has finally realised this.
Instead, they have proposed a reform where carers will see their allowance taper off as they earn above the threshold just as it does with some other social security payments like Universal Credit.
There are a couple of kickers though. The first is that this won’t come in until after the next election (IT problems, apparently, which carers must continue to pay the price for). The second is that the taper rate will be £1 for every £1 earned above the threshold. In other words, carers who earn more than a pittance will face, effectively, a 100% income tax rate until they have earned more than their carer’s allowance. This is simply utterly wrongheaded.
Even Universal Credit “only” tapers at 55%, so that low income workers lose 55p of their social security for every £1 they earn.
Meanwhile, the top rate of income tax in the UK is only 45%, so someone earning more than £126,000 or so gets to KEEP 55p of every £1 they earn...and they’re salty enough about that to be pushing for it to come down.
So the situation is that in half a decade or so low income carers will no longer go into debt over earning a little on the side, but they’ll still be taxed at a higher rate than the very richest people in the country.
I think we need a rule that states that social security taper rates can never be steeper than the top rate of income tax. If the Government wants to tax carers at 100% then they should be willing to apply a 100% income tax on the very highest earners too. Since that is rather unrealistic, then carers should be taxed at not more than what the government thinks millionaires should be taxed at.
Even better would be to accept that all of these restrictions are really designed to punish poor people into compliance (I see the Government also wants to bring back face-to-face assessments of disabled people with the aim of ‘proving’ that those who can’t comply were probably faking and can have their welfare cut. We’re only a decade and two Labour leaders on from I, Daniel Blake but it seems that the outrage against welfare sanctions has faded enough for the government to bring them back). Instead of taxing carers who are trying to make ends meet in addition to providing care, we could have a Universal Basic Income that supports everyone to do what they want and need to do, including provide care, and start paying workers – especially those in undervalued jobs like care – enough to live on.
Conclusion
A “breathing space” budget this may have been but it was one with enough hidden edges to give pause to anyone who read below the headlines. The next question will be for the Scottish Government to respond to it with their own budget early next year. Some things, like the £100 energy payment, are likely to be copy and pasted but I already see landlords lobbying to avoid additional taxes coming their way for their English counterparts. This should, of course, be resisted and Scotland should perhaps go further and continue pushing for a housing sector that provides homes, not passive incomes for the already wealthy.
I’d be interested to hear your views too though. Was there anything beneath the headlines that stood out to you, good or bad? What do you think the Scottish Government should do in response?
