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Tell us about the rabbits George

Mar 16

Posted by Jeff in Economy, Westminster | 28 Comments

There can surely be no more depressing news, no greater harbinger of doom for the lamentable direction that the UK is travelling in than the leaking of Osborne’s intention to reduce the top rate of tax from 50% to 40% in next week’s budget.

Cited as the reason for this 10% tax cut for the super-rich is a need to show that Britain is open for business, and the cut will come backed by a very useful (not to mention suspiciously timely) study showing that the top rate of tax brings in hundreds of millions rather than billions of pounds.

George Osborne and David Cameron’s focus should be on increasing that hundreds of millions figure, not reducing it down to zero.

And goodness knows where this leaves the Lib Dem hope of bringing many of the lowest paid out of tax altogether. Tax cuts at both ends of the earnings spectrum when we’re skating perilously close to a double dip recession seems foolhardy at best. Incidentally, the SNP position was laid clear on BBC Question Time last night when the supreme Humza Yousaf made clear that one of his primary desires for the budget is to see the 50% rate remain in place.

Alas, it shall be going, and all because George Osborne is wilfully drawing the wrong conclusions around the low level of tax that it supposedly brings in.

To use Goldman Sachs’ favourite word, only a ‘muppet’ pays PAYE these days, only the grunts that do the legwork. Meanwhile the banking superstars rake in the mega-salaries and mega-bonuses. I got paid my first ever bonus this week, a banker’s bonus no less (the shame). I have no qualms about saying that it was ‘only’ £4,700, 10% of salary, but when 1,200 jobs were cut on the same day, it was more than enough to make me feel decidedly queasy.

Some people might be surprised and/or startled by the inclusion of salary information in the above paragraph, but that for me is part of the same problem with this tax cut and the widespread tax avoidance that goes on. Back in the days when I was contracting for various financial services companies, the recruitment agents would ask with lascivious grin whether I wanted to be paid PAYE along standard tax rate lines or through an umbrella company, avoiding National Insurance contributions and paying a much lower level of tax than I would do under PAYE. I always went for PAYE. Every other person I’ve spoken to in a similar position went with the other option, and many of them have gross annual pay that is a heck of a lot more than I enjoy. That’s where a tax take that should be billions becomes hundreds of millions right there.

George Osborne could, at a stroke, eliminate this tax avoidance and bring in a fortune to pay down the deficit and reverse the level of cuts that he has made over the past couple of years and intends to make going forwards. The practice of avoiding tax in this manner is so naked that it is an easy target, the lowest of low hanging fruit for any Chancellor faced with the unenviable task of making Britain’s books balance. Indeed, the practice is so endemic that even Moira Stuart, hitherto the embodiment of all that is good and right in the world, and the public face of the Inland Revenue, uses a private firm to reduce her tax payments. If that’s not the final straw then what is?

Let’s face it, ‘we’re all in this together’ is precisely what many of us thought it would be, a handy election slogan pitched at just the right level to get the Tories over the line in May 2010, after which it could quickly be discarded.

The truth is we probably need to go even further than the Tories even dare consider going. Don’t we as society deserve to know that all citizens are paying their fair share of tax, from Rooney to royalty? A simple system that would surely guarantee maximum tax intake each financial year is to put every taxpayer’s gross income and tax contributions online for all to see. This is sacrilege to many fiercely private Brits but it already works in Sweden, Norway and Finland and sunlight is the best disinfectant. Would Ken Livingstone have set up a company to avoid tax in such situations? Would idolised footballers? Would Moira frickin’ Stuart?

With this tax cut, and the conscious decision to not go after the super wealthy, George Osborne is aiding and abetting a new divide in the UK. It’s not North vs South and it’s not Working vs Middle vs Upper, it is those who PAYE vs those who do not PAYE. The former are the mice, honestly turning the wheel of the British economy and the latter see themselves as the men, living a life of luxury largely removed from the rest of us.

The Tories sold us a dream, of fairness, of a big society, of rising standards. We knew it would never happen, but it was nice to pretend that it might do, for a short while.

I only hope that the Lib Dems, the only hope that we have left, will do the decent thing and get out of this partnership before George takes the short story of this parliamentary term to too frightful an ending.

Scotland should be proud to stand alongside Ireland and Iceland

Mar 3

Posted by Jeff in Economy, Europe | 15 Comments

The Guardian is part way through a commendable series of questions on independence in a ‘Reality Check’ series. I suspect however that a key factor for the dim and distant referendum result is one that may not get picked up in this series – Is there still a Northern Europe arc of prosperity for Scotland to join?

As unfortunate as it is to think that the success or failure of other countries should determine Scotland’s constitutional fate, this is an issue that still dominates the independence debate, so much so that I often wonder whether Alex Salmond regrets uttering the following lines:

“Scotland can be part of Northern Europe’s arc of prosperity. There are three countries (Ireland, Iceland and Norway) there which are all in the top six wealthiest in the world. In contrast, devolved Scotland is in 18th place and the UK as a whole is only 14th. With distant London in charge, Scotland will just keep slipping further behind.”

In the occasional discussions that I get into on whether Scotland should break away from the UK or not, it is not so much an emotional or rational tie with the United Kingdom that makes people keen to vote No but rather it is the fear of being the next Ireland or Iceland. I honestly rather suspect that many such people don’t even stop to consider if that would be such a bad thing.

The logic goes that Ireland is a basketcase and Iceland effectively went bankrupt so why would Scotland want to risk following suit? So far I have not sensed much consideration over the likelihood of following suit or, for that matter, how bad the situations in these countries actually are. Headlines, unfortunately, are sufficient for conclusions to be drawn.

So, the IMF’s list of countries’ GDP by head for 2011 will make surprising reading for some:

3rd – Norway, $96,591 per head
14th – Ireland, $48,517 per head
21st – Iceland, $43,226 per head
22nd – UK, $39,604 per head
26th – Scotland, $33,680 per head

Norway, Ireland and Iceland may not be in the top six any more but suggestions that they are part of some sort of ‘arc of insolvency’, as Labour’s Jim Murphy once put it, are very wide of the mark indeed.

Even looking at growth for the most recent quarter available, 2011 Q3, makes for interesting reading:

Norway, +1.1%, (2011 Q2: -0.3%, 2011 Q1: +0.5%)
Ireland, -1.9%, (2011 Q2: +1.8%, 2011 Q1: +1.4%)
Iceland, +4.7% (2011 Q2: +2.8%, 2011 Q1: -3.6%)
UK, +0.5% (2011 Q2: +0.3%, 2011 Q1: 0.0%)
Scotland, +0.5% (2011 Q2: +0.2%, 2011 Q1: +0.1%)

I’m struggling to see how the UK is doing significantly better than these supposedly insolvent countries, if we’re even doing any better at all. On an aggregate basis, Scotland and the UK were outperformed by each of Ireland, Iceland and Norway in the first three quarters of 2011 so there is clearly some sort of potential for an ‘arc of prosperity’ to be tapped into for an independent Scotland.

Worthy of consideration here, as it was one of Salmond’s primary reasons for raising the arc of prosperity in the first place, is what the Corporation Tax rates in these countries are:

Norway, 28%
Ireland, 12.5%
Iceland, 20%
UK, 25%
Scotland, 25%

As much as I personally am concerned about a race to the bottom across Europe if countries start undercutting other countries on Corporation Tax, particularly given France and Germany have rates set as high as 33% and 30% respectively, it is clear that Scotland has a difficult challenge ahead of it to compete with London, Dublin and Iceland in attracting investment, whether it is independent or not. London may have the same Corporation Tax rate but it also enjoys closer proximity to the continent and better transport links and can expect to be at the front of the queue. Iceland and Ireland of course just have cut rate deals, while Norway has enough oil revenues to keep its tax rates high.

Perhaps the saddest aspect of Ireland’s current difficulties is the number of bright young things leaving the country for better prospects abroad. One could argue that this isn’t a road that Scotland would want to go down through independence and, yet, that is precisely what is happening now. (I know this from experience as I moved to London strictly because Scotland couldn’t provide the PhD that my partner wished to study. Wales, incidentally, could).

The Irish population in 1961 was 2.8m. The population today is 4.5m.
The Norwegian population in 1961 was 3.6m. The population today is 5.0m.
The Icelandic population in 1961 was 179,000. The population today is 318,000.
The Scottish population in 1961 was 5.2m. The population today is 5.2m.

There is clearly only one stagnant, problem child in the above list and that is because there is an historic, corrosive brain drain taking place in Scotland that is damaging growth from both a population and an economic viewpoint. It is little wonder that ‘London-based parties’, to use an unfortunate phrase, are championing the continuation of the UK when it is London that is the prime beneficiary of this very brain drain.

Kids wanting to get away from it all in Sweden move to Stockholm, kids wanting to get away from it all in Norway move to Oslo and kids wanting to get away from it all in Iceland move to Reykjavik but too many kids wanting to get away from it all in Scotland move to London, and we are haemhorrhaging talent and creativity as a direct result.

This post has largely consisted of financial or demographic related data based on growth, and there is a strong argument that constantly chasing growth is the wrong direction given the global equality and environmental problems that we face. So, which countries are simply the happiest? Surely if Ireland and Iceland are facing such tough times, the arc of prosperity will have been replaced with an arc of despondency instead?

Well, the UN’s most recent ‘happiness index’ has results as follows:

Norway – 1st
Ireland – 7th
Iceland – 14th
UK – 28th

Is it worth Scotland risking breaking away from the United Kingdom in order to simply be a happier place, even without considering whether it would be better off? It does appear that is worthy of consideration, based on the statistics.

I’m not saying that Ireland, Iceland and Norway’s situations are in themselves a reason for Scotland to be independent but what I am saying, quite categorically, is that their situations are not, as many seem to believe, a reason for Scotland not to be independent.

Too many Scots are considering exaggerated risks while turning a blind eye to the benefits that independence could bring. I don’t know if this is wilful ignorance or simply a resistance to change but it is stultifying the independence debate and, to use the Guardian’s phrase, a ‘reality check’ is long overdue.

An arc of prosperity is still there for Scots to be a part of, all they have to do is want to see it.

Clydesdale Bank – Nabbed

Feb 7

Posted by Kirsty in Economy | 18 Comments

Despite announcing strong profits for 2011’s final quarter, the Clydesdale Bank’s owner has announced a review of its UK operations, blaming government austerity for future uncertainty.

National Australia Bank, which owns both the Clydesdale and Yorkshire Bank, announced the review with the quarterly results in Melbourne on Tuesday.

According to Cameron Clyne, NAB’s Group Chief Executive, “the UK economy is likely to experience a much longer period of subdued growth with the ongoing sovereign debt crisis in the Euro-zone and the continuing austerity program by the UK government.”

Such strategic reviews can be precursors to sales, or to operational cutbacks, resulting in job losses.

The Clydesdale employs 4,200 people north of the border, with 152 Scottish branches and 15 ‘financial solutions centres’ in Scotland for business customers. Unlike its bigger Scottish banking sisters, it needed no government banking support during the banking crisis. Indeed, NAB is one of the few banks in the world to maintain its AA long-term credit rating, coming joint 12th in Global Finance Magazine’s 2011 World’s Safest banks, in front of HSBC, Nationwide and Barclays, the only other British banks to feature in the top 50.

Appearing before Holyrood’s Economy committee in December 2009, the Clydesdale’s then Chief Operating Officer (and now Chief Executive) David Thorburn told MSPs the Clydesdale’s “very traditional, conservative banking operation” meant it did not participate in aggressive lending nor had a plethora of absurd mortgage products, helping it avoid the government bail-outs resulting from the high risk speculation at Royal Bank of Scotland, HBOS and Northern Rock.

By 2010 the Clydesdale had significantly increased its business lending and pre-tax earnings, entered discussions (from which it later withdrew) to purchase over 600 Lloyds TSB branches and spent £8 million sponsoring the Scottish Premier League.

So what’s going wrong? In September last year, credit ratings agency Moody’s downgraded the Clydesdale’s long term bank deposit and senior debt rating in response to rumours it would be sold off by NAB: rumours which seem a lot more solid given NAB’s announcement now. Before then, the Financial Standards Authority refused Clydesdale’s request to share NAB’s advanced internal ratings-based status, flagging concerns to analysts about its internal accounting procedures.

Potential buyers include NBNK, the new bank ran by former Northern Rock chief executive Gary Hoffman. Ian Fraser, in the Sunday Herald, has already detailed the risk of “triggering a rash of home repossessions and corporate bankruptcies across Scotland” such a possible sale of the Clydesdale to NBNK, with former MPs Lord Forsyth and Lord McCall on the board, could prove.

But NAB’s moves could be less about the Clydesdale going bad, and more about it just not being good enough. Margins are squeezed and lending activity is subdued due to the state of the economy, but the UK operation of Clydesdale and Yorkshire Banks remains profitable, even after today.

Nonetheless, Citigroup analyst Craig Williams describes the Clydesdale as a “millstone” around the neck of NAB. NAB has given £1.7 billion, including a £400m payment last month, to bolster the Clydesdale since 2009, helping to meet regulatory demands and to protect from future loan losses. The announcement of a strategic review could therefore be a decision by NAB to cut its losses from a market where economic recovery still seems far off; especially if its other interests continue to perform better.

George Osborne and the coalition government have put all their hopes in the private sector to drive an economic recovery in 2012; slashing the public sector in the hope that a private sector recovery will boost consumer confidence and increase spending and business investment.

But when the same private sector surveys the state of the UK economy, judges what its chances of recovery are, and then seems to decide that it’s not worth maintaining a profitable business that employs thousands, Osborne’s plans must indubitably be proven deeply flawed.

It would be a travesty for the Scottish economy if an institution like the Clydesdale Bank was diminished. Not because of its banking behaviour, but because a Westminster government continues to pursue misguided austerity measures which don’t inspire and only scare the private sector. Scottish banking, its customers and the businesses it supports, deserve better.

True independence means having our own currency

Feb 2

Posted by James in Constitution, Economy | 108 Comments

The SNP appear finally to have woken up to the threat posed to the referendum by their support for Scottish membership of the Eurozone – given the incessant diet of Eurocrisis stories – and John Swinney has this week made a brave effort to kick it into the longest grass he could find. Leaving aside the debate about whether an independent Scotland would have to reapply to join the EU, or conversely would be compelled to join the Euro, what would be the best approach to the currency question for Scotland?

There are four basic options. Let’s call them Ireland, Montenegro, Norway and Sweden.

Ireland joined the Euro at the start, back in 1999, and it’s fair to say it seemed like a good idea at the time. Initially the Irish enjoyed an economic boom, built on low interest rates and low corporation tax, but as we know, it proved unstable to say the least. If the good times had kept rolling, it would have been hard to argue with, but more than a decade in the single currency has demonstrated the serious downsides to Euro membership. They surrendered control of monetary policy first, and now, with the new treaty, are about to surrender some control over fiscal policy too. Austerity is biting hard, the bond markets may again try to pick them off the back of the herd, and only the most diehard Euro-enthusiasts see joining their Euro woes as the way forward at this point. To get to this point we would in any case need to operate for a period with our own currency.

Montenegro uses the Euro, having previously used the Deutsche Mark (in the same way much of the former Yugoslavia did, de facto) but is not a member of the Eurozone. They have no true central bank of the form familiar from other independent nation states, and no say over monetary policy, and their fiscal policy is only limited by their desire to join the EU and become a full member of the Eurozone. A country in this position retains the option to start their own currency up (and, as the Velvet Divorce shows, this is easier than might be assumed), but their economic independence is limited to say the least.

Norway remains fully independent, having rejected EEC (as was) membership in a 1972 referendum. They run their own currency, and retain complete fiscal and monetary freedom (aside from any bowing and scraping to the markets they feel obliged to engage in). Through membership of the European Economic Area they gain access to EU markets as if they were members, and must comply with almost all single market requirements. The downside here, clearly, is the Norwegians have no formal input into those rules, and, oddly, they are required to contribute more than a billion Euros towards social and economic cohesion funds despite being ineligible for any funding in return.

Sweden is a full EU member, but has retained the krona despite being notionally committed to Euro membership, and despite not having an optout. As yet, though, they haven’t even gone into the ERM2 convergence zone, the essential next step if they were to join the Euro: and in 2003 moves towards the Euro were rejected in a referendum. The country’s economic policy is largely in domestic hands, both monetary and to a lesser extent fiscal (hence the decision to stay out of the latest treaty, or at least not to be governed by it while outside the Eurozone), but either way they retain all the advantages of EU membership.

John Swinney’s preferred short- and medium-term option, retention of the pound, has no direct current parallels in Europe, but the closest comparison is with Montenegro, with the Bank of England playing the part of the European Central Bank. We’d have no control at all over monetary policy, without even MPs at Westminster to lobby the Chancellor or any reason why Scottish interests should be considered by the Monetary Policy Committee. We’d have no true central bank, no ability to consider policies like quantitative easing.

it’s all the currency downsides of the Union with none of the input. It sounds reassuring, though: “we’ll retain the pound”. Not scary. No change. Like “we’ll retain the Saxe-Coburg Gothas“. But no amount of flannel from Mr Swinney about hopes for “lengthy and solid agreement with the Bank of England” alters the fact that any such agreement would have to be entirely on the Bank’s terms. It’s not even clear why that’d be better than adopting the strict Montenegin approach and just circulating the Euro.

The Irish example is perhaps even more unappealing, for reasons that have become obvious to to the SNP as well. For me, this leaves only our two Scandinavian neighbours as possible role models. Personally I’m still on balance in favour of EU membership, although the way the Eurozone crisis has exacerbated the Union’s centralising tendencies is gradually putting me off. For now, it looks like those in the EU but not in the Eurozone have the best of both worlds, but there may come a time when true independence outside the EU was clearly in Scotland’s best interests. Sweden for now, in other words, but with an eye on Norway.

Don’t make the discussion about Scotland, and leave aside the economics for now. Just ask Family Fortunes contestants what the characteristics of an independent country are. It seems likely that having your own currency and your own head of state would be pretty high up their list, whatever the experience of living next to the Eurozone and in the Commonwealth may tell us. It’s not a bizarre and outlandish thought.

And that’s the kind of independence I want. One where Scotland genuinely runs her own affairs. Plenty of other small countries have their own currencies – in fact, apart from Montenegro and Eurozone members, that’s the norm. Let’s do the same (and let’s have no Queen on it either: the idea that a new and notionally progressive state should choose the hereditary principle is surely absurd).

The Nats have a decent starting point. Yes: London’s control over our economy doesn’t benefit us. Yes: it’s remote and undemocratic. Yet Swinney’s plan would leave future Chancellors at Westminster and the Bank of England in charge of Scotland’s economy, while actually reducing the influence we have over them. And he’s still retaining the option of handing those policy levers over to the even more remote and undemocratic European Central Bank.

This economically incompetent position feels like it’s driven by focus group, like so much of the SNP’s trimming and tacking, motivated by a desire not to alarm the public who the SNP presumably believe care more about what the money in their pocket looks like than they do about the actual economic merits of a particular position. It’s a soft spot for the Unionist campaign to attack, though, and surely won’t hold up to intense scrutiny during a referendum campaign. Time to reconsider.

Note: this is my position, not Scottish Green Party policy, which remains to oppose membership of the single currency and to support independence. Technically that could mean support for either an independent Scottish currency or, ironically, John Swinney’s approach. I have no doubt that this will be discussed at Conference prior to any referendum.

A Matter of Agency

Dec 9

Posted by Kirsty in Economy, Governance | 4 Comments

According to reports in The Independent this week, SNP strategists are considering the option of Scotland joining the circle of Scandinavian countries as part of the Prospectus for Independence. But many workers in the Scottish Government will be deeply unimpressed with one Swedish model apparently being imposed upon them.

In 2010/11, Scottish Government spent over £6.8 million on temporary agency staff. With the ongoing recruitment freeze, the work of civil servants departing from permanent posts is increasingly covered by agency workers, with the majority of administrative and support staff roles in the Scottish Government supplied by the recruitment agency Pertemps.

Since 1 October, under the new Agency Workers’ Directive, after twelve weeks’ work temps should gain the rights to the same basic employment and working conditions as if they had been recruited directly by the company where they are based – mostly the right to the same pay, holidays and working hours.

You would think matching civil service pay, holidays and terms and conditions for agency staff would be an achievement the SNP government would be proud to implement, given their commitment to improving workers’ conditions through policies like the living wage. However, the Scottish Government, no doubt beholden to some decision made in Whitehall, appears happy to let private companies legally bypass protections for vulnerable agency staff working in our corridors of power.

Pertemps is one of many private firms understood to be using the Swedish derogation model as a loophole to get out of the Agency Worker Regulations. Also known as “pay between assignments”, the model is derived from an opt-out clause Sweden negotiated when the Agency Workers’ Directive was agreed at EU level.

Basically, if an agency worker is made into a permanent employee of the recruitment agency, they do not gain the same basic rights of employees of the organisation where they are placed after 12 weeks’ work. Therefore the hundreds of agency staff the Scottish Government is paying over £6m on each year are probably working to implement and deliver government policy without the right to equivalent pay, holidays and working hours as the civil servants doing the same job, all because they are permanent employees of a recruitment agency, and just happen to be placed in a Scottish Government office.

It can be argued that the Swedish derogation is better than nothing. As an employee of the recruitment agency, the temp gains protection against unfair dismissal after one year and the right to basic redundancy pay after two years. They also have to be paid for at least four weeks between postings, and receive at least 50% of their last pay packet or the minimum wage, whichever is greater. However, if the temp’s contract says they can be placed on varying working hours anywhere across the country, with very little advance warning, they could be placed on a low-hour contract somewhere miles away instead of receiving pay between postings, and threatened with dismissal for gross misconduct if they don’t turn up.

Pertemps proudly displays its various good employer credentials on its website – including Investors in People and the Sunday Times Top 100 Companies to Work For. If they are implementing the Swedish derogation, and making all the temps they place in Scottish Government and other organisations permanent Pertemps employees, it will be interesting to see how long they can hold on to such accolades. And it will be even more interesting to see if the Scottish Government is happy to have a second-class workforce within its employ.