Tax Policy: Why Creating Competition to London is a Bad Thing

Following my recent “10-10-10 Policy” post about tax policy and its potential power in Scotland, I thought this blog article “The City upon a hill” from the Arc of Prosperity blog was especially relevant and timely.  It covers the Labour Party’s Devo Nano proposal. In particular, it points to the potential of tax policy to attract new businesses to Scotland — perhaps from London — and how this is not poltically palatable for the Labour party.  A good analysis. It adds to my argument that a competitive tax policy will attract businesses and entrepreneurs from all over the world, and not just London.

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The city upon a hill

Posted on 21/03/2014 by 

 

London Skyline from GreenwichLondon Skyline from Greenwich, a photo by smokeghost on Flickr.

What is Labour’s vision for Scotland and the UK? They spend most of their time criticising the SNP in Scotland and the Tories in England, but it’s often hard to figure out what they’d do if they couldn’t just oppose their opponents. 

One thing stands out, however. They seem to be very fond of is London and the wealth it’s creating. For instance, here’s what Lamont said in her David Hume speech (PDF, my emphasis):

I believe in something called redistribution. I believe wealth should be redistributed to where it is needed. I think that one of the best ways we do this is through the United Kingdom. Let me be clear. I think that the UK is not just made up of Scotland, England, Wales and Northern Ireland. I believe that we live in a union of five – Scotland, England, Wales, Northern Ireland and the remarkable international city state of London. The UK is the machinery by which we redistribute wealth amongst those five constituent parts. And we all benefit. I don’t believe we should give that up lightly since it represents in essence the sense of community we regard as a Scottish value.

I read this as “London makes a lot of money, and the UK is the machinery by which we take it away and gives it to Scotland, England, Wales and Northern Ireland”. If Labour members still harbour some socialist dreams, they only have any currency outwith London. In the city on the hill, different rules apply. As Peter Mandelson once said: “We are intensely relaxed about people getting filthy rich.”

It’s probably in this context that we should understand the bizarre stuff about devolved tax rates in Labour’s Devo Nano proposal (PDF, paragraph 362): “This would mean a power to set the new Scottish Progressive Rates of Income Tax applying in the higher bands only, which would be able to secure 40p and 50p rates in the event that the United Kingdom Government proceeded unfairly to reduce them. This system will ensure also that the Scottish Parliament does not have the power to create damaging tax competition within the United Kingdom by arbitrarily reducing the higher tax rates in the hope of attracting well-off taxpayers from England.”

In other words, Scotland must never be able to outcompete London. It’s OK for Scotland to shoot itself in the foot, but there must never be a good reason for businesses to move from London to Scotland. As they write in section 54: “[T]axes on tax bases, which can freely be relocated to a lower tax jurisdiction, are not appropriate for devolution.”

However, I don’t think they want everybody outwith London to be on benefits, so logically it follows that they’d prefer everybody else in the UK to be public-sector workers. That would explain why they’ve been so angry about the council tax freeze, free prescriptions and all that, because they have the effect of making the public sector more efficient and potentially reducing employment there. Johann Lamont confirmed this back in 2012 when she said that “[if] we need free personal care, we need an honest discussion about what it costs with a well-managed, well-trained workforce.”

Is this really what Labour wants? A UK that is split into two parts: A wealth-creating capitalistic London containing the vast majority of the country’s businesses, where people go to become filthy rich or perish in the process, and the rest of the UK, where everybody has safe, well-paid public sector jobs. Was this their reaction to the collapse of communism? To fix socialism by adding one wealth-creating bit to each country? Do they not worry that London might get fed up with paying for Labour’s socialist nirvana?

There’s almost a religious tone to Labour’s adoration of London. It makes this son of the manse recall the city upon a hill in the Sermon on the Mount, and I also wonder whether they’ve been inspired by Blake’s English anthem (but rather misunderstanding it):

I will not cease from mental fight,
Nor shall my sword sleep in my hand,
Till we have built Jerusalem
In England’s green and pleasant land.

From the Arc of Prosperity 

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