Ken Gibb's 'Brick by Brick'

Housing, academia, the economy, culture and public policy

Category: devolved

Accountable? Transparent? Budgets and Public Finance in Scotland

 

‘Exceptionally complex and opaque’ and ‘without precedent internationally’. Fraser of Allander Institute on the Fiscal Framework, quoted by the Finance Committee, Scottish Parliament in their 2017-18 draft budget report

I found myself reading the Scottish Parliament Finance Committee’s draft budget report  the other day in part to prepare for teaching on public finances in Scotland. I was struck just how non-transparent the fiscal framework is and how difficult it is to communicate the consequences of the rules of the game in terms of Scottish policy intentions and budgetary implications. It is as if the designers in Holyrood and Westminster were seeking to be rewarded for fiendish inventiveness rather than designing a set of financial rules that were clear, transparent and fostered accountability. In that respect, the Finance Committee’s report is remarkably helpful (along with the recent SPICe briefing on the budget).

I will get into the main points that struck me shortly but it also raised a second related question. In the year of the council elections in Scotland, there is a near equivalent lack of transparency regarding the local government settlement and the consequences for local decisions on tax and spend. This has, if anything, been exacerbated by both the implementation of the recent council tax reforms and the controversy over what the draft budget means for local spending by councils. We need more transparency here too and perhaps a local fiscal framework (something being pursued by the Scottish Greens) that makes explicable and straightforward how local tax and spend works, how it is impacted by Scottish ministers and what decisions mean for tax bills and spending choices.

What is it that makes the new national fiscal framework so difficult and why is it so significant? The devolution of new tax powers reduces the size of the Block grant. Critical to how this will operate is,  how the Block Grant adjusts, which comes down to a series of decisions, firstly, about the baseline reduction that is determined by revenue in the year prior to the devolution of the tax in question. Thereafter, the second critical question is how accurately tax revenues for the now devolved tax are forecast in terms of playing into public spending planning and control decisions and the risks of over-estimation. Third, there is the contentious question of how to uprate the block grant adjustment for the devolved taxes in subsequent years. This concerns the extent to which Scottish tax revenues grow relative to UK tax revenue growth and  (and this is where the controversy exists between the two governments) then how adjusting for relative population growth between Scotland and rUK operates.

These Byzantine and head-hurting rules are incredibly important. If Scotland can grow its tax revenue quicker than rUK, the block grant and the size of the fiscal cake expand. This fundamentally depends on relative tax policy changes, which currently benefit Scotland because we are not raising the threshold for the higher rate of income tax by as much as HM Treasury – and other things equal we should grow tax revenue per head more than rUK. But it is also driven by relative population change, relative economic and productivity growth (and these presently all look less favourable from a Scottish perspective). As the Finance Committee stress, the Scottish Government have taken on considerably more responsibility and the technical requirements for forecasting future tax, economic growth and in specific sectors too (e.g. land and buildings transactions tax depend on housing and commercial property markets) – and they have done so in a period of remarkable uncertainty, austerity and Brexit.

The Scottish Government is presently consulting over the Scotland Performs National Performance Framework. In the light of the above maybe they need to change the absolute or top line purpose of Government to maximising relative tax revenue growth?

One might conceivably say ‘well, these risks are what happens with more responsibility and that is what real devolution is all about’. My view however is that what we might be seeing is actually the outcome of bargaining over an inherently complex system and one that consequently is difficult to predict, manage and base fiscal plans on. I am sure the Scottish Government will step up to the plate – they have to get this right and must invest the necessary resources and capacity in doing so. Specific forecasting expertise by the Scottish Fiscal Commission will also become much more important in the future. Moreover, the plan is that in less than 5 years the whole basis of the fiscal framework will be reviewed and the indexing methods and other fundamentals may well be substantially revised. Let’s hope for less haste and that a simpler and more durable set of negotiated outcomes is the result.

Then there is the controversy over the local government settlement. There are several accounts of what is happening to local government spending, depending on what you compare it against (draft or final budget in 2016-17), how wide you draw local government activity, and, if you do include other elements, that you know what these extras are worth. SPICe estimates that local government spend in 2017-18 may either fall (compared to 2016-17) by 1.6% to 3.2% in real terms, or if you just look at the core grant (including non-domestic rates), it may fall by between 4.5% to 5.8%. However, speaking to the local government committee of the Scottish Parliament, the Cabinet Secretary argued (para 273, Finance Committee Report on the 2017-18 Draft Budget) that ‘when wider spend on local services, including funding for health and social care integration and from council tax reform is considered, there is an increase in expenditure on local services by local authorities of £240 million or 2.3 per cent.

Clear as mud. And then there is the interaction between grant, non domestic rates and council tax – we (i.e. tax paying voting citizens of Scotland) surely need to clearly understand how all this works together so that we can make sense of the financial and service outcome implications of different political platforms? Can we not do better?

 

Welfare Reform and Devolution

 

I was part of a panel at the Social Security Committee of the Scottish Parliament today talking about their work programme priorities for the next five years. It was particularly attractive as a session because Steve Fothergill from Sheffield Hallam was first presenting new evidence  on the impacts of the post Coalition Government welfare reforms on Scotland. However, train problems on the way to Edinburgh meant I only heard his discussion session with the MSPs. In this  post I am going to go over his and Christina Beatty’s findings and then move on to the discussion we had about the committee future priorities.

Beatty and Fothergill’s analysis is a model of clarity, it builds on an established body of work, it makes clear where the data and evidence shortcomings are and it implies where new research is needed. Fothergill was refreshingly straightforward and more than willing to point to the political dimensions of welfare reform. The main findings suggest that, first, there will be big financial losses to households as a result of the additional post-2015 election welfare cuts in Scotland. These will be of the order of £1 billion a year as a result primarily of – the four year freeze on many working-age benefits and reductions in the work allowances within Universal credit (i.e. the point where benefit withdrawal tapers kick in). Cuts arising from the move to PIPs from DLA will also be important, as will planned reductions in tax credits.

Second, there are significant variations across Scotland with older ex-industrial and more deprived areas tending to fare more badly on a per capita basis (although the Scottish average is close to the GB average as a whole). Third, the expected figure of an annual additional financial loss of a £1b per annum for the post 2015 period needs to be added to the 2010-15 welfare changes which themselves imposed a financial loss of £1.1b (admittedly a lower figure than was anticipated because of the challenge in bringing down spending on ESA).

The report is thought-provoking stuff and it is great to see this analysis done at a Scottish level. I was struck by some of the housing-related evidence implied by their research.  Some of the housing information included:

  • The lower benefit cap (£20,000 p.a.) will impact on 11,000 Scottish households and cost £25m a year compared to just 900 under the previous regime.
  • Mortgage interest support, converted into a repayable loan (on entering work or on sale), affects 17,000 Scottish households and costs £25m a year.
  • 1,500 people are set to lose out because of the exemption of Housing Benefit for those aged 18-21 (and not deemed vulnerable – existing an estimated £4m a year.
  • The LHA cap extension to the social sector is estimated to affect 55,000 Scottish households and to cost £40m a year (not clear how this disaggregates between general needs and supported housing, the latter of which is expected to be particularly problematic though it will not be initially affected). Also it was not clear from the report whether this 55,000 sum explicitly includes the under 35 single person households who are treated as if they are sharing housing (ie receive benefit up to the shared accommodation rate).

While the report is about welfare cuts post 2015 in Scotland, it does allude to possible offsetting effects – higher personal tax allowance, enhanced child care, and the minimum wage. But more could have been done to bottom these figures out and and quantify the balance between winners and losers in net terms. In the discussion with the MSPs Fothergill argued strongly that there was no evidence that employment growth follows from sharper benefit incentives as experience din recent economic cycles. He also argued that the long term growth, for instance, in levels of ESA are about lack of jobs. The demand-side explanation is strengthened by the evidence that in high demand labour markets in southern regions people with disability or illness are more likely to get work and can find jobs – but this is more difficult in low demand areas. Supply does not create its own demand.

Turning to the priorities for the committee in the coming Parliament, I recognise that the housing end of social security does not always come top of the bill and today we focused much more on disability, employment support allowance, work assessments and broader system level questions associated with the devolution of social security powers. Consequently, my contributions were modest.

It was not long when despite the conclusion from Beatty and Fothergill that we should not overstate the Importance of devolution of social security powers to the Scottish Parliament, we nonetheless agreed that this was in fact the priority, but also a huge challenge and an opportunity wrapped up in one.  Despite the fact that the Scottish Government does not intend to fully take on the powers till 2020 as one MSP said, the time is now to start planning, and also to ensure the infrastructure and systems are established, and to build the necessary policy and delivery capacity.

My view was that the 15% figure (the proportion of social security spending to be devolved) is a bit of a red herring (though Kirstein Rummery made the good point that it us like being given a block of cash that, now devolved, the Scottish Parliament can design it and use it as it thinks best – there are therefore many opportunities). This is because it is the additional powers to top up, create new benefits and change the rules applying to things like Universal Credit and its housing cost elements that create open-ended flexibilities and choices for Government. However, they all have to be paid for out of the Block and this means Scotland has to consider both its revenue-raising capacity and economic growth (including its new tax powers) to fund expansion and also whether there are choices between spending headings that could change to meet the social objectives of new and better social security benefits. There are opportunity costs from constrained political choice but there are also genuine opportunities.

Much of the discussion was about work assessment, disability benefits and also of course conditionality and sanctions. I was struck by the fact my colleagues around the table had so much relevant evidence to bring especially on their own direct projects and in relation to reviews of international studies. There does seem to be, as was true also in the last parliament, that committees do genuinely want to work from a proper evidence base. This has to be a positive sign in these otherwise concerning times.

‘Five Years, that’s all we’ve got’: the Scottish election and challenges for the new Parliament

 

Earlier this month, the Additional Member System reasserted itself and ended majority government (just). The SNP continue in power but as a minority administration (just). One consequence expected from this turn of events is that there will inevitably now be more focus on the committees and a wider distribution across the parties of committee chairs. Will we see more scrutiny and more effective committee work as a result (e.g. of the coming spending review)? Budget-making and financial bills also take on a new heightened aspect now that their passing through Parliament is less straightforward.

The major substantive change for the new Parliament is of course how they use the new powers. Much of the election debate focused on the new fiscal powers and how progressive or otherwise any changes to income tax should be (and party proposals for local tax reform – see below). Much less was said about the coming welfare reforms which will devolve over many non-working age benefits as well as powers to amend the housing cost elements of universal credit. This is a massive step change for Scotland, perhaps the biggest single administrative challenge since 1999 (and that is even before contemplating policy change like benefit top-ups). It is not a particularly exciting thing to advocate but better done well than quickly.

Two interwoven constitutional matters remain very close to the surface. Next month is the European referendum and of course Scotland remains politically defined by the dualism of the 2014 referendum – what David Torrance and others have called the ‘Ulsterisation’ of Scottish politics between nationalism and unionism. As in Northern Ireland this seems currently to most benefit the two parties most associated with these positions (in Scotland, the SNP and the Conservatives), which again raises questions for the positioning of the diminished Scottish Labour party. While there is a small majority in favour of indepdendence in the Parliament, the appetite for a second vote will of course be driven by political calculation and risk. This could well be altered should the ‘material change’ of a vote to leave the EU occur while Scotland votes to stay.

There are two other substantive issues that will feature in the new Parliament. First, while the SNP came up with a remarkably modest set of proposals to reform local taxes that even failed to promise a general revaluation (not that dissimilar as a set of proposals from those of the Conservatives), the rest of the Parliament offered more radical property-based reforms.  This may be enough to neuter the call for more comprehensive tax reform (which would be disappointing and a lost opportunity) but alongside it, there is clearly interest in local government reform more broadly.

These two things cannot and should not be separated, as is equally true of the need to situate council tax reform in terms of wider amendment of local government finance as a system. Austerity rolls on and will impact hard on local government and its services in years to come. My colleagues Annette Hastings and Nick Bailey have shown clearly in work carried out with Heriot Watt University for the Joseph Rowntree Foundation that earlier spending cuts in England were often ‘pro-rich’ at the expense of the most disadvantaged. The Scottish Government and local authorities must actively minimize this possible outcome in Scotland in the years ahead.

Second, the SNP have pledged a target of 50,000 social and affordable homes over the life of the new parliament. The significant financial commitment is welcome but the attainment of 70% social housing within this total and the willingness and ability of non-profit providers to develop, the limits to borrowing by councils and the necessary step change in new supply required by private house builders to support affordable housing – raise major questions of implementation. The 30,000 target was achieved in the last Parliament but this is much more ambitious and takes place in a context where the enabling conditions to facilitate the levels of new supply are still very challenging. This is all at a time when the generally accepted levels of national housing need is 12,000 not 10,000 per annum and worrying evidence is emerging from our cities of rising street and repeat homelessness.

While I don’t actually feel as apocalyptic as the mood of David Bowie’s 1972 song in the title of this post – there are big challenges ahead and as always, governments, particularly devolved ones, are also at the mercy of larger external shocks, not least at the macroeconomic level. Nonetheless in terms of public policy reform and spending priorities, even in a context of austerity, the new government has considerable choice over how it allocates its funds, an opportunity set undoubtedly widened by the Scotland Act. There are real possibilities as well as constraints.

 

 

Tackling Poverty in Scotland

Sometimes events unexpectedly coincide. Yesterday I was one of four colleagues from Urban Studies giving evidence to the Local Government and Regeneration Committee at Holyrood. At the same time, elsewhere, the independent advisor on poverty and inequality, Naomi Eisenstadt, was launching her poverty report – Shifting the Curve. Earlier in 2015, I was one of a number of academics who had an interesting seminar with Naomi to discuss key issues, evidence and the things most needing to be done to combat poverty in Scotland.

After a shaky start in the evidence session (we thought we were there to talk more about our written evidence; the committee wanted to talk about its legacy and its forward agenda), it turned out to be quite an interesting hour. We discussed a range of topics including community empowerment, the place standard, community planning partnerships, how the committee system in Parliament can integrate and operate more cohesively, as well as participative budgeting and the impact of austerity on local services and deprived areas. My colleague, Annette Hastings, also raised the launch of the aforementioned poverty report.

While the advisor’s work focused on delivering serious proposals that could in conjunction and over the long term move large numbers of people out of poverty, the headline that grabbed the papers’ attention was the recommendation to end the council tax freeze and reinvest the resources currently tied up in maintaining the freeze (£630 million this year). The poverty advisor did not however reach a view on what form of local tax arrangements should replace the council tax, other than ‘be bold’. When we met the advisor, Mark Stephens and I suggested that a phasing out of the freeze might free funds in part to augment the affordable housing supply programme – this may be what she has in mind. I have put the 15 recommendations from the report in an annex at the end of the blog.

To be fair, the advisor praises the work that the Scottish Government has done in a difficult funding context, and notes the relatively better position of Scotland if we compare poverty measures across the UK. She is a strong advocate of inclusive growth and the effect the jobs and wages can have on poverty. She also recognised the positive interventions that have mitigated and reduced various forms of material poverty. But she is clear that more can be done and by all parties to reduce poverty’s pernicious impacts across Scotland.

The advisor’s report focuses on three areas of challenge. First, in work poverty (half of working age households in poverty – and 56% of those with children – had someone in work ). Second, young people and hence focusing on the life chances of those aged 16-24. Third, the report also focused on affordable housing because of the critical role played by housing costs in terms of the incidence of  after housing cost poverty levels in Scotland.

The poverty & inequality advisor concludesd that tackling inequality is particularly difficult but, to paraphrase, the combination of income redistribution of progressive taxes and a principled balance between universal and targeted or selective public services – might offer a way forward. Area-based targeting, for instance, supporting schools in deprived areas, may be a further important and complementary option. She recognises, of course, the contested nature of such conclusions:

These are contentious issues, but there may be ways through the log-jam. It would be very useful to have a clear and shared understanding of what a progressive, or as Michael Marmot would have it a “proportionate‟, universal system would look like in practical terms. I would be interested in engaging in further debate about this in Scotland, as it seems to me to be key to developing anti-poverty policies.’ (p.25).

These are critical rubbing points for the Scottish Government and other proponents of universalism – but I for one would be in support of such a debate being advanced by the Scottish Government when it responds to Naomi Eisenstadt’s excellent report.

Annex: the report’s main recommendations are:

In-work poverty

  1. Build on Living Wage Accreditation – a focus on larger employers, and on incentives, would be useful.
  2. Encourage pay ratio disclosure as a way of tackling pay inequality.
  3. Ensure childcare commitments focus on quality to improve outcomes, and consider providing a limited number of free hours of childcare for primary school aged children.
  4. Make family flexible working more explicit within the Business Pledge, and consider whether approaches such as the Timewise programme could promote flexible working in Scotland.
  5. Do more to ensure that people claim the benefits they are entitled to.
  6. Make effective use of new social security powers but proceed with caution.

Housing affordability

  1. Build more social housing.
  2. Ensure fuel poverty programmes are focused to support those on low incomes, and do more to tackle the poverty premium in home energy costs.
  3. Be bold on local tax reform.

Life chances of young people, aged 16-24

  1. Carry out a comprehensive review of the policies and services relevant to the life chances of older children and young adults, with particular emphasis on young people from poorer backgrounds.
  2. Reduce the number of government-supported employment programmes targeting this group of young people and simplify the landscape, to provide a clearer, sharper focus.
  3. Ensure that the new approach to employer engagement in education is having an impact on improving skills for work of young people.
  4. Do more to tackle occupational segregation.

Cross-cutting

  1. Ensure that public service delivery is respectful, person-centred and preserves the dignity of people in poverty: pre-employment and in-service training should include the importance of avoiding stigma and developing understanding of the challenges of living on a very low income.
  2. Commence the socio-economic duty in the Equality Act 2010, when powers are available to do so.

Towards a New Social Security System in Scotland

A lot of my research these days is about public policy failure, what doesn’t work and why, as much as what does work. It is in this sobering context that I read and found much sense in the Welfare Reform Committee of the Scottish Parliament’s new report, ‘The Future Delivery of Social Security in Scotland’.

Welfare reform is the defining pinch point for the post Smith constitutional battle between the Scottish and UK Governments as they come to terms with what the new developed powers mean (and wrestle over the fiscal framework) and in particular try to make the new welfare powers and specifically the required integrated systems work properly from day one. Of course this is all happening in the middle of the DWP’s (contested) welfare reform project. But in addition to that there are quite fundamental policy implementation challenges ahead of whoever runs the Scottish Government after the election.

What does the report say? First of all it talks about the culture shift required within a new Scottish system of social security to move beyond the current stereotypes of skivers and attitudes of suspicion and mistrust that seems to pervade the present arrangements. Instead, the new system, drawing on both DWP and Scottish administration, requires to be grounded in principles of dignity, person-centredness, respect for claimants, and that the system be non-punitive (accepting the need for conditionality but only using sanctions as a genuine last resort). Person-centred means not running the social security system for the ‘convenience of the bureaucracy’. They point out the growth in advocacy services for claimants, which is of course itself a failing of the system to use plain language, simplicity and transparency in its dealings with citizens. The system should also at heart be responsive, fair, consistent, helpful and supportive. The report also nicely points out that while signing up to and legislating for such principles is fine itself, achieving and implementing such principles in practice will be a ‘substantial task’.

The report identifies a list of ‘big issues and tough choices’.  First of all, the new system has to be coherent. The new proposals in the Scotland bill create a dual and therefore much more complex social security system for Scotland. This will require commitment, consistency and genuine inter-governmental working of a standard and level not really attempted since devolution. Second and related, there is a fundamental choice to be made between contracting DWP versus setting up a new Scottish agency to deliver social security. Neither option is without its problems. Third, there is the question of how much of the Scottish system ought to be devolved locally – again there are arguments in both directions. Fourth, although it will be fundamentally shaped by the ultimate fiscal framework deal, the Scottish government will have powers over topping up existing benefits but the Committee Report argues that this can readily have big funding implications and will require national debate before it can move forward on any major reform proposal. In the report they stick to more modest funding recommendations.

The report also makes a number of specific recommendations, which include:

  • Introducing a long term DLA/PiP scheme for those with severe long term conditions, thereby doing away with multiple re-assessments. They also support the planned increase in carer allowances to JSA levels.
  • The housing element of Universal Credit should be paid fortnightly directly to landlords and allow more than one payment per household, where necessary. They also advocate the immediate abolition of the ‘bedroom tax’, which would allow returning discretionary housing payments back to their original wider purpose.
  • They also make proposals about widening the provision of ‘welfare to work’ programmes to promote more local operators and that the devolution of the Work Programme does offer the chance for the Scottish Government  to influence how sanctions are used – and this could be a genuinely progressive development (though would not remove all tensions over sanctions between respective Governments).

There is a lot to like here. The ideas about using the powers to impact on the conditionality regime in at least two areas (DLA/PiP and the Work programme) are constructive, the recognition of the administrative complexities of a dual system with different benefit regimes is welcome on this side of the Border, as is the implicit sense that top-up and real discretionary power has a cost attached to it which is part of the political choice associated with greater devolution. But this is happening in a context of austerity and further cuts to (unprotected) budgets. So, it is really important, it seems to me, that the political elites fully understand the difficulties and tough choices that lie ahead. This may be one of the biggest of these emerging tricky policy implementation areas in the devolution sphere, but it suggests that we need a political culture change as well as in the social security system. Hopefully, the Welfare Reform Committee have started that process.

 

 

Devolving Housing Benefit?

Yesterday, finally, we published a report that has been evolving (or devolving) for the last 7 or 8 months. The paper, written with Mark Stephens and Janice Blenkinsopp, was for Shelter Scotland and concerned itself with the devolution of Housing Benefit (HB) and the long term rebalancing of housing subsidy. It built on Gibb and Stephens (2012) paper on the future of Housing Benefit after the 2012 Act (following the Calman Commission). We started the work before the referendum and had subsequently to cope with both the Smith Commission proposals and the Draft Clauses of the post-election bill on constitutional change, each of which had direct relevance to the substance of our think-piece. It has not been easy to keep up.

What does the paper say? First, it points to the long term shift that meant that while housing supply-side subsidies to the social sector amounted to 80% of all housing subsidy in the 1970s; today, around 80% goes to housing benefit. This does little to support the supply of new housing. Second, the paper lays out the well-known problems and conflicting objectives of what is both an income maintenance (residual income) policy for the DWP but also at the same time an important engine of housing policy. We set out the weaknesses with the existing system in terms of disincentives to work, the blunting of housing choices and the tendency for its costs to rise with rising rents and lower wages. Much of this has been brought into sharp focus by welfare reform but the underlying structural problems remain.

There are therefore two questions to think about. First, how do we improve the design of Housing Benefit and help shift subsidy more to supply-side assistance? Second, do the opportunities presented by further devolution post-referendum offer new opportunities to devolve HB and take control of it in order to achieve better outcomes for low income households? Devolving HB would mean separating it from Universal Credit (UC) when it is fully introduced but actually doing something progressive with it will require more resources. These would need to come from more taxation either from economic growth or new taxes, greater borrowing or shifting priorities within the existing programmes of devolved spending.

This would also be advanced if the Scottish Government had control over a wider set of means-tested benefits in order to over time move towards a more coherent housing benefit system. However, a progressive shift will require a sustainable financial settlement and wider devolution of benefits – neither are arguably on offer as a result of where we currently stand in terms of the powers implied by the Draft clauses.

The paper recommends that in the short run, HB should be excluded from Universal Credit. Second, we should build up over time a general housing element with the mainstream cash benefit (UC or its successor) with a view to add a separate smaller housing allowance to help with affordability pressures. This will require a wider devolution of means-tested benefits. We recognise the need for careful lengthy transition to protect losers from this process of change. But it can be done if there is a will. We recognise also that Scotland will have a wide range of taxes under its control and this may be widened subject to the outcome of the local tax commission and we would recommend that there is wider shift towards taxing land and property and, to the extent it is sustainable, reducing tax rates on the productive economy.

These proposals are not without their difficulties. Yesterday, Shelter Scotland hosted a roundtable to discuss the implications of this report. Several points were made that struck me as important or at least worthy of further discussion.

First of all, housing Benefit will not be devolved as a result of Smith and subsequent draft legislation. Rather, the Scottish Government is given the power to amend aspects of the housing cost element of Universal Credit – the latter remains reserved. Furthermore, making key changes like abolishing the bedroom tax, which is explicitly identified as a possible power, will still have to be paid for. That is not to say that there are not important powers. There are but these are more about the ability to maintain direct payment of HB to landlords. Moreover, Paul Spicker made the important point that the Draft Clauses significantly weakened Smith by removing the ability of the Scottish Parliament to top up reserved benefits or to create new benefits.

Second, why do we want to devolve HB? Is it devolution for a purpose? The momentum for this policy was the bedroom tax but, despite its justified unpopularity, it is hardly the basis for such devolution. And to reiterate: devolving HB by itself will not produce a radical progressive alternative, let alone a well-designed incentive-compatible one.  Should we not be thinking more about the social security system as a whole (including the social union arguments about pooling risks) and where we want to get to with the housing system as a whole? The argument is often made that housing policy is ostensibly devolved and this should be matched with the key source of funding and income to make housing policy work. I think it is more complicated than that but more widely the case for devolving must be to actually significantly and sustainably improve the housing system as a whole. That case, ironically, has not really been made by the constitutional protagonists.

Third, rebalancing housing subsidy is worthy but difficult – it needs long term consensus (my regular refrain) and a willingness to run a policy that will have transitional damping of the losses many might face. This is precisely why we need a wider long term strategy for the housing system as a whole – it cannot be done piecemeal.

Fourth, doing research in real time can be a little bewildering in the context of devolving social security. What is more, we are now in a general election period and even after that we will then run into the Scottish election next year. It is certainly a lively and engaged time in terms of policy aims and the political discourse but this does not unfortunately equate to better long term coherency of policy making.  It just might be a necessary condition for better policy to the extent that it helps create an environment where people are more willing to think about policy more creatively. Perhaps? Similarly, as a result of the income tax and VAT proposals, Scotland will be fiscally highly-decentralised – who knows how these powers will actually change the policy positioning of those soon to be responsible for revenue as well as spending?

Reference

Gibb, K and Stephens, M (2012) Devolving Housing Benefit to Scotland – Discussion Paper. Chartered Institute of Housing (Scotland): Edinburgh

 

On Commencing the Scottish Local Tax Review

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Yesterday, the membership and remit of the Scottish Commission on Local Tax Reform was announced. And at the same time a group of interested observers set up an independent network promoting the case for a property tax (Scottish Property Tax Reform). I am a member of the latter body.

Drawing from the Scottish Government’s press release, the Commission’s Remit is: “To identify and examine alternative systems of local taxation that would deliver a fairer system of local taxation to support the funding of services delivered by local government”. They go on to say that in doing so, the Commission will also consider:
• The impacts on individuals, households and inequalities in income and wealth;
• The wider macro-economic, demographic and fiscal impacts, including housing market and land use;
• The administrative and collection arrangements that apply, including the costs of transition and subsequent operation;
• Potential timetables for transition, with due regard to the 2017 Local Government elections.
• The impacts on supporting local democracy, including on the financial accountability and autonomy of Local Government;
• The revenue raising capacity of the alternatives at both local authority and national levels.

The Commission is co-chaired by the local government minister Marco Biagi and by Dave O’Neill, the President of COSLA.. The Commission also includes a number of councilors form different parties, urban and rural, the shadow spokesman for local government (Alex Rowley), Andy Wightman, representing the Greens, plus specialists representing taxation & law, public finance & accountancy, Citizens Advice and also Jim McCormick (Joseph Rowntree Foundation) and Angela O’Hagan (Institute for Society and Social Justice Research). The Scottish Tories declined to participate because they are separately working on a low tax commission.

In conducting its work, the Commission will engage with communities across Scotland to assess public perceptions of the emerging findings and to reflect this evidence in its final analysis and recommendations. The Commission will be supported by an independent secretariat comprising staff seconded from COSLA and the Scottish Government. The Commission aims to report to the Scottish Government and COSLA in the autumn.

And what about our network, chaired by Mark Stephens and set up in response to the Commission? Paraphrasing from its press release, as the Scottish Government establishes its Commission to seek an alternative to the Council Tax, this independent network seeks to make the case for a fair system of property taxation. Scottish Property Tax Reform (SPTR) is a network of interested individuals and organisations who believe that a well-designed system of property taxation can and should play an important role in public finance, the economy and a fair society. SPTR aims to inform and influence the work of the commission established by the Scottish Government to examine possible replacements for the Council Tax.

The Network, while looking for more to join, is presently composed of academics like Mark Stephens, Richard Kerley, Glen Bramley, Mike Danson, myself and also Jim Gallagher and Andy Wightman.

What are our underlying arguments? Drawing from the press release we believe that a fair system of property tax should form the basis of local government taxation because:

• Property is fixed and space, is immobile, and so is easy to tax. This means that, unlike many other taxes, property taxes cannot be so easily dodged by wealthy people by moving themselves or their companies abroad. They have to pay their share along with everyone else.

• Property taxes can help to make housing more affordable – reversing the trend that has priced more and more people being out of housing. Property taxes reduce boom-and-bust cycles in the housing market.

• Property taxes help society to recoup some of the benefits that some people receive because they are lucky enough to live close to new infrastructure or other amenities. They do this because the value of property rises when the area they’re located in benefits from public investment.

• Property taxes encourage people to invest in the productive economy, ensuring a prosperous future for us all. We all know that ever more inflated house prices doesn’t make us any better off in the long run.

A well-designed property tax (i.e. definitely not the current council tax or a reformed one based on additional bands) should incorporate the following principles.

1. Property taxes should be revalued automatically and frequently. One of the reasons the Council Tax is unfair is that it is based on property values that are nearly a quarter of a century out of date. You wouldn’t expect to pay income tax based on what you earned in 1991!

2. Property taxes can be designed better to deal with anomalies that have been found with previous forms of local taxes:
– Direct help toward low-income households
– Deferring tax payments for asset rich/ cash poor households
– Regular statutory revaluations
– Combining property and other taxes, common elsewhere, can raise the same yield.

If you’re still not convinced, think of it the other way round – not taxing property will simply encourage more wealth holding and speculative activity in property simply because it is untaxed.

Interesting times ahead. While we in the network share a common interest in supporting the place and value of property taxes, we will inevitable differ in the details and will probably in our different ways contribute to the debate as individuals and in other ways too. For my part I fully expect that Policy Scotland will submit evidence to the Commission. I also hope that as an individual I will write for the SPTR.

Note: SPTR has just formed but there will be a website containing information and briefings in place shortly. Google it.

Don’t you know there is an election on? [Part One]

In less than three months the UK general election will come round. It may or may not produce a definitive outcome. Like 1974, we may have to do it all again within just a few months.

And it is odd constitutionally, too. In a devolved political system, not only is there a bit of distance and insulation from the election viewed from a Scottish perspective – much of the manifestos are about domestic policies in only parts of the nation. On the other hand, if the post 2010 period has told us anything about contemporary Britain it has been the centrality of economic policy, macroeconomics and the public finance dependence on the UK fiscal framework. Austerity, welfare reform and their manifestations such as food banks have become touchstones for both the independence debate and the grounds for highlighting inequality as a live issue. And, of course, there is the possibility that nationalist parties may have a role to play in the post-election negotiations over government forming.

I read Nate Silver’s excellent book (The Signal and the Noise) a year or two ago and I am now exploring a book on the history of Bayes’ Theorem (as you do). Of all the countless pieces written on the referendum and its voting outcomes, the most compelling material (and essentially right in the end) was the analysis of political betting by the bookies (i.e. those with money or skin in the game) as investigated in a series of papers and blogs by David Bell at the University of Stirling (see the Centre on Constitutional Change and The Future of the UK and Scotland websites). I imagine that, whilst I will likely remain a non-gambler, I will nonetheless be returning regularly to the bookies sites to see how the political betting is shaping up between now and early May.

The Scottish dimension remains of interest also because the polls, really since the referendum, anticipate a huge vote for the SNP and if so the defenestration of the Scottish labour party at Westminster. And, apart from the implications for the UK balance of seats in Westminster, this will also impact hugely on the parties’ planning for the 2016 Scottish elections. As someone said today in a meeting I was at, the next Scottish Parliament will be especially challenging. It will have an agenda that includes coping with the (transitional) impact of the 2012 Act (partial income tax powers, Land Building Transactions Tax, some borrowing powers, etc.) and then negotiating the Smith proposals through legislation with Westminster. Meanwhile, there will be the further unwindng, to different degree depending on May’s UK result, of further waves of austerity and welfare reform.

Devolution does not stop with the four nations. City Deals and the Core Cities now stretch well beyond England. I was at the DevoSummit on Monday in Glasgow that featured the launch of the ResPublica report: Restoring Britain’s City States. I must admit that, while welcoming the overdue focus on city-regions and also the opportunity to share knowledge and collaborate across urban Britain, I do still hanker for something a bit less ad hoc than the city deals. I also think there is a bit of statistical flummery that goes on with city boosters that is not challenged enough – we are heavily urbanized in Britain; it should really not be surprising that most GVA comes from our core cities – demonstrating the underlying causality and how it operates over the economic development process are much more difficult but interesting questions. I also worry about the marginalized in all this – 2nd tier standalone cities or towns and larger settlements that do not benefit sufficiently if at all from these initiatives. About a third of people in Scotland live in these smaller settlements and there is an obvious danger that resource and initiative bypass them compounding inequality and disadvantage.

While the UK General Election is underway, Scotland will also have a Council Tax Review scheduled to report in the Autumn, with the outcomes expected to feature in the Scottish election. This will seek to consider alternatives to the council tax based on the usual reasonable criteria: feasibility, fairness (in terms of ability to pay), accountability to local people and mindful of wider consequences such as the housing market’s performance and overall tax burdens. The SNP have a history of supporting an income tax solution (maybe local, maybe not); while as you will have guessed, I would want to see a more efficient form of property tax. The Review also will apparently consider (as logically it should) the continuation of the so-called freeze that through the concordat fiscal arrangements with local government has operated for eight years. As I have argued before, as did the recent Strengthening Local Democracy report, this has to end and the genuinely local element of local government finances has to increase. How will the rest of the UK look to the work of this commission, underway during a UK General Election, perhaps sending signals about possible local tax reform elsewhere in rUK?

So, the UK general election has implications that stretch across the different parts of our devolved nation including our city-regions and beyond. The Scottish question directly or indirectly is going to play an important part in the outcome and the post-election party negotiations. In the paragraphs above I have stuck to questions of multi-level governance and politics. In part 2, somewhere in the near future, I will turn to housing and the election.

This is my 100th post on Brick by Brick. It has been an interesting and educational experience. It has been almost completely positive. Thanks to readers and those who have provided feedback in various different ways. I find my working life changed by blogging and continue to enjoy it immensely. I hope the next 100 will continue to be fun but remain a good discipline. I would also hope to get to 200 a little quicker.

Policy Scotland’s Contribution to the Smith Commission Debate

 The remarkable upsurge in political engagement during the referendum has been followed by a phase in which organisations and individuals across Scotland are preparing submissions to the Smith Commission. Smith is currently engaging in a wide consultation about what powers should be transferred to the Scottish Parliament, with the aim of obtaining a political consensus across all the main parties.

 Policy Scotland’s submission to Lord Smith raises a number of areas where more information and more thought is needed on the implications of changing tax raising and transferring welfare powers. Without this, the rush for a political fix for Scotland might result in an uneasy compromise that leads to instability. As we move forward to a devo-max or quasi federal solution for Scotland, the implications for the functioning of the Union as well as for the economic and social possibilities for communities, towns and cities, regions and nations across all of the UK need to be explored, bringing together the best research and leading thinkers.

 Our argument can be summarised as follows. In the past, ad hoc and asymmetric efforts at constitutional/structural reform have left the Westminster system largely intact, even as powers have been transferred. Despite devolution, the Union of Great Britain and Northern Ireland is one of the most centralised systems amongst western democracies, with unresolved tensions between levels of government and an unwieldy system of making public choices that many people in Scotland and increasingly in other parts of the UK regard as lacking accountability.

 Arguments about ‘devolution’, ‘localism’ and ‘subsidiarity’ may have different origins and levels of support in different parts of the UK. But underlying them are the same imperatives: downward shifts of autonomy away from Whitehall and calls for a new governance of Britain focused not just on the devolved nations but also on local authorities, especially in the city-regions. The implications of the transfer of powers following the Scottish referendum are not confined to Scotland. The question for the UK as well as for Scotland is how can relations between different levels of government be shaped in a way that addresses economic and social objectives such as improving competitiveness and increasing fairness, both real and perceived, in a Union that works.

 We have submitted a working paper to the Smith Commission http://policyscotland.gla.ac.uk/new-ideas-new-time-scotlands-place-new-union/

written by Duncan Maclennan, Des McNulty and myself. We propose a programme of events and debates which will we hope produce something greater than the sum of its individual parts – a structured ideas network that will provide the space to start thinking coherently about a range of devolution and decentralisation issues that go well beyond the additional funding and spending powers of the Scottish Parliament but rather addresses the fiscal systems, decision-making and substantive choices that could operate in a more coherent decentralised and quasi-federal system of nations, regions and local government in the UK. 

This debate is about mechanisms for pooling and sharing, equalisation and autonomy; it is about recognising the responsibilities of greater financial autonomy and the consequences and choices that go with that. We live in austere times; more powers don’t necessarily mean a net increase in resources but they could deliver better processes for making choices and improving competitiveness, provided that the right choices are made and the system of distributing responsibilities between different levels of government is coherent. 

The timetable and the political focus of Smith might not give adequate time for a full investigation of the issues we think are central to this debate about greater real autonomy. But we would hope to inform Smith and what comes after – the legislative process for Scotland, the thinking about city deals and how to reform the Union by bringing together expertise from the University of Glasgow, from civic and academic Scotland, and from strong international connections to federal and decentralised governance and fiscal systems elsewhere in the world. 

We do not pretend we have the answers to all the questions about institutional design, fiscal structures and how to best promote the economic and social justice improvements we are raising. But what we will do is develop a series of debates focused on the key questions and we will publish the main findings in specific papers, audio-visual materials and in a final report in February 2015 setting a road map for further work and engaging directly with the Smith Commission outcomes. 

We will be working on a programme of events of different sizes and types. Some of these we will run ourselves and others we will co-badge with partners. We will embrace local community levels of interest, as well as local government and metropolitan regions (and we hope talking directly to the concerns of Strengthening Local Democracy), as well as the Scottish and UK nations. We will avowedly take an internationalist and evidence-based approach, building on academic and policy links to countries like Australia, Canada, the United States but also important federal models in places like India and Nigeria and decentralising initiatives underway in France. Reflecting on this evidence, setting it in context and learning lessons will be essential to the work we will undertake. 

We will publish on our Policy Scotland website details and dates for our programme of events as they emerge. If any of these discussions interest you, please do get in touch. We will also publish outcomes and other materials from each event as we go along. 

During the Referendum, Policy Scotland played a neutral role enabling debate and providing a platform for the campaigns and other voices to contribute to the independence debate. In this critical post referendum period where time is at a premium and there is so little space officially for a more thorough-going consideration of devo-max, federalism and decentralisation, especially in terms of its economic, financial design and governance implications, we believe we have the opportunity to facilitate and support such a process of knowledge sharing and development. But this will be a genuine ideas network – we do not know where the debate will take us or what the answers might be. All we are doing is honestly framing what we think are the key questions and facilitating debate with leading thinkers from civic and academic society. We think it will be both important to the future but also a rewarding experience.

Note: this post was also published on the Policy Scotland website.

Scotland votes No – initial thoughts

After a campaign that lasted de facto more than three years, and in recent months saw an incredible heightening of political engagement and awareness, the votes are cast. Just more than 1.6 million people voted for independence but in a record 85% turnout, a little more than 2 million voted No. Glasgow, North Lanarkshire, West Dunbartonshire and Dundee voted Yes but most everywhere else, including Edinburgh and Aberdeen, said No.

Much has rightly been made of the huge and profound grass roots Yes Scotland campaign that has galvanized every corner of the country (and I now suspect more should also be made of the quieter No campaign – and the behavioural biases of salience and representativeness that arise when you walk around the country and only see Yes posters).

A key issue is therefore how to maintain and galvanize that enthusiasm for politics. Those of us who have long been involved in voluntary movements perpetually struggling to find board members, etc. must be encouraged by the political awakening both in Scotland as a whole but also in our more deprived urban communities. In Policy Scotland we are working with the Reform Club in London and the new John Smith Centre for Public Service – both of whom are fundamentally concerned with sustaining and promoting political participation and civic activism. Beyond this, the more radical political perspectives of the left and environmental sustainability have also had an energizing campaign – how will they now fare and how will they maintain their initiative? A challenge and opportunity, then, to keep this momentum alight across the board.

A yes-no binary and an equally sharp hope-fear characterisation of the debate do not make for easy post vote reconciliation. But it is clearly essential for all sorts of reasons and particularly in the months ahead as the unionist parties legislate on their further powers proposals, that ways need to be found to reassure the skeptics.

I must admit I had my doubts about the 16-17 year old element to the extension of the franchise – not in principle (it is clear to me that this age group should be able to vote) but I would question the practice of piloting it in a constitutional referendum of such criticality. It should have been tested in local government or the European elections. However, it is really important that we now move ahead and extend the franchise to all other elections.

There are already emerging a number of unintended consequences attached to the result. The prime minister has already implied that this will usher in constitutional change in the rest of the UK and in particular English votes for English MPs and also further announcements ahead about more powers for English cities. How will Labour deal with that critical challenge to the future – is it conceivable for a UK government to be elected with control over reserved matters but unable to deliver its manifesto proposals in England because it has no majority of English MPs (but isn’t that what devolution implies already in Scotland)?

Federalism, quasi-federalism and more symmetrical devolution will become the Uber-subject of the next few weeks and months for the think tanks and commentariat and I suspect we will look both to federal systems around the world and reform processes already underway (e.g. France). A good place to start is David Torrance’s excellent wee book – Britain Rebooted.

Wearing my other policy research hats, I do hope that the next few months will not be completely swamped in these constitutional matters. Policy reform must continue and of course there is a degree of consensus in Scotland about the Christie Commission proposals and the ‘Scottish approach’ to public policy including the Scotland Performs framework. There are several elections ahead of us and we are crying out for alternatives to austerity and better ways of dealing with wicked often place-based problems. Let’s keep that fully in focus.