The shame of embedded Scottish and UK inequality

Embedded inequality, subsistence wages, impoverished public services, unsustainable debt, land speculation, forced economic migration and homelessness can be history…IF we so choose.

Is it any wonder our public revenue is inadequate? The owners of rent-yielding assets extract one fifth of the gross UK income for doing…nothing. That equates to a staggering 40% of what should be flowing into the UK public purse by collecting AGR/LVT.

But if we fail to recognise the problem is ‘Rent-seeking’ we will make little progress.

Radical tax reform for national economic recovery after the pandemic

By SLRG’s Dr Duncan Pickard, Balmullo, Fife.

It is wrong to believe that we should revert to live as we did before the pandemic. The statistics of its incidence show that the poorest people have suffered far more than the rich and a mindless quest to ‘return to normality’ will result in further widening of the gap in health and welfare between rich and poor.

Our antiquated, complicated and unfair tax system is responsible for inequality. The rich minority are given generous tax concessions whilst the poor are obliged to pay the biggest proportion of incomes in VAT, the most regressive of all the taxes.

The government needs money to pay for goods and services such as education, the police, the NHS, and pensions. Current taxes, collected mostly from Income Tax, NIC and VAT, are insufficient to avoid budget deficits and increases in the national debt. It is impossible to increase these taxes without causing more reductions in employment and trade. Sufficient funds could be provided without economic and social harm if the tax system is radically reformed.

Income Tax, NIC and VAT are charged on what people have earned for the work they do. But there is a large potential source of revenue which goes to a minority of the population that they do not earn.

That is the annual rental value of the land they own, known as Annual Ground Rent or Land Value Tax. (AGR/LVT) The most valuable land is in urban areas because that is where most people want to live and work. Most house owners do not realise that they are landowners.
The large increase in the price of houses over the last four decades is in the price of the land on which they are built, not the price of the houses themselves.

The increases in land prices are not produced by those who own their houses, they come from the demands of those who need somewhere to live and the services provided locally, such as schools, public parks and hospitals.

The total annual ground rental value of the land and other natural resources in the UK is sufficient to provide all the funds for the necessary functions of government.

Instead of encouraging investment in landed property with subsidies and exemptions from tax, a responsible government would gradually rebalance the economy towards productive enterprise by removing the burdens of taxation from earned incomes and increasing them on unearned incomes.

Houses will never become affordable to young people by building more houses. No matter how fast you build, banks can create new credit even faster. Their fractional reserve facility allows them to create money from nothing to meet the demand from house buyers.

AGR/LVT will enable economic prosperity to occur and inequality to be reduced by allowing people to keep all they earn. There will be no need to continue seeking increases in GDP, which is a poor indicator of economic well- being and encourages the wasteful use of scarce resources.

Duncan Pickard SLRG, June 2020.

SLRG Review: ‘Resilience Economics: An Economic Model for Scotland’s Economy’

Common Weal has published Resilience Economics: An Economic Model for Scotland’s Economy.…/2020…/Resilience%20Economics_0.pdf

The authors present an overview of the current and historic problems Scotland has endured and a call for a better future using a wide range of economic ideas to build a Scotland that serves its people. It is a long document tracing the history of economic ideas and many of their flaws; but seeking to show how alternative ideas promise to help form a resilient Scotland.

Searching the document for specific proposed measures, there are none. A subsequent document is promised for these.

The attack on Neoliberalism is relentless, correct and fully argued, that cynical ideology being based, as the author mentions, “on a partial reading of Adam Smith”.

A gap in understanding is however demonstrated in the authors’ parallel and unqualified attack on the idea of the free market. That Smith revealed how the free market must be rendered benign by directing the economic rent to the community is not even discussed. The absence of any discussion of ‘Rent-seeking’, the poison lying hidden at the roots of each of the many Scottish problems listed, renders the paper deeply flawed.

Sad to say then, that despite an otherwise comprehensive discussion of many of the Scottish problems derived from 20th century economic thought, the notion that Neoclassical economics was devised with the single purpose of hiding rent extraction by a privileged minority, is not mentioned. Such a glaring oversight will, sadly, be cause for a huge sigh of relief from the free-riding, rent-seeking fraternity.

Here, SLRG’s Roger Sandilands, Emeritus Professor of Economics, Strathclyde University, reflects on the Common Weal document, ‘Resilience Economics: An Economic Model for Scotland’s Economy’:

“Apart from Adam Smith’s espousal of rent as a desirable, special, ‘peculiar’ “tax” to fund the government’s proper (though rightly limited) role in the economy and society, his other great motivation in writing The Wealth of Nations was to promote competition and eliminate artificial restraints on trade. He condemned monopoly, collusion, fraud and other unjustifiable barriers to entry into a business, whether as entrepreneur or employee.

The main message was not so much “laissez faire” in a passive sense, but rather in the active sense of (i) promoting competition by stamping out obstacles to free domestic and international trade and (ii) encouraging the mobility of labour and capital.

Producers have a vested interest in protecting their current market share. There was nothing wrong per se in trying to make a profit. Why else go into business? But the Common Weal document rails against profit as a filthy word, always associated with exploitation of workers and the environment.

This is just emotional class and ideological prejudice. Certainly it is the duty (as Adam Smith emphasised) of government to intervene to curb excess profiteering through unjustified restriction on the entry of other producers capable of offering goods and services at lower cost and price, and/or higher quality.

“Neoliberalism” is used in a very loose sense by Common Weal to caricature the mixed economy, with its elements of both private and public participation in the economy. To the extent there is a private sector seeking to maximise profit, the opponents of private profits dub the economy as immorally ‘neoliberal’, with the government accused of defending a free-for-all that harms the vulnerable and the environment.

But if we condemn all profit-seeking, even where profits are needed to compensate entrepreneurs and investors for the opportunity cost of their time and money, business disappears unless the government steps in to run it instead. Carried to excess, we should know where that leads.

Until and unless Common Weal distinguishes competitive profit-seeking from monopoly profits, and in particular until it recognises unconditional land ownership as the Mother of All Monopolies, theirs is an ill-informed agenda.

Replacing private with public enterprise across the board is not what Adam Smith espoused. Common Weal is effectively libelling Smith. He was adamant that it was the duty of government to protect the consumer not the producer. Smith’s Wealth of Nations was a tract against the prevailing philosophy of mercantilism. By focusing instead on consumers’ interests there would be much greater pressure on producers to follow consumers’ interests through increased efficiency, reduced costs and prices, and better quality, service and choice. This was enlightened, non-exploitative self-interest.

The Common Weal document appears to me to be too prejudiced against “consumerism”. Which of us does not aspire to a higher income? Why do we do that? In order to hoard money under the mattress or in a bank? Of course not. It’s to improve our own standard of living. And in the process (abstracting from consumption that significantly harms our health or the environment) we benefit our fellow citizens through the extension of the market, in directions which conform to our own freely expressed preferences and priorities. That means (as again Smith emphasised) more jobs, more income for others, more specialisation within and between firms, hence more innovation and a more dynamic economy.

However, all of this is contingent
(i) on the promotion of competition between firms and the geographical and occupational mobility of capital and workers; and
(ii) ensuring that the (increasing) rent of land is returned to society in general that has created those rents. They should be our primordial community value, upon which all other community values rest. Only thus can we create a more equitable and dynamic economy and society, thus truly creating a more sustainable and resilient common weal.”

Free money for Scotland by changing Holyrood tax policy

You’d need a good reason to consider moving tax from wages to site rents. The good reason is the avoidable DEADWEIGHT LOSS of at least £500 billion a year suffered by the UK.

Scotland’s share of those annual losses is at least £38 billion, of which some £12.8bn can be cancelled by Holyrood using existing devolved powers to replace Income Tax with AGR/LVT.

The progressive justice and fairness of Annual Ground Rent (aka LVT) is avoided like the plague by vested interests in control at Westminster. But why should Holyrood follow like a lapdog, sticking with the harmful taxes that work against the interests of Scots?

And could we not use an extra £12.8bn/yr of SHARED prosperity right now?