Tuesday, 29 March 2016

McPravda - Get in the Sea

Someone at The National has obviously developed a bit of an obsession with the Scottish Liberal Democrats. It's really kind of cute. For a paper that makes The Beano look like the pinnacle of hard-hitting journalistic integrity, whose main party-pieces are a Twitter account with a beret, a talking dog and a guy that writes in a register that has more in common with Klingon than Scots, it really is quite an achievement for them to have hit a new low.

The latest front-cover is attempting to smear the Lib Dems over a series of grants made by the Joseph Rowntree Reform Trust to Lib Dem politicians. Here's the front-page:

SCANDAL

Now let's clear-up a few things. The Rowntree Reform Trust is not a "Quaker trust". It is a political trust that is very clear about its purposes and completely transparent about the grants it makes to individuals and organisations. On their website home-page, they state:
"We fund political campaigns in the UK to promote democratic reform, civil liberties and social justice."

They are transparent

They also publish information about every single grant that they make, and there is an open applications process. There are thirty-eight pages on their website clearly listing grants awarded, the purposes for which they were awarded, and a categorisation to reflect the different range of trust purposes. Grants range from democratic engagements groups like OpenDemocracy and Operation Black Vote, to issue campaigns like CND and the Rainbow Project in Northern Ireland. They also have a dedicated category of donation called "Raw Politics", which is about as transparent as you could really hope for when it comes to political donations.

This isn't a coup

The idea that the Rowntree Reform Trust has been taken over by the Lib Dems for political purposes is faintly absurd. The organisation has been making substantial contributions to Lib Dem parliamentarians, local parties, devolved parties and the UK federal party for well over a decade. Before the 2005 General Election, for example, they made £500,000 of contributions to the Lib Dems to help with fighting that election.

The idea that it is some sort of secret that the Rowntree Reform Trust helps the Lib Dems is equally absurd. Even a cursory glance at its donation history would show that it has close ties both to the Liberal Democrats and to the Alliance Party of Northern Ireland and is a substantial contributor. No doubt Electoral Commission donor registration would have flagged this up to any half-observant journalist. It would appear, especially in their efforts to smear Tim Farron and Willie Rennie specifically, that The National didn't even bother to look beyond the first few pages of donations. In both cases, donations were given clear reasons for being made, specifically on policy development in housing and social welfare. It has also donated to politicians like Ed Davey, Susan Kramer, Julian Huppert and Kirsty Williams.

They don't even just donate to the Lib Dems

It's not even as though the Rowntree Trust donates exclusively to the Lib Dems and Alliance Party. It is a fairly regular contributor to the Labour-aligned Compass and Fabian Society and has also donated to Bright Blue (a Conservative moderate reform group), the Jersey Democratic Alliance, and even the Jimmy Reid Foundation, which had been closely connected to pro-independence circles at the time. In the past, it has also donated to a Federation of Green Parties in London. It makes lots of donations to democratic and liberty-promoting pressure groups like Liberty, No2ID and others, for sure, but it has never hidden its intentions to use its resources and profits (on which it pays full UK tax) for political purposes.

This is better party financing than the alternative

The important thing to emphasise here is that the Rowntree Reform Trust is not a charity. It is a profit-making trust. There is a separate body from which donations that can be deemed charitable are processed. None of the party-political donations have been processed through the charitable trust.

Anyone naive enough to think that an organisation connected to the Rowntrees isn't going to, in some way, promote Liberal and liberal causes with its political campaign resources must have been living under a rock for most of British democratic history. It's even less controversial than Labour-affiliated unions allowing their members to make voluntary contributions to their political funds.

The only reason this story has been brought up is because of a recent grant made by the society to Alistair Carmichael to help him meet his costs in the successful defence against the election petition to have him removed from Parliament over Frenchgate. The Trust has been very clear about the reasons behind this donation, and released a statement a clear 4 days ago giving their reasons for it.
"Thanks to the perversities of the UK’s electoral system the 50% of Scottish voters who supported unionist parties at the General Election are represented by only three MPs. Had nationalists succeeded in their case against Alistair Carmichael, they would have worsened further the current misrepresentation of Scottish voters’ views in Parliament. Worse still, the effect on case law would have been to subject many more legitimately elected Members of Parliament to the risk of personal bankruptcy in defending themselves in court against vexatious and highly political claims."
Now you can disagree about the merits of this particular grant, but it is one the Trust is entirely entitled to make. It is no different from any other private organisation that decides it wants to provide financial support to political campaigns or representatives. It is surely, if anything, preferable that politicians be receiving money from organisations with transparent political motives than organisations with more covert, corporate, quid-pro-quo motives. It's also worth pointing out that £35k of the £50k was actually advanced to Carmichael in January, before he would have known either whether his costs were recoverable or what their total amount would be.

One might draw parallels with the large donations made by people like Brian Souter, owner of Stagecoach, to the SNP and Yes Scotland campaigns, for example, or even the historical influence of Big Tobacco, or Goldman Sachs in US Presidential campaigns. This Trust is, at the end of the day, just an organisation set-up to manage some of the wealth of a deceased prominent liberal campaigner, by investing that money and making distributions to causes connected with liberal values.

A wasted opportunity

If it were any newspaper other than The National, I'd suggest that their obsession with the Lib Dems indicated that they were in possession of some information from SNP insiders that the Lib Dems were actually posing a threat in constituencies like Edinburgh Western and that this was an effort to knock that campaign off-course. Because it's The National though, I doubt the journalistic or political nous for that even to be the case. It's just a sad little obsession to make-up for the fact that it's not a real newspaper and it hasn't anything actually insightful to write. It's a chronic shame that McPravda has given up any serious pretence of being an objective or balanced or fair contributor to Scottish public debate.

As it stands, they're a bunch of hacks that give even Scottish journalism a bad name. All that's left, to be honest, is to tell them to get in the fucking sea.

Saturday, 26 March 2016

The Myth of the Squeezed Middle

One of the biggest frustrations of Liberal Democrats in the 2015 General Election was the manner in which the Conservative Party tried to claim credit for tax cuts they opposed in 2010. The Lib Dems had a policy of increasing the "personal allowance", which is the amount an individual is allowed to earn free from income tax before they have to start to pay the basic rate. The Coalition delivered on this promise, raising the personal allowance from £6475 in 2010-11 to £10600 for the tax year 2015-16.

This wasn't a cheap policy. It cut-into the tax-base of the UK by taking some people out of tax completely and drastically reducing the tax liability of everyone on low and middle incomes. It amounted, for almost everyone in full-time employment, to an £825 cut in their annual tax-bill. If the threshold had only kept-up with RPI inflation, it would only have risen to £7490 over this period, which would have only cut basic rate payers' taxes by £203. To have a tax cut of over £600 in real terms for the overwhelming majority of workers in the UK clearly wasn't nothing.

Paying for It

There were two steps the Coalition government took in relation to income tax that were intended to defray the cost of this policy. The first was to introduce a "taper" on the personal allowance. When you started to earn over £100kpa, you would lose £1 of your personal allowance for every £2 you earned above that. This created, it should be acknowledged, an anomaly whereby the marginal rate of tax paid by someone earning between £100k and £120k was actually higher than the rate paid by those earning more than that.

The other step taken was to cut the threshold above which higher rate tax would become payable. Higher rate tax is levied at 40p in the pound, and was paid on income above £43875 in 2010. As of the tax year 2015-16, this threshold kicks-in for income over £42385. This has the effect of increasing the amount of income taxable at 40p instead of 20p by £1490. This, in and of itself, increases total tax liability by up to £298.

Effect on Tax Paid

The combined effect of the changes to the personal allowance and the size of the basic-rate band is that basic rate-payers got a cash-terms £825 tax cut, whereas higher rate payers got a tax cut of £527. If both the zero-rate (personal allowance) and the basic-rate bands had expanded in-line with inflation, higher-rate payers would have expected a £1375 or so tax cut. If inflation is your standard, therefore, it's absolutely true to say that higher-rate and upper-basic-rate income tax-payers saw "fiscal drag" increase their tax liabilty in real terms (2015 prices), to pay for a substantial tax cut for everyone else.

A £622 tax cut represents about 4.6% of a full-time minimum-wage-earner's annual income. For someone on £20k, it represents 3.1%. If you earn the median household income, about £27k, that's a 2.3% cut in your taxes as a proportion of your gross income. These are very real gains which, although clearly not the whole story when you take-into account tax credits and benefits, have in themselves significantly helped most working people.

By contrast, higher-rate payers saw a maximum real-terms (2015) increase in their taxes of £803. This would apply to those earning over £50k or so, which is where the higher-rate threshold would have been had both the personal allowance and basic-rate-band been indexed to RPI inflation. That means a hike of 1.8% of their gross income. In effect, therefore, their tax hike, at its worst, is still much smaller than the tax cut everyone else got.

Is this fair?

Let's be clear who this higher-rate tax band affects: HMRC estimates show that if you are a single person and you earn over £40kpa, you are among the top 10% of household earners in the UK. For an adult with a working partner and two children, this would typically place you in the top 20% of household earners. Put more bluntly, the lowest earning four in five of adults do not and most probably will never, pay this tax.

If you put it in those terms, I suspect most people would be content and say that as a tax-priority, the lowest 4/5 of earners being given tax cuts off the backs of very small tax rises for the top 1/5 was fair.

The counter-argument, and an argument that has reared its head now that the Scottish Parliament is going to get the power to set thresholds and rates of income tax, is that over-time lots of people who would never have paid higher-rate tax in the past have now been pulled-into this category and that this is unfair. We hear the classic invocation of nurses, firemen and teachers in support of this. An audience-member in the BBC's Scottish Leaders' Debate on Friday said the very same. This rate was meant for rich people not for good and honest public-sector workers.

Never mind, of course, that a nurse has to reach band 8 of 9 on the standard pay-scale even to get close to the level of income necessary for higher-rate tax. Almost all of the positions at that pay-grade are managerial and consultant-level positions. Your conventional understanding of even a senior nurse on a hospital ward is going to be no higher than band 7, who earns less than the higher-rate threshold. In teaching the position is similar: in the public sector schools only senior management and principal teachers earn more than the threshold, and of those who do, most earn on or around the threshold. The extra tax they pay is barely if even off-set by the personal allowance tax cut they have already taken to the bank. Presenting the threshold cut as an attack on typical public sector workers is, frankly, deceitful diversion or brutal ignorance.

"Things were better in my day"

It does not even follow that levels of taxation have especially risen for middle-earners in the last 25 years or so. Let's take 1990-91, the tax year immediately before I was born. The personal allowance was £3005 (£6161 in 2015 value) and the higher-rate kicked-in at £23705 (£48601 in today's money). You'll notice this isn't too far away from the thresholds in 2010 once you've taken inflation into 2015 money into-account, and if anything both the personal allowance ends and the higher-rate threshold kicks-in at a slightly lower level of income than both at inflation adjusted 2010 rates. But all of this ignores the fact that the basic-rate of income tax was 25p, not 20p, in 1990-91.

That 5p extra means every higher-rate-payer was paying more than £2100 more in basic income tax than they otherwise would, an amount which is not-offset by a higher threshold for higher-rate tax, which cuts their taxes by just over £800, assuming a basic rate of 25p applied. If we applied the 1990-91 tax code in terms of rates and bands and adjusted for inflation, these high-flying nurses and teachers would be over £100 a month worse off!

Current Proposals

The Conservative Government at Westminster proposes to raise the 40p threshold ahead of inflation, to £45k and eventually £50k, in order to try to "remedy" this "unfairness", whereas the SNP Government have (in my view, correctly) chosen only to raise the threshold to account for inflation in Scotland. The reality of the Conservative policy especially is that in cash-terms the top 10% of earners will essentially get a bigger tax-cut than the lowest paid 90% in this country.

Even the SNP policy is imperfect, however. If Scotland is to be serious about ending austerity, we should not just be looking at the thresholds at which taxation applies. We should also be looking at the rates at which taxation applies. There are perfectly reasonable areas for disagreement about the Scottish Rate of Income Tax (SRIT), which the SNP refused to use to raise revenue on the grounds that it would also be levied on basic-rate payers. I covered the flaws of their reasoning on this in a previous post a while back. But when the Scotland Act 2016 powers come into force, there is the choice to raise revenue by raising the higher-rate of tax without raising the basic-rate, or not raising it by as much.

If the SNP were to slightly lower the higher-rate threshold (rather than to increase it with inflation) and to introduce a higher-rate of between 41 and 42p, they could have asked the top 10% of Scots to pay what they would have been asked to pay with an increase in the SRIT, without asking for a penny more from the rest of Scotland. It would not have raised as much, but it would have made something of a dent in the austerity cuts they claim not to like that are coming from Westminster. When the Scotland Act 2016 comes into full effect, they could have even used this slight increase in tax on the wealthiest Scots to protect and even supplement the welfare policies they think the Conservatives are bearing-down too hard upon.

The Live Election Debate on Tax

This would have been a more meaningful debate to have than the false one that's taking place between the SNP and Scottish Labour about the 50p rate in the Holyrood election campaign. Amusing as it is to call Sturgeon a Tartan Tory for parroting George Osborne's lines on a 50p rate, she's probably right: Scots earning significantly over £150kpa probably do have significant incentives to arrange their affairs so as not to be designated a Scottish taxpayer. As a side-point, it's also difficult to see how an independent Scotland's tax code would vary so much that they could painlessly prevent that reality. Those earning less than that, however, probably don't. You're more likely to raise more revenue from the top 10% of earners through adaptations to the higher rate than you are through the additional rate of income tax.

If the SNP cannot explain why they won't cut the threshold and levy a 41-42p higher-rate, it rather calls the bluff of the public reasons they gave for not supporting the rise in SRIT. If Nicola Sturgeon wants to run Scotland as a country with taxes not significantly at variance with those of the United Kingdom as a whole and largely in conformity with George Osborne's fiscal envelope, that's fine by me, but she should at least be up-front with the Scottish people that she's no social justice warrior in doing so. One of the big arguments made by the SNP about independence is that our current fiscal gap would not be a problem because we would totally change the dynamics of the way we tax in our state. The evidence increasingly suggests that the more tax power the SNP get, the more obviously centrist, cautious and happy to dovetail HM Treasury they become. Perhaps they're the best kind of Unionists after all.

Alas, in the heat of an election campaign, having a debate about policies that actually affect people's lives and can make a difference tend to fall by the wayside. I doubt Sturgeon or Swinney will ever need to have, let alone give, an answer to these obvious questions.

Monday, 21 March 2016

Flying a Kite - Some thoughts on education inequality in Scotland

Education has long been held-up as a sacred cow in Scotland. Arguably even more so than the National Health Service. For decades Scotland has lived-off its reputation for comprehensive, broad, inclusive education and the pedigree of the Enlightenment and the contribution of its Universities sector to philosophy, economics, law, the sciences and medicine.

This reputation is one that ignores an underlying reality: that Scottish education, at all levels, has stagnated since devolution. Secondary school pupils are presented for fewer qualifications, on average, than they were before, primary and early secondary school literacy, numeracy and science education rates have fallen behind international competitors (not helped by our withdrawal from PIRLS and TIMSS monitoring) and access to our Universities for the most disadvantaged, despite larger intakes and state-funded-tuition, are appalling. Budget decisions in recent years have also narrowed the scope for adult learning and vocational support, with a cut of over 150,000 college places.

Perhaps most importantly, the people that are being most disadvantaged by these various problems are those from the most disadvantaged backgrounds. St Andrew's University has come-in for some flack over this, but others also perform poorly in this respect. A recent Freedom of Information request, for example, showed that a teenager living in Easterhouse was more likely to end-up in a young-offenders' institute than gain a place at the University of Glasgow.

Part of the response from Universities and the Scottish Government has been both to expand very specific and dedicated forms of maintenance support towards the most disadvantaged, and to adjust minimum admission requirements for those from more deprived backgrounds. Whilst these schemes are welcome, they are very limited in their scope for success and, financially, have actually been off-set by the Scottish Government's withdrawal of maintenance grants in favour of making student support more loan orientated.

In truth, though, to blame the Universities slightly misses the point. Scotland's education problems begin far earlier than we like to admit. The discrepancies are well-entrenched by late secondary school and arguably begin significantly earlier than that.

In Glasgow, the city I live in, this is incredibly stark. Govan High School, a secondary school in Nicola Sturgeon's constituency, saw within the margin of error of zero percent of its pupils achieving five Higher passes, the "gold standard" for those seriously contemplating going to university in Scotland. Looking down the list, other similarly disadvantaged areas, with a couple of exceptions, achieve similarly depressing results. The trend is similar in other local authority areas, with Northfield and Torry Academies in Aberdeen getting fewer than one in twenty pupils up to the 5 pass standard. Even in local authorities with generally very good records on schools and attainment, like East Renfrewshire, there are schools with weak results. Barrhead High School, for example, though punching above its weight, only secures 5 Higher passes for one in four pupils.

This isn't to denigrate the efforts of the teachers, pupils and parents in these schools; quite the opposite. They work exceptionally hard in a system that is failing to provide them adequate or fair support, of both financial and non-financial kinds. What is so damning is how badly the life prospects of children in these communities are affected by the post-code lottery.

It wouldn't be so bad, from an equality perspective, if the reason for these low pass-rates was that the exams are far too tough. But they're clearly not. In Glasgow you are one and a half times as likely to leave school with 5 Higher passes if you go to Jordanhill School than you are to leave even with one Higher pass if you went to St Thomas Aquinas School, which is barely 350 yards away, or Knightswood Secondary, 1000 yards in the other direction. In East Renfrewshire, if you go to St Ninian's, a similar pattern emerges compared with your counterparts that go to Barrhead.

These differences are too large simply to be attributable to the quality of the learning environment of the schools in isolation. Focusing more resources, whether through targeted school-specific funding or by way of a pupil-premium that tracks free-school-meal kids, might help hire an extra handful of support teachers and slightly reduce class sizes, but it is not going to change fundamentally the position of those schools. We need instead to be more radical and to ask how demographics, and especially how primary and early secondary school education, stratifies Scottish society so spectacularly.

The big successes of the London schools in narrowing attainment gaps has come through a willingness both to invest, but also to experiment. We should be cautious of directly implementing ideas that may work there but would be inappropriate to Scotland's system. Nevertheless, I think there are three areas, largely untouched by Scottish education reformers, that need to be given serious thought in the next few years. They are: the problem of the urban-rural divide; the structure of secondary schooling; and the pitfalls of catchment-based primary schooling.

1. The Urban-Rural Divide

Schools often face very similar problems in terms of being under-resourced and unable to provide a full curriculum and adequate support to their pupils, regardless of whether they are an inner-city school or serving a number of village communities in the Highlands and Islands. But the solutions to these problems are unlikely to be the same beyond the rudimentary fact that there is a greater need for resources. What works for Glasgow and Edinburgh may not be suitable for Aberdeenshire, Dumfries and the Highlands and Islands.

This is not a reason not to experiment more radically with the way we provide schooling in one type of area to the exclusion of another. Local authorities need both more freedom, but also to be given greater encouragement, to try something new. Instead of having a blanket opposition to changes, like experimentation with academies and free schools, we should be prepared to look at other countries, not just England, to see what they have tried and how we might adapt that to see what impact giving head-teachers and parents more direct control over financing and management decisions in a Scottish context would have.

2. Secondary Education Structure

One way we might be able to overcome the problem of narrowed availability of courses in our cities and large towns' schools, would be to rethink how we divide primary and secondary education.

One of the most unsatisfactory states of affairs at the moment relates to how pupils end-up being bussed from one school to another just so they can take their preferred Highers or Advanced Highers, at not inconsiderable expense, inconvenience, and disruption to the school day. We should think about whether the introduction of or experimentation with a "junior high" and "senior high" set-up in Scotland might better address this allocation of resources problem, especially in our cities and towns.

This would more cleanly bring together a critical mass of students taking the same courses and allow teachers, if they wish, to specialise or focus on teaching either the younger or the older age-group. Given that the Curriculum for Excellence framework now places more emphasis on generalist learning up to and including S3, this would arguably also make more sense now than before.

This would also allow for the "pairing" of advantaged and disadvantaged areas and schools, and encourage more sharing of best-practice and resources between schools in a local authority area. If a schools "group" that contains a high-performing school knows that its overall results are likely to be dragged-down by less good results from a paired school, they are more likely to focus their resources on improving approaches and resources for the "junior high" servicing that more deprived area.

Clearly, an approach like this would be less suitable for rural areas. That is not a reason at the very least not to try it in Glasgow, Aberdeen, Edinburgh and Dundee.

3. Primary School and Catchment Areas

In a system where all, or almost all, schools are organised on a comprehensive basis and run by a local authority, the secondary school you go to is almost entirely determined-by the primary school you went to. That in turn is almost entirely determined by your post-code. Placement requests can be made, but are disproportionately used by families who are already relatively prosperous, or who have a strong background of education and high levels of awareness of how best to "game" the system.

England does not have as stringent approaches to catchments. One of the biggest criticisms of their system, where among other things, selective schools existed, was that the system of applying for places at secondary schools is skewed in-favour of the most affluent families.

A lot of educational research shows that the greatest impact on educational attainment in later life is determined by the levels of support in early-years education. It also intuitively makes sense: if you don't leave primary school able to read, write and count, you will be severely disadvantaged in secondary school where almost all of your learning will depend on a minimum standard being achieved in one or more of these areas.

These discrepancies clearly emerge in primary schools. One of the advantages of primary schools being much smaller than secondary schools is that they are more intimate and are often very well-integrated into their local communities, not least in rural or smaller town areas. I know this well, having attended a village primary school in Auchtertool, Fife, from P1-3 as a youngster. One of the major disadvantages, however, is that when places for primary schools are determined by catchment areas, they bunch-together children from very similar backgrounds, economically and socially. This is arguably more extreme than it is even for secondary schools.

Local authorities seldom change catchment areas either for primary or secondary schools, for fear of the massive backlash, usually from middle-class parents that have bought expensive houses to get their children into a good state school. Though my liberal instincts tend towards localised control, I wonder whether what Scotland needs is a national review into how school places are allocated, and an independent commission to look at diluting catchment areas or otherwise altering admissions rules and incentives.

One of the major advantages of the "pupil premium", the idea that additional state support should follow disadvantaged pupils rather than schools, is that it, theoretically at least, encourages schools to take-on children from disadvantaged backgrounds. This mitigates against reluctance to do so, that might otherwise have been motivated by the impact on school league tables. This especially means that the best schools are more incentivised to take-on kids outside of their traditional catchment areas who have a less good attainment profile, and to maximise their chances, rather than just cherry-picking the brightest kids and taking them away from those already struggling schools.

Having more diverse primary schools, especially in our cities and towns, would be an altogether good thing, and again, would encourage much closer cooperation between schools, both between primary schools and between them and secondary schools, whether or not divided along the lines described above. In any case, we need to find a way to overcome the practical obstacle of pushy middle-class parents trying to protect the existing system for their children's benefit to the exclusion of others.

Conclusions

These are not yet fully-formed thoughts, but they represent the kind of more "out-of-the-box" thinking I believe Scottish education needs if it is to give a fair chance to everyone going through it. Some of this will involve doing more to empower local authorities. But some of it also means asking them either to take a genuine political risk or to cede control and let someone else have a go at improving the chances of Scotland's most disadvantaged kids.

This is in-part why I sympathised with the SNP government when they decided to bring back national testing. The Scottish Lib Dems were quick to criticise this move, but I think that is a mistake. Standardised testing, if not as-such public league tables, seems to me to be an important part of the Scottish Government's armoury if it is to measure the impact of different policies and different local authority's efforts and approaches towards narrowing gaps in attainment and improving attainment in absolute terms. This includes policies like the flagship one, adopted in England and Wales that the Lib Dems now want introduced in Scotland, the "pupil premium".

It is hyperbolic to suggest that four or five formal assessments (prepared in consultation with teachers and curriculum designers) a year represents an unconscionable administrative burden beyond the ken of our teaching profession. These kids will have to sit exams when they are 16-18 years old anyway, so acclimatising them to formal assessment is likely actually to help them later-on. What we really need to be doing is looking at how teaching methods interact with assessment, and how well assessment measures actual ability and meeting of learning outcomes by pupils. The argument that some pupils do better in certain types of test than others isn't a reason not to conduct the tests; it's a reason to look more carefully at what the tests are in fact testing and what teaching behaviours they are encouraging.

So what do you think? I would be interested to hear people's thoughts especially on the questions of the structure and admissions factors in primary and early secondary education. I'm sure there will be those within the teaching profession who can find problems with these ideas, but I suspect the conversation about them is arguably just as valuable and important in advancing the debate about education reform in Scotland. More of the same and tinkering at the edges seems to me to have run its course.

Sunday, 24 January 2016

When is a bonus not a bonus?

Let's begin with where I stand. I have long been in support of Scotland moving towards something close to full fiscal autonomy. I think Holyrood should be almost entirely responsible for raising what it spends. I've said repeatedly that I don't think the UK parties have been ambitious enough in their promises of further powers. Though the Smith Commission comes fairly close. I think there's room to devolve corporation tax, and I would probably devolve national insurance.

I hate the Barnett formula. It is crude, has backed the debate about Scottish finance into a corner, and does nothing to incentivise accountable spending either at Westminster or Holyrood. The biggest error the UK Government made was to lay-out the "no detriment" principle, which basically stops them from replacing Barnett with a better method of resource distribution because it will always be the case that at least one nation is worse off in the short-term while a new system beds-in. I would scrap the Barnett fomula, in favour of a needs-based approach, like several of the Welsh reports on devolution have recommended. This would probably leave Scotland, in the short-term, slightly worse off, but it would be fairer, more accountable, and leave devolved administrations less at the whims of the macroeconomic policies of UK Chancellors.

The Partial Truth

One of the biggest myths perpetuated in the referendum, in which, remember, I voted Yes, was the notion that revenues from oil and gas would be a "bonus", not the "basis" for an independent Scotland's economy. When making this claim, the SNP would typically concern themselves with the GDP of Scotland: the overall economic output. It is true that, by a number of measures, Scotland's GDP per capita is a bit higher than the UK's as a whole. The Scottish Government released figures in March 2013 suggesting that, if you included North Sea oil in the statistics for 2011, the Scottish GDP per capita was higher by just under $4000 US at purchasing power parity than the UK as a whole. There was similarly much fanfare from the SNP that the level of Scottish GDP would be about the same as the UK as a whole if you did not include offshore activities.

GDP per capita is, however, only an indicative measure of the size of an economy. It does not reflect how much taxation can effectively be collected from that economy, and it does not in and of itself, give an indication what levels of public spending can be sustained in that country as a consequence. It may give a rough indication, but it does not answer the question. It does not even give a particularly good indication of the standards of living in a country, as it says nothing about the distribution of the economic output. It is blind, for instance, to income inequality and to the distribution of profits to those living in other countries, or to companies from other countries which may operate or own generators of economic activity based in Scotland.

The Myth

This broader macroeconomic situation was combined with a particular set of statistics that are collected annually by the Scottish Government and published in March 2013 for the year 2011-12. Some of you will remember the stats that gave rise to the famous #indyref meme about Scotland raising 9.9% of UK taxes, but only accounting for 9.3% of UK spending. The effect of this was that Scotland ran a net fiscal deficit that year of only 5% of GDP, compared to 7.9% of GDP for the UK as a whole. The current account deficits (which excludes the impact of capital investment) were 2.3%  of GDP compared to 6% of GDP respectively.

"Hurrah!" They shouted. "Scotland can do better on its own without the UK holding us back!"

If you were only to look at the year 2011-12, this might be a perfectly understandable conclusion to reach. There's a problem though. That year was hugely atypical. It is the only year of the last 5 when Scotland's position has been better than the UK's as a whole. In only 3 of the 15 years of GERS data since devolution has Scotland run a "relative surplus" to the rest of the UK. Those three years, 2005-06, 2008-09 and 2011-12, were the years in which north sea oil revenue was at its highest.

If you were to exclude the oil revenue from Scotland's contribution, the "relative deficit" (i.e. the extent to which Scotland was a net recipient rather than a net contributor from the UK Exchequer) has varied between £1400 per head and £2000 per head since the beginning of devolution. Oil and gas revenues would have to raise between £6 billion and £10 billion every year to keep Scotland broadly in-line with the rest of the UK.

That the on-shore deficit has remained fairly static suggests that Scotland's on-shore tax-base has not been growing in a way that would make us less dependent on oil revenues to pay our way. Indeed, in that year that the SNP were delighted to quote, Scotland's 5% net fiscal deficit would have been 14.6%, and its 2.3% current account deficit would have been 11.2%. This was the second worst the on-shore predicament has looked in the last 6 years.

Oil was quite literally the difference between us being ahead of the curve and miles behind it. This was a time, of course, when Brent Crude would trade at an average above $110 per barrel. This is the peak price, save a spike in 2008, in the commodity's history.

The Projections

The Scottish Government's White Paper predicted that Scotland would continue to see £6.8 billion to £7.9 billion of offshore revenues, premised on the price of oil staying around the $110 mark. We know with hindsight that this was hopelessly optimistic but in fairness, they weren't alone. The Department for Energy and Climate Change did predict shortly before the White Paper an oil price in excess of $110 in some of their own policy development assumptions.

We also know that even the more conservative projections of the OBR have proved to be wildly optimistic. In March and December of 2013, before and shortly after the publication of the White Paper, they were anticipating an oil price of around $97 a barrel for Brent Crude.

It's all very well for the SNP to throw up their arms and say "we got it wrong. But everyone got it wrong." Nicola Sturgeon tried to do as much on Andrew Marr's show this morning. But the implications of an independent Scotland getting the oil price catastrophically wrong are much more severe than they are for the United Kingdom. When oil and gas revenues collapse completely it increases the UK deficit by about 0.2-0.3% of GDP. The effect on Scotland is 6-10% of GDP added to the deficit. One is a bummer. The other is a catastrophe for economic planning.

The Facts

Which brings us to the most recent data we have from GERS, which remember is a set of figures produced by and for the Scottish Government. In March 2015, the figures for the year 2013-14 were included. They showed that Scotland accounted for 8.6% of public sector revenue and 9.2% of public expenditure, running a relative deficit of about £850 per head. We ran a deficit of 6.4% of GDP, compared to the UK's 4.1% and had a net fiscal deficit of 8.1% of GDP compared to the UK's 5.6%.

Our deficit in cash terms was £9.8 billion (£12.4 billion including capital expenditure balances). Without oil revenues, which were £4 billion (down from £5.5 billion in 2012-13 and from £10.6 billion in 2011-12), we would have run a current account deficit of 10.3% of GDP and a net fiscal deficit of 12.2%.

In simple terms, our deficit has increased substantially in the last couple of years while the UK one has come down. Meanwhile, public spending in Scotland has stayed broadly the same (£66.4 billion, up from £64.5 billion).

The price of Brent crude oil in 2013-14 varied between $90 to $115 per barrel. So even when the Scottish Government's projection still held true, Scotland's public finances swung into an abrupt reverse. This was partly down to levels of production in the North Sea, which had not expanded in the way many had anticipated. This is not a trend in respect of which we can expect a substantial improvement in the near future, even if oil prices recover.

The price of a barrel of Brent crude oil today is $27.36. The OBR forecast for oil and gas revenue has been revised down to £100 million as of November 2015.

The Implications

When I have pointed out these facts elsewhere about this fiscal gap that Scotland has, over and above the rest of the UK, there are typically three common responses:

1. We will raise more tax revenue than the UK does
2. GERS don't accurately reflect how much tax revenue Scotland raises on, among other things, corporation tax
3. We would spend less on things we don't need, like Trident

To which I have the following responses.

Increasing Tax Revenue

Okay. The gap you need to fill, just to reach the UK's economic position, is over £4 billion, assuming, of course, that in March we don't find that oil and gas revenues have fallen from about £4 billion. If the OBR are right, and revenues are going to fall to £100 million, you essentially have an £8 billion hole to fill. In 2013-14, Scotland's on-shore tax revenue was estimated at £50 billion by GERS. How do you propose to increase the tax base by between 8 and 16%?

Let's be generous and assume the oil revenue won't fall. As an illustration, you would save less than £4 billion if you were to cut the personal allowance to £6500, or the level it was in 2010 before the Coalition took office. That would obviously be a terrible policy from the perspective of ordinary families.

You might want to shift some of that burden towards higher rate taxpayers. So let's say you introduce a 50p rate of income tax to replace the 45p rate. Treasury estimates suggest this raised between nothing and £3 billion a year for the UK as a whole in the short time it was last used. Most of that revenue, it is reasonable to assume, was raised in London, where the highest proportion of high earners live. Even if you managed to get our population share of that money, that still plugs less than 1/10th of the gap.

Maybe you want to raise the basic and higher rates of income tax. Let's say you do that by a penny. HMRC estimates say that would raise about £500 million. Not great. Maybe if we raised them by 5 percentage points, we would get close to half-way there.

So best case scenario we are talking a pretty substantial rise in income taxation, which will almost certainly hit "middle Scotland" and probably the poorest too. Just to stand still. Not to be better off than the rest of the UK, not for more and better public services. Just to stand still.

This also assumes that this higher tax regime has no negative effects on growth in Scotland, which it almost certainly would. Of course, the SNP have their Jokers up their sleeves now. "Cut corporation tax!" "Cut Air Passenger Duty!" they cry. Well okay, that might stimulate the Scottish economy, but it also empties your wallet.

There is no guarantee that, say, a 1-3% cut in corporation tax would stimulate more revenue to a Scottish Exchequer. In any case, the current GERS figures say that corporation tax accounts for less than £3 billion of Scottish revenue. A cut in these kinds of business tax are not going to more than double the revenues attributable to them. That requires a particular type of magic no country in the world has ever achieved. This is a question of scale.

GERS doesn't assess taxes properly

There are a number of arguments made that the assumptions made in GERS are too pessimistic and that they don't accurately reflect the true revenue raised by Scotland on the question of corporation tax, among others.

There are indeed discrepancies between GERS and HMRC figures when it comes to attributing tax to Scotland. The Scottish Parliament Information Centre (SPICe) address the reasons for these discrepancies. GERS tends to churn out slightly lower income tax receipts, slightly higher VAT receipts and slightly higher corporation tax receipts. The reasons for this are mostly related to the purpose for which these bodies attribute tax to different parts of the UK, but the estimates are fairly close.

The HMRC estimates if anything suggest a smaller tax base in Scotland than GERS, but even if on-shore corporation tax receipts were under-estimated by 50%, you would be plugging only 1/3 of the fiscal gap. In a good off-shore year!

Any prospective quibble with the GERS methodology would have to show errors so substantial and systematic that it would be tantamount to bringing in two to four times as much corporation tax as it assumes we do in order radically to change the central conclusions anyone would draw from them. This is not realistic.

We don't need to spend money on Trident!

According to FullFact, the operating budget for Trident, for the whole of the UK, from 2008-2012 varied between £2 and £2.4 billion a year. This is also the expected level of expenditure over the lifetime of its operation, excluding the costs of renewal. At the moment, the Ministry of Defence is spending about £500-600 million a year towards the renewal of Trident's Vanguard submarines, with the renewal cost's upper-estimate being about £25-30 billion. This has the potential, at the very most, to double the year-on-year cost of Trident until 2028 when the new fleet of Vanguards are expected to come into operation.

Even if it were the case that all Trident expenditure was attributable to Scotland (it isn't, not even close, the total defence spend in GERS is £3 billion) abolishing it would not clear the relative deficit Scotland has, even in an oil revenues year like 2013-14. You could cut the entire notional defence budget of Scotland attributed in GERS (2% of GDP) and it still would not clear our relative deficit. Just think of it that way: Scotland could literally have zero armed forces and still be in a worse fiscal position than the rest of the UK. We would have no money to spend on Bairns or Bombs.

Other ways of looking at this relative gap, is that we could abolish the schools budget and still not be in the same position as the rest of the UK. In a bad year, we could abolish the schools budget, the armed forces, and cut the NHS Scotland budget by 10%, and we'd still only just be in the same fiscal position as the rest of the UK.

Conclusions

If something sounds too good to be true, then it probably is. The answers the SNP have offered to plug Scotland's fiscal gap are woefully inadequate. Offering to scrap Trident to make the books balance is like walking into the Apple Store and offering to buy a Macbook Pro for 4 Pokémon cards. We can't have a reasonable debate about the state of our finances if the Scottish Government is going to keep obfuscating about unimportant things like who else didn't predict that the price of oil would crash.

The reality is simple: if Scotland were to be responsible for raising all of the revenue in Scotland and spending all of the government money, it would have to grow faster than India or China for a decade, or substantially raise taxes on ordinary folk, or introduce swingeing cuts across the board. Not, and I repeat, to balance their budget. Simply to run the same deficit that the UK runs just now. The unspoken reason that oil is neither "a bonus" nor "the basis" for Scotland's finances for the foreseeable future, there is no bonus to be had.

Self-sufficiency is absolutely something Scotland needs to achieve. We desperately need to grow our on-shore industry and tax-base to make us more competitive. But there is no quick fix, and were it not for a, yes, very flawed, set of funding arrangements that were set-up by Westminster, it would be one hell of a bumpy ride.

When the next set of GERS figures are released in March, they will start to take into account the fall in global oil prices. In ordinary political times, I wouldn't want to be in the shoes of a pro-independence government, in an election year,  trying to explain away a £4-8 billion hole in their prospectus. But then, these aren't ordinary times.

As we celebrate the Scottish Bard on his birthday tomorrow, perhaps we'd do well to remember:

Facts are chiels that winna ding
An' downa be disputed!

Thursday, 21 January 2016

Hysterical Nonsense on Tuition Fees Again

Iain Macwhirter has pushed my rage buttons (The Herald). Every single one of them.

This piece he's written for The Herald is completely and utterly hysterical about how tuition fees are a dreadful idea that should be opposed regardless of context.

He would do well, of course, to take a look at this very blog, in which I showed three years ago now how a student finance system that includes a fee component can actually lead to poorer graduates paying less and richer graduates paying more.

But let's deal with some of the specific nonsense in his Herald article today.

"Of all the injustices perpetrated by my generation on young people in the UK – absurd house prices, job insecurity, stagnant earnings – the worst is probably the imposition of unsustainable debt through university tuition fees."

Yes, because the exponential growth in house prices relative to general inflation and earnings isn't as bad as a student finance system that has increased admissions, increased maintenance payments (above inflation) and reduced lifetime contributions for the lowest earning graduates. Okay, Iain. If you say so.

"I keep being told by university figures that free tuition is unsustainable and that Scotland is somehow out of step with developed countries. This is not the case. In countries like Norway and Denmark universities are tuition-free, and elsewhere in Europe fees are mostly minuscule. England is alone in Europe in imposing fees of £9,000 (and rising)

Germany, that great industrial powerhouse, has just scrapped university tuition fees altogether. The Germans believe higher eduction is too important to leave to the private sector, and that the system the UK has been trying to import from America is ruinous for students and society alike."

Right, but you're not comparing like with like. These other countries do not have as high University admissions rates as we do, nor do they have the same kind of maintenance support. Those that do, do so at significantly higher cost to the public purse. Is Iain suggesting that we should cut the number of University places available to school-leavers or that we should cut maintenance payments? Now those measures really would hurt access for the most disadvantaged!

"Indeed, in America, where student debt is now $1.3 trillion, there has been a widespread reaction against the very policy Labour and the Conservatives introduced here. Hilary Clinton has made debt-free tuition the centrepiece of her campaign for the Democrat presidential nomination."

This is a non-sequitur straight out of the NHS school of lowest common denominator debate. The US system of student loans is completely different from the one in the UK. Repayments are not connected to earnings, there is no write-off period, and you can be sued for non-payment. As countless external commentators have pointed out about student "debt" in this country, it functions much more like a time and contributions limited graduate tax than it does any "loan" anyone will be familiar with in the conventional sense. When Hilary Clinton starts talking about "debt-free tuition" she means that the disadvantaged won't have to take out a commercial loan to pay for college. Commercial loans for tuition is something that has never even been remotely contemplated by the governments in the UK that have charged tuition fees.

"The rest of Europe rightly believes education is a public good and should remain so. Yet in Scotland there has been a strand of right and left-wing opinion that has argued vociferously that free higher education is wrong and regressive: that tuition fees are a middle-class subsidy; and even, following the arguments of the educational blogger Lucy Hunter Blackburn, that students are worse off in Scotland than their counterparts in England.

This argument is based on a false assumption that, through maintenance grants and bursaries, poorer English students somehow are compensated for the debt they take on in fees. The former NUS President, David Aaronovitch, has even claimed that poor students in England don't pay fees at all. This is nonsense. All students south of the Border pay tuition fees though, as in Scotland, some can apply for bursaries and scholarships, which may defray some of the cost."

Something can be a public good without being funded entirely out of general taxation. This is meaningless rhetoric. Indeed Lucy Hunter Blackburn made many of the points I made three years ago. It is specifically lower earning graduates in Scotland that are worse off than their English counterparts. At the time I wrote the piece, 3 years ago, the repayment thresholds were such that those with lifetime inflation-adjusted average earnings of £28,500 or less would be worse off under the Scottish system than the English one. That will have fallen slightly with subsequent threshold changes, but not hugely.

Macwhirter is also straw-manning the argument about maintenance grants and bursaries. This is a misunderstanding that has led to similarly hyperbolic language from Labour with respect to the Tories cutting grants and bursaries. Some grants and bursaries, it is true, are, under the old Coalition model, funded out of part of the fees that Universities charge and are supplementary. They were, however, never the major change that "compensated" for the fees though. The increase in general maintenance payments was the major change, which for the poorest students almost doubled. It meant that they had a much larger disposable income while at University, which is the main obstacle for those from disadvantaged families going there. What the Tory government is doing now is replacing the grant component with a loan component. This is actually very similar to what the SNP did in the last couple of years.

This is neither a fantastic idea nor a dreadful one. It's a very simple trade-off that says the more of maintenance that takes the form of a student loan, the more money you can give students up-front when they are studying. The students that end up "paying the price" of this shift to loans and away from grants are, because of how student loans are repaid, the higher paid and those later on in their careers. The impact of this is only felt when they make larger contributions later on in life.

"But student debt is vastly higher in England because of tuition fees, and is growing so fast the Government is in a panic. Repayments have been dwindling, which is why the Conservatives have just broken their word and abolished maintenance grants for students from low-income families. Undergraduates have to finance their higher education living costs and tuition fees entirely from loans.

Students in England face emerging from university with debts of around £55,000. They will spend the rest of their lives with this ball and chain, the burden of which will be most acute just as they are trying to start a family and buy – or rent – a home.This will have profound economic consequences as student debt crowds out consumer spending."

Yes, the UK Government is in a panic. Because the gamble they took that graduates would be earning a lot more than they actually are hasn't paid off. So in effect, we have more, direct, state-funding of Universities and students because they'll never repay all their debt. How is this any different from a government having to pay up-front? At best here your complaint is that the UK government is only asking high earning graduates to pay more and that there aren't enough high earning graduates. This is absurd.

It's also total nonsense that "this burden is most acute just as they are trying to start a family and buy - or rent - a home". This deliberately misrepresents how student loans are repaid, which is a flat percentage of your income over a threshold. It bites least severely when you are earning less. Moreover, as has constantly been pointed out, student debt is not taken into account by a mortgage lender as an existing credit risk, like any other debt would. It is merely treated as a deduction from gross income, just like income tax is.

"However, it can only be a matter of time before students realise what is happening. Some have been deluded into believing they can avoid debt repayment by keeping their earnings below the repayment threshold of £21,000. After 30 years, the debt is extinguished. But they are in for a shock.

The Government has already lowered the threshold for repayments by breaking another promise to raise it annually in line with inflation over the next five years. The forecast is that a majority of those entering higher education in England will still never repay their debts, the interest on which rises each year. This cannot be allowed to happen, so there will inevitably be further fiddling with thresholds to increase debt repayments."

No this is total nonsense. Students aren't deliberately trying to keep their income below £21k. This is like saying that people deliberately try to keep their income below £10,500 so they don't have to pay income tax. This is stupid. Stop it.

It is true that the Tories have welched on the undertakings made by the Coalition about the threshold for repayment. Advocates of the Coalition system like Martin Lewis have been very critical of this recent change. However, any change to the write-off period would require legislation, and may encounter legal challenges for representing retroactive changes to the terms on which someone took student support. As we have seen, though, the dangers of thresholds being fiddled with is hardly unique to a system in which tuition fees are charged. The Scottish Government let the repayment threshold for our students consistently lag behind inflation until relatively recently, and it was only dealing with maintenance debt.

It was anticipated early-on, even before the changes the Tories are proposing to make now, that "the majority" would never repay their debts in full. That was actually the point of the system. The real question here is how much the UK Government is willing to underwrite. This feeds back to a much simpler and more fundamental question about government and it is "how much money are you prepared to spend on the higher education system". This is a question you have to confront regardless of whether or not you ask for some sort of graduate contribution. And since the type of graduate contribution England has is one that asks more of high-earning graduates than low-earning ones, it's not an aberration.

"And it's not only the threshold that is being raised; so are the fees themselves. Oxbridge colleges have been lobbying hard to charge “the market rate”. The new vice chancellor of Oxford, Louise Richardson, formerly of St Andrews University, appears to want see the American system introduced in its entirety, with no fee limit. In America, fees of $40,000 or $50,000 a term are not unusual."

This is scaremongering. There are no plans to do this. The Browne Review recommended that this should be possible. The Coalition said no. Emphatically. Where is your evidence that the Tories are seriously contemplating this?

"Why are universities so keen on fees? Essentially, because many vice-chancellors are attracted to the idea of universities being run on the model of private schools. Many already regard their institutions as private, which is one reason they are so opposed to the Scottish Government's Higher Education Bill that asserts, rightly, that they are public bodies dependent for their survival on taxpayers."

This is baseless. Where is your evidence that Vice Chancellors think this?

Universities are not government bodies. They are supposed to be autonomous places of learning. If governments want to support a large proportion of the students that want to go to them for a public interest reason, that is entirely their prerogative. The objections Universities have to the HE Bill is that the Scottish Government is effectively proposing to subordinate Universities to governmental, not public, control. The Bill included provisions that would have weakened the authority of University Rectors (something Macwhirter should be aware of given he used to be one), the individuals elected by the student population to represent their interests, and would have allowed the Scottish Government to set the rules for election to, and decide who gets to sit on, the governing bodies of Universities. Opposition is not some private sector conspiracy; it is opposition to an attack on autonomy in the public sphere.

Conclusion

Please, Iain, try to approach this with even a semblance of a level head. You have singularly failed to do so in this piece.