The Scottish people must have their say on what additional devolved powers we choose from - not just to take or leave a package deal cut by big parties - Smith Commission on Additional Devolved Powers Submission

Thank You

First I’d like to thank you for giving the people of Scotland this opportunity to have a say on what additional devolved powers Scotland needs.

 

Need for additional devolved powers decisions not to be just a deal between party leaders
that the Scottish people can only take or leave

While I was a Yes campaigner, I recognise that the Scottish Social Attitudes Survey 2014 showed the majority of people in Scotland wanted additional devolution or “devo max” as an option in the vote, and always thought this should have been an option people could have voted for (1).

As Lord Ashcroft’s post referendum poll found 25% of No voters said they had voted No primarily because Scotland would get additional devolved powers, and assuming the vast majority of Yes voters will back additional powers too, a majority of Scottish voters of somewhere around 58% want more devolved powers (25% of the 55% who voted No would be 13.75% of all voters. The 45% of voters who voted Yes plus 13.75% would be 58.75%) (2).

While the various Scottish and British political parties, pro and anti-independence,  each have their own positions on what the additional powers should be, and clearly have to have input into the final decision, the Scottish people must also get a major part in making this decision.

It should not be reduced to just being given a Yes or No vote on  a package the parties agree among themselves to offer us. It should include the wider public getting to decide which options the whole country will choose from. Additional devolved powers are a more complicated issue than independence and cannot be reduced to a Yes or No without taking much of the say from the public.

Another Scottish Constitutional Convention? Elected this time?

One month is a very short period for such a consultation. I’d argue that the next stage should be a longer consultation period to a new Scottish Constitutional Convention elected by Single Transferrable Vote (STV) , allowing for candidates from smaller parties, and representatives of Scottish society who don’t represent any party, to be involved in drawing up the options (3) – (4).

STV allows voters rather than party officials to rank candidates in order of preference, and ensures that no one’s vote is “wasted” by going to a candidate who is not elected. It allows voters to vote positively for the candidate or party they support most, rather than just negatively to try to keep the large party they dislike most out of power (5).

While an elected constitutional convention would take longer to put proposals for additional devolved powers together, due to the time required to elect it, those options would be more likely to reflect the views of the whole population rather than just a deal cut between the leaders of the largest political parties.

While the Electoral Reform Society and the British Labour Party propose a UK Constitutional Convention this would risk become bogged down in disputes that can’t be resolved like English Votes for English Laws; as well as whether further devolution in England should happen at all, and, for those who want it, whether it should be to an English parliament or regional ones (6) – (8).

There is no reason why additional devolved or federated powers for Scotland should not be decided separately to ensure they are not delayed indefinitely.

 

How the Scottish people , rather than just political parties, can be given a real say on further devolved powers even if there isn’t another Scottish constitutional convention

Even if another Scottish Constitutional Convention is not formed though, the Scottish people’s views can still be taken into account. First through public consultations like this one. Second by looking at opinion poll results on what powers people in Scotland think should be devolved (though bodies accepted as neutral by all parties would have to be given a remit to conduct polls, as what results polls come up with depend on what questions are asked and how they’re phrased).

Finally by making the final referendum on the proposed additional powers a multi-question one with voters able to approve or reject each major additional power or group of them, rather than just a single Yes or No question to approve or reject all of them.

Opinion polls since the referendum already show majority support for devolution of welfare policy and budget to the Scottish parliament and government, as well as pensions, corporation tax and VAT (9).

These polls show that the public want far more powers devolved than the main two UK parties plan. Other polls during the referendum campaign showed that two-thirds of voters did not know what additional powers these parties were offering in the event of a No vote (10).

If the actual powers delivered are a disappointment to the majority of people in Scotland another independence referendum is likely within 5 to 6 years (or sooner if the UK leaves the EU).

Labour politicians have raised reasonable concerns about this leading to competitive reductions in corporation tax across the UK, reducing tax revenues. While such competition does already take place between countries, it is arguably unhelpful (11).

There is no reason, though, why the UK government could not continue to set the rates for these taxes, while the  majority of revenues from them went directly to the Scottish government, assuming the majority of domestic governmental powers were devolved to the Scottish government.

 

Each devolved power must include full control of the budget for that policy area – and devolving the politically sensitive income tax alone would be merely party political manoeuvring and unacceptable

All devolved powers must include power over the budget for that power, or else the power has been devolved in name but not in reality.

It also has to be emphasised that the plans for limited additional devolution amounting to little more than powers over income tax plus a “proportionate” cut in the devolved Scottish budget by the Labour and Conservative party leaderships are dubious and may well be motivated by an attempt to gain party political advantage over the SNP (12) - (14).

Income tax is the tax most reported on by the media, most noticed by the electorate and so most politically sensitive. As a result UK governments have for decades avoided any rise in the basic rate of income tax. A devolved budget cut plus income tax powers would seem to be a trap set for the Scottish government, forcing it either to raise the most unpopular of taxes or cut services.

(I’d add that I’m not an SNP member and have stood (and lost my deposit repeatedly) as an independent candidate in more than one election).

 

Why many No voters will have expected full federalism based on Brown’s statements.
Why full federalism is practical for Scotland in the UK.

Gordon Brown MP, the former UK Chancellor and Prime Minister, greatly influenced the result of the referendum and the establishment of your own commission. However his opinions should not over-ride the views of the majority of the people of Scotland any more than any other politician’s. The terms he used are also likely to have given most people the impression that he and the UK party leaders were offering considerably more devolution than he or those party leaders actually plan to.

During the referendum campaign Mr Brown claimed that a No vote would result in “as close to a federal state as you can be in a country where one nation is 85 per cent of the population” and “nothing less than a modern form of Scottish Home Rule” (15) – (16).

While ‘devo max’ has never been clearly defined and ‘Home Rule’ similarly has no universally accepted definition, it’s likely that most people would see these phrases as meaning the same as federalism - the devolution of almost all domestic policy – full control of the budget and policy making for domestic policy – i.e everything except foreign and defence policy. While the degree of devolution of powers in existing federal systems like the US, Germany and Switzerland varies, it is high in every case.

“As close to a federal state as you can be in a country where one nation has 85% of the population” would imply the maximum level of devolution as in Germany and Switzerland. While there are some grey areas on what is foreign policy and what is domestic policy (international trade policy etc) which would be matters for negotiation, the majority is easy to define.

Mr Brown has implied that as Scotland has less than 10% of the population of the UK this precludes full federalism as “majority rule” must be maintained.

Earlier this month he stated that “You see, in the United Kingdom, England is about 84% of the United Kingdom. Scotland’s 8%, Wales is 5%, Northern Ireland’s 3%. And you’ve got to find a fair distribution of power that recognises the majority rule but also recognises the minorities and that they have special needs that have to be met.” (17).

This concern with maintaining “majority rule” is doubtful for two reasons. First existing federal systems include states with massively different populations, of far greater orders of magnitude than the differences between Scotland and England.

In 2010 Perlis, the smallest state in Indonesia, has a population of under 250,000 people, while Selangor, the largest, has a population of over 5 million – a ratio of about 20 to 1 between the largest and smallest states, double the roughly 10 to 1 between England and Scotland (This does not include the smaller federal territories which are not states) (18).

Bremen, the smallest state in Germany has a population of around 660,000 compared to over 17 million for North-Rhine Westphalia, a ratio of 25 to 1  (19).

Eight states of the U.S had an estimated population of under 1 million in 2013 and another two populations of only just over 1 million, while California has a population of 38 million, a ratio of over 38 to 1 between smallest and largest (20).

In any case it is likely that if the UK became a federal state England would be split into several regions with populations of a similar size to Scotland’s, as Gordon Brown himself has suggested, making the relative populations of the different nations in the UK irrelevant, as the devolution would probably not be only on the basis of nations, but regions of England (21).

 

Why “majority rule” does not exist in the UK,
Would not be particularly democratic if it did,
And is not a barrier to full federalism

Second “majority rule” is a doubtful definition of democracy in the UK . First, due to the unrepresentative First-Past-The-Post voting system for UK General Elections, most UK governments have not had a majority of the votes cast. Most have had large majorities of seats in the UK parliament, sometimes even over 60% of the seats, while getting only 39 to 48 per cent of the vote (22) – (26).

The current Coalition government is the only one in the last 66 years which was elected by a majority of voters, but it has also failed to represent the majority of voters in many ways (e.g by Nick Clegg MP breaking his main election pledge on tuition fees and in letting private companies run more NHS services despite public opposition – and by e.g the fact that many Lib Dem voters would have preferred them to form a coalition with Labour, or leave the Conservatives to run a minority government by not forming any coalition).

So majority rule is the exception rather than the rule in UK politics. It is usually largest minority rule, but with that minority behaving as if it had a huge majority of the votes cast for every policy it implements, when in fact it has the support only of the largest minority, and on some policies, which were not brought up in the party’s election campaign or its manifesto, not even that.

Second defining democracy as “majority rule” would lead to many undemocratic implications. In Northern Ireland “majority rule” under “Home Rule” led at one point to the Protestant, Unionist majority being given free reign implement policies that disadvantaged the Catholic minority.

Third “majority rule” is a dubious definition of democracy. Is it democratic if a small majority completely over-rule the wishes of a large minority, or even if, as more often happens in UK politics, the largest minority completely over-ride the wishes of the majority?

Surely real democracy involves everyone having an equal say, not winners and losers?

Finally defining “majority rule” as the defining democratic principle of the UK would mean that on every important matter the opinions, wishes and interests of the Scottish, Welsh and Northern Irish minorities would remain irrelevant. On every issue the majority in England would over-rule them. Scotland has just 59 MPs out of 650 in the UK parliament. Frequently a majority of Scottish MPs will vote the opposite way to the majority of English MPs on an issue. As the Reverend Stuart Campbell has shown on his ‘Wings Over Scotland’ blog, MPs elected in Scotland have only changed the results of UK elections four times since 1945, and in each case only marginally (27).

The House of Commons Library blog has largely confirmed Campbell’s analysis, finding that the overall result of all but four of the 18 UK General elections since 1945 would have been the same with or without MPs elected in Scotland (28).

 

Need for the power to regulate banks and other financial firms in Scotland

Scotland desperately needs the powers to regulate banks, hedge firms and other financial sector firms operating here in order to avoid another financial crisis and recession. We also need to stop banks foreclosing mortgages on the homes of taxpayers who bailed them out, and letting viable businesses collapse through refusal to even provide bridging loans.

If the British government was willing to effectively regulate the financial sector this would not be a problem, but UK governments of all parties have failed to even institute any law banning high street savings banks from also being involved in dubious “investment” banking (often effectively high risk bets like the trading in futures). Even the US had such a law, the Glass Steagall Act, gradually repealed in the 1980s and 1990s, with disastrous results more recently (29).

The Conservative party gets more than half its funding from banks and hedge funds. Predictably Chancellor George Osborne has not instituted a full legal separation on the types of banking, instead referring to ‘Chinese walls’,  ‘firewalls’ and ‘ring fences’ between the two arms of the same bank, which amount to the lack of a legal ban that would prevent another crisis (30) – (32).

 

Need for power to establish a nationalised national bank for Scotland
and local ones for local authorities

For similar reasons Scotland needs the power to set up a nationalised bank to provide secure savings for savers and low interest loans and grants to small and medium sized businesses, as well as the power for local councils to set up local government banks similar to the regional and local ones in Germany. The UK Labour party has said that it intends to establish something similar, but is not guaranteed to get a majority in the UK parliament for this after the next election.

 

Going beyond devolution to the Scottish parliament – the principle of subsidiarity

Some have pointed to the sizeable minority vote for the Conservatives in the 2010 General election (16% of the vote) and the election of a UKIP MEP in Scotland in the last European Parliament elections as signs that unionism and conservatism are stronger in Scotland than has been assumed.

This may be true, but they remain a minority. The Eurosceptics and pro-Europeans share one principle though – the idea of subsidiarity, that decisions should be taken at the lowest level possible for that kind of decision (33).

This would imply that if they wish to have more decisions taken by the UK government rather than the EU, they would have to approve the maximum devolution of powers from the UK government to the Scottish government, from it to local councils, and from local councils to community councils, too, based on the same principle (34).

If they want to do the first but none of the rest then they are clearly basing their decision not on democracy or subsidiarity, but blind nationalism, merely blind British nationalism rather than blind Scottish nationalism – and that is not a principle worth upholding, it’s not a principle at all.

The SNP’s tendency to want to centralise all the powers devolved to Scotland in the Scottish parliament equally needs to be challenged by the principle of subsidiarity, with both more powers transferred from the UK parliament to the Scottish parliament, from it to local councils and from them to community councils. This should include budgets and revenue raising powers.

 

Power to decide electoral system for the Scottish parliament – need to avoid changes made purely to maintain position of dominant parties

While the principle of devolving the power to decide the electoral system for the Scottish parliament to the Scottish parliament is a good one, care has to be taken that it does not give the two largest parties in Scotland – Labour and the SNP – the power to change it to a purely First-Past-The-Post system that would benefit them but be as poor in terms of democracy as the Westminster voting system. Several Labour MSPs have suggested in the past that the Holyrood voting system be changed to the supposedly “fairer” FPTP and referred to SNP list MSPs as having been “defeated” and as “sneaking into the Scottish parliament through the back door”. There has to be some suspicion that the Labour party proposals to devolve this power might be about party political advantage.

While the SNP has not made similar suggestions on changing the voting system to FPTP for Scottish parliament elections so far, it’s possible that, if they win most seats in Scotland in the 2015 General Election under FPTP, as polls suggest they could, they might be tempted to do so.

The current voting system , designed by Labour to prevent the SNP ever getting a majority, failed to do so. So it will not prevent Labour or the SNP from pushing through changes to the voting system made purely for party political advantage either.

One way to reduce this risk would to require a 66% majority in the Scottish parliament, followed by a referendum, to make any change in the voting system. The referendum could be held on the same day as the subsequent Scottish parliament elections to avoid voter fatigue or low turnout, and to reduce costs. Any resulting change in the voting system would not be made until the Scottish parliament elections after those.

On the other hand some senior Scottish Labour and Lib Dem figures have in the past suggested changing the voting system to Single Transferrable Vote, which could be a step forward from the current Additional Member System, so a balance has to be struck between making electoral reform possible, and blocking backwards steps taken for party political advantage (35) – (36).

However when the Single Transferable Vote was used for council elections in Scotland in 2012 and Labour lost seats to the SNP, some Labour MSPs, and the largely pro-Labour Daily Record, began to criticise the voting system as “too complicated” and claiming that the “over complicated” voting system had resulted in a reduced voter turnout, despite the turnout actually having been higher than in the previous council elections, and higher than in the 2012 council elections in England (37) – (38).

 This underlines the risk of big parties given the power to change the electoral system using it to change it to their advantage even if this reduces choice for voters.

 

Need for written constitution and constitutional court to define the division of powers between the Scottish and British governments – but section relating to Scotland does not need to wait on other nations and/or regions

Almost every federal system in the world has a written constitution defining what powers are held by the different levels of government, and a constitutional court to adjudicate disputed and grey areas.

This would be beneficial for a Scotland with devolved federal powers, but the complications and earlier stages of devolution to the rest of the UK do not need to delay Scotland getting additional powers.

The section of a written constitution relating to Scotland could be written separately and before those relating to other nations and/or regions of the UK.

Federalism rather than Devolution?

Devolution in the UK has involved asymmetric division of powers in which some policy areas are Reserved, with only the UK government able to legislate or make decisions on them, while others are Devolved to the Scottish, Welsh, Northern Irish and London parliaments or Assemblies. The UK government however retains the power to legislate or make decisions even on devolved matters, with the limit that it only do so with the consent of the devolved parliaments being a “convention” rather than an absolute restriction. So far the UK government has not broken this convention, but most people in the devolved areas do not realise that it retains the power to do so (39).

In a Federal system the central government would not retain this power, with the division between regional/national and central government powers being absolute and symmetrical (i.e neither could encroach into the other’s specified policy area), other than for a few grey areas of joint responsibility.

I would argue that Scotland’s devolved powers should become policy areas in which the UK government cannot act or legislate without a majority vote in the Scottish parliament permitting them to do so on a specific issue, and similarly for devolved or federally divided powers in other regional/national parliaments and assemblies.

 

Sources

(1) = Scotsman 18 Feb 2014 ‘Scottish independence: Most Scots back ‘devo max’’, http://www.scotsman.com/news/politics/top-stories/scottish-independence-most-scots-back-devo-max-1-3310342

(2) = theguardian.com 20 Sep 2014 ‘Scottish independence: poll reveals who voted, how and why’, http://www.theguardian.com/politics/2014/sep/20/scottish-independence-lord-ashcroft-poll?CMP=fb_gu

(3) = Wikipedia - Constitutional convention (political meeting) , http://en.wikipedia.org/wiki/Constitutional_convention_%28political_meeting%29

(4) = Wikipedia – Single Transferable Vote, http://en.wikipedia.org/wiki/Single_transferable_vote

(5) = Electoral Reform Society – Single Transferable Vote,
http://www.electoral-reform.org.uk/single-transferable-vote/

(6) = Electoral Reform Society Briefing 19 Sep 2014 ‘Time for a Constitutional Convention’, http://www.electoral-reform.org.uk/images/dynamicImages/file/Briefing%20on%20a%20Constitutional%20Convention,%2019th%20Sep.pdf

(7) = Guardian 19/20 Sep (website/print edition)  ‘Labour proposes devolution settlement to 'shape own futures'’, http://www.theguardian.com/politics/2014/sep/19/labour-ed-miliband-constitutional-convention

(8) = BBC 14 Oct 2014 ‘Hague and Brown clash over 'English votes for English laws'’, http://www.bbc.co.uk/news/uk-politics-29606220

(9) = STV 21 Sep 2014 ‘SNP on course to win third Holyrood term, according to new poll’, http://news.stv.tv/scotland/292917-snp-on-course-to-win-third-consecutive-holyrood-term-says-new-poll/ , (see 2nd last paragraph ‘A total of 80% of people questioned supported Scotland having control over welfare, with 62% saying it should be in charge of pensions. Almost three quarters (71%) of people back the devolution of income tax while 62% want to see Scotland get control of corporation tax and 61% say Holyrood should be in charge of VAT.’)

(10) = Sky News 17 Sep 2014 ‘Sky Poll: Scots Unclear Over No Vote Powers’,
http://news.sky.com/story/1337107/sky-poll-scots-unclear-over-no-vote-powers

(11) = Scottish Labour Devolution Commission March 2014 ,  all of it, but especially page 6, http://b.3cdn.net/scotlab/26e0eb4bdf4c775d14_ram6b81bk.pdf

(12) = See (11) above

(13) = Scottish Labour’s Devolution Commission Final Report March 2014 ‘Powers for a Purpose :

Strengthening Accountability and Empowering People’, http://b.3cdn.net/scotlab/277fe5eb9b114b9a3c_1pm6iir9r.pdf

(14) = BBC News 9 Sep 2014 ‘Scottish independence: What new powers might Scotland get?’, http://www.bbc.co.uk/news/uk-scotland-scotland-politics-25626977

(15) = Scotsman 15 Aug 2014 ‘Gordon Brown backs federalism in event of No vote’,
http://www.scotsman.com/news/politics/top-stories/gordon-brown-backs-federalism-in-event-of-no-vote-1-3511291

(16) = Telegraph 08 Sep 2014 ‘Gordon Brown unveils cross-party deal on Scottish powers’,
http://www.telegraph.co.uk/news/uknews/scottish-independence/11082930/Gordon-Brown-unveils-cross-party-deal-on-Scottish-powers.html

(17) = Guardian 12 / 13 October ‘David Cameron ‘playing fast and loose’ with constitution, says Gordon Brown’, http://www.theguardian.com/politics/2014/oct/12/david-cameron-fast-and-loose-constitution-gordon-brown

(18) = Wikipedia - States and federal territories of Malaysia, http://en.wikipedia.org/wiki/States_and_federal_territories_of_Malaysia#The_states_and_federal_territories , (Wikipedia states source as "Laporan Kiraan Permulaan 2010". Jabatan Perangkaan Malaysia. p. iv. Retrieved 24 January 2011.)

(19) = Wikipedia - States of Germany,
http://en.wikipedia.org/wiki/States_of_Germany#States

(20) = Wikipedia - List of U.S. states and territories by population
http://en.wikipedia.org/wiki/List_of_U.S._states_and_territories_by_population#States_and_territories , based on US Census Bureau reports and statistics,
http://en.wikipedia.org/wiki/List_of_U.S._states_and_territories_by_population#References

(21) = Scotsman 15 Aug 2014 ‘Gordon Brown backs federalism in event of No vote’,
http://www.scotsman.com/news/politics/top-stories/gordon-brown-backs-federalism-in-event-of-no-vote-1-3511291

(22) = Electoral Reform Society – First Past the Post, http://www.electoral-reform.org.uk/first-past-the-post/

(23) = Political Science Resources – ‘British Governments and Elections since 1945’, http://www.politicsresources.net/area/uk/uktable.htm

(24) = House of Commons Briefing Paper SN/SG/2632 (2010) ‘General Election results 1979 - 2010’, http://www. parliament.uk/briefing-papers/SN02632.pdf

(25) = David Butler (1989) ‘British General Elections since 1945’ Blackwell, Institute of Contemporary British History, London, 1989 ; Appendix I Election Results 1945 – 1987, pages 121 to 123

(26) = David Butler and Dennis Kavanagh ‘The British General Election of 1997’ MacMillan Press, London , 1997,  Appendix I The Voting Statistics, pages 254 to 255 (includes 1992 and 1997 election results)

(27) = Wings Over Scotland 10 Jan 2012 ‘Why Labour doesn’t need Scotland’ by Rev Stuart Campbell,
http://wingsoverscotland.com/why-labour-doesnt-need-scotland/

(28) = Second Reading - House Of Commons Library Blog 19 Jan 2014 ‘General Elections without Scotland, Part 1: 1945-2010’, http://commonslibraryblog.com/2014/01/30/general-elections-without-scotland-part-1-1945-2010/

(29) = Wikipedia – Glass Steagall Legislation, http://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_Legislation

(30) = Bureau of Investigative Journalism 08 Feb 2011 ‘Tory Party funding from City doubles under Cameron’, http://www.thebureauinvestigates.com/2011/02/08/city-financing-of-the-conservative-party-doubles-under-cameron/

(31) = BBC 15 Jun 2011 ‘Banks must ring-fence retail operations, Osborne to say’, http://www.bbc.co.uk/news/business-13770746

(32) = Telegraph 21 Nov 2012 ‘Big banks are good for society, says George Osborne’, http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9694634/Big-banks-are-good-for-society-says-George-Osborne.html

(33) = Wikipedia – Subsidiarity, http://en.wikipedia.org/wiki/Subsidiarity

(34) = The Scottish Government – Community Councils, http://www.scotland.gov.uk/Topics/Government/PublicServiceReform/CommunityCouncils

(35) = BBC News 27 Aug 2003 ‘Voting system change mooted’, http://news.bbc.co.uk/1/hi/scotland/3183401.stm

(36) = Electoral Reform Society – Additional Member System, http://www.electoral-reform.org.uk/additional-member-system/

(37) = Daily Record 05 May 2012 ‘Local council elections 2012: Fears over turnout as numbers system puts off voters’, http://www.dailyrecord.co.uk/news/politics/local-council-elections-2012-fears-877195

(38) = Dr Alastair Clark, LSE Blog, 2012 ‘Scottish local elections in 2012 show that voters have understood the STV system and are not put-off by it’, http://blogs.lse.ac.uk/politicsandpolicy/stv-scottish-local-elections-2012-clark/

(39) = The Scottish Parliament - Devolved and Reserved Matters, http://www.scottish.parliament.uk/visitandlearn/Education/18642.aspx

We need tax havens closed down to avoid another financial crisis and increase revenues , the 50p tax rate is a side issue, the mansion tax a gimmick

Chancellor George Osborne's cut in the 50p top rate of tax is supposed to bring in extra revenue by making the wealthiest pay tax in the UK, while business Minister Vince Cable is calling for a “mansion tax” supposedly to target the “super rich”. Another Lib Dem – Lord Oakeshott – says it’s because otherwise taxing the super rich is like pinning down jelly. In fact the real problem – the thing allowing the super-rich and big firms to avoid taxes; and the thing that caused the financial crisis and will cause another if they’re not closed down –is tax havens. Some will tell you closing them down is impossible – they’re wrong. It’s been done before and it can be done again.

Deputy PM Nick Clegg suggest a minimum tax rate, which is a better idea, but both avoids the main problem – tax havens, including the City of London ‘Square Mile’, which is governed only by the Corporation of the City of London – mostly bank and hedge fund executives.

To listen to most politicians you’d believe that they’ve now re-regulated banks and financial firms as much as is possible and that taxing and regulating big firms, banks and billionaires further is impossible as they’d just go elsewhere .  Nicholas Shaxson’s book ‘ Treasure Islands ’ shows this is a long way from the truth. It should be required reading for every voter in every country in the world (1).

The ‘Mansion Tax’ might get a little extra tax out of some of the super rich (while also e.g punishing widows and people who’ve retired for having a bigger than average house or a house in an area with high property values, the same way the Rates used to). It will barely make the super-rich of big firms blink though. If you want to get significant taxes out of them, you have to close down the tax havens

Bretton Woods

Shaxson shows that after World War Two the Bretton Woods agreement between the western European countries and the US imposed capital controls – i.e limits on how much money could be transferred from one country to another by private individuals and companies, with any large amount requiring an explanation of the reason and approval by government, which would not be granted unless benefits to the country the money was coming from could be shown.

There were also fixed exchange rates between the dollar and other currencies, avoiding currency speculation of the kind that led to Black Wednesday and the Asian Financial Crisis in the 1990s.

(Other aspects of Bretton Woods, such as the Gold Standard, were more questionable)

However from the day Bretton Woods came into force, bankers, the financial industry and politicians they lobbied were looking for ways to get around it and weaken it to the point it would collapse entirely. By 1971 they managed to achieve that.

How tax havens cause financial and economic crises – and will cause more if they aren’t closed down

Their main method has been tax havens, not only because of low (or no) taxes, but also because tax havens provide secrecy, allowing banks and companies to avoid regulation. They do this in several ways. For instance by allowing banks and companies and people to registering their company or shell companies or accounts in tax havens. Tax havens also allow professional front-man directors, managing executives, treasurers etc who are listed as the executives of thousands of different firms registered in that haven. So if anyone tries to find out about who owns and manages that company, they’ll only find the front people. Secrecy is the most important aspect, because if no-one knows who really runs an account or firm or what company or individual is putting money into it or taking it out (e.g to donate to political parties’ or politicians’ campaign funds), no-one can regulate them.

Enron, World.com, Parmalat and Long Term Capital Management for instance were all registered or had shell companies in the Cayman Islands, a British dependency.

While many tax havens are small islands and so ‘offshore’ some of the onshore tax havens like the US State of Delaware Luxembourg, Switzerland and the City of London (Square Mile) mentioned earlier are even bigger centres of corruption. Delaware has more companies registered in it than any other tax haven due to it’s lack of regulation, almost zero taxes and high level of secrecy.

The ‘financial derivatives’ like ‘Collateral Debt Obligations’ which led to the financial crisis were mostly invented and issued by firms registered in tax havens.

The onshore and offshore tax havens are similar in being small, largely being governed by the heads of companies in the tax haven (Jersey, City of London) or by governments so small that they are captured easily by big banks’ and companies’ lobbying and donations (Delaware).

The City of London is governed by the City of London Corporation headed by the Lord Mayor (no relation to the democratically elected mayor of the rest of London). City of London Corporation elections work like those of a medieval city dominated by merchant guilds rather than a modern democracy. There are 9,000 ordinary electors, but 39,000 votes held by companies. The votes held by companies are held by their Chief Executives, who get a number of votes based on their number of employees. (Tony Blair, who dropped the Labour party’s previous policy of abolishing the Corporation in 1996, passed legislation in government increasing the number of votes in it going to company executives from 26,000 to 39,000).

When Labour party member Maurice Glasman stood against one of the candidates in a Corporation election, it was unprecedented. The heads of the companies in the Square Mile are almost always elected unopposed by any other candidate.

This means that, in practice, as many of the UK’s banks and other financial companies are in the Square Mile governed by the Corporation, the UK’s financial industry remains entirely unregulated. Neither the British government nor the Mayor of London, nor the London Assembly, nor the EU, can regulate what goes on inside the Square Mile under their ‘Ancient Charter’ dating to before the Norman conquest of England.

What’s more the City of London Corporation and the firms that make it up are in denial about CDOs and other financial derivatives having caused the crisis and continue to lobby the government to avoid ‘unnecessary’ regulation of the financial sector and to allow it to continue to create now and ‘innovative financial products’ of the kind that caused the crisis.

If the tax havens aren’t closed down another crisis is not just a possibility – it will almost inevitably happen again, because the banks and firms involved are so big they can always extort a bail-out to avoid taking down the entire economy with them – and then re-invest some of the money they get from that in lobbying and donations to party funds.

How Tax Havens push up taxes for the majority

Shaxson found that an estimated $12 trillion – a quarter of the world’s wealth – is untaxed in tax havens, put there by individual people or their financial advisors. The amount put in them by banks and big companies is not known, but we do know that every major company and bank in the UK, from RBS to Tesco has dozens of subsidiaries, ‘joint ventures’ or ‘associates in tax havens like Jersey – and that the purpose of these subsidiaries and other agreements is to avoid tax. So at a guess at least half the world’s wealth is going untaxed in tax havens.

We also know that the Inland Revenue, which would jail ordinary people or heads of small businesses for evading or avoiding tax, instead negotiates ‘sweetheart deals’ with big banks and firms, allowing them each to avoid tens to hundreds of millions each a year – and that’s only from the accounts the Inland Revenue knows about.

That pushes taxes up for everyone else – all the ordinary people and small businesses who can’t afford the lawyers and accountants they’d need to avoid tax.

If that money was taxed, so those who can afford to pay paid what they can afford, taxes for everyone else would fall, extreme cuts in public spending would be unnecessary as tax receipts would rise and the kind of fraud that allowed the financial crisis to happen could be prevented.

How Tax Havens allow developed and developing world corruption

It also helps corrupt governments and dictatorships around the world – including in the poorest countries – to divert taxes and aid money into secret accounts in tax havens. So the next time you hear someone complain about how corruption makes aid pointless, point out that it couldn’t happen on the scale it’s happening without the tax havens and lack of controls on capital transfers, which are the result of the actions of developed world governments like the US, Britain, France and Switzerland. The centres of corruption are tax havens in the developed world.

Tax Havens launder drug , criminal and terrorist money

The secrecy which tax havens provide which is designed to allow people and companies to avoid or evade tax also allows drug traffickers, organised crime and terrorist groups to launder money. Shaxson provides several concrete examples including the BCCI affair and the Florida mafia

The Fiction that most Tax Havens are independent

The British government maintains a fiction that it has no control of what goes on in it’s tax haven dependencies – especially the Cayman Islands, Jersey and the Isle of Man. Shaxson’s book provides plenty of examples of them being able to get their way when they want something in these places – and plenty of quotes showing the British government giving their dependencies a nod and a wink on how it would be better if matters were ‘resolved’ without the UK government having to act itself and end the convenient fiction.

The biggest threat from tax havens – and how they can be closed down, as they were under Bretton Woods

The most frightening thing about tax havens though is that they are all still operating, providing secret accounts and shell companies for banks and firms worldwide – and as long as that’s the case another global financial crisis could happen tomorrow.

The ‘nothing can be done’ excuse – and why it’s false

Most of the politicians and bankers and billionaires will tell you that there is nothing that can be done about this – that modern technology and business practices have gone beyond the ability of governments to regulate them. That’s nonsense. It was possible to transfer money between countries fairly rapidly in 1945-1970, but Bretton Woods prevented it being done constantly without good reasons – and growth rates in that period were far higher (at an average of 4% a year) in the developed world than they have been since 1970. Before 1945 there was the same chaos in international finance, leading to the same problems – the 1929 Great Crash and the global Great Depression. So this is not a matter of new developments making new capital and exchange rate controls impossible – they are just as possible as they were in 1945 to 1970.

The ‘lack of political will’ excuse – and how to create the political will

Many will tell you that the problem is a lack of political will – again, nonsense. If enough people demand that their governments close down tax havens and impose regulation on them, it can be done, just as it was done after World War Two. Tax havens rely on money being able to get in and out. Simply ban all money transfers in and out of them until new regulations are in force and enforce full sharing of all information on accounts and companies registered in them.

The problem is that the billionaires and big firms and the newspapers and TV stations they own and the politicians they lobby and donate to have persuaded everyone that the people costing them money are fraudulent welfare claimants, when in fact, for instance, only 0.6% of benefit claims in the UK are estimated to be fraudulent. As long as the majority allow themselves to be conned in this way there certainly won’t be the political will to do anything about the tax havens that are really pushing taxes up for the majority and causing economic crises. If they are informed and persuaded of the real problems – and that allowing the tax havens to remain will result in another financial crisis and recession if they’re not closed down, that will rapidly change though.

Politicians lack the ‘political will’ to do anything about tax havens as long as the majority don’t realise how they’re suffering due to them because the same big firms and super rich people benefiting most from tax havens are also the ones donating most to the funds of the big parties and spending most on lobbying government.

The ‘requires an international agreement we can’t get’ excuse – and the alternative of leading by example

Then there’s the excuse that it would require an international agreement and that that’s not possible. In fact it’s been done before (Bretton Woods) and progress can be made even without one – because if one country starts closing down it’s tax havens then the voters in others won’t accept that closing down tax havens is impossible any more -  and the dominoes will start to fall.

Sources

(1) = Michael Shaxson (2011) ‘Treasure Islands: Tax Havens and the Men who Stole the World’ Bodley Heads, London, 2011

(2) = Guardian DataBlog October 2011 ‘Tax havens and the FTSE 100: the full list’- The top 100 British multinationals have declared full or joint ownership of 34,216 companies - 25% of which are located in jurisdictions classed as tax havens. http://www.guardian.co.uk/news/datablog/2011/oct/11/ftse100-subsidiaries-tax-data

(3) = Guardian 20 Dec 2011 ‘HMRC hid 'sweetheart' tax deals for big business, MPs say’, http://www.guardian.co.uk/politics/2011/dec/20/inland-revenue-sweetheart-tax-deals

Any third round of quantitative easing money should by-pass the banks and go straight to businesses and people to restore employment and growth

then we have to deal with our energy and waste crises

The Bank of England’s Monetary Policy Committee have said there may be a third round of Quantitative Easing, after the first two failing to provide any benefit except increasing the banks’ reserves (1).

They failed because the banks are not passing the money on in loans at an interest rate that businesses can afford, partly because they’re afraid of not having big enough reserves to meet another crisis; and partly because their top managers have decided they can get off with that because politicians aren’t willing to risk any bank going under in case it sets off others like a string of dominoes and they take the rest of the economy with them.

Quantitative easing has been much derided because it’s a euphemism for printing money, but printing money is not always a bad idea – it depends on the circumstances and who the money is going to.

Printing money when inflation is low, deflation is a serious risk and the economy is on the edge of another recession and banks are refusing to loan is not unreasonable. Since banks across Europe are private creditors of the Greek government, which may be forced to default on it’s debts unless it’s creditors forgive the majority of them (with either option involving losses for the banks), quantitative easing is also seen as a way of ‘recapitalising’ the banks (i.e boosting their reserves) to avoid runs on them in the event of a default.

However if we’re going to print more money it should go in loans directly from the government to small and medium sized businesses at reasonable interest rates to boost employment; and in payments to the unemployed, the disabled and people on low and middle incomes. That way it can keep viable existing businesses going, start new ones and increase demand in the economy, rather than just padding out banks’ reserves. It would also involve a modest redistribution of some of the wealth spent on bank bail-outs back to the majority.

This could restore growth and employment levels in the short term, but we also need to re-regulate the banks, undoing decades of de-regulation from the 1980s on, or else another financial crisis could happen at any time.

That could restore at least some of the economic stability of the early post-1945 period. However we also face problems now that we didn’t face then.

Avoiding an Energy Crisis

There is the coming crisis of energy as remaining oil reserves becoming increasingly costly in money and energy to extract, along with increasing demand from China and Asia. To meet this we need increased taxes on oil and energy use to reduce waste of energy. We also need government subsidies and tax breaks for research and development of new energy sources.

Basically, long before oil reserves run out, we will hit ‘Peak Energy’ running short of energy due to the increasing energy costs of extracting oil. In the 1930s when we were extracting mostly the easiest to get at and easiest to refine oil reserves there was a return of 100 barrels of oil for every barrel of oil used to extract it (in fuel for vehicles, drilling, setting up pipelines, oil tankers etc). Today that has fallen to about 11 to 18 barrels for every 1 barrel used. (For more on ‘Peak Energy’ and ‘Net Energy’ see Mandy Meikle’s blog post here and Chris Martenson’s here, as well as this one).

That’s before you even take into account the climate change and other pollution caused.

If you think petrol prices are already high you’re right. However we can’t afford to reduce them if we want to make alternatives to oil based transport and electricity economically viable to develop soon enough to avoid a Peak Energy crisis – and if we don’t do that we’re going to be looking at rationing electricity and being unable to get anywhere by car, train or bus at all except at insane prices at best - and societal collapse into some kind of former Yugoslavia or Mad Max Beyond Thunderdome at worst. Either will make expensive petrol look like a picnic.

Having said that, far more of the taxes on petrol should be going to improving public transport and reducing thecost of using it. It’s no use telling people to use public transport more while making it more and more unaffordable and over-crowded and without more railway stations opened and more trains running.

The Rubbish and pollution Crises

On top of this there is a waste management crisis as we run out of space for landfill of rubbish (which in any case can pollute groundwater and release methane and other gases harmful to people living nearby). Government responses so far have focused on either shipping waste to developing countries which don't have the same regulations, causing illnesses and deaths there, or else incinerators as the cheapest option in the short term and a quick fix, ignoring the waste of energy and resources (especially oil based plastics)  involved and the toxic emissions. These emmisions are likely to increase the incidence of cancers, especially among children and may pollute farmland and so food and water supplies.

Instead we should have a recycling tax on all companies in Scotland or the UK, with companies producing the least waste and the most easily recyclable products and packaging paying a lower rate – plus an import tax on foreign imports that don’t meet the same standards. Recyclable or re-useable products can then be given back to firms for re-use at no further charge, their recycling and delivery funded by the tax.

Taxing the businesses that produce products and packaging which can't be cheaply and safely recycled is the only way to impose a financial cost linked to the cost in terms of peoples' health, lives and environment which will force the worst companies to change their behaviour and allow the better ones, who were already making an effort, to avoid being put out of business by firms who only look at their own costs and profit

We have to act to prevent all the crises - we can't pick and choose which to deal with as if the others don't matter

To get a political climate in which we can deal with the energy and waste crises we first have to avert a second longer and deeper recession in which hunger, poverty and mass unemployment would lead to lots of suffering themselves and could lead to 1930s style politics with the extreme right and/or extreme left gaining support. People who are left scared about whether they can feed themselves and their children and avoid losing their homes will ignore everything else to get those and will be vulnerable to propaganda.

Providing them with some security in the short term has to be the number one priority, but as soon as that’s done we have to start dealing with the energy and waste crises before they lead to disasters just as bad.

(1) = Guardian.co.uk 09 Oct 2011 ‘Third round of quantitative easing possible, says MPC member’,http://www.guardian.co.uk/business/2011/oct/09/third-round-quanititative-easing-possible