AN independent Scotland must have its own currency and an entirely different tax system, including a taxation minister, that is specially designed for this country and which moves on from the mistakes of the current UK system.
Those are among the many radical conclusions of a new report prepared by tax expert Richard Murphy, forming part of the Common Weal think tank’s White Paper Project preparing for the second independence referendum.
Entitled A Scottish Tax System – Imagining the Future, the report pulls no punches and among numerous controversial recommendations Murphy states that an independent Scotland should start with a higher rate of income tax, that inheritance tax should be scrapped and a wealth tax introduced along with a financial transactions tax and a carbon usage tax “to cut consumption”.
Crucial to the new taxation system would be Scotland having its own currency. The report states: “Scotland must have its own currency from the day it becomes independent. It is, of course, the sovereign right of any state. But it is not just? a right: it is only by exercising this right that Scotland can be truly independent? of any other country.”
Murphy explains how a Scottish currency and a central bank are crucial to the future of Scotland’s economy, and argues that the tax system itself should be fundamentally altered. Banks would be compelled to inform a new “Revenue Scotland” authority of details of taxpayers’ bank accounts, while the whole taxation system itself would be under the control of a taxation minister in a tax ministry, with scrutiny by a committee at the Holyrood Parliament and an Office of Tax Responsibility.
The differences between the proposed system in an independent Scotland and the current situation in the UK are stark, according to the report.
“HM Revenue & Customs is not? directly accountable to minsters in the UK; there is no minister for taxation in ?the UK Government and there is no select committee on taxation in the House? of Commons.
“All of these situations are very obviously inappropriate given the significance of tax in the political process.
“There may be historical reasons for this situation having arisen in the UK, but the legacy of the English civil wars of the seventeenth century need not impact Scotland in the twenty first century.
“As a result it will be necessary to create new structures to manage tax within the political landscape in which it will play an integral part within an independent Scotland.”
The new tax system would be more open and accessible, reversing the UK Government’s present programme of local tax office closures.
It is the recommendations on income and corporation tax which could be most controversial.
The report calls for a reduction in the personal allowance, more tax bands, a 50p rate, a “base rate” of income tax, and the end of higher rate reliefs beyond personal allowance.
Inheritance tax should be abolished – due to its potential abuses – with capital gains tax being charged on death, while a “lifetime gift receipts tax” and an annual “wealth tax” should be created on all personal wealth exceeding £2 million.
Investment income should also be subject to a surcharge in excess of £3000, and there should be a reconsideration of tax incentives for savings, enhanced resources for identifying the income of the self-employed and the withdrawal of bank notes of more than £10 to discourage the cash economy.
On corporation tax, Murphy recommends that it be increased, which stands in contrast to what was deemed probable prior to the September 2014 referendum.
He also argues for thorough clampdown on tax avoidance by individuals and companies, suggesting that company directors and shareholders should be liable for their firms’ tax debts.
With Scotland’s financial sector providing tens of thousands of jobs, the recommendations on a Financial Transactions Tax (FTT) could prove controversial.
The report states that the finance sector is not subject to VAT and thus has a competitive advantage, and should be taxed “in order to modify its tendency towards reckless behaviour that destabilises the economy”.
It adds that “Stamp Duty is already a ?tax on trading transactions and it should be extended to share-related financial derivatives in the form of a FTT.
“This should also be on other forms of financial trading including foreign exchange trading, where most trades are speculative; the rates charged will be tiny – the effect will be to reduce incentives for speculative risk; the FTT should be increased rapidly at times of high financial trading volatility; the FTT would reduce inequality, level the playing field and reduce market shocks.”
Banking privacy should disappear, the report concludes: “Any bank trading in Scotland must be required to provide full details to the Scottish authorities of any account that they maintain anywhere for any Scottish resident person or company on an annual basis, including the total sum deposited in the account each year.”
Ben Wray, Common Weal’s head of policy, said of the report: “This Common Weal report – which is a fully comprehensive study of a prospective independent Scotland’s tax system – is a major landmark publication in the Scottish independence debate.
“The report shows that tax is an essential mechanism for government to meet social and economic goals, and that a fair and effective tax system after independence requires an independent Scottish currency to go with it. It should be essential reading for anyone who wants to renew and update the case for Scottish independence.”
Murphy’s report is intended to contribute to the debate on a future tax system for Scotland. It will certainly do that.
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