The Case for an English Parliament

Anders Hanson has written a thoughtful and apposite call for an English Parliament. As is often the way with the most interesting discussions, I began writing a response and ended up rivalling him for length. I have therefore decided to take my views back home and post them directly.

Anders starts, as many do when debating this issue, with the West Lothian Question, and indeed received a little flack for suggesting that we must now address it because the grumbling is coming to a head. I think this is an unfair accusation. I have heard it said (notably at a Liberal Democrat federal conference consultation session, in March) that “the best answer to the West Lothian Question is not to ask it”. It that is so, then Anders is right; if the issue is not going to go away, it needs addressing, and the sooner we do so the better. Having said that, I do not think that that was his only or main motivation for raising the question.

If one accepts that the West Lothian Question needs addressing, the obvious answer is to devolve more powers within England, too. This raises the debate between an English Parliament and regional assemblies. As liberals, our party has supported regional assemblies because the decision making is closer to the citizen – an English parliament would not be noticeably less remote than a British one. Indeed, for my part I would prefer that more powers were devolved to county and borough councils (and beyond), though I recognise that some public services do not lend themselves to such small units (while pointing out that some English counties are bigger than many EU member-states).

However, I have always suspected that the enthusiasm for regional assemblies is in large part the result of a fear of the power that would accrue to an English Parliament that represents five sixths of the Union. If so, that is no reason to stop the English having their own parliament, apropos the Scots, Welsh and Irish. Otherwise we are discriminating against the English based only on the size of their population.

For some reason this puts me in mind of Apartheid – giving the black population of South Africa the vote was a problem for white South Africans largely because they were a majority – and also of the irony of the “Turkish War of Independence”, which saw the Turks winning their independence from an empire that they had themselves dominated (a bit like the UK winning independence from the British Empire).

The English are as much an ancient nation as the other members of the United Kingdom, and if we are determined to divide our country upon “national” lines, we should show the English the same courtesy that we show the other peoples of Britain.

In this respect, I completely disagree with the point often made (notably by Joe Otten in the comments to Anders’ post, though I recognise that Joe is following in a long tradition) that it is perfectly reasonable for a sovereign government to delegate its powers differently to different regional and local administrations. This works in exceptional circumstances (Åland leaps to mind, and Hong Kong up to a point) but cannot be a satisfactory solution for large regions within a unified country. Spain, often cited as an example of differential devolution, is far from ideal, having generated a number of (generally peaceful) struggles for greater local power as each Autonomous Community strives for the level of devolution enjoyed by Catalonia or the Basque Country.

In practice, stability is best achieved through a proper federal system, viz. that practiced in the United States. The division of powers would be clearly set out: so, for example, the UK would manage the economy, defence and foreign affairs; the “nations” would manage healthcare and energy; counties and boroughs would manage education and policing; districts would deal with waste collection; and each would be empowered to tax and spend by the voters discretely from one another. Up to a point, there would be no argument as to who could vote on which decision: is it a federal, a national or a local question? Where there was a battle, a Constitutional Court would rule.

I have in the past subscribed to the belief (I might now say, the conceit) that the UK was an old enough and stable enough country not to need a written constitution. Such documents are not painless or without cost, and there is a real danger that establishing one would merely enshrine our current fancies in legislation difficult for our successors to revoke. It has been said that Clement Atlee once contemplated implementing a Nazi-style Enabling Act that parliament would be unable to revoke.

Unfortunately, “the constitutional problems created by Labour's asymmetric version of devolution” have led me to conclude that we can no longer rely on Britain’s age, tradition or stability to guide us. A true constitutional settlement is called for, and if Britain is really to be divided upon national lines, the English have as much of a right to a national parliament as any other nation.

Corporation Tax and Payroll Tax: the stealthiest taxes of them all

Imagine, if you will, a society made up of two types of citizen: the taxpayers and the voters. Taxpayers cannot vote, and voters do not pay tax. What will the result be? It seems fairly obvious that voters will vote for high taxes to pay for public services from which they will benefit at the expense of the taxpayers. Such a society would quickly fall apart, as the taxpayers agitated for more representation and refused to pay “taxation without representation”

Such a society would seem anathema to us, nowadays. Which is surprising, because we live in such a society. In one respect, devolution has created such a situation: Scottish voters choose representatives that will implement policies – say, free care for the elderly – that will be paid for in part by non-Scottish British taxpayers who have no control over the decision. This is a dangerous situation that is undoubtedly contributing to the loss of faith in the Union among English voters.

However, there is an older and more fundamental form of this: the taxation of companies. Companies do not have a vote, and yet they are taxed on their income, and required to pay additional taxes when employing staff. This seems a rather clear example of “taxation without representation” – it is true that the owners have votes, but they only have as many votes (one each) as non-owners, and consequently are being taxed in a manner additional to that of their non-company-owning fellow voters. If there was a tax on people over 2m in height, we would consider this arbitrary and unfair. A tax on business-ownership is ignored.

To be clear, it is not as if the income that owners derive from their investments is not taxed. Share dividends are subject to income tax at the same rate as salaries. However, when companies turn a profit they have to pay Corporation Tax before paying dividends, which are then subject to Income Tax. This double taxation can only be justified by treating the company as a legal entity distinct from its owners – it is taxed in its own right. But this legal status does not stretch to being permitted to vote.

Socialist economists and policy makers would probably argue that it is only reasonable to tax businesses, as they are the products of capital and that to exempt capital from taxation when the other “factors of production” (land and labour)
are taxed would represent an unfair tax exemption for rich investors (and poor investors, but socialists tend to ignore them!). This is certainly true, and it is not my intention here to suggest that capital should not be taxed. However, there is no justification for taxing it twice: if capital or profits are taxed when earned, they should not be re-taxed when they are paid out. This “double taxation” (distinct from the double taxation that arises when people and capital operate in different jurisdictions) is unfair and ultimately should be ended.

Ironically, those who support business taxes (and here I add in payroll taxes, such as employers’ National Insurance contributions) are actually harming UK consumers more than UK business. After all, the inevitable consequence of business taxes is that they will drive up prices. If tomorrow a Chancellor of the Exchequer announced a 5 per cent rise in corporation taxes, it is not going to result in Tesco generating commensurately less profits next year. The board may take the decision to absorb part of the cost of the additional taxes as a public relations stunt, but ultimately they are going to hand the extra costs down to customers. The same is true of payroll taxes.

The real danger in this is that the tax is therefore invisible. Consumers are aware of the 17.5 per cent VAT they pay on most goods, and most receipts even explicitly state the amount of VAT paid – next time you are looking at you wage slip in despair and your eye flicks enviously over the part that says how much tax you’ve paid, remember also to get those old receipts out of your wallet and factor in the bit at the bottom. This is only (or rather, less than) half the story, however, as the 82.5 per cent of your bill that isn’t VAT includes other business taxes, without which your supplier would be able to (and due to competition would be obliged to) charge lower prices.

Thus Corporation and Payroll Taxes are the ultimate stealth tax: the Chancellor sells them to us on the grounds that they are levied on businesses, and so we are led to believe that they are free money – taken from “someone else”, a faceless organisation with no vote; in fact, they are taken from us every time we open our wallets and purses. Our Income Tax bill confronts us regularly; our VAT bill every time we spend; but taxes on business slip in under the radar, taking money for the state disguised as money for the supplier.

This is ultimately damaging, as visible taxes have more obvious impact and so teach us to exercise more fiscal discipline. If our receipts also told us how much Corporation Tax we were paying, and if we received larger gross salaries but paid higher National Insurance (i.e. the employer contribution was instead factored into our salaries and personal contribution) we would have a more honest view of how much tax we paid. While we were at it, it would be nice if there were a means of quantifying the number of jobs foregone because payroll taxes made marginal employment (i.e. jobs which are only barely going to generate more revenue than they cost – usually the lowest paid jobs) unviable, thus driving up unemployment for the poorest and least skilled. Only then would we have an honest idea of the costs and effects of the policies our leaders are perusing, and for which many of us have voted.

Labour's election strategy - threaten the voters

The Labour Party has come up with an interesting new strategy for the Scottish elections: threaten the voters.

Labour and the Liberal Democrats are facing a drubbing from the Scottish National Party (SNP), due to a combination of high oil prices and anti-incumbency feeling. The Conservatives continue to carry no weight north of the border.

The prospect of Gordon Brown taking over from Tony Blair just in time to see his party mauled in his home country and its new First Minister threatening a referendum on secession is causing panic in Labour ranks.

The response from countless cabinet ministers at the Scottish Labour Party conference has been to suggest that if Scotland votes in an SNP government it will threaten the heavy dose of subsidy that Scots enjoy at English taxpayers expense. Scots receive on average £1,500 a head more than in England, which partly explains why over half their economy is built on the public sector.

It seems pretty unlikely that the Scots are going to warm to a Labour Party that is intent on reminding them of their dependency on Sassenach largesse. Gordon Brown’s premiership looks like getting off to the worst of starts.