Inequality and the narrowing tax base

An interesting article on how governments tend to miss a key point whilst making a tax policy- maintaining tax rates over a broad base, and how it hinders economic growth. Are the rich the only ones paying income taxes? If so, what have governments done to correct this increasing inequality?


is a tax increase the best solution?


Free market environmentalism is not an oxymoron

Government sins of omission and commission? Can government actually create more negative externalities via intervention in efforts to correct them? Can the free market, without government influence, regulate itself for the public good?

Economist Walter Block explores these ideas and questions within this interview.

Free-riding Wifi at Coffee Shops

There appears to be a tendency at coffee shops, where one purchases a single drink (or perhaps even nothing at all) and sits at a table for hours- connected to the free wifi provided. Should wifi use be charged or regulated? A price to be paid for each hour spent? Or does the influx of customers attract even more to the apparently popular coffee shop?

And what of the single-drink-buying customers who sit for hours, hogging up chairs with their laptops and bags; leaving no room for additional rounds of customers who could generate more revenue? Is the marginal cost to the business of providing free wifi compensated by the large number of customers it attracts?

pull the plug

classic free rider

preventing free riders



AR, MC and Scottish independence.

Scottish independence is an emotive subject and the results of the referendum this coming Thursday will potentially have huge ramifications for the future of Scotland and UK economy. As economists we attempt to remain objective in our analysis and evaluation of events and one could argue that the debate on Scottish independence is awash with normative statements such as  Alex Salmond stating independence would make Scotland better off.

The article below analyses and evaluates the potential pitfalls of an independent Scotland based on the premise that oil will be able to sustain economic development. David Smith argues that the marginal cost of producing a barrel of oil has increased 500% in the last 10 years while revenues have fallen and are predicted to keep falling for the foreseeable future, (A2 students should be able to illustrate this diagrammatically).

What implications does this have on fiscal policy?  Will the Scots be able to continue to spend 14% more per head than the remaining UK population?

Then there is currency.  Will an independent Scotland be able to survive without a ‘lender of last resort’ or will the EU club be too much of a temptation to turn down (if indeed their application is successful)? And if an application is successful what really is the difference in being governed from London or Brussels?

Scottish Independence

Should England get off Scot-free?


Some of the first drafts of what Britain’s flag could look like without Scotland

On 18 September voters in Scotland will be asked to make the greatest democratic constitutional decision in their nation’s history. The question is simple: Should Scotland be an independent country, yes or no? – but the impact will be felt for generations. Read on and comment below with what you think would be best and why?

The Yes Campaign

One of the central arguments made by the yes campaign is that independence will allow those living in Scotland to decide how that wealth is spent.

A key element of this is the debate around the worth and longevity of Scotland’s oil reserves. The yes campaign argues that the country’s growing economy, not based on oil alone, will be capable of sustaining welfare spending, including its pensions debt and the childcare plans that were a flagship policy in the Scottish government’s white paper.

One of the most consistent messages in favour of independence that has been driven home in recent months has been that a yes vote is the only way to rid the country of the cuts and privatisation agenda imposed upon it by a distant government.

The No Campaign

The no campaign has been relentless in highlighting the risks of independence to the Scottish economy. These include the uncertainties over what currency the country would use in the event of a yes vote, as well as raising doubts over the reliability of oil reserves and how the country will pay for its public services, in particular in relation to its ageing population.

It underlines the threat to jobs if businesses pull out of Scotland as some have threatened to in the event of a yes vote, and notes that economic instability would be exacerbated by uncertainties around Scotland’s continued membership of Europe.

If Scotland votes yes

If Scotland votes yes it is unlikely to look much different – if Alex Salmond, the first minister and SNP leader, gets his way.

Scotland would keep the Queen as head of state, use the pound, still watch the BBC, share open borders, energy policy and seamless trade with the rest of the UK, and be an active member of the European Union by the time independence is declared in March 2016.

If Scotland votes no

If Scotland votes no on 18 September, the UK parties are promising to give the Scottish parliament much greater power over taxation and policy-making, and to do so quickly, to increase its autonomy within the UK.


1. Westminster has cost Scotland £64 billion in the past 30 years – 

Scotland has paid £64 billion in UK debt interest that Scotland didn’t need. An independent Scotland would have been far better off economically.

2. Scotland has a lower deficit and lower public spending than the UK –

Over the past 5 years Scotland had lower deficits than the UK. Scotland’s average deficit has been 7.2%, while the UK deficit has been 8.4%

3. Scotland has huge potential in renewable energy – 

Scotland has 25% of Europe’s total tidal energy potential, 25% of total wind energy potential and 10%of total wave energy potential. This has the power to reindustrialise Scotland bringing more jobs and greater prosperity. Key examples include the Pentland Firth – the Saudi Arabia of renewable tidal energy – and the Moray Firth – a substantial offshore wind energy project.

Scotland’s oil fields remain a massive financial asset – 

The oil in the North Sea is worth over £1 trillion. There are at least 15-24 billion barrels of oil remaining which will continue long into the 21st century. Over 90% of the tax revenue will go to an independent Scotland which can help to establish a national oil fund for future investment.

5. An independent Scotland can support Scottish business in tax, regulation, the labour market, innovation and global exports – 

An independent Scotland will prioritise the interests of business in Scotland following decades of Westminster prioritising London and the South East. This includes the opportunity to create a simpler tax system that supports Scottish business; reforming the labour market to improve employer/employee relations; encouraging migration to Scotland to balance Scotland’s unique demographic needs; and supporting Scottish exports globally through a Scottish diplomatic and trade service. The opportunities of independence are vast and long-term.


1. Currency confusion – 

Not long ago (in 1999), SNP leader Alex Salmond described the pound as a ‘millstone around Scotland’s neck’ and derided the currency in 2009.  Today he is desperate to keep it, realising that an independent currency would be so volatile and problematic that it would dissuade investors, reduce trade with the rest of the world and threaten to turn Scotland into an economic backwater.

The European Union has effectively ruled out Scotland joining the euro (or even the EU) for many years, leaving Salmond exposed and blustering.

2. Delusions of oil grandeur – 

The SNP’s main economic platform is that Scotland should own the revenue from North Sea oil and gas, making it a petro-dollar paradise equivalent to Norway.  Although they have similar populations (5.05 million for Norway, 5.3 million for Scotland), the hydrocarbon revenues are massively different.  Norway’s government gathered $40 billion in 2013 (according to the BBC) while the UK made $10.8 billion (according to the Financial Times), a fall of 40 per cent from 2012.  Current predictions?  Further falls, to £3.3 billion ($5.5 billion) in 2016/17, according to the Institute for Fiscal Studies.

There’s no amount of careful stewardship that is going to magic $5.5 billion into $40 billion, when many of the North Sea rigs are at the end of their life and production levels are falling.

3. Financial mismanagement – 

The SNP announced in November 2013 that, under future independence arrangements, the Bank of England ‘would become a lender of the last resort’ following any future crises.

This would mean taxpayers in the rest of the UK bailing out Scottish banks, despite them being in an ‘independent’ country.  The evident nonsense of this position seems to be lost on the Scottish National Party.

4. Loss of credibility – 

The UK has sunk an awful long way since the height of empire in the 19thcentury, but it remains the world’s sixth-largest economy and the second-largest in Europe behind Germany.  This confers all kinds of useful benefits, including low interest rates, a permanent seat at the UN Security Council, leadership in NATO, a major role at G20 conferences and in the WTO, among many others. Independence may lead to the loss of all these benefits

5. Lack of natural resources – Once the oil runs out, what does Scotland have that will sustain its fabulously wealthy future?  It has whisky, but even with this contribution of £3 billion ($4.8 billion) across the economy, as estimated by the Scotch Whisky Association, it’s small beer.  The ability to attract major industries – manufacturing, IT, finance – to the country would be diminished by independence, for all the reasons listed above.

Other links to check out