Labour’s attack boomerang
Posted on April 09, 2012 by Scott Minto
Last week saw another deployment of Labour's secret weapon in the fight against the SNP and their dastardly independence plans. The device is a WMD (Weapon of MisDirection) which the party has unleashed several times. But the weapon has a persistent teething problem – it has a tendency to come straight back and hit the user in the rear when they least expect it, while rarely managing even a glancing blow off the intended target. (Which in this case is of course the SNP.)
We've seen the patented Attack Boomerang in action on many occasions (the most recent being the bizarrely ill-judged attack on the SNP's referendum consultation which rebounded particularly badly on the party's "deputy" Scottish leader Anas Sarwar, and forced even the BBC to reluctantly acknowledge Labour's embarrassment), but one of the strangest was Labour's bitter criticism of the SNP over the fact that it had persuaded Amazon, the internet retailing giant, to recently open a large centre in the Dunfermline area and provide thousands of new jobs.
To attract the company, the Scottish Government had offered it a subsidy of £10.6m to set up in Dunfermline. But a few weeks later Amazon was revealed to have avoided paying Corporation Tax over three years on UK sales of more than £7.6bn, with a resultant loss to HMRC of £1.8bn. Corporation Tax is a reserved issue over which the Scottish Government has no influence, and Amazon had broken no laws in the way it had structured its business to avoid the tax, but Labour furiously insisted the Scottish Government was somehow at fault nevertheless.
To determine the validity of Labour's outrage, we need to examine what the £10.6 million in Scottish Government subsidies brought Scotland:
2250 new jobs (750 permanent, 1500 seasonal) at the new Dunfermline centre
900 new jobs (500 permanent, 400 seasonal) at the company's new customer service centre in Edinburgh
200 new posts at the firm's Gourock fulfilment centre
That's a total of 3,350 new jobs for the Scottish economy, 1,450 of them permanent. Ken MacIntosh, Scottish Labour’s finance spokesman, called on the First Minister to withhold any further financial backing of Amazon. But a quick study suggests that perhaps Mr MacIntosh hasn't done his sums when it comes to assessing the wisdom of the Scottish Government's investment.
If we take a look at some representative numbers, we can see what these jobs mean to the Scottish economy, regardless of whether the Westminster Treasury elects to levy any Corporation Tax on Amazon or not.
Let's say that the "seasonal" jobs last three months of the year, and are therefore effectively each worth 0.25 of a full job, making our total 1,925. We'll assume a modest average wage of just £17,000 per employee (the actual UK average salary is £26,000), and see where that money goes each year.
Gross income £17,000
Tax-free allowance (£8,105)
Taxable income £8,895
Income Tax @ basic 20% rate: £1,779
National Insurance @ tax code 453L: £1,173
Take-home pay: £14,048
That gives us an annual direct-tax contribution of £2,952 per person. Over the new positions for 1,925 (equivalent) people, that equates to £5.7m in additional direct taxation. This figure does NOT include indirect taxation such as VAT, fuel duty and increased tax receipts from the goods and services that they purchase, but we can already see that in the first year alone, the economy has directly recouped over half the total amount invested by the Scottish Government to bring Amazon to Scotland.
But then we have to also account for the fact that these 1,925 jobs will mostly be filled from the ranks of the unemployed, reducing the public burden of benefits like Job Seeker's Allowance (currently £56.25 per week for under-25s, rising to £71 for over-25s, so we'll take the average at £63.62). That's an annual saving to the taxpayer of £6.4m, on top of the £5.7m paid to the Treasury in direct taxation.
(It's highly likely that most JSA recipients also receive housing benefit, Council Tax Benefit and other payments, but we have no means of calculating those sums, although it would almost certainly be fair to say that they would at least double the savings made on JSA.)
So in effect, the Scottish Government's deal with Amazon has cost the Scottish public a one-off payment of £10.6m, but will directly benefit the Treasury to the tune of at least £12.1m every year. In other words, the Exchequer will make a profit of at least £1.5m in year 1, and over £12m in every subsequent year. (But in reality far more than that, when you factor in other direct savings like housing benefits, and indirect gains from increased consumer spending.) Sounds a pretty good bargain, no?
There are yet more intangible benefits too, of course. The jobs improve the lives of the local communities where these sites are located, and increases the money going into the local economy which in turn supports the existing service sector. Yet the note tied to Labour's attack boomerang decrees that none of these benefits should accrue to Scotland, and that the public they're supposed to serve do not want these jobs. That’s going to be a tough sell by Labour to the people of Dunfermline should there happen to be a by-election any time soon, we suspect.
If we were the former party of the working class, we'd be contacting the Acme Corporation for a refund. We hope they don't, though, because we can't wait to see where they'll deploy this comedy WMD next.
http://wingsland.podgamer.com/labours-attack-boomerang/
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