NOW SNP’S OWN EXPERT SOUNDS TAX HIKE ALARM
Warning that highest taxes in UK could damage Scottish economy
NICOLA Sturgeon has been given a stark warning by her own top fiscal adviser that her tax plans could damage Scotland’s economy.
The Scottish Government’s chief economist said a big increase in the top rate of income tax could lead to an exodus of higher earners.
Gary Gillespie warned that ‘differential income tax policy in Scotland and the rest of the UK’ could result in them moving out of Scotland or setting up as companies to avoid paying the new rates.
He urged against increasing the current 45p rate to 50p – and said only smaller increases should be considered.
His warning suggests those paying the 40p higher rate of income tax will be in the ‘firing line’ – and sparked claims they too could also leave Scotland.
Last month, the SNP proposed four ‘alternative approaches’ to income tax. Three included increasing the top rate, paid by 20,000 people earning more than £150,000 a year, from 45p to 50p. The fourth would also raise it, but only to 46p.
But the Scottish Government last night
a new report by Mr Gillespie warning against a rise, saying it could lead to a reduction in tax revenue of up to £24million.
It said: ‘In the short term, the biggest risk to revenues comes from differential income tax policy in Scotland and the rest of the UK, since AR [additional rate] taxpayers tend to have more choice regarding their residence and other means of minimising their tax liabilities than lower earners.
‘In the longer term, it becomes less costly for taxpayers to rearrange their tax affairs, either by moving residency or by incorporating themselves as a business, so the revenue risks are likely to increase over time. These short-term and long-term risks could be alleviated by increasing the AR by less than five pence.’
The decision to publish his report shortly ahead of the Budget suggests the SNP will not press ahead with increasing the top rate of tax to 50p – and will instead freeze it at 45p or increase it marginally to 46p.
A Scottish Tory spokesman said: ‘This appears to acknowledge that changes at the higher level could lead to a drop in receipts. Given the SNP says it is hiking taxes to generate millions extra, middle earners will fear they’re in the firing line.’
Last month, business leaders warned in a letter to Miss Sturgeon that tax rises will harm the economy. Finance Secretary Derek Mackay has now responded to the letter, from former CBI Scotland chairman Sir Iain McMillan, exScottish Enterprise chief executive Jack Perry, construction executive Anthony Rush and former PwC tax partner Rhona Irving. In his response, Mr Mackay insisted ‘any income tax change and the accompanying change in public spending should support the economy’.
Last night, Sir Iain said they were ‘not impressed’ by his response, adding: ‘If Mr Mackay believes the Government’s policies are the right ones to grow our economy, why is Scotland’s economic growth running at about one-third of the UK growth levels?
‘In the 1970s, Labour learned the hard way that a country cannot tax and spend its way to prosperity. Looking at the policies and words of Miss Sturgeon and Mr Mackay, I fear they risk taking Scotland back to the 1970s.’
The Scottish Chambers of Commerce said: ‘An uncompetitive Scottish tax regime could serve as a disincentive to investment in Scotland that would be hard to reverse.’
At Holyrood today, the SNP is expected to reject a Tory motion calling on the Scottish Government to ‘freeze the basic rate of income tax during the current parliamentary session’.
Mr Mackay said: ‘The Conservative position on tax and spend is essentially one of wanting to have their cake, eat it and then hope no one asks them how they plan to pay for it. That is simply not good enough.’
A report by the Institute for Public Policy Research (IPPR) Left-wing think tank predicted non-protected Scottish Government departments will face £1.3billion of cuts.
IPPR Scotland director Russell Gunson said: ‘Any increase in tax may only buy us a year or two of protection from cuts. Either we will need to see further tax rises or find ways to deliver a significantly stronger Scottish economy and increased tax receipts.’
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