A tax on the ‘rich’ is really an attack on ambition

SO there you have it. If you are well paid and you live in Scotland you will soon have to pay more tax. But just how much more? Well, if you earn over £150,000 your tax rate will increase from 45 per cent to 46 per cent; if you bring home £44,274 to £150,000, it will rise from 40 per cent to 41 per cent.

There is also a new ‘intermediate’ tax of 21 per cent for people who earn between £24,000 and £44,273 and a starter rate of 19 per cent if your salary is between £11,850 and £13,850.

So, the Scottish Government is pretty pleased with this – it allows it to say that most people will now pay less income tax in Scotland than they will in England.

That’s true – albeit by a maximum of £20 a year! But it is not, I’m afraid, the point that the taxpayers who really matter for the purposes of revenueraising will be taking away from this budget.

They will be mulling over the fact that they now have the answer to a question they have been pondering for some time: Who do the Scottish Government consider to be ‘the rich?’

We have heard for years that it is only fair that those with the ‘broadest shoulders’ should be the ones to accept more of the tax burden, but we were never told who the SNP thought had the broadest shoulders.

We had hints that it would be people earning £43,000 because if you already earn more than this in Scotland, you already pay £400 more in income tax than your peers south of the Border, thanks to Derek Mackay freezing the salary threshold for the 40 per cent higher rate band earlier this year.

Turns out it is lower than that. It is £33,000. That’s the point at which the Scottish taxpayer will now find that he is taking home less money at the end of every month than an English taxpayer on the same salary.

They will also be calculating exactly what it is going to cost them, and finding out that if they currently earn £150,000, their net income will now be £1,174 less than it was before. Earn £60,000 and you will take home £755 less. Equal pay for equal work? Not if you live on the wrong side of the Border.

Those happy with the progressive nature of this Budget (and apparently unaware of how stunningly progressive the system already is – more than 50 per cent of the income tax in Scotland is paid by 15 per cent of the population) will say that these numbers aren’t huge.

They’ll say that the ‘rich’ can well afford to pay them and that they certainly aren’t high enough to cause the kind of behavioural change that prevented Mr Mackay doing what one assumes he really wanted to do – bring back the 50 per cent tax band in Scotland.

But I wouldn’t be too sure. Mr Mackay was warned against putting up the additional rate too much for the simple reason that the 0.7 per cent of the population who pay this rate in Scotland are pretty mobile.

When the UK top-rate of tax was at 50 per cent, not many people left the UK. That makes sense: it’s tough to move families to countries with different systems and different languages just to cut your tax bill.

BUT making taxes higher in Scotland than in England is a different matter. You don’t get much more porous than the Border between the two countries.

But this isn’t the only problem. Top taxpayers can also move their income to make sure they pay dividend instead of income taxes, or, worst of all in a productivity sense, just work less.

The other side of the coin, of course, is to ask if higher tax rates in Scotland might put people off coming here.

Say you earn £50,000 and have a student loan. In England your effective marginal tax rate is already 51 per cent (40 per cent income tax plus 2 per cent national insurance plus 9 per cent in loan repayments.)

Would moving somewhere that made the rate 52 per cent work for you? Probably not. On the other hand, with house prices so high in London, would you head north pretty fast if that rate dropped to say 50 per cent?

Mr Mackay made much in his Budget of the importance of growing Scotland’s working age population.

That’s a reasonable aspiration, but if what he wants is to encourage a productive knowledgebased economy, does he want that working age population to be made up of the kind of workers who care more about his 19 per cent starter rate or those who care more about how the ambitious are treated?

But there’s huge political risk too. The new tax system is a turning point in the devolution process.

And that’s where things might get interesting. As he spoke yesterday, Mr Mackay took every opportunity to compare Scotland to England – on housing, on childcare, teachers etc.

A large number of Scottish taxpayers will too. But we can also compare our schools and hospitals. Some people say they are happy to pay more tax to get better public services. But what if after a few years they aren’t getting the bang for the buck?

What if children in England can still read better than those in Scotland? I’m not sure I’d like to be Derek Mackay then.

He couldn’t stop himself opening Pandora’s Box. He might want to have the lid close at hand.