5p income tax rise ‘would only pay for 1pc of NHS budget’

THE SNP’s flagship income tax hike policy would raise only £102million – less than 1 per cent of Scotland’s annual NHS budget, official figures show.

Scotland has just 17,000 top rate payers, according to HM Revenue and Customs, who would be hammered by the party’s favoured 50p rate for people earning more than £150,000.

But experts warned that high earners could be tempted to use tax avoidance schemes or move south of the Border.

Not only could that hit the Scottish Government’s revenues, but it could see employers move their firms and take jobs with them.

After the Scotland Bill transfers added powers to Holyrood, the Scottish Government will be forced to raise more of the money it spends on giveaways such as free prescriptions and the abolition of tuition fees.

John McLaren of think-tank Fiscal Affairs Scotland, said: ‘The difficulty with raising the top rate of income tax is these are the most mobile people.

‘Income tax is usually a good tax to change because it largely affects normal working people. They’re not largely mobile and don’t have accountants to put them onto ways of avoiding it.

‘ But higher rate payers do, particularly the top 1 per cent, and a lot of revenue comes from the top 1 per cent.’

He added: ‘You’ve got a lot of big financial companies with offices in England and Scotland, particularly i n the f i nancial sector. It would be possible for them to live in Edinburgh or London.’

David Phillips, senior research economist at the Institute of Fiscal Studies, said company bosses would not even have to move in order to pay their taxes to the UK Treasury at a lower rate, rather than Holyrood – they could use a simple tax avoidance scheme. He said: ‘Scottish rates of income tax would only apply to non-savings income.

‘ So, s omeone who has a company, r ather than take income as salary, would have a strong incentive to take income as a dividend at the lower 45p rate, which would go to the Treasury’s coffers in London.’

He added: ‘ HMRC suggested the 50p rate of tax raised very little compared to the 45p rate for the UK as a whole. It’s easier to move f rom Edinburgh to London, t han England to Switzerland. This dividend aspect did not exist in the UK context.

‘So there are some signs the behavioural response could be bigger, but we don’t know for sure. It could be more likely to lose money.’

During the General Election campaign both the SNP and Labour backed an increase in the top rate of tax from 45p to 50p.

Scottish Secretary David Mundell has promised to devolve powers to set income tax rates and bands by 2018, and demanded that parties say how they will use them in the run-up to next year’s Holyrood election.

Finance Secretary John Swinney has refused to rule out a rise, saying any changes would be based on ‘ability to pay’, and would mirror his changes to stamp duty through the Land and Buildings Transaction Tax. With the UK Government strongly opposed to a return to a 50p top rate, it raises the prospect of high- earning Scots paying more than those south of the Border after 2018.

However, with Scottish parliament researchers reporting top rate payers in Scotland have an average i ncome of £ 270,000, that would raise an additional £102million at most.

The Scottish Government’s annual NHS budget has just passed £12billion.

Murdo Fraser, finance spokesman for the Scottish Conservatives, said: ‘A decision to increase personal taxes in Scotland would be a mistake. Not only would it bring in comparatively little extra money, but it could risk wealth creators leaving Scotland.’

A spokesman for the Scottish Government said it would ‘set a rate of tax based on the conditions at the time to support economic growth and the delivery of public services.’

‘More likely to

lose money’