BRAIN DRAIN FEAR OVER TAX GAP

SNP’s own economic experts sound warning over squeeze targeting hard-working Scots

SKILLED workers will start snubbing Scotland because of the growing tax divide, according to the SNP’s own economic forecasters.

The tax gap between Scotland and the rest of the UK will widen dramatically as a result of the Budget unveiled by Finance Secretary Derek Mackay yesterday.

All 367,000 Scots who at present earn more than £43,430 will miss out on a major tax break handed to higher-rate taxpayers in the rest of the UK.

The decision will mean ordinary workers such as police officers, senior nurses and teachers will earn much less if they work in Scotland than they would if based south of the Border.

Someone earning £50,000 a year will pay £1,544 more in Scotland than they would if based in the South, rising to £2,044 for those on £100,000.

It has sparked fears of a new brain drain, in which Scottish staff relocate to England or fewer people from other parts of the UK move to Scotland.

Business leaders have warned that the increasing tax gap will mean Scotland will struggle to attract workers to move here.

The Scottish Fiscal Commission (SFC), set up by the Scottish Government to forecast its tax receipts, yesterday admitted the decision will start to impact on ‘tax residency decisions’, with some workers choosing to base themselves in England instead.

In a report published alongside the Budget, the SFC said: ‘There is a growing difference in income tax liabilities for higher earners in Scotland and the UK.’

It added: ‘We expect this to start to have an effect on tax residency decisions.’

In yesterday’s Budget, all tax rates were frozen following an overhaul earlier this year, meaning a ‘starter’ rate of 19 per cent, a basic rate of 20 per cent, an intermediate rate of 21 per cent, a higher rate of 41 per cent and a top rate of 46 per cent.

Mr Mackay did announce some changes to thresholds, with the basic rate rising with inflation and now applying to all earnings between £14,459 and £24,944 and the intermediate rate to be charged on earnings of £24,944 to £43,430.

However, the higher rate threshold was frozen at £43,430 and the additional rate will continue to start at £150,000.

The huge divide between workers north and south of the Border has opened up because Mr Hammond announced that he will increase the higher rate threshold in the rest of the UK from £46,350 at present to £50,000 from April.

All 1.1million taxpayers earning more than £26,990 in Scotland will pay more tax than if based in other parts of the UK.

For those earning between £43,430 and £50,000, there will be a double whammy as they will continue to pay the 12 per cent National Insurance rate.

This means that all earnings between these levels will be charged a combined 53 per cent rate when income tax and national insurance is combined, compared to 32 per cent in the rest of the UK.

It is estimated that 120,000 Scots will be hit by this.

Liz Cameron, chief executive of the Scottish Chambers of Commerce, said: ‘The task of retaining and recruiting talent has remained a stubborn economic challenge for businesses, so we will remain alert to the impact of this policy, and others, that have the potential to further exacerbate this challenge.’

The Scottish Government’s own documents show the decision to freeze the lower rates of income tax will only cut the tax bill of those earning less than £20,000 by 49p a year.

However, all Scottish taxpayers also benefit from the UK Government’s decision to increase the tax-free personal allowance to £12,500.

Announcing his tax plans, Mr Mackay said: ‘At a time of constrained growth, prolonged austerity and growing economic uncertainty, all as a result of a failing UK Government, now is not the time to cut tax for the highest earners at the expense of our public services.

‘Instead, I will be using the additional resources raised through my tax decisions in this Budget to support our public services and ensure that our health service gets all of the additional money they were promised.’

He added: ‘There is no evidence in the Scottish Fiscal Commission’s report that our income tax policy in Scotland is slowing growth.’

‘Challenge for businesses’