A tax on ambition

Workers face a double whammy on salaries, warn party’s own aides

WORKERS will be put off going for promotion if they are at risk of being hammered by a new tax double whammy, the SNP’s own advisers have warned.

Around 1.1million Scots will be hit with substantially higher rates of income tax than the rest of the UK as a result of this week’s SNP Budget.

in a double blow, they will also continue to pay the 12 per cent rate for National insurance contributions on earnings between £43,430 and £50,000 because this is reserved to Westminster and is tied to the higher rate of income tax in the rest of the UK.

it means around 120,000 Scots will pay 53 per cent combined income tax and National insurance rate on their earnings between £43,430 and £50,000.

The Scottish Fiscal Commission (SFC), set up by the Scottish Government to provide its tax forecasts, has warned that it could discourage workers from seeking promotion or getting pay rises.

it also points out that, when other wage deductions such as student loans and pension contributions are taken into account, a worker could take home only 30p out of every pound they earn.

The news came amid warnings that higher earners could avoid moving to Scotland while those based here could relocate south of the Border.

Nicola Sturgeon yesterday admitted that continuing to allow the tax gap to grow could result in less revenue being raised.

Asked if it could have an effect on pay deals, or people moving into the higher rate category, David Stone, head of economy, income tax and VAT at the SFC, said: ‘Precisely. We tried to think about how it will affect behaviour.

‘if you’re sat at £45,000 and facing a 53 per cent marginal tax rate, you’ve got say student loan repayment, pension contributions on that as well, you could be taking home as little as 30p in the pound.

‘So the incentive to go for promotion, work more hours – it’s going to have an effect for that income range. We tried to capture that in our behavioural costing.’

The Government opted to freeze the threshold for paying its higher 41 per cent rate of income tax at £43,430 next year, despite the UK Government announcing plans to raise the threshold for paying its 40 per cent rate to £50,000 from April.

it means someone earning £50,000 will pay £1,544 more income tax in Scotland than they would if they lived south of the Border, rising to £1,794 for those on a salary of £75,000, £2,469 at £130,000 and £3,669 at £250,000.

The SFC has predicted that the gap between Scotland and the rest of the UK will have an impact on ‘tax residency decisions’.

Yesterday it published figures estimating that the total cost of ‘behaviour change’ relating to the decision to freeze the higher rate threshold will be £36million over the next five years – estimating that ‘hundreds’ of people a year could relocate to England.

But experts have based their prediction on the assumption that the thresholds will rise by identical inflationary amounts each year in Scotland and the rest of the UK.

They admitted the cost could grow substantially if the gap grows further and said they cannot provide a completely accurate analysis of how many people will be deterred from moving to Scotland as a result of the tax gap.

SFC chief executive John ireland said: ‘We think that bigger gap will affect where people chose to locate over time, both people thinking of coming to Scotland and people living in Scotland who can leave Scotland or change residency.

‘We think it will knock off about £6million from income tax revenues [next year].’

Commission chairman Dame Susan Rice warned of the tight labour market and said people might ‘think twice about coming to Scotland for a job’.

The SFC also forecasts that the Scottish Government could have to repay £472million to the UK Government due to differences in the forecast between the block grant and devolved tax take.

However, it was stressed the number is volatile and could become positive in future years, leading to the UK Government having to pay more to Scotland to reconcile the difference.

Stuart Adam, senior research economist at the institute of Fiscal Studies, said: ‘Since gaining more powers over taxation the Scottish Government has set income tax rates to raise more revenue, more progressively, than if they applied the same tax schedule as the rest of the UK.

‘This Budget proposal would take another step in this direction. High earners would see a realterms tax rise in Scotland, raising more revenue for public services.’

Yesterday the Scottish parliament’s independent research centre (SPiCe) published a briefing document pointing out that the Scottish tax policy will only exceed the block grant adjustment by £182million, considerably less than the £500million the Scottish Government said its tax plans will raise compared to following the UK Government approach.

Murdo Fraser, Scottish Conservative finance spokesman, said: ‘This confirms Nicola Sturgeon is imposing a tax on aspiration. As the impartial Commission says, people who might be thinking of putting in more time, or working to get a bonus may well conclude there is little point, given the extra tax they will have to pay. if the taxman is going to take as much as 70p of every £1 from higher rate taxpayers, is it any wonder it changes the way people behave? Nicola Sturgeon didn’t need to order this tax regime – she had the money to deliver a fair Budget for public services and taxpayers. This Pay More Get less Government needs to think again.’

At First Minister’s Questions, Miss Sturgeon admitted that further changes to the top rate could ‘lose us revenue’ because of behavioural changes.

A Scottish Government spokesman said: ‘Most taxpayers will pay less income tax next year than if they lived elsewhere in the UK, while 99 per cent will pay less than they do in the current financial year, assuming the same income.

‘Anyone moving to a higher salary will still earn more in take-home pay than they would without any promotion.’

‘She had money for a fair Budget’

IT is mid-morning here in the newspaper office and I am taking a moment to look over the top of my screen at the diligent workers in my midst.

I hear the rattle of keyboards and watch as some of the prose you will read in these pages today appears at source.

I see reporters on phones, scribbling notes with the shorthand they had to learn before being let loose in newsrooms.

They ring off and punch in more numbers; as many calls as it takes until they have what they need.

This is not some festive fanfare for print journalists. It is simply a snapshot of a busy workplace somewhere in Scotland at a time of day when every penny made by almost everyone in the room is still going straight to the state.

It will be afternoon before all the money earned by those with salaries over £43,430 goes into personal coffers rather than state coffers. And, in the case of those careless enough to earn above this sum and less than £50,000, well into the afternoon.

That is because an eye-watering 53 per cent of the money Scottish workers earn between those two thresholds goes straight to one public pot or another – 41 per cent in income tax to the Scottish Government and a further 12 per cent in National Insurance contributions to the Treasury in London.

Is 53 per cent taxation on an income band which hardly represents unseemly wealth really a good look for a nation with designs on attracting bright young things from other lands?

Perhaps a national newspaper office is the wrong place to ask the question.

It will, after all, be years before many of my younger colleagues earn as much as £43,430.

For a better look at those affluent members of the workforce who accumulate so many thousands that they must pay 53 per cent tax on a portion of them, let us leave the newsroom and drop in on Glasgow’s Central Station.

There, train drivers on the job for a few years comfortably meet Finance Secretary Derek Mackay’s definition of high earners.

Brutally

So do senior nurses working across the Clyde at the Queen Elizabeth University Hospital, middle-ranking police officers all over the country and many of the teachers engaged right now in persuading our children to work hard and aspire.

Well, if the £43,430 threshold set by Mr Mackay in this week’s Budget counts in 2018 as high earnings, how brutally we limit horizons in this country.

I say the Finance Secretary set the threshold at that figure.

In fact, the figure has not budged for the past two years, which means ever more members of the workforce are sucked into the high-earning club while, in the rest of the UK, the threshold for the 40p tax band is to start next year at £50,000.

And I say 40p tax band. In fact the Finance Secretary upped that to 41p a year ago and kept it there in this Budget. So let us review: a greater proportion of the Scottish workforce achieving high-earner status, doing so at a lower wage level and having to pay more than their counterparts in the rest of the UK when they reach it.

Sound like a recipe for recruitment to you?

Which young overseas health professional, I wonder, would choose to work in Perth, say, when on any salary over £27,000 he or she would immediately be better off in Preston?

The sum of £26,990 is the disconcertingly modest threshold at which Mr Mackay’s assault on hard work and aspiration begins and Scotland becomes a less attractive place to do well than anywhere else in the UK.

Where are the GPs ready to jump at the chance of employment in Paisley when, on their wage levels, they would pocket almost £2,000 more per year in Portsmouth?

And what is the incentive for entrepreneurs to launch business ventures north of the Border when attracting quality staff would be easier south of the Border because they take home more of what they earn?

If there’s a coherent SNP answer to any of this, it is the usual self-serving mantra that we care more up here, that we are the yin to the English Tories’ clobber-the-poor-togive-tax-breaks-to-the-rich yang, and that we are too moral to worry about a few hundred here or a couple of thousand there. This line of argument flies for as long as it takes us to consult the chart and see the kind of leg up low earners are getting here compared to the fleecing they are taking down south.

Yes, if you’re on £15,000 in Scotland, you will certainly do better under the philanthropic Mr Mackay than you would under Chancellor Philip Hammond who, as we have heard, would wring the spare change out of the poor with his bare hands and proffer it on a silver salver to the nearest fat cat if he only could.

You will do around £20 a year better.

On a £25,000 salary – slightly less than a teacher makes in his or her first year in the job – the benefits of working in progressive Scotland as opposed to pitiless England are much the same.

Conspicuous

You will be around £20 a year better off in our much more morally governed land. Not that that is the whole story, obviously.

No, the most conspicuous benefit of living in Scotland for a ‘high earner’ of my age is that my daughter’s four years at university can be paid from her parents’ income rather than a student loan.

Try doing that at Exeter University with tuition fees of £9,000 a year, rather than Edinburgh University, where fees for Scottish students are zero.

I confess I am glad I did not have to. We have free prescrip- tions here, free personal care for the elderly… why, we can even cross our bridges for free if we can suffer the bottlenecks.

The trouble is, none of these sound like convincing reasons for vibrant, young growers of the economy to come here. They just sound like reasons for the elderly, the infirm and those desirous of free further education to stay.

And what happens when people like my daughter graduate from Scottish universities and enter the jobs market next year?

Do they limit their search to this side of Hadrian’s Wall because the Scottish Government saw them all right during their student years – or do they wake up to what it is going to do to their ambitions now they are out in the big wide world?

These are bright people. Within a few years the difference in tax regimes north and south of the Border will be the difference between a family holiday and staying at home, the difference between getting the bathroom redecorated and leaving the paint hanging off the walls.

Financial incentives motivate people. I am sorry if this fact of life disappoints the moral visionaries in the Scottish Government.

And it is why, as I gaze once more over the top of my screen at those fellow workers the day after Budget day, I am impressed with their stoicism.

I wonder how many under 30 will stick around in this part of the world when other parts just down the road would make their efforts so much more worthwhile.

It is afternoon now, at least. The rest of the day’s money is their own.