Tax raises spook high earners

The decision by First Minister Nicola Sturgeon and finance minister Derek Mackay to denounce Philip Hammond’s increase in the tax threshold to £50,000 as a tax cut for the “richest in society” risks making Scotland unattractive to the brightest and the best from around the world.

It goes without saying that £50,000 a year is not the income of someone who is rich. They are certainly better off than many people in society but to call them rich sends a dangerous signal that Scotland is a country that seeks to financially punish those earning a little bit more than others. Our economy lags behind the rest of the UK and it is essential that the Scottish Government does all it can to stimulate business growth. Creating a disincentive for middle earners, while possibly politically expedient, is a mistake we may all live to regret. We need a country that is attractive to job creators, to talented individuals who want to make their lives here and help build a strong economy. However, the implication of making Scotland the highest taxed part of the UK is that we become a country which will penalise those who earn more. We have already seen this attitude applied with the Land and Buildings Transaction Tax (LBTT) which charges considerably more to individuals buying properties over £250,000. The difference is that property can’t move but people can.

This policy risks the future prosperity of Scotland and its ability to attract talent. There is also a risk that it will simply not bring in any more money in taxes. As Scotland becomes a less attractive and more costly place to live, the higher earners will move and the Scottish Government will lose their tax revenues. If Scotland fails to attract quality businesses, then it will fail to attract the right individuals to work in them. We want Scotland to be a place where innovation and dynamism thrive, yet current policies risk signalling that our country is hostile to the better off who, let’s not forget, already contribute enormous sums of money. The Institute for Fiscal Studies states that the top 50 per cent of earners pay 90 per cent of tax raised. A government that scares off high earners is in danger of losing a lot of income. Finally, it has been shown many times that higher taxation does not necessarily lead to higher revenues. The IFS also analysed the short-lived 50 per cent rate on incomes above £150,000 between 2010 and 2013 and found that “such a policy could raise or cost £1-2 billion a year in revenues”. Given such uncertainty and the potential for real problems arising from this policy of raising tax for middle earners it is essential that Derek Mackay doesn’t victimise the middle class and discourage achievement. While we must recognise and address the problems of lower earners, the solution isn’t always to use middle earners as a financial piñata.