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The new Scottish tax regime: gesture politics at its most pathetic

The SNP’s change to income tax has alienated the most productive members of society and put the economy and revenues at long term risk, says Merryn Somerset Webb.

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Derek Mackay and Nicola Sturgeon: put the economy at long term risk

If you are reasonably high-earning and ambitious, and thinking about taking a job in Scotland, you may be thinking again this week. Last week's Budget (which proved yet again that the SNP has got to get in some new talent if it wants to hang on to power much longer) raised income taxes on an awful lot of the population with a few new bands and a few new rates you can now pay 0%, 19%, 20%, 21%, 41% and 46% in Scotland.* Everyone earning over £33,000 will now pay more tax in Scotland than in England. That's 45% of the working population...

So if you earn, say, £150,000, your net income if you live in England will now be £1,174 more than if you live in Scotland. If you earn £60,000 that number is £755. Still thinking of moving? I didn't think so. So what of people who live in Scotland already? One of the reasons that the Scottish government didn't raise rates at the top end further as they would love to is because they worried people would leave. And they reckon no one will leave for just because they have to pay a mere penny in the pound more. I wonder. It doesn't sound like much, 1%. But just like fund management charges, translate it into real money and it adds up.

Say you are dual-earning family both on about £150,000 with a few kids. Nicola Sturgeon just stole your skiing holiday and you can claim it back by moving to Newcastle. You probably won't go. It's expensive and unsettling and there is the threat of Corbyn in the south anyway. However, you know the trend now (add up the extra stamp duty equivalent you have to pay in Scotland, the lower band for the 40% rate and the fact that the Budget removed the charitable relief on rates for independent schools, and it is all too clear) and you will talk about it. In the meantime, you'll avoid tax where you can (there has been a sharp rise in people incorporating in Scotland), and you'll be just a bit more poised to leave than you were.

You might think that all this is a risk worth taking for Scotland to help the low-paid out and raise a pile more revenue. Not so. The projected revenue from all this fiddling is a mere £164m (Scotland has a effective deficit of £12bn...) and the introduction of the starter rates will save those on it a total of £20 a year. Yes, £20 a year. It's almost as if this policy was designed simply to allow the Scottish government to claim that low paid Scots pay less tax than other low paid Brits without it actually meaning or costing anything. Anyone who doesn't see that as pretty cynical politics isn;t concentrating. However it gets worse.

It may be that a good few low-paid people end up not gaining £20 but losing many hundreds of pounds from Mr Mackay's bitter little Budget. Why? Because you need to be paying the UK's basic rate of income tax to get your marriage allowance (£230 of it) and 21% (the other new band) is not the basic rate and because it creates a whole new pickle over pension tax relief. The system is designed for 20%, 40% and 45% so will those on 19% now have to pay back 1%? And will everyone on 21% suddenly have to fill in a self assessment tax return to get their extra 1% back? Talk about expensive admin. These two things should get sorted out (HMRC won't be thrilled at having to help the Scottish government unravel the mess but it will do it).

But the point here is the same as it always is with this Scottish government. They have alienated the productive and put the economy and their revenues at more long term risk than they needed too for no particularly obvious gain to anyone. This is gesture politics at its most pathetic.

* The six new bands of tax on earned income for individuals in Scotland

0% on the first £11,850 (personal allowance)19% on the next £2,00020% on £13,850 up to £24,00021% from £24,000 to £44,27341% from £44,273 to £150,00046% on earnings in excess of £150,000

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