A hole in the plans of Scotland's 'tax the rich' brigade
It won't take many of Scotland's top-rate tax payers to leave to blow a hole in the tax take, says Merryn Somerset Webb.
I went on a Scottish TV programme last night to talk about the various attempts from the various parties to come up with an income tax plan that will differentiate them from each other. It isn't going that well.
The Tories are (perfectly sensibly) sticking with the tax structure on the go in the rest of the UK. The SNP is (oddly in my view) having a little kick at middle Scotland by refusing to pass on George Osborne's rise in the 40% threshold to them. Labour has a plan to make everyone pay more (1p on the two lower bands and 5p extra on the additional rate band), and the Greens have gone nuts with a plan to introduce a new band that would have everyone earning not much more than £27,000 paying more tax and those on £150,000 plus being hit with a nasty 60% rate.
One of the things the "tax the rich" brigade like to say in Scotland is that not very many of the well-off will leave if their tax rates goes to 50%. That may be so. But here's the problem. You don't need many of them to leave to have a serious fiscal problem.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
One person on £300,000 would pay a total of around £138,000 in tax (assuming no pension contributions and the like) if the top marginal rate in Scotland went to 50% that's £7,500 a year extra. Let's say that was the last straw for this person and he moved perhaps to England or perhaps to Singapore or somewhere his skills in finance, medicine or software will be highly valued and lowly taxed.
Pah you say, who cares about him? He's only one guy. Indeed he is. But that leaves the coffers £138,000 down. You need another 18.4 people on £300,000 not to move to make up the difference (18.4 x 7,500 = 138,000). There are around 17,000 additional rate taxpayers in Scotland. Assume they all make £300,000, and it only takes 890of them to think Northumberland (there would be only a millimetre of land between being taxed at 45% and being taxed at 50%) or Wiltshire or London or Singapore or Dubai looks nice for no extra money at all to be raised.
That's before the rich start looking for ways to avoid the new rate. It's also before we take into account the £40,000 of employers' national insurance (NI) that will be lost when he goes. Take that into account and you will need 23 people to pay to replace one that doesn't fancy it much. Look at it like that and it really doesn't seem like a good idea to raise taxes in one borderless area inside a single nation state, does it?
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).
After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times
Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.
Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.
-
Do you qualify for the Winter Fuel Payment if you live abroad?
The Winter Fuel Payment will be means tested for expats living in Europe, in line with the new rules impacting those in the UK. But a quirk in the system means not all countries are eligible.
By Katie Williams Published
-
What the Employment Rights Bill means for your job
New workplace reforms are set to give employees new rights to benefits and flexible working
By Marc Shoffman Published
-
Beating inflation takes more luck than skill – but are we about to get lucky?
Opinion The US Federal Reserve managed to beat inflation in the 1980s. But much of that was down to pure luck. Thankfully, says Merryn Somerset Webb, the Bank of England may be about to get lucky.
By Merryn Somerset Webb Published
-
Rishi Sunak can’t fix all our problems – so why try?
Opinion Rishi Sunak’s Spring Statement is an attempt to plaster over problems the chancellor can’t fix. So should he even bother trying, asks Merryn Somerset Webb?
By Merryn Somerset Webb Published
-
Young people are becoming a scarce resource – we should value them more highly
Opinion In the last two years adults have been bizarrely unkind to children and young people. That doesn’t bode well for the future, says Merryn Somerset Webb.
By Merryn Somerset Webb Published
-
Ask for a pay rise – everyone else is
Opinion As inflation bites and the labour market remains tight, many of the nation's employees are asking for a pay rise. Merryn Somerset Webb explains why you should do that too.
By Merryn Somerset Webb Published
-
Why central banks should stick to controlling inflation
Opinion The world’s central bankers are stepping out of their traditional roles and becoming much more political. That’s a mistake, says Merryn Somerset Webb.
By Merryn Somerset Webb Published
-
How St Ives became St Tropez as the recovery drives prices sky high
Opinion Merryn Somerset Webb finds herself at the epicentre of Britain’s V-shaped recovery as pent-up demand flows straight into Cornwall’s restaurants and beaches.
By Merryn Somerset Webb Published
-
The real problem of Universal Basic Income (UBI)
Merryn's Blog April employment numbers showed 75 per cent fewer people in the US returned to employment compared to expectations. Merryn Somerset-Webb explains how excessive government support is causing a shortage of labour.
By Merryn Somerset Webb Published
-
Why an ageing population is not necessarily the disaster many people think it is
Opinion We’ve got used to the idea that an ageing population is a bad thing. But that’s not necessarily true, says Merryn Somerset Webb.
By Merryn Somerset Webb Published