It’s not just Scotland’s rich who will feel the pinch

I wrote yesterday about the trouble with different tax rates in different parts of one country. In it, I focused on Scotland’s high earners. But an interesting piece from Alf Young in The Times today points out that it isn’t just about them.

Nicola Sturgeon has said that Scottish tax payers aren’t going to see the 40% threshold rise in the same way as everyone else will. Their’s will rise to £45,000. The Scots’ will stay at £43,387. That might not sound like a big deal. But it is bigger than you think.

You see, the Scots don’t set national insurance (NI) rates or thresholds. Westminster does – in line with the income tax rates it sets. So from £8,060, you pay 12% NI. And from the 40% limit up, you pay 2%. When the new threshold comes in, the English and Welsh will pay 12% up to £45,000 (for a total marginal tax rate of 32%) and 2% beyond (42%).

The Scots will pay 12% up to £45,000 as well. But between £43,387 and £45,000, they will also pay 40% income tax. A total marginal rate of 52% paid, as Young puts it, “on a slice of income that will attract only a 32% rate elsewhere.”

That doesn’t seem much of a way to endear your middle managers, your teachers, your lecturers, your nurses and your small business owners to you, does it? Perhaps it won’t be just the rich who soon look around Scotland and think about “exploring market opportunities for their skills in the rest of the UK”.