Scotland’s increasingly progressive tax system could force wealthy residents to move across the border to England, where taxes are lower for high earners, a think tank warns.
The Scottish government’s 2023-24 budget proposal, first announced in December, would increase taxes on Scotland’s top earners in response to rising inflation.
Announced as part of that budget, the changes will cause Scotland’s higher taxpayers to earn more than £43,663 ($53,032) a year and pay tax at 42p instead of 41p. Up from 46 pence.
The price increase is being introduced as part of ongoing policies by the ruling Scottish National Party (SNP). The policy aims to cut taxes for low-income earners while asking wealthier citizens to donate more to raise additional cash to help finance public services. be.
However, in its latest report released on February 9, the Institute of Finance (IFS) think-tank said the amount raised would depend on changes in behavior that could result from tax changes. increase.
IFS Research Economist Tom Wernham said: These changes mean a significant increase in income for poor households with children. But to fund their policies, they increasingly rely on taxing high-income earners.
“There is a risk, particularly in this group, that higher tax rates will encourage tax avoidance efforts such as converting income into dividends. Scottish tax rates do not apply.
“Most of the additional revenue from raising the additional rate to 45 pence will be lost in such a response, suggesting that there are limits to the further progress of this strategy. If you want more income from your household, you may need to look to other taxes under its control, such as local taxes.”
“progressive path”
“This budget delivers on the priorities of progressive government,” Deputy Chief Minister John Swinney told Scottish MPs ahead of the budget vote on 2 February. .
“We are working to create a progressive path for Scotland,” Swinney said, with the Greens having signed an agreement with the SNP that would almost guarantee passage of the budget without the need for an opposition vote.
The government said this year’s budget focuses on the priorities of eradicating child poverty, achieving a “just transition” to net zero and providing sustainable public services. .
When the budget was unveiled in December, Swinney claimed that it would “raise around £1bn more next year than it would have if it followed the UK tax decision”.
However, the Scottish Finance Commission has said that the actual additional tax revenue is probably only about £300m, as Scotland’s economic performance has lagged the rest of the UK for a long time.
Local governments have battered what they say is underfunded. In a briefing, the council body’s Khosla said its members were considering cutting up to 7,100 jobs over the next three years as a result of funding pressure.
The Scottish Conservative Party also said the Scottish economy was underperforming compared to the rest of the UK.
Liz Smith, the party’s shadow finance and economic secretary, said the Scottish economy’s “structural weaknesses” were due to the SNP’s choice, not the Conservative UK government.
The additional income tax would increase Scotland’s budget by less than 0.2%, she said, making it “a very political choice for the SNP rather than helping the economy”.
‘Steal jobs and talent’
The Scottish government’s tax reforms for wealthy families have been questioned even by one of the government’s advisers.
Richard Marsh, a member of the Scottish Government’s Expert Advisory Group on Economic Statistics, told the Daily Mail in December that the tax increase could result in “less income than expected” and that more people are coming to the UK. He said he would encourage them to move.
he said: However, the decision may become more likely if it becomes clear that this is a long-term policy of the Scottish government rather than a short-term fix to fill a hole in the Scottish budget. ”
A Scottish Conservative Party spokesman said:
“The SNP government’s own economic experts are aware of this, but the SNP appears determined to stifle economic growth in Scotland by driving away jobs and talent.”
But SNP government finance minister Tom Arthur said, “People are basing their decisions on where to live and work on many factors, not just the taxes they pay, but the quality and delivery of public services.” I’m here.
PA Media contributed to this report.