News

Derek McKay advised against 50p top rate of tax by senior government advisor.

13-12-2017

A report released by senior advisor to Nicola Sturgeon; Gary Gillespie has recommended against raising the top rate of tax to 50p. 

The report claims that additional rate (AR) tax payers are 'more mobile' and have 'more opportunities for reducing their tax bill compared to taxpayers on lower incomes' meaning that a rise of 5p could lead to capital flight. 

It is estimated that around 20,000 adults in Scotland currently pay the top rate of tax, under 1% of the population, it only applies to earnings over £150,000. Many of those paying AR are involved in mining, professional service and financial services that tend to compete globally for staff, meaning that these higher earners are potentially more mobile. 

The report does concede that there are many factor as to why you might wish to stay in Scotland, including quality of public services, education and culture. Factors that might mitigate against mass migration of top earners. 

It warns that in a worst case scenario raising the top rate of tax to 50p could cost the Scottish Government £24m a year in lost revenues. 

Gillespie said: “However our analysis also notes that a lower increase in the additional rate could mitigate the behavioural response and provide a greater opportunity to raise revenues."

One of the members of the council of economic advisers, top economist Anton Muscatelli, has called for a "slight increase" in taxes for what he describes as “the cost of living in a civilised society”. 

The advice comes the day before the Scottish budget is announced. Nicola Sturgeon has said that 'the time is right' to consider a taxation rise.
Last month the SNP published a “discussion paper” on income tax which set out four scenarios, the first of which proposed raising the higher and additional rates by 1p each.

Reform Scotland, meanwhile, have argued Scotland should not alter its income tax rates from UK levels until other taxes such as VAT and business tax are also devolved.Chairman Alan McFarlane said: 
“Altering the Income Tax rate to make it different from Westminster, far from being beneficial, could be detrimental to Scotland’s economic performance and lead to a drop in revenue available to spend on public services. The Scottish Government has itself acknowledged the potential for adverse behavioural change in response to income tax policies. “We need more tax levers to equip us to introduce coherent reform. There are viable options with precedent, including VAT and Corporation Tax."

The budget will be announced tomorrow at 2pm Thursday the 14th of December.

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