As the Scottish Government’s budget announcement of last December approached, Scotland’s business community pressed the First Minister, Nicola Sturgeon, and her Finance Secretary, Derek Mackay, not to increase income tax.
There were sound economic reasons for these warnings, but they were disregarded by Mr Mackay and, with the support of the First Minister, he pressed ahead and proposed what will be damaging rises in income tax.
This week, the Scottish Government entered into an agreement with Scotland’s other independence supporting party, the Scottish Greens, to increase income tax to an even greater extent than they proposed in December.
This decision to further widen the tax gap between Scotland and the rest of the UK on incomes above £26,000 is likely to cause great damage to the Scottish economy and prove a disincentive to investment.
And the introduction of a new band of tax at 21 per cent on incomes between £24,000 and £43,430 and the increase in the higher and additional rates was unwelcome. This risks Scotland being widely seen as a higher tax country than the rest of the United Kingdom.
45 per cent of people resident in Scotland will now pay more tax than those in the rest of the UK and this is very likely to have an adverse effect on Scotland’s international competitiveness.
It will serve to make Scotland a less attractive place for many in which to to do business, invest, live and work. And this includes the very necessary professionals we need in the public sector, for example, doctors, nurses, teachers and police.
In 2018, the starting point for the Scottish higher rate will increase to only £43,430 but in the rest of the UK it will rise to £46,350.
Moreover, when account is taken of the upper limit of the 12% rate of UK employees national insurance contributions, the income of Scottish tax payers that lies between the starting points of the Scottish higher rate and the higher rate in the rest of the UK will suffer a combined tax rate of 53%. Such a high rate is not being imposed on tax payers in England, Wales and Northern Ireland.
The level of a country’s taxes should be internationally competitive and fair. Taking into account the other taxes, including national insurance, that people have to pay out of their after-tax income – for example, council tax, VAT, fuel duty, insurance premium tax, duty on alcohol and tobacco, air passenger duty, etc – Scotland’s income tax bands and rates are neither competitive nor fair.
Workers at all income levels should not be viewed as a cash cow by the Scottish Government as, while increases in income tax may raise more money to fund public services in the short term, there is considerable evidence to show that in the longer term government revenues could actually decline due to reduced economic growth.
Scotland’s economy is already growing more slowly than the rest of the UK and these proposals will cause further economic under-performance. One only needs to look at the forecast by the Scottish Fiscal Commission.
In each year from now to 2022, the Scottish economy is not expected to grow above one per cent. Early last year, we were already close to recession and I am concerned that this could happen again as a result of these ill-advised tax increases.
Growth of the economy must come first and I would suggest that the best way to grow total income tax revenues over time is to introduce policy measures that boost the economy such as across-the-board income tax reductions now, which would increase the number of people in work and boost the number of businesses in Scotland, which would then result in extra sustainable income for public services.
In 1976, when the Labour Prime Minister, James Callaghan, and his Chancellor, Denis Healey, had to call in the International Monetary Fund to bail out the UK’s failing economy, they learned the hard way that wealth has to be created before it can be spent and that a country cannot tax and spend its way to prosperity.
While I have never expected the Scottish Greens to support or even understand such well-proven economics, I had hoped that the SNP Scottish Government’s ministers might know better. Clearly, they don’t and have yet to learn that hard lesson.
Iain McMillan is a business leader and former director of CBI Scotland
Article Source : http://www.telegraph.co.uk/news/2018/02/03/snps-high-tax-budget-likely-cause-great-damage-scottish-economy/