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Business Comment: Terry Murden

Robbing the rich to pay the poor will impoverish the nation

John SwinneyFairness doesn’t follow growth. Fairness delivers growth. So said John Swinney as he declared that the SNP will demand the return of the 50p top rate of income tax.

The Finance Secretary’s timing could not have been better – or worse. Not only does it pitch the Fairness and Equality Party (a.k.a SNP) against the dastardly Party for the Rich (a.k.a Tories), it also coincides with the latest launch of a plan to create more entrepreneurial leaders in Scotland.

Entrepreneurial Scotland will have a party at Edinburgh Castle on Wednesday to mark this latest initiative: Future Leaders. Well, let’s see how many of them decide to remain when the SNP has finished taxing away their earnings.

Mr Swinney’s proclamation coincides with the First Minister’s declaration to be creating a progressive form of politics. Now we know what she really meant. A campaign to accelerate progressive taxation, or taxes that rise as incomes rise.

This is misguided and dangerous politics, particularly at a time when Britain’s low tax rates are a crucial competitive advantage and have played a part in helping revive the economy.

Mr Swinney has aligned himself with shadow chancellor Ed Balls who has said that if elected, Labour would bring back the 50p rate.

But raising the tax threshold on the higher paid does not solve poverty. It is a punitive measure designed to make those who believe it redistributes wealth feel better.

Poverty is alleviated, not by robbing the rich to pay the poor, but by creating more jobs in the economy and by increasing the disposable incomes of the lower paid through raising their tax thresholds and wages. A more effective approach to dealing with low pay would be to legislate for the Living Wage.

Research published last week here shows an encouraging trend by employers to use the Living Wage (£7.85 outside London) rather than the National Minimum Wage (£6.70) to set wage rises. the SNP backs £2 rise in UK minimum wage to £8.70 per hour by 2020 and given this is five years away it may already be higher than that by that time. What is important is that employers feel confident they can pay this rate and demanding they do so while hiking taxes is not the right policy.

Action on the Living Wage could be introduced relatively quickly. Creating jobs is an altogether bigger challenge, but it won’t be helped by taxing those who are trying to meet it.

History tells us that higher taxes, whether personal or corporate, deter investment, forcing investors to look elsewhere. Fundamentally, they do not achieve their objectives.

The last Labour government lifted the 40p income tax rate to 50p, but it raised only a third of the £3 billion forecast. In his 2012 Budget Chancellor George Osborne cut it back to 45p for those earning more than £150,000. It affected  just 383,000 people and cost the government in the region of £400 million in lost revenue, a figure that would barely bother the Treasury’s accountants. A more worrying sum would be the billions lost by impeding the country’s ability to compete.

Mr Osborne told the Commons: “A 50p tax rate, with all the damage it does to Britain’s competitiveness, can only be justified if it raises significant sums of money.”

However, he made a political error that proved costly to the government and only added to its “nasty party” image. Critics said his move could only be justified if it was accompanied by similar measures to help those on lower earnings, an issue he has only addressed lately, including the rise in thresholds in his last Budget. It has been a failing of the coalition that it left the lower paid to carry the burden of the austerity measures.

Those issues apart, the case for lower taxes as a spur to entrepreneurial activity, growth and more jobs is threatened by SNP policies that now appear increasingly focused on punishing the higher paid in the mistaken belief that this will help the poor.

There are other indications that the”fairness and equality” agenda means targeting the wealthier sections of the community and the “cash cow” that is business. The new land and buildings transaction tax that will replace stamp duty north of the border will discourage foreign investment in Scottish property because the tax payable is far higher than under the new English system.

At present, the tax on a £1m property transaction is £40,000 and this will rise to £78,350 on 1 April whereas the tax on a £1m sale in England will be £43,750 – almost £35,000 less than in Scotland.

Small firms are particularly concerned by the imminent 2% increase in business rates, introduced by a Scottish government that declares a commitment to growing the economy while stubbornly refusing to follow Westminster by instigating a review of business rates.

Those cheering Mr Swinney in Glasgow should pause for thought, particularly those in good jobs and living in nice houses. They might just fall into his tax trap.

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