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Raise top rate of tax? It would buy a short road

Terry smiling headIt was always likely that once Scotland’s governors were given the ability to raise revenue they would be taxing all and sundry to pay for this and that pet project. When they fully understand how much the new ‘tax powers’ can actually raise they may be in for a shock.

It is in the DNA of the left to tax more, and the Scottish Tory leader Ruth Davidson stands alone by positioning her party as a tax-cutter. Her task will be convincing the public that tax-cutting does not equate to cutting services.

As for the rest, they should take note of the latest data on tax receipts. For one thing it confirms widely held scepticism about how much could be raised by increasing the highest rate of income tax from 45p to 50p.

The SNP and Labour are proposing the extra 5p levy, even though it would barely make an impression on what could be achieved with the extra revenue.

Figures from audit and tax firm RSM reveal that across the UK 340,000 taxpayers earn more than £150,000, of whom 15,000 have incomes of over £1 million. The Treasury raises £32.7 billion or 28% of the UK total tax from this group.

In Scotland, only 19,000 taxpayers have incomes above £150,000 which raises £2.1bn, or less than 18% of the Scottish total tax receipts.

Raising the top rate of income tax by 5p would only raise around £220m.

Stephen Hay, RSM’s head of tax in Scotland, says this equates to about 16% of the budget for the new Forth crossing, or around 1,500 feet of bridge.

It would pay for about six miles of road

The A9 dualling project is expected to cost £3bn, so £220m might pay for around six miles of road.

It might also contribute 7% of the £3bn cost of 50,000 affordable homes required in Scotland, paying for about 3,500 homes.

But Hay has another cautionary tale for Holyrood – that the new devolved powers will not really allow for a redistribution of tax.

If Scotland wants to emulate the UK position whereby 28% of tax raised is met by the highest rate taxpayers, then the existing 19,000 Scottish taxpayers who fall into this cateogy would need to pay about 50% more tax than they do at present.

That isn’t going to happen and only adds to the pointlessness of pursuing a campaign to raise taxes on higher earners.

Similar doubts are emerging about the revenue being raised from the land and buildings transaction tax (LBTT) on higher value homes.

Property experts say Finance Secretary John Swinney will fall well short of his target as a result of fewer properties coming to market.

Mr Swinney says they are wrong.

The election might come just in time to save him having to admit otherwise.

 

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