Why Scotland needs a wealth tax, not a squeeze on middle earners

Faux Unionist angst has been caused by the notion that Ms Robison might introduce a new income tax band to raise much-needed revenues. The degree of political hypocrisy involved in this exercise is truly breathtaking.

First up, the Scottish Tories have been providing the Unionist press with torrents of crocodile tears regarding the temerity – indeed stupidity – of the Scottish government in wanting to increase taxes.

Somehow it seems to have passed the notice of our Tory branch office that in last month’s Autumn Statement the Chancellor of the Exchequer, Jeremy Hunt, no less, deliberately froze income tax thresholds on the three main bands. With today’s inflation, that means many more people will automatically find themselves swept into higher bands and paying more tax.

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Over time, this “fiscal drag” propels low-income households into paying tax. This kicks in at £12,570 in both Scotland and England. Ditto for those with earnings nearing £50,000 who are propelled into the 40% rate. Now Hunt is prolonging this freeze for a further two years.

The Office for Budget Responsibility predicts there will be 3.2 million newer taxpayers and 2.6m higher-rate payers created by Hunt’s six-year freeze on thresholds. That amounts to one of the highest hikes in income tax revenues ever.

Meanwhile, Labour’s Ian Murray has been prattling on about how an SNP tax rise will force high earners to flee Scotland in droves and won’t that be a bad idea for the economy? Well, if Labour wins the General Election and our Ian becomes Scottish Secretary, he stands to earn a modest £154,089 per annum, including £86,584 as an MP.

So his concerns over income tax levels are understandable. Of course, Ian may argue that paying higher income will not affect his dedication to the job. But that rather invalidates his argument.

Given that the SNP-Green government has a majority at Holyrood, it is reasonable to think that Ms Robison’s Budget will be passed – including any Scottish income tax changes. However, expect some maverick opposition.

Veteran SNP MSP Fergus Ewing has already been heard making critical noises about any new tax band that falls – as it must – on middle income earners, such as doctors, dentists and senior nurses and teachers.

The problem in Scotland is that we have too few high earners and far too many low-paid workers. So the tax burden inevitably falls on middle income earners. And there will be more and more of them thanks to inflation and Hunt’s freeze on thresholds. Which means a gigantic squeeze on middle income earners even before Ms Robison contemplates a new tax band to squeeze them further.

Just to put some numbers on this. In 2022-23, only a bare 1% of the 16-plus population in Scotland paid the top tax rate (46p). Another 10% adults pay the higher rate (41p). Those on the starter (19p), basic (20p) and intermediate (21p) rates constitute almost half the adult population and it is well-nigh impossible or practical to squeeze them any further – even though Hunt is trying.

That leaves 41% (OAPs, carers) paying no income tax. So it is the middle 10% in Scotland who get clobbered.

The real question to answer is why there are so few top-rate payers in Scotland? Scottish Government statistics suggest there are only around 30,000 people here earning over £150,000. But there are around 123,000 folk in London alone bringing home more than 150k smackers.

Two boroughs in London – Kensington and Chelsea, and Westminster – have almost as many top earners as Scotland, according to HMRC. According to the European Banking Authority, nearly three- quarters of all Europe’s millionaire bankers live in the UK – and most of them are in London.

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However, there’s more to it than the magnetic pull of the metropolis. Scotland is in fact a very wealthy economy. GDP per head in Scotland is greater than in Wales or Northern Ireland or in any English region outside London and the south-east.

This has been true for a long time. For instance, Edinburgh has the biggest agglomeration of financial services outside of London. Which should mean lots of millionaire bankers. Again, why does this not register as buoyant income tax revenues?

The answer is that the rich in Scotland are taking their money in ways that do not register for income tax purposes. This is done by taking income in the form of dividends and capital rather than taxable salary. Holyrood’s devolved tax powers only relate to earned income, not capital. And capital earnings are much easier to avoid through effective tax planning.

Put simply, Scotland’s rich live largely beyond taxation, keeping much of their loot in property and land. Which means income tax is not the best way to tax them.

The conclusion is simple: Scotland needs a wealth tax, not a new income tax band that falls heavily on nurses and teachers.

One quick way of approaching that has been suggested by former SNP business minister Ivan McKee (above).

Ivan says it is time to scrap the regressive council tax in favour of a more progressive property charge. Taxes on property have the excellent advantage of being difficult to escape.

However, while I am in favour or reforming council tax, the sheer amount of wealth salted away by Scotland’s aristocracy, bankers and foreign oligarchs requires more drastic intervention. Especially as Hunt is likely to use his pre-election Budget in the spring to abolish inheritance tax altogether.

Surprising as it seems in the UK, many countries use or have used (in fiscal emergencies) a tax on accumulated wealth – which is just a way of paying back taxes.

For instance, France imposed a “solidarity tax” on wealth holdings, between 1989 and 2017. This imposed a levy on net assets above €800,000 for those with total net worth above €1.3 million.

Everyone resident in Norway must pay a wealth tax on their global net worth. Worldwide net wealth above NOK 1.7 million is taxed at 1%. And in canny Switzerland cantons levy a net wealth tax based on the balance of worldwide assets.

The question is more about willingness and legality under the devolved framework. The SNP have blown the opportunity over the past 16 years to reform local finance and introduce a non-regressive and wider property tax.

Simply nationalising planning gain – the rise in site values that accrue just from granting planning permission – would have captured a lot of unearned and undeserved wealth. But Shona Robison still has a few years left to make amends.

As for legality, I suspect a Tory or even a Tory-lite Starmer administration would find ways of challenging the introduction by Holyrood of a wealth tax.

Ian Murray would doubtless get on his high horse about foreign millionaires being forced to sell their Highland estates, poor things.

But unless we are willing to claim back the wealth made in Scotland for Scotland, then it is the poorest of our citizens who suffer.