The devolved administration will learn taxes can’t go up forever without consequences
Source - Daily Telegraph - 17/12/22
A few years ago, before the pandemic, anyone travelling on the London Underground was likely to see a picture of an idyllic beach with the sun setting in the background and a couple pulling their canoes towards the sea. “Now is the time for work life balance”, ran the copy. “Live in Scotland”.
It was artfully created to tempt London commuters, probably jammed up next to each other while they waited ten minutes for the signals to change, to contemplate a more peaceful way of life on the other side of the border. Who knows, perhaps a few were even persuaded to make the move.
But if it is acceptable for the Scottish Government to spend money tempting jobs out of London, then perhaps the trick can be reversed.
This week Nicola Sturgeon’s devolved administration put up taxes yet again, raising the top rates even further above English levels. It is not far from Newcastle to Edinburgh or from Liverpool to Glasgow, and Brighton and Bristol have just as much to offer the finance industry as any city north of the border does.
The moment has surely come for some of the regional English cities to start advertising how much lower their tax rates now are compared to Scotland. There is nothing wrong with some friendly competition between rival nations – and it would make the point that taxes can’t simply be increased forever without any consequences.
It has taken Scotland some time to make full use of its powers to set its own tax rates, but right now the country is really getting into its stride.
Of course, some of us might have hoped that the collapse of the Truss government's short-lived experiment in supply-side tax cutting might have encouraged the Scottish Assembly to move into the space it vacated. Singapore-on-the-Clyde might not have much of a ring to it, but it could have been an interesting experiment all the same.
Instead, and with depressing predictability, Holyrood decided to go a hundred per cent in the other direction, taking the round of tax increases unveiled by the Chancellor Jeremy Hunt as an opportunity to push them even higher in Scotland. The Deputy First Minister John Swinney announced this week that the higher rate of tax would be increased from 41pc to 42pc and the top rate from 46pc to 47pc, while at the same time the threshold for the highest rate would be reduced to £125,000.
The money, he argued, had to be raised to protect the NHS and look after the vulnerable.
Well, perhaps. The trouble is, there is now a significant difference in tax rates starting to open up between Scotland and England. As a Bloomberg analysis pointed out, once you add in the impact of thresholds and national insurance, the marginal rates of income tax in Scotland start to become alarming.
Between £100,000 and £1250,000, for example, people are paying 64pc in income taxes, and from then on upwards the rate is still effectively 49pc, or half of whatever you happen to earn.
The UK as a whole is not a low-tax country anymore, and probably won’t be for a long-time, if ever. But Scotland has become genuinely punishing. The moment has surely arrived for some of the English regional cities to start advertising their relative attractiveness. After all, Newcastle is a mere 64 miles from the border, it speaks the same language (well, almost) and the city has been growing rapidly as it has been rejuvenated.
It even has a pretty decent football team again, and one that competes with the best in the world in the Premier League. Liverpool is only 140 miles from the border and Manchester is a similar distance. Brighton and Bristol are a lot further away, but are just as strong in financial services, a major Scottish industry, while Manchester’s thriving tech industry could be attractive for Scotland’s computing gaming studios. Heck, you can even distil whisky in Wales, and with some marketing muscle behind it, perhaps that could even catch on.
The ads almost write themselves. “Tired of Nicola’s taxes? Try Newcastle”. “Like keeping a little of what you earn? Move to Manchester”.
In total, an estimated 500,000 people are higher rate taxpayers in Scotland, and another 33,000 pay the top rate. Admittedly, many of them work in the public sector, and won’t be able to move. But plenty work in an increasingly battered and beaten up private sector. Once the higher rates of tax start to kick in at the beginning of the next financial year, some of the closest English cities may well start to look tempting.
There is nothing wrong with some tax competition. It is one of the few ways that governments' insatiable desire for revenues to fuel their spending can be kept in check. It is usually very difficult to measure the impact in the real world, mostly because the barriers to moving from country to country, with all the disruption to family life it involves, are so immense. It is very hard for a company with twenty-plus employees to move without risking losing half of them.
But switching from Scotland to England? That is a different matter. The two countries are almost identical culturally, very similar legally and no distance apart.
Companies move from state to state in the US to take advantage of more competitive tax rates, and they switch from canton to canton in Switzerland for the same reason. Very soon they could be moving from one part of the UK to another. The time has surely come for regional English cities to start putting up posters across Scotland and targeting ads on social media.
Nicola Sturgeon would doubtless be outraged, but it would make the point that taxes can’t go up forever without consequences – and at least a few people would be encouraged to make an escape south of the border.
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