Higher earners could flee Scotland as Nicola Sturgeon rules out tax cut

Nicola Sturgeon - Andrew Milligan/Pool via Reuters
Nicola Sturgeon - Andrew Milligan/Pool via Reuters

Nicola Sturgeon has ruled out giving higher earners an income tax cut, despite her deputy admitting that they could flee Scotland unless she closes the growing tax gap with England.

The First Minister described Kwasi Kwarteng’s decision to abolish the additional 45p rate of income tax in England for those on salaries of more than £150,000 as “a serious mistake, morally repugnant and fiscally disastrous”.

She said following suit would be the “wrong thing to do” and that her government would not “make all the same mistakes” over Scotland’s income tax rates, which are already more onerous for middle and higher earners.

But John Swinney, the Deputy First Minister and interim Finance Secretary, admitted that the prospect of wealthier taxpayers leaving Scotland for England was a “relevant factor”.

Mr Swinney, who will shortly unveil an emergency Scottish Budget, said he would “wrestle” with the decision on how to spend £630 million the Treasury has handed him that he could use to copy the cuts in England.

His admission came after some of Scotland’s most eminent economists and business leaders, including three former SNP government advisers, warned that failure to reduce the top rate of tax could lead to an exodus of higher earners.

Sir George Mathewson, the former head of the Royal Bank of Scotland, Prof Sir John Kay, of the London School of Economics, and Jim McColl, an industrial tycoon, told The Sunday Times the SNP should follow the lead of Mr Kwarteng, the Chancellor.

Roddy Dunlop KC, the dean of the Faculty of Advocates, tweeted that he would have to consider moving to Northumberland given the huge scale of the cross-border tax gap that would emerge:

A Scot earning £50,000 per year already pays almost £1,500 per year more income tax than someone on the same salary in England. However, this gap is on course to swell to £1,863 unless Ms Sturgeon takes action.

Workers would only have to earn £14,732 to pay more tax north of the border than in England and no Scot would pay less than their counterparts in the rest of the UK. The current salary crossover point is £27,850.

In a radical attempt to boost the UK’s economic growth, Mr Kwarteng announced a cut in the basic rate of income tax from 20p to 19p from next April, in addition to the top rate being abolished.

Although Scotland already has an income tax “starter rate” of 19 per cent, this applies to only a very small tranche of earnings between £12,571 and £14,732. The top rate north of the border is also a penny higher at 46p.

John McLaren, an eminent economist, warned last week that Scots face paying increasingly higher taxes than the English permanently unless Ms Sturgeon starts focusing on growth, with GDP growing at less than half the UK rate since 2014.

But the First Minister said that the Chancellor’s blueprint for increasing growth was a “catastrophic disaster” and following suit in Scotland was “the wrong thing to do”.

Speaking on a visit to Graham’s Family Dairy in Bridge of Allan, near Stirling, the First Minister said: “I find it really impossible to get my head around the fact that we have a Budget from the UK Government that everybody apart from the most tribal Tory supporters thinks was a serious mistake, morally repugnant, and fiscally disastrous, but somehow, the Scottish government should just follow suit and make all the same mistakes.

“We will not do that. We will take decisions carefully that are about helping those who need it most, continuing to have a progressive tax system.”

However, Mr Swinney admitted that high earners could leave Scotland if he fails to close the cross-border tax gap, telling BBC Radio Scotland: “I recognise that that is a relevant issue and a relevant factor and it’s one of the issues that we have to look at very carefully.”