Growing consequences for taxing of the wealthy - David Alexander

Today John Swinney will deliver what is expected to be his last budget as the interim finance minister with Kate Forbes due to return early in the New Year. There is no doubt this is a thankless task with financial demands from all quarters, a limited financial settlement and seasonal strains on the health service all taking their toll.

Striking workers demanding inflation busting pay will be doing little to soothe the Swinney nerves but this is the job he has to do as a senior member of the Scottish government.

Scotland’s tax take has become increasingly different from the rest of the UK and there are clear signs of a growing disparity between the way Scots are taxed compared to their English counterparts.

The Scottish government has always sought to extract much of its revenue from a relatively small band of people. During 2020 to 2021 despite there being only a small proportion (14.8 per cent) of Scottish taxpayers who were higher or top rate taxpayers, they were liable for 59.8 per cent of all income tax in Scotland.

Taxes in Scotland differ from rest of UK (Picture: Jon Savage)

Our property purchases are taxed at a much higher level than in England and a relatively small number of people contribute the largest amount of government income. Last month just 1,910 homebuyers paid 84.3 per cent of all property tax (excluding Additional Dwelling Supplement) totalling £42.3 million out of a total of £50.2m collected.

We are always told that those with the broadest shoulders should bear the greatest burden. This was a view repeated by Government minister Shona Robison at the weekend but there are growing signs that many people who would not traditionally be regarded as wealthy, and would not regard themselves as being wealthy, are part of the broad-shouldered group being targeted for higher taxes.

Are you wealthy if you can buy a property worth more than £325,001? Are you wealthy if you earn more than £860 per week? Are you wealthy if you are a first-time home buyer? The assumption in Scotland is that you are because in all three cases you will be paying more taxes than your English counterparts.

Yet these taxes impact upon ordinary Scots. The nurses, the teachers, the office workers who are simply trying to live and work in Scotland but are being charged increasingly more for the privilege of doing so.

For those who most would regard as wealthy the tax liability is much more onerous. For these individuals who bought properties in Scotland which sold for more than £750,000 just 130 people paid £96,923 each in tax on average contributing £12.6m to government coffers which is equivalent to over a quarter (25.1 per cent) of all property tax raised in one month.

But there could be growing consequences for this taxing of the wealthy. The latest official data shows that the higher level of personal taxation may be impacting on the number of wealthier people who choose to live in Scotland as there were 700 fewer top rate taxpayers in the 2020 to 2021 period. With an estimated 20,000 people in Scotland who are above the £150,000 threshold for additional rate tax this represents a 3.5 per cent drop in the total number of wealthy contributors.

With the Scottish property and personal tax system increasingly dependent on a small number of individuals to provide the bulk of income there is real concern that this could lead to more individuals and families deciding to leave Scotland because of the onerous financial burden of working and living in Scotland.

Increasingly relying on a narrow group of people to provide the bulk of tax revenues is a risky policy. This budget needs to balance the need to increase government income in a fair way without harming the attractiveness of Scotland as a place to live and work. The more middle-income earners are hit by higher taxes the less likely our country will be able to retain or attract these individuals in the future.

David Alexander is CEO of DJ Alexander Scotland Ltd