Between the Lines: Higher taxes not the answer

It is surprising that three of the main parties in the forthcoming Holyrood elections are going into their campaigns promising a rise in the amount of tax we pay, with one other suggesting less generous thresholds than the rest of the UK.

Paying higher taxes is not a policy that has proved popular with voters in the past. Indeed, it is a long time since Denis Healey did just that, and more recently, Alistair Darling’s highest rate rise to 50p was quickly reversed by George Osborne.

Typically, chancellors have been attracted by other solutions to raise income – from VAT to excise duty – even now a sugar tax; and perhaps the key issue for Scottish politicians is that they have taken control of the nation’s least popular tax, which one suspects they may already be regretting. With income tax in their control and the need to raise income for their social agenda, however, MSPs feel bound to make an early statement of intent and for them that equates to raising taxes and making the rich pay.

This all sounds super – socially responsible. However, there is a flaw – notably that Scotland does not have many rich people!

The number of people paying 45 per cent tax is estimated by politicians to be 19,000, by HMRC to be 16,000 and by some accountants to be as few as 12,000. So increasing their taxes will not bring in much money at all. In addition, these individuals are tax‑savvy and mobile so will find a way not to pay the full amount.

Counter‑intuitive to politicians, but by far the best way to get more tax from rich people, is to create an environment that makes people richer, and attracts more wealthy people – because the tax take will go up, both from those individuals, and the people they employ.

It would also be nice to introduce some facts to the debate and perhaps shed some light on the myth that we are a low tax rate economy. If you add in other taxes, especially VAT at 20 per cent and council tax, it is disingenuous to promote Scotland as a low tax economy – it certainly is not.

The individual disincentive effects of high taxation are potentially widespread and damaging, and can include: unwillingness to work more hours, or to accept more demanding and modest promotions, as well as reluctance to move jobs.

For the Institute of 
Directors, the key questions are around what the tax take is spent on and what efficiency savings could be made in the delivery of public services.

I urge politicians to devise a long term economic strategy for Scotland and then do the income and expenditure costings for it. That would allow some detailed planning and some certainty about business costs and provide clear direction for us all to follow.

The equation is fairly simple: knee‑jerk populist policies to tax the rich get us all nowhere.

David Watt, executive director, Institute of Directors Scotland