Scottish independence: High tax take ‘threatens to drive out workers’

TAXPAYERS will move away from Scotland if the government sets the rate of income tax too high, a Scottish finance expert warns in The Scotsman today.

Professor David Bell of Stirling University writes that it would damage the economy if the Scottish Government uses new tax-raising powers to increase the rates too sharply.

The economist also says the transfer of powers “represents a significant increase in Scotland’s fiscal sovereignty”, suggesting the SNP administration could opt to raise income tax above rates elsewhere.

He writes that by increasing tax rates to about that level the government “will have more cash to spend on its priorities but runs the risk of increasing tax evasion and reducing labour market participation”.

Prof Bell also says estimated figures suggest the Scottish Government could introduce a tax rate of as much as 55p in the pound for top earners, as well as tax hikes for others.

He writes “The Scottish Government might choose to set a Scottish rate above 10p, depending on its priorities and the state of its finances. The figure shows the Scottish rate rising up to 20p.

“This would imply a basic rate of 30p, a higher rate of 50p and an additional rate of 55p.

“At these rates, Scottish income tax revenue is likely to fall below the model’s predictions, because some workers will leave the Scottish labour market and tax avoidance/evasion activity will increase.”