By Simon Vincent, Senior Tax Accountant at Hive Business.
Some changes have just been made in Scotland that tell us something important about the way our financial lives are organised (a better word might be disorganised) by the state. A few years ago Scotland was given powers to set its own tax rates, but it left them alone, so that even though there was a Scottish rate and an English rate, they were the same.
In its Budget late last year however Holyrood voted through daft changes. Income tax brackets were shifted around by a derisory 1%, and two more brackets were added to the existing three. In my report on the last Westminster Budget I noted that sometimes stability — not change — is good, but what we’re seeing in Scotland is an example of a legislative body pushing through changes apparently just for the sake of it.
It appears that the only tangible effects of these changes will be to confuse people and increase the administrative burden (HMRC is going to have to work out how to connect its systems to these new bands; pensions, for example, are designed to cope with the existing bands).
Those are the costs for a headline saying that lower earners pay less tax. Which is technically true of course, they will pay less, but only about £20 less a year. For people earning over £33k tax has gone up by about 1% which, I suppose, is a holiday if you earn £150k, but won’t mean much to poor, rich or middling people overall. About 55% of working Scots won’t be affected.
It’s already bad enough having three tax brackets. Yes, I’m sure the case for another two could be made in some compelling circumstances, but creating them for a punt at a headline seems a tad cynical. No one is expecting any substantive changes to economic life, except that maybe the tax office will be even harder to reach as it tries to cope with its extra work. The estimated £160m boost in tax receipts is hardly a drop in the ocean against Scotland’s £13bn deficit (which is three times that of the UK as a proportion of GDP).
Perhaps one effect might be that high earning Scots who are already wary of the country’s higher stamp duty will see these tax reforms as a reason to move out by April, and other high net worth individuals who had been intending to move north of the border could now reconsider. That seems a shame because Scotland fought hard for these powers, and I wonder if this debacle partly explains the waning support for the independence agenda, evidenced just this week as Nicola Sturgeon’s demands for Scotland to stay in the single market were opposed by most Scots in a major survey. Perhaps when it comes to tax, citizens will always find a way to punish legislators for creating needless complications. Potentia ad populum!
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