PINSTRIPE
I have been watching with interest the debate on Air Passenger Duty, that nasty tax which makes your summer holiday or trip to London more expensive. As part of the new devolution settlement Holyrood will now have the power to decide on the future of APD.
There are a few voices who don’t like the principle of reducing APD on environmental grounds and, rather tellingly, Manchester and particularly Newcastle Airports don’t want it reduced only in Scotland because it will draw business away from them to Scotland.
On the side of those who want to reduce or, better still, abolish APD are the Scottish Airports (which are amongst the biggest single site sources of private sector employment and wealth creation in our country), the Scottish Government, the Scottish Nice Party, consumers and business groups as well as the airlines. EasyJet are quoted as saying that the removal of APD will increase passenger numbers by 30% and Scots would have a choice of more flights to more places as a result of such a move.
In other words what almost everybody can see and for which there is overwhelming public support, is that a tax cut will lead to the generation of more economic wealth and jobs which will in turn generate more tax revenues which can be spent on more nurses and teachers than APD ever funded. Scotland gains a competitive advantage over England through reducing a tax, wealth is created, consumers and the wider public benefit. Hurrah! Everybody is a winner.
So why on earth do we not see the wider point? A low tax economy is freer, grows faster, can support more public services and, by creating more opportunities for people, is inherently fairer. Everybody gets the point on APD so why not on income tax? The political parties in Scotland queue up to say that they will either leave income tax rates the same or increase them particularly for higher earners. The first approach is unimaginative, the second is just stupid and will reduce rather than increase revenue.
What England is terrified of is that Scotland will be smart and radically reduce higher rates of tax. Why don’t we get rid of the 40% and 45% income tax rates and replace them with a 30% rate for which you qualify as long as you spend the majority of your time in Scotland. The well off would still pay more than those on lower incomes but, just think what would happen. Hedge fund managers, top professionals, entrepreneurs, highly paid sportsmen would want to be based here, in Scotland, rather than England. The number of people who currently pay the 45% rate in Scotland would increase significantly from its present level of about 15,000 and we would raise a lot more tax and be able to fund more of the public services we all want.
We have got to get past the dogmatic approach to income tax which says that higher earners must pay a very high percentage rate. What we should want is more higher earners who collectively pay more tax - lowering the rate of tax is the way to achieve this.
Go for it somebody.
Pinstripe is a senior member of Scotland's financial services community
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