RAISING the top rate of income tax in Scotland will generate virtually nothing because the rich will avoid paying it, the government’s independent budget advisers have revealed.
The Scottish Fiscal Commission said increasing the additional rate by a penny to 46p for those earning over £150,000 would generate barely £3m in net revenues in 2018-19.
In a report explaining its budget calculations, the Commission said that on paper the policy should add £27m, but this would be largely wiped out by “behavioural change”.
Instead of paying up, the wealthy can rearrange their tax affairs, receiving income through dividends, corporate profits or capital gains, or even move out of Scotland.
The report said: “Most of the behavioural responses are expected to reduce tax liabilities. The increase in the higher rate of tax to 41p and the increase in the top rate of tax to 46p, are both expected to lead to a loss of income tax liabilities of £20m to £30m.
“Whilst the response of top rate taxpayers is expected to be individually greater, there are a far larger number of higher rate taxpayers, and so the total impact on liabilities is similar.”
The report said changes to Scottish rates of income tax in 2018-19 ought to raise an extra £276m overall, but behavioural change meant this would be £219m in practice.
It is the Commission’s real world forecast which determines the Scottish Government’s assumed tax revenue, and limits how much ministers can spend.
The bulk of the extra tax being raised in 2018-19 comes from the introduction of a new 21p intermediate rate on earnings between £24,000 and £43,430.
The new band accounts for £135m of the £219m total, with an extra £119m from changes for higher rate taxpayers.
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