DEMANDS to soak the rich in this year’s Scottish budget could backfire as top earners switch their residence to England and take their tax revenue with them, MPs have heard.
Andy King, of the UK watchdog the Office for Budget Responsibility, told Holyrood’s finance committee the risks around such behaviour could be “quite large”.
He said: “If someone does change their residence then… the Scottish Government loses all the tax that they pay and the Westminster government gains it.”
Deputy First Minister John Swinney is due to set out the Scottish budget for 2023/24 at Holyrood on Thursday.
Read more: What to expect from the Scottish Budget
He has called it the toughest set of circumstances since devolution began in 1999, with double-digit inflation, public sector pay demands and record energy bills in the mix.
Union leaders have urged him to be “radical” and risk unpopular decisions by taxing the wealthy more in order to live up to the SNP’s professed aim of a fairer society.
A recent report issued by the STUC said Mr Swinney could raise another £1.3billion next year with higher taxes, and £3.3bn longer term.
Among its suggestions were a new higher rate of income tax and adding 2p to all rates applied to incomes over £40,000.
Alex Salmond’s Alba Party has suggested creating two new higher rates of income tax starting at £70,000 and £100,000 and raising the rate above £150,000 from 46p to 50p.
While the SNP’s Trade Union Group has called for higher taxes on the high earners, as well as a levy on “big whisky” that it said could raise up to £1bn a year.
However, Mr Swinney also faces political pressure not to make Scotland the highest taxed part of the UK in case it puts voters off independence.
It could also see people leave Scotland, with top earners ceasing to pay any tax - not just the top slice of their income - into Holyrood’s coffers.
Although they represent just 16% of Scots, higher and top rate earners contribute 60% of the income tax revenue.
Read more: SNP cabinet secretary hints at tax hikes in this week's budget
Questioning Mr King, finance committee convener Kenny Gibson asked him about the STUC report and whether higher taxes could see “behavioural change” by those with bigger bills.
Mr King said he had not that report, but in general markedly higher income tax could cause people to change their behaviour in order to avoid it.
He said: “The one that I think one would really worry about is people who are either able to move not to pay higher taxes in Scotland or, perhaps a bigger concern, those who have two residences and are able to choose which one is their main residence and therefore where they pay their tax.
“The risks around behavioural responses can be quite large.
“Because if someone does change their residence, then you lose all the tax that they pay for. “The Scottish Government loses all the tax that they pay and the Westminster government gains it.”
The SNP Trade Union Group, which has around 14,000 SNP members in it, urged Mr Swinney to be “bold and determined” in his budget.
Group convener Bill Ramsay said: “As trade unionists we are concerned about how the Scottish Government can mitigate the Tory-created cost-of-living crisis in the coming months, combined with building the case for a major shift in power and wealth using the full economic and political levers that only independence can bring.
“The full powers of independence are vitally needed. However there are still measures that can be taken to address the economic crisis the vast majority of Scottish families find themselves in.
“If we want to close the gap between the rich and the poor and ensure that public sector workers are paid fairly, we are going to have to fund it. That means taxing wealth and redistributing resources within our economy.
“This should start with Thursday’s budget and the tax choices which will be made next Spring. In its new report the Scottish TUC has identified some £1.3 billion that the Scottish Government can raise by targeting ‘super wealth’ and raising taxes on higher earners.”
Read more: Business leaders rally against 10 per cent rates hike
The OBR also told the committee that the cost of servicing the UK's debt mountain of £2 trillion will rise from the £54bn by 2027/28 forecast in March to £102bn, due largely to higher global interest rates.
The rise in costs from 5% of GDP to 8.5% in five years' time would also see debt servicing hit 12% of GDP next year, an unprecedented figure.
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