THERE is currently no evidence to suggest people are put off by more income tax bands in Scotland, an expert has told the Sunday National.
As part of the Budget last week, the Scottish Government said it planned to introduce a new 45% band in April for people earning between £75,000 and £125,140, meaning they would pay more tax than they do now.
The current threshold for paying the higher band - £43,663 – will be also frozen instead of rising with inflation, meaning more people will be pulled into paying the 42% rate.
If the proposals are approved by MSPs, there will be six income tax bands in Scotland while there will only be three in the rest of the UK.
During First Minister’s Questions last week, the Conservatives suggested the NHS would be hurt by the change, arguing it would now be harder to recruit and retain skilled workers. The chair of BMA Scotland Iain Kennedy also suggested that an unintended consequence of the new tax rate would be doctors could leave Scotland or cut overtime.
But David McMillan, professor in finance at the University of Stirling, told the Sunday National that there is no current evidence to suggest people have been put off by a more progressive system in Scotland, which has been in place for some time
He said: “There’s been a diversion on tax for a while now in Scotland, and there’s no evidence to suggest that’s had a negative impact, so I think on the whole, people will not mind paying a bit more if services improve.
“You also need to look at these things in the round. You can’t just say people are paying more income tax so they are worse off.
“There are so many different factors in this. In England, you pay more council tax and your water bill is separate, whereas in Scotland, they are combined so you pay less.
“The Scottish Government will talk about prescription charges and university tuition, so there’s a whole mix of things that go into this. There are arguments on both sides. You can’t simply say it’s cheaper to live in one country than the other.”
However, McMillan suggested the “noises are getting louder” from higher earners questioning whether they are prepared to pay more than they do in other parts of the UK.
It is a fact that the majority of people in Scotland – who earn less than £28,850 – will pay less income tax than those in the rest of the UK, but anyone who earns more than that will pay more.
McMillan suggested there is a possible risk that people in the higher bracket of tax like hospital consultants – who will pay thousands more than they do south of the Border - could be tempted to move.
He added: “I do think it’s kind of a wait-and-see scenario, but the noises are getting louder.
“The question is, are people happy to pay even more now? At what point does that gap get too big?
“That’s the noises that have started to come out from business leaders, that they might have difficulties recruiting and retaining people.
“When you’re at that top level, you are now paying around 70% tax [when everything is taken into account].
“These are the kind of people who will cut their hours if they can, pay more into their pension so they can retire earlier. There are many other factors going on, though.”
Scotonomics co-host Councillor Kairin van Sweeden highlighted that even those earning upwards of £75,000 are still not necessarily motivated by money.
“I have a number of friends who are medics and they do it for different reasons,” she said.
“A lot of them just genuinely care for people, but I have a lot of friends who would say they have colleagues who are very motivated by money. It’s a well-paid profession.
“You really have to get qualitative detail on whether this is affecting us [higher taxes] and then you can make different decisions if you have that research in place.”
Finance Secretary Shona Robison admitted this was one of the most challenging Budgets the Scottish Government has ever faced in the history of devolution, and one of the reasons behind the decision to raise taxes for the wealthy was because of a £1.5 billion funding shortfall.
Robison said the tax rises for higher earners would raise £80 million.
McMillan highlighted the Scottish Government had little choice but to raise income tax, since ministers have limited powers available to them to balance the Budget.
“It’s very hard to see what else they could have done,” he said.
“You didn’t have to have a new tax band, but it was still a rock and a hard place in that you either cut services drastically, and that’s not advisable, or you increase tax.
“Whether you’re an independence fan or not, there are restrictions on what the Government can do.
“I think the Scottish Government might have liked to have increased other taxes like corporate tax.
“What they can’t do is borrow on the international markets. So they were stuck.”
A Scottish Government spokesperson said: “The Scottish Government’s tax policies are grounded in evidence and carefully balance the need to raise revenue with the impact on taxpayers and the economy.
“People base their decisions on where to live and work on a wide range of factors. People who call Scotland home enjoy a range of support not available throughout the UK, such as the Scottish Child Payment, free prescriptions and free access to higher education.
“Since the Scottish Government made changes to income tax rates and bands in 2017-18, the net migration of working-age people from the rest of the UK to Scotland has averaged almost 7000 per year. This is adding significantly to Scotland’s workforce and helping to grow Scotland’s economy.”
