PINSTRIPE

The recent Scottish Labour Party Conference saw the once natural party of Government in Scotland go off on several socialist benders. Let’s leave Trident out of the analysis - although in economic terms Trident represents a massive payment from the UK to Scotland which Labour doesn’t want us to receive any more. This heroic stand, if implemented, would no doubt be remembered fondly by the thousands of Scottish workers who would lose their jobs as a result.

No, instead, let’s concentrate on Kezia’s crowd pleasing attack on those she sees as rich - those who dare to earn more than £150,000 a year. She appears to believe that a tax assault on them will raise £100 million which can be ploughed into Scottish education. The truth is that if this daft policy was actually implemented Scottish business, the wider economy and public services would be damaged.

Let’s do some sums.

There are about 20,000 top rate income tax payers in Scotland. To get to Kezia’s figure of an extra 5% on the top rate of income tax raising £100 million, the implied assumption being made is that these people are earning £250,000 each.

The problem is that these people are generally pretty mobile. They don’t have to live here. Some are here because they own businesses in Scotland - but which don’t have to be based here - others are employees working for companies which have offices in many other countries, including England, where they could often easily work instead.

People who are earning £250,000 are currently paying roughly £100,000 in income tax plus about £10,000 in National Insurance. Their employer is paying roughly £30,000 in National Insurance on their behalf. The individual's pay after tax and Employee's National Insurance is roughly £140,000. Let’s say they spend £115,000 of that in Scotland of which £15,000 is VAT. As a result of that spending at least one extra person will have a job, let’s say earning £25,000, who will in turn pay £10,000 in taxes.

To summarise, our £250,000 earner is creating two jobs in Scotland, their own and one other (and that is a conservative estimate of the multiplier effect of their spending) they are spending £100,000 in Scotland and creating £165,000 of tax revenue. The problem with people like this is not that they ought to pay more income tax, they already pay a large proportion of the total raised, the problem is that we don't have enough of them.

Raising the top rate of tax from 45% to 50% would raise £5,000 from this taxpayer but , If as a result of the higher tax rate more than 3% of our highest tax payers leave the country then we will lose not gain tax revenue. Is this likely? - absolutely certain I would say. The extra income tax is over and above higher stamp duty and looming higher property taxes which all add to the corrosive signal the increased income tax rate would send - and what assurance would there be that the rate would not be raised beyond 50% ? The signal is clear - if you aspire for yourself and your family stay in England rather than come to Scotland. Some of the people we need to drive business growth will get the message that Scotland thinks they should pay even more tax than they already do and they will take themselves, the businesses they could build, the jobs they could create and the tax they would pay somewhere else. This would mean less rather than more money for Scottish education - well done Kezia.

As an interesting footnote the SNP Government has steadfastly refused to join in this clamour for a higher top rate of income tax. How very sensible of them - perhaps they are thinking of what’s best for our country rather than economically illiterate posturing.

Pinstripe is a senior member of Scotland's financial services community