50p rate, the SNP are at it

I've been doing a few FOIs lately, following some requests from friends on Twitter. I was asked to dig into a few subjects on tax and pensions and you can follow my FOI requests here  on the brilliant www.whatdotheyknow.com website. 

My most recent one has been on the SNP's analysis on the impact of the 50p rate and why they can't implement it in Scotland. Whilst my FOI is only halfway I've enough so far to call this one: the SNP are at it!

The idea that the SNP can't introduce a 50p rate in Scotland without losing money but can at a UK level is just plainly wrong and this post sets out why. 

50p worth of advice

Let's start with Nicola Sturgeon's own words on the advice she received on this. 

"we were given advice that if you just did that (introduce a 50p tax rate) without the Scottish Parliament having the power to tackle tax avoidance, to set the rules in stopping income tax into capital gains then we would potentially lose money from that"

BBC TV Leaders Debate. 

Thanks to the FOI  we know that this was the advice Sturgeon refers to which was published at the time the SNP set out why they were reluctant to introduce a 50p rate in Scotland only.

Firstly the paper does indeed warn that a 50p rate could potentially lose money, however any tax could potentially lose money, there is nothing new in that. Secondly a Scottish 50p tax only reduces revenue under one of the scenarios illustrated the "High" behavioural impact. The idea that this paper was giving stark advice not to go ahead with the 50p rate is laughable, it simply sets out that if you introduce the 50p rate in Scotland there is potential for people to avoid that rate, which is rather obvious. 

Squaring the 50p coin

However "alert readers" will have noticed something peculiar about Sturgeon's choice of words. It certainly struck a chord with me when I heard it, that's because I poured over the Scottish Government advice when it was published and I know there is no reference to income turning into capital gains tax in it. 

My FOI therefore was designed to establish if there was other advice provided to Ministers, advice which covered the issue of CGT. We now know that there isn't any other advice and that presents a big problem for the SNP as they try to square  this circle. 

The reason that there isn't any advice on the issue of CGT is that it's not a risk to Scotland's relative tax revenue. 

Just to highlight I said relative tax revenue there, that's important because that's the point at issue here. It's our relative revenue that matters because that's why the SNP seem happy to tax at 50p at a UK level but not at a Scottish only level. 

For example if we look at the position where, as the SNP propose, the UK introduced a 50p additional rate of income tax. According to the SNP that would not lose Scotland money, in fact it would increase Scottish tax revenue. (Let's just leave to one side the fact that's not the case, in Sturgeon's own words it could "potentially" lose the UK and Scottish Government revenue). 

The introduction of a 50p rate at the UK level could certainly result in Scottish and rUK taxpayers trying to avoid tax by switching their income into capital gains (or making pension contributions etc). So at a UK level (which obviously includes Scotland) that risk certainly does exist, however that doesn't seem to worry the SNP at all, that avoidance potential is clearly not enough for them to consider it a risk to tax revenue. So by their policy actions we know the SNP do not consider an income to CGT tax avoidance measure to be a risk to tax revenue.

However when it comes to a Scottish only 50p rate the SNP are suddenly worried about tax avoidance of some description. We've already established they aren't worried about income to CGT tax avoidance (despite what Sturgeon said) so what avoidance are we talking about. 

What powers do the SNP think they need?

The note from the Scottish Government actually tells us what the issue is "artificially shifting income to or from rUK or migrating into or from Scotland". So the avoidance measures that Sturgeon thinks she needs before she can introduce a Scottish only 50p rate are powers that would stop the movement of income and people. Just to be clear here "artificially" moving income would be illegal tax evasion under the terms of the Scotland Act so the power over artificially moving already exists. So all we are left with is the need for a power that would involve restricting people's right to move to rUK or financially penalising them in some way if they did. 

Frankly it's nonsense and illegal in the EU if not under Human Rights legislation and, crucially, that risk of wealthy people moving or moving their income out to Scotland would apply under independence as well, unless an independent Scotland were some Stalinist state. 

No wonder then that Sturgeon, under questioning, is literally making up the advice she received to cover her own inaction on the 50p rate. 

What's really going on?

The truth is that the SNP dont want to introduce a 50p rate because of economics and politics. Economically they think it will lose them money in the long run and further brand Scotland as a high taxation area of the UK. That will eventually feed through into lower tax revenue and damage the Scottish economy. 

More importantly, politically, it will also damage the SNP's delicate coalition of wealthy supporters in the North East combined with their radical progressive supporters in the central belt. 

That's the real bind for the SNP, talking left and acting right is fine as long as you dont have to make choices. The trouble is the Scotland Act 2016 puts that choice squarely at the feet of the SNP, their solution though was to duck it by making up advice that doesn't exist and to hope no one notices. 

Sorry Nicola, you are just at it.