SNP goes into meltdown over Humza Yousaf’s plan for new tax band to fill £1.5bn chasm in Scottish government’s finances – with warnings it could spark an exodus of workers

Humza Yousaf is facing an SNP meltdown over his plan to hike taxes to fill a huge £1.5billion hole in the Scottish government’s finances.

The separatists are poised to use next week’s Budget to introduce a 44 per cent band north of the border from April.

The extra burden on middle earners comes as Mr Yousaf struggles to balance the books. 

But senior SNP figures and economists are warning that taxes are already higher in Scotland than the rest of the UK, and the move could lead to a mass exodus of workers.

Tories accused Mr Yousaf of trying to ‘tax his way out’ of trouble after ‘astonishing mismanagement’ of Scotland’s finances. Critics point out that Scotland already gets significantly more funding per person from Westminster than England.

Humza Yousaf is facing an SNP meltdown over his plan to hike taxes to fill a huge £1.5billion hole in the Scottish government’s finances

Former finance secretary Kate Forbes – who lost the SNP leadership race to Mr Yousaf earlier this year – has said she does not believe increasing income tax will necessarily bring in more money

An economic think tank yesterday warned the band could lose £43million in revenue in its first year from ‘behavioural impact’, including people moving away or finding new ways to protect their hard-earned pay.

The Fraser of Allander Institute (FAI) also disclosed SNP ministers are now facing a £1.5billion black hole in next week’s Budget.

A report by the institute noted a widening tax gap may have a longer-term impact on migration, with more people looking to move to other parts of the UK or abroad.

That would severely dent efforts by SNP ministers to attract workers to Scotland and damage recruitment in both the public and private sectors.

Former finance secretary Kate Forbes – who lost the SNP leadership race to Mr Yousaf earlier this year – has said she does not believe increasing income tax will necessarily bring in more money.

Speaking to ITV Representing Border, Ms Forbes said: ‘We already have significantly increased rates and bands here in Scotland, and therefore I think we have to be very careful about not ultimately reducing public revenue with what we do with our rates and bands.’

Put to her that such behavioural change could include people moving out of Scotland, Ms Forbes responded: ‘Or it could be that they don’t come in the first place.’

It would take around six SNP MSPs rebelling to block the Budget package. 

Mr Yousaf has confirmed he is considering introducing an income tax band between the current 42p higher rate threshold of £43,663 and £125,140, when workers begin paying the 47p top rate.

An FAI paper estimates that introducing a 44p rate between £75,000 and £125,140 could raise £84million, but this would fall to £41million when a £43million behavioural impact is taken into account, and would be paid by around 135,000 people.

It says an alternative option of introducing a 45p rate between £58,285 and £125,140 could raise £222million but would be likely to cause an £86million behavioural impact, meaning actual revenue would fall to £136million.

A further option of freezing the higher rate threshold would result in an additional £297million tax blow for workers because of the impact of more people being dragged into paying the higher rate, the FAI estimates.

But the higher rates – and a widening tax gap between Scotland and the rest of the UK – could have a longer-term impact on migration to and from Scotland.

Professor Mairi Spowage, director of the FAI, said ‘all evidence’ suggested there are behavioural responses to tax rises. She added: ‘They can be large, particularly at the upper end of income distribution, but they are also uncertain.

Deputy First Minister Shona Robison will lay out the SNP government’s Budget next week

‘It can be about people choosing to work a little less, maybe drop a day or go part-time; maybe not work extra hours, which can be a common response to increases in your marginal rate, when you think about what happens if you earn an extra £1 rather than how much you think about what you pay overall.’

Professor Spowage said: ‘It could be about either paper migration or actual people moving out of Scotland, although often migratory effects when we talk about them in tax behaviour are not really about people leaving, it’s more about is there one person in 100 who would have moved to Scotland who wouldn’t otherwise move to Scotland? It’s more about the net effect of that over a period of time.’

The FAI estimates the funding gap for day-to-day spending will be £800million next year, as well as £700million for capital spending such as infrastructure. It said £300million of this is due to Mr Yousaf’s council tax freeze pledge, while £100million is down to extra funding to tackle NHS waiting lists.

Scottish Conservative finance spokesman Liz Smith said the ‘eye-watering’ FAI report ‘highlights the SNP’s astonishing mismanagement of Scotland’s finances’. 

She added: ‘All the signs are pointing towards Humza Yousaf trying to tax his way out of an ever-growing financial black hole.

‘That would be naïve in the extreme and, as the FAI points out, a new higher tax band would barely make a dent in that deficit.’

Yesterday Deputy First Minister Shona Robison said: ‘I will be setting out the tax proposals next Tuesday at the Budget and anything is speculation up to that point.’

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