SC
Could new tax proposals turn off high-earners?
18 June 2009
New proposals to hand more powers to Holyrood over income tax could see the top level in Scotland move higher than the rest of the UK. This may have implications for attracting and retaining top talent north of the border – particularly in the high earning fund management sector.
The Calman Commission, set up to examine how to strengthen state powers under devolution, has recommended that the UK government should cut income tax by 10p across all income tax bands in Scotland, leaving the Scottish parliament to make up the rest.
MSPs, therefore, would need to take more responsibility for revenue raising, which could mean Scottish income tax is out of kilter with the rest of the UK.
David Thorburn, chairman of CBI Scotland, said: “The tax powers of the Scottish parliament will be significantly increased and there will be no upper limit to the Scottish rate of income tax that may be charged.”
Obviously, these are still just recommendations, but if they get the green light is it likely that there could be an exodus of talent from financial services, or at least make it more difficult to attract talent?
John Whiting, tax partner at PricewaterhouseCoopers, believes so.
"Increasingly people are looking at their net income rather than just the gross and it's a key factor in deciding where to base oneself," he says. "Today's workforce is more mobile, and it will be more difficult to attract people to Scotland if the proposals go ahead, particularly for high-earning roles within areas like fund management."
There's also the possibility that fund managers could simply shift their high earners to offices down south, suggests Joanna Black, director of executive search firm Black Appointments.
"My feeling is that most firms would look for ways around it, possibly by splitting their high-earning employees' time between Scotland and England, and claiming their base is down south," she says.
However, there's always the possibility it could work in Scotland's favour, following Alistair Darling's plans to increase the income tax rate for those earning over £150k to 50% from April next year.
