Sturgeon's own chief economist warns tax hikes could cost £24 million
NICOLA Sturgeon was last night warned by her own chief economist that tax hikes on the wealthiest Scots could backfire and cost the country £24 million.
Dr Gary Gillespie raised fears of an exodus of workers to England if SNP ministers reintroduce a 50p top rate of income tax for those earning £150,000 or more.
The Scottish Government's chief economist said a significant difference in tax rate north and south of the Border could bring about a "revenue and policy risk".
But with less than 48 hours before Finance Secretary Derek Mackay publishes his draft Budget Dr Gillespie suggested "smaller changes" than raising the additional rate by 5p could mitigate the dangers.
Both the First Minister and Mr Mackay face a growing backlash over proposals to £290million more in income tax next year with business leaders insisting they will deter investment, spark skills shortages, and actually raise less money for public services.
There is likely to be a revenue and policy risk associated with increases to the additional rate
Conservatives said Dr Gillespie's analysis leaves middle-class Scots facing the brunt of any wage grabs on Thursday.
A spokesman said: "This appears to acknowledge that changes at the higher level could lead to a drop in receipts.
"Given the SNP says it is hiking taxes to generate millions extra, middle earners right across the country will fear they’re in the firing line."
During the 2015 general election campaign Ms Sturgeon backed upping the 45p rate to 50p.
Question Time: Audience member attacks SNP over income tax
But with full income tax powers devolved since last April she ruled it out amid fears of a wealth exodus from Scotland.
She previously left the door open to a higher rate before the next Holyrood election in 2021 after pressure from Labour, Greens, and the Lib Dems.
In November she published a paper as the starting point for discussions between her minority government and the opposition parties, ahead of the 2018-19 Budget.
All four scenarios suggested increasing the 40p higher rate and 45p top rate of income tax in April next year, with three of them also backing a penny rise in the 20p basic rate and a 50p top rate. They proposed the creation of up to six income tax bands, compared to the current three.
Some 20,000 Scots currently pay the 45p rate and contribute almost a fifth (19 per cent) of total tax liabilities north of the Border.
Many work in professional, financial services and insurance, with Dr Gillespie's report noting they "tend to be more mobile and have more opportunities for reducing their tax bill compared to taxpayers on lower incomes".
It said: "Many top rate taxpayers may be able to choose their residency, particularly if they are working in companies with locations and activities across the UK. It may also be possible for individuals to live in England but continue to work in Scotland."
If no top earners made any changes, increasing the top rate could net ministers about £145 million in revenue.
But it added that even if there was a low level of behaviour change, this would be reduced to about £53 million, while a high level of change could "potentially result in a £24 million loss in revenues for the Scottish Government".
Dr Gillespie said: "Our analysis also notes that a lower increase in the additional rate could mitigate the behavioural response and provide a greater opportunity to raise revenues.
"The report concludes that there is likely to be a revenue and policy risk associated with increases to the additional rate that result in a substantial divergence from the rest of the UK but that smaller changes could alleviate the risks identified."
Meanwhile, the IPPR Scotland think-tank has said the budget for day-to-day spending could fall by £700 million a year in just two years' time.
Researchers said a 2p hike in the basic rate of income tax would be needed to cover the cuts.
Without any income tax hikes areas other than police and the NHS could see budgets fall by more than 10 per cent between 2017-18 and 2019-20.
Cuts to those "non-protected departments" could fall by £1.3 billion a year, which would require the basic rate of income tax to go up by 4p to cover.
Tories will today heap pressure on the SNP to stick to its 2016 manifesto promise to implement a freeze "to help low and middle income earners" with a Holyrood debate on the issue.
The party's finance spokesman Murdo Fraser said: "The SNP told people one thing when it wanted their votes, now it's saying the complete opposite."
But Mr Mackay said the Conservatives had "the least credibility" on public finances and "must explain the glaring contradiction of demanding increases in public spending while simultaneously raising less money with their tax cuts for the rich".