Ross Clark Ross Clark

Scotland pioneers the 84.5 per cent tax rate

Humza Yousaf (Credit: Getty images)

You can say one thing about Jim Callaghan’s Labour government of the 1970s. It certainly kept migration under control. Over the course of his government, Britain saw net migration of around minus 65,000. That had quite a lot to do with a top tax rate of 83 per cent.

Whether Scotland’s new tax rates will actually raise any revenue is another matter

But if Keir Starmer says he won’t return to punitive tax rates, the SNP is certainly giving Callaghan’s Chancellor Denis Healey a run for his money. The Scottish government has just announced a new rate of 45 per cent for earnings between £75,000 and £125,140. But in some circumstances, the marginal rate can rise to Healey-esque levels.

The special case concerns people who studied at English universities and then go on to live in Scotland after graduation, and succeed in earning over £100,000 a year. Anyone who earns between £100,000 and £125,140 (even in England) already has a marginal income tax rate of 60 per cent, thanks to the way that the personal allowance is withdrawn: at a rate of £1 for every extra £2 earned. But in Scotland, the new 45 per cent rate will raise that marginal rate to 67.5 per cent. Then, if you are working rather than living off investments, you have to add on a further 2 per cent in national insurance, making 69.5 per cent.

But what if you have a student loan to repay? That will add an extra 9 per cent, taking your marginal rate to 78.5 per cent. And a postgraduate loan on top? That is another 6 per cent, taking you to 84.5 per cent, higher even than Healey inflicted on the country.

It has to be emphasised that a student living in England in such circumstances will also pay an incentive-busting marginal rate, of 77 per cent.

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