SNP makes the case for scrapping tax-free personal allowance and imposing a “Flat Tax”

Dr. Stuart MacLennan Scottish Politics, Taxation Kezia Dugdale, Nicola Sturgeon, SNP 0 Comments

Labour (and the Liberal Democrats) have called the SNP’s bluff, by proposing a 1% tax increase in order to offset cuts to public services. Surely, the left-wing SNP warmly embraces slightly higher income taxes over austerity? It seems not, and the SNP’s spin machine has gone into overdrive, inventing new meanings for words, which hitherto had a commonly understood meaning.

In order to defend themselves against the claim that the SNP, while speaking the language of Syriza, bear a far closer resemblance to the Tories or New Labour when it comes to taxation; the SNP’s spin doctors (another trait they share in common with New Labour) have invented a new definition of “progressive”. Any tax expert will tell you that a progressive tax is one in which the effective rate increases with the value of the base. Income tax is progressive in that respect, because higher earners pay a higher proportion of their income in tax than lower earners; Council Tax, by contrast, is regressive to its base (property values) because the effective tax rate is lower for higher value properties. Simple stuff.

However, in response to Scottish Labour’s proposals to increase the Scottish Rate of Income Tax (SRIT) by 1% in every band, the SNP invented a novel definition of progressivity. The SNP described Labour’s proposals as “regressive” because the relative increase in the proportion of higher earners’ income tax is smaller than the relative increase in lower earners’ tax. In other words, the proportion of the proportion of income.

The SNP’s cyber-warriors went into overdrive, lovingly embracing this new definition of progressivity, seemingly without the slightest clue about what they were actually saying. For example, the first £11,000 of income is tax-free. A certain amount of tax-free income is a feature in almost every tax system and is, surely, progressive? Well, no longer, according to the SNP. Because we pay no tax on the first £11,000, the first penny of income tax is an infinitely higher burden than zero.

As can be seen on the above graph, the rate at which the tax burden increases (green line) is significantly higher at the lower end of income tax, because the tax-free personal allowance represents a much larger share of total income. Because of the withdrawal of the personal allowance above £100,000, the rate at which the tax burden increases in the top brackets approaches zero (the only constant being the weekly National Insurance threshold of £112). Under the SNP’s new definition of progressivity, the personal allowance is regressive, and presumably therefore, has to go.

By contrast, taxing us on every penny we earn at a single rate – a flat tax, without any personal allowance – would be much less regressive under the SNP’s conception of progressivity.

The SNP’s measure of progressivity is what’s called a derivative, and by the SNP’s new definition of progressivity, it’s not just Labour’s proposals that are regressive, but also the whole of income tax itself! In their attempts to spin Labour’s proposals as regressive (which I hope is clear by now, they are not) the SNP’s spin doctors and their online infantry have been making the case for scrapping the personal allowance and imposing a flat tax. And if you believe that’s “progressive” then you really will believe anything.