Mackay Budget under pressure

SNP ‘could afford tax cut by tackling overspending’

Derek Mackay (photo by Terry Murden)
Derek Mackay (photo by Terry Murden)

Finance Secretary Derek Mackay could afford a tax break being introduced south of the border if the Scottish government stopped wasting public money through mis-management of public finances, it has been claimed.

Middle earners in England and Wales will see their tax threshold rise to to £45,000 from April.

But the SNP has already stated that it will not pass on the tax cut for middle-earners, leaving Scots more than £300 worse off than workers on the same pay south of the border.

Conservative shadow Finance Secretary Murdo Fraser says: “The SNP claims it can’t afford to give Scots the same tax break as people will receive elsewhere in the UK because there isn’t enough money. This is nonsense. 

“The money is there – it’s just that it’s being frittered away.”

The Tories have produced a dossier entitled “Mackay’s Missing Millions” which calculates that budget over-runs and departmental waste are costing taxpayers £431.5 million – more than the final bill for the Scottish parliament.

Extra expenditure on projects which the Scottish Government has partial responsibility takes the figures to £947.7m.

The latest spat comes ahead of a historic budget on Thursday in which – for the first time – the Scottish Government will set out income tax rates and bands for Scotland.

Since April ministers have had the power to set a Scottish Rate of Income Tax (SRIT) which accounts for 10p in the pound across all bands.

The previous Finance Secretary John Swinney shied away from using the powers, setting a SRIT of 10p in the pound to restore parity with the rest of the UK.

On Thursday, Mr Mackay is expected to confirm the first divergence with the UK by stating that the threshold for 370,000 workers who pay tax at the 40% rate will increase to £43,387 with inflation – less than the £45,000 proposed for the rest of the UK.

A Scot earning £50,000 will pay £9,023 in income tax, while workers in the rest of the UK will pay £8,700, a difference of £323.

This gap will widen over the next few years so that by 2020-21 a Scot with a £50,000 salary would pay £8,300 in income tax. South of the border someone on the same salary would pay £7,500 – a difference of £800.

Stephen Hay, RSM’s head of tax in Scotland, suggested that Mr Mackay could introduce radical changes to rebalance the tax system.

“Mr Mackay might be bold and could review and overhaul the current system of income tax rates which puts individuals in very unsubtle 20%, 40% and 45% tax brackets.

“There’s no reason why, with the benefit of modern technology, he could not introduce a system of multiple rate bands running from between 20%to 45%. This might achieve far greater social benefits without the cliff-edge effects of the current system.” 

The SNP would like to introduce a new 50% tax rate but has held off due to the fear that those who fall into the higher tax band would leave Scotland.

Mr Hay said: “With a growing deficit, increased fiscal pressures and uncertainty surrounding Brexit, there could be grounds to be even braver and rather than just redistribute. Mr Mackay may look to increase taxes across Scotland to fill the gap, which would ease the fiscal pain but hit the pockets of Scottish taxpayers.”

Labour, the Greens and Lib Dems argue that Mr Mackay’s existing tax-raising plans do not go far enough and want taxes to go up further.

Labour wants an extra one pence on income tax across all bands and the top rate for those earning more than £150,000 increased from 45% to 50%.

The Lib Dems also want a one pence increase across all bands, while the Greens want tax increases to include raising the top rate to 60%.

An independent report produced by the Scottish Parliament Information Centre (SPICe) said that raising an extra 1p across all bands would generate £475 million extra for the Scottish Government.

Labour has estimated their plans would raise £500m. However, others say that raising taxes reduces consumer spending and therefore impacts adversely on business.

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