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Scottish Budget

Mackay deal with Greens ensures tax rise

Derek Mackay (photo by Terry Murden)

The Scottish Government has confirmed that all income tax rates will be frozen next year which means the higher rate threshold will not rise in line with changes in the rest of the UK.

This threshold for paying higher rate income tax, which affects the top 10% of adults in Scotland, will generate an additional £29 million tax revenue.

The revised higher rate threshold forms part of an agreement with the Scottish Green party that secures the passage of the Scottish budget and Local Government Settlement.

Ministers said the deal protects 99% of Scottish taxpayers who will pay no more than tax than they do in the current year.

However, the Conservatives said 374,000 people will pay more than they would if they lived south of the border.

A further £35 million of funding will be made available to Scottish Enterprise to support Scotland’s economy.

Following discussions with other parties, the Finance Secretary Derek Mackay (pictured) also confirmed, as part of an agreement with the Scottish Green party, that Scotland’s local authorities would benefit from an additional £160 million investment.

Confirming the changes to parliament, Mr MacKay said: “In my discussions with the Scottish Green party I have made clear that at a time of economic uncertainty, rising inflation and rising prices, this government does not think it would be right to increase tax rates.

“I believe it would not be right for there to be a fundamental change to the proposals we put to the people of Scotland.

“However, having considered the proposals put to me, I confirm that I will lodge a Scottish Rate Resolution that sets the same tax rates as originally proposed but which applies a cash freeze on the higher rate threshold.

“This change protects basic rate taxpayers while generating an additional £29 million of revenues in 2017/18. And it ensures that 99% of taxpayers on the same income this financial year will not be paying any more income tax in the next financial year.

“These proposals balance the need to raise additional revenues, whilst asking the highest earners to forego a significant tax cut at a time of UK Government austerity. For the 10% of people covered by this higher rate the income foregone amounts to around £7.70 a week.

“However, in return for this contribution Scottish taxpayers will continue to benefit from significant investment in our public services.

“This includes increased investment in the NHS, protection of public services that are free at the point of use – including free prescriptions, the support our policy of free personal care provides, free higher education, no business rates for 100,000 small businesses, as well as additional investment in reducing the attainment gap and the doubling of free childcare.”

Reaction

Peter Young (right), tax partner at accountancy firm Johnston Carmichael said: “We knew a divergence was coming after the Scottish Budget last year, but it looks like being a larger divergence than was first anticipated.

“If reports are correct then someone living and working in Berwick-upon-Tweed and earning £45,000 per year will be £400 better-off than someone earning the same salary 10 miles away in Eyemouth. For employers with staff in both countries, that will mean running two payrolls to account for the different tax regimes.

“This isn’t necessarily a signal that even greater change is on the way, but it’s significant that we’re now seeing the Scottish Government using its wider tax powers.”

Jon Preshaw, tax director at PwC, said: “This will impact approximately 372,000 people in Scotland. As the finance minister pointed out, that’s around 10% of the workforce and will see them pay £400 a year more than counterparts in other parts of the UK.

“This is an increase on what had previously been considered. Originally, the Scottish Government planned to increase the higher rate threshold in line with inflation and that would have cost each taxpayer £314 per annum. This means that today’s announcement alone has an impact of £86 per annum per taxpayer compared to the original plan.

“There will clearly be an impact for individuals in real terms, although we don’t expect any short term impact on decision making for people who may already be planning to relocate to Scotland or for Scottish businesses looking to attract staff.”

The Scottish Conservatives said “hundreds of thousands” of Scots face paying more income tax.

Colin Borland, head of devolved nations for the Federation of Small Businesses, said: “At a time when weak consumer demand and the sluggish state of the domestic economy are dominating small business owners’ worries, it would have made sense to put some money into their customers’ pockets.”

Murdo FraserMurdo Fraser (right), the Conservatives’ finance spokesman, said:”Derek Mackay could drop his plans to make Scotland the highest-taxed part of the UK and work with us to deliver an ambitious budget focused on growing the economy.

“Instead, he’s turned hard left and embraced the anti-growth, anti-business agenda of the Greens.

“The SNP was well-warned by the business community as to the consequences of going further on tax than he originally intended. The Chambers of Commerce described it as ‘highly dangerous’.

“But the nationalists have shown contempt for the views of Scottish business, and have demonstrated they have zero interest in trying to help grow our under-performing economy.

“It sends out the message that the risk-taker, the wealth-creator, the entrepreneur, and the successful are not welcome here.”

Kezia Dugdale, Scottish Labour leader, said: “The Finance Secretary said to me that he had no mandate to increase taxes.  He said he had no mandate in his manifesto to increase taxes. 

“And I said to him he has no mandate for these cuts to public services either. 

“And in the concession he has given to the Green Party today to move away from his manifesto commitment on the higher rate of income tax, he has abandoned that principle of sticking to his manifesto. 

“And it leaves him open to the accusation: why not use that 50p top rate of tax? 

“You have moved away from your manifesto once, do it again in the name of protecting vital public services.   

“And it has been Labour who has been honest enough to say that if we want high quality universal public services then we have to talk about how we pay for them and, crucially, who pays for them.” 

The revised proposals will be put to parliament in the coming weeks.

Scottish Income Tax proposed rates and bands 2017-18 

Scottish income tax rates Scottish Bands
Scottish Basic rate 20% Over £11,500* – £43,000
Scottish Higher rate 40% Over £43,000 – £150,000
Scottish Additional Rate 45% Over £150,000 and above**
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