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Mackay ‘loses’ £550m income tax but awaits £5bn VAT boost

Derek Mackay

Derek Mackay: urged to keep a lid on income tax


Finance Secretary Derek Mackay has been forced to explain how he will fill a £550 million blackhole in his budget after new figures revealed the number of higher rate tax payers had been over-estimated.

The Scottish Fiscal Commission revealed that income tax receipts for Scotland produced £10.7bn against a forecast £11.3bn.

The number of higher rate tax payers is 14,500 lower than projected, and the number of additional rate earners lower by 2,200.

Scottish Conservative finance spokesman Murdo Fraser said: “This analysis shows there are considerably fewer earners on higher and additional rates than the SNP government thought when it was plotting its tax hike.

That means future tax receipts could be badly out, and that will have an impact on the Scottish Government’s ability to pay for hospitals schools and infrastructure. It also proves the need for a rethink on taxation.

We need to be encouraging higher earners to come to Scotland, not driving them away with rates higher than anywhere else in the UK.

“As these figures show, a smaller number of higher rate taxpayers translates into a significantly lower tax take – and that can have serious financial consequences.”

Scottish Labour’s Finance spokesperson James Kelly MSP said: “These are deeply worrying figures that reflect the SNP’s shocking mismanagement of Scotland’s finances. 

“This is yet another example of Derek Mackay’s failure to properly look after Scotland’s budget. 

“With Scotland’s public services at breaking point after years of Tory and SNP cuts, our health service and schools simply cannot afford a further loss of funds.

“Derek Mackay must urgently outline how this shocking situation has been allowed to come about – and what he is going to do to fix it.”

Mr Mackay may be tempted to bridge the gap with the £5 billion windfall he will receive next year as a result of VAT receipts being assigned to the Scottish parliament.

The bounty amounts to half of VAT raised and the new power given to Holyrood is contained in the 2016 Scotland Act 2016.

The Commission confirmed that the VAT assignment for 2017-18 is estimated to have been £5.07bn.

David Lonsdale, director of the Scottish Retail Consortium, said Mr Mackay should regard the added income as a good reason not to hike taxes.

The devolved administration and MSPs will therefore have a direct interest in nurturing higher levels of receipts from this tax as it will directly benefit their revenues.

“Few better opportunities exist than supporting consumer sentiment and encouraging and facilitating a flourishing retail industry. That’s why we want to see the Finance Secretary rule out any increases in income tax in his upcoming Scottish Budget.”

The Commission, chaired by Dame Susan Rice,  works with a large number of Scottish and UK data providers to create its forecasts. The third paper published today sets out the improvements in data that the Commission believes would help it produce better forecasts. 

One Comment to Mackay ‘loses’ £550m income tax but awaits £5bn VAT boost

  1. The inaccurate forecast of the Scottish Fiscal Commission (SFC) is the LEAST of their crimes against the Scottish economy, wrecking it and against the prosperity of the Scots, impoverishing us.

    The SFC has had from day one a duty to report to the Scottish Government, Parliament and People the CLEAR AND PRESENT AUSTERITY DANGER of the bad deal Fiscal Framework Agreement signed by Sturgeon with the UK in 2016.

    The SFC has merely accepted the fiscal framework without commenting on it. That is a crime similar to passing someone a poisoned chalice and failing to mention that the chalice contains poison.

    Susan Rice, the Chair of the SFC should be dismissed immediately and my advice taken in her place.

    My advice is that the bad deal fiscal framework must be disagreed, renounced and the Scottish government must demand a new and better deal with greatly enhanced borrowing powers – I recommend 8% of GDP, interest-free from the central bank every year.

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