Swinney may target high earners under tax plan
Scotland’s interim Finance Secretary John Swinney may drag more earners into paying the highest rate of tax if he follows plans being drawn up by the Treasury.
Chancellor Jeremy Hunt is looking to reduce the threshold at which people start paying the 45p rate in England from £150,000 to £125,000.
It is estimated that the change, likely to be announced in Thursday’s Autumn Statement, will affect about 250,000 people and cost them £580 a year.
Ir would also see a further 629,000 higher earners who pay the 45p tax paying an additional £1,250.
The move could raise an estimated £1.3 billion a year for the UK government. The potential windfall may be enough to persuade the Scottish Government to impose a similar change and reduce the threshold at which earners pay its 46p top rate.
At present, 8.5% or 387,000 Scottish adults pay the Higher Rate (41p), and less than 1% (18,000) of the Scottish adult population pay the Top Rate (46p).
Mr Hunt and the Prime Minister Rishi Sunak believe the change will enable them to say they have stuck to the 2019 Conservative manifesto pledge not to increase income tax.
They are are also likely to raise benefits and state pension payments in line with inflation in a move that will cost £11 billion a year but will be seen as signalling concern for those most affected by the cost of living squeeze.
However, they are expected to freeze other income tax thresholds and those for national insurance, VAT, inheritance tax and pensions savings . This ‘fiscal drag’ – pulling more people into higher tax bands as earnings rise – will also help offset spending cuts elsewhere.
It is thought they will introduce vehicle exercise duty for emission-free cars and vans for the first time to help plug a £7 billion shortfall in road tax.
The economy shrank by 0.2% in the last quarter and the Bank of England has said that Britain is facing a two-year recession, though a surprise fall in US inflation has given hope that interest rates may not have to rise as aggressively as in recent months.
Mr Hunt said yesterday that if the UK does sink into a recession, he wants to make it as “shallow” and “quick” as possible.
“The best thing I can do as chancellor is to produce a plan that brings down inflation, brings down the upward pressure on interest rates,” Hunt said.
“It’s not going to be easy, there are going to be some very difficult choices. I’ve used the word ‘eye-watering’ before, and that’s the truth.”