Sharp rise in higher rate tax payers in Scotland
Scotland has seen a sharp increase in the number of workers falling into higher rate tax bands while across the UK the figure has fallen.
Figures from the Scottish Fiscal Commission reveal a 23% rise in the number of Scottish taxpayers in the higher bands up to 2020/21, partly down to the freezing of tax bands, forcing workers into higher bands as wages rise.
The Chancellor has raised thresholds for other parts of the UK which have been a 10% fall in higher rate taxpayers.
In yesterday’s Scottish Budget, Scotland’s acting Finance Secretary John Swinney hiked the higher rate of income tax from 41p to 42p in the pound (40p in rest of UK) and increased the top rate from 46p to 47p (45p south of border).
The tax threshold for the top rate was lowered from £150,000 to £125,140, bringing more earners into the highest band in line with the move by the Chancellor for the rest of the UK. Other income tax bands remain unchanged.
Despite the growing disparity, commissioner Francis Breedon did not see evidence of workers fleeing Scotland for lower-taxed areas of the UK. Some may switch their main residence if they have more than one home.
“People tend to do a paper migration rather than a physical one,” he told a media briefing. “They tend to be attached to where they happen to be.”
The SFC’s analysis of the Scottish Budget reveals that real incomes will see their biggest drop since 1998.
It says: “Even once inflation returns to lower levels, and real household incomes start to grow again in 2024-25, living standards will take time to recover to the pre-crisis 2021-22 level.”
Graeme Roy, SFC chair, said that “even by 2025-26 it will take us back to where we were a decade earlier and it will take us until 2027/28 to get back to the pre-energy crisis spike.”
Mr Roy said the Commission believes the Scottish economy is in recession but it will be “relatively shallow”.
He said: “Everyone will be impacted rather than it being concentrated in one sector.”
The SFC is “not as negative as the Bank of England” and does not see much difference in the outlook between Scotland and the rest of the UK.
GDP growth in Scotland will continue to underperform the UK overall by by about 0.5 percentage points.