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Swinney urged to use tax powers for public services

John Swinney
John Swinney: tax powers are available

John Swinney is expected to impose a tax increase on higher earners this week as he faces calls to make greater use of the government’s devolved powers to raise revenue for public services.

The Deputy First Minister and interim Finance Secretary will deliver his budget on Thursday and is almost certain to follow Chancellor Jeremy Hunt by cutting the threshold when the higher rate of income tax kicks in.

Income tax bands in England, Wales and Northern Ireland will remain in place until 2028 but tax at 45p will be paid when earnings hit £125,140 rather than £150,000.

Should Mr Swinney leave the threshold for the 46p tax rate unchanged it will leave higher earners in Scotland significantly worse off. It is thought there may be some further tinkering with the bands to benefit the lowest paid.

He is likely to claim that his spending plans are constrained by inflation eroding the Scottish Government’s budget in 2022-23, meaning that the present financial year’s budget is worth about £1bn less in real terms.

However, the Fraser of Allander Institute says in a report today that while the outlook for Scotland’s budget in 2023-24 has undoubtedly been made more challenging the announcements made by Mr Hunt in the Autumn Statement more or less offset the impacts of inflation on the Scottish budget in 2023-24 and 2024-25.

It adds that “there are decisions that Mr Swinney can make to ease the path ahead for Scotland.”

In its-pre Budget report, the University of Strathclyde-based Institute says the Scottish Government “now needs to set out how it will use its significant devolved tax powers and whether to use them to generate more revenue for public services, including public sector workers.”

Professor Mairi Spowage, director of the Institute, said: “John Swinney is getting set to present his first budget in seven years, in what he has acknowledged is an unprecedentedly tricky time for the Scottish public finances.

“The challenges he has been dealing with for 2022-23 ease a bit for 2023-24: there was some additional money announced at the Autumn Statement which generated around a £1bn of consequentials, offsetting the inflationary pressures on the budget.

“But there is also flexibility that the Deputy First Minister has for the next financial year that were not available to him for this year – the Scottish Government does have tax powers that could be used, if he wishes, to raise more revenue.”

Emma Congreve, deputy director, said: “In amongst all the headline-grabbing decisions, it will be important to take a step back to see how this Budget helps Scotland achieve its long term ambitions

“We are expecting that the government will set out, clearly and transparently, the choices it has made and what the impact, both good and bad, will be for policy outcomes and the impacts on different groups.”

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