Author Mark Fairlie
Earlier this month, Cabinet Secretary for Finance and Constitution, Derek Mackay, announced the Scottish Budget 2017.
Whilst the report included proposals for further funding for schools, healthcare and housing, it was Mackay’s changes to income tax that have made headlines; with many critics opposed to the decision.
What did income tax look like before the changes?
The change meant that Scottish workers earning more than £43,000 each year now pay £400 more than those in England on the same pay.
Ahead of the announcement, First Minister Nicola Sturgeon promised that “70 percent of taxpayers in Scotland – 83 percent of all adults in Scotland – will pay no more income tax after this Budget than they do now.’
However, according to the Telegraph, 45% of Scots will be paying more income tax than those on the same salary in England from April 2018.
What changes were made in the Budget?
The 2017 Budget saw the creation of a new income tax band. Mackay revealed the 21% rate for taxpayers earning between £24,000 and £44,000, filling the gap between the basic and higher rates.
The ‘tartan tax’ also placed an additional 1p on both the higher and the top rates, bringing them to 41p and 46p.
A 19p “starter rate” was also introduced for the first £2,000 of income above the personal allowance. However, even this positive change did not do much to restrain the criticisms from other parties and business owners.
How have people responded to the changes?
Ruth Davidson, the leader of the Scottish Tory Party, pointed out that the SNP promised basic rate taxpayers in April 2016 that their tax bills would not rise. She accused the party of saying “one thing before an election, the exact opposite after”.
Deputy leader of the Scottish Conservative Party, Murdo Fraser, said the SNP and Sturgeon have ‘misled voters’ and owe them a “huge apology” for going against their own manifesto. He also stated the First Minister has “absolutely no mandate” from voters to increase the basic tax rate.
Mackay’s Budget has made Scotland the highest taxed part of the UK, despite official forecasts showing the lowest economic growth in almost sixty years. CBI Scotland stated that a hike in income tax would squeeze household income “at a critical juncture”.
So why did they make the change?
Last month, Westminster announced that they would be cutting Holyrood’s day-to-day revenue budget by £200 million next year.
The First Minister said that, due to the spending cuts, the proposals put forward in the Budget would “set out how we protect our NHS, our education system and other vital public services from that while protecting the vast majority of taxpayers and also investing in businesses and the economy.’
The future of income tax in Scotland
Tim Allan, President of the Chambers of Commerce, warned Sturgeon before the Budget that the “damage” of a tax band change “could take years to repair”.
An analysis from IPPR Scotland also suggested this may be so, stating the hike would “only soften cuts for a year”, and that further tax increases would be needed to protect the Scottish public services in future.