Scottish income tax plans are agreed
MSPs have agreed to the Scottish Government’s income tax plans for the year ahead.
The Scottish Rate Resolution was agreed by MSPs on Thursday evening by 62 votes to 54.
It means that from 6 April:
- A new 45p ‘advanced’ rate of tax will be introduced for incomes between £75,001 and £125,140.
- The Scottish top rate of income tax will increase to 48p.
- The starter and basic rate bands will increase by inflation.
During the debate, Public Finance Minister Tom Arthur said the measures were ‘difficult but necessary’ and that they would further the government’s commitment to ‘progressive taxation’. He added that, once UK National Insurance cuts were accounted for, only those taxpayers earning more than £100,000 would pay more in the next financial year compared with this year.
Arthur acknowledged concerns about the potential behavioural impact of the government’s tax policies and warned that UK income tax cuts in next month’s Spring Budget would be ‘unsustainable’ and lead to further pressures on public finances.
Liz Smith (Con) said businesses were concerned about the impact of the tax proposals on their firms. And she questioned whether the government’s modelling of behavioural change would provide an accurate picture of the impact of these announcements.
Michael Marra (Labour) accused the government of using tax as a substitute for economic growth and said that the impact of fiscal drag would be the government’s biggest revenue raiser. Ross Greer (Green) argued that the plans were ‘redistributive’ and had helped to increase the country’s tax take. Alex Cole-Hamilton (Lib Dem) suggested Scotland was at a ‘tipping point’ and that behavioural changes could have an impact on the ability to attract and retain higher earning workers.
Immediately following the half-hour debate, MSPs agreed to the rate resolution by 62 votes to 54. It means the parliament can now debate and vote on the final stage of the Scottish Budget when it is considered next week.
Background
In the period since the December budget, there has been an increased focused on the potential behavioural impacts of the decision to increase taxes.
At the same time, the prospect of further UK income tax cuts – which could be announced as soon as next month’s UK Budget – means it is possible that divergence will widen still further.
The Scottish Fiscal Commission has said that while the changes will raise more revenue, it will be less than expected as taxpayers take steps to reduce their liabilities. Last week, the Daily Telegraph reported on the concerns of taxpayers and businesses fearful that further divergence from the rest of the UK will make it more difficult to attract and retain talent, with one financial planning company reporting an increase in the number of young people seeking advice on tax planning.
Deputy First Minister Shona Robison told the Scottish Parliament’s Finance and Public Administration Committee this week that it was ‘not affordable’ to ease the tax burden on middle earners.
Asked by the committee’s convener Kenneth Gibson if ministers could address the anomaly that sees Scots with earnings between the Scottish and UK higher rate thresholds taxed at a marginal rate of 52 per cent, Robison cited the ‘incomplete’ devolution of tax raising powers to Holyrood.
The Times reports that she added: “The solution to that would be a tax system that is fully devolved to Scotland so we can drive out these anomalies that arise”. She said any efforts to resolve the anomaly within the existing suite of powers “would be very, very difficult” and in the short-term, “just not be affordable”.
The Scottish Labour Party has hinted it would reduce taxes on middle and higher earners if it forms the next Scottish Government. At the party’s conference in Glasgow last weekend, Anas Sarwar described the income tax policy of the current government as ‘ludicrous’ and accused ministers of increasing taxes “as a substitute for economic growth”. A spokesperson for the leader said the party would want to simplify the Scottish income tax system and “lower the tax burden on working people”.
The party’s emerging tax policy comes as it faces pressure over the UK party’s plans to extend the windfall tax on oil companies (the impact of which will be felt in the North East of Scotland).
The Scottish Government believes its tax plans retain its ‘progressive’ approach to taxation and that the decision to increase taxes on higher earners is appropriate in order to retain the ‘social contract’ of free, universal services.