BUDGET SPECIAL
A TOTAL of 757,000 Scots will see their pay packets shrink after the SNP yesterday announced plans which were branded a ‘tax on aspiration’.
Nearly one in three of all taxpayers in Scotland will have to pay more as a result of Finance Secretary Derek Mackay’s decision to hike rates in yesterday’s Budget.
Most workers on more than £33,000 will see their pay packets get smaller.
The 1.1million people – 45 per cent of the Scottish workforce – who earn more than £26,000 will have to pay more than workers earning the same as them in other parts of the Uk.
Mr Mackay was criticised for introducing a ‘tax on aspiration’ north of the Border as he increased the higher rate and top rate of tax by one percentage point – the first time Holyrood has ever forced Scots to pay a higher rate than elsewhere in the Uk.
He was also accused of breaking a manifesto promise by introducing a 21p tax band for everyone earning between £24,000 and £44,273.
The decisions led to a backlash from a wide range of business leaders, who say it could damage the economy and lead to a slump in investment.
There were also fears hardpressed families already battling soaring inflation and rising interest rates could have to tighten spending further – hampering Scotland’s businesses.
Mr Mackay insisted most Scottish taxpayers will pay less than they did because he opted to introduce a lower 19 per cent tax band on earnings between £11,850 and £13,850. But this will add only £7.50 a month to the pay packets of those on less than £20,000 a year.
Scottish Tory finance spokesman Murdo Fraser said: ‘This “Nat Tax” will hit nearly half of Scottish workers in the pocket.
‘That is a tax on aspiration, a punishment for daring to work hard and a direct breach of the promise made by the SNP in its election manifesto.
‘Today, every single SNP member of the Scottish Government has broken that promise to the Scottish people. That will not escape the notice of voters, who will never believe a word the Nationalists say again.
‘The message from this Budget is clear: don’t be ambitious, don’t be hard working and don’t be successful in the SNP’s Scotland. if you are, the SNP will penalise you for its own failure to grow the economy.’
Mr Mackay claimed the tax policies would bring in an extra £164million to spend on public services. But Alan McFarlane, of the Reform Scotland think tank, said: ‘We think the Scottish Government has taken an unnecessary risk which could end up producing less revenue.’
This year was the first time any Scots had ever had to pay more income tax than in the rest of the Uk, after the SNP opted to keep the threshold for the higher 40p rate of tax at £43,000 as it rose to £45,000 across the Uk.
But Mr Mackay yesterday unveiled a fundamental overhaul of the entire tax system which goes much further.
All 332,000 Scots currently paying the higher 40 per cent tax band will see this rise to 41 per cent for earnings above £44,273, while the 19,000 paying the top rate for earnings over £150,000 will pay 46p in the pound.
in its last Holyrood election manifesto, the SNP stated: ‘We will freeze the basic rate of income tax throughout the next parliament to protect those on low and middle incomes.’
But yesterday it opted to force 892,600 taxpayers earning between £24,000 and £44,273 to pay a new ‘intermediate’ rate of 21 per cent, rather than the current 20 per cent.
The Scottish Government also decided to apply an inflationary increase in the threshold for paying the higher rate of tax, from £43,000 to £44,273. Coupled with Philip Hammond’s decision to increase the Uk-wide tax-free allowance from £11,500 to £11,850 next year, it means a small number of taxpayers earning just above the threshold will have their bills marginally cut, despite the SNP’s decision to raise the higher rate from 40p to 41p.
The tax gap between Scotland and the rest of the Uk will grow substantially, ranging from £140 for people earning £40,000 to £755 on a salary of £60,000, and £1,774 on pay of £150,000.
Announcing his plans, Mr Mackay said: ‘Using the limited powers available to us, the decisions i have reached will make our income tax system fairer.
‘They will safeguard those on low incomes and overall, when coupled with our spending decisions, will protect and grow the economy. And they will provide essential revenue to enable us to invest in our NHS, without imposing cuts on vital services such as social care, business support, police or education.’
He said nobody earning less than £33,000 will pay any more tax than they do now, while those earning up to £26,000 will pay ‘marginally less’ tax than if they lived elsewhere in the Uk.
But his proposals sparked a backlash from business leaders. Graeme Jones, chief executive of Scottish Financial enterprise,
‘Punishment for working hard’
said: ‘We appreciate that there is a debate about the right level of taxation needed to support economic infrastructure and quality public services, but Scotland must always be a competitive place in which to do business and support employment, and today’s announcement on tax rises raises concerns in this regard.’
Scottish Grocers Federation chief executive Pete Cheema said: ‘it is absolutely clear how important consumer spending is to the wider economy. At a time of zero wage growth and rising inflation it makes no sense to increase taxation.’
Moira kelly, chairman of the Chartered institute of Taxation’s Scottish
‘Unnecessary risk has been taken’
Technical Committee, said: ‘We can’t rule out that an increase in the higher rate of income tax will prompt some who are able to – such as self-employed businesses – to opt out of Scottish income tax in favour of a lower Ukwide rate of corporation tax.’
David Lonsdale, director of the Scottish Retail Consortium, said: ‘The implications for consumer spending – a mainstay of our economy – from the £164million uplift in the income tax take remains to be seen, but less money overall in consumers’ pockets is likely to cause shoppers to carefully consider what purchases they can afford. it may also have implications for VAT revenues which are being assigned soon to Holyrood.’