Scottish budget report

‘Not the time to cut taxes for higher rate payers’

Tax hikes for middle classes

High Street rescue plan

Council anger over ‘magic trick’

£30m package for Frank’s Law

The Scottish surcharge for higher earners has increased after Derek Mackay refused to copy the Chancellor’s tax breaks.

Nearly 370,000 workers in Scotland will pay even more than their English counterparts than they currently do under the Budget plan to freeze the higher rate threshold.

The £68 million income tax raid will hit employees earning more than £43,430, which includes senior police officers, teachers and doctors – and is likely to be compounded by council tax rises.

It means someone in Scotland earning £50,000 will pay about £1,500 more in income tax than others in the rest of UK.

The Scottish Government says not passing on Westminster’s tax cuts to the richest will help improve services.

It said 55% of working Scots will pay less in tax than those on equivalent wages down south.

But business leaders say the widening gap between how much income tax some people have to pay in Scotland compared with England is a threat to the economy.

Tracy Black, the CBI Scotland director, said: “With weak growth, demographics shrinking our workforce and Brexit continuing to cause uncertainty, the failure to close the growing income tax gap between Scotland and the rest of the UK puts added pressure on an economy already crying out for talent and investment.”

The changes announced by the UK Government in October mean the point at which people in the rest of the UK start paying the 40p tax rate will rise from £46,351 to £50,000 in April.

In Scotland, workers not only pay a slightly higher rate for this – 41p as opposed to 40p – but it kicks in earlier, with the threshold at £43,430.

Finance Secretary Mr Mackay last night refused to change the rates or threshold, even to bring the latter in line with inflation.

On the divergence, the independent Scottish Fiscal Commission said: “We expect this to start to have an effect on tax residency decisions.”

Alan Turner, head of tax for KPMG, said: “On the face of it, the increased differential on income tax seems to contradict the focus on making Scotland more competitive internationally.

“The big question is whether this increased differential is significant enough to impact on Scotland’s ability to attract and retain talent”

Murdo Fraser, the Perthshire Tory MSP, said the nationalists have ignored calls to close the tax gap.

“It seems the expert warnings that a growing divergence would make it harder to recruit talented people across both the private and public sector have been roundly ignored,” he said.

“That’s the price of living in the SNP’s Scotland.

“And yet none of this was necessary – there was absolutely no need for more SNP tax rises.

“UK Chancellor Philip Hammond

The big question is whether this increased differential is significant enough to impact on Scotland’s ability to attract and retain talent

delivered an additional £950 million in Barnett Consequentials in his last budget.”

Mr Mackay said: “Our decisions on taxation have resulted in a more progressive tax system, protecting those lower and middle income taxpayers, while raising additional revenue to invest in our public services and the Scottish economy.

“Freezing the higher rate tax threshold will ensure Scotland’s health and care services gets the full budget increase they deserve, despite a £55m shortfall from the UK Government’s autumn budget.”

Pledging to protect lower earners, Mr Mackay said the thresholds of the 19% starter rate and 20% basic rates have increased with inflation, but the 21% intermediate rate for incomes above £24,944 remains the same.

Any Scottish taxpayers earning more than £26,990 per year will pay more in tax than peers south of the border.

Someone on £30,000 will pay £30 more than colleagues on the same salary in England, Wales or Northern Ireland. The Scots surcharge for an executive on £150,000 is £2,669.

The Budget document cites the Scottish Fiscal Commission, which says freezing the higher-rate threshold will raise an additional £68 million.