Higher tax rate estimates contain plenty of surprises

WHEN Holyrood took control of tax rates and thresholds in 2016, First Minister Nicola Sturgeon and her ministers opted not to change the basic rate of income tax, tweaking instead the threshold at which people start paying the higher rate, setting it at £43,000 in Scotland, as opposed to the £45,000 rate elsewhere in the UK. The move signalled an end to the UK-wide universality that had existed even after the Scottish Parliament was given tax-raising powers in 1999.

Initial estimates put the number of taxpayers in Scotland who would pay more as a result of the change at around 370,000. But a report from the National Audit Office has revealed that 507,000 Scots will pay an average of £213 a year more than their counterparts elsewhere in the UK. That’s one in five facing a bigger bill, as opposed to the previously estimated one in seven.

At first glance, this development may not appear to be particularly exciting. The amount of extra tax being paid is not huge, and HMRC has said it does not expect the difference to lead to higher rates of either evasion or avoidance over the next year.

But examine the figures a bit more closely and they offer an interesting insight into Scotland’s current tax burden at a time when politicians are at a crossroads over whether rates and should go up further. They also reveal that until this latest data, the full extent of the disparity between Scotland and the rest of the UK was not known. If it had been, the Conservatives would surely have made more political capital of it.

This report will also feed into the wider tax debate, of course, which takes in how austerity over the last 10 years has impacted public services, and how much more of their monthly income taxpayers – many of whom haven’t had a wage rise in years and are still haven’t fully recovered from the banking crisis of 2008 – are prepared to sacrifice.

As promised in September when she launched her Programme for Government, earlier this month Ms Sturgeon launched a discussion paper setting out a range of options for tax rates in Scotland, and is keen to be seen to involve the other Holyrood parties.The SNP, Labour, the LibDems and the Greens all back tax rises in principle, while the Tories – no surprise – are against this.

It will be interesting to see whether the fact that a considerably higher proportion of Scots are paying more tax than was previously thought will have any impact on how likely voters are to react positively or negatively towards the concept of a further rise. Any hike could, in turn, result in more Scots being tempted to seek a means of avoiding paying their tax in Scotland, which risks losing revenue to the Scottish Treasury and defeating the purpose of a rise in rates in the first place.

Finding a way to raise more tax for public services without antagonising the weary, squeezed middle has never been more difficult. Whether Ms Sturgeon will find a way to do so remains to be seen.