TARTAN TAX DOUBLE WHAMMY
Middle-class Scots will be paying out more money than anyone else in the UK
MIDDLE-CLASS Scots are facing a double tax whammy that will see their earnings slump next year.
They are already preparing to miss out on a £340 tax cut provided to the rest of the UK by Philip Hammond’s decision to raise the threshold for paying the higher rate of income tax.
But a secret Budget bombshell means they will also have to pay £135 extra in National Insurance contributions.
It comes as Nicola Sturgeon yesterday indicated she will not follow the Chancellor’s bonanza for first-time buyers, by branding his decision to scrap stamp duty on first homes worth up to £300,000 ‘voodoo economics’.
She came under attack at First Minister’s Questions for calling the £2billion Budget boost to the Scottish economy a ‘con’.
The combined impact of the tax and National Insurance changes means people in England will see their pay packets grow but Scots will see theirs shrink. The double tax blow could be significantly worse if the SNP follows through on its threat to raise income tax next year.
Experts confirmed higher taxes in Scotland could force some people to move south of the Border.
Bill Dodwell, a tax partner at Deloitte, said: ‘In Scotland, unfortunately, there is a small band where Scottish taxpayers will have to pay a bit more in National Insurance but will not benefit from the increase in the higher rate threshold increase for income tax.
‘This conflict with the spike in National Insurance arises because it remains under UK control, whereas income tax is controlled by Holyrood. It is unfortunate but the Scottish Government has the power to make its own choices.’
Asked what impact a further widening of the tax gap could have on the Scottish economy, he said: ‘The biggest problem is always with the relatively small number of additional rate taxpayers who pay the 45 per cent. There are proposals to increase that and there will be a few people who may be motivated to change their place of work and residence in response.’
In his Budget, Mr Hammond unveiled plans to raise the rate at which taxpayers in the rest of the UK begin paying the higher 40p rate of income tax from £43,000 to £46,350. The move – coupled with an increase in the tax-free personal allowance – amounts to a £340 income tax cut for every higher rate taxpayer in England, Wales and Northern Ireland.
But this will not happen in Scotland, as income tax rates are devolved to Holyrood and the SNP Government opted to freeze the higher rate threshold at £43,000 earlier this year.
Scottish higher rate taxpayers will still benefit from the Chancellor’s decision to increase the taxfree personal allowance to £11,850, but they will save only £70, rather than £340.
Scottish Conservative finance spokesman Murdo Fraser said: ‘The tax gap between Scotland and the UK is growing under the SNP. This is another example of the SNP failing to stand up for workers north of the Border.
‘The Nationalists should be seeking to at least ensure that taxes in Scotland are no higher than in the rest of the UK. Instead, they simply want to take more and more from people’s pay packets.’
Miss Sturgeon said she will not follow Mr Hammond’s decision to exempt first-time buyers from paying tax on a home costing up to £300,000. The First Minister claimed the SNP’s Land and Buildings Transaction Tax (LBTT) – which replaced stamp duty when it was devolved to Holyrood – is a ‘more progressive’ system.
She said 65 per cent of first-time buyers are already exempt from LBTT, which is payable on homes over £145,000, while 80 per cent of first-time buyers pay either no tax or less than £600.
In a clear sign she does not want to follow the Chancellor’s policy in Scotland, she said: ‘Yesterday, the Office for Budget Responsibility said the policy announced by the Chancellor will push up house prices and result in first-time buyers paying more for their houses than they would have paid without the policy. Even with the voodoo economics we get from the Tories, I do not think that makes much sense. Those are the considerations we will have in mind as we finalise our Budget proposals over the next couple of weeks.’
Asked afterwards if he accepted there was any need for changes to the current system, the First Minister’s spokesman said: ‘I accept that we moved before he did.’
Miss Sturgeon was also criticised for claiming the £2billion in ‘BarBudget
‘The gap is growing’ ‘Failing to stand up for workers’
nett consequentials’ given to the Scottish Government as a direct result of spending in other parts of the UK was a ‘con’.
She said £1.1billion of the funding is ‘financial transactions’ which cannot be used on day-to-day spending on public services and that it is ‘accurately described as a con’. She claimed the Scottish Government faces a real-terms cut of more than £500million over the next two years.
But Scottish Tory leader Ruth Davidson said: ‘We usually hear from the SNP that it is not getting enough money. Today we have a brand new one: it is the wrong kind of money that it is being given.
‘Money that can be spent on housing? No, thank you. Money to tackle fuel poverty? How dare the UK Government. Only this First Minister could be handed an extra £2billion and still sound like somebody has stolen her scone.’
A Scottish Government spokesman said: ‘Taxpayers across Scotland get the best deal in the UK, with a range of services and benefits not available elsewhere.
‘The serious and growing economic threat posed by Brexit, coupled with continuing UK Government austerity confirmed by the Chancellor yesterday, means we are seeing increasing pressure being put on our public services. We have opened a discussion about how we protect these vital services and tax policies will be brought forward in the draft Budget.’
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