Hundreds of thousands of Scots are to pay £314 a year more in income tax than similar earners in England and Wales after the SNP used new Holyrood powers for the first time.
An estimated 420,000 taxpayers will pay the extra amount because SNP ministers have refused to pass on Westminster savings. According to the tax specialist Deloitte, the differing policies mean that the same Scots will be paying an extra £817 more by 2021-22.
Derek Mackay, the finance minister, confirmed yesterday that he was implementing the party’s election pledge to increase the threshold at which Scots start to pay 40 per cent tax by inflation only, keeping the threshold static in real terms.
Philip Hammond, the chancellor, has said he will raise the 40 per cent threshold for taxpayers in the rest of the UK by more than the expected inflation rate until it reaches £50,000 by 2020-21.
It means that from next year Scottish workers will start paying 40 per cent tax at a salary above £43,340 whereas English, Welsh and Northern Irish workers will not hit the upper tax band until their incomes top £45,000.
Advertisement
The additional tax paid in Scotland hits only the £1,660 earned between those two points, but this amount is expected to grow on present inflation trends, assuming the two governments maintain their different policies.
The net impact on the Scottish budget after adjustments is £79 million in additional revenue for 2017-18.
Mr Mackay’s decision was condemned by the Scottish Conservatives. Murdo Fraser, the party’s finance spokesman, said: “In not matching the UK increase in the threshold for the 40 per cent rate of income tax, the finance secretary is making Scotland the most expensive part of the UK in which to live, work and do business.”
“The finance secretary is making Scotland the most expensive part of the UK in which to live, work and do business
He added: “The first minister’s hand-picked chair of her Growth Commission, the SNP’s former economy spokesman Andrew Wilson, gets it when he says that the way to grow tax revenue is to grow the number of high earning taxpayers. If the finance secretary won’t listen to us, will he at least listen to the first minister’s own adviser, and think again on tax?”
Mr Mackay’s plans will also mean that thousands of small companies are to be exempt from business rates. The small business bonus scheme is to be extended to properties with a rateable value of £15,000, up from £10,000.
Advertisement
Andy Willox, the Scottish policy convenor at the Federation of Small Business, said the prospects of smaller companies had been lifted by the budget.
The federation also welcomed commitments towards providing better broadband but Mr Willox warned that Scotland had “a digital mountain to climb” to achieve acceptable modern connectivity levels.
Many trade bodies were dismayed that the finance secretary had made hundreds of thousands of Scots the highest income tax payers in the UK. There were concerns that the taxation measure may make it harder for Scottish companies to attract and retain talented workers.
Further concerns were raised about the taxation burden of bigger businesses as the threshold for the supplementary rates tax was lifted rather than scrapped. While it will see some 8,000 businesses taken out of paying, it still leaves many more who will continue to bear a higher cost than in other parts of the UK.
Liz Cameron, the chief executive of Scottish Chambers of Commerce, said: “The fact remains that this surcharge continues to make Scotland the highest taxed nation in the UK in terms of business rates and this damages our competitiveness.”
Advertisement
She added that having different personal tax banding north and south of the border created a dangerous precedent. “If Scottish businesses are taxed more and Scottish-based staff are taxed more, then that would not seem to be a situation designed to attract investment and grow Scotland’s economy,” she said.
David Lonsdale, director of the Scottish Retail Consortium, said ministers had “fumbled” the opportunity to reverse the rise in the large business rates supplement. He added this meant that about 21,000 premises cost more in terms of rates than they would south of the border.
Bryan Buchan, chief executive of Scottish Engineering, pointed out that Scotland’s economy and labour market were already lagging the UK and felt there was little to cheer in the budget.
Many of his members would still be paying the business rates top-up. On income tax, he said: “Let us hope that this is not the first in a series of tax hikes which will inevitably see a diminution of the better qualified and paid staff in our companies.”