Hundreds of thousands of higher earning workers in Scotland are going to be hit by a double tax grab after an SNP budget poured public money into the NHS and boosted spending on welfare and environmental projects.
Kate Forbes, the finance secretary, said that her tax and spending plans were a “budget of choices” as she froze the thresholds for higher and top rate income taxpayers and opened the door to council tax rises.
Opposition parties said it set the stage for “eye-watering tax rises” across the country. Calum Steele, the general secretary of the Scottish Police Federation, said the changes would “siphon millions of pounds from the wages of nurses, teachers, social workers, firefighters and police officers”.
According to the Scottish Fiscal Commission, freezing the higher rate threshold at £43,662 rather than raising it in line with inflation — which is the approach being taken for lower earners — will put 68,000 more people into the higher or top tax bands in the next financial year. The official economic and fiscal forecaster predicted this will raise an estimated £106 million of additional revenue in 2022-23 from the 453,000 people paying the higher rate of 41 per cent and the 20,000 in the top band, who pay 46 per cent tax on their earnings over £150,000.
The changes mean those on the lowest income tax bands will pay £21.62 less than their counterparts in England, the Chartered Institute of Taxation said. But workers in the higher rates will pay substantially more when next year’s rise in National Insurance is taken into account. Someone earning £50,000 will be £1,490 worse off than if they live elsewhere in the UK. Council tax was not mentioned in the speech but the budget documents show that local authorities will have the power to increase it in a significant departure from previous ministerial insistence that it must be frozen. The spending plans also revealed a real-terms cut to council budgets, which increases the likelihood of authorities using their new freedom to try to plug spending gaps.
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Liz Smith, the Scottish Conservative finance spokeswoman, said: “The SNP are leaving local councils with a horrid choice between failing to deliver essential services or making up the shortfall through eye-watering tax rises.” There will be a third hike for taxpayers when the 1.25 per cent rise in National Insurance kicks in to pay for the UK government’s health and social care levy.
Forbes said her budget addressed the “key priorities” of tackling poverty, supporting the economy and dealing with climate change. Despite the Scottish government having been awarded the largest ever real terms block grant from Westminster, with £4.6 billion guaranteed for each of the next three years, the loss of specific Covid funding means Holyrood ministers have less to spend next year. She told MSPs that Brexit also had an impact and led to a shrinking economy that resulted in there being less money to spend.
Health and social care sectors will receive a record £18 billion next year. This includes an increase in the minimum wage for public sector workers from £10.02 per hour to £10.50 an hour, which trade unions called a “glaring missed opportunity” to increase social care staff. It was the first budget produced in partnership with the Scottish Greens, who had backed a £15 an hour wage for social care workers in their manifesto.
Forbes confirmed £2 billion for decarbonising Scotland’s homes, buildings, transport and industry and a doubling of the Scottish Child Payment to £20 a week from April. More than £4 billion has been set aside for social security and welfare payments.
A further £110 million will be used to fund free bus travel for those aged under 22 from January, with £72 million to expand free school lunches. Forbes also pledged £831 million for affordable housing.
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She said the budget “delivers on our manifesto promises — more teachers, more funding for our police and record investment in our health and social care services, as we stand united against the impacts of Covid 19”.
Daniel Johnson, Scottish Labour’s finance spokesman, said: “When the times call for ambition, the SNP delivers complacency. When our economy and our NHS require investment, the SNP offers managed decline.”
