Scotland’s wealthier citizens are set to pay higher taxes than anywhere else in the UK after the Scottish government unveiled its new budget on Thursday — but business leaders warned that a tax disparity will “set a dangerous precedent.”
The draft 2017/18 budget is the first in which the Scottish government has had the power to set its own income tax rates, and finance secretary Derek MacKay said it would “protect low- and middle-income taxpayers” while rejecting “tax cuts for the rich.”
Under the plan, the lower threshold for the 40p rate of income tax — the highest — will rise with inflation to £43,430 next year, but to £45,000 in the rest of the UK.
That gap will widen further because the Conservatives intend to raise the threshold to £50,000 by 2020/21, when it will be a projected £46,551 in Scotland. Around 400,000 people (14% of taxpayers) in Scotland currently pay the higher 40p rate.
MacKay said that he could not condone matching the Conservatives’ taxation plans because it would amount to an “inflation-busting tax cut” for top earners at a time of austerity.
But his plans came under fierce criticism from opposition parties and a number of industry groups, who warned that a tax disparity would drive high earners out of Scotland. The Scottish Conservatives, the official opposition, said in a statement that it would make Scotland the “highest-taxed part of the UK.”
Scottish Conservative shadow finance secretary Murdo Fraser 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.”
Liz Cameron, chief executive of the Scottish Chambers of Commerce, said in a statement that “creating a differential between tax bandings north and south of the border will set a dangerous precedent.”
“Ultimately, growing our economy rather than increasing taxes will provide the most sustainable route towards boosting tax revenues and thus public sector spending.”
“If Scottish businesses and Scottish based staff are taxed more, that would not seem to be a situation designed to attract investment and grow Scotland’s economy,” she said.
The Federation of Small Businesses (FSB) told the BBC that it made sense for Scotland “in these uncertain times” to try to match income rates to those in the rest of the UK.
Scottish policy convener Andy Willox said: “We acknowledge and welcome that ministers have moderated their proposals on tax thresholds, but, on balance, this is not the time for greater income tax divergence north and south of the border.”
Both groups, however, welcomed a generous 3.7% cut to business rates, and a move which will offer 100% tax relief to businesses with a rateable value of up to £15,000.
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