Scotland shifts to a more progressive income tax
Not long ago, we published a long article looking at the proposed options for Scottish income tax changes and why they were necessary.
Today, in Derek McKay’s budget announcement, we found out what those changes will be.
It appears the SNP have been influenced by proposals put forward by the Green Party. In our previous blog, we detailed how the Green Party suggested creating new tax bands in order to make income tax fairer for lower earners.
As an aside, this is another demonstration of something we bang on a lot about on this blog. The political system at Holyrood is superior to the one at Westminster as it forces consensus politics, which works to deliver fairer policies.
The changes which will come into effect next year are as follows.
- A new Starter Rate of 19% will be introduced for those earning between £11,850 and £13,850
- A Basic Rate of income tax at 20% for those earning over £13,850
- A new Intermediate Rate of 21% for those earning over £24,000
- A Higher Rate of 41% on incomes over £44,273 to £150,000
- A Top Rate of 46% on incomes over £150,000
So how might these changes impact you?
For most people, the impact will be small. Nobody earning less than £33,000 pounds will pay more tax next year than they did this year.
Even though those earning between £24,000 and £33,000 are due to see a 1p tax rise, the impact of this is cancelled by the increase in the personal allowance to £11,850.
All in all, 55 percent of Scottish taxpayers will pay less next year than they did the previous year.
Those earning above £33,000 will experience tax-rises although they will only pay a proportionate amount more.
This table shows the likely impact on different earning amounts as well as how much the income tax you will pay compares to elsewhere in the UK.
For instance, someone earning £15,000 will be £90 better off next year than they were last year and will be £20 better off than someone living in England.
If you earn £40,000 pounds you will be £70 worse off next year compared to this year and £140 worse off than someone living in England. This may seem like a bad deal for higher earners, but bear in mind in England people need to pay for university tuition fees and prescription charges etc.
According to Mr Mckay, these changes have been initiated to try to mitigate the impact of austerity passed on from Westminster and the additional money raised will be used to fund the NHS.
The Scottish Government has faced continued austerity from the UK Government. Over a ten year period, Scotland’s block grant will have been cut by £2.6 billion in real terms and the independent Fraser of Allander Institute has confirmed that we face a £500 million real terms reduction in spending on day-to-day services over the next two years.
In order to mitigate UK budget cuts, protect our NHS and other public services, support our economy and tackle inequality in our society, we have decided to reform income tax in Scotland.
In line with the four tests set out in our discussion paper, our reforms will ensure that the vast majority of taxpayers are protected, that income tax becomes more progressive, that revenues are generated for investment in public services and that – coupled with our spending choices – there will be a positive impact on the economy.
By raising an additional £164 million of revenues to support our investment plans we can deliver on our commitment to the NHS in full, with £400 million of extra spending on health without having to reduce spending on police and fire services, social care or education.
Our new, fairer, income tax policy will protect the 70% of taxpayers who earn less than £33,000 a year and ensure they pay less tax next year for any given income whilst asking those earning more than £33,000 to pay a proportionate amount more to support our public services.
Our plans also ensure that over half of taxpayers will pay slightly less in Scotland next year than they would in the rest of the UK, protecting low incomes and supporting the economy.
Certainly, this is a bold move which many people doubted would happen as the SNP have seemed reticent to use their new tax-raising powers.
Many people see those powers as a Westminster trap designed to weaken the Scottish government. Not increasing taxes means they look like hypocrites on austerity, yet increasing taxes is seldom considered a vote winner.
Now that they have increased taxes, and done so in a progressive manner, it will be interesting to see the public and media reaction.
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