Higher income tax rate for Scots earning more than £24,000

Holyrood's Finance Secretary has insisted most Scots will pay less income tax next year, despite increasing charges for higher earners.

Derek Mackay announced a number of changes to income tax in his draft Budget for 2018-19, including increasing the charge to 21p for those earning more than £24,000 a year.

The higher rates of income tax are also being increased, going to 41p and 46p, but Mr Mackay is also bringing in a new “starter rate” of income tax.

As a result of that, combined with the increase in the personal allowance, he said all those people earning up to £33,000 a year would be protected from any increase.

“Those earning more than £33,000 will pay only a proportionate amount more,” he told MSPs at Holyrood.

Mr Mackay vowed the changes he announced will make “Scotland's income tax system even fairer and more progressive”.

He took the decision to increase income tax for the very top earners - those on a salary of £150,000 a year or more - by 1p after a report from the Scottish Government's chief economist said bringing back the 50p top rate in Scotland alone could see the Scottish Government lose money.

The Finance Secretary said: “I will increase the higher and top rate of tax by 1 percentage point to 41p and 46p respectively.

“This sets the top rate of tax at a level which will generate the most income with the the least risk of losing revenues next year and damaging the economy.

“Had we gone further our modelling indicates that once behavioural effects of forestalling are considered a higher rate could actually reduce income tax revenue next year and that's not a decision any sensible government would take.”

He continued: “I will freeze the basic rate at 20p but to make the system more progressive I will introduce a new intermediate grade of 21p.

“The intermediate rate will apply to incomes between £24,000 and the higher rate threshold of £44, 273, which will increase in line with inflation only.”

Mr Mackay went on: “To make Scotland's income tax system even fairer and more progressive I've chosen to make one further change. I can announce today that I will introduce a new Scottish starter rate of income tax of 19p.

“This new rate will apply to the first £2,000 of taxable income between £11,850 and £13,830. This new starter rate combined with the increase in the personal allowance will ensure that no one earning less than £33,000 which is 70% of all taxpayers will pay any more in tax than they do now.”

Mr Mackay, as had been expected, used his draft Budget to end the 1% pay cap that had been imposed on public sectors - although some will see their salary rise by less than inflation.

The Finance Secretary pledged a “guaranteed minimum pay increase of 3%” for all public sector workers earning £30,000 a year or less.

Those earning over £30,000 will see wages increase by 2%, while for those on a salary of £80,000 a year or more the rise will be capped at £1,600.

“This demonstrates our commitment to closing he gap between the lowest and highest paid,” he told MSPs.

The changes were outlined in a Budget package containing £4 billion of infrastructure spending for the coming financial year, and rising to £20 billion over the lifetime of the parliament.

That includes £600 million over the next four years for high speed broadband for Scotland - with Mr Mackay saying this was part of “an ambitious plan to make superfast broadband available to every home and to every business premises in every part of Scotland by 2021”.

This Reaching 100 programme will put the country “at the forefront of the digital revolution” he said, adding it was “unmatched anywhere in the UK”.

He also pledged an increase in health funding of more than £400 million - double the amount that would have been needed for NHS spending to keep pace with inflation.

This will take spending on the NHS in Scotland to more than £13 billion in 2018-19, he said, with this including £110 million for reforming GP care, £550 million to help integrate health and social care and cash to support the roll out of free personal care to those under 65 with degenerative conditions - the commitment known as “Frank's Law”.

In addition to this the Scottish Government is providing almost quarter of a billion pounds for nurseries, as it aims to meet its pledge of doubling the amount of free childcare pre-school youngsters receive to 600 hours a year by the end of the parliament.

The budget also allocates £2.4 billion for enterprise and skills while for councils Mr Mackay said there would be a total increase of core funding of £94 million.

He added that if all 32 local authorities increase council tax by the maximum allowed of 3%, this would raise an extra £77 million “which would secure a real terms increase in local government funding”.

“This Budget is a comprehensive package of measures designed to protect all that we hold dear,” he told the Scottish Parliament.

“It provides the investments we need to meet the challenges of today and seize the opportunities of tomorrow.

“It uses the powers of this Parliament sensibly and in the interests of the country as a whole.”

Scottish Conservative finance spokesman Murdo Fraser branded the creation of a new basic rate the “Nat tax”.

He accused the SNP of breaking a 2016 manifesto promise pledging not to increase the basic rate of income tax for those on low or middle incomes, and called on the Finance Secretary to apologise, adding “no one will believe a word they say ever again”.

Mr Fraser said there was “no justification” for the tax rises being imposed, saying analysis from the Scottish Parliament Information Centre shows the block grant from Westminster is increasing in real terms.

He claimed the real reason for the rises is that Scottish economic growth is lagging behind the UK.

He said: “It is this failure to grow the Scottish economy and the failure to expand the tax base that leads the SNP to put their hands in the pockets of hard working Scottish families and businesses to bail them out of the mess they are making of the Scottish public finances.”

He added: “The message of this budget is simply this - don't be ambitious, don't be hard working, don't be successful in the SNP's Scotland because we will penalise you for our failure to grow the Scottish economy.”

Mr Mackay said declined to apologise, saying he was “proud” of the budget and that the basic rate of tax had been frozen.

Scottish Labour leader Richard Leonard said the Scottish Government's tax and spending plans had “tinkered round the edges” instead of implementing radical change and using the powers of the Scottish Parliament to deliver an alternative to Conservative austerity.

He said: It should be based on the principle of from each according to their means, to each according to their needs. A penny on the top rate just does not do it.''

Mr Leonard said the Scottish Government has produced a “Tory-lite draft budget”.

He added: “What the Finance Secretary is doing today is cutting day to day spending in real terms by £134 million when councils have already told him that they need £545 million just to stand still.

“That is an effective cut of almost £700 million to lifeline local services.”

The Finance Secretary said: “We are using our powers, if councils use their powers they will have a real terms increase for frontline services.”

Greens co-convener Patrick Harvie said: “I'm delighted that that basic argument for a more progressive tax structure appears to have won the day and we're going to be seeing changes, not as soon as I would have wished them - we should have been here last year - and not as far as I would wish them either, but that basic argument for a more progressive income tax has won the day.”

On public sector pay, he said: “I will wait to hear the response of the unions who represent those workers before taking a final view but certainly those who are at the bottom end of the income scale absolutely deserve the pay increase that we've argued for and that the Scottish Government today is applying, at least to its own workers.”

Mr Harvie said the “downside” of the Budget was the cost of the pay increase in local government “is not being met by the Scottish Government grant to local councils”.

He added: “The Scottish Government is right to use its powers to increase the total revenue budget in real terms for the Scottish budget but to pass on a real terms cut to local councils is not acceptable and if we include the additional costs that our councils will face if they're going to apply the same kind of 3% uplift to public sector workers who are delivering vital services that every single one of us depend on it is clear that the Scottish Government is going to have to make changes to its local government settlement.”

Mr Harvie said the consequences of not doing so would be “real terms pay cuts, service cuts or job losses in our councils”.

Scottish Liberal Democrat leader Willie Rennie said the devil would be in the detail of the tax announcement.

He said: “It seems that this is a modest increase in taxation, an approach that we argued for at the election and an approach that he (Mr Mackay) opposed at the election.

“This budget does not do enough to meet the long-term needs of the economy, it does not include the transformational investment in education that we argued for.”

Mr Rennie added: “The settlement for local government is harsh, passing the buck for cuts to councils. The pay increase is welcome but

can the finance secretary explain who is paying for the pay increase?”

He questioned whether councils and colleges were being given extra funds to pay for the increase, adding: “I think this budget pays lip service that many of the challenges that this country faces."