PEOPLE living on modest incomes in Scotland will pay less tax next year than their counterparts in England, according to a new document by Holyrood researchers.
The analysis found that everyone earning less than £26,250 is likely to be better off north of the Border, even if the thresholds for all Scottish income tax bands rise by inflation in 2019/20.
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The work was prompted by Chancellor Philip Hammond increasing the threshold for the upper 40p rate of income tax to £50,000 next year in England.
At present, the threshold in Scotland is £43,430 and the rate in 41p. Hammond’s decision has widened the cross-border tax gap with higher earners in Scotland paying more tax than those elsewhere in the UK.
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The development has prompted Scottish Tory calls for Scottish Finance Secretary Derek Mackay to replicate Hammond’s tax cuts for higher earners.
However both Mackay and Nicola Sturgeon have rejected the calls, saying they will set out a more “progressive” path in the draft Scottish Budget on December 12.
The First Minister said the Tory tax cuts were “shameful”, as they would enrich the wealthy.
The Holyrood research said one key Budget change – raising the personal allowance to £12,500 – would see Scottish taxpayers £70 better off next year.
However “beyond this, everything will depend on what the Scottish Government proposes”.
It said if all Scottish thresholds were raised by inflation, it would mean all those earning up to £26,250 should pay slightly less income tax than in the rest of the UK.
“However, for all those earning more than this level, their income tax bill in Scotland would be higher than in the rest of the UK.”
The final outcome will depend on the detail of the Budget and the subsequent political deal struck by the SNP with at least one other party to pass its spending plan in February.
The Scottish Greens have supported the last two Budgets, but this year they have said they will not enter talks without a major concession on local authority tax powers. The Greens want a review of council tax, and also want councils to be able to raise more revenue through a tourist tax and tax on derelict land.
Tory MSP Murdo Fraser said the research showed there was now “a clear and noticeable gulf for thousands of people in Scotland” in relation to their tax bills.
He said: “This isn’t the elite we’re talking about – it’s a significant disadvantage for senior teachers, nurses and police officers. It will reinforce Scotland’s reputation as a high-tax country, and one which punishes aspiration and drives away wealth.”
UK Labour has backed Philip Hammond’s Budget plans to raise the 40p higher income threshold to £50,000, saying it puts money in pockets.
But Scottish Labour leader Richard Leonard has distanced himself from the policy saying it is not a priority and his party would not support raising the higher tax threshold.
It is a major policy difference between Labour north and south of the Border.
McDonnell told Sunday Politics Scotland this week: “Richard Leonard, quite rightfully because taxation is devolved, put forward the Scottish Labour Party proposals.
“The intellectual basis is this – we all agree on the common principles of a fair taxation system.
“That has to reflect the demographic that we represent and also it has to reflect the devolved nature of our decision making in our country at the moment.
“Richard Leonard, quite rightfully, and the Scottish Labour Party have actually come forward with their tax proposals which are based upon fairness, based upon raising additional monies that will be put into public services.”
Earlier this year, Green MSP Andy Wightman told The National commitments to scrap the council tax, to devolve business rates powers to
local authorities and to allow them to introduce a tourist tax were among the options the Scottish Greens were considering as prospective demands to Mackay in exchange for supporting the Budget.
The Greens’ six MSPs supported the Scottish Government’s proposals for the last two years in return for certain conditions including an extra £170 million being injected into local government in 2018/19.
Wightman, the party’s local government spokesman, said the Greens would be spelling out what they wanted “meaningful progress” to look like later this year but gave some of the direction they wanted ministers to go. "This is speculative, and I’m not speaking on the authority of the party, but it could be, for example, a commitment to scrap the council tax by the end of this parliamentary session,” he said. “Commitments like this are normally given in the form of a letter. We wouldn’t be talking about introducing legislation before the next Budget. We would be talking about a letter from the Cabinet Secretary to us and other parties saying they were committed to doing this.”
The Greens want councils to be able to raise about 50% of their revenue, up from about 20% currently.
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