CHILD poverty groups are urging Derek Mackay to keep Scotland’s higher tax rate as it is, and ignore Tory calls to lower the threshold.

It comes as new analysis from the IPPR suggests freezing the higher rate tax threshold could be enough to lift 40,000 children out of poverty by 2021/22 The Scottish Government Finance Secretary is due to set out his Budget next Wednesday.

The Tories have been urging Mackay to provide the same relief to high earners as Chancellor Philip Hammond did in his October Budget, when he increased the threshold for the higher rate 40% tax from £46,350 to £50,000.

Earlier this year, the Scottish Government used new powers devolved to introduce a new income tax structure, adding a new starter and intermediate band.

Currently, in Scotland, the higher rate of 41% starts at £43,430.

Mackay is expected to announce an increase in the thresholds by the rate of inflation, but the IPPR said this would result in “the biggest cash-terms tax cuts to the highest earners in Scotland”.

“Those earning more than £45k per year would receive a tax cut of more than £400 whereas lower earners would receive a maximum cut of just under £140,” the think tank’s analysis said.

The IPPR said if Mackay chose to freeze the higher rate tax threshold in cash-terms, it could raise up to £210 million per year by 2021/22, and generate enough to “provide an additional 1.6% of spending for non-protected departmental budgets in Scotland”, which if used to end the two-child limit benefit cap and top up means-tested child payments “could reduce relative child poverty in Scotland by up to 40,000 children”.

The IPPR added that it would still mean that taxpayers in Scotland would receive a tax cut in cash terms of up to £139.50 in 2019/20, and the bottom 56% of tax payers in Scotland would pay less tax than in the rest of the UK.

There was support for the call from the Child Poverty Action Group. Director John Dickie said: “This IPPR analysis is a hugely welcome demonstration of how Holyrood’s tax and benefit powers can be used to make a dramatic impact on child poverty in Scotland.

“With UK Government benefit cuts driving more and more families into hardship the Scottish Parliament must use every tool in its toolbox to protect Scotland’s children and meets its own statutory child poverty targets.”

Scottish Labour’s finance spokesperson James Kelly called the report “hugely significant”.

He added: “Labour has been clear from the outset that we want a Scottish Budget where the richest pay their fair share to properly fund public services and tackle inequality.

“The SNP has taken Tory austerity and quadrupled it for local lifeline services, while Theresa May’s government has clearly broken its promise to end austerity.

“Income tax is devolved and, as this important report makes clear, making different choices on the higher rate threshold in Scotland could lift 40,000 children out of poverty.

“The SNP must deliver a progressive tax system that meets the needs of communities across Scotland.”

Scottish Tory shadow finance secretary Murdo Fraser queried the analysis of the IPPR.

“Taxpayers across Scotland will have a very simple question about all this,” he said.

“If workers in every other part of the UK can benefit from a tax break, why can’t they?

“What this research doesn’t address is how hiking taxes drives away wealth and investment, all of which is bad for the economy in the short, medium and long-term.”