After ministers in Edinburgh tried to cut back on public services while funding a council tax freeze, they decided to tax higher earners in Scotland.
Shona Robertson, Scotland’s Finance Secretary, announced that a new, “advanced”, 45p tax bracket would be introduced to all those who earn above £75,000 and the top income tax rate for those earning over £125,140 would increase to 48p.
Robison stated that the increases combined with the freezing of the tax thresholds on intermediate and higher rates for medium-range earnings would multiply the effect of an unexpected increase in revenues due to a tax take larger than anticipated which is forecasted for next year.
She said that the higher taxes in Scotland on the richer people would have raised £1.5bn, compared to the rates of the rest the UK.
This would allow her to cut taxes very slightly for lower-earners by increasing the threshold on starter and basic rates to inflation and increase social welfare expenditure by 6.7% to £6.3bn and homelessness expenditure by £125m. She will spend £144m to freeze council tax across the board and increase funding for police.
Robison, who was attacked by both Labour and Conservatives, insisted that these tax increases could help offset the impact of real-terms cuts to Westminster’s block grant.
She told MSPs that “we cannot mitigate every cut” made by the UK Government. “But we have stayed true to our values, and rigorously prioritised our investments where they will have the greatest impact. “We choose to invest in our people and the public service.”
The Scottish Fiscal Commission (SFC), an independent oversight body, similar to the Office for Budget Responsibility in the UK, stated that the tax changes will help increase the overall budget of the devolved governments by £1.3bn or 2.6% cash-wise, to £52.4bn.
Labour claimed Robison failed to recognize that this meant deep cuts across many areas. The analysis showed that the overall budget would be reduced by £189m. It also revealed that Robison had failed to acknowledge this would mean deep cuts in many areas.
Michael Marra said that the Scottish Labour finance spokesperson’s statement about the council tax freezing was “panicked”. This response came after Humza Yousaf’s first minister’s embarrassing defeat of the Scottish National Party in the Rutherglen by-election.
He said: “This budget is chaotic and incompetent. It will make ordinary Scots pay more while getting less back.” “The SNP mismanaged our public finances, leaving us with a huge gap that needs to be filled. This includes an SNP waste hole, an SNP competence gap, and a large SNP growth hole. If our economy kept up with the rest of the UK, it would be £8.5bn bigger.
The council tax freeze has a regressive effect in that it benefits disproportionately those who are wealthier and live in more expensive, larger homes. They no longer have to pay council tax increases up to 5%.
This reduces the overall impact of the new income taxes increases on higher earners, while also reducing government’s capacity to spend more money on public services.
The Chartered Institute of Taxation stated that Treasury cuts to national insurance rates would also reduce the impact of income tax increases. According to the Scottish Fiscal Commission, those earning £100,000.00 in Scotland will pay £3,346 in additional income tax compared to UK taxpayers due cumulative tax changes implemented by Holyrood since 2017.