The Scottish Government has confirmed formally that all income tax rates will be frozen next year, keeping the top rate threshold unchanged at £43,000. Consequently, over tens of thousands of top rate taxpayers in Scotland will pay more than their British counterparts south of the border.
The higher rate 40% income tax threshold is set to rise to £45,000 in England. However, under devolved powers to the Scottish Government, Scotland can vary its rates of Scottish income tax (SRIT) by up to 10% from those set by the UK Government.
The new higher rate threshold for Scotland was ratified following an agreement with the Scottish Green party, securing the formal ratification of the Scottish 2017 budget and local government settlement.
Derek MacKay, Scottish Finance Secretary, confirmed that the 372,000 people in Scotland that the change would affect will be worse off to the tune of £400 a year.
“Having considered the proposals put to me, I confirm that I will lodge a Scottish Rate Resolution that sets the same tax rates as originally proposed but which applies a cash freeze on the higher rate threshold.
“This change protects basic rate taxpayers while generating an additional £29m of revenues in 2017/18. And it ensures that 99% of taxpayers on the same income this financial year will not be paying any more income tax in the next financial year.
“These proposals balance the need to raise additional revenues, whilst asking the highest earners to forego a significant tax cut at a time of UK government austerity.
“For the 10% of people covered by this higher rate, the income foregone amounts to around £7.70 a week.”
The Federation of Small Businesses (FSB) has criticised the Scottish government’s decision to freeze the 40% threshold for higher earners in Scotland.
“Our instinct is always to simplify the tax system wherever we can, not complicate it,” said Colin Borland, head of devolved nations, FSB.
“And we haven’t properly explored the full practical consequences of Scottish divergence from the rest of the UK. So we would have preferred to keep both rates and thresholds aligned.
“At a time when weak consumer demand and the sluggish state of the domestic economy are dominating small business owners’ worries, it would have made sense to put some money into their customers’ pockets.”