FINANCE Secretary John Swinney yesterday signalled he will use the new income tax powers coming to Scotland to raise tax on higher earners.
Speaking at the SNP conference, Swinney said “the progressive principle” would be put at the heart of the Scottish Government’s decisions on tax.
Holyrood is set to receive the power to alter income tax rates and bands in 2017 as a result of the pre-referendum vow made by the pro-Union parties.
The new powers are contained in the Scotland Bill, which is currently before the Westminster parliament and was drawn up as a response to the recommendations made by the Smith Commission following last year’s No vote.
Speaking at a fringe event organised by the Church of Scotland and the Scottish Council for Voluntary Organisations, Swinney said future decisions will follow the principles of the tax he introduced to replace stamp duty.
The Land and Business Transaction Tax (LBTT) was criticised as a tax on aspiration as it imposed a 10 per cent levy on those buying properties costing over £325,000. However, he also expanded the bottom tax-free band.
At a later fringe meeting hosted by the Institute for Fiscal Studies and the Chartered Institute of Taxation, Swinney elaborated on his plans to follow the LBTT example.
He said: “What the government has said and what it has applied when we reformed stamp duty land tax in the autumn of last year was that we brought the principle of fairness and progressiveness right to the heart of the tax system.
“I could have left stamp duty land tax as it was when we acquired that power. I could have not touched it. I could have had a quiet life. I could have said, ‘Let’s just leave it at that.’ But we applied the principle of a progressive nature and we utterly reformed stamp duty land tax. We introduced Land and Buildings Transaction Tax.
“Yes it was controversial. Yes it led to ruffles in the marketplace. But you know what? The UK government followed with the same reforms several months later.
“The progressive principle is at the heart of the decisions the [Scottish] government will take in relation to the deployment of tax.”
When LBTT was originally announced in October’s draft Scottish budget last year, the levy was criticised for hitting aspirational house-buyers.
Swinney was then forced to alter his original plans after the LBTT was undercut by Chancellor George Osborne’s own stamp duty reforms unveiled in the Westminster Autumn Statement in December.
Now a change to the LBTT will see Scottish house-buyers pay no tax on properties up to £145,000 – increasing the tax-free threshold by £10,000 from the original LBTT proposal of £135,000.
For properties worth between £145,001 and £250,000, buyers pay 2 per cent on the proportion of the price above the £145,001 threshold. For properties between £250,001 and £325,000, the LBTT rate is 5 per cent. A 10 per cent rate kicks in for properties in the £325,001 to £750,000 band.
Swinney also underlined his determination to tackle on “dodgers and divers” who avoid tax, saying the Scottish Government had a system that would crack down on those who do not pay their dues.
Swinney’s declaration that he would go for progressive taxes – which aim to redistribute wealth by hitting high earners – will become a key battleground in the run-up to next year’s Holyrood election.
Scottish Secretary David Mundell has brought forward the introduction of the new income tax powers by a year in the hope that it will force the SNP from talking about their quest for more powers to explaining how they will be used.
Mundell’s Conservative Party is seeking to contrast its approach to taxation with that of the SNP by presenting itself as a party that would use the new powers to lower taxes.
Last night the Scottish Conservative chief whip John Lamont said of Swinney’s proposals: “This is the clearest indication yet that the SNP government aim to raise income tax.
“The new tax powers for the Scottish Parliament should not mean higher taxes for the Scottish people.
“This would have a devastating affect on individuals and families across Scotland.
“The Scottish Conservatives have pledged to ensure that taxes will not be higher as a result of the devolution of powers.”
Before the new Scotland Bill powers are introduced, the Scottish Parliament will get the ability to uniformly alter income tax rates across all bands from next April under powers that have already been devolved.