John Swinney defends Scotland's income tax gap with England after 'humiliating rebuke'

First Minister John Swinney has argued the higher tax bracket in Scotland has struck the ‘right balance’

John Swinney has defended the Scottish Government's approach to income tax after being urged by business leaders to close the gap between Scotland and England.

The First Minister said he had struck the "right balance" by asking higher earners to pay more. It comes after the chief executive of the Confederation of British Industry (CBI) called on SNP ministers to address the disparity north and south of the Border.

John Swinney | PA

Rain Newton-Smith told The Scotsman: “Scottish business leaders say that closing the income tax gap between Scotland and the rest of the UK will remove the current hiring disadvantage and allow them to compete more equally in the race to recruit highly skilled staff. That can only benefit public services in the form of higher tax receipts north of the Border, leading to better public services.”

From April, anyone earning more than £30,318 will pay more income tax in Scotland than if they lived south of the Border. Someone earning £50,000 will pay £1,527 more, and a person earning £100,000 will pay £3,331 more.

Business leaders have long criticised the tax gap between Scotland and England.

Speaking to journalists after addressing the CBI’s annual lunch in Edinburgh on Friday, Mr Swinney said: "Governments have got to make the right decisions on tax and public expenditure, and I feel the Scottish Government has done that, because I want to be able to invest in public services that will meet the needs of all of the population.

"There's also creating the investment resources to invest, for example, in the Scottish National Investment Bank.

"Now that's got to come from somewhere, and what I judge is that the right balance is to ask those on slightly higher earnings to pay slightly more in taxation so we can live in a strong and a prosperous society."

Mr Swinney added: "I think we've got the balance right."

Earlier, he told the CBI event the Scottish Government’s recent Budget was “all about providing stability and certainty to all taxpayers, including the business community”.

He said ministers had given a commitment not to increase income tax bands or rates for the remainder of this parliamentary term, while also putting in place a “competitive” business rates regime.

Mr Swinney stressed the importance of generating economic growth.

But Conservative MSP Craig Hoy said the comments by the CBI were a “humiliating rebuke” to the First Minister.

“Virtually every economist and business group has warned the SNP that their high-tax policies are choking growth and making Scotland uncompetitive, but the First Minister continues to stick his fingers in his ears and ignore them,” he said.

“But it’s not just the economy that they’re harming – it’s Scotland’s essential public services too. The British Medical Association and the British Dental Association have warned that Scotland’s NHS is struggling to attract and retain the doctors and dentists we need because of the tax disparity with the rest of the UK.

“At some point John Swinney must accept that everyone else is right and he is wrong – and move swiftly to reduce taxes on hard-pressed Scots workers and businesses.”

The criticism of Scotland’s tax regime comes as it was confirmed UK government borrowing had soared above forecasts last month as public sector spending rose, putting pressure on Chancellor Rachel Reeves ahead of next week’s Spring Statement.

Chancellor of the Exchequer Rachel Reeves hosting a roundtable. PIC: Yui Mok/PA Wire

The Office for National Statistics (ONS) said public sector net borrowing was £10.7 billion in February. This was £100 million more than the same month last year and the fourth-highest February on record.

It was also £4.2bn more than had been forecast by the UK government’s official forecaster, the Office for Budget Responsibility (OBR), and more than some economists had been expecting.

The borrowing figure refers to the difference between what the government spends on the public sector and what it receives in income from tax and other receipts.

Overall central government spending totalled £93bn in February, £3.8bn more than the same month last year, when the Conservative government was in power.

Things like social benefits and investment spending was more than the OBR had projected, leading to the higher-than-forecast February figure, the ONS said. Meanwhile, central government receipts – the amount of money it receives, predominantly through taxes – rose by £3.2bn to £87.7bn for the month.

Borrowing over the financial year to date was up nearly £15bn on the same period a year before, the ONS said. The figures come less than a week before Ms Reeves will lay out her tax and spending plans in the Government’s Spring Statement, in spending decisions expected to have a knock-on impact on the Scottish Budget.

Ms Reeves is not expected to make tax changes when she delivers the statement on Wednesday, but she will be responding to new forecasts from the OBR. It comes against a backdrop of tighter headroom when it comes to the fiscal rules she set herself in October.

Economists said weaker public finances meant Ms Reeves faced “tough decisions” on government spending.

James Smith, developed market economist for ING, said: “The public finances are operating on increasingly fine margins, at a time where spending pressures are far from diminishing. Defence is unlikely to be the only department that requires a fresh cash injection over the next few years.

“And redirecting spending from one area to another – as we’ve seen with the foreign aid budget being tapped to fund higher military spending – can only go so far.”

He said the Treasury was likely to “curtail its future spending ambitions” and that tax rises in the autumn were “inevitable”.

Isabel Stockton, senior researcher for the Institute for Fiscal Studies, said: “Today’s data on government spending, borrowing and revenues underscore the challenges facing the Chancellor as we head into the week of the spring statement.

“Having boxed herself in with promises to meet her fiscal targets, not to raise taxes further and not to return to austerity for public services, easy or risk-free options for the Chancellor are in short supply.”

Darren Jones, Chief Secretary to the Treasury, said the UK government was “going through every penny of taxpayer money line by line to make sure it is helping us secure Britain’s future through the plan for change”.

“At the core of this urgent mission is sound public finances, based on our non-negotiable fiscal rules,” he said. “This government will never play fast and loose with the public finances.”