Kate Forbes warned to be ready to make late tax changes for Scottish budget

Finance secretary Kate Forbes must not rule out last-minute changes to her income tax plans amid speculation that big tax cuts for workers south of the Border may be unveiled in next week’s budget.

The warning from tax experts came as MSPs prepare to pass the Scottish budget for 2020-21 today, which will mean about 400,000 Scots pay more in tax than last year.

Former chancellor Sajid Javid revealed last week he had been planning a 2 pence cut in the rate of income tax in the rest of the UK, prompting anticipation that his successor Rishi Sunak may unveil a similar measure.

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However, this would only affect workers south of the Border and the Chartered Institute of Taxation said Ms Forbes must be ready to respond.

Finance Secretary Kate Forbes. Picture: Jane Barlow/PA WireFinance Secretary Kate Forbes. Picture: Jane Barlow/PA Wire
Finance Secretary Kate Forbes. Picture: Jane Barlow/PA Wire

Alexander Garden, chair of the institute’s Scottish technical committee, said: “In any other year, today’s vote would mark the point that rates and bands of Scottish income tax are settled for the coming year.

“But we cannot definitively rule out the possibility that changes to UK income tax policy – such as cutting tax rates or raising tax thresholds – could create a situation where ministers feel that they have to revisit Scotland’s income tax policy with just days to go before the start of the new tax year.”

The problem has been thrown into focus because the Scottish Government’s spending plans were set out before the UK budget, which was delayed as a result of the December election.

The Scots tax plans in the budget were approved by MSPs yesterday and will keep the five Scots income tax rates at the same rate as last year. The thresholds for the lower “basic” and “intermediate” rates will rise in line with inflation but the “higher” and “top” rates – starting at £43,431 – have been frozen.

It means about 19,000 Scots will be sucked into the higher rate next year who did not expect to be, paying up to £149 extra. About 370,000 existing higher and top rate earners will see an increase of £149.

Ministers said that no Scots will pay any additional tax if their salaries are frozen at the previous year’s level.

But Tory MSP Murdo Fraser raised concerns over the “tax gap” between workers in Scotland and elsewhere in the UK. Workers in Scotland earning £27,000 or above pay more than elsewhere in the UK, while those in Scotland on £50,000 will now pay £1500 a year more in tax, Mr Fraser said.

“It does send out a message that Scotland is the highest taxed part of the UK,” he said.

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