Scottish Budget: 400,000 middle earners face more tax hikes as thresholds frozen

Almost 400,000 Scots middle-earners face fresh income tax hikes in the coming year after a freeze in thresholds was announced in Thursday’s Budget.

Kate Forbes unveiled budget at Holyrood today
Kate Forbes unveiled budget at Holyrood today

The decision means anyone earning more than £43,430 will fall under the 41 per cent “higher” rate and will result in an extra £149 being paid by 370,000 taxpayers as part of the spending plans for 2020/21.

Public finance minister Kate Forbes, standing in after Derek Mackay’s shock departure, set out the Budget. Flanked by Nicola Sturgeon and John Swinney, she told MSPs Scotland had the “fairest” tax system in the UK.

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The Budget will keep all 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 didn’t expect to be, paying up to £149 extra. About 370,000 existing higher and top rate earners will see an increase of £149.

The move will bring in an extra £51 million a year for the Government. Ms Forbes said: “Scotland continues to have the fairest and most progressive income tax system in the UK, with more than half of taxpayers paying less income tax in Scotland than elsewhere in the UK.

“Based on commitments made by the UK Government in their Autumn Budget 2018, we do not expect any further increase in income tax divergence between Scotland and the rest of the UK this year. It is now up to the UK Government to ensure that divergence does not increase when they deliver their Budget on 11 March.”

More than half of Scottish income taxpayers (56 per cent) will pay less tax than if they lived anywhere else in the UK.

The Tories had called for no further divergence in personal taxation between Scots and those elsewhere in the UK.

But party finance spokesman Murdo Fraser said: “What the minister announced today on tax threshold will widen the tax differential and that’s not something we could support.”

He added: “The SNP has to go back to the drawing board and make improvements if it wants to win our support.”

During her statement, Ms Forbes set out plans to introduce a new 2 per cent rate of land and buildings transactions tax on residential properties worth more than £2m.

A package of funding to accelerate Scotland’s transition to a net-zero economy was also unveiled, including £1.8 billion of investment in low carbon infrastructure that will help reduce emissions.

She also announced a record investment of £15bn in health and care services and £645m for the expansion of early learning and childcare.

Ministers will provide £21m to fund the new Scottish child payment – a £10-a-week grant aimed at helping poorer families, being brought in this year.

Overall, Ms Forbes said ministers would spend no less than £1.4bn next year in helping low-income households.

Councils are to get an extra £494m after a warning in the build-up to the Budget that frontline services were close to breaking point.

But Gail Macgregor, resources spokeswoman with local government body Cosla, said this included Scottish Government commitments of £590m, which means an effective cut to budget of £95m.

“This is £95m in hard cash that will need to be taken out of frontline services for communities,” she said.

Communities minister Aileen Campbell said it was a “fair settlement”. A Budget Bill is due to be voted on by MSPs in three weeks’ time.