Scottish Budget: What will a new income tax band for higher earners in Scotland mean?

It is reported the SNP is set to introduce a new income tax band in next week’s Budget – we take a look at what that could mean

The days are now counting down to the Scottish Budget, which has been described as the “most challenging budget settlement since devolution”.

Finance secretary Shona Robison has an almighty task on her hands to get enough money to everyone who needs it in the 2024/25 Budget.

A number of bodies are already warning of dire consequences – earlier this week the Local Government Information Unit Scotland said a quarter of councils could effectively go “bankrupt” as they will run out of cash.

The decision on a new income tax band will be announced at the Scottish Parliament on Tuesday. Picture: Jeff J Mitchell/Getty Images

Ms Robison will set out her proposals for the Budget on December 19, and it is reported one of the options on the table is introducing a whole new income tax band.

But what will this mean for Scots, and what impact could it have on the economy? The Scotsman takes a look at what a new income tax band could look like.

Who will be affected?

The introduction of a new tax band could mean a 45 per cent levy on those earning between £75,000 and £125,140, under a proposal that was originally put forward by Scottish Trade Union Congress (STUC).

Finance Secretary Shona Robison will unveil the budget on December 19. Image: Press Association.

If adopted, this would affect those on the upper end of the current “higher rate” of tax, which is 42 per cent on those earning between £43,663 and £125,140.

Will this affect the highest earners?

No – the level for the “top rate” of tax for those earning over £125,140 will remain at 47 per cent.

Similarly, lower and middle earners will not be affected either.

The “starter rate” for those earning between £12,571 and £14,732 will stay at 19 per cent, the “basic rate” for those between £14,733 and £25,688 at 20 per cent, and the “intermediate rate” for those between £25,689 and £43,662 at 21 per cent.

How much money will this change raise?

The STUC has claimed this new income tax could raise around £92 million.

However, the Fraser of Allander Institute has already watered down this claim, saying it will only bring in around £39m. They say many people in this tax band would change their behaviour to limit how much tax they pay.

Will this fix the budget black hole?

It will give the Government some extra money to play with – but it won’t solve the problem.

There is an estimated Budget shortfall of £1 billion. However, The Times is reporting the gap could be as much as £1.5bn, £500m more than previously expected.

Will this affect companies with high-earning staff?

That is the fear.

Anyone earning around £28,000 in Scotland already pays more income tax than if they lived in England.

The new tax band means anyone earning around £100,000 would be around £3,500 worse off than someone on the same salary south of the border.

Ms Robison has also been warned the Government needs to avoid policies which make Scotland less competitive, saying it could be difficult for businesses to retain and attract senior members of staff.

Will the SNP face opposition on this?

Almost certainly.

The Scottish Conservatives have said this will be “disastrous” for taxpayers, and is a “sure-fire way” of discouraging people from living and working in Scotland.

Liz Smith, the party’s finance and local government spokeswoman, said: “A tax gap of thousands for middle and higher earners will drive away all sorts of workers.

“Doctors, dentists, teachers and entrepreneurs – exactly the people we need to attract, and who provide growth and essential services – will all have an incentive to leave, or not to come here in the first place.”

She said this was a “spectacularly incompetent” decision and meant the coming Budget would be “another refusal to acknowledge the damage caused by their mistakes”.