Scottish Labour’s £70m tax ‘anomaly’ that nobody noticed

Jeremy Corbyn: planned tax rise for all on �80,000. Photograph: Getty
Jeremy Corbyn: planned tax rise for all on �80,000. Photograph: Getty
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A hidden £70 million anomaly in Scottish Labour’s tax plans opened up in the final weeks of the general election – after London counterparts only shared details of their own tax plans on the morning of the UK manifesto launch, Scotland on Sunday can reveal.

The bombshell left Scottish party staff scrambling to explain the gap between the two sets of proposals, which would have meant thousands from the wealthiest 1 per cent paying less in Scotland than the rest of the UK.

Senior Scottish Labour figures said they were left praying that journalists wouldn’t draw attention to the inconsistency, which went unremarked throughout the campaign.

“It was a huge problem,” one source told Scotland on Sunday. “We were hoping no one would ask about it.”

Another party insider, who described his shock at being told of the UK tax plans in a phone call on the morning of the UK manifesto launch, said: “It’s just another example of how the UK leadership didn’t really care about Scotland.”

Scottish Labour insists it was in “constant dialogue” with the UK party over its tax plans during the election.

Powers to change income tax rates and thresholds were devolved in April.

Since before the 2016 Holyrood election, Labour policy in Scotland has been to introduce a 50p rate for those earning over £150,000 and add a penny to income tax for everyone on lower incomes.

A leak of the UK Labour manifesto on 10 May confirmed that under Jeremy Corbyn’s plans, tax would rise only for those earning more than £80,000 per year.

However, it was only on the day of the manifesto launch a week later that Scottish Labour was told UK policy would be to impose a 50p rate at a lower level, on incomes above £123,000.

The lower starting point for the 50p rate was despite average earnings in Scotland being lower than the UK average, with a smaller proportion of taxpayers earning top salaries.

Under the two policies, more than 30,000 taxpayers on some of the highest earnings in Scotland would face a lower tax bill than elsewhere in the UK, according to modelling by the Fraser of Allander Institute.

If the Scottish Labour manifesto, launched a week after the UK plans, had set the 50p rate at a lower level, someone in Scotland earning £150,000 a year would have seen their tax bill increase more than twice as much as Kezia Dugdale’s party proposed.

In total, the amount raised through the 50p rate on top earners would have risen from around £145 million to £215 million, modelling suggests.

Scottish Labour spending plans call for £500 million in additional tax revenue, meaning a lower 50p threshold would not have paid for the party’s investments in public services on its own, but may have provided leeway.

Modelling by Anna Murray of the Fraser of Allander Institute suggested a lower threshold for the 50p rate would have affected an additional 11,000 taxpayers and could have raised in the region of £70 million more from top earners, although estimates do not take into account changes in behaviour as a result of tax changes.

The Strathclyde University economic research institute’s lead fiscal analyst, David Eiser, also suggested the impact may be amplified because the fiscal framework that will adjust Scotland’s Barnett Formula block grant under the new tax powers requires Scottish per capita tax revenues to keep pace with the rest of the UK.

Tax policy is set to be reviewed after the Scottish Labour leadership contest is decided in November.

A party spokesman said: “Scottish Labour’s income tax policy would allow us to stop the cuts and invest in public services. UK Labour’s income tax policy would not apply to Scotland as income tax is devolved to Scotland.

“The Scottish and UK parties were in constant dialogue during the general election around tax plans – including devolved taxes like income tax and UK wide taxes like corporation tax.

“The result was a fully costed manifesto which meant £3 billion more in Barnett Consequentials for public services in Scotland by the end of the parliament showing the strength of the pooling and sharing of the UK.”