New income tax band in Scotland will hit everyone earning over £75,000

By John Mercury December 20, 2023

A new tax threshold has been created for high earners in Scotland, meaning anyone who earns more than £75,000 will pay a rate of 45%.

Scotland already had the highest tax band in the UK at 47% for people earning more than £125,000.

This will also rise by 1% next year to 48%.

The new rate takes the number of income tax bands in Scotland to six, while the rest of the UK has three.

When compared to income taxpayers elsewhere across the country, those earning £100,000 or more in Scotland will pay £3,346 more, and anyone who makes in excess of £28,850 will pay higher taxes than workers elsewhere in Britain.

The move was announced by deputy first minister and finance secretary Shona Robison as she unveiled her first Scottish budget in a statement at Holyrood on Tuesday.

The starter, basic, intermediate and higher bands will see their rates frozen at 19%, 20%, 21% and 42% respectively.

The rate at which the basic and intermediate bands kick in has also been increased by inflation.

The changes have been designed to help plug a £1.5bn black hole in the country’s finances.

The Fraser of Allander Institute (FAI) previously said the new band would only raise around £60m for spending.

Meanwhile, the Scottish Fiscal Commission estimates that overall income tax will raise £18.8bn in 2024-25.

Scottish income tax bands:
Starter (19%): £12,571 – £14,876
Basic (20%): £14,877 – £26,561
• Intermediate (21%): £26,562 – £43,662
Higher (42%): £43,663 – £75,000
Advanced (45%): £75,001 – £125,140
Top (48%): Above £125,140

Other major announcements:

• Council tax freeze

The Scottish government will fully fund its proposed council tax freeze, providing local government with the equivalent of a 5% rise.

Ms Robison said it will deliver more than £140m of additional investment for local services.

She added: “Combined with the other support being provided to local government, this will increase their overall funding by 6% since the last budget, taking local government funding to a new record high of over £14bn.”

• School meal debt cancelled

Councils will also be provided with £1.5m to wipe out school meal debt incurred by pupils across Scotland.

Ms Robison said the move would remove a “worry hanging over families up and down the country who are struggling to make ends meet”.

• Scottish Child Payment

Ministers will spend £6.3bn on social security benefits.

Scottish benefits will go up by 6.7% in line with the CPI rate of inflation from September 2023, with the Scottish Child Payment increasing from £25 to £26.70 from April.

• NHS funding

Addressing MSPs, Ms Robison said funding for NHS boards will rise by £550m, or 4.3%. She said the uplift was “above real terms” and would amount to £13.2bn.

“This investment will help the NHS continue to evolve its delivery of services and work to improve waiting times,” she added.

• Police and fire services

More than £1.5bn will be given to Police Scotland to support frontline services and key priorities, such as body-worn cameras. Almost £400m has also been pledged to support the Scottish Fire and Rescue Service.

• Business rates

Business rates for premises valued at less than £51,000 will be frozen, while hospitality businesses in Scotland’s islands will be given 100% relief.

• Housing and transport

Elsewhere, Ms Robison promised to invest almost £2.5bn on public transport, along with £550m in the supply of affordable housing.

Analysis: This budget was billed as the nightmare before Christmas

This was Humza Yousaf’s first Scottish budget and was billed as the nightmare before Christmas as his team grappled with what they branded the “toughest” set of circumstances since devolution.

Independent analysis suggested the Holyrood government faced a funding gap of around £1.5bn.

Amid heavy criticism of Rishi Sunak’s autumn statement, ministers north of the border used this festive budget to create a new 45p in the pound tax band for earnings over £75,000.

The top rate for higher earners will also increase to 48p.

Scotland was already the highest tax-paying part of the UK, but this further reinforces that and should bring in an additional £82m to the government coffers.

This was a budget of, what could be argued, mixed signals as there was also confirmation of a council tax freeze for all Scots. Some argue that benefits the richest as those on lower incomes are excused from paying.

The freeze has put Mr Yousaf on a collision course with some council chiefs who were hoping to hike bills by as much as 10% to avoid closure of key public services. The government will give local authorities the equivalent of 5% cash.

Mr Yousaf is still trying to find his feet. Fresh from a hammering in a recent by-election and the SNP sliding in the polls – will this budget be a winner with those the SNP are hoping to win over?

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Ms Robison said Scotland is at the “upper limit of mitigation” that can be provided within the devolved settlement.

“Quite simply we cannot spend money that we do not have, and we cannot mitigate every cut made by the UK government,” she said.

Ms Robison added that the Scottish government will “always do our best with the powers we have”, but said they are “simply no substitute for independence”.

The autumn statement from the chancellor showed why Scotland “must walk a different path”, she added.

“Through the choices we have made in this budget we have been true to our values and rigorous in prioritising our investment where it will have the most impact,” she said.

“Our social contract with the people of Scotland is at the core of this budget and shines through every funding decision contained within it.

“We choose investment in our people and public services.”

Talent retention now a ‘major concern’ for Scotland

Scotland already had the highest income tax rates in the UK before the budget.

Today, deputy first minister Shona Robison declared that those “with the broadest shoulders” should contribute more.

In simple terms, those earning below £43,000 should not pay extra as a result of the changes but the top 5% of taxpayers (fewer than 150,000 people) will be worse off.

A study by EY said that the new and higher rates would take in more public service professionals, such as headteachers, NHS doctors and dentists and this was a risk for the SNP government.

“This is now a major concern for employers in Scotland looking to retain talent in an already tight skilled labour market”, the report stated.

It highlighted the growing gulf between tax rates in Scotland compared to the rest of the UK.

“A single employee earning £50,000 will now pay around 20% more income tax (£1,542) than their UK counterparts and will be 4% worse off when comparing take home pay, representing around £128 per month,” it said.

“For those earning £100,000, the income tax liability in Scotland is 12% more (£3,346) meaning such workers will be £278 per month worse off in Scotland.”

‘Dismal and damaging’

MSP Liz Smith, finance and local government spokesperson for the Scottish Conservatives, branded the budget “dismal and damaging for Scottish taxpayers and businesses”.

Ms Smith said: “Under the SNP, Scotland was already the highest taxed part of the UK – and the income tax rises announced by Shona Robison have only widened that gap and increased the burden on hard-working Scots.

“They mean that 100,000 more Scots are now paying the higher rate of tax.

“This will have a devastating effect on our ability to recruit and retain skilled workers, including the doctors and dentists Scotland’s under-resourced NHS desperately needs.”

‘Council tax freeze will be a disaster’

Lilian Macer, Scottish secretary at Unison, described it as a “bad day for local services”.

She added: “Our public services are on their knees due to years of underinvestment and the Scottish government’s council tax freeze will be a disaster for local services.

“We need to see investment in public services and a council tax freeze stops investment in public services, in schools and in the NHS.”

Ms Macer welcomed the investment in the NHS, but said questions remain over how the funding will help tackle the industry’s staffing crisis.

‘It’s disappointing’

Action for Children said it was “disappointing” that First Minister Humza Yousaf’s pledge to increase the Scottish Child Payment to £30 had not been met.

Fiona Steel, national director for Scotland at the charity, welcomed the small uplift to £26.70, but said: “This budget will mean some impossible choices for families, and we know first-hand the impact it will have on children and young people.”

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