Nicola Sturgeon has increased income tax by 1p on earnings over £24,000 a year as she imposed a tartan tax.
Her Finance Secretary Derek Mackay announced a draft budget today that included a raft of new spending promises.
Ms Sturgeon earlier claimed just three in ten taxpayers would pay higher bills under the plans.
Mr Mackay’s budget creates a new tax band of 21p on earnings between £24,000 and £44,273, and increase the higher and top rate of income tax to 40p and 46p respectively.
The basic rate of tax is frozen at 20p under the plans and a new ‘starter rate’ of 19p on earnings between £11,850 and £13,850 to cut taxes for low earners.
Mr Mackay told the Scottish Parliament tax per head would be marginally lower in Scotland than the rest of the UK – despite everyone earning more than £24,000 paying a higher rate than those south of the border.
The Scottish Parliament has been able to impose a so-called ‘Tartan tax’ since 2007 and current powers allow changes of up to 10p.
Today’s announcement is the most radical change to taxes in Scotland. Higher rate thresholds have been frozen in previous years, slightly raising taxes on the richest.
Three in ten Scottish taxpayers face higher bills under Nicola Sturgeon’s (pictured at Holyrood today marking Christmas Jumper Day) planned raid on better off workers
Scottish Tory leader Ruth Davidson (pictured centre with the First Minister today) condemned the plan as a broken manifesto promise
Finance Secretary Derek Mackay (pictured in Holyrood today) announced a raft of new spending plans the higher taxes will be used for
Ahead of his Budget statement Ms Sturgeon said: ‘I can tell the chamber today that 70 per cent of taxpayers in Scotland – 83 per cent of all adults in Scotland – will pay no more income tax after this Budget than they do now.’
Speaking about the draft Budget, the SNP leader said the ‘vast majority’ of taxpayers would be ‘protected’ from any increase in taxes.
But Scottish Conservative leader Ruth Davidson, who pressed her on the issue at First Minister’s Questions, recalled how the First Minister had committed to not increasing the basic rate of income tax for the entire parliamentary term.
As a result she said any increase for some in this group would mean taxpayers would be unable to ‘ever trust her again’.
SNP TAX RAID IN FULL
Scottish Finance Secretary Derek Mackay has announced increases to income tax in Scotland.
The plans mean:
- Higher rate tax on earnings over £45,000 goes up from 40p to 41p.
- Top rate tax on earnings over £150,000 goes up from 45p to 46p
- Introduce new intermediate rate of 21p between £24,000 and £44,273
- Introduce new starter rate of 19p £2,000 of taxable income, £11,850 – £13,850
Ms Sturgeon insisted: ‘We will set out fair, balanced, progressive Budget proposals that protect our public services from more than £200 million in real terms of cuts being imposed by the Tories.
‘Our spending is being cut by more than £200 million in real terms next yea, and the proposals we put forward this afternoon will set out how we protect our NHS our education system and other vital public services from that, while protecting the vast majority of tax payers and also investing in business and the economy.’
In his Budget speech,Mr Mackay vowed the changes he announced will make ‘Scotland’s income tax system even fairer and more progressive’.
He took the decision to increase income tax for the very top earners – those on a salary of £150,000 a year or more – by 1p after a report from the Scottish Government’s chief economist said bringing back the 50p top rate in Scotland alone could see the Scottish Government lose money.
Ms Sturgeon (pictured with Mr Mackay ahead of the speech) earlier claimed just three in ten taxpayers would pay higher bills under the plans
The decision to increase taxes north of the border is a risk for the SNP government after it suffered major election setbacks in June
The Finance Secretary said: ‘I will increase the higher and top rate of tax by 1 percentage point to 41p and 46p respectively.
‘This sets the top rate of tax at a level which will generate the most income with the the least risk of losing revenues next year and damaging the economy.
FINANCE MINISTER REVEALS WHERE HE’LL SPEND THE TAX
Finance Secretary Derek Mackay announced a raft of new spending commitments for his tax plans:
- Increase spending on the health service by over £400m – £200m more than inflation.
- Provide £120m – over and above core education funding – direct to head teachers to help ensure all young people can fulfil their potential
- Lift the 1% public sector pay cap and provide for up to a three per cent pay rise for NHS staff, police, teachers and others earning up £30,000
- Invest £243m towards the expansion of free nursery education and childcare
- Protect funding for Police and Fire services including retaining VAT refunds in full
- Deliver a local government finance settlement worth more than £10.5bn
- Contribute £756m towards investment of more than £3bn by 2021 to deliver 50,000 affordable homes
- Allocate over £4bn of funding for infrastructure
- Deliver £600m to ensure every home and business will have access to superfast broadband by 2021
‘Had we gone further our modelling indicates that once behavioural effects of forestalling are considered a higher rate could actually reduce income tax revenue next year and that’s not a decision any sensible government would take.’
He continued: ‘I will freeze the basic rate at 20p but to make the system more progressive I will introduce a new intermediate grade of 21p.
‘The intermediate rate will apply to incomes between £24,000 and the higher rate threshold of £44, 273, which will increase in line with inflation only.’
Mr Mackay went on: ‘To make Scotland’s income tax system even fairer and more progressive I’ve chosen to make one further change. I can announce today that I will introduce a new Scottish starter rate of income tax of 19p.
‘This new rate will apply to the first £2,000 of taxable income between £11,850 and £13,830. This new starter rate combined with the increase in the personal allowance will ensure that no one earning less than £33,000 which is 70% of all taxpayers will pay any more in tax than they do now.’
Scottish Conservative finance spokesman Murdo Fraser branded the creation of a new basic rate the “Nat tax”.
He accused the SNP of breaking a 2016 manifesto promise pledging not to increase the basic rate of income tax for those on low or middle incomes, and called on the Finance Secretary to apologise, adding “no one will believe a word they say ever again”.
Mr Fraser said there was “no justification” for the tax rises being imposed, saying analysis from the Scottish Parliament Information Centre shows the block grant from Westminster is increasing in real terms.
He claimed the real reason for the rises is that Scottish economic growth is lagging behind the UK.
Scottish Tory leader Ruth Davidson and Scottish Labour leader Richard Leonard (both pictured in Holyrood today) have slammed the tax rise
At First Minister’s Questions ahead of the statement, Ms Davidson quoted Ms Sturgeon as having pledged that ‘when inflation is rising and living standards are under a lot of pressure it is not right to increase income tax for those who are on the basic rate’.
She added: ‘Those were the direct words of the First Minister herself, just this year in May.
‘What I was asking her was whether she agreed with herself that all people who currently only pay the basic rate of income tax, which is 2.2 million people in this country, shouldn’t have to pay more, because that was the promise she made.’
At First Minister’s Questions (pictured) Ms Sturgeon vowed today to protect the 70 per cent of taxpayers on ‘low and middle incomes’
But after Ms Sturgeon 70 per cent of taxpayers would not pay any more, the Tory hit out: ‘Hasn’t she just told at least some of them that she is breaking her promise.’
She continued her attack, saying: ‘Time and time again ahead of elections the SNP Government make promises to people on tax.
‘And it was only in May of this year the First Minister was absolutely clear – it is not right she said for any person on the basic rate to pay more.
‘That is 2.2 million people in this country that would be protected and she’s just stood up and said some of them are going to take a hit.
‘This is simple matter of trust, promises were made, she’s failed to meet them, so how can Scottish workers ever trust her again?’
Ms Sturgeon hit back, saying her ministers were dealing with the ‘most challenging economic and fiscal context’ since devolution as a result of Conservative reductions to public spending.
She told MSPs: ‘Over the next two years Tory cuts will take £500 million in real terms out of the spending this Parliament has available for our nurses, for our doctors, for our teachers and for our police officers.
‘It is a bit rich in light of that for the Tories to come to this chamber and lecture anybody about tax and public spending.’
The Brexit ‘divorce bill’ which the UK will pay for leaving the European Union will also mean ‘every household across not just Scotland but the UK will be facing a bill of £1,400’, she said.
The First Minister added: ‘In light of all of that the proposals we put forward this afternoon will be responsible, they will be balanced, they will protect our vital public services from Tory cuts, they will protect the majority of tax payers and they will invest in business and the economy.
‘And in all of that they will stand in stark contrast to anything the Tories are doing.’