New income tax band urged to ease pressure on 'squeezed middle'

Updated

A new income tax band should be introduced to ease the pressure on Scotland's "squeezed middle", according to a new report.

The recommendation was made by a commission set up by the Scottish Conservatives to look at how new tax powers coming to Holyrood as a result of the Smith Commission on further devolution should be used.

The Scottish Parliament will be responsible for setting rates and bands of income tax from April 2017.

The Commission for Competitive and Fair Taxation in Scotland said that in order to remain competitive, Scotland's overall tax burden should be lower than the rest of the UK "when affordable".

It has proposed the creation of a new middle band of income tax between the current 20% and 40% bands, at around 30%.

This would "ensure fewer aspirational families are dragged into the higher tax rate band" of 40%, the report said.

Commission chair and former CBI Scotland director Iain McMillan said the philosophy behind the proposal was to help the "squeezed middle".

He said: "The middle earners, there's no doubt about it, their tax burden in recent times has not been improved, so we would do that.

"If it was implemented right now it would probably raise less tax, but over time, one would hope that the attractiveness of the tax rate and the incentive to work and earn more would actually result in more tax yield over time."

The commission, which comprised business leaders and economic experts, also called on Scottish politicians not to raise the 45% top rate of income tax.

Scottish Labour leader Kezia Dugdale has said her party would use an increase in the top rate to tackle the attainment gap in schools.

Meanwhile the SNP has said it is in favour of "progressive taxation", with the party backing restoration of the 50p top rate of tax during last year's general election.

Mr McMillan warned: "Such a measure could drive out wealth creators and deter new ones from coming to Scotland."

The report also calls for the council tax to be replaced with a "more local, fairer and progressive" property tax, with reliefs aimed at low income households across all bands.

Commission members advocated the abolishment of the "unfair" Land and Buildings Transaction Tax, Scotland's stamp duty replacement.

Other recommendations include a freeze in business rates for the course of the next Scottish Parliament and the replacement of Air Passenger Duty with a new Departure Tax linked to travel distance.

Mr McMillan said: "To a large extent the Scottish Parliament has been sheltered by the Barnett Formula from the tough political decisions that are necessary to balance the imposition of taxes on Scottish taxpayers on the one hand with public spending on the electorate's behalf on the other but these days will come to an end in April 2017 when the Smith Commission's proposals come into effect.

"I hope very much that this report will stimulate a rigorous debate."

Scottish Tory leader Ruth Davidson said: "The commission's central recommendation is that the tax burden should be no higher in Scotland than in the rest of the UK, and lower when affordable - and I back that 100%.

"We need to show that Scotland is open for business, so I and my team will do everything we can to ensure that the SNP does not use the new tax powers to take more money from the paypackets of hardworking Scots.

"We will examine these proposals closely and come forward with our plans ahead of the election in May."

Income Tax Fundamentals -- Itemized and Standard Income Tax Deductions
Income Tax Fundamentals -- Itemized and Standard Income Tax Deductions

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