Derek Mackay pledges ‘more progressive’ approach to income tax in Scotland

Scotland’s Finance Secretary has pledged to take a “more progressive approach” to income tax than Philip Hammond when he delivers Holyrood’s budget.

Derek Mackay clearly hinted he would not follow the Chancellor’s example in upping the threshold for the higher rate of of the charge.

But there was a warning Scots earning more than the higher rate threshold north of the border – currently set at £43,430 – and less than the UK threshold, which rises to £50,000 next April, could “face a very high marginal rate of earnings taxation of 53% over an increasingly large proportion of income”.

That came from the independent Scottish Parliament Information Centre (Spice) in a blog post published in the wake of Mr Hammond announcing the increase in the higher rate threshold.

With control over income tax rates and bands devolved to Scotland, Mr Mackay said while he would set out his plans for taxpayers north of the border on December 12, he pledged he would “choose a fair, more progressive path” than the Conservative Chancellor.

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At the moment in the rest of the UK, the 40p higher income tax rate applies to earnings above the threshold of £46,351 – with this to increase to £50,000 at the start of the next financial year in April 2019.

Mr Hammond also announced in his Budget he was upping the personal allowance, taking the amount people can earn before they are liable for income tax to £12,500.

This will apply across the UK, including in Scotland, where changes introduced in April 2018 mean those on a salary of more than £43,430 are taxed at the higher rate of 41p.

Economics experts at the Fraser of Allander Institute have estimated if Mr Mackay increased the threshold for this in line with inflation, someone earning £50,000 a year in Scotland would pay £1,100 more in income tax than they would elsewhere in the UK.

In response, Spice said: “In the coming weeks, the Scottish Government will have a decision to make in terms of whether to move towards the UK higher rate threshold or not and whether to make other changes to its income tax policy.”

It went on to warn Scottish taxpayers could “face a very high marginal rate of earnings taxation of 53% over an increasingly large proportion of income”.

Workers whose earnings fall between the Scottish higher rate threshold and the threshold for this in the rest of the UK would be taxed at 41%, as well as having to pay 12% National Insurance Contributions (NICs), Spice said, noting the employee NICs fall to 2% above the UK higher rate threshold.

Mr Mackay said he would make his position on income tax clear when he presents the Scottish budget to MSPs.

But he stated: “But I take some pride in the fact that I have been the Finance Secretary that has ensured we’ve got the fairest income tax system anywhere in the United Kingdom, and for the majority of people they pay less tax and this is the lowest taxed part of the UK.”

The Finance Secretary said the “overall impact of Tory tax and benefit policies will once again help the rich at the expense of the poor”, adding the poorest fifth of households will be £400 a year worse off by 2023/24 while the richest fifth are set to gain £390 a year.

He said: “The Tories have once again chosen tax cuts for the richest in society, we will choose a fair, more progressive path and I will set out the details in the Scottish Budget on December 12.”