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Tax gap between Scotland and England widens after Chancellor abolishes top rate

Mini-Budget: Chancellor abolishes top rate of tax in England
Mini-Budget: Chancellor abolishes top rate of tax in England

WORKERS in England earning more than £150,000 will pay the same amount of tax as someone on £50,000 after a surprise announcement in Chancellor Kwasi Kwarteng's mini-budget.

From next April, the 45 per cent additional rate will be replaced by the 40% higher rate threshold.

The unexpected cut widens the tax gap between Scotland and England.

Anyone earning more than £150,000 north of the border will pay a top rate of 46%.

Mr Kwarteng also brought forward the planned cut to the basic rate to 19p in the pound a year early to April. That’s lower than Scotland’s basic rate of 20% but matches the starter rate paid by anyone earning between £12,571 to £14,732.

Mr Kwarteng's change will mean everyone earning more than £14,732 will pay more tax in Scotland than they would if they lived in England.

Someone on £30,000 will pay £396 more, on £50,000 they will pay £1,863 more, and at £80,000 they will pay £2,200 more.

According to Treasury analysis, the Scottish Government will receive more than £460m as a result of the income tax cut, and around £170m of additional funding because of changes to stamp duty.

The so-called mini-budget was not very mini at all, with around £50bn worth of tax cuts announced.

However, by describing it as a “fiscal event” Mr Kwarteng avoided the immediate scrutiny and forecasts of the Office for Budget Responsibility.

There were a number of major announcements in what the Chancellor dubbed his growth plan, including, as expected, the reversal of the hike in National Insurance and next year's planned increase in corporation tax.

READ MORE: National Insurance hike to be reversed from November

He also introduced VAT-free shopping for overseas visitors, and cancelled planned increases in alcohol duty.

There was also a bonfire of regulations, including the axing of the cap on bankers’ bonuses.

He said: "All the bonus cap did was to push up the basic salary of bankers or drive activity outside Europe. It never capped total remuneration."

There was also news of legislation to force trade unions to put pay offers to a member vote so strikes can only be called once negotiations have fully broken down.

He told MPs: "If we really want to level up we have to unleash the power of the private sector."

Mr Kwarteng also confirmed plans to make around 120,000 more people on Universal Credit take steps to seek more work or face having their benefits reduced.

READ MORE: Over 120,000 part time workers could lose benefits unless they work more hours

Mr Kwarteng said his economic vision would “turn the vicious cycle of stagnation into a virtuous cycle of growth”.

The Chancellor also confirmed that the energy price guarantee for households and the energy relief scheme for businesses will be funded through borrowing.

Mr Kwarteng said the Treasury believed this would cost around £60m for the first six months from October.

He said it was “entirely appropriate for the government to use our borrowing powers to fund temporary measures to support families and businesses”.

Mr Kwarteng told MPs: “For too long in this country, we have indulged in a fight over redistribution. Now, we need to focus on growth, not just how we tax and spend.

“We won’t apologise for managing the economy in a way that increases prosperity and living standards. Our entire focus is on making Britain more globally competitive – not losing out to our competitors abroad.

“The Prime Minister promised we would be a tax-cutting government.

"Today, we have cut stamp duty, we have allowed businesses to keep more of their own money to invest, to innovate, and to grow, we have cut income tax and national insurance for millions of workers, we are securing our place in a fiercely competitive global economy with lower rates of corporation tax and lower rates of personal tax.

“We promised to prioritise growth. We promised a new approach for a new era. We promised to release the enormous potential of this country. Our growth plan has delivered all those promises and more.”

Shadow chancellor Rachel Reeves said the strategy amounts to an “admission of 12 years of economic failure” under successive Conservative governments.

The Labour MP described the Prime Minister and Mr Kwarteng as “two desperate gamblers in a casino chasing a losing run”.

She said: “The Chancellor has confirmed that the costs of the energy price cap will be funded by borrowing, leaving the eye-watering windfall profits of the energy giants untaxed.

“The oil and gas producers will be toasting the Chancellor in the boardrooms as we speak while working people are left to pick up the bill.

“Borrowing higher than it needs to be, just as interest rates rise. And yet the Chancellor refuses to allow independent economic forecasts to be published, which would show the impact of this borrowing on our public finances and growth, and on inflation.

“It is a budget without figures, a menu without prices. What has the Chancellor got to hide?”

The SNP’s Shadow Chancellor, Alison Thewliss told the Commons: “It is a plan for recession, for debt on an unsustainable trajectory and almost inevitable public-sector cuts to come.

“Actively choosing to permanently cut taxes and spend eye-watering sums to patch up a failed energy market while inflation soars, interest rates are hiked and recession looms, it will not create growth, it’ll create economic chaos.

“Nothing he has said today will provide any reassurance and give hope to ordinary people, folks struggling to get by in broken Britain.”

She added: “Scotland is looking for a different path. Scotland needs independence.”

The Chancellor replied: “what Scotland doesn’t need is reheated socialism from the SNP”.