Nicola Sturgeon warned of business 'consensus' against planned income tax hike

Auslan Cramb
Derek Mackay is expected to announce income tax rises - All images © Stuart Nicol Photography 2014.

The Scottish Government has been warned ahead of this week’s budget that there is now a “serious consensus” in the Scottish business community against planned increases in income tax.

A new survey reveals that 65 per cent of small business owners believe a hike in tax rates will damage the economy.

The Federation of Small Businesses has written to Derek Mackay, the Finance Minister, with its findings, adding its voice to a chorus of opposition to Nicola Sturgeon’s plan to increase income tax for middle and high earners in order to fund public services.

The FSB poll of 315 businesses found that just over 58 per cent want tax rates to stay the same, with 20 per cent saying they should be cut and a similar number favouring a rise.

Only 18 per cent of owners thought an increase in income tax would give the economy a boost.

The First Minister was also warned by the Scottish Chambers of Commerce last week that the proposed move, amid reports that the budget could introduce up to three next tax bands, risked inflicting major economic damage that could take years to fix.

Nicola Sturgeon is planning radical changes  Credit: Getty

Tax rises are also opposed by Reform Scotland, the think tank that called for taxation responsibilities to be devolved to Holyrood, and by the pro-independence group Business for Scotland, with concerns that hitting high earners could lead to a loss of tax take.

Reform Scotland said income tax was too blunt an instrument and called for taxes to be pegged to the Westminster level until more taxes were devolved. Meanwhile, Business for Scotland said increasing taxes across the board in the hope of raising some £200 million extra revenue was “not a positive move”.

Murdo Fraser, the Scottish Conservative finance spokesman, said the interventions signalled  a “serious consensus within Scotland's business community that the SNP should not increase income tax” in Thursday’s budget.

He added: ”The nationalists must listen to this, or else workers will be hit in the pocket, and the broader economy damaged as a result.”

Andy Willox, FSB’s Scottish policy convenor, said it was little wonder business owners had warned of the impact on the wider economy with “pressure on household incomes and uncertainties about the impact of Brexit".

Murdo Fraser says there is now a business consensus against tax hikes Credit: Corbis

The research also showed that of who run their own business, about two thirds are basic rate taxpayers earning between £11,501 and £43,000, about a fifth earn between £43,001-£150,000, and only 1.6 per cent fall into the additional rate bracket by earning more than £150,000.

Mr Willox added: “This data scotches the myth that business owners are all high earners. Further, when forced to choose between ministers’ palette of tax options, the largest share of business owners chose what could be regarded as the more progressive option.

“They seem to be less worried about their own wallets and more concerned about the wider economy. The Scottish Government must resist the siren song of a big change budget, and do what they can to steady Scotland’s economic ship.”

Ms Sturgeon has set out four possible options which would see rate rises for higher earners, indicating that those on salaries of more than £31,000 could be affected.

They include having anything up to six income tax bands, with three of the four featuring a 50p additional rate and incremental changes to the basic and higher rates.

Mr Mackay claimed the budget would have economic growth at its heart and seek to "unlock economic potential" in manufacturing, innovation, digital connectivity, infrastructure and housing.

A spokesman for the Scottish Government said: "Our income tax discussion paper outlined four key tests that we feel any change in income tax must meet. One of those was that, when combined with our spending decisions, any change in tax policy should support the economy.

"Following this careful and considered discussion, we will publish a balanced package of tax and spending proposals as part of the draft budget on December 14."

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