A million Scots to pay more income tax than their counterparts in England after radical SNP budget

More than a million Scots are to pay more income tax than people on the same salaries in England from next April after Nicola Sturgeon’s government unveiled a radical overhaul of the levy targeting middle and higher earners.

Derek Mackay, the Scottish Finance Minister, unveiled an extra 21 per cent income tax band for earnings between £24,000 and £44,000 that will sit between the basic and higher rates. He also put a penny on both the higher and top rates, increasing them to 41p and 46p respectively.

His draft Budget for 2018/19 made Scotland the highest taxed part of the UK despite his official forecasts predicting the lowest economic growth in nearly 60 years.

Together the changes will mean 45 per cent of Scottish workers – around 1.1 million people - will pay more income tax than if they earned the same salary in England. The total includes 800,000 basic rate taxpayers whom the SNP promised to protect in last year’s Holyrood election.

Scots earning more than £26,000 will pay more tax than if they lived in England, with those on higher salaries paying hundreds of pounds extra. Those paid more than £33,000 will see their tax bills increase from April compared to the current financial year.

The tax hike could get even steeper as Ms Sturgeon’s minority government is most likely to seek a deal to get its Budget passed with the hard-Left Scottish Greens, who want larger rises for middle and high earners.

In another blow to middle-class families, parents who send their children to independent schools in Scotland are also facing possible increases in their fees after he removed the institutions’ charity relief on business rates.

To raucous cheers from the SNP benches, including Nicola Sturgeon, Mr Mackay claimed Scotland was actually the lowest taxed part of the UK after introducing a new 19p "starter rate" on the first £2,000 of income above the personal allowance.

But his boast was undermined by figures released shortly afterwards by the Scottish Government showing the most low earners would save is £20 a year, or 38p a week. In contrast someone earning £50,000 will pay £655 more than if they lived in England.

The Tories said the “Nat Tax” was a levy on aspiration and working hard and lambasted the SNP for breaking their manifesto pledge. Small business leaders also reacted with hostility, warning that the SNP was steering Scotland into “uncharted economic waters.”

Mr Mackay’s assurances that the extra spending would help grow the economy were severely undermined by his official forecasts, which showed desperately weak growth of less than one per cent annually for the next four years.

The Scottish Fiscal Commission predicted growth of only 0.7 per cent this year and next, 0.9 per cent in 2019, only 0.6 per cent in 2020 and 0.9 per cent the following year – well below the UK level.

Economists at the respected Fraser of Allander Institute said the figures represented the lowest trends in Scottish economic growth in nearly 60 years. Business leaders warned a tax hike would wreak long-term damage that would be difficult to reverse.

But, outlining his plans in the Holyrood chamber, he claimed the additional £164 million generated from the hike was needed for spending on public services, including £400 million more for the NHS and £600 million for superfast broadband.

The minister also unveiled a three per cent pay rise for public sector workers earning less than £30,000, and a two per cent rise for those earning more than that - with a cap of £1,600 for those earning £80,000 or more.

The local government budget for day-to-day spending was cut in real terms but councils were given the power to increase council tax by up to three per cent in April.

In addition, Mr Mackay announced extra money for culture and full relief on Land and Buildings Transaction Tax for first-time buyers on home purchases up to a price of £175,000.

Mr Mackay said: “These decisions have therefore enabled me to reverse the real terms cut that the UK Government has imposed on our resource budget next year, whilst ensuring that Scotland is not just the fairest taxed part of the UK but, for the majority of taxpayers, the lowest taxed part of the UK.”

But Murdo Fraser, the Scottish Tories’ Shadow Finance Minister, said: “This Nat Tax will hit nearly half of Scottish workers in the pocket. That is a tax on aspiration, a punishment for daring to work hard, and a direct breach of the promise made by the SNP in its election manifesto.

“That will not escape the notice of voters, who will never believe a word the Nationalists say again.”

Andy Willox, Scottish policy convener for the Federation of Small Businesses, said: “We wanted to see a Scottish Government budget which offered firms a little ballast in choppy market and political conditions. Instead, the Scottish Government has chosen to steer us into uncharted economic waters.”