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  1. ITV Report

Hundreds of thousands of Scots to pay more under income tax increases

The Scottish Government is planning to increase the tax rate on earnings above £24,000 a year, resulting in many Scots paying higher taxes than people in other parts of the UK.

Under the plans in Holyrood's Finance Secretary's draft Budget for 2018-2019, anyone with a salary of between £24,000 and £44,273 a year will see their income tax rise to 21p on earnings above £24,000.

Higher rates of income tax will also increase from 40p to 41p for anyone earning more than £44,273, and from 45p to 46p for anyone earning more than £150,000 per year.

The basic rate of income tax has been frozen at 20p, while a new "starter rate" tax of 19p will be introduced for the first £2,000 of taxable income of wages between £11,850 and £13,830.

The proposed new income tax bands. Credit: ITV News

The Scottish Government claims the tax increases will allow it to raise an extra £164 million which it says will enable it to "fulfil our commitments" to the NHS without cutting public spending in others areas and make Scotland the "fairest taxed part of the UK".

The draft proposals will need to be approved by MSPs before coming into force in April 2018.

Despite the changes, Finance Secretary Derek Mackay has insisted most Scots will pay less income tax next year, adding that the new plans will make "Scotland's income tax system even fairer and more progressive".

Due to the tax cut to 19p at the lower end of the salary spectrum, nobody earning less than £33,000 will end up paying more taxes than they currently do.

Around 70% of Scottish taxpayers earn less than £33,000 per year.

New Scottish income tax bands

  • 19% rate: on income between £11,851 to £13,850.
  • 20% rate on income between £13,851 to £24,000.
  • 21% rate: on income between £24,401 to £44,273.
  • 41% rate: on income between £44,274 to £150,000.
  • 46% rate: on income over £150,000.

Income tax rates for the rest of the UK

  • 20% rate: on income between £11,850 to £46,350.
  • 40% rate: on income between £46,351 to £150,00.
  • 45% rate: on income over £150,000.
People on lower wages will pay less tax under the plans in Scotland. Credit: ITV News

Power over income tax was devolved to the Scottish Parliament in November 2016 as part of the Scotland Act 2016.

Handing over control on the tax was a key recommendation of the Smith Commission, set up to examine which further powers should move from Westminster to Holyrood following the Scottish independence referendum in 2014.

Mr Mackay decided not to raise the top tax rate to 50p after the Scottish Government's chief economist said bringing back the 50p rate could see Holyrood lose money.

  • Scotland Correspondent Peter Smith believes the raising of taxes in Scotland to help finance frontline public services could be a sign of things to come in the rest of the UK.

Mr Mackay also announced in the draft Budget:

  • Public sector pay increases

The 1% pay cap on public sector jobs will be stopped, with Mr Mackay promising a "guaranteed minimum pay increase of 3% for those earning less than £30,000 per year.

Those earning over £30,000 will see wages increase by 2%, while for those on a salary of £80,000 a year or more the rise will be capped at £1,600.

  • Infrastructure

In the coming financial year, £4 billion will be spent on infrastructure, rising to £20 billion over the lifetime of the parliament.

This includes £600 million over the next four years for high speed broadband in a bid to bring superfast broadband to every home and business in Scotland by 2021.

Holyrood listens as the draft Budget is unveiled. Credit: PA
  • Health

Mr Mackay pledged an increase in health funding of more than £400 million - double the amount that would have been needed for NHS spending to keep pace with inflation.

This will take spending on the NHS in Scotland to more than £13 billion in 2018-2019, he said, with this including £110 million for reforming GP care, £550 million to help integrate health and social care and cash to support the roll out of free personal care to those under 65 with degenerative conditions - a commitment known as "Frank's Law"

  • Childcare

The Scottish Government is aiming to spend almost £250 million on nurseries, with the aim of doubling the amount of free childcare for pre-school youngsters, allowing them to receive 600 hours per year by the end of the Parliament.

Almost £250 million will be spent on nurseries. Credit: PA
  • Council spending

Mr Mackay said there would be a total increase of core funding of £94 million for councils.

He added that if all 32 local authorities increase council tax by the maximum allowed of 3%, this would raise an extra £77 million "which would secure a real terms increase in local government funding".

  • Enterprise and skills

Some £2.4 billion has been allocated for enterprise and skills.

Spending on the NHS in Scotland will be more than £13 billion in 2018-2019 under the draft plans. Credit: PA

Announcing his plans to the Scottish Parliament, Mr Mackay called the Budget "a comprehensive package of measures designed to protect all that we hold dear.

"It provides the investments we need to meet the challenges of today and seize the opportunities of tomorrow.

"It uses the powers of this Parliament sensibly and in the interests of the country as a whole."

However, Scottish Conservative finance spokesman Murdo Fraser branded the creation of a new basic rate the "Nat tax" and accused the SNP of renegading on their 2016 manifesto promise.

Mr Fraser accused the SNP a pledge promising not to increase the basic rate of income tax for those on low or middle incomes, and called on the Finance Secretary to apologise, adding "no one will believe a word they say ever again".

Mr Mackay hit back saying he was "proud" of the budget and that the basic rate of income tax had been frozen.

Holyrood wants all of Scotland to have superfast broadband by 2021. Credit: PA

Mr Fraser continued that there was "no justification" for the tax rises being imposed, saying analysis from the Scottish Parliament Information Centre shows the block grant from Westminster is increasing in real terms.

He claimed the real reason for the rises is that Scottish economic growth is lagging behind the UK.

He said: "It is this failure to grow the Scottish economy and the failure to expand the tax base that leads the SNP to put their hands in the pockets of hard working Scottish families and businesses to bail them out of the mess they are making of the Scottish public finances."

He added: "The message of this budget is simply this - don't be ambitious, don't be hard working, don't be successful in the SNP's Scotland because we will penalise you for our failure to grow the Scottish economy."

Scottish Labour leader Richard Leonard also attacked the Finance Secretary's plans.

Recently-elected Mr Leonard said the Scottish Government's tax and spending plans had "tinkered round the edges" instead of implementing radical change and using the powers of the Scottish Parliament to deliver an alternative to Conservative austerity.

He said: "It should be based on the principle of from each according to their means, to each according to their needs. A penny on the top rate just does not do it."

Mr Leonard said the Scottish Government has produced a "Tory-lite draft budget".

He added: "What [the Finance Secretary] is doing today is cutting day to day spending in real terms by £134 million when councils have already told him that they need £545 million just to stand still.

"That is an effective cut of almost £700 million to lifeline local services."