Citizen Participation and Public Petitions Committee
Scottish Government submission of 18 January 2022
PE1923/A – Align the Higher rate tax threshold to £37,501 in line with the rest of the UK
While the UK Government Autumn Budget and Spending Review announced what was described as a significant increase in Scotland’s block grant, the reality is a cut in day-to-day funding for each year of the spending review compared to 2021-22 – in addition to the continuing challenges of Covid-19 and EU exit.
The average annual increase of £4.6 billion portrayed by the UK Government is only a rise after all 2021-22 Covid-19 and other one-off funding from the Block Grant is stripped out. In practical terms, between 2021-22 and 2022-23, resource funding is 7.1% less in real terms.
Alongside revenue funding, the UK Spending Review also fell short of the Scottish Government’s ambitious capital spending plans – constraining our ability to invest in the infrastructure required to support our economy and public services, and deliver the green jobs and technology required to reach Net Zero. The equivalent reduction for Scotland’s capital budget grant funding is a 9.7% real terms cut between 2021-22 and 2022-23.
The Scottish Fiscal Commission estimate that the Scottish Government’s decisions on Income Tax since 2017-18 will add around £552 million to the Scottish Budget in 2022-23, compared to following UK Government Income Tax policies.
This implies that reverting to UK Income Tax rates and bands would mean £552 million less to invest in public services, our economy, and in priorities like our national mission to end child poverty. While reduced public spending would impact everyone, previous analysis undertaken by the Scottish Government finds that low income households are most likely to feel the impact of reduced public spending.
Furthermore, reverting to UK Income Tax rates and bands would predominately benefit high income earners. For example, a Higher Rate taxpayer earning £50,000 would see their take home pay increase by of £1,489, while a Top Rate taxpayer earning £160,000 would see a rise of £2,768.
The Scottish Government does not support a policy which would provide a tax break to high income earners while disproportionately impacting those on low incomes. Instead, we remain committed to a fairer and progressive system in Scotland. A system that protects low income earners whilst investing in the widest and best funded range of free to access public services than in the UK, which includes universal free prescriptions and tuition fees.