Jim Higgins, Tax Director at Deloitte in Scotland: “A number of the UK Chancellor’s changes announced today will not automatically apply to Scotland.
“Earlier this month Scottish Government Deputy First Minister John Swinney committed to publishing the outcome of an Emergency Budget Review within two weeks of the UK Budget event today.
“We eagerly await that response.
“Income tax is devolved to the Scottish Government, so the proposed changes do not apply to Scottish taxpayers, except to the extent that they have savings or dividend income.
“With effect from 6th April 2023, the Basic Rate of Income Tax will be cut from 20% to 19%, the Additional Rate of Income Tax of 45% (for income above £150,000) will be abolished and the dividend Additional Rate of 38.1% will be removed leaving a top rate of dividend tax of 32.5%.
“This means the highest rate of income tax for non-Scottish taxpayers will be 40% for earned income and 32.5% for dividends.
“In the absence of a similar reduction in rates, the current small differences will become much more material. For incomes above £150,000, the difference will be 46% vs 40% unless the Scottish rate is reduced.
“National Insurance is not devolved and will apply across the UK. With effect from 6th November 2022, the 1.25% increase in National Insurance contributions introduced on 6th April 2022 will be reversed, bringing rates back to their pre-6th April levels.
“This reduction applies to the rates of National Insurance contributions for employers, employees and self-employed. The rates will now be 13.8% for employers (from 15.05%) and 12% and 2% for employees (from 13.25% and 3.25%).
“Self-employed people will also enjoy a reduction and will pay a blended rate when they submit their self-assessment tax return. In addition, the proposed Health and Social care levy of 1.25%, which was to be introduced from 6th April 2023, has been cancelled.
“Corporation Tax is not a devolved tax and so the rate reduction and the more generous Annual Investment Allowance measures will have direct effect for Scottish companies, just as for all companies throughout the UK.
“Stamp Duty Land Tax does not apply in Scotland and the equivalent devolved tax – Land and Buildings Transaction Tax, or LBTT – is unaffected by the Chancellor’s announcement.
“We will see in due course whether Scottish Government policy is influenced by change in the rest of the UK and whether the Scottish Parliament will make any changes to LBTT.
“The Scottish Fiscal Framework – the Barnett Formula and Block Grant Adjustments – will introduce change to the Scottish Budget as a result of changes to the rest of the UK in respect of taxes devolved or partially devolved.
“The detailed operation of the Fiscal Framework is complex but, broadly, the reduction in UK rates – to taxes that are devolved – should result in a corresponding increase in the Scottish Budget of more than £460 million.
“The Scottish Government may choose to commit that extra money to fund equivalent tax reductions in Scotland – or alternative measures – or they may choose to use the extra money to increase spending in Scotland.
“The announcement of new Investment Zones, which will carry enhanced tax reliefs for companies and employees working within them, will also not automatically apply to Scotland. The challenge to all the devolved Governments is to join in.”
Deputy First Minister John Swinney: “The Chancellor’s statement today will provide cold comfort to the millions of people across Scotland who have been looking for the UK Government to use its reserved powers to provide support for those that need it most. Instead we get tax cuts for the rich and little for those who need it most.
“We estimate that the increase in the price cap to £2,500 will force an estimated 150,000 more Scottish households into extreme fuel poverty. Instead of offering these people support, the Chancellor is threatening to cut their family budgets further, with a new regime of benefit sanctions.
“On Land and Buildings Transaction Tax and on Scottish income tax, the Scottish Government will set out its plans as part of the normal budget process. We will discuss the proposed investment zones with the UK Government but we are clear they have to be the right fit for Scotland.
“Because of inflation, the Scottish Government’s budget is worth £1.7 billion less than it was when we set it in December, yet the Chancellor has refused to provide a single additional penny for public services or increase public sector pay.
“We are doing everything within our power to support people, public services and the economy, but these efforts are under threat by a reckless UK Government beginning a new, and dangerous race to the bottom.
“With a fixed Budget and no scope to borrow for short term challenges, Scotland is at the mercy of UK decisions. This reinforces the urgent need for independence.”
Fraser of Allander Institute: ” … Of course, with income tax being devolved, neither of the changes will apply in Scotland.
“Instead, the Scottish Government will see a smaller reduction in its block grant next year than it was expecting, boosting the resources available to it in 2023/24 (the reduction to the Scottish Government’s block grant is broadly designed to reflect what the UK government would have raised from income tax in Scotland if income tax had not been devolved, and if the UK government income tax policy had continued to apply in Scotland).
“In the context of this additional resource through its block grant, the Scottish Government will then need to decide whether and how to respond through its own tax policy.
“It could of course keep Scottish tax policy unchanged. This would enable it to use its additional block grant to invest in public services in Scotland.
“The cost of it doing this politically would be that the gap between Scottish and rUK tax policy would widen substantially.
“Almost all Scottish income taxpayers would pay more income tax than they would in rUK.
“A Scottish taxpayer with an income of £29,000 would face liabilities around £160 higher. A Scottish taxpayer with an income of £50,000 would face liabilities almost £2,000 higher …
“Alternatively the Scottish government could mirror UK tax cuts with tax cuts of its own. It could for example decide to reduce the starter, basic and intermediate rates by 1p.
“This would broadly retain the difference in tax liability for individuals between Scotland and rUK at current levels (Chart 1, grey line).
“It would allow the Scottish Government to retain its treasured mantra that ‘the lowest income half of Scottish taxpayers pay less tax than they would in rUK’. But such a policy would cost the Scottish government around £400m in foregone revenues.
“Other policy decisions are possible. The Scottish government could decide to cut just the starter and basic rates in Scotland, rather than the intermediate rate as well, at a revenue cost of around £250m.
“How the Scottish Government responds to the UK Government’s abolition of the Additional Rate will also be interesting.
“The Scottish Fiscal Commission is likely to forecast that abolition of the Additional Rate wouldn’t be extremely costly in revenue terms (there are expected to be around 22,000 Additional Rate taxpayers in Scotland in 2023/24 so charging them a few pence less tax on their income above £150k might not have a significant affect in aggregate, particularly if it is assumed, as the SFC will, that the tax reduction will induce some element of a positive behavioural response).
“The Additional Rate policy therefore puts the Scottish Government in a difficult political position.
“If it retains the Additional Rate it will be accused of undermining the ‘competitiveness’ of the Scottish economy, for little direct revenue gain (without any changes to existing policy, a taxpayer with an income of £200,000 would face an additional £5,900 in income tax liabilities in Scotland compared to an equivalent taxpayer in England).
“But abolition of the Additional Rate would provide a significant tax cut for the highest income 0.5% of the Scottish adult population (an individual with income of £200,000 would be better off to the tune of £2,500 if the Additional Rate is abolished).
The regressivity of a cut to the top rate in Scotland is difficult to reconcile with the Scottish Government’s aspirations for progressivity.”
Scottish Financial Enterprise (SFE) Chief Executive Sandy Begbie: “While this budget is clearly focused on growth, we must recognise that there are major structural issues which require wide-ranging policy actions to stimulate the economy.
“This includes addressing unacceptable levels of poverty, closing skills gaps, supporting entrepreneurship and innovation, developing new post-Brexit regulatory frameworks, creating a business-led immigration policy and driving the journey to net zero.
“Without these fundamentals, we will struggle to create the business investment which is required to make this fiscal plan successful.
“Our industry is uniquely placed to support growth in the real economy, and we are also an ambitious and growing sector ourselves. In Scotland, we employ around 145,000 people and have a track record of creating well paid, highly productive jobs that benefit the Scottish economy.
“The strength of our sector must be fully harnessed if we are to see the sustainable, inclusive growth that is required to deal with our deep-seated economic challenges.”
Douglas Farish, Head of Tax for Scotland at Deloitte: “Today’s Growth Plan or ‘mini-Budget’ presents the Scottish Government with some difficult decisions.
“Should they reduce tax rates in line with Westminster or use the consequential Block Grant Adjustment in other ways?
“Today’s statement potentially creates a material divergence in income tax rates between Scotland and the rest of the UK.
“Businesses and individuals will be keenly awaiting the response from Holyrood if Scotland is to remain an attractive and competitive place for fast-growing companies and top talent.”