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Income tax rates to be frozen

Published: 22 Mar 2016 11:12
Part of:
Economy

Blocking UK tax cuts will provide more than £ 1 billion for public services.

Income tax rates in Scotland will be frozen, with no increases in the basic, higher or additional rate, under plans set out by First Minister Nicola Sturgeon today.

The significant tax cuts brought about by substantial increases to the higher rate threshold proposed by the UK Government will not be passed on under today's proposals. Instead, the higher rate threshold will be frozen in real terms and increased only in line with CPI inflation in 2017/18 and by no more than inflation until 2021/22.

The exact level of the higher rate threshold will be set out each year by the Scottish Government at the budget.

The Scottish Government's proposals are expected to generate cumulative additional revenue of more than £1 billion by 2021/22.

This balanced approach will be fair to higher rate taxpayers while also generating additional revenue to be invested in Scotland's public services such as the NHS.

Under the proposals set out today, the Scottish Government will ensure a Personal Allowance of £12,750 in 2021/22. If necessary, the Scottish Government will create a zero rate band to ensure that this protection for low income households is delivered.

Alongside the tax proposals, the First Minister published Scottish Government analysis that demonstrated any increase in the additional rate for top earners, whilst the UK rate remains at 45p, could put millions of pounds of revenue at risk. Accordingly, she confirmed that the additional rate will not increase in 2017/18 - but that the analysis will be updated each year to inform decisions in future budgets.

Announcing the proposals at the Royal Hospital for Children in Glasgow the First Minister said:

"In setting out our proposals we have balanced the need to invest in and support our public services with a recognition that many households are still facing difficult economic challenges, and with the need to grow the Scottish economy.

"We will not allow our public services to pay the price of an inflation busting tax decrease for the highest earning 10% of the population. We think that is the wrong choice and today we set out our alternative.

"We will freeze the basic rate of tax for the duration of the next parliament. We do not believe it is right that those on low incomes are asked to pay for austerity. That does not tackle austerity, it simply shifts the burden to those who can least afford it.

"No taxpayer will see their bill increase as a result of these Scottish Government proposals.

In 2017/18, instead of offering a large tax cut we will ensure the higher rate threshold rises only by inflation.

"That means next year the threshold for higher rate taxpayers will go from £43,000 to £43,387.

"That increase will prevent higher rate taxpayers from receiving a real terms cut in their tax bills, but nor will they see their bills increase.

"By adopting a different path to the UK Government we could generate more than £1 billion of additional revenues, enabling us to protect the public services we all rely on. We believe that this proposal is reasonable, it is balanced and it is fair.

Setting out proposals for a zero rate of taxation up to £12,750, the First Minister added:

"There is one further aspect of our plans. The power to set the personal allowance remains with the UK Government and by 2020/21, on current plans, it is expected to have reached £12,500.

"To ensure we can offer stability and support to those on lower incomes we will use our powers to set a zero rate which will ensure that, by 2021/22 no one pays tax on the first £12,750 of their income, helping those on lower incomes keep up with the rising cost of living.

"By taking a distinctly different course to the UK Government and by rejecting the large tax cuts, over the next five years, we can secure more than £1 billion of additional investment in our hospitals, our schools, our economy and to support the additional benefits available for taxpayers in Scotland such as free personal care, free education and free prescriptions."

Notes to editors

More information can be found at: www.gov.scot/incometax