Derek Mackay’s first budget is ‘safety first’, say tax experts

Derek Mackay’s first budget is ‘safety first’, say tax experts
The National, by Kathleen Nutt


Tax experts last night agreed Finance Secretary Derek Mackay had set out a “safety first” draft Budget in Holyrood yesterday.


Moira Kelly of the Chartered Institute of Taxation in Scotland said the plans he unveiled highlighted “the tricky challenge of investing in public services while maintaining a competitive tax base”.


She said: “For all of the substantive new powers over taxation devolved to the Scottish Parliament, this was a ‘safety first’ draft Budget with only the most tentative signs of divergence between Scotland and the rest of the UK.


“It is a position which neatly illustrates the tricky challenge faced by the Scottish Government in balancing responsibility for tax-raising powers and investing in public services while seeking to protect the country’s revenue base.


“Put simply, if they tax high earners or business too much then they risk the chance that some of them will base their location decisions around tax implications. Conversely, if they seek to undercut the rest of the UK to attract more of them in there are large dead weight costs and no guarantee the gambit will come off.”


She added that the decision to restrict increases in the rate at which people start paying the higher rate of income tax to inflation only was likely to represent the first noticeable sign of disparity between the amount of tax paid by workers in Scotland and the rest of the UK.


Jon Meeten, head of tax at KPMG in Scotland, said the different threshold at which the higher rate starts – with Scottish taxpayers paying 40 per cent tax on earnings more than £43,430 but other UK taxpayers paying that rate only on earnings above £45,000 – highlighted an “important” divergence between Holyrood and Westminster.


He added: “The decision facing the Scottish Government in coming years is how to best use the new powers. Do they increase rates for the highest earners and risk the fallout, or reduce taxes and hope it drives more economic activity? Although this question was not addressed in this year’s draft Budget, it would certainly have been playing on the mind of Derek Mackay.”


In Holyrood, Mackay found himself under attack from the Tories for not raising the higher tax threshold in line with the rest of the UK, while Labour, the Greens and the LibDems said his tax proposals did not do enough to protect public services.


Tory finance spokesman Murdo Fraser said: “This is a Scottish Government which wants to make Scotland the highest-taxed part of the United Kingdom. Scots will pay more but in return get a shambolic mess on education and the NHS.”


Scottish Labour leader Kezia Dugdale said: “The SNP Finance Secretary has unveiled a budget today that will see the heart ripped out of public services.”


She said councils would have a “real-terms cut of £327 million” as she claimed Mackay was “ no better than a Tory chancellor”.


The Greens and the Liberal Democrats also argued Mackay should have opted to increase income tax now Holyrood has the power to do so.


Green co-convener Patrick Harvie said: “We know the poorest third of our society will see their incomes go down next year while high earners will get a tax cut.


“Those may be UK Government decisions but the Scottish Government now has the power to reverse those it affects, and has chosen not to.”


LibDem leader Willie Rennie said: There is an urgent need to use our brand new powers to raise £500 million for education.”