Mind the Gap: Mackay hammers middle income earners

Mind the Gap: Mackay hammers middle income earners

by Murdo Fraser
article from Friday 14, December, 2018

THE BACKGROUND to Wednesday’s Scottish Government Budget announcement from the Finance Secretary Derek Mackay was that he was better placed than in many previous years, given spending decisions taken at Westminster. Following the Chancellor’s budget in October, there was a £950 million increase in the Scottish Block Grant through Barnett consequentials. This meant that, according to the Scottish Parliament Information Centre, the Scottish Government’s total budget is up in real terms by nearly £1 billion since 2010. The claim of “Tory cuts” has been thoroughly debunked.

In advance of the Budget, every business representative group in Scotland had one key ask from the Finance Secretary. They were concerned about the tax differential that existed between Scotland and the rest of the United Kingdom, and did not want to see this increase. This concern was based upon a growing perception amongst many employers that a tax gap would act as a handicap in attracting talented people to work in Scotland. We have also heard similar concerns raised in the public sector about the ability to attract able individuals to fill promoted posts, due to the increased tax burden relative to the rest of the UK.

Derek Mackay certainly could have chosen to narrow the tax gap with the rest of the UK, or eliminate it altogether. Instead, he chose to widen it, with an announcement that the threshold for paying higher rate tax would be frozen. The consequence of this is that all those in Scotland earning between £43,430 and £50,000, from April onwards will face a marginal tax rate of 53% on every additional £1 that they earn. 

It means that a Police Sergeant earning £45,942 will pay over £700 in tax more than his counterpart south of the Border, a Senior Nurse Manager earning £49,000 will pay £1,350 more, and a Principle Teacher earning £51,330 will pay over £1,500 more. That is the price of living in the SNP’s Scotland. And anyone earning over £26,990 will be paying more than their equivalents down south.

The SNP claim that the Conservatives are only interested in protecting the rich, but I cannot see how anyone can seriously argue that a household with an income of under £27,000 is wealthy. Yet these are the very households being punished in the SNP’s Scotland.

Elsewhere in the Budget, there was welcome additional funds for the NHS, made possible by the Barnett Consequentials from decisions made in October by the UK Chancellor. But once again local government has been in the firing line, with a revenue cut of £237 million to the core local government budget, according to COSLA. 

What infuriated local government leaders was that in his budget statement Derek Mackay presented their allocation as being increased, not mentioning that the sums provided were also covering key government initiatives such as child care, but with no additional resources attached. So we have a situation where people are being asked to pay more compared to those south of the Border, whilst at the same time they are facing poorer local services - a pay more, get less Budget.

One of the reasons why Derek Mackay made the decisions that he did became apparent when the detailed Budget documentation was published. The Scottish Fiscal Commission has estimated receipts from Income Tax for 2019-20 at £11.684 billion, down nearly £500 million on the figure for 2018-19 (£12.181 billion). This represents a half billion pound fall in Scottish income tax receipts, a devastating collapse in a key revenue line.

The Fiscal Commission has also predicted that in each of the next four years, the Scottish economy will grow at a lower rate than the UK economy as a whole. The impact of SNP mismanagement of the Scottish economy has become clear, in the direct impact this has on the public finances. Without this fall in revenue, there would be no need for local government cuts, and the tax differential between Scotland and the rest of the UK could be reduced, not expanded.

It goes without saying that this is not a Budget the Scottish Conservatives can support. It is based on the miserable economic performance of the SNP, it punishes those who work hard, and it hammers local services once again. Derek Mackay will have to look elsewhere for support, and it remains to be seen whether once again the Greens will do his bidding, and what additional price we will all pay as a result.

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