THE First Minister is to announce a new tax band for higher earners in a bid to plug a black hole in the Budget, according to a report.
According to The Times, the Scottish Fiscal Commission, which produces forecasts for the Scottish economy, tax receipts and social security spending, was told of the decision last week.
We previously told how Yousaf’s spokesperson insisted ministers will agree on Budget details in time amid ongoing negotiations and an emergency Cabinet meeting.
It has been reported that widespread cuts are required in order to protect priority areas such as health and social security.
A shortfall of around £1 billion for the 2024-25 financial year was estimated between planned spending and what funding would be available.
However, The Times says that a number of sources have confirmed the gap is in fact more than £1.5bn.
A source told the newspaper: “We’ll get through this year but when we come back next year we’ll be in the same world of pain.”
The introduction of a further income tax band, potentially a 45% levy on earnings between £75,000 and £125,140 was proposed by the Scottish Trades Union Congress as a way to raise additional revenue.
Unions have suggested this would raise £92 million, although the Fraser of Allander economic institute believes it would only bring in £39m because many people would change their behaviour to limit the amount of tax they pay.
If ministers were to follow the STUC proposal, an additional £400 would be taken from the wages of someone earning £100,000 a year.
In a letter to The Times, which has also been sent to Shona Robison (below), business leaders urged the Government to “avoid” policies which would make Scotland less competitive, particularly in relation to income tax rates and thresholds.
It was signed by a number of groups, including the Scottish Chambers of Commerce, Scottish Financial Enterprise, the Scottish Retail Consortium, the Scottish Tourism Alliance, the Institute of Directors Scotland and Salmon Scotland.
The letter said: “We urge the Scottish Government to avoid measures in the Budget that may make Scotland less competitive, particularly in relation to any decisions on income tax rates and thresholds.
“We are concerned that further divergence with the rest of the UK will reduce the spending power of Scottish consumers, damage business confidence, remove money from the real economy, disincentivise investment in Scotland and inhibit our ability to create jobs and attract and retain the talent our economy and society needs.”
Former finance secretary Kate Forbes – who lost the SNP leadership race to Humza Yousaf earlier this year – said she does not believe increasing income tax will necessarily bring in more money.
Speaking to ITV Representing Border on Wednesday, Forbes (below) said: “We only have partial devolution of income tax, not full devolution, so it’s very difficult to protect against behavioural change when it comes to increasing income tax.
“We already have significantly increased rates and bands here in Scotland, and therefore I think we have to be very careful about not ultimately reducing public revenue with what we do with our rates and bands.”
Put to her that such behavioural change could include people moving out of Scotland, Ms Forbes responded: “Or it could be that they don’t come in the first place.”
A Scottish Government spokesperson said: “The Budget will be set out on Tuesday by the Deputy First Minister.
“She has been very clear Scotland is facing the most challenging budget settlement since devolution because of sustained high inflation and a UK Government autumn statement that failed to deliver the investment needed in Scotland's public services.
“We are proud that Scotland already has the most progressive income tax system in the UK, protecting those who earn less and asking those who earn more to contribute more. This in turn allows us to provide a more comprehensive set of services than in the rest of the UK.”
