While the Budget offered some crowd-pleasing measures, it failed to deliver meaningful change, writes CHRIS BARBER
The Finance Secretary’s announcement to increase the amount at which the basic and intermediate income tax thresholds starts by 7.4%, to £16,538 and £29,527 respectively, appears welcome news for low low-income earners. However, at only £11 per year extra in their pockets, this hardly represents any difference to overall livelihoods.
These threshold increases also won’t deliver a meaningful rise in fiscal revenue, given that 69% of Scotland’s income tax is raised from the top three tax bands.
With no change to the rest of the income tax bands in Scotland, more people will be dragged into higher tax bands as wages increase with inflation, and so will end up paying more tax. The greater number of income tax bands in Scotland compared to the rest of the UK also means that this fiscal drag is more pronounced.
This, coupled with no changes to the Land and Building Transaction Tax (LBTT) bands, means we will see greater tax bills for many people. We think there should be greater alignment with taxation in the rest of the UK – particularly around the intermediate and higher rate thresholds.
While it is good to see no additional income tax bands, we’re frustrated that our repeated calls for a simpler tax system continue to go unheeded. Scotland’s tax system is needlessly complex, and the annual round of tinkering with already complicated legislation adds further uncertainty, reduces transparency, and undermines public understanding.
The introduction of two new council tax bands broadly mirrors the UK model and is a welcome first step towards council tax reform, long promised by the government. However, this announcement comes before the current consultation on a full review of council tax has concluded or reported.
This limits proper scrutiny and appears to make policy decisions without the necessary input from experts. With only around 11,000 homes valued over £1 million in Scotland, the revenue impact is also likely to be modest.
The proposals to introduce a 15% relief on non-domestic rates over three years and a commitment to reduce the basic, intermediate and higher property rates in 2026?27 will be welcomed by the retail retail, hospitality and leisure sectors. However, Scotland’s non-domestic rates have historically been higher than those seen in the rest of the UK, so this is government playing catch up.
There was little detail about what else this government will do to support business growth, nor was there any clarity on the Scottish Government’s long-term model for growth. Good policy decisions should consider long term objectives, risks and opportunities and not only respond to immediate pressures.
Chris Barber is the chief financial offficer at ICAS
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