20 Dec 2023
Although the UK inflation rate has now fallen to 3.9%, the background to the Scottish Budget was a mixed outlook from the eroding effects of inflation, flickering economic growth across the UK and spending constraints. While the Chancellor’s Autumn Statement capitalised on unexpected headroom to announce cuts to national insurance and expanded business reliefs, the position in Scotland was not so rosy.
Deputy First Minister and Cabinet Secretary for Finance Shona Robison set out the government’s plans against a backdrop of a £1.5 billion deficit. Some of the key highlights announced:
· Scotland will have six income tax bands while the rest of the UK has three, with middle and higher earners in Scotland paying more than other parts of the country.
· A new ‘advanced’ tax rate of 45% for those earning between £75,000 and £125,140, giving Scotland six tax bands.
· An increase to the top rate of tax from 47% to 48% for those earning over £125,140. Thresholds remain frozen, tipping more taxpayers into the higher rate tax band.
The Scottish government estimates that 114,000 people will pay the new advanced tax rate for those earning between £75,000 and £125,000, with a further 40,000 people paying the top rate for those earning more than £125,000.
The finance secretary also confirmed the current thresholds for the higher and top bands - £43,663 and £125,140 respectively - would be frozen, while the basic and intermediate bands will see the rates at which they kick in rise by the rate of inflation.
The freezing of the higher band threshold means a further 62,000 people will be pulled into paying the higher tax rate of 42% or more.
We have summarised these and the other main announcements and measures that may affect you. Please get in touch if you would like to discuss any aspect of the Budget and its implications.