Income tax for people in Scotland earning more than £24,000 a year will rise to 21p, the Scottish government has said.
Holyrood’s finance secretary Derek Mackay made the announcement in his draft Budget for 2018-19 on Thursday, with higher rates of income tax also going up to 41p and 46p.
“This sets the top rate of tax at a level which will generate the most income with the the least risk of losing revenues next year and damaging the economy,” he told MSPs.
“Had we gone further our modelling indicates that once behavioural effects of forestalling are considered a higher rate could actually reduce income tax revenue next year and that’s not a decision any sensible government would take.”
Image: Nicola Sturgeon said the tax increases were necessary to protect the economy
:: The new tax rates
19p – the new “starter rate” on the first £2,000 of taxable income between £11,850 and £13,830.
20p – the frozen basic rate for incomes between £13,851 and £24,000.
21p – a new “intermediate rate” for incomes between £24,000 and £44,273.
41p – a higher rate for incomes between £44,274 and £150,000.
46p – a higher rate for incomes above £150,000.
Image: The Scottish Finance Secretary also warned of the challenges of Brexit
Despite the changes, Mr Mackay insisted that most Scots will be paying less income tax thanks to a new “starter rate” and an increase in the personal allowance, which combined would protect those earning up to £33,000 from any rise.
He said the new 21p rate – applying to incomes between £24,000 and £44,273 – would only increase in line with inflation and that Thursday’s announcements would lead to a “fairer and more progressive” income tax system.
First Minister Nicola Sturgeon said the changes were “necessary to protect public services and invest in economy”.
Mr Mackay also used his draft Budget speech to warn of the financial challenges of Brexit and pledged that Holyrood would “continue to make the case of a common sense solution to Brexit that keeps Scotland and the UK in the single market and customs union”.
Progressive changes in tax are necessary to protect public services and invest in economy. However, 7 in 10 taxpayers will pay less than they do now – and more than half of taxpayers in Scotland will pay slightly less than they do in rest of UK
— Nicola Sturgeon (@NicolaSturgeon) December 14, 2017
He went on to make a series of investment pledges, including an increase in funding for business research and investment, universities and colleges, and transport infrastructure.
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Mr Mackay plans to commit £1.8bn for colleges and universities, £1.2bn for transport infrastructure, £20m for electric vehicles, £20m of additional investment for the police service and £756m to help deliver 50,000 affordable homes over the five years of the Parliament.
Other notable spending commitments included in the draft Budget are the first investment in a £50m fund to tackle child poverty and £243m to expand the Scottish government’s free childcare scheme.