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Today, the Scottish Parliament votes to set all rates and bands for Scottish income tax. This is our opportunity—together—to use the powers of the Parliament to continue our progressive approach to income tax. The Cabinet Secretary for Finance has written to the Presiding Officer with regard to the procedural connection between this rate resolution debate and the Budget (Scotland) Bill, under rule 9.16.7 of the parliamentary standing orders. The Parliament must pass the Scottish rate resolution before it considers stage 3 of the Budget (Scotland) Bill.
I am asking the Parliament to set income tax rates, which the Scottish Fiscal Commission forecasts will raise more than £12 billion in 2020-21. That revenue will support the best outcomes for the people of Scotland and will continue to deliver the fairest tax system in the United Kingdom at a time when Brexit is, and will remain, the biggest risk to the Scottish economy.
In contrast to Brexit, our proposal for the Scottish income tax offers certainty to Scottish taxpayers. We propose no changes to the existing rates in our income tax plans for 2020-21 as we continue to deliver the settled structure that we committed to for the duration of this parliamentary session. We propose to raise the starter and intermediate rate bands by inflation, as we did in 2019-20, and to freeze the higher and top-rate thresholds. The SFC forecasts that our decision to freeze the higher-rate threshold again in 2020-21 will raise £51 million next year. However, our decisions mean that, on their current income, no Scottish taxpayer will pay more in 2020-21 than they are paying in 2019-20.
Decisions on the personal allowance rate remain reserved to Westminster. For the purposes of modelling, the SFC has assumed that the UK Government will maintain its policy of freezing the personal allowance threshold at £12,500. However, that outcome is far from certain and demonstrates once more the impact on Scotland’s finances of a delayed UK Government budget—a budget that was delayed by choice, not necessity.
Our fairer and more progressive income tax policy ensures that 56 per cent of all Scottish taxpayers will pay less income tax than they would if they lived elsewhere in the UK in 2020-21. Our income tax proposals continue to deliver on the four key policy tests that the Scottish Government introduced in 2017. The first is to protect the lowest-paid taxpayers; the second is to accrete a more progressive arrangement; the third is to raise additional revenue to maintain and promote Scottish public services; and the fourth—taken in conjunction with our spending plans—is to support the Scottish economy.
On the issue of raising revenue, will the minister reflect on the scrutiny that the Scottish Parliament information centre has provided, which indicates that the £650 million extra that is being raised by the Scottish Government’s tax changes will deliver a net benefit of only £46 million to the Scottish economy? Does that not suggest that the Scottish Government needs to rethink its approach?
I point out to Murdo Fraser that, as he mentioned, without our approach there would be £46 million less to spend on key public services such as health, education, justice and local government, all of which are important for the delivery of public services on the ground and meet some of the requests that the Scottish Conservatives made in the budget process.
I am asking the Scottish Parliament to agree to the motion on the Scottish rate resolution, which, for the 2020-21 tax year, will raise funds for the Scottish budget to deliver the widest range of free-to-access public services in the UK. Those initiatives, such as concessionary travel for older and disabled persons as well as—following our budget deal with the Scottish Greens—for under-19s, will promote inclusion and provide support. Importantly, the funds will also help us to progress towards our ambitious targets on addressing child poverty through initiatives such as the Scottish child payment.
Tax is not set in isolation: we have guaranteed a 3 per cent basic pay increase for all public sector workers who earn up to £80,000. That means that, as a result of our income tax and pay policy choices for 2020-21, a senior nurse will be around £890 better off and a teacher will be around £950 better off in 2020-21 compared to this year.
Under the Scottish Government’s proposals, there will be no increase in the tax divergence relative to the rest of the UK as long as the UK Government sticks to the commitments that it made in its 2018 budget. In 2018, the UK Government committed to freezing the higher-rate tax threshold in the rest of the UK at £50,000 in 2020-21. The Scottish Conservatives asked us not to create more divergence, and our proposals will ensure that. Divergence will increase only if the Conservative UK Government decides to deliver a tax cut for higher earners once again. What is more, regardless of what the UK Government does, the benefits of having access to the wider set of free public services in Scotland outweigh any income tax differential with the rest of the UK.
Under the plans that we are putting before the Parliament today, Scotland will continue to be the lowest-taxed part of the UK for the majority of income tax payers for the third consecutive year. We have continued to deliver a Scottish tax system that offers convenience, fairness, efficiency and certainty for Scottish taxpayers and for the Scottish people. Our decisions on taxation have resulted in a more progressive tax system that protects low and middle-income taxpayers while raising additional revenue to invest in public services and Scotland’s economy.
I present a motion on a Scottish rate resolution that will deliver a fair and progressive tax system and raise £12 billion for the Scottish budget to protect and enhance our vital public services and support our economy—that is £12 billion towards increasing wellbeing, tackling climate change, reducing child poverty and increasing sustainable and inclusive economic growth.
That the Parliament agrees that, for the purposes of section 11A of the Income Tax Act 2007 (which provides for income tax to be charged at Scottish rates on certain non-savings and non-dividend income of a Scottish taxpayer), the Scottish rates and limits for the tax year 2020-21 are as follows—
(a) a starter rate of 19%, charged on income up to a limit of £2,085,
(b) the Scottish basic rate is 20%, charged on income above £2,085 and up to a limit of £12,658,
(c) an intermediate rate of 21%, charged on income above £12,658 and up to a limit of £30,930,
(d) a higher rate of 41%, charged on income above £30,930 and up to a limit of £150,000, and
(e) a top rate of 46%, charged on income above £150,000.
I welcome Ben Macpherson to his new role as the Minister for Public Finance and Migration. In much the same way as previous discussions between myself and the Cabinet Secretary for Finance have been conducted, he and I have had many constructive conversations since our respective election to the Scottish Parliament in 2016, and I look forward to continuing that positive dialogue with him.
I welcome the opportunity to open the debate for the Scottish Conservatives, but I regret that, yet again, we are faced with a Scottish rate resolution that continues to make Scotland the highest-taxed part of the United Kingdom. I remain disappointed that, despite the talks that my party had with the Cabinet Secretary for Finance, our request that the Government guarantee no further divergence on tax with the rest of the UK should the UK Government make any changes in its budget next week was ignored.
Although many hard-working people across Scotland will, no doubt, be relieved that the tax-hiking, levy-raising tendencies of this Government have been silenced for this year at least, the freezing of the higher and top-rate thresholds will mean—as has been said by one analyst—that, at a time when earnings growth is over 2 per cent, more people in Scotland will be sucked into paying more tax. Many will rightly ask why that has happened in the first place, given the cast-iron promise of the Scottish National Party in its 2016 manifesto, in which it said:
“We will freeze the Basic Rate of Income Tax throughout the next Parliament to protect those on low and middle incomes”.
“I have been very clear that the Government will not increase income tax rates”.—[
, 2 February 2017; c 10.]
That is not true; it is another promise broken.
On the subject of keeping promises, does the member accept that the chancellor promised to freeze the higher-rate threshold next year? If there is to be any more divergence, it is because he has broken his promise, not because of any decisions that this Government has made.
I do not accept that, but it is perfectly possible for the UK Government to make changes next week. All that we sought from the Scottish Government in our negotiations was a commitment to match any changes, should they happen.
However, there is a deeper problem. One year on from the Scottish National Party’s big shake-up of the Scottish tax system, we now know that that grand idea has not quite paid off, because, despite crowing about hiking up taxes for middle earners, it turns out that the Scottish Government has not raised anywhere near the amount that it wanted to in order to ensure that the shake-up was worth while. According to SPICe,
“these higher tax revenues are forecast to be almost entirely offset by the deduction to the Scottish budget via the block grant adjustment.”
No. I am keen to make some progress.
SPICe cites the Scottish Fiscal Commission’s forecast, which estimates that the £650 million differential will generate only £46 million more than is deducted by the block grant adjustments. SPICe goes on to say:
It is running to stand still, in other words. I would not dare to suggest that £46 million is not, in and of itself, a considerable sum of money, but it amounts to less than a fifth of 1 per cent of the total Scottish budget. I ask the minister and the Government to reflect on that.
There lies another, much starker, peril for the Government in the near future—namely budget reconciliations for income tax receipts. The Scottish Fiscal Commission notes in its February forecast:
“Based on these forecasts the reconciliation for 2018-19 income tax, to be applied to the Scottish Budget in 2021-22, would be -£555 million.”
In other words, the SNP faces a black hole of over half a billion pounds in next year’s budget. The total amount of money to be found this year, next year and the year after is close to £1 billion. Of course, this year, for the very first time, the Scottish Government is using its resource borrowing powers to address that. However, given that the Government is already maxing out the country’s credit card when it comes to capital borrowing by continuing to borrow the maximum amount allowed of £450 million per year, it would be remiss not to mention the potential severe implications for the next few years.
As others have noted—the point was made by Bruce Crawford last week—that makes budget management between years all the more important. SPICe states:
“Based on the information we have to date, and the evidence that the balance of the reserve has been falling in recent years, it would seem from these plans that the Scottish Government is not building up large reserves to mitigate the large expected income tax reconciliations in 2020-21 and 2021-22.”
That is deeply worrying, and I hope that the minister and the cabinet secretary will address that as a matter of urgency.
Despite that gloomy picture, there is some light at the end of the tunnel. The UK Government’s spending plans will see the Scottish Government’s block grant increase by nearly £1.6 billion in real terms compared to last year. That figure is acknowledged in the draft budget by the Scottish Government, whose estimate of Barnett consequentials is almost £500 million more than the Treasury’s own estimate. Thanks to the UK Government, a typical taxpayer in Scotland is now £1,205 better off than they were in 2010 due to the cumulative changes to the personal allowance, among other things. That is because, unlike the Scottish Government, we know that taxpayers are best placed to decide how their money is spent, not the SNP. It is undeniably clear that the UK Government has been able to keep more money in people’s pockets and still invest record amounts in our public services, which Scotland plainly benefits from.
Presiding Officer, I began by talking about how people in Scotland are paying more tax. I will end by stating that that is not just about income tax; it is also about council tax. As a result of failing to find the £117 million of capital investment sought by the Convention of Scottish Local Authorities, many councils are now regretfully having to implement council tax rises of almost 5 per cent—another promise broken.
In the same vein as last year, we cannot support the rate resolution, because our reasonable request to guarantee no further tax divergence from the rest of the UK has been rejected out of hand. For those reasons, I urge Parliament to oppose the motion.
I, too, welcome Ben Macpherson to his new role.
Last year, the SNP introduced a rate resolution that gave high earners a tax cut but increased tax for some lower earners. This year, instead of righting that wrong, the Government has simply continued it.
From the foundation of this Parliament, we had tax-raising powers, but, in the first parliamentary sessions, those powers were modest and never used. That was as much due to high investment by the Labour Government at Westminster as it was due to the financial management of the Labour-led Scottish Executive. The level of child poverty was falling and the level of educational attainment was rising—those were the days. It all ground to a halt with this incompetent SNP Government, which, between 2007 and 2011, got its budget through on Tory votes. That tells us all that we need to know about SNP fiscal policies.
The SNP Government never intended to use its tax-raising powers and handed back the ability to use them. We now have an SNP Government that demands independence but is much too timid to tax the rich. Last year, it cut taxes for the better-off when it should have increased the top rate to 50p. This year, again, it is too timid to do that. Children are growing up in poverty and the Scottish Government is too timid to ask the rich for a few extra pence to prevent that. So much for the brave new world.
The Government calls for independence but forgets the deficit. It forgets that an economy is built not on the generosity of one or two billionaires but on all citizens having a job and earning money to pay taxes. Instead, it has ushered in policies that have put tens of thousands of public servants out of work. In any other industry, partnership action for continuing employment—PACE—services would have been set up.
I do not believe that there would be behavioural change unless we were to change taxes dramatically. The change that would happen is that we would have money to invest in the services that we very much need, which is what Scottish Labour is calling for.
The only way to reduce a deficit is to build the economy. The SNP Government often says that it does not have the levers to do that, but of course it does—indeed, it has used them to make us worse off. If it was to use the levers to bring down the deficit and build the economy, we might make some progress.
The SNP Government depends on an unpopular Tory Government making the negative argument for independence instead of using the powers that it has to make a positive one. It uses the politics of grudge and grievance rather than the politics of investment and growth. How could anyone trust the Scottish Government to negotiate independence? It negotiated a fiscal framework that leaves us £200 million worse off this year and creates a £1 billion black hole over the next three years.
Under this Government, the only thing that is growing is poverty. Educational standards are falling and the national health service is one long waiting list.
Our councils are no longer able to provide lifeline services for our communities. Can anyone remember the historic concordat, which was heralded in a new relationship of mutual respect between Government and councils? Councils must rue the day that they fell for that one. The concordat now means that they are able to provide statutory services only, and they struggle to do even that. If that was not bad enough, council taxes are also set in Edinburgh by the Scottish Government.
Let me quote Jim Hunter’s comments on last year’s budget, which still hold true today. He said:
“Ministers and MSPs can keep councils on the tightest of tight reins—and, when services in consequence get slashed, they can arrange for councillors to get the blame. Perhaps, then, the time has come for councillors to quit council chambers, lock the doors and mail the keys to Holyrood. ‘Since you guys insist on calling all the shots,’ their covering notes could say, ‘it’s high time you carried the can.’”
This year’s rate resolution heaps more misery on our councils, which are already failing to provide public services. It provides no hope for improvement; it provides only cuts on cuts. It is a political choice. This Government talks left-of-centre politics but, in practice, it is a right-wing, tax-cutting and service-cutting Government.
Being the greatest fan of the Government’s rate resolution and attempting to demolish it altogether, as Rhoda Grant has done, are both extreme positions, and neither is genuinely honest. There have been very important progressive changes to devolved income tax, but we could and should go further.
We are all aware that the Scotland Act 2016 was drafted so incompetently that, if the Scottish Parliament does not pass a rate resolution, the result will be nothing less than a catastrophe for public services. On that basis, the Greens will abstain, as we did last year, which will allow the rate resolution to pass, but not without comment.
My comments will be based on the recent paper from the Fraser of Allander institute on the impact of the Scottish Government’s tax changes on household incomes. The paper integrates what we know about income tax changes that have been made by UK and Scottish Governments with what we know about what is happening through other fiscal measures, such as those relating to local taxation and social security.
The paper shows clearly that the UK changes to the personal allowance—with the notion of constantly increasing the personal allowance—are deeply regressive steps. The income of the five deciles of the population with the highest income is boosted by a larger percentage than is the case for the lowest-income deciles. The Resolution Foundation has shown that three quarters of the cost to the Exchequer of the increase to the personal allowance goes to the highest-income half of all households. A third goes to the richest 20 per cent but, of course, the poorest in our society gain nothing at all—not a single penny—from the increase in the personal allowance, because their incomes are already below the threshold.
In the 2016 election, the Greens alone proposed moving to the five-band system—a progressive tax change—and I am pleased that the Scottish Government decided to change its position. I welcome it when the Government breaks a bad promise, and maybe that is what it did. The Greens’ position in 2016 has, broadly speaking, been implemented, and that is the single element that makes the overall income tax changes progressive. The change saves relatively little for low-income households, but it means that high-income households pay more. The effect of the changes to rates and bands combined with the changes to the personal allowance has been that we have overcome the injustice that would have resulted from the UK Government changes, with a greater benefit flowing to the wealthy than to the rest of the population.
We have to look at how the system integrates with local taxation changes. Again, if there had been only the above-inflation increase, that would have hit the lowest-income households in Scotland the hardest, but there were also changes to bands E to H. The overall result of combining those effects is that everyone pays a little more council tax, but high-income households tend to pay more.
The combined effect of the income tax changes and the local council tax changes is that high-income households pay more on average and low-income households are protected. Some are better off, but the first five or six income deciles are protected from the overall effects of the tax changes. The single biggest element that achieves that progressive effect is the move to a five-band system of income tax in Scotland.
I do not think that that change is enough to alleviate poverty and inequality. Unlike some, I say that redistributing wealth should be one of our objectives when we set taxation and other policies in our economy. Income tax on its own will probably never be a powerful tool for improving the financial situation of the lowest-income households, because those households already pay very little income tax. If we want to go further and to achieve more, we have to look at, for example, council tax reform.
I encourage all political parties—including the SNP—to show greater imagination, creativity, and boldness in the council tax talks than we have seen today, because unless we redress the fundamentally regressive aspect of council tax in our tax system, whatever income tax policy we pass during our annual rate resolution debates will be only mitigation.
Once we have looked at income tax and council tax, we need to think about how they integrate with benefits through social security and other services. We see a positive impact from changes that have already been made and there will be more to come with the Scottish child payment—which is yet to come into force—which will help more. However, as we discussed at portfolio question time a few minutes ago, it is still linked to UK benefits and their persistent problems of administration and low take-up. As such, all political parties in this chamber have a responsibility not only to say whether we would go further as we pass a rate resolution today but, as we develop manifestos over the coming year, to put forward more policies that will cut housing and public transport costs, and that will create more benefits for people who are at the lower end of the income scale. No income tax rate resolution on its own will be able to achieve that. If we want genuine redistribution, we need all those levers to be used to maximum effect.
I agree with Patrick Harvie about the council tax reforms. The cross-party group is working on those proposals just now, and I hope that the Government steps up and comes forward with proposals to end the council tax. I think that we are all committed to that, and I hope that it is seen to fruition. We have tried many times in the past, and now is the opportunity to do it. There is a will, and we need to find the way.
This is an opportunity to test the various parties’ positions on tax as well as to decide whether we agree with the rate resolution. At the election in 2016, the Liberal Democrats were up front. We said that we should have what we described as a “modest penny” on income tax to invest in education. We were very clear with people that that was what they would get if they voted for us, and that is what we have argued for in various budgets in this Parliament. We were pleased that the Scottish Government changed its approach; as Patrick Harvie reminded us, it did not make that commitment in its manifesto at the previous election. Therefore, it is, I suppose, a kind of broken promise. I am pleased that it was revoked, but the Government needs to be careful going forward.
If there is predictability about tax, so that people know exactly where we are planning to go over the next four or five years, an element of trust is developed and, therefore, the behavioural change that could come with unrelenting tax changes does not come to fruition. That is where the Government has, potentially, gone wrong. Not only has it increased income tax—which we were sympathetic to—it has increased council tax and other taxes. Although there has not been the behavioural change that some predicted, there needs to be careful nurturing to make sure that such change does not happen.
However, we should, at this moment, reflect on the Conservatives’ position on tax, because we have seen a screeching U-turn—the smell of burning rubber is still wafting around the chamber. They made dire predictions—repeatedly and relentlessly—that we would see massive behavioural change as a result of those income tax changes. They said that there would be cataclysmic events, a massive reduction in the tax take and a big economic shock, and that we would have an exodus south of the border, with all these workers leaving Scotland—that is what they said would happen. However, the reality is completely different, and we know why—those changes have not happened.
I wonder whether Mr Rennie lives in a parallel universe to the rest of us. If he had read the SPICe briefing on the budget, he would know that the £650 million of additional taxation that was raised by the Scottish Government’s income tax changes has delivered exactly £46 million.
If the Conservatives had their way on this, that would go even deeper, because they are proposing a tax cut on top of that, so we would not be able to compensate for those measures. Donald Cameron suggested that we will have to deal with the reconciliations in future years by having more tax cuts on top of that, but that would make the situation even worse. The argument does not stack up.
The Conservatives’ predictions were wrong, and that is why, in the budget negotiations, they did not make any proposals to cut the tax. They know that the price for public services would be heavy, with cuts that were even deeper than those that we have already seen to local government. That is why the Conservatives did not have the guts to propose any tax changes in the budget negotiations. Their predictions of cataclysmic events never came to fruition and they have been found out. Perhaps they will take a different approach to tax as we progress.
It is also worth reiterating our concerns about the capital overspends on certain projects across Scotland—the sick kids hospital, the ferries project, the Aberdeen western peripheral route, the Aberdeen hospitals and the Our Power energy company, with the £10 million loan. Those overspends are all deeply regrettable. I am sure that the cabinet secretary regrets them and hopes that she can get control of the projects and that her colleagues in the Cabinet will be a bit more responsible in their planning of such projects in future.
Not just now.
However, it is difficult to ask people to pay tax when the Government is so irresponsible with those massive projects. It is costing us hundreds of millions of pounds. Taxpayers’ trust needs to be repaired if we are to ensure that progressive tax changes will be made in future. However, with this Government’s reckless approach to the public finances, I fear that that might not be possible.
Let us get control of the capital projects. Let us put an end to the arguments from the Conservatives that progressive tax changes result in cataclysmic events and behavioural change such as an exodus down south. Let us also make sure that, if parties propose to make tax changes, they put them in their election manifestos and do exactly what they said they would do.
I always enjoy a debate on tax.
My first point is that income tax is a good thing. It has a lot of fairness about it, being linked to the ability to pay, and it is simple for employees as their employers generally deduct it under the pay-as-you-earn system before paying their wages, so many people do not have to be proactive in filling in forms and tax returns. At the same time, as Patrick Harvie said, it cannot be the only tax, as it takes no account of property or wealth.
Members who were at time for reflection yesterday will have heard James Faddes from Bishopbriggs emphasise that people with addiction and related criminal pasts can and do change, giving himself as an example. One of the folk that he mentioned said that one of their aims in life was to pay tax. Presumably, that was because, if that happened, they would be earning a proper wage and would have turned their life around from where it had been and be contributing once again as a full member of society.
That reminds us that paying income tax is a privilege, because it means that one is earning a wage, which many in the world are not, and contributing to wider society. It is also a duty, because we cannot have decent public services if we do not pay a decent amount of tax. Even the Conservatives say that they want to have quality public services, but they undermine their position by saying that they want lower taxes.
I support the motion. As Patrick Harvie reminded us, it was thanks to the Greens that we moved to a system with five rates, which has helped the tax to become more progressive. However, the rates are still grouped at 19, 20 and 21 per cent, and 41 and 46 per cent. In the longer term, I would like to have a system where the five rates were something like 10, 20, 30, 40 and 50 per cent. That would seem to be a fairer and more progressive system with less-dramatic jumps between the stages.
On the subject of being more progressive, there is a strong argument for saying that national insurance is also a form of income tax. We could greatly simplify the UK system by combining them. National insurance is hardly progressive at all; it is used by Westminster Governments of different persuasions to make hidden changes. The rate for the highest earners falls from 12 per cent to 2 per cent—the opposite of income tax.
I would certainly like Scotland to have full control of both income tax and national insurance, creating a much simpler system. The combined marginal rates at the moment are 31, 32 and 33 per cent, then up to 53 per cent, then falling back to 43 per cent, with 48 per cent for top earners. It is not a wide spread. While I am on the subject, corporation tax is also a form of income tax, but for companies. There is a strong argument for corporation tax and income tax being at similar rates and corporation tax being devolved as well; those would reduce the opportunity for tax avoidance by people incorporating. I welcome the work by Her Majesty’s Revenue and Customs to clamp down on situations where someone is an employee but attempts have been made to say that they are not. Apart from anything else, employment generally gives better rights and protections than self-employment or incorporation.
My final point is that we remain in a situation in which we set income tax rates not knowing what the UK rates will be. As long as we have devolution, we should focus on variations away from the UK rates; it is inevitable that those variations will be limited because of the risk of behavioural change. However, it is impossible for us to do that properly this year as long as we do not know what Westminster income tax rates will be. I congratulate Kate Forbes and the Scottish Government on setting income tax rates while Westminster messes us around and keeps us in the dark. I look forward to debating the budget further tomorrow.
I note my entry in the register of members’ i nterests as a taxpayer.
As a representative from north-east Scotland, I would misrepresent my constituents if I did not point out how damaging the disproportionate increases in council tax, business rates and income tax have been on our local economy in recent years. It is shameful that other constituency MSPs for the north-east—all SNP—are supporting this budget, bringing further burdens to local shop owners, teachers, firefighters, doctors, nurses, social workers and pretty much everyone living in the north-east. They are not the big earners that the SNP likes to characterise in its annual attack on taxpayers. They are hard-working people who deserve better.
I would like to understand exactly what Alexander Burnett has said, in light of the fact that our headline poundage rate for business rates and our council tax, on average, are lower than those in the rest of the UK. On income tax, can he provide me with any evidence to demonstrate that anyone has made a conscious decision to live elsewhere in the UK rather than Scotland because of our decisions on income tax?
My point is that the north-east has been hit disproportionately. The buoyant oil industry years have left us with high business rates and high costs of living, whereas wages and income have dropped, leaving us hit disproportionately.
Business owners and investors cannot see why they pay more than colleagues in England. If the SNP Government continues to penalise Scottish businesses for doing well, and additionally penalises its workers, we will see a brain drain that will deter investment and growth. Scots should not be penalised for wanting to create business and contribute to their local economy.
I recognise that Alexander Burnett and I come from different political perspectives; he calls tax penalising and I call it a contribution to society. Does he accept that, under Scotland’s income tax position, only the highest-earning decile—the highest-earning one in 10 people—pay 1.2 per cent more of their income? Anyone who earns lower than that pays a fraction of a per cent more. That change is very modest.
Whatever our differing political positions on the reasons for taxation, one we should agree on is that the purpose of taxation is to raise money to pay for the public services that we all want. If rates are put up and are disproportionately high and the total tax take goes down, the money that we have to spend on public services will also go down.
Therefore, the SNP needs to listen to the Scottish Conservatives’ sensible, growth-focused budget requests and reduce the large business supplement to the same rate that is payable in the rest of the UK. The SNP cannot say that it is acting for the Scottish electorate; in 2016, nearly 65 per cent of the electorate voted for parties that promised not to raise taxes, yet the SNP Government hiked them up, with anyone earning over £27,243 paying more in tax than they would in the rest of the UK.
I have had many of my constituents contact me to ask why they are seeing their taxes rise so significantly yet receiving nothing in return. Why are they seeing local services deteriorate? Why are they seeing vital infrastructure literally crumble before their eyes?
The SNP has no excuse. Its block grant from the UK Government has increased by more than £1.5 billion this year, yet we find ourselves with local authorities across the country being forced to increase council tax by nearly 5 per cent just to stay afloat. The Convention of Scottish Local Authorities states that local government funding as a whole has been cut by £200 million in real terms, which is putting local councils into a corner, slashing services yet increasing their rates.
On top of that, new figures show that, under the SNP, local authority debt has risen by almost 15 per cent in just five years, to an eye-watering total of more than £18 billion—yes, £18 billion. It is therefore no surprise that a recent report found that 62 bridges are due to be closed across Aberdeenshire by 2030, which will see hundreds of constituents cut off from their local communities and facing lengthy detours. Councils across Scotland are making drastic cuts due to the SNP’s imposed reductions on capital budgets, forcing local authorities to draw down their reserves. Essential maintenance is now being cut, which will only result in greater costs down the line.
They say that a stitch in time saves nine, but the only people being stitched up here are the Scottish taxpayers. The SNP Government should hang its head in shame because it has nobody to blame for those figures but itself. It has forced those difficult spending decisions on to local authorities while its own budget has been increasing. It has absolved itself from the responsibility of governing and that will not be forgotten in May next year. Scotland deserves better.
I am grateful for the opportunity to take part in the debate. As it is my first opportunity to do so in the chamber, I congratulate Kate Forbes and Ben Macpherson and welcome them to their new positions.
We have a responsibility in this Parliament, as much as we come from different political traditions—and never is that more obvious than when we discuss tax—to be careful about the language that we use. Initially, I would like to look at some of the rhetoric from the Conservative Party. One of the terms that is used is “middle-income earner”. We sometimes see that term being used on the front page of tabloid newspapers, with the suggestion that a middle-income earner is someone who is on £40,000 or £50,000 and that the Government has some sort of oppressive Denis Healey-style set of policies that will precipitate a brain drain and leave Scotland crippled. That is the narrative, but we all know that it is nonsense.
We stand up and we engage in this pantomime but we know that it is not true, so let us try to establish some facts. The median income in Scotland is £25,200. In fact, 75 per cent of taxpayers in Scotland earn less than £37,000. Someone who is earning £40,000 in Scotland is paying about £2.45 more a week in tax than someone earning that in the rest of the UK. That is how much more a schoolteacher in Scotland who is earning £42,000, for example, is paying a week. However, unlike a schoolteacher in England, they are not sitting with almost £28,000 of tuition fee debt. It is important to get beyond this silly rhetoric. We can have a debate about taxation, its value, how it interacts with economic growth and what the objectives are—although that is somewhat difficult, given the limited powers that we have—but let us just be reasonable.
I appreciate that there was a bit of nostalgia in Rhoda Grant’s speech, in which she told us how wonderful things were when Labour was in government. She failed to admit to Labour’s light-touch regulation in the City of London and the Labour policies that led to the 2008 global crash, which precipitated a decade of austerity.
I draw the member’s attention to a comment by her former party leader, Johann Lamont, who described London as a city state and a global financial centre. In many respects, London was at the centre of the global crash under Labour Government light-touch regulation. I am not blaming Labour in isolation; that would be silly. I am just saying that Labour had a part in it. Of course, it was Alistair Darling who said that there would have to be “tougher and deeper” austerity than there was under Margaret Thatcher.
The SNP Government had been in power for barely a year when the financial crash happened. That is the reality that we have had to experience and deal with. Rhoda Grant’s comments about the SNP Government being a right-wing Government were ridiculous. I appreciate that the SNP might not be as left wing as the Labour Party and particularly acolytes of Jeremy Corbyn would like it to be, but to suggest that we have a right-wing Government is ridiculous. We need to up our game and improve our rhetoric.
This is a Parliament of minorities. In the history of devolution, we have had five years in which one party had a majority. Other than that, it has been for members of the Parliament to work together to set budgets. We have to raise our game. We have a responsibility to 5.4 million people and we have oversight of a budget that is in excess of £40 billion, yet we are engaging in this daft, puerile rhetoric and deliberately misleading people in the way in which we use terms such as “middle-income earner” and “right-wing Government”. We have to take a slightly more mature approach.
I will make this my final point, Presiding Officer, because I realise that time is against me. On the points that Donald Cameron and Murdo Fraser made about the income tax take, the fiscal framework is what we have and what we must deal with, but it is not sustainable in the long term. We are in a perverse situation whereby we can raise £650 million in additional revenue via income tax but have only £46 million of that available for public spending. The reason for that is not a decline in Scottish economic performance relative to the rest of the UK as a result of our policy; the reason is that we cannot grow our working-age population. That underscores the need to grow our working population through migration. It is excellent that we now have a Minister for Public Finance and Migration, because migration is critical.
I welcome the new minister to his position. In his opening speech, the minister said that no Scottish taxpayer will pay more. I take issue with that, because we all know that it is not the full story. The SNP Government could use its income tax powers to make up the gap in the budget, but its lack of ambition means that it is tinkering around the edges and simply running to stand still.
The bands in the motion are not fair. Someone who earns £44,000 will pay tax at the same rate as someone who earns £100,000. How can that be fair?
And are we really meant to celebrate the fact that people who earn less than £24,000 will pay 36p a year less at a time when the SNP is outsourcing its difficult decisions to councils, which are being forced to raise council tax to offset SNP cuts, and people on the lowest incomes will see their council tax rise?
I welcome the campaign that Citizens Advice Scotland is running this week to raise awareness of council tax discounts and exemptions. CAS has produced a straightforward online tool to help people to find out whether they are entitled to a reduction. We must ensure that everyone who is entitled to a reduction receives it, because statistics that were published this week show a further fall in people claiming the exemptions to which they are entitled. We need action.
The reduction in people claiming council tax exemptions is happening against a backdrop of £7 million of council tax debt in Scotland. Council tax debt is the leading form of personal debt, and the average debt is about £3,000, which is three times the average council tax bill.
There is therefore not much to celebrate in this debate. The SNP, instead of using the levers at its disposal to raise the money that our society needs from the people who can most afford to contribute, is relying on a tax that it knows is regressive. I share the disappointment of Willie Rennie and Patrick Harvie at the lack of progress of the cross-party working group on abolishing the council tax. We need to make faster progress, because council tax is regressive. It takes little note of a person’s ability to pay and it relies on a 30-year-old valuation of the property in which the person happens to live.
After 13 years of underinvestment in local government by the SNP, councils have little choice but to raise the council tax and increase charges. The SNP Government would like us to celebrate the tax resolution that is in front of us, but the reality is that people on low and middle incomes will be paying more council tax and increased charges, whether those are for music tuition or collection of their garden waste.
There is little to celebrate today. The motion is a missed opportunity—it is smoke and mirrors. It does not address the fundamental opportunities that it could have addressed and is nothing to celebrate.
I welcome the fact that by setting this year’s Scottish rate resolution we will ensure that Scotland remains the lowest-taxed part of the UK for the majority of income tax payers for the third consecutive year. To be clear, no Scottish taxpayer will pay more income tax in 2020-21 than they did in 2019-20, and 56 per cent of them will pay less than they would pay if they lived elsewhere in the UK. Those statistics were confirmed by the Tory Secretary of State for Scotland, Alister Jack, in an answer at Scottish questions at Westminster a couple of weeks ago.
To put that in context, I note that a police officer who is at the start of their career in Scotland not only earns more than their English counterparts, but will pay less income tax. Newly qualified nurses in Scotland on band 5 earnings will be the highest paid in the UK and will pay less income tax.
Over the past few years, we have introduced a more progressive income tax system than exists elsewhere in the UK.
No. I have only four minutes.
However, we could do a lot more if the setting of personal allowances, national insurance rates and income tax levels on dividends and savings were devolved to the Scottish Parliament.
We ask people who can afford it, such as MSPs, to pay more. That helps us to deliver a wider and better-funded range of free-to-access public services than is available elsewhere in the UK. One recognisable example is prescription charges. South of the border, they will rise to £9.15 per item from April. That is, in effect, a Tory tax on poor health that will affect millions of people, while in Scotland we have chosen to make sure that medication is free for all.
By passing the rate resolution on income tax today, we can pass the budget at stage 3 tomorrow, thereby protecting the £589 million increase for local government and the extra £60 million for Police Scotland, and ensuring that free bus travel for young people will be delivered.
The Scottish budget will also benefit most families across Scotland. First, our council tax rates are substantially lower than rates south of the border. The average rate for a band D property in England is currently £1,750. In Scotland, the average cost for the same band is £1,251. Here in Edinburgh, the rate for a band D property is £1,277, which would be a saving of £473 per household from the English average. The combined council tax and income tax savings will ensure that, for the majority of people in Scotland, the claim that Scotland is the highest-taxed part of the UK, which is made by other parties in Parliament, is utter nonsense.
Secondly, the Scottish Government’s proposal to introduce by Christmas a £10 per week Scottish child payment for low-income families with children under six will help to lift 30,000 children out of poverty. That is only the beginning. The Scottish Fiscal Commission has forecast that by the time that it is fully rolled out in 2023-24, at least 280,000 children will receive the Scottish child payment. When the benefit was first discussed, churches, trade unions, poverty academics and charities agreed that a £5 per week payment would make a huge difference: the Scottish Government has doubled that to £10. I hope that the other parties will support that move.
Scotland is taking the right steps to provide a more progressive tax system, but let us not forget that we could do even more if we had had certainty about the settlement from Westminster in advance of setting our budget. I hope that the Tory UK Government will see sense, and will in future years set its budget at a more appropriate time in order that the Scottish Government can continue to provide, with certainty, the support and services that the people of Scotland need.
In the budget statement, the cabinet secretary claimed that the SNP has introduced
“the most progressive, fair and balanced income tax system in the UK”—[
, 6 February 2020; c 69.]
and that the SNP’s tax policies will help to promote wellbeing in Scotland. Both those claims are simply untrue. With respect to income tax, according to the Scottish Parliament information centre, Scottish taxpayers will this year pay £650 million more in income tax than their counterparts elsewhere in the UK, and everyone who earns more than £27,000 will pay more income tax. Today’s Scottish tax resolution will entrench that tax gap and tax burden.
Those who supposedly pay less income tax in Scotland—whom the SNP use as the basis for saying that its system is fair—pay 50p a week less. That amount has already been more than wiped out by increases to council tax under the SNP. That SNP income tax policy actually costs more to administer than it does to provide that saving of 50p a week.
The reality is that the SNP has cynically manipulated the tax system in Scotland for the sake of a cheap political line. It is a line that the cabinet secretary and others, including Gordon MacDonald, repeat ad nauseam to show that the majority of taxpayers in Scotland pay less tax, when the reality is that, overall, Scottish tax payers are paying £650 million more a year than their counterparts in the rest of the UK.
I will give way to the cabinet secretary, because I would like her to explain why that is the case, as it is, according to SPICe.
According to the Fraser of Allander institute, there would be no need for increased tax in Scotland if the economy was growing faster than it is right now. The cabinet secretary keeps asking us what we would cut, or what tax would we raise, but the simple answer is that we would grow the economy, which the cabinet secretary is incapable of doing.
The truly remarkable fact is that, despite £650 million-worth of higher taxes having been imposed by the SNP, according to the Fraser of Allander institute virtually no extra money is being raised to spend on public services. The institute says that higher tax in Scotland will be cancelled out by lower wage growth. Those are not my words; they are the words of the Fraser of Allander institute.
The hard-working people of Scotland will pay more tax and see a reduction in their take-home pay—not to fund extra public spending, but to subsidise the economic failures of the SNP. That is why one of our budget red lines was that there should be no further increase in the income tax gap between Scotland and the rest of the UK. That is not only because higher tax is bad for the economy—the Scottish economy continues to grow at less than half the rate of the rest of the UK, which was raised by Willie Rennie, and the SFC’s forecast is that that will be the case for the next four years—but because it is unfair and regressive that the people of Scotland are be paying more just to subside cost overruns on ferries, hospitals and roads under the SNP.
I will turn to the other so-called policy objective that underlies the budget and the SNP’s tax policy: that is, the promotion of wellbeing, which was mentioned by the minister in his opening remarks. Last month, Nicola Sturgeon announced that
“The goal and objective of all economic policy should be ... wellbeing”,
“at the very heart of our economic strategy.”
Unfortunately, just hours after she made that statement, it was revealed that Scotland’s ranking in the international wellbeing tables had suffered the biggest-ever decline of any country, having gone from 16th to 22nd place in the international rankings. That means that we are now in the bottom half of the wellbeing ranking of developed nations. That decline is a result of declining education standards, relative economic decline and reduced life expectancy.
Instead of spinning the line that the SNP Government has promoted Scotland’s wellbeing, the cabinet secretary and the minister should acknowledge that Scotland’s rapid decline in international wellbeing tables is, in reality, a savage indictment of their Government’s 13 years of failure in all areas of government. For those reasons, we will be voting against the rates resolution at decision time.
I am delighted to speak in the debate, because who does not want to listen to the Tories talking nonsense about tax for an hour and a half of their life? Honestly—that is why I get up in the morning.
I am proud to advocate once again for a progressive tax system here in Scotland. Under the rates proposal that is before us, Scotland will remain the lowest-taxed part of the UK for the third year in a row, with 56 per cent of our taxpayers paying less than they would if they lived elsewhere in the UK. I am repeating things that my colleagues have already said, because I think that some members need to hear them again.
No. I have heard enough of Dean Lockhart’s nonsense.
In these uncertain times, when we face increased Tory austerity and a lack of clarity from Boris Johnson and his cronies at Westminster, it is a relief to many Scots in my constituency—and, I am sure, to many others across the nation—to know that they will be treated fairly by their Government here in Scotland.
Despite the suggestions to the contrary from the Opposition, under our proposals no Scottish income tax payer will in 2020-21 pay more from their current salary than they do at the moment. Our Westminster counterparts, on the other hand, are quite happy to penalise low-income families—who are simply doing all that they can to make ends meet—in order to give tax breaks to the richest people in society.
The system in Scotland is vastly different. It is based on fairness, dignity and respect. The SNP wants to support our citizens and to make this country a better place—one where everyone can thrive. The SNP Government’s decisions on taxation have resulted in a more progressive tax system that protects lower and middle-income earners while raising additional revenue to support our economy and invest in delivering the widest range of free-to-access public services anywhere in these islands.
In looking at the rate proposal, it is vital that we consider all the services that are available to us in Scotland that we would not have access to elsewhere; for example, free prescriptions, free higher education and the baby box are enormously beneficial and life-changing initiatives that every Scot can take advantage of, regardless of their financial situation.
The Tories like to create misconceptions about the higher-rate threshold freeze, and to suggest that middle-income taxpayers are being targeted unfairly. The average taxpayer income in Scotland in 2018-19 was estimated to be £24,000 per year, so any notion that the tax policy of freezing the HRT is impacting on the middle classes is untrue and misleading. The higher-rate threshold freeze affects only people who earn more than £43,430, which is about 16 per cent of Scottish taxpayers in 2020-21.
Ultimately, the rates proposal that we are considering today, along with a budget that puts people firmly at the heart of the equation, renews our social contract with the people of Scotland. Scottish taxpayers continue to have access to a wider and better-funded set of free-to-access public services than taxpayers anywhere else in the UK. Scotland is the best place to live, work and do business in. Businesses benefit from our investment in infrastructure, broadband, research and development, business rates support, and skills and training. Above all, the social contract that the SNP has made with the people of Scotland continues to be upheld after 13 years in government.
As Paisley’s MSP—which, as all members know, is a job that I love to do day in and day out—I am tired of seeing many of my constituents needlessly struggling at the hands of the Conservative Party. Those constituents are using food banks to feed their children and are having to decide between a hot meal and a hot home. They are generally struggling from day to day to make ends meet. That is why it is vital that we protect the low and middle-income earners in our society, and continue to ensure that the majority of Scots have the best deal in the UK.
I want to pick up on a few issues that other members have raised in the debate. I will go through them chronologically.
Let me start with Donald Cameron. He seems not to be here to hear me, but I am sure that he is listening somewhere. It was exceptionally brave of him to raise the issue of council tax, given that the average band D household council tax in England is £429 higher than the average band D council tax in Scotland. Donald Cameron therefore gets full marks for bravery and, perhaps, a few odd bonus marks for effrontery.
Rhoda Grant seemed to suggest that, under the proposals, I will pay less tax than I used to. I will consult the
Official Report later, because I cannot really believe that she said that. I have gone into my database, got out my tax returns, and have found—I have various sources of income—that I am now paying £2,051 more per annum than I previously paid. I am happy to do so, as would many people with a social conscience in Scotland.
Rhoda Grant also criticised the relationship between the SNP Government and councils. There is a key thing that we did in 2007. When the SNP Government came in, we found that the Labour Party had left us with a situation in which 25 per cent of the money that councils got was ring fenced. We cut that amount dramatically. It has crept up a wee bit, subsequently, but councils have freedom that they very much welcome.
Willie Rennie—the man who never takes an intervention because he knows that it will hurt too much—criticised capital spending. When the Liberal Democrats came to me, when I was a Government minister, about the replacement Forth crossing, the budget was £3.4 billion to £4.3 billion. When the crossing went into the
Official Journal of the European Union for bids, the top was £2.3 billion and the floor was £1.9 billion. We built it for less than £1.4 billion—half a billion pounds below budget. Willie Rennie, as a Fife MSP, should tak tent.
Alexander Burnett said so much that I am not sure that I have time to deal with it. Let us start with one of the crippling things that the Tories have done for local authorities across the UK: they have doubled the Public Works Loan Board interest rate. How will that help councils across the UK? It was done simply to tackle the abuse of borrowing powers by a couple of councils in England, which put money into commercial investments. The Tories could have dealt with that in another way.
Alexander Burnett criticised the position of Aberdeenshire Council. I have looked at Audit Scotland’s 2019 report on Aberdeenshire Council. In the period from 2013-14 to 2018-19, it did extremely well in improving its position—only West Lothian Council and Midlothian Council did better. Moray Council, which covers the other council area that I have the privilege to represent, was next. The Scottish Government is therefore undoing historical wrongs in council funding. Members will get that information on page 19 of the Audit Scotland report.
As I approach the end of the four minutes that I have, it is perhaps worth reminding members that the subject of income tax is fascinating. When did income tax start? The answer to that question is 1798. Who introduced it? It was William Pitt the younger—a Tory.
We have had quite a good debate and some really interesting points have been made.
We need to encourage a wider discussion in communities across Scotland about what kind of Scotland we want in the future and how we pay for that. Those on the Tory benches often object to taxes being paid; they support austerity but they complain when public services are cut. That does not square up, however, because we cannot have all those things. A cordial discussion and debate is needed.
I was surprised by what George Adam said in his contribution. When he looks back on it, I hope that he will reflect on this point. We want to encourage discussion among members of the public, but if we then come into the chamber and call each other names and accuse each other of talking nonsense, it is hardly surprising that we see debates of the kind that are on social media and that people are not able to have cordial discussions. How we discuss such issues here is important.
A lot has been said in the debate about behavioural change, which the SNP Government often relies on in its arguments. As Rhoda Grant said, last year, we saw the SNP introduce a rate resolution that gave higher earners a tax cut but increased tax for some lower earners. The type of behavioural change that worries me is that we are seeing working people, who used to get their wages and then be able to go and buy their shopping, now being forced into going to food banks. That needs to be addressed in our discussions.
“In the last year, the biggest debt issue across the Scottish Citizens Advice network was council tax debt ... In total, the people who turned to the Citizens Advice network in Scotland for help with council tax debt owe a combined £6.9 million or an average of £3,000 per person.”
We must surely be concerned about that. We should be talking to COSLA and local government as well as joining Citizens Advice Scotland in trying to raise awareness of the benefits of—
Would the member not agree that part of the problem with council tax debt is the absolutely chaotic roll-out of universal credit? People have been having to wait for five weeks for payment, which has meant that they have been automatically going into council tax debt almost immediately. It is such pressure on poorer families that is causing so much of the upset that we on the SNP benches feel about the issue.
I do not disagree that welfare reform has had a dreadful impact on communities right across Scotland
. However, it is interesting that the number of people who are in work but also in poverty has continued to grow. There is a wider issue there, which is about the difference between the economy as it stands and the one that we would like to see.
I agree with a point that was made from the Tory benches. We should look at tax not simply from the point of view of asking how much we can charge people; we have to grow our economy. The more that we do so, the more income tax we will be able to bring in, along with other forms of taxation. I raised that point with the Cabinet Secretary for Finance at this morning’s meeting of the Finance and Constitution Committee. I am not sure that the budget is linked to a clear policy direction that will deliver and grow our economy. If our country is to succeed as we move forward, we must put in place a budget that will link to such an aim.
Why did John Swinney sign up to the fiscal framework? Did the civil servants advise him at the time that it was not the best way forward for Scotland? We need to look at those questions, because the fiscal framework is turning out to be a disaster. Murdo Fraser made a good point when he questioned its adoption.
We all signed up to the fiscal framework in good faith. The fact that a review was baked into it indicated that it would need to be reviewed at some point.
Absolutely. We certainly need to get the review process going and consider how we will move it forward.
Patrick Harvie made the point that manifestos are starting to emerge. I look forward to that. Every political party needs to set out how it intends to move forward. It is one thing to blame Westminster, but we have powers here. If we want to be ambitious for Scotland, let us have discussions and debate, across the country, about the kind of society that we want here and how we might pay for it.
The debate has not been the most informative, although it has sometimes been lively enough. I will start in a consensual manner, by congratulating Ben Macpherson on leading his first debate in his new role as Minister for Public Finance and Migration. His predecessor used that position as a springboard to greater things, so we look forward to watching Mr Macpherson’s career with interest.
.] It is good to see that he agrees with that.
We recognise that what the resolution proposes will not in itself widen the tax differential between Scotland and the rest of the UK. The point was made earlier in the debate that we do not know what will be in the Chancellor of the Exchequer’s budget next week when he sets out the tax rates for the rest of the UK. It is expected that there might not be a change in the thresholds for the higher and additional rates, and should that be the case, the tax differential will not widen. We have to wait and see.
As Donald Cameron reminded us, we asked the Scottish Government as part of our budget discussions to undertake that, if tax changes in the UK budget widen the differential, those changes should be mirrored in Scotland with a subsequent amendment to the rate resolution. The Cabinet Secretary for Finance decided not to go down that route, as was her right, but the issue mattered—and still does.
It is important to clarify that matching UK income tax changes comes at no cost to the Scottish Government. Under the fiscal framework, the Scottish budget is compensated for mirroring those amendments. Going down the route that we proposed had no down side for the Scottish budget.
A tax differential between Scotland and the rest of the UK has a negative impact: it sends out a message that Scotland is the highest-taxed part of the UK and means that anyone who earns above £27,000 pays more taxes than their counterparts do elsewhere in the UK—substantially more, in some cases. People who earn £50,000 will now pay more than £1,500 extra in tax than their counterparts pay south of the border.
That approach to taxation has caused real concern among the business community, particularly for those businesses that try to recruit talented and mobile people to fill roles in Scotland. Not only is income tax higher for above-average earners, the land and building transaction tax rates are higher for larger properties.
I have listened with care to some of the language that Murdo Fraser and his colleagues have used. He mentions his concern that the Government’s tax measures will deter those talented people who earn £50,000. Does it occur to the member that people who earn rather less than £50,000 might be talented too?
Of course, we have talented people who earn less than £50,000 but the most that they will gain from the SNP’s tax benefits is 40p a week. That will not attract people to come to Scotland and we have to look at the downside as well as the upside.
That has an impact not just on the private sector, but also on the public sector where, in areas such as the NHS, the large numbers of highly paid medical staff—who have a choice of working anywhere in the UK—will consider the whole tax rate question as a determining factor in where they take up roles.
We have heard from SNP members that those additional taxes are justified because they support extra spending. Gordon MacDonald made the point that benefits such as free personal care, free university tuition and free prescriptions are available in Scotland but not in England, that there is a trade-off between higher taxes and better public services, and that people are happy to pay more if they get more in return.
The problem with that argument is that the facts do not support it. According to the SPICe analysis, the Scottish Government’s decision not to replicate the tax policy that applies in the rest of the UK means that revenues should be around £650 million higher than would otherwise be the case, before any behavioural changes are taken into account. However, as I pointed out to the minister earlier and as Dean Lockhart reminded us, the net impact of those tax changes is not an additional £650 million, or £600 million, £500 million, or even £100 million, Mr Lyle. It is a mere £46 million: less than one tenth of the total figure that is raised in taxation.
With respect, I will make it clear that the SPICe report does not include behavioural change, which is interesting given that that has been a topic that Mr Fraser has covered in his closing speech. That caveat is important because our analysis shows that, when behavioural change is taken into account, the figure is close to £460 million, not £46 million.
I will pay more attention to the SPICe analysis than the Government analysis, if the minister will forgive me.
The reason for the differential is the slower growth in earnings and, as a consequence, tax revenues in Scotland when compared to the rest of the UK. In terms of the fiscal framework, that means that the block grant adjustment reduces the Scottish budget. So Scottish taxpayers are paying £650 million more than their counterparts south of the border and yet the actual income being generated by those tax changes amounts to less than one tenth of the total being paid. Put another way, if the Scottish economy and Scottish earnings grew at the same rate as the UK average, there would be no need for additional tax bills in Scotland; we would raise the same amount of money from existing taxpayers. The SNP’s tax grab is only just helping us to stand still.
I could say much more if I had more time, but I will say this in closing: Donald Cameron reminded us of the SNP’s promise not to increase the basic rate of tax—a promise that has now been broken on three occasions and will be broken again if the Parliament passes the rate resolution.
It is the Scottish Conservative’s ambition to see a reduction in the divergence in the tax rates between Scotland and the rest of the UK. The rate resolution does not achieve that; it perpetuates a situation in which Scottish taxpayers are asked to pay more but are getting less in return. For those reasons, the Scottish Conservatives must oppose the motion.
I thank all members who have contributed to this important debate. In general, it has been a constructive discussion on how we balance the requirement on us all to act on behalf of our constituents to enhance social justice with creating an inclusive and sustainable economy and supporting its growth. We must also bear in mind that our constituents are with us in debating how, together, we can be proud to make contributions from our income to the common good of Scotland.
Many points were raised during the debate, and I will point out some important ones first. Patrick Harvie gave a nuanced and important speech. He made a clear point that, because of the arrangement under the Scotland Act 2016, if the rate resolution is not agreed to, the consequences could be catastrophic, to use his term. I thank him for pointing out that serious issue, for reminding us of the significance of the debate and for the many important points that he made.
If we do not agree to the rate resolution in order to action the income tax powers, a loss of £12 billion in terms of the income tax take would mean that we would not be able to invest that money in Scottish public services.
That investment goes to some of the many benefits that members mentioned. George Adam talked about the baby box and Gordon MacDonald talked about the impact that the Scottish child payment will have. Others mentioned the abolition of tuition fees, with a saving of £27,000 per student, free personal care for the elderly, free school meals for children in P1 to P3, no prescription charges, concessionary travel and around 60,000 homes for social rent in Scotland since 2007—the list could go on. All those benefits have had a significant impact.
I thank the minister for letting me join in on the interventions.
I agree that many of the spending policies that are made possible by more progressive tax disproportionately benefit lower earners—that is, people who are in greater need. Does the minister accept that we will have an overall progressive tax system only if we follow through with a commitment to replace the regressive council tax, and that the Scottish Government and the SNP have to come forward with a proactive position on how they want to see that happen if we are to make progress?
I thank Patrick Harvie for raising that important point. I enjoyed taking part in those discussions for the first time with him and colleagues last week. The undertaking that we gave in last year’s budget process looks forward to further constructive discussions—they are very important discussions.
As well as the list that I gave of just some of the benefits that our income tax commitments, and the revenue that will be raised, will allow us to provide—and have allowed us to provide—it is important to emphasise, and for members to remember, that we also have to spend £110 million to mitigate the impact of UK Government welfare reforms.
I will deal with a point that was raised by members on the Conservative front bench. They made the erroneous analysis that the income tax situation in Scotland has a behavioural change impact in relation to Scotland’s attractiveness. I point out to the Conservatives that Scotland has a very strong reputation and record on attracting inward investment and that net migration from outwith and, crucially, within the UK, is positive. More people come from the rest of the UK to Scotland than go to the rest of the UK from Scotland, in large part because of the high quality of public services and the socially just, progressive and competitive economy that we are building. The biggest threat to Scotland’s attractiveness is the Conservative UK Government’s immigration proposals. There was, to use Alexander Burnett’s phrase, a significant “brain drain” from Scotland during the 1980s, and we know who was in government at Westminster at that point—the Conservative Party, whose policies had a really negative effect on Scotland’s economy and society.
Some important points have been made about the quality of our debate on this issue and the need for us to be nuanced. Tom Arthur made a fine contribution on those points, as did a number of others. Members also set income tax consideration and policy within the wider scenario, including its relationship with national insurance, which John Mason talked about, and with dividend income tax and savings income tax. We need to consider all of that, as well as employment law, welfare policy, immigration policy and the suite of taxes that are reserved, when we reach decisions on what rates to set. That has been important thus far and is important today. Since 2016, we have had the ability to set income tax rates, and we have had to do so responsibly and progressively, basing decisions on principle and logic, and responding to matters that are beyond our control—externalities such as, most prominently, Brexit.
Today is our opportunity to use the limited powers of this Parliament as best and as responsibly as we can to continue to build a fairer and more progressive country. It is important to emphasise that, contrary to what some members might say, in terms of income tax, Scotland remains the lowest-taxed part of the UK for the third consecutive year.
The proposals that were put forward today mean that, in 2020-21, 56 per cent of Scottish income tax payers will pay less income tax than if they lived elsewhere in the UK. No Scottish income tax payer will pay more income tax next year on their current income than they do now. Our budget sets out tax plans to protect the lowest-earning and middle-earning taxpayers and make the tax system fairer and more progressive.
As I said in my opening speech, we have chosen to freeze the higher-rate threshold in 2020-21, which the independent Scottish Fiscal Commission has forecast will raise £51 million next year for investment in public services. Not doing that would mean that there would be £51 million less to support our vital public services, invest in our economy, tackle climate change and meet our ambitious child poverty targets. We have asked those who can most afford it to pay a bit more, meaning that we can deliver a wider and better-funded set of free-to-access public services—services that are not available elsewhere in the UK.
I could say a lot more. I am thankful to members for taking part in this important debate. We in the Scottish Government take seriously the responsibility of Government to create, with the powers that we have, a tax system that is right for Scotland, its people, its businesses and the economy. I ask Parliament to share in that responsibility and agree to the Scottish rate resolution.
That concludes our debate on the Scottish rate resolution. Before I put the question, I advise members that, under rule 9.16.7 of the standing orders, stage 3 proceedings on the Budget (Scotland) (No 4) Bill cannot begin unless the Scottish rate resolution is agreed to.
The question is, that motion S5M-21090, in the name of Ben Macpherson, on the Scottish rate resolution, be agreed to. Are we agreed?
The Presiding Officer:
There will be a division. As there are members who are not in the chamber, I will suspend the meeting for five minutes while we call them to the chamber.
16:12 Meeting suspended.
16:17 On resuming—
We move to the division on motion S5M-21090.
The Presiding Officer:
The result of the division is: For 58, Against 50, Abstentions 5.
Motion agreed to,
That the Parliament agrees that, for the purposes of section 11A of the Income Tax Act 2007 (which provides for income tax to be charged at Scottish rates on certain non-savings and non-dividend income of a Scottish taxpayer), the Scottish rates and limits for the tax year 2020-21 are as follows—
(a) a starter rate of 19%, charged on income up to a limit of £2,085,
(b) the Scottish basic rate is 20%, charged on income above £2,085 and up to a limit of £12,658,
(c) an intermediate rate of 21%, charged on income above £12,658 and up to a limit of £30,930,
(d) a higher rate of 41%, charged on income above £30,930 and up to a limit of £150,000, and
(e) a top rate of 46%, charged on income above £150,000.
Stage 3 proceedings on the Budget (Scotland) (No 4) Bill will take place on Thursday.