Scots middle earners face an ‘unknown tax future’

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Scotland’s “squeezed middle earners” may be ready to mount a backlash over tax hikes, a leading tax expert has warned.

The Scottish Parliament this week backed a radical overhaul of Scotland’s tax system which means Scots workers earning £26,000 or above will pay more than their counterparts elsewhere in the UK.

The new tax bands were introduced by finance secretary Derek Mackay. (Jeff J Mitchell/Getty Images)

The new tax bands were introduced by finance secretary Derek Mackay. (Jeff J Mitchell/Getty Images)

Now Elaine McInroy, who heads up the Edinburgh base of UK accountancy giants Saffery Champness, has warned Scotland now faces an “unknown future” in taxation with a warning the changes for 2018/19 may not last.

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“The increase in tax for those earning over £33,000 may just be the start of even higher taxation for the squeezed middle earners who are also facing higher prices as inflation rises,” the tax partner said.

“Unless they reduce public spending, the government’s only option is to increase taxation. But people will only take so much – especially those with expanding families and bigger bills, who are not well off, and are struggling to cope, and who now have to pay more tax, with further increases possibly on the horizon.”

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High earners also face a hit from a looming increase in private schools fees after SNP ministers closed a loophole.

Finance secretary Derek Mackay’s plans will see two extra bands added to the income tax system, on either side of the basic rate – a 19p “starter” rate for lower earners and a 21p “intermediate” rate for those on middle incomes. This, coupled with an increase to the tax-free allowance included in the UK budget, will see 55 per cent per cent of Scots pay less tax then people elsewhere in the UK, while 45 per cent will pay more. The changes will also add 1p to each of the higher and additional rates, making them 41p and 46p respectively, while limiting increases to the higher rate threshold to raise extra funds for local services and a public sector pay deal.

The changes will raise an extra £200 million from Scotland’s workforce in 2018/19 which the SNP government says is needed to fight austerity. Ministers have indicated that this year’s change will mark an end to tax rises in the years ahead.

Ms McInroy added: “Now that a precedent has been set for changing tax rates, the concern is that this may lead to more radical changes to Scottish tax rates over the next few years.”

She went on: “It is the unknown nature of Scottish taxation which will worry people more.”

A Scottish Government spokesperson said: “Our changes will make the income tax system fairer and more progressive, ensuring that 70% of Scottish taxpayers will pay less income tax in 2018 if their income remains the same.