John Swinney, Deputy First Minister of Scotland, delivered the draft Scottish Budget on 15th December 2022 for the 2023/2024 tax year - but only after defending himself against accusations for leaking tax rises before the official announcement. This budget follows hotly on the heels of the recent UK Government’s Autumn Statement.

Divergence of Income Tax in Scotland from the rest of the UK

Income tax has been devolved for a good number of years to Holyrood, and the amount of income tax Scottish taxpayers pay is different from the rest of the UK - namely, the Scots pay more!

The Scottish government claim the income tax regime in Scotland is a more progressive one, with the wealthier paying more tax, and lower earners paying less income tax than their English counterparts.

Earn between £43,663 to £50,270 in Scotland?

Your effective tax rate is 54%, including both income tax and national insurance from April 2023.
Compare this to your English counterparts, who pay 32%, broken down by 20% income tax versus 41% in Scotland.
And as soon as you hit that £50,000 pay, you lose your child benefit - ouch.

Overview of full income tax changes coming from April 2023

Swinney needs to draw in more taxpayers money to pay for promised public sector pay demands and the black hole from covid, and chose to go after higher tax earners for a ‘fairer society’ and to tackle child poverty:

41% higher rate will increase to 42% from April 2023
Starter, Basic and Intermediate rates to remain the same

A double whammy for higher rate earners, who make up 40% of Scottish income tax revenue currently. This increase is explicitly to pay for NHS according to Swinney.

The risk will be that wealthier individuals and those who have the option to, will move away from Scotland and go elsewhere in the UK to enjoy a lower income tax environment - not great, and indeed, it is already happening.

Top rate band moves down from £150,000 to £125,140 from April 2023 (same as the rest of the UK) AND
46% top rate will increase to 47% from April 2023

Our analysis -skills shortage and brain drain coming?

There are relatively few taxpayers in Scotland who earn over £43,000, around half a million people out of a population of around 5 million. Of those, only 33,000ish earn +£150,000. Of course, those earning over £150,000 have more choices and the most mobile taxpayers in Scotland. Will they move to take up high paid jobs here. For those who have them already, will they stay? Or will they take their tax elsewhere?

It may well make the very people we are trying to attract here to grow our economy and fill key roles think again. Bear in mind £43k (where you start having 54% deducted in Scotland and 32% south of the border) includes senior nurses, police constables etc. It is not a giant salary, and not exactly the “rich” this affects, just folk who are good and experienced at what they do. We need them… and we need them to want to come here if they’re not here already, as we don’t have enough of them.

And no, in the scheme of things, £1552 more at £50k isn’t a lot- but right now every £ is vital for many people and if you were told you’d pay 54% instead of 32% on about 7k of income if you moved north, what would your reaction be?

Would you move to Inverness and pay more tax to do the same job or would you go to Durham, Cardiff etc?

An interesting conundrum…..time will tell.

Get in touch