Scottish taxpayers could face £1.2bn higher income tax bill than England

Scottish taxpayers could pay £1.2bn more than those in England over the next year, Scottish Parliament analysis shows.

A new blog by SPICe (the Scottish Parliament Information Centre) shows that if the Scottish Government makes no changes to its current income tax policy, it will generate an estimated £1.2bn more in 2023-24 than if English income tax policy was applied.

The differences in policy would mean all Scots taxpayers liable for the same or more income tax next year than their English counterparts, regardless of individual earnings.

Author Nicola Hudson, a senior analyst from the Financial Scrutiny Unit, says this is a change from recent years "where at least half of Scottish taxpayers have paid less in income tax in Scotland than in England".

The difference could be £100 a year "or more" for those earning £25,000 and almost £2,000 for those on £50,000. For higher earners with an income of £250,000, the difference would be more than £4,000.

The Scottish Government currently has a five-band income tax policy. For the rest of the UK, a three-band system has been set out for the next financial year.

Chancellor Kwasi Kwarteng this week U-turned on plans to abolish the 45p rate of tax for those earning £150,000 and over in England. The move comes after the Scottish Government resisted calls to follow the policy, and after outcry from within the Conservative party.

Scotland's block grant adjustment is calculated to reflect tax that would have been collected in Scotland under tax policy applied to the rest of the UK. According to an estimate from the Treasury, moving forward the Chancellor's plan to reduce the basic rate of income tax from 20p to 19p outwith Scotland "will result in an additional £340m for the Scottish Government budget in 2023-24, compared to previous plans, and an additional £30m in 2024-25".

The Scottish Government's emergency budget review, triggered by changes made in Westminster, is expected later this month. The 2023-34 budget is expected to follow in December.

The report said changes announced by Kwarteng create a "challenging set of decisions" for the Scottish Government. It said: "Does it move closer to the UK Government policy for lower earners, or even do something more generous? This would come at a cost in terms of reduced revenues at a time when budgets are already under severe pressure.

"Or does it maintain its current five-band policy and no longer be able to claim that more than half of Scottish taxpayers pay less income tax than they would in the rest of the UK?"