Scottish Budget – Little Festive Cheer

15th December 2017

Derek Mackay, our Finance Secretary, has announced his much publicised tax changes for 18/19. The first thing that should be noted is that the SNP will require opposition support for the changes and it remains to be seen whether the Green Party call for more money for Local Authorities will result in worse tax increases than published so far!

Secondly, my personal view is the changes are modest. A manifesto commitment not to change the basic rate was thrown aside as the basic rate band on earned income in Scotland is split into 3 bands of 19%, 20% and 21%. 1% is then added to the upper rates. However, the personal allowance and 40% limit rise with inflation so the overall effect of this tinkering seems to be negligible for people earning unless they are well towards £100,000 income. However, at £130,000 there’s an £80 a month pay cut which may be noticed. The marginal rate between £100,000 and £123,000 where you lose your personal allowance gradually as income rises is 64% (tax and NI) – ouch!

Of course, politicians will focus on the differential between England which for somebody on £50,000 appears to now be over £600 per annum. And business owners can ignore all this by receiving their income as dividends (not devolved!).

How our tax software will copy is very unclear.

Otherwise the change I noticed most is the announcement was not the small increase in the LBTT limit for first time homebuyers, but was instead the removal of rates relief for independent schools in 2020. I am guessing this will add a few hundred pounds to school fees.

It seems to me that the losers from the SNP policies over the last couple of years are the Doctors and the like, who may have a large house (or want one) where LBTT charges of 12% are just horrendous and damage house values. I think the LBTT rates are a major problem for mobility and send a signal to people that the Scottish Government wants to make it hard for people to build up any wealth in property. The “nip” at their income and attack on private schools is all a very negative message to send out.

However, my guess is most Scots feel that the “free stuff” needs to be paid for and they don’t want to scrap or means test free prescriptions or university education.

The other real issue in the McBudget (worth a read) is the terrible forecasts for growth over the next five years that sit alongside forecasts growths in public expenditure at a higher level. In short, the state as a % of GDP will become bigger I think, which means the 1% rise may be the start of things to come.

I also worry the McBudget does little to encourage business investment. Mind you, I maintain the view the best thing Holyrood could do for business is commit to the Union with England for the long term. It seems odd to me that we can blame Brexit uncertainty for many woes yet the same politicians present the idea that Scexit is not off the table and expect business and investment in Scotland to remain unaffected.

Finally, I wish all those reading this little note a very Merry Christmas and best wishes for 2018.

Donald Parbrook CTA
Director, Milne Craig

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