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Scottish Budget 12th December 2018

12th December 2018

Against the backdrop of Brexit and a vote of no confidence in Westminster, Derek Mackay wisely chose to present a fairly low key Budget today. We will not comment on the political and spending aspects of his speech (a solid speech) but it was interesting to contrast the manner and style with Chancellor Hammond’s recent Autumn Budget. Mr Hammond appeared to choose to ignore the huge National Debt and presented up a Budget which presumes continued growth and a Brexit risk free future. On the other hand, Mr Mackay made much of his desire to maintain public services and to bring fairness to taxation. The author of this note has often observed that one man’s view of fairness in taxation is another man’s view of punitive taxation and state theft. However, it is hard to get away from the fact that Scottish society appears to expect higher spending on health and education etc. And, perhaps, there being very few truly high earners in Scotland, his retention of the 53% tax/NI marginal rate for middle class Scots was inevitable.

You see the English now (from April 19) don’t pay 40% (higher rate) tax until they earn £50,000. However, the 12% employee national insurance limit is pegged to that. So in England the combined tax/ni rate just below £50,000 is 32% (20% tax, 12% NI).

The Scottish higher rate tax threshold was kept down last year and will be kept down again. This means on a slice of income from £43,430 to £50,000 Scots appear to be facing 41% taxation and 12% national insurance (53%). Even with the tinkering the SNP used for lower earners, the effect is that Scots earning £50,000 will be well over £100 per month worse off than their English counterparts. Credit for the honesty in politics because Derek Mackay referred to MSPs being around £30 a week worse off than the equivalent English earner and he presents the view this is value for money for our additional public services (e.g. University education without tuition fee).

In other areas of taxation the main changes appears to be LBTT where the Additional Dwelling Supplement (“ADS”) paid by landlords and those not merely replacing their own home will be increased from 3% to 4%. This presents the potential top rate of LBTT of 16% from January 25th, if implemented. Eye-watering stuff but the “ADS” has been a good money generating measure and with England introducing a 1% supplement for non-resident purchasers this ensures a level playing field for them.

Commercial LBTT is also being tinkered with. From 25th January the rates will be 0% on £150,000, 1% to £250,000 and 5% above that. The current rates are 0% on £150,000, 3% up to £350,000 and 4.5% thereafter. Again we see the reduction in taxation at the lower end and increases further up.

In amongst this the author is sure that he heard Derek Mackay say the proposal from the Barclay report that out of town office car parking be subjected to some form of tax is being left to one side for now. That’s welcome, if true (and let’s hope it is permanent).

All in all, a strong delivery from Derek Mackay. Sometimes with these things it takes a few days for the terrible reality of a seemingly trivial item of small print on taxation policy to be identified. In this case, we hope not.

A final note, let’s hope one of the other parties backs this Budget. There’s enough uncertainty about just now and whilst the Greens may ask for commitments to bring in punitive local taxation on wealth and the Liberals demand Independence is taken off the agenda, it is rather obvious that taxpayers and businesses just want an agreed Budget and that this one seems, at face value, fairly uncontroversial. Let’s hope it isn’t a political football. If Holyrood is to rise above the mess of Westminster, this is a good moment for the MSPs to demonstrate their maturity.

Written by Donald Parbrook, Director, Tax Services
12th December 2018 at 1800 hours.