Labour argues that a new income tax rate will raise around half a billion pounds a year
With Labour in Scotland facing the prospect of further losses in May’s elections to Holyrood, they have long needed to produce something eye-catching to get back in the game. Could they have found it today?
Scottish Labour leader Kezia Dugdale’s plan to increase income tax is a bold move designed to do two things.
Firstly, it will make people sit up and take notice of what is by any standards a bold plan.
Secondly, it seeks to pile the pressure on the SNP to end the constitutional navel gazing of which it has too often been guilty, and instead focus on how to use the new powers being made available to the Scottish government and parliament.
So what’s the plan?
Under the terms of the Scotland Act 2012, from April this year the Scottish parliament will have the power to set the Scottish rate of income tax. The UK income tax rates, the basic, higher and additional rates, paid by Scottish taxpayers will be reduced by 10 percentage points (10p in the pound).
The Scottish rate will then be set annually by the Scottish parliament at any value from 0 per cent upwards in half pence units.
At the end of last year, Scotland’s finance secretary John Swinney used his proposed draft budget to maintain the 10p rate. Kezia Dugdale is today proposing to increase that by 1p to 11p in order to plug substantial gaps in education spending across Scotland.
The SNP’s draft budget has proposed cuts to the education budget of £130 million whilst the number of teachers in Scotland has fallen to a 10-year low. Last month the Times Education Supplement reported that attainment among Scottish pupils falling.
Labour says it will ensure that workers in Scotland do not lose out under the income tax proposals. Those taxpayers earning less than £20,000 would receive a £100 annual boost to their income, through a payment scheme administered by local authorities.
According to Labour, this would mean that someone on a salary of around £30,000 a year would pay less than £4 a week extra under this plan. By contrast, someone on the same £144,687 wage as the first minister would pay an extra £28 a week (£1,447 a year).
Labour has argued that the measure would raise around half a billion pounds a year, and that the progressive nature of the plans have been confirmed by both the independent Scottish Parliament Information Centre (SPICe) and David Eiser of the University of Stirling.
Whilst opponents have sought to pour cold water over the plan, in 2013 the Institute for Fiscal Studies noted:
“We can see that, for example, the top half of the Scottish income distribution accounts for 68 per cent of all Scottish income but would contribute 84 per cent of the revenue from an increase in the basic rate of income tax.”
Last month John Swinney also told the Scottish parliament’s finance committee:
“I view the Scottish rate of income tax as a progressive power….clearly, people on higher incomes will pay comparatively more than people on lower incomes.”
Commenting on the plans Kezia Dugdale explained:
“Given the choice between using our powers or making cuts to our children’s future, we choose to use our powers.
“We will tear up this SNP budget that simply manages Tory cuts and instead use the power we have to set the Scottish rate of income tax one pence higher than the rate set by George Osborne. This will provide an extra half a billion pounds a year to invest in the future.
“We don’t do this because we want to use the powers for their own sake. We do it because there is no other alternative to cutting into our nation’s future.”
“This choice we make today on the Scottish rate of income tax would provide a half a billion pounds more to invest in our children’s future. It enables us to stop cuts to schools and other vital public services, and to guarantee that spending on education will be protected in real terms in the next five years.”
“To leave no one in any doubt as to the fairness of our plans, we will make sure that low paid workers are the biggest winners. People earning less than £20,000 a year won’t lose a single penny, and low paid taxpayers will actually benefit from this plan.
“We would establish, with local authorities, a £100 annual payment to the boost the income of low paid taxpayers. This will account for just £50 million of the half a billion pounds this change will raise but will mean that we can boost the incomes of low paid taxpayers.”
Ed Jacobs is a contributing editor at Left Foot Forward. Follow him on Twitter
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