The Scottish and Welsh governments have strongly criticized Kwasi Kwarteng’s tax cuts for the wealthy, opening up a deep divide over tax policy in different parts of the UK.
Nicola Sturgeon, Scotland’s first minister, described the UK chancellor’s decision on Friday to scrap the 45p top rate of income tax as “moral bankruptcy”, by helping the richest, hammering the pound’s value and increasing public borrowing.
Mark Drakeford, her Welsh counterpart, said the changes “integrate injustice across the UK” by failing to provide meaningful help to the very poorest. “Instead, they give tax cuts to the rich, bonuses to bankers and protect the eye-popping profits of energy companies,” he said.
Kwarteng’s corporation tax changes, ditching the planned increase to National Insurance rates, alcohol duty freeze and VAT-free shopping for international travelers will apply across the UK.
However, under a series of reforms to the UK’s tax systems, the Welsh and Scottish Governments set their own income tax rates, and also have independent property tax policies unaffected by Kwarteng’s stamp duty changes.
Scotland, which is able to set income tax rates and bands, already has a higher top tax rate for those earning more than £150,000, at 46p, and until Kwarteng’s changes come into effect next year, a slightly lower tax burden on the lowest paid than in England and a slightly higher one for middle incomes.
Sturgeon’s government is likely to retain a higher top rate next year, underscoring its centre-left credentials.
John Swinney, Scotland’s Acting Finance Secretary, said: “The Chancellor’s statement today will give cold comfort to the millions of people across Scotland who have been looking for the UK Government to use its reserved powers to provide support to those who need it most. Instead, we get tax cuts for the rich and nothing for those who need it most.”
Wales must use the Treasury’s income tax rates and bands, but can vary each band by up to 10p. It means the 45p top rate will also be scrapped in Wales, benefiting around 6,000 taxpayers and raising the prospect that the Labour-led government could soon campaign for the same tax powers as Scotland.
Rebecca Evans, the Welsh Chancellor of the Exchequer, said: “Today’s announcements show that the UK Government is heading in a deeply worrying direction.”
Under the financial fairness rules agreed by the Treasury when tax authorities were devolved, Scotland will receive around £600m and Wales around £70m in extra funding from the Treasury next year, due to Kwarteng’s announcement.
Both governments are likely to match the UK chancellor’s new starting income tax rate of £14,732 – which already matches one of Scotland’s middle tiers. And they will face pressure to raise the property sales tax threshold to £250,000, as well as discuss Kwarteng’s regional investment zones, where tax breaks will be offered.
Philip Whyte, the director of centre-left think tank IPPR Scotland, said the extra £600m of Treasury funding gave Scotland “a clear opportunity to take a different course. It can do this by funding collective services and social security to protect the families most exposed to the cost crisis.”
The Chartered Institute of Taxation said that if Scotland’s income tax rates are not changed in next year’s Scottish Budget, someone earning £27,850 a year will pay £152.80 more in Scotland, while those earning £200,000 will pay £6,045.80 more.
Accountancy firm PwC said that since Scotland’s highest rate taxpayers produced 16% of total income tax revenue, Kwarteng’s abolition of it would give Swinney “food for thought as [he] is considering ways to remain competitive in attracting these individuals to Scotland.