Scottish Budget 2018 – A bold budget, couched in uncertainty

Derek McKay’s job is like being in opposition. He can commit to spend what he thinks is best, and if the income doesn’t come in, he can point to the UK Government. As expected, he also suggested that whatever plans are in place are subject to change if and when the outcome of Brexit is known.

If the UK Government has to announce another budget, the Scottish Government will have to follow suit, and this was emphasised both during and after the announcement.

The Scottish Government have precious little that they can actually change, but they will change things where they can, and are happy to increase the tax gap between Scotland and the Rest of the UK.

What was good to hear was the investment to be made in an Advanced Manufacturing Fund which will enable Scottish manufacturers to have access to advanced manufacturing techniques, Exports, Digital Skills and Enterprise and Skills Bodies.

Tax Bands and Rates

The rates of tax within each band remain unaltered for 2019/20, however, the starter and basic rate bands have been increased by inflation (Starter band is now £12,500 – £14,549, and basic rate is £14,550 – £24,944), with the threshold for higher rate tax being frozen at £43,340. The Scottish Government anticipate that this will raise a further £68 million.

This will, however, further increase the tax gap between north and south for higher earners, albeit the Scottish Government’s own paper highlights that only 15% of Scottish taxpayers pay tax at the higher rate.

In 2018/19 a Scottish taxpayer earning £50,000 per year paid around £400 additional in tax per year compared to the rest of the UK. This will widen to £1,500 in 2019/20, hence a couple each earning £50,000 will pay a combined amount of £3,000 more in Scotland than in the rest if the UK.

In Summary

The Scottish Government spending plans for 2019/20 were set out against a backdrop of economic uncertainty presented by Brexit and said many of the right things. The use of tax raising powers was again utilised to generate an estimated £68 million from middle to higher earners, increasing the tax gap between Scotland and the rest of the UK, and the Additional Dwelling Supplement was increased as it has proved to be a lucrative area in the past.

We will need to wait and see if the budget is voted through, as it will need support from other parties, and then what the effect of Brexit is on the budget altogether.

Duncan R Glassey
Senior Partner – Wealthflow LLP

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