The newly appointed Chancellor, Kwasi Kwarteng, last week announced a radical set of measures to help to tackle the current cost of living crisis.
One of the commitments was to cut taxes with the view that if people are making more money, they’ll spend more which will boost the economy’s growth. It was seen as a risky strategy, especially as business and consumer confidence is low, and cutting taxes contradicts the measures brought in by the Bank of England with the recent interest rate rises to tackle inflation.
Several measures announced last week will affect people here in Scotland, including the reversal of the National Insurance increase for employers as of April this year and the retention of the corporation tax rate.
Whisky distillers and brewers will see an end to planned reforms of alcohol duty, and retailers will see a new system to boost VAT-free shopping by foreign tourists. In addition, the reversal of tax reforms for people who are currently self-employed will cover the whole of the UK.
However, several announcements will not apply to Scots, including the cut in additional rate income tax from 45% to 40% on earnings above £150,000. The rate here remains at 46%. Also, a cut in basic rate tax from 20p to the pound to 19p does not apply here.
Property
One of the main headlines from last week was the cut in stamp duty for property transactions. This only applied in England and Northern Ireland, given that here in Scotland, we have the Lands and Building Transaction Tax (LBTT) system.
In the budget last week, the Chancellor announced that stamp duty would not be charged on the first £250,000 of a property purchase for people moving home. This up from the current level of £125,000. To help people realise their dream of property ownership, stamp duty will not be paid on the first £425,000 of a property worth up to £625,000 bought by first-time buyers.
In the previous scheme, introduced during the pandemic, first-time buyers were not charged stamp duty on the first £300,000 of a home costing up to £500,000.
The same savings could be made available to Scots, but it’s all dependent on the government. This tax cut which doesn’t apply to us, is treated by the Treasury as a giveaway to non-Scottish individuals. A proportionate share of that giveaway is handed to Holyrood. This allows Scottish ministers to deploy the funds as they choose.
Following the announcement about stamp duty, Holyrood will be given an increase in block grants from the Treasury of £630m spread over this year and the next two financial years.
Cutting the basic income tax for the rest of the UK is a boost for Holyrood of £340m over the next financial year and the year after. The element of reduced property transaction tax in England and Northern Ireland adds up to £170m over three years. Some £120m is in place of the reduction in top rate income tax, which cuts the tax bill for the average non-Scots high earner by £10,000. That widens the gap between Scots and non-Scots high earners when Scots already pay higher tax rates above £50,000.
Holyrood could cut tax in similar ways or spend it on different priorities – time will tell as to whether Scots will see similar savings when purchasing a property.