Scottish Budget: Income tax move 'will set dangerous precedent'

Creating a differential between income tax bandings north and south of the border "will set a dangerous precedent", a business leader has said.

Scotland's finance secretary Derek Mackay confirmed in his draft budget he would not replicate the UK Treasury's tax cut for higher earners.

Scottish Chambers of Commerce (SCC) chief executive Liz Cameron warned that higher taxation could harm growth.

But business organisations welcomed his plans to reduce business rates.

Mr Mackay said he would not change income tax rates or bands - but the 40% threshold would only rise by inflation, to £43,430 in Scotland.

The higher tax rate will start at £45,000 elsewhere in the UK.

Ms Cameron said that growing the economy rather than increasing taxes would "provide the most sustainable route towards boosting tax revenues and thus public sector spending".

She added: "If Scottish businesses are taxed more and Scottish-based staff are taxed more, then that would not seem to be a situation designed to attract investment and grow Scotland's economy."

'Not the time'

The Federation of Small Businesses (FSB) said it made sense for Scotland "in these uncertain times" to try to maintain the same income tax rates as the rest of the UK.

Scottish policy convener Andy Willox said: "We acknowledge and welcome that ministers have moderated their proposals on tax thresholds, but, on balance, this is not the time for greater income tax divergence north and south of the border."

However, both SCC and FSB welcomed moves in the budget on business rates.

Ms Cameron welcomed a commitment to reduce business rates poundage by 3.7% to 46.6p, resulting in an overall decrease in rates revenues.

She also backed the expansion of 100% relief to businesses with a rateable value of up to £15,000.

But Ms Cameron added that despite plans to increase the threshold of the Large Business Supplement from £35,000 to £51,000, "the fact remains that this surcharge continues to make Scotland the highest taxed nation in the UK in terms of business rates and this damages our competitiveness".

Prospects 'lifted'

Mr Willox said: "By giving full rates relief to 100,000 Scottish firms, the government has lifted the prospects of smaller businesses facing a tough 2017."

Business advisers PwC said it was a budget that had "tried to improve the lot of many people and businesses in the country while also remaining within its means".

Regional chairman Lindsay Gardiner said: "There is something positive for both larger and smaller businesses, including the £500m Scottish Growth Scheme, which will provide support to businesses seeking access to finance.

"For the smaller businesses, the raising of the Small Business Bonus Scheme threshold from £10,000 to £15,000, giving firms with a rateable value of less than that 100% tax relief, will bring some help.

"Equally, the business rate reduction in the poundage rate to 46.6p is going to be welcome.

"All of these will be a cheer for the smaller and medium-sized businesses which make up the majority of the Scottish business community."