EDINBURGH (Reuters) - Scotland has set out options to increase taxes on the richest, paving the way for the first decisive use of new income tax powers the devolved government was granted last year.
First Minister Nicola Sturgeon’s pro-independence government, under pressure to increase public sector pay and reduce its budget deficit, published a discussion document showing how a tax increase would affect different income bands.
In all scenarios, the lowest income tax was untouched or cut and higher bands raised, with at most a 50 percent rate on the top income band.
Following a period of negotiation and discussion, a hike in tax would need to be agreed with other parties for a budget to be presented in Edinburgh in December.
A “modest” rise in tax for higher incomes while protecting lower earners would help mitigate the damaging impact of reduced public sector spending by the British government in London, Sturgeon argued, just as Britain’s vote to leave the European Union poses a new threat to the economy.
“There is no doubt that Brexit coupled with austerity will make the job of properly funding our public services in the years ahead more difficult. And all of this comes at a time when an ageing population ... is placing greater demand on our (public health service) and housing,” Sturgeon told reporters.
Scotland, one of the UK’s four nations, is partly financed by the UK government in London and partly by a share of the Scottish tax take.
By using tax powers differently from the UK government, Sturgeon hopes to showcase how the Scottish economy can be managed in the case that the country becomes independent - an option that 45 percent of Scots support, according to polls.
She is also under pressure to increase public sector pay, and to balance a public deficit which has been at above 7 percent of GDP every year since 2009/10.
“I think the time is right to consider modest additional contributions to protecting the things that we hold dear,” she said, such as free medical prescriptions and university tuition.
Her opponents argue, however, that she will make Scotland the most taxed region of the UK, something which the Conservative UK minister for Scotland David Mundell described as “absolutely detrimental” .
Edinburgh has new tax powers as of 2016 after an agreement to boost the clout of the Scottish parliament following a 2014 referendum in which Scots rejected independence from the UK.
Spending per head for Scotland is higher than for the UK - by around 1,400 pounds ($1,835) per person - boosted by more spending on health, education and economic development. On the revenues side, Scotland raises slightly less than the UK per head in tax, by about 300 pounds per person.
Editing by Stephen Addison