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Scotland’s finance secretary, Shona Robison, has requested a meeting and reassurances from the chancellor regarding speculations about a potential increase in income tax in the upcoming Budget. This move, which Rachel Reeves did not rule out last week, would result in an automatic deduction from Scotland’s funding from the Treasury. Robison believes that Labour should abandon the “outdated” fiscal rules, including the requirement for day-to-day spending to be covered by tax revenues.
In a surprising pre-Budget speech in Downing Street last week, Reeves hinted at making necessary decisions in her tax and spending plans after facing numerous challenges. Despite Labour’s pledge in the general election manifesto not to raise income tax, VAT, or National Insurance, speculations emerged about a possible tax hike. Any rise in income tax by the UK government could lead to a reduction in the block grant that Scotland receives from Westminster through the Block Grant Adjustment. The Fraser of Allander Institute estimated that a 2p increase in the basic tax rate elsewhere in the UK could potentially cut Scotland’s budget by up to £1bn.
Robison expressed concerns about the uncertainty created by the chancellor’s speech and has requested an urgent meeting to set out three tests. These tests involve the chancellor abandoning the outdated fiscal rules, ensuring that all tax increases are reinvested in public services to boost the block grant, and confirming that Scotland will not face funding cuts. She emphasized that imposing austerity on Scotland after pledging to end it would be a political betrayal from which Labour would never recover. Chancellor Reeves’ speech in Downing Street led to further speculations about a possible income tax hike, stirring concerns about its impact on Scotland’s budget.
First Minister John Swinney previously advocated for the replication of Scotland’s tax system, where higher earners pay more taxes. Residents in Scotland earning less than around £30,300 pay slightly lower income tax compared to the UK average, with potential savings of up to £28. Swinney previously stated that there were no plans for further taxation changes ahead of the upcoming Holyrood election, but after the chancellor’s speech, he has not ruled this out. The Treasury refrained from commenting on the chancellor’s plans but highlighted the significant funding support provided to Scotland, attributing it to the non-negotiable fiscal rules that ensure stability and growth. The implications of a UK tax hike on Scotland’s budget were also discussed, highlighting the potential adjustments that would need to be made to avoid a shortfall in the Scottish Budget, set to be announced on January 13th
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