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Scotland faces a dilemma following the UK Chancellor’s mini-budget as business leaders urge the devolved administration to match tax cuts to avoid further divergence with England which could risk economic underperformance.
Leftist critics have meanwhile urged Nicola Sturgeon’s government to focus on fixing inequalities and funding services.
On Friday, Kwasi Kwarteng’s mini budget statement abolished the top tax rate of 45p on earnings over £150,000, replacing it with a single rate of 40p.
The Prime Minister faces a tough decision that by matching tax cuts the Scottish system will become less progressive and anger supporters while a growing divergence that includes stamp duty may reduce the appeal of live and do business there.
The Scottish Government sets its own income tax rate. The country has a maximum rate of 46p for the pound, while that on income between £43,663 and £150,000 is set at 41p.
Liz Cameron, chief executive of the Scottish Chambers of Commerce, said businesses would “eagerly welcome” Kwarteng’s policies and expect Holyrood’s government to “provide parity” with the rest of the UK.
“Divergence between nations risks undermining business and investor confidence,” she said.
Edinburgh should take a “more progressive approach”, said Philip Whyte, Scottish director of the Institute for Public Policy Research, a left-wing think tank.
He urged Scotland to use the extra £600million it expects to receive as a result of tax cuts elsewhere in the UK to fund ‘community services and social security to protect families most exposed to the cost crisis”.
The Scottish Greens, who govern with Sturgeon’s Scottish National Party, have condemned the mini-budget as “the politics of shareholders, bankers and the super rich”.
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