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40,000 Scots children ‘could be helped by freezing 41p tax threshold’

Finance Secretary Derek Mackay will set out the Scottish Government draft Budget on December 12 (Jane Barlow/PA Wire)
Finance Secretary Derek Mackay will set out the Scottish Government draft Budget on December 12 (Jane Barlow/PA Wire)

SCOTTISH ministers could raise enough cash to lift 40,000 children out of poverty by freezing the point at which people start to pay higher rate income tax, a think tank has suggested.

Analysis by IPPR Scotland suggested keeping the threshold for the 41p tax band at £43,430 – instead of raising it in line with inflation – could generate up to £210 million in additional revenue by 2021-22.

Finance Secretary Derek Mackay will set out his tax plans for Scotland when he delivers his Budget to Holyrood on Wednesday, December 12.

But he has already made clear he will not follow UK Chancellor Philip Hammond, who used his most recent Budget to announce the threshold for the 40p tax rate south of the border is being increased to £50,000 from next April.

Now IPPR Scotland is urging the Finance Secretary to consider freezing the threshold for the higher rate of tax – saying this could help tackle child poverty while still providing a tax cut for all.

Higher rate tax earners in Scotland would still receive a tax cut in 2019-120 of £139.50 in cash terms, the think tank calculated, due in part to an increase in the personal allowance.

Rachel Statham, IPPR Scotland economic analyst said: “If tax bands go up with inflation as usual, higher earners in Scotland – those earning over £43,430 a year – could receive a tax cut over three times larger than someone earning minimum wage.

“At a time when public finances are under considerable strain, Scotland can’t afford this.

“By freezing the higher rate tax threshold, the point at which earners begin to pay the 41p tax rate, we could raise additional tax revenue.

“This could be spent on the Scottish government’s clear priorities, like ending public spending cuts or investing to lift tens of thousands of children out of poverty.

“What’s more, this measure could still ensure that all tax payers in Scotland receive a tax cut in cash-terms compared to last year, with higher earners benefiting no more than lower earners.”

John Dickie, director of the Child Poverty Action Group (CPAG), said the intervention by the think tank was “a hugely welcome demonstration of how Holyrood’s tax and benefit powers can be used to make a dramatic impact on child poverty in Scotland”.

He added: “With UK government benefit cuts driving more and more families into hardship the Scottish Parliament must use every tool in its toolbox to protect Scotland’s children and meets its own statutory child poverty targets.

“This new analysis demonstrates the kinds of impact that can be made now. MSPs must work together as a matter of urgency to ensure the forthcoming budget boosts family incomes and fulfils its potential to lift tens of thousands of children out of poverty.”