More than one in four Scots will be paying the higher rates of income tax by the time of the next Holyrood election, bombshell official projections have revealed.
The proportion of all taxpayers paying the 42p higher rate or above is set to more than double compared with 2016, when Holyrood gained control of income tax powers.
It follows the decision by SNP ministers to open up a major tax gap between Scotland and the rest of the UK in recent years, as they overhauled rates and bands and hammered middle earners.
In another blow, ministers said the thresholds for paying the top three rates will be frozen next year – dragging tens of thousands more into paying them as their pay rises.
Published documents confirm the intention to freeze these thresholds again in next year’s Budget.
When Scots go to the polls in 2026, the number of workers paying the top three rates will have soared to 779,363, or 25.02 per cent of taxpayers, according to projections from the Scottish Fiscal Commission (SFC), the government’s economic forecaster.
This is an increase of 123,647 from this year, with 21.9 per cent of taxpayers currently paying either the 42p higher rate, 45p advanced rate or 48p top rate.
The total will also have soared by 475,163 compared with 2016-17, when 304,200 – or 12.1 per cent of taxpayers – were paying the higher rates.
John Swinney’s government is forcing more and more Scots to pay higher taxes
Scottish Conservative finance spokesman Craig Hoy said: ‘These staggering figures reveal the SNP’s high-tax regime is only going to continue punishing more and more hard-pressed Scottish taxpayers. Hitting aspirational workers will only harm Scotland’s economic growth. Scots will still be paying more, but getting less.’
At First Minister’s Questions yesterday, Tory leader Russell Findlay said the SNP’s tax plans were a ‘con trick’.
Details of the impact of ‘fiscal drag’ – where workers are drawn into paying the higher rates because the thresholds do not keep up with earnings growth – were disclosed by the SFC.
Its figures show that an estimated 497,762 workers are paying the 42p higher rate, which begins on earnings above £43,663, this year (2024-25). It projects that will increase to 553,558 next year (2025-26) and then 591,763 in 2026-27.
A further 116,524 are estimated to be currently paying the 45p advanced rate, which was introduced in April and is charged on earnings above £75,000. The SFC expects this to grow to 128,335 next year and then 138,776 in 2026-27.
An estimated 41,430 now pay the top rate, on earnings above £125,140 and increased to 48p earlier this year.
According to the SFC, this will rise to 45,413 next year (2025-26) and 48,824 the following year. Professor Graeme Roy, chairman of the SFC, said: ‘One of the things we are seeing is a really significant effect of fiscal drag on more people becoming at least higher rate taxpayers than there were before.
‘If you look at 2016-17, there were about 300,000 people who were in the higher rate or the top rate back then. Next year, we think that will rise to over 700,000 and it will continue to keep increasing.’
The Budget included a pledge for no further increases in income tax rates or new bands before the next Holyrood election.
Finance Secretary Shona Robison yesterday told BBC Good Morning Scotland: ‘£1.7billion in this Budget has been raised because of the changes we have made to tax. That is money that can help us give pensioners a winter fuel payment.’
Meanwhile, the government’s tax strategy states it will work with councils ‘to explore the creation of more revenue-generating powers for local authorities’. Ministers have already given local authorities the power to introduce workplace parking levies and tourist taxes.
David Lonsdale, director of the Scottish Retail Consortium, said: ‘Differing local taxes may plug gaps in councils’ finances, but can add complexity and cost to the running of a retail business.’
