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Scotland should set 30% tax rate, says commission

The Scottish government should set up a new 30% rate of income tax for middle income earners when it gains new tax powers, a Conservative party-backed commission has said.27 Jan 2016

The Independent Commission for Competitive and Fair Taxation in Scotland said the proposed rate would help families who are currently paying higher rate tax.

The commission was set up by the Conservative leader in Scotland Ruth Davidson to examine taxation ahead of new tax powers, including complete control over income tax and the assignment of VAT revenues, that will be devolved to the Scottish Parliament in April 2017.

The commission also said that a proposed 45% rate for those earning over £150,000 should be scrapped. The overall tax burden should not be higher in Scotland than in any other part of the UK, it said.

The Commission described the land and buildings transactions tax on home-buying, which replaced stamp duty, as "both uncompetitive and unfair" and said it should be abolished in the "longer term". In the short term it should be made into a flatter charge, it said.  

Council tax should be reformed into a fairer local tax with relief for low income households. The current freeze on any increase to council tax should also end, and the banding structure reformed, the Commission said.

Business rates should be frozen at least until the end of the next parliament, and reformed to encourage employment and investment, while air passenger duty, also due to be devolved, should be replaced with a new departure tax with a progressive structure linked to travel distance, the Commission said.

Sir Iain McMillan, chair of the Commission said: "To a large extent the Scottish Parliament to date has been sheltered by the Barnett formula from the tough political decisions that are necessary to balance the imposition of taxes on Scottish taxpayers on the one hand with public spending on the electorate’s behalf on the other. But these days will come to an end in April 2017."

The Barnett formula is used to calculate public expenditure in Northern Ireland, Scotland and Wales.

"I hope very much that this report will stimulate a rigorous debate on Scotland’s international competitiveness and the contribution that competitive and fair taxes can make to improving Scotland’s economy," McMillan said.

The report is likely to spark further debate on tax in Scotland ahead of elections to the Scottish Parliament in May, said tax expert Christine Yuill of Pinsent Masons, the law firm behind Out-Law.com.

"The fact that a Conservative Party-backed commission has determined that taxes in Scotland should not be raised is unlikely to come as a shock to the other political parties or voters," Yuill said.

"Many commentators expect other parties to propose income tax rates and bands between the current 20% and 40% as an alternative to increasing the additional rate of income tax," she said. "However, the commission report is the first firm indication of how the Scottish political parties will propose to use the increased powers in April 2017."