Middle-class Scots face paying £2,000 more income tax than if they lived in England next year after Nicola Sturgeon warned she will not copy a huge package of tax cuts unveiled by the Chancellor.
Kwasi Kwarteng announced the biggest tax-cutting budget in half a century, with around 2.3 million Scottish workers expected to benefit by an average of £285 each from April's National Insurance rise being reversed.
But Ms Sturgeon attacked the Chancellor's dramatic cut in income tax in England, with a reduction in the basic rate from 20p to 19p being implemented a year early and the 45p top rate being abolished.
Her government has control over the levy’s rates and bands on earnings in Scotland and the Treasury handed her an extra £630 million that could be used to pass on the cuts.
Business leaders appealed to her to use a forthcoming emergency Scottish Budget to “deliver parity with the rest of the UK”, warning that cross-border “divergence” risked “dampening business and investor confidence”.
However, the First Minister attacked Mr Kwarteng for prioritising the wealthy over “poor/middle-income earners” and made clear she would not “blindly follow suit.”
John Swinney, the Deputy First Minister, said he would set out income tax rates “as part of the normal budget process” in the coming months but attacked “tax cuts to the wealthy”.
A Scot earning £50,000 per year already pays almost £1,500 per year more income tax than someone on the same salary living in England, but this gap is on course to swell to £1,863 unless Ms Sturgeon takes action.
The Chartered Institute of Taxation (CIOT) said the additional sum paid by Scottish workers earning £60,000 would rise from around £1,643 to £2,020.
For those earning £100,000, the cross-border tax gap would widen from £2,043 to £2,420, while a Scots earning £200,000 would pay £6,055 more after the top rate was abolished in England.
The CIOT also calculated that workers would only have to earn £14,732 to pay more tax north of the Border than in England and no Scot would pay less than their counterparts in the rest of the UK. The current salary crossover point is £27,850.
Scots also face having to pay hundreds of pounds more in property purchase taxes to buy a home after Mr Kwarteng doubled the threshold for Stamp Duty in England, from £125,000 to £250,000.
Land and Buildings Transaction Tax (LBTT), the equivalent levy in Scotland, is charged at two per cent of the purchase price between £145,001 and £250,000, before rising to five per cent.
Mr Kwarteng said the package of tax cuts heralded a “new era” for the British economy and argued a major change of direction was needed to kickstart economic growth.
It also included the creation of 40 investment zones to stimulate growth and the cancellation of planned rises in alcohol duties and corporation tax.
His radical “mini-Budget” came after an eminent economist warned this week that Scots face paying increasingly higher taxes than the English permanently unless Nicola Sturgeon starts focusing on growth.
John McLaren said the Scottish government is facing a £2 billion black hole in its budget by the end of the decade thanks to sluggish growth levels, with GDP growing at less than half the UK rate since 2014.
Unveiling the package, Mr Kwarteng said: “Economic growth isn’t some academic term with no connection to the real world. It means more jobs, higher pay and more money to fund public services.
“This will not happen overnight but the tax cuts and reforms I’ve announced today – the biggest package in generations – send a clear signal that growth is our priority.”
He added: “Our growth plan sets the whole United Kingdom on the path for growth, building on the strength of our Union and releasing the enormous potential of this country.”
He set an ambitious annual economic growth target of 2.5 per cent compared to an average of 1.8 per cent in the two decades prior to the pandemic.
Alister Jack, the Scottish Secretary, said: “Over the past 10 years we have seen Scotland’s economy growing slower than England’s.
“So I would say to the Scottish government, there is an extra £630 million coming on the back of Friday’'s announcement. Use that to give the same tax cuts as people in England will get and let's make Scotland competitive.”
Dr Liz Cameron, director and chief executive of the Scottish Chambers of Commerce, said: “The Chancellor’s commitment to pro-growth and pro-enterprise policies will be eagerly welcomed by businesses.”
She added: “With control of powers such as income tax and Land and Buildings Transaction Tax devolved to Scotland, the expectation will be for the Scottish Government to deliver parity with the rest of the UK.”
David Lonsdale, director of the Scottish Retail Consortium, said: “Scottish Ministers should ensure workers on low or modest earnings here in Scotland benefit similarly to boost household incomes and encourage discretionary spending.”
Although Scotland already has an income tax “starter rate” of 19 per cent, this only applies to a very small tranche of earnings between £12,571 and £14,732.
Income up to £25,688 is then taxed at the basic rate of 20 per cent before the rate is hiked again to 21 per cent.
Scotland’s higher (41 per cent) and top (46 per cent) rates are each a percentage point higher than England’s and their salary thresholds are lower, resulting in higher bills.
Ms Sturgeon using the £630 million to cut income tax would breach the SNP’s election manifesto last year, which pledged to freeze rates and bands until the 2026 Holyrood election.
Liz Smith, the Scottish Tories’ shadow finance secretary, said it was “wrong” that Scots pay higher taxes than their counterparts in the rest of the UK and urged the SNP to “get on board” with the Chancellor’s growth plan.
Mr Swinney said: “The UK Government are borrowing to give tax cuts to the wealthy, lowering regulatory standards and inflating an already booming housing market. This will lead to a growth in inequality, not growth in public services or improving the quality of life for many.”