Scottish commentary

A number of the UK Chancellor’s changes announced on 23 September will not automatically apply to Scotland. On 6 October, the Deputy First Minister John Swinney has confirmed that the 2023-24 Scottish Budget will be published on 15 December 2022, following agreement between the Scottish Government and the Scottish Parliament’s Finance and Public Administration Committee (FPAC).

Income tax (Updated 3 October 2022) the Chancellor of the Exchequer Kwasi Kwarteng announced that "we are not proceeding with the abolition of 45p tax rate" which was announced as part of the mini-Budget. See Abolition of the additional rate of income tax for more information.

The basic rate of UK income tax is to be cut from 20% to 19%. Different rates apply to non-savings non-dividend income in Scotland, which is subject to Scottish income tax rates at rates set by the Scottish Government. Non-savings non-dividend income includes, for example, employment, pension and rental income. Savings and dividend income received by Scottish taxpayers are subject to the tax rates set by Westminster, and so the cut in the basic rate of taxation will apply to these types of income. 

National Insurance is not devolved and will apply across the UK. With effect from 6th November 2022, the 1.25% increase in National Insurance contributions introduced on 6th April 2022 will be reversed bringing rates back to their pre 6th April levels.  This reduction applies to the rates of National Insurance contributions for employers, employees and self-employed.  The rates will now be 13.8% for employers (15.05% until 6 November 2022) and 12% and 2% for employees (13.25% and 3.25% until 6 November 2022).  Self-employed taxpayers will also enjoy a reduction and will pay a blended rate when they submit their self-assessment tax return. 

In addition, the proposed Health and Social care levy of 1.25% which was to be introduced from 6th April 2023 has been cancelled. 

Corporation Tax is not a devolved tax and so the rate reduction and the more generous Annual Investment Allowance measures will have direct effect for Scottish companies (just as for all companies throughout the UK). 

Stamp Duty Land Tax does not apply in Scotland and the equivalent devolved tax (Land and Buildings Transaction Tax – “LBTT”) is unaffected by the Chancellor’s announcement.  We will see in due course whether Scottish government policy is influenced by change in the rest of the UK and whether the Scottish Parliament will make any changes to LBTT. 

The Scottish Fiscal Framework (the Barnett Formula and Block Grant Adjustments) will introduce change to the Scottish Budget as a result of changes to rest of the UK in respect of taxes devolved or partially devolved.  The detailed operation of the Fiscal Framework is complex but broadly the reduction in UK rates (to taxes that are devolved) should result in a corresponding increase in the Scottish Budget of more than £460m.  The Scottish government may choose to commit that extra money to fund equivalent tax reductions in Scotland (or alternative measures) or they may choose to use the extra money to increase spending in Scotland. 

The announcement of new Investment Zones which will carry enhanced tax reliefs for companies and employees working within them will also not automatically apply to Scotland. The challenge to all the devolved governments is to join in.