Income tax

Since Scots voted against independence on September 18 the Scottish National party has surged in opinion polls and appointed a new, popular leader; pro-independence journalists have launched a newspaper, The National; and the Scottish government is preparing to wield more power than any other devolved parliament in Europe.

“No” voters could be forgiven for considering theirs a pyrrhic victory. After all, 55 per cent of Scottish voters opted against independence. Nevertheless, this was not a vote for the status quo. A majority of Scots want more devolution. The leaders of three biggest (for now) UK political parties belatedly then rashly promised as much on the eve of the independence referendum. On Thursday, the Smith Commission, charged with working out the details of further devolution, will issue its recommendations.

Although the comparison is imperfect, the recommendations will mark the point when Scotland becomes, in fiscal terms, the Basque Country of the United Kingdom.


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In his conference speech, David Cameron said a Conservative government released from coalition would make two changes to income tax by 2020. He presented the first – a rise in the amount of money people earn before they pay income tax to £12,500 – as a tax cut for minimum wage workers. He presented the second – a rise in the level at which workers start paying the 40p rate of income tax to £50,000 – as a tax cut for the middle class. Neither change is quite what Mr Cameron says it is.

The chart below suggests how much people making various incomes stand to benefit from the changes. (Source: Ben Richards.) Treat it as illustrative: the exact numbers will depend, among other things, on when the cuts are introduced. But it shows how the bulk of the benefits would be skewed towards those in the top quarter of earners.

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On Saturday, Ed Balls announced that a Labour government would bring back the 50 per cent tax rate on incomes over £150,000. His main justification is that it would raise more revenue than government estimates suggest. Is the shadow chancellor correct? Read more