Willie Rennie announces Scottish zero rate tax plan

Last night in his annual speech to the David Hume Institute, Willie Rennie set out plans for a plan to help low and middle income Scottish earners by introducing a zero rate band of tax to go beyond the raising of the tax threshold. Because he’s also announced a plan to raise income tax by 1p to secure a £475 million investment in education, this new tax plan is going to be revenue neutral.

Both Liberal Democrats and Labour have announced plans for a 1p rise in income tax. However, Liberal Democrats are focusing on what you would get for it – more college places, reversing education cuts, a pupil premium and more nursery education. Labour’s is so complex that everyone is talking about the tax part of it. Fair play to both, though, for actually trying to use the powers we have.

Under Willie’s zero rate plan, Liberal Democrats would build on our record in government when we increased the personal allowance by over £4,000, helping to lift more people on lower incomes out of tax. Tax revenues gained by investing in education and boosting business by closing the skills gap would create a zero-rate tax band.

Willie  contrasted the progressive Liberal Democrat proposals with George Osborne’s commitment to increase the Higher Rate threshold from £43,000 to £50,000 by 2020, giving record-breaking tax cuts to the richest and costing Scotland £400m.

He said:

 

Liberal Democrats in government from 2010 to 2015 raised the personal allowance from £6475 to £10,600, more than £4000. It saves low and middle earners £800 every year.

It was one of the biggest and most progressive changes of tax policy for generations.

It moved the country on from the botches and confusion of Labour’s 10p starting rate that came and went in the course of just a few years. Our change made sure work paid and that the benefits were gained by people on local and middle incomes.

So I want to describe to you how there is the possibility to take that further in Scotland in the next five years.

The new Smith powers open the door to that. These are big new powers and can do big new things.

Tonight I am proposing a Zero-Rate band for the Scottish Rate of Income Tax. This will be in addition to the personal allowance still to be set by Westminster.

The Scottish Zero-Rate will take more low paid people out of income tax completely and cut the taxes of people on low and middle incomes.

It is a power that we specifically and purposefully argued should be in the Smith Commission proposals and is sitting there in section 13(5) of the Scotland Bill.

It protects those on low and middle incomes and helps make work pay.

So today I am setting the principle and committing the Scottish Liberal Democrats to a new Zero-Rate band of Scottish Income Tax.

This sets us in clear contrast with other parties.

The Conservative Government’s priority is to raise the Higher Rate threshold from £43,000 to £50,000 giving the top ten per cent of taxpayers a tax cut of £1400.  According to the Scottish Parliament Information Centre it would cost £400million in Scotland.

The Scottish Conservatives have promised to match UK tax policy. So we know they will be wedded to that tax cut for the highest earners.

I might also add that the Scottish Conservatives are planning £140million worth of stealth taxes and charges presumably including new charges for students, charges for bus passes and charges for prescriptions.

The SNP have matched George Osborne every step of the way so far – on income tax, on second homes and on the business rate poundage. And the SNP plan to undercut George Osborne on council tax and Air Passenger Duty.

So it will be a hard job to persuade the SNP away from simply copying any proposals from George Osborne.

And I remember that the SNP repeatedly opposed us in Westminster when we raised the personal allowance in government. So low paid workers cannot rely on the SNP.

Tax cuts for the wealthy and secret taxes and charges for everyone else from the Conservatives.

And inaction from the SNP.

That is the contrast now with the Scottish Liberal Democrats.

Investing in education is our top priority.

And as our investment in education delivers economic benefits and increased tax revenues, we will use those revenues to set the Zero-Rate band, cutting the amount people on low and middle incomes pay.

When resources allow they should be used for a Scottish Zero-Rate band not for tax cuts for the very richest.

What I have set out tonight, for the first time, is a radical reshaping of our tax arrangements.

Setting the right, solid foundations from the beginning of Scotland’s new tax system.

A penny for education to transform Scottish education to be the best in the world once again.

And the principle that the first priority for tax cuts should be a tax cut for workers on low and middle incomes.

It is progressive, it’s fair and it is right for Scotland.

 

* Caron Lindsay is Editor of Liberal Democrat Voice and blogs at Caron's Musings

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5 Comments

  • Ryan McAlister 17th Feb '16 - 2:03pm

    So even though we would use a power that doesn’t exist yet to ensure that a 1P rise in Scottish tax doesn’t effect low earners, we are still going to slate the SNP for declining to raise tax without the new power? As Willie has been banging on about for the last month?

    Reason #346 opposition is rubbish- we end up talking with the same forked tongue we harangue others for.

  • Eddie Sammon 17th Feb '16 - 2:08pm

    This is important. It seems like a medium term idea, because the revenues from the extra education have to be realised first, but it shows why I said Willie can “get away” with the 1% tax rise for education. He’s not a big tax person.

    It should assuage some people who were worried about the message the party was sending with its 1p tax increase plan.

  • Can someone explain what this “zero rate” band is? Who does it apply to? What change does it make to their tax. Does it change what they pay to Westminster?

  • @Ian – I agree this proposal isn’t particularly clear, I think this is what is being talked about:

    “Although, with full powers over rates and bands, the Scottish Government could presumably introduce a zero-rate band, giving it the power to, in effect, increase but not decrease, the personal allowance in Scotland.”
    [“The Smith Commission’s proposals – how big a change do they represent? And what questions remain to be addressed?”, IFS, 18th December 2014 http://www.ifs.org.uk/publications/7484 ].

    I think where things get confused is the attempt to introduce higher rates of income tax in Scotland on the (voter friendly?) basis that only the rich i.e. those earning more than £43,000 pa (!) need pay them…

  • Himmmm, yesterday I believed the lib dems were pro tax rises with the goal of collecting more tax revenue from the population to pay for more services for the population.

    Now they’re claiming that their plans are tax netural and that more money will not be raised to pay for these things but rather they just want to change who pays what? And this detail was not announced when they made the big increase income tax announcement?

    Sounds like they’re back to their old selves, mixed messages, different messages to different groups of people with nobody really sure about what they stand for. The electorate will not tolerate that I’m afraid.

    At least the tories are honest and clear about where their priorities are. Even if I do disagree with them.

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