Scotland politics

Scotland 'should cut income tax by 2p'

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Scotland should cut its income tax by 2p once new powers come into force next year, Holyrood's finance committee has been told.

Ben Thomson, the former chair of the Reform Scotland think-tank, said the move would show that the country is "open for business".

Mr Thomson said the tax cut would cost about £660m.

But he said this could be paid for by introducing a tax on high sugar products or by reforming council tax.

From April of next year, the UK Treasury will deduct 10p from the rate of income tax in Scotland, with MSPs then deciding whether to keep the rate the same as the rest of the UK, or to raise it or lower it.

First Minister Nicola Sturgeon has already hinted that her administration will not use the powers, as changes would have to be made to all tax bands rather than being targeted at high earners.

'Immense opportunity'

It will not be until the Scotland Bill comes into force - which is expected to be 2018 - that Holyrood will be given control over income tax rates and bands, which would give the Scottish government greater flexibility.

Mr Thomson told MSPs on the committee that it would be a "great disappointment" if Scotland simply "mirrors what happens in the rest of the UK" after April.

He said: "It seems an immense opportunity to actually do something with the taxes that we have, and use them to provide a better tax system."

Cutting income tax for Scots would "give a really good message that you're doing something positively", he said

He added: "The second thing is there will be a choice in the next few years for a percentage of people to decide where they want to pay their taxes.

"Having a slightly lower tax will encourage people to see being designated as Scottish resident and deciding they want to pay taxes in Scotland. If the Scottish rate of income tax were to go up it may actually push some people to decide to pay their tax south of the border rather than north of the border.

"But lastly the reason I'm suggesting a reduction is it sends out a fantastic message that Scotland is open for business and it's not all about let's have more and more taxes."

'Tax on sugar'

He went on to say there were a "few things" Scotland could do to fund a 2p cut in income tax, including reforming the banding system for council tax and ending the payments freeze introduced in 2007.

Mr Thomson said you "could actually match the 2p cut by addressing the council tax" before going on to raise the possibility of funding an income tax cut with "taxes that would change real behaviour in Scotland".

He told the committee: "One I have suggested before is a tax on sugar. Why don't we do things differently? We did things differently when it came to smoking and actually people around the country, the whole of the UK, said well done.

"Sugar is now a major problem and our NHS is suffering from the huge increase in diabetes, perhaps looking at sugar in the same way as we treat tobacco, if we put the same rate of tax on sugar as we do on tobacco we would again be raising about £700m."