The Real Price of Tax Increases

By Jamie Findlay

Photo by The New York Public Library on Unsplash

Scottish tax increases on income and councils to help improve state of towns and cities. From the 6th of April 2025, band rates will increase by 22.6% for starter income rates and 6.6% for basic income rates.

will lead to an increase in tax rates for both by 3.5%. However, the higher advanced and top tax rates will be frozen at 42%, 45% and 48%.

This means that around 47% of Scottish homes are better off from the changes and 76% are unaffected by the changes.

Scottish taxpayers are entitled to a personal tax-free income allowance set by UK parliament, which is subject to their circumstances.

They are also subject to tax on savings and dividends based on the same bands and rates as the rest of the UK, set by the Scottish Parliament.

The Scottish income tax rate is progressive with personal tax being a proportion of income is much lower than the EU median meaning Scottish taxpayers are paying less tax than the average household across EU countries.

Scottish councils are set to have a tax increase as well as income, though the increase will be higher for council tax than income.

Local authorities in Scotland announced a plan to implement the biggest council tax increase in 20 years.

The news comes from Edinburgh, Glasgow, Fife, the Scottish Norders and North Lanarkshire.

The expected increases will be, 8% in Edinburgh, 10% in the Scottish borders, 7% in Glasgow, 10% in North Lanarkshire and 8% in Fife.

The councils will agree to the increase, which is well below the latest inflation rate of 3%.

This news follows East Lothian which became the first council to implement the double-digit increase.

The council tax rise of 7% to 7.5% is the biggest in years and higher than last year, but around 2.5% of the increase will be used for 200 extra cleansing staff and for extra funding to repair and refurbish, roads, potholes, pavements and parks.

Scotland's government reformed council tax in 2017 to make it less regressive.

However, it was felt they failed to tackle the most obvious fault with the tax, that being the lack of property revaluation since its introduction over 30 years ago. In following years, the values of different properties have increased by vastly different amounts.

Properties now worth similar amounts can face bills that differ by hundreds of pounds because they used to worth different amounts in 1991 and conversely properties now differing by hundreds of pounds will face the same bills.

This is seen as being unfair as now over half of Scottish properties are in the wrong tax bracket, meaning that if the same amount of properties were in the same bracket based on current rather than the 1991 values, more than half would be in a different bracket. Which would be addressed by revaluation.

Despite the 2017 reform, council tax is still highly regressive in correlation to property value.

If the Scottish government wanted to make the tax system more progressive doing so through council tax would have fewer damaging effects of work incentives, tax avoidance and migration than it would going the income tax route.

Reforming the single person discount could also remove the distortion that currently makes it cheaper for single-adult households to live in higher tax bracket homes than multi-adult households.

The single person discount allows for individuals living in a single adult household to receive a discount on their council tax bill. The discount is 25% of the council tax of the home.

This discount has had an impact on the under occupation of higher tax bracket homes as it makes the experience of living in these homes cheaper for single adults through the 25% council tax discount.

Overall, the council tax increase is a very positive thing for Scottish homeowners this is due to it being beneficial or not effecting up to 62% of Scottish households.

The increase of around 7.5% will be used for important issues in Scottish towns and cities. With 2.5% being delegated to cleansing employee increases, and the repair of roads, pavements and parks which will greatly improve quality of life for residents.

The income tax increase will be much less than the council increase, around a 3.5% overall increase on income tax for the lower brackets while leaving the high and top tax brackets being frozen at the current rate.