Scotland faces a dilemma in the wake of the UK chancellor’s mini-Budget as business leaders urge the devolved administration to match tax cuts to avoid greater divergence with England that would risk economic underperformance.
Critics from the left meanwhile urged Nicola Sturgeon’s government to concentrate on redressing inequality and funding services.
Kwasi Kwarteng’s mini-Budget statement on Friday abolished the top 45p tax rate on earnings above £150,000, replacing it with a single rate of 40p.
The first minister faces a difficult decision that, in matching tax cuts, the system in Scotland will become less progressive and anger supporters while a widening divergence that includes stamp duty may reduce the allure of living and doing business there.
The Scottish government sets its own income tax rate. The country has a top rate of 46p to the pound, while that on incomes between £43,663 and £150,000 is set at 41p.
Liz Cameron, chief executive of the Scottish Chambers of Commerce, said business would “eagerly” welcome Kwarteng’s policies and expects the government in Holyrood to “deliver parity” with the rest of the UK.
“Divergence between the nations risks damping business and investor confidence,” she said.
Edinburgh should drive a more “progressive approach”, said Philip Whyte, Scotland director of the Institute for Public Policy Research, a left-leaning think-tank.
He urged Scotland to use the extra £600mn that it expects to receive because of tax cuts elsewhere in the UK to fund “collective services and social security to protect those families most exposed to the cost crisis”.
Scottish Greens, which govern with Sturgeon’s Scottish National party, condemned the mini-Budget as being “the politics for shareholders, bankers and the super rich”.