One in four workers to pay at least higher rate of tax next year, experts say

The number of workers paying higher income tax rates in Scotland is forecast to reach almost 950,000 in the next two years, with economic experts saying one in four taxpayers will be impacted next year alone.

The Scottish Fiscal Commission (SFC) said in 2026-27, it expects 835,000 people to pay income tax at “at least” the higher rate – which amounts to 26.3% of taxpayers.

That compares to 304,000 (12.1%) who paid higher rate taxes in 2016-17, before the SNP Government made changes to the income tax regime north of the border.

By 2028-29, the number paying the higher rate or above could increase to 948,000 – making up almost three in 10 (28.7%) of taxpayers, the experts forecast.

SFC chairman Professor Graeme Roy said that means public sector workers are increasingly having to pay the higher rates of tax, “whether it be nurses, whether it be teachers”.

Speaking the day after the Scottish Government draft Budget for 2026-27 was published, he said freezing the threshold for higher rate income tax bands means “we’re really beginning to see the effects of fiscal drag feeding through to the tax base in Scotland”.

Prof Roy added: ““If you go back to 2016-17 when these income tax powers started to feed through, there were round about 300,000 taxpayers in Scotland who were paying the higher rate of tax.

“Next year we think that will be over 800,000 who are paying the higher rate of tax, and that will continue to increase over the next few years as the Government continue to freeze the threshold, the proportion of people rising from about 12% to over 26% – so over one in four taxpayers paying at least the higher rate of tax within Scotland.”

Further analysis by the SFC, based on average earnings growth forecasts, found someone in Scotland earning £39,743 today might be expected to be a higher rate taxpayer in 2029-30.

Scottish Finance Secretary Shona Robison has said it would have been “extraordinarily expensive” for the Government to have increased the thresholds at which people start paying higher rates of income tax.

Ms Robison, who stressed the importance of ensuring tax changes are “affordable and deliverable”, said it would have cost £125 million alone to increase the threshold for the 42p higher rate of income tax from its current level of £43,663 to £44,000.

“The money was just not available to do that,” she told BBC Radio Scotland on Wednesday.

“Around three-quarters of taxpayers are expected to be unaffected by freezes to the higher rate thresholds, and of course people are getting a range of supports, many of a universal basis.”

First Minister John Swinney meanwhile told the Press Association: “Scotland is in a strong position where the majority of taxpayers in Scotland are paying less tax” than in the rest of the UK.

Looking to 2026-27, he said 55% of taxpayers “are paying less tax in Scotland than if they lived in the rest of the United Kingdom” – and he said many benefit from a range of Scottish Government policies such as free prescriptions and free university tuition, while council tax and water bills are also at “lower levels”.

He said: “All taxpayers are benefiting from a range of different elements of the social contract, which bring benefits to everybody in Scotland.”

Opposition parties at Holyrood have criticised the “marginal” impact increases in the lower income tax thresholds would have.

Labour finance spokesman Michael Marra said for most people, the changes will save them “potentially about 70p a week”, adding: “You couldn’t buy a Mars bar for that.”

He added: “It really is tiny, marginal changes and this is what the Finance Secretary was trumpeting.

“What she didn’t talk about was the large number of people who are being dragged into the higher tax bands over the period of the next three years, which is the single biggest tax change in the Budget.”

He said this change – which the Scottish Fiscal Commission has said will help increase tax revenues by £72 million in 2027-28 and about £200 million a year from 2028-29 onwards – was needed because “the drop in tax receipts in the last few months has put more pressure on the management of a Budget which was already in chaos from the SNP”.

Scottish Conservative finance spokesman Craig Hoy branded the Budget an “insult to hardworking Scottish workers”, claiming the changes to tax bands for lower earners will only leave them about £40 a year better off.

Mr Hoy said while there had been suggestions the thresholds for higher income tax rates could be increased, this had not happened in the Budget, adding that means the system is “like a one-way escalator” with “every single year more and more hardworking Scots being pushed into what is effectively now a 50% rate of tax for those earning more than £43,000 a year”.

Mr Hoy said: “If you are earning £43,000 a year and you get a £2,000 pay increase next year, the Scottish Government will take £1,000 of that.

“That’s not fair, it’s not equitable, and that is why the Scottish Government is not growing the Scottish economy.”