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UK Politics

Independent Scots would be hit by £1,000-a-year 'tax bombshell,' Danny Alexander warns Alex Salmond

Chief Secretary to the Treasury issues warning as Scottish Government publishes white paper on independence

The people of Scotland will be hit by a £1,000-a-year “tax bombshell” if they vote for independence in next year’s referendum, the Treasury claims.

The warning came as the Scottish Government was preparing to publish its long-awaited white paper on independence.

Danny Alexander, the Liberal Democrat Chief Treasury Secretary,  has written to Alex Salmond,  the First Minister of Scotland,  saying that Treasury officials calculate that an eight per cent rise in the basic rate of income tax would mean an average increase of about £1,000 a year for people on the basic rate. 

The move followed last week’s warning by the Institute for Fiscal Studies that an independent  Scotland would face higher taxes or deeper spending cuts than the rest of the United Kingdom because of dwindling oil revenues and an ageing population.

Mr Alexander said: “This is a very stark reminder of why it is in the interest of Scotland to pool these risks, not go it alone.”

"Even under the most optimistic scenario the IFS considered, in 2021-22 an independent Scotland could have to find permanent tax increases or spending cuts that would be equivalent to £3 billion in today's terms," Mr Alexander told the SNP leader.

"I asked Treasury officials to look at this. They calculate than an eight percentage point rise in the basic rate of income tax would mean an average increase for basic rate taxpayers in Scotland of around £1,000 a year."

There are currently more than 2.4 million basic rate taxpayers in Scotland, who in total contribute some £6.1 billion in income tax, according to Treasury figures.

UK Government analysis shows they currently pay an average of £2,517 a year.

But the Treasury research suggested that if the basic rate of tax was increased from 20 per cent to 28 per cent, this would rise to £3,523 a year - an increase of just over £1,000.

In his letter to Mr Salmond, the Chief Secretary to the Treasury demanded that the white paper "must address the tax rises or spending cuts required to balance the books in an independent Scotland".

A spokesman for Scotland's Finance Secretary John Swinney said Mr Alexander's letter was "rushed and panicky" and shows "just how rattled the No campaign are by the launch of the White Paper and its positive vision for Scotland's future".

"Danny Alexander's sums are all over the place - earlier this year he was claiming independence would cost £1 per person a year, but the reality is, the policies of his Tory-led Government have cost many ordinary Scots far more than £1,000 each since they came to office," the spokesman said.

"And for Danny Alexander of all people to cite the IFS almost beggars belief. It is the failing policies of Mr Alexander and his Treasury colleagues which the IFS's forecasts are based on - forecasts which show the UK in fiscal deficit for every one of the next 50 years.

"Westminster's waste has also squandered oil revenues which could have been put in a national savings fund now worth up to £22,000 for every person in Scotland.

"Only independence will give us the chance to change things for the better, creating jobs, boosting growth and delivering a more prosperous and fairer society."

The Scottish National Party-led Government in Edinburgh will today publish a White Paper outlining its road map to independence by 2016. The SNP is bound to reject the Treasury’s warning as “scaremongering.” The SNP argues that Scotland can “pay its way” as it now contributes 9.9 per cent of UK tax revenues in return for 9.3 per cent of UK spending.