Middle earners in Scotland could be set for further tax hikes after finance secretary Derek Mackay confirmed that he would not match the Chancellor's planned threshold on a higher rate. 

Mr Mackay said he would not raise the Scottish threshold to the English level in 2019/20, and Wednesday’s draft Budget was not the time to give tax breaks to higher earners.

When asked if he was committed to progressive taxation, he said that he would not raise taxes if it meant lower revenues, but suggested that Scotland was still far from reaching that point. 

Mr Mackay told the Financial Times he wants Scotland to have a “competitive tax regime”.

“I will always follow the evidence to understand the tolerable levels of divergence,

“However, I do not think that now is the time to pass on tax cuts to the richest.”   

The IPPR said the Finance Secretary could raise up to £210 million extra for benefits if he left the threshold for the higher rate of income tax alone for three years, however, Finance Secretary Derek Mackay said he “sensed” there is further scope to increase rates. 

The IPPR said he should go further and hold the higher rate threshold steady until 2021/22.

It said that if the £210m generated was used for social security top-ups, it could take 40,000 Scots children out of relative poverty, around one in six of the 230,000 children involved.  

The Chancellor Philip Hammond announced that the threshold for the 40 per cent tax rate will increase from £46,350 to £50,000 in England and Wales, but it is set to increase by no more than inflation in Scotland, widening the cross-border tax gap.

READ MORE: Scottish tax freeze 'could lift 40,000 children out of poverty' 

Currently, those earning over £43,350 in Scotland pays 41 per cent tax with Scots earning over £33,000 paying more than anywhere else in the UK following an overhaul of the bands, which also saw 55% paying less than elsewhere in the UK.  

Rachel Statham, an economic analyst at IPPR Scotland, said: “If tax bands go up with inflation, higher earners in Scotland could receive a tax cut over three times larger than someone earning minimum wage. 

“At a time when public finances are under considerable strain, Scotland can’t afford this.

“By freezing the point at which earners begin to pay the 41p rate, we could raise additional tax revenue.” 

John Dickie, director of the Child Poverty Action Group (CPAG), said the intervention by the think tank was "a hugely welcome demonstration of how Holyrood's tax and benefit powers can be used to make a dramatic impact on child poverty in Scotland".

He added: "With UK government benefit cuts driving more and more families into hardship the Scottish Parliament must use every tool in its toolbox to protect Scotland's children and meets its own statutory child poverty targets.

"This new analysis demonstrates the kinds of impact that can be made now. MSPs must work together as a matter of urgency to ensure the forthcoming budget boosts family incomes and fulfils its potential to lift tens of thousands of children out of poverty."

Labour finance spokesman James Kelly also welcomed "the hugely significant report that shows the power of taxation to deliver real change".

READ MORE: Councils hike taxes and service charges to cope with cash struggles 

He said: "Income tax is devolved and, as this important report makes clear, making different choices on the higher rate threshold in Scotland could lift 40,000 children out of poverty.

"The SNP must deliver a progressive tax system that meets the needs of communities across Scotland."

A Scottish Government spokesman said: "Tackling poverty and inequality is a central mission of the Scottish Government which is why we brought forward the Child Poverty Act, with its ambitious new targets to end child poverty by 2030.

"Following the changes introduced earlier this year, more than two-thirds of taxpayers will pay less on their current income this year under Scotland's new tax bands, and low-earning taxpayers are protected through the introduction of a new Starter Rate of tax, meaning an additional £428 million in 2018/19 for vital public services and the economy.

"We are investing over £125 million this year to mitigate against the worst of welfare cuts and to support those on low incomes, but Universal Credit, and the legacy benefits it replaces, remain reserved to the UK Government so we have no powers to scrap the two child limit or lift the benefit cap."

A UK Government spokeswoman said: "With this Government's changes there are a near record low number of children in workless households in Scotland, boosting their prospects in life.

"We continue to spend around £90 billion a year on working-age benefits, including for those on low incomes, and with Universal Credit people are moving into work faster and staying in work longer than under the old system."