Scotland to become highest taxed part of the UK

Finance Secretary Derek Mackay outlining his first Scottish budget. Picture; PA

The prospect of council tax rises was raised by the finance secretary as he presented the first ever Scottish Government budget to set a different income tax rate than the rest of the UK.

In his first budget, Mr Mackay also confirmed that Scotland would become the highest taxed part of the UK when he declined to pass on the UK government’s planned tax break that will see the threshold for higher-rate earners south of the Border increase from £43,000 to £50,000 over the next few years.

Mr Mackay presented his budget amid claims from opposition parties that council budgets will be cut by £327 million

Opposition parties quoted budget figures which suggested spending on local government in 2017-18 will be reduced by almost £448m since the previous year – a sum which will only be partially offset by a £121m increase in central government grants to councils.

The Conservatives, Labour and local authorities pointed out the difference between the two sums comes to around £327m. The Scottish Government, however, claimed the reduction in council budgets amounted to just £47m which would be more than offset by the £111m raised by its plans to increase council tax across band E to H properties.

Faced with the reduction in council budgets, Mr Mackay said a further 3 per cent hike in council tax would raise an additional £70m when he presented his budget to Holyrood.

Mr Mackay said that another £107m would come to local authorities from the NHS budget to pay for the integration of health with social care.

In the face of strong opposition, Mr Mackay also performed a U-turn on the Scottish Government’s plans to use council tax rises to close the attainment gap by using the money to turn around schools in poor areas.

Opposition parties had argued that money raised locally should be spent locally.

Announcing his budget, Mr Mackay said: “The £111m that will be raised through council tax re-banding will be retained locally. And local authorities will also be free to increase the council tax generally by up to  3 per cent next year, generating – if they so choose – a further £70m.”

Closing the attainment gap, which sees pupils from affluent areas outperform their poorer counterparts in the classroom, is one of the Scottish Government’s key priorities. Mr Mackay said the Scottish Government will now hand £120m from its own funds to headteachers in 2017-18 to achieve this.

The finance secretary defied calls from Labour, the Lib Dems and the Greens to raise taxes further.

Labour’s Kezia Dugdale had called on the Scottish Government to use its new powers to increase the income tax rate from 45p to 50p for those earning more than £150,000.

While he said he “sympathised” with calls for the 50p top rate of income tax to be reintroduced in Scotland, Mr Mackay stressed he “had to balance that with the risk to our economy”.

This approach, he insisted, was “right thing to do for our economy, jobs and public services”.

But Conservative finance spokesman Murdo Fraser said: “When it comes to local government, this budget is quite simply a massive con on the people of Scotland.”

He added that the Scottish Government was “actually trying to pull a fast one on Scotland’s local services”.

Mr Fraser said: “Local councils face a real terms cut in their grant of more than £300m.

“It’s taking away with one hand, in order to give a little back with the other. What a shambles.

“This is a Scottish Government which wants to make Scotland the highest-taxed part of the United Kingdom. Scots will pay more but in return get a shambolic mess on education and the NHS.”

Ms Dugdale said: “The SNP finance secretary has unveiled a budget today that will see the heart ripped out of public services.”

She added: “However the finance secretary tries to spin it, today’s budget means a real-terms cut of £327m from the SNP government to local services.

“They’re making up the difference by holding councils to ransom – forcing them to use their tax powers while they refuse to use theirs.

“They could have asked the richest 1 per cent to pay a little more with a 50p tax but they refuse.

“This budget passes on Tory cuts to the people of Scotland. It makes Derek Mackay no better than a Tory chancellor.”

With the SNP having pledged to increase free childcare for three- and four-year-olds and vulnerable two-year-olds,  the finance secretary also promised £60m for early learning.

“We are prioritising education and this budget provides the resources to match,” the finance secretary told Holyrood.

There will be £470m of capital funding to help the Scottish Government with its goal of building 50,000 affordable new homes over the lifetime of the parliament.

Mr Mackay also announced £3m for a “targeted fare reductions” for rail passengers, but did not go as far as meeting Labour’s demand for a freeze on ticket prices.

The Scottish Government has faced calls from Labour to freeze train fares next year after ScotRail Abellio’s performance slipped below agreed standards

Mr Mackay said doing this “would compromise  the investment programme that is so vital for improving the performance of our rail network”.