Budget 2017: Call for income tax rise in Scotland to be ditched

Nicola Sturgeon is facing calls to ditch the prospect of income tax hikes in Scotland next after more than £180 million of extra cash for was handed to Scotland in Philip Hammond's Budget.

It will mean an additional £180 million in revenue cash for the Scottish Government next year alone, although the First Minister accused the Chancellor of “smoke and mirrors”, insisting the Holyrood budget is still going down.

Plans to offload Royal Bank of Scotland back into the public sector were also unveiled by Philip Hammond on Wednesday, with taxpayers facing a £26 billion loss on their bailout of the Edinburgh-based giant a decade ago.

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A series of tax-cutting measures were at the heart of yesterday’s Budget, but they won’t all apply to Scots. Middle earners south of the border will benefit from a rise in the Higher rate income tax threshold, which the SNP is not extending in Scotland, and first time buyers in England and will also escape stamp duty.

The First Minister has been urged to abandon 'wreckless' plans to put up income taxes. Picture: GettyThe First Minister has been urged to abandon 'wreckless' plans to put up income taxes. Picture: Getty
The First Minister has been urged to abandon 'wreckless' plans to put up income taxes. Picture: Getty
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Budget 2017: Key points at a glance

But Scots will benefit from a rise in the personal allowance which goes up from £11,500 to £11,850.

The controversial £40 million VAT bill faced by Police Scotland was also abolished by Mr Hammond, while whisky duty was frozen and fresh support unveiled to support decommissioning in the oil and gas industry.

The First Minister said on Wednesday that more than half of the £2 billion Scottish package (£1.1 billion) - spanning the next three years - is in “financial transactions” which will have to be repaid to the Treasury.

The First Minister has been urged to abandon 'wreckless' plans to put up income taxes. Picture: GettyThe First Minister has been urged to abandon 'wreckless' plans to put up income taxes. Picture: Getty
The First Minister has been urged to abandon 'wreckless' plans to put up income taxes. Picture: Getty

The rest - about £900 million - is also split between 2018/19, 2019/20 and 2020/21.

The extra money in revenue funding which Ms Sturgeon will be free to spend next year amounts to £183 million of so called “Barnett consequentials.”

Tory leader Ruth Davidson said the First Minister should now abandon “reckless” plans to put up incomes next year.

“SNP ministers must look again at their reckless plans to raise income tax in Scotland,” Ms Davidson said.

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“As a result of the Chancellor’s decisions today they are getting £2 billion extra funding to help meet their own spending commitments.

“With income tax and stamp duty being cut south of the border, there is a growing tax gap between people in Scotland and elsewhere in the UK.

“The SNP can’t keep hitting Scots in the pocket – and need to hold off further tax rises in the Holyrood budget next month. The case for raiding the pay packets of ordinary Scottish families has collapsed.

Ms Sturgeon has set out a range of proposals which ministers are considering for income tax hikes under Holyrood’s new fiscal powers. They would generate between £80-£290 million in extra cash, depending on the scenario which is favoured by Finance Secretary Derek Mackay when he sets out his Scottish Budget next month.

The First Minister described the “financial transaction” funding yesterday on Twitter as “money that can be used for limited purposes only and has to be repaid.”

It has previously been used for the Help to Buy Scotland mortgage support scheme and the Scottish Investment Bank.

“Taking account of today’s announced changes, next year’s (2018/19) @scotgov revenue budget still facing real terms CUT of £239 million - imposed by the UK government,” Ms Sturgeon added.

The Scottish Government says its budget from Westminster was already facing a cut of about £420 million in 2018/19, meaning the extra £183 million will take this reduction to about £239 million, as set out by the First Minister.

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Ms Sturgeon added that “not an extra penny” had been provided by the Chancellor to lift the cap on public sector pay increases.

She has already pledged the Scottish Government will end the 1% cap on wage rises that has been imposed on public workers.

The headline announcement in the Budget was the abolition of stamp duty for first time property buyers on homes worth up to £300,000.

However this will not apply in Scotland, where ministers have introduced the Land and Buildings Transaction Tax - which applies a levy of 2% on property sales between £145,000 and £250,000, with this rising to 5% from £250,000 and £325,000.

Ms Davidson said it would “make a massive difference” if Scottish Finance Secretary Derek McKay followed the Chancellor’s lead in next month’s Holyrood budget.

The threshold for paying the Higher rate income tax of 40 pence has been frozen in Scotland at £43,000 while rising this year to £45,000 south of the border, an effective tax cut for English middle earners. Mr Hammond yesterday announced this will go up to £46,350 south of the border as part of a gradual shift towards £50,000. Ms Sturgeon has blocked this in Scotland claiming it would be wrong to cut taxes for higher earners at a time of ongoing austerity.

The controversial £40 million annual VAT charge on Police Scotland and the Scottish Fire and Rescue Service, which no other UK force faces, This was imposed when the new forces were established four years ago because they were deemed to be “national” organisations by the tax authorities.

Mr Hammond insisted SNP ministers had always been aware the new organisations would be subject to the charge.

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“The SNP knew the rules, they knew the consequences of introducing these bodies and they ploughed ahead anyway,” he told the House of Commons.

But he said the 13 Scottish Conservative MPs elected in June had persuaded him that “the Scottish people should not lose out because of the obstinacy of the SNP government”.

But Scotland’s Finance Secretary Derek Mackay said the move was “well overdue.”

He added; “The UK Government must now pay back the £140 million of VAT they have already taken. The realty of today’s budget is that Scotland continues to be hit by UK austerity.”

But Mr Mackay, who will set out his own budget on December 14, said Mr Hammond’s announcements for Scotland were “disappointing”. He contrasted it with the £1 billion given to the Democratic Unionist Party in Northern Ireland for supporting the Tory minority government at Westminster.

Scottish ministers also say that despite a commitment of over £300million of resource funding for the NHS in England this year, Scotland will receive only £8m in consequentials in 2018-19 due to UK cuts elsewhere.

The Chancellor revealed that the UK Government would begin formal negotiations for a Borderlands Growth Deal, aimed at strengthening links between the North of England and south of Scotland. Once agreed, this deal will support local priorities and bolster the region’s economy. Support will also continue for the Tay Cities and Stirling and Clackmannanshire City Deals announced at Autumn Statement 2016.

Scottish charities will also reap the rewards of more than £3.3 million of LIBOR funding raised from fines levied on banks. In addition to this, the UK Government will provide £2.2 million to support improvements to the Lady Haig’s Poppy Factory in Edinburgh.