SCOTTISH Government Finance Secretary Derek Mackay promised an extra £700 million of spending including £240m more for local services yesterday, as he set out his draft Budget.

It was the first time the Scottish Government have had the opportunity to use the new tax-raising powers devolved to Holyrood as part of the vow promised to Scots ahead of the independence referendum.

Mackay said he would keep Scotland’s income tax rates and bands as they are, though he rejected proposals to pass on Chancellor Philip Hammond’s tax cut for higher earners.

That means, for the first time, Scotland and the rest of the UK will have different higher bands, with the 40 per cent income tax rate starting at £43,430 north of the Border, compared to £45,000 elsewhere.

Mackay told MSPs that while he had sympathy for the argument that Scotland should use new powers to increase the additional rate, he had to “balance that with the risk to our economy”, and as such would be maintaining the current rate, as the SNP had promised in their manifesto.

“This Government’s approach, endorsed by the electorate, is the right thing to do for our economy, for jobs and for public services. For the first time, there is now a direct link between Scotland’s economic performance and public spending,” Mackay argued.

There was a commitment to give £120m of Government cash directly to schools to tackle the attainment gap. Originally, £100m of this money was to come from a rise in council tax revenue on higher-band homes, a plan strongly opposed by Cosla and by the opposition in Parliament.

In his budget, Mackay said he had “listened to Parliament’s views” and would now use “the Scottish Government’s own resources” on the plan.

“Councils will keep the full value of the revenue from the council tax re-banding. Every penny that is raised locally will be spent locally, as councils see fit,” Mackay said. “We will deliver our pledge to help schools close the attainment gap from central funds. We have listened, we have acted and we will deliver for Scotland’s poorest pupils.”

The SNP have frozen council tax since they were first elected in 2007. That freeze ends in April and will mean councils can bring in a three per cent increase, worth around £70m a year.

Mackay promised to “maintain councils’ share of capital spending” with an increase of £150m compared to 2016-17.

He also promised an additional £107m from the NHS for local authorities next year for the living wage for social-care workers and to “protect overall investment in those crucial services”.

This, he said, would mean no “overall reduction” in the funding provided by the Scottish Government “to support local government services” and along with money raised by council tax rebranding would mean the funding increase to councils would be £240.6m, or 2.3 per cent.

Though budget papers showed a decrease in the money that goes directly from Government to councils, new funding would go straight to local services such as schools and social care partnerships.

Labour had called for a fare freeze on Scotrail, saying this would cost £2m. Mackay said Kezia Dugdale’s party had got their sums wrong and it would actually cost £58m, and pledged a £3m “package of targeted fare reductions”.

There was also a commitment to spend more than £470m of direct capital investment to begin delivery of 50,000 affordable homes.

Other key measures announced included £60m for the first phase of the plan to expand early learning and childcare to 1,140 hours. There was also a reduction in business rates by 3.7 per cent to 46.6p.

The small business bonus scheme is to be extended, with the eligibility threshold for 100 per cent relief shifted to a rateable value of £15,000, “which will lift 100,000 properties out of rates altogether”.

Police Scotland’s budget would be protected in real-terms, and the NHS resource budgets will receive an additional £300m.

The Scottish Government will also use £47m to continue mitigating the bedroom tax and will “abolish” it at the earliest opportunity, Mackay said.

There was £140m for energy efficiency programmes, and £100m investment in digital and mobile infrastructure, to improve digital connectivity, grow the digital economy and increase digital participation.

It was something of a balancing act, according to the Institute for Public Policy Research, which said Mackay’s measures will provide a “static budget” for day-to-day spending, but the tough times are still to come.

The Finance Secretary said as much himself, telling MSPs Tory plans for a hard Brexit represented “a key risk to Scotland’s economy” with the fall in the value of the pound pushing up inflation and putting “pressure on household budgets”, while “companies are re-evaluating their plans”.

He added: “Those risks are compounded by the UK Government’s continued austerity programme. In the coming years, we will face cuts to our funding for public services and to social security.

“Between 2010-11 and 2019-20, austerity will see our fiscal departmental expenditure limit budget, which funds discretionary spending and capital investment, fall by more than nine per cent, or £2.9 billion in real terms, with a share of a further £3.5bn of cuts by 2019-20 to come.”