Scottish Budget: Income tax rates unchanged but major Brexit warning

The move will be met with relief by many Scots ahead of a rise in national insurance contributions announced by the UK Government, which will come into force in April.

But the finance secretary also issued a warning in the wake of Brexit saying the budget presented to MSPs is smaller than it would have been if leaving the EU had not occurred.

She said: “While all other parts of the UK have seen a negative impact as a result of Brexit, the scale of that is three times higher in Scotland than in London.

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“We said that Brexit would be bad for Scotland, that it would have a differential impact on our economy and, as is clear, it is, which is having a direct impact on our budget.

“Be under no illusion, the budget I’m presenting today is smaller than it would be if it wasn’t for the impact of Brexit on our economy, a Brexit that has been imposed on Scotland against the express wish of the people that live here.”

She then went on to announce there would be no change to income tax rates next year.

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The starter and basic rates bands will rise in line with inflation, while the higher and top bands will remain frozen. The policy will mean that those on higher salaries will see no benefit from inflation and in real terms will pay more next year than this year.

“Income tax rates next year will remain unchanged,” she said.

“The starter and the basic rate bands will increase in line with inflation and the higher and top rates will remain frozen at their current levels.

“Our progressive income tax policy means the majority of Scottish taxpayers will continue to pay less in tax than if they lived elsewhere in the UK while those who earn more will pay more.”

On council tax, the Budget document was published as Forbes was speaking and revealed that a previous cap on how much local authorities can raise the levy would be lifted. The tax was frozen last year after an agreement reached between the Scottish Government and council leaders' body, Cosla.

"Council tax is a local tax, with receipts retained by local government and separate from the Scottish Budget," said the document.

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"It makes a significant contribution to the funding of public services. Every household in Scotland potentially has a council tax liability, although the council tax reduction scheme reduces this for around 500,000 households according to need and ability to pay.

"In 2021-22, acknowledging the impact of the pandemic on households, the Scottish Government secured local government’s agreement to freeze council tax at 2020-21 rates. For 2022-23, councils will have complete flexibility to set the Council Tax rate that is appropriate for their local authority area.

"In setting council tax rates, we expect councils to take full account of local needs and of the impacts on household budgets of the decisions they make."

Scottish Conservative shadow cabinet secretary for finance and economy, Liz Smith said ministers had "quietly opened the door to massive council tax rises next year".

She added: "Kate Forbes didn't even mention it in her statement but the government have completely removed the cap on tax hikes at an incredibly difficult time, when many Scots are already struggling to get by.

"Instead of giving our communities a fair deal, the SNP have cut funding in real terms and passed the buck onto local councils.

"The SNP are leaving local councils with a horrid choice between failing to deliver essential services or making up the shortfall through eye-watering tax rises."

Land and buildings transaction tax will remain at the same level while the standard and lower rates of the Scottish landfill tax will rise.

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Business rates relief of 50% for retail, hospitality and leisure businesses will continue for the first three months of the next financial year while small businesses will pay nothing, Scotland’s Finance Secretary has said.

Retail, hospitality and leisure businesses, as well as those in the aviation sector, have been given 100% relief as a result of the pandemic.

Forbes said: “Recognising that we have offered the most generous rates relief anywhere in the UK for the last two years, and the importance of phasing the return of rates liabilities, rates relief for the retail, hospitality and leisure sectors will continue at 50% for the first three months of 2022-23, capped at £27,500 per ratepayer.

“This will prevent a cliff-edge for businesses in those sectors, saving them a further £56 million in 2022-23.”

Firms on high streets with a rateable value of less than £15,000 will pay nothing in rates for the whole year while a new build on high streets will also pay nothing in rates for 12 months after occupation.

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Forbes also announced the Scottish Government will implement a “minimum wage floor” for public sector staff of £10.50 per hour.

The Finance Secretary told MSPs on Thursday: “Our pay policy for next year, therefore, focuses on those on low incomes, continuing our progressive approach and guaranteeing an inflationary uplift of at least £775 to those earning up to £25,000, £700 to those earning between £25,000 and £40,000, and £500 to those earning above £40,000.

“In October, the Government announced an uplift in pay for social care workers to £10.02 per hour.

“Today, I can announce a minimum wage floor of £10.50 per hour across all bodies covered by the pay policy, with specific funding to apply this for adult social care staff.”

She confirmed the Scottish Government will double the Scottish Child Payment in April.

Spending more than £200m in the next year, the £20 per week benefit will be available from April and will expand to all children under the age of 16 by the end of next year.

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“It is right that Government stretches every sinew to do so, and that means we have to make hard choices elsewhere in the budget where necessary,” Kate Forbes told MSPs.

“We do so in order to fund the most ambitious anti-poverty measure anywhere in the UK and to respond to the UK Government’s decision to scrap the £20 uplift to Universal Credit.

“This budget delivers not just on the pledge in the Programme for Government to double the Scottish Child Payment to £20 per week, but – as the First Minister announced last week – we will bring forward that commitment to April 2022.

“Presiding Officer, that is nearly £200m in next year’s budget going directly to lift children across Scotland out of poverty.”

Responding to the Budget, anti poverty organisations welcomed the doubling of the Scottish child payment, though business groups were disappointed with Forbes' proposals which they said did not do enough to support struggling sectors. 

Bill Scott, chair of the Poverty and Inequality Commission, said: "We welcome the confirmation in today’s Budget that the Scottish Government will be doubling the Scottish child payment. This is something the Commission has been calling on the government to implement for a long time.

“While this increase of £20 will undoubtedly help, too many families sadly continue to live in poverty in Scotland and this is likely to be a long and difficult winter for many.

"Coupled with the added challenges brought on by the pandemic, it’s now imperative that the Scottish Government coordinates its efforts to eradicate poverty once and for all."

Tracy Black, CBI Scotland Director, said: “While the finance secretary has outlined some helpful interventions for business, firms that have been working tirelessly to get back on their feet after two miserable years will be left with little to get excited about.

“The removal of the business rates cliff edge in April for hospitality, retail and tourism firms will be welcomed, however many will be disappointed that the government hasn’t gone further – particularly as uncertainty around Omicron gathers pace.

“Increased funding for employability is clearly a step in the right direction but much more detail is needed on how skills funding will help firms address immediate challenges. Ultimately, greater ambition is needed on upskilling and retraining if we’re to ensure workers are equipped with the skills they need for a modern economy.

“On green investment there were some welcome announcements around green jobs and just transition. However, failing to use the non-domestic rates system to incentivise private sector investment in low carbon infrastructure feels like a missed opportunity that could have helped Scotland push-on towards its net-zero target.

“Overall, business shares the Scottish Government’s vision for a fairer, greener and more prosperous economy. Firms will be keen to see how the forthcoming National Economic Transformation Strategy turns ambition into action, setting Scotland on a path towards competitiveness, dynamism and productivity growth – which is the only sustainable route to higher living standards.”

The Scottish Beer & Pub Association (SBPA) described the budget as "disappointing" for the sector.   

Pubs will receive 50% off their business rates bills for just three months in the new financial year, while the SBPA had called for a matching of support provided for pubs in England (50% for 12 months).   

A SBPA spokesperson said: “This is a disappointing budget for the beer and pub sector. The support on business rates falls short of what many pubs require, especially just as the sector hopes to get back on its feet.   

“We have been enormously grateful for the relief previously given by the Kate Forbes and the Scottish Government, but this effectively creates two cliff edges moving forward into the new year. 

"The Scottish Government should have, at the very least, matched the support offered by the UK Government of 50% discount for the whole of 2022/23 - not just the first the months.   

“With the omicron variant raising fears and impacting on consumer confidence, our sector will require additional targeted support going forward to avoid losing any more of Scotland’s much-loved pubs.”