Scotland’s Deputy First Minister has announced an increase to income tax for the highest earners and scrapped funding for another independence referendum in next year’s budget.
John Swinney published the draft budget on Thursday, against what he said was the “most turbulent economic and financial context most people can remember”, saying an increase to the highest rates of income tax in Scotland would allow for an extra £1 billion in spending on health and social care.
He said standard and basic rates of tax would not change.
The higher rate threshold will be maintained and the top rate will be lowered to £125,140 from £150,000.
Both the higher and top rates of tax will be increased by 1p each, to 42p and 47p respectively.
Mr Swinney said: “We’re asking all those earning more than £43,662 to pay an extra penny in income tax.
“If we want to be able to depend on the NHS, we have to be prepared to pay for it.
“When the UK Government set out its autumn statement, it gave rise to consequential funding for the NHS in Scotland of £291 million.
“I intend to pass on that funding consequential, but I do not believe it is nearly enough for the critical task that we ask our staff in the NHS to do.
“As a result of the choices I have made on income tax, I’m in a position in one year to increase the amount we spend on health and social care in Scotland by over £1 billion.”
The changes to income tax will raise £129 million next year, according to the Scottish Fiscal Commission, which released projections alongside the budget saying Scotland was already in recession and household incomes could see their sharpest decline since records began in 1998.
But, taken together with changes in the economy and Government policy, the SFC said it expects tax receipts in Scotland to be £1.1 billion higher next year than previously forecast.
When asked by journalists about the tax increases, Mr Swinney said there was a different “social contract” in Scotland as opposed to the rest of the UK, pointing to free tuition fees and prescriptions as things not available elsewhere.
His announcement came after Mr Swinney and his Government were chastised by the Presiding Officer after a leak of their tax plans to the BBC.
Alison Johnstone delayed the budget for 30 minutes before allowing the statement to go ahead.
In the Scottish Government’s resource spending review published in the spring, £20 million was allocated for an independence referendum next year.
But after the Supreme Court ruled last month that the Scottish Parliament cannot legislate for another vote, the Deputy First Minister said that £20 million will instead now be used to help those at risk of fuel poverty.
Mr Swinney said: “I intend to utilise the finance earmarked for a referendum on independence to meet provision to extend our fuel insecurity fund into next year, a further £20 million to address yet another failure of the United Kingdom and its policies.”
He said the Scottish Child Payment would remain at the current rate of £25 per week, while other devolved benefits will be uprated by the September inflation rate of 10.1% at a cost of £428 million.
Local government will receive a funding boost of £550 million, while councils will be given the freedom to set their own rates of council tax.
A rise in council tax of 3%, Mr Swinney told reporters, would mean a boost of £90 million in funding, although he was clear such a decision was not his to make.
Following lobbying by business groups, business rates will be frozen in a bid to help support smaller firms.
Opposition MSPs said the statement did not go far enough to address the “decline” in public services.
Scottish Conservative finance spokeswoman Liz Smith said: “If you raise taxes Mr Swinney, the public wants to know why they only see cuts and a deterioration in the delivery of public services.
“And if you widen the gap for middle and higher income earners in Scotland in comparison with their UK counterparts, you risk undermining the potential for economic growth that this country so desperately needs.”
She said the Tories would be setting out where the Scottish Government can “reprioritise” money to frontline services in the upcoming parliamentary processes.
Labour’s Daniel Johnson said his party supports progressive taxation but added: “If you’re going to take progressive tax measures, you must demonstrate clear improvements to public services.
“But the statement today with a manifesto-busting measure does not do this.
“People will not accept a rise in tax bills if all they see is further decline of their services after 15 years of the SNP’s mismanagement of them.”
Scottish Liberal Democrat leader Alex Cole Hamilton said: “There is a lot of pain in this budget.
“Pain for mental health services, for a voluntary sector on its knees that will now face another £4 million cut, and a local government uplift that is barely half of what Cosla have asked for in order to keep the lights on.”
The Institute for Fiscal Studies (IFS), in an analysis of the budget, also said that most public services – excluding the NHS – would receive a real terms cut in funding higher than that in England and Wales.
