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Scottish Budget

Forbes freezes income tax, offers costs pledge to business

Stand-in: Kate Forbes gave what one MSP described as a ‘feisty’ performance

Kate Forbes, a late stand-in for the disgraced Finance Secretary Derek Mackay, today confirmed that income tax rates will not change and insisted that the government would hold down the costs of doing business.

The Public Finance Minister was catapulted into delivering Mr Mackay’s speech after he resigned in a text messaging scandal.

In an assured address to parliament, she pledged a Scottish Budget delivering vision and leadership.

There would no be no increase in any rates of income tax in 2020-21, she said, and no Scottish taxpayer will pay more tax next year than this year.

There will be an inflationary increase in the threshold for the lower bands, with higher (41%) and top rates (46%) frozen.

Scottish taxpayers earning less than £27,243 will pay less in income tax than taxpayers elsewhere in the UK because of the lower Scottish starter rate of income tax, introduced in 2018.

Ms Forbes, just 29, was plunged into delivering the Budget after Mr Mackay was forced to step down and her performance was roundly applauded, no doubt giving the First Minister an early option on replacing Mr Mackay.

Not only was she only given just a few hours to prepare, she was also in the unusual position of delivering a Budget before the Chancellor announces his own statement in Westminster on 11 March, a circumstance brought about by the Christmas General Election.

In the absence of a new financial framework from Westminster Ms Forbes assumed an overall real terms increase of 1.8% in the Scottish Budget.

She assured higher ratepayers and the business community that the Scottish government does not expect income tax divergence to increase next year. However, if it does it will be because the UK government is cutting taxes for high earners, she said.

Scotland, she said, had the “the most progressive, fair and balanced income tax system in the UK.”

There will be a 3% pay increase for public sector workers earning up to £80,000, with extra support to be given to those earning under £25,000.

The Budget, she said, had “wellbeing and fairness at its heart” and reiterated the SNP’s regular theme that Brexit will be bad for the economy.

Tax liabilities for UK and Scotland showing divergence at a salary of £27,243 and assumes no change in the UK budget on 11 March (Chartered Institute of Taxation)

The Land and Buildings Transaction Tax (LBTT) will include a new 2% band for non-residential leases.

Ms Forbes said the Budget would support business through additional funding, and business rates reliefs, and noted the £220m investment in 2020/21 for the Scottish National Investment Bank and £201m for city deals.

Following the passage of the Non-Domestic Rates Bill, the minister said more than 95% of properties will pay a lower poundage in business rates than the rest of the UK. There will be business rates relief of £744m in 2020/21. An intermediate property rate will take more businesses out of the higher rate.

Retail experts believe changes announced to the large business rates supplement will benefit 2,000 shops in Scotland who will see their rates bills fall by about £5 million annually.

On environmental issues Ms Forbes announced increased funding for rail and bus services, including concessionary travel, to £1.55bn. A Future Transport Fund will also see investment in low carbon travel.

She also ring-fenced an extra £2bn of infrastructure funding for the next parliamentary term, to deliver on the Climate Change Plan.

Political Reaction

Scottish Conservative shadow finance secretary Murdo Fraser said: “As it stands, this budget falls well short of where we need it to be.

“The SNP has to go back to the drawing board and make improvements if it wants to win our support.

“Not enough money is being handed to police, the tax gap between Scotland and the rest of the UK will widen again, and there’s no commitment on hospital parking charges.

“The demands we made were not unreasonable, and we’ll be happy to speak to the Scottish Government about how to introduce these changes.”

Scottish Labour Finance, Jobs and Fair Work Spokesperson, Rhoda Grant, said: “Despite the additional powers that have come to the Scottish Parliament over the last decade the SNP Government have failed to maximise their use, leaving our economy, our people and our essential services worse off.

“They have endeavoured to hide this through smoke and mirrors but they must come clean with the Scottish people.”

Business reaction

David Lonsdale, director of the Scottish Retail Consortium, said: “Retailers will feel cheered by some of the positive announcements.

“The Scottish Government have clearly listened to the SRC’s concerns: keeping rises in the headline business rate poundage down, protecting ordinary workers from increases in income tax rate rises, and making tangible progress on reducing the burden of the large business supplement.

Nonetheless, the growth projections from the Scottish Fiscal Commission are sobering. Continued growth of less than 2% presents a challenge for both retailers and government revenues.

“We remain concerned too that some of the pro-growth measures in this draft Budget might be diluted by parliamentary horse-trading over the next few weeks in order to secure a Budget Accord.

David Melhuish, Scottish Property Federation director, said: “The decision to reduce business rates burdens for 9,500 ratepayers in Scotland is a welcome step towards meeting the Barclay Review’s recommendation on the large business supplement. 

“However, a full realignment with England is needed to reduce the current disadvantage faced by some Scottish ratepayers.  

David Melhuish

David Melhuish: additional tax rate is disappointing (pic: Terry Murden)

“The introduction of an additional tax rate on commercial property leases is also disappointing.

“This new charge will add further tax and complications to businesses for relatively little return to the Scottish Government.”

Federation of Small Businesses’ Scotland policy chairman, Andrew McRae, said: “A no-surprises budget is perhaps what was needed.

“After this week’s parliamentary drama around Business Rates, there are some sensible moves on reliefs.  It’s great news that the lifeline Small Business Bonus Scheme is safe, as are tax breaks for those who invest in their premises. 

“We also welcome the intent to achieve a degree of tax stability and the prediction that income tax divergence with the rest of the UK is not predicted to increase, notwithstanding what happens in the UK Budget next month.”

Tracy Black, CBI Scotland Director, said: “With an economy that continues to falter, supporting ambitious public spending means building a competitive business environment that encourages investment. 

“Lowering the poundage rate for some medium-sized firms unfairly caught by the large business supplement is a step in the right direction and builds on the important decision to protect the Uniform Business Rate. 

“Increased long-term investment in low carbon infrastructure is welcome and business stands ready to play its role on the road to a net zero economy. 

“However, further divergence with the rest of the UK on income tax risks making it more difficult for businesses to attract the people and skills we need to grow the economy. 

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