The Scottish government has promised to spend another £1bn on tackling the crisis in health and social care by raising taxes on higher earners and holiday homes.
John Swinney, Scotland’s acting finance secretary, said the burden of increasing NHS funding would fall heavily on everyone earning more than £43,663 in Scotland as part of a “social contract” to protect the weakest and poorest.
From next year, pay above that rate would be taxed at 42p in the pound, an increase of 1p. He mirrored the UK government’s decision to cut the top rate band from £150,000 to £125,140 but in Scotland they will pay 47p, also an increase of 1p, and lose all their £12,570 personal allowance.
He said the changes, which provoked warnings they will hit consumer spending, included freezing the tax bands for lower earners and an immediate increase in property sales tax on second homes of two percentage points to 6%. He said the measures would generate £553m extra for health and care spending that will be ringfenced for the NHS.
“Because we know this progressive model works, we choose the path where people are asked to pay their fair share, in the knowledge that in so doing, they help to create the fairer society in which we all want to live,” Swinney told MSPs.
To applause from the Conservatives, he announced ministers would no longer spend £20m preparing for an independence referendum next October after the UK supreme court ruled it would be unlawful for Holyrood to stage one without UK government approval. Swinney said that money would be added to his government’s fuel insecurity fund.
The launch of this year’s budget was overshadowed by angry protests from opposition MSPs at the leak of the main tax decisions to the BBC, which led Alison Johnstone, Holyrood’s presiding officer, to suspend the session for more than 30 minutes while she questioned Swinney and Nicola Sturgeon, the first minister, on the leak.
Swinney apologised and said it had not been authorised by him. He implied opposition parties may have been to blame, bringing accusations from Labour he was smearing blameless people as they had only seen a censored version of his statement.
Among a swathe of new fiscal measures and spending decisions, Swinney announced:
The abolition of a cap on council tax increases next year, alongside £550m extra for councils.
The uprating of all Scottish welfare benefits by 10%, increasing welfare spending by £433m.
£222m on school support for the poorest and extra free school meals in primaries.
£15m for a pilot project to scrap peak-time rail fares.
£336m on home energy efficiency and reducing fuel poverty.
The abolition of non-domestic rates for 100,000 smaller shops and businesses and a freeze in business rates charges, which would cost £356m.
Daniel Johnson, for Scottish Labour, said the budget was “half-baked”. Swinney had failed to produce the promised public sector pay plan and had imposed another real-terms cut in council budgets.
He said: “Scottish Labour supports progressive taxation, but Scots will be wondering why they are facing tax rises to pay for public services while the SNP completely fail to outline how they will ensure that they deliver value for money.”
The Scottish Fiscal Commission (SFC), an independent watchdog similar to the Office for Budget Responsibility, said Scotland’s budget overall next year had been largely protected by increased funding from the UK government.
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Combined with Swinney’s tax increases and higher social security spending, his budget would grow by £1.7bn in cash terms; taking the current high rates of inflation into account that would mean a real-terms increase of about £270m next year.
David Phillips, of the Institute for Fiscal Studies, said funding for many Scottish public services would suffer deeper cuts than those in England and Wales to pay for the NHS and welfare increases. For some services these cuts will be substantial.
“In the context of obvious pressures on many public services and disputes with public sector workers over pay, these plans may be hard to deliver,” he said.
The SFC and the Institute of Chartered Accountants of Scotland warned that freezing the bands for lower income tax rates would add to the burden on households struggling with high inflation.
The Chartered Institute of Taxation said taxpayers in Scotland earning £50,000 a year would pay £1,552.48 more in income tax than in the rest of the UK, and those earning over £125,000 would pay £3,360.68 more.
