No change in income tax rate while council tax remains frozen, confirms Finance Secretary

Finance Secretary John Swinney has ruled out increasing income tax rates when Holyrood is handed new financial powers next year.

Swinney, who was unveiling his draft budget to MSPs, said that the Scottish Rate of Income Tax would be set at 10p, meaning that rates will stay the same.

Council tax rates will also remain frozen next year, though a Land and Buildings Transaction Tax levy will be introduced for those buying a second home - including buy-to-let properties - for £40,000 or more.

Under the 2012 Scotland Act, the Scottish Parliament will receive limited powers from April 2016 to vary the rate of income tax.

The block grant will be reduced by £4.9bn, equivalent to 10p worth of income tax north of the border, with the Scottish Government then able to either reduce, increase or maintain the tax rate accordingly.    

However, Swinney told MSPs the powers only allowed changes to be applied equally across three income tax bands, preventing him from tailoring the system. 

Any rate set above 10p would have a “disproportionate effect” on the amount of tax paid by those on the lowest incomes, he said, while those on the highest incomes would see the “greatest benefit” of a cut.

“So the simple fact is, this tax power does not enable me to target help to those on the lowest incomes,” said the Finance Secretary. “I do however have the power to ensure that this tax does not inflict an additional burden on those on low incomes.

“I can therefore confirm that there will be no change in income tax rates next year. I propose that the Scottish Rate of Income Tax be set at 10 pence in the pound. The rate people pay this year will be the same rate they will pay next year.

“I hope Presiding Officer, that, from 2017/18, this Parliament will have more flexibility in setting income tax rates. However, that will depend on reaching agreement on a new fiscal framework and final passage of the Scotland Bill.”

Swinney told MSPs that the Scottish Government will set out plans to reform the council tax in the new year as he confirmed it will remain frozen for a ninth consecutive year.

And he added: “I can also announce today that I intend to enter into a consultation with local government about possible future assignation of a proportion of income tax receipts – thereby giving local authorities an incentive to boost economic growth in their areas.”

A review of the non-domestic rates system in Scotland will also be launched.

Scottish Conservative finance spokesman Murdo Fraser welcomed the decision not to increase income tax rates but added: “For years, the finance secretary has portrayed himself as a prisoner of Westminster austerity, but now that he has been given the key to the door of his cell, he has decided not to use it.” 

Andy Willox, Scottish policy convenor for the Federation of Small Business, said: “Member feedback suggests a majority of business owners will be pleased with the Scottish Government’s decision not to change income tax rates on this occasion.”