Scottish Budget 2018: Scottish income tax to be reformed as Derek Mackay announces new tax bands

Derek Mackay - Image credit: PA

Scotland’s tax system is to diverge further from the rest of the UK, after finance secretary Derek Mackay announced changes to income tax bands in today’s Scottish budget.

According to the Scottish Government, the changes to income tax will generate an extra £164m of revenue to spend on public services, with £400m more to be spent on health, without cuts to education, social care or police and fire services.

Two new tax bands will be created – taking Scotland from three to five bands – with a starter rate of 19p in the pound for earnings up to £13,850 and an intermediate rate of 21p for earnings between £24,001 and £44,273.

The higher rate and additional rates will both rise by one per cent, taking the higher rate to 41p in the pound and the additional rate for those earning over £150,000 to 46p in the pound.

The basic rate of tax will be frozen at 20p, which was an SNP manifesto promise in the 2016 Scottish Parliament election.

The Scottish Government said that the changes would mean more than two-thirds of Scots would pay less than they do now, with 55 per cent paying less than they would if they lived in the rest of the UK.

“In line with the four tests set out in our discussion paper, our reforms will ensure that the vast majority of taxpayers are protected, that income tax becomes more progressive, that revenues are generated for investment in public services and that - coupled with our spending choices - there will be a positive impact on the economy.”

Also in the budget was an announcement of a lifting of the public sector pay cap, which the Scottish Government committed to in its programme for government in September.

Public sector workers in Scotland earning under £30,000 would get “at least” a three per cent pay rise, Mackay said, while he committed to a two per cent pay rise for public sector workers earning over £30,000, with a cap on the increase for those earning over £80,000.

Among the key spending commitments were £110m for reform of primary care and £17m for mental health, £243m for the expansion of early learning and childcare and £600m for broadband expansion.

Following a UK Government announcement in the UK budget that exempted many first-time buyers from stamp duty, Mackay announced a similar measure which will take first-buyers out of land and buildings transaction tax (LBTT) – the Scottish equivalent – for house purchases valued up to £175,000.

Mackay said the budget used the powers of the parliament “sensibly” and in the interests of the country as whole.

“It is a budget for fairness and a budget for growth,” he said.