“Smallest tax cut in history” headlines pre-election Scottish Budget

Compared with Scottish Budgets of recent years, Tuesday’s statement was relatively light on the tax policy front. The key measures of note include:

Scottish Income Tax

There was limited movement on Scottish Income Tax. Ministers had pledged the previous year not to increase rates or introduce new bands this side of the Holyrood election. But they did use their commitment to increase thresholds to amend the starting level of the basic (20p) and intermediate (21p) tax rates.

Shona Robison, the Finance Secretary, said it would ensure “even more people” in Scotland paying less tax than if they lived elsewhere in the UK.

It is likely this policy was designed to counter claims that have been bubbling since late last year that rising wages and frozen tax thresholds had tipped the majority of Scottish taxpayers into levels of tax higher than the rest of the UK.

And while, on paper, these changes will deliver a modest income tax reduction compared with the current tax year (of up to £31.75, according to CIOT), the tax campaigner Dan Neidle described it as a “contender for the smallest income tax cut in history”.  In a blog published on Wednesday, Neidle added that the saving of around 61p per week would be undone by fiscal drag as frozen thresholds push people into new and higher rates of tax.

There had been speculation the government might take steps to address the anomaly that sees Scottish taxpayers with earnings between the Scottish and UK higher rate thresholds paying a marginal rate of 50% on this slice of their earnings. The rumour came amid concerns that the SNP was seeking to stem a “loss of support among professionals” in part attributable to tax policy. But these predictions did not come to pass, and the decision to freeze the higher, advanced and additional rate thresholds (potentially until 2029) means that the quirk will remain.

Craig Hoy, the Scottish Conservatives’ finance spokesperson, accused the government of being “wedded to high tax for hard-working Scots.” His party says that they would cut income tax to 19p for everyone earning less than the higher rate of tax. The party’s leader Russell Findlay has pledged to increase the higher rate threshold by inflation and introduce a new zero rate of tax (effectively an extension of the personal allowance) if they are in power after May’s election.

Ahead of Tuesday’s statement, the Scottish Labour Party said it would not oppose the Budget, a decision that guarantees its passage into law. Despite this, its leader, Anas Sarwar, claimed the plans would not change outcomes for people in Scotland and argued “only a change of government” would achieve this. Speaking in the wake of the Budget, the party’s finance spokesperson Michael Marra said the tax cut “couldn’t even cover the cost of a Mars bar.”

Council Tax

The budget also confirmed that two new council tax bands are to be introduced on homes worth more than £1 million from April 2028.

The bands – I for homes worth between £1 million and £2 million, and J, on homes valued at over £2 million – will be based on up-to-date property values. The council tax paid by all other homes will remain based on their 1991 values.

According to a report by the Daily Record, council leaders are already concerned that the costs of this revaluation will eat into the extra money these new bands will raise, while others have pointed out that the scheme will disproportionally impact properties in Edinburgh.

Scottish Green co-leader Ross Greer sought to take credit for the policy but said the “[t]he devil is always in the detail.” His party would have liked to see the government go further by increasing bills on homes in bands F-H, but this policy, along with efforts to tax private jets (see below) is seen as a move by the SNP to secure Green support in the event of a hung parliament in May.

Ministers are partway through a consultation aimed at finding consensus for more comprehensive council tax reform and, in that sense, the decision to announce these changes now may been seen as a surprise. But politically, it is likely the government will have wanted to have been seen to be reacting to the Chancellor’s decision in November to introduce a council tax surcharge, or ‘mansion tax’, on the most expensive homes in England.

Air Departure Tax (ADT)

Shona Robison also confirmed that the devolved replacement for Air Passenger Duty will be introduced from April 2027, eight years on from its originally intended start date. A consultation on the continued exemption for flights in the Highlands and Islands will launch shortly.

The most eye-catching development is the government’s proposal to introduce a tax on private jets. This follows lobbying from organisations such as Oxfam, who said “the true test will be how tough [it] is.”

Several media outlets reported that the proposal would impact Donald Trump, were he to travel to his Scottish golf courses using his private “Trump Force One” jet.

Land and Buildings Transaction Tax (LBTT) / Scottish property income tax

There were no changes to residential and non-residential rates and bands, or to the availability of first-time buyer relief. The budget document acknowledged the ongoing review of the operation of LBTT and technical changes currently being consulted on with professional bodies.

Scottish Landfill Tax / Aggregates Tax

Rates for both taxes are to remain aligned with UK Landfill Tax. The new Scottish Aggregates Tax, which will replace UK Aggregates Levy from April, will remain pegged to UK rates for the first year of operation, with future rates to be decided by the next Scottish Government.

Non-domestic (business) rates

The Budget included a package of measures designed to support retail, hospitality and leisure businesses, as well as reductions to the basic, intermediate and higher rates. Robison promised “additional measures” for hospitality should the Chancellor follow through with a plan to extend reliefs for the sector in England.

Others

The Budget document also confirmed that the Scottish Government continues to discuss with the UK Government the “uncertainties and complexities” associated with VAT assignment and that rates for the proposed Building Safety Levy will be announced this June ahead of its delayed introduction in 2028.

What happens now?

The Budget Bill was introduced to the Scottish Parliament on Thursday. Scrutiny is expected to start next week. The Scottish Rate Resolution to agree income tax rates is set for 19 February with the final Budget vote set for 25 February. Despite the government’s lack of a parliamentary majority, the decision by Scottish Labour to note vote against the Budget means the Bill is expected to become law.