Today Scottish Government Finance Minister Derek MacKay unveiled their draft budget for the next fiscal year.
By far the most eye-catching of the proposals was the remodelling of income tax, with the standard rate being broken into three bands of 19%, 20% and 21%, and an increase of 1% on the higher and additional rates, bringing them to 41% and 46% respectively.
In total, these measures will raise an additional £164 million for the Scottish Government, whilst ensuring that those earning less than £33,000 (which is 7 out of 10 people) will pay less in income tax each year. Interestingly, with Scotland’s personal allowance being different to the rest of the UK’s, the Government suggests that 55% of taxpayers will pay less in tax compare with the rest of the UK.
These measures are necessary, the Government says, to enable public service improvements whilst the block grant from Westminster drops in real terms.
This is a good goal, and one that is a prime example of why it’s time to make use of as much devolved power as we have, but there’s also money that should go towards reducing Scotland’s big budget deficit – as we sink further into debt each year at a rate faster than the UK as a whole.
These progressive budget measures should hopefully mark the start of a change in taxation policy here in Scotland, and hopefully in years to come we’ll see some more radical proposals that allow us to improve services and run a smaller deficit – rather than choosing between the two.
Another positive impact of the budget is that public sector workers will receive a better pay rise in the coming year, as the existing 1% cap is scrapped. Those earning less than £30,000 will receive a 3% pay rise, while those earning over that amount will receive a 2% rise, with this being capped at £1,600 for those earning £80,000 or more.
But it’s not all good news. The economic outlook for post-Brexit Scotland is bleak, as growth is forecast to be below 1% until 2022.
Stagnation on this scale will take a toll on employment and opportunity in Scotland, as we risk lagging behind other parts of Europe. There is new money for high-speed broadband infrastructure, and more details on the Inverness city deal that will impact positively on this part of the world, but there will need to be more invigorating measures announced in future to breathe life into the economy.
There is also further hardship for local governments, who have suffered greatly under the SNP administration. A further freeze in the block grant for councils means another year of real-terms cuts to local public services, at a time when some councils such as Moray are on the brink of collapse.
The Scottish Government, rightfully, looks to ensure its voice is heard when it comes to devolving power and finance from Westminster, but ignores that of councils here in Scotland that are crying out for better funding.
With the SNP running a minority government, they will need support to make sure that this budget passes. It’s very likely though that the 6 Greens in Parliament will vote with them to ensure that their tax plans are enacted. There will be wrangling though, for sure, over some specifics as the different parties flex their muscles and try to shape the conversation.
You can find the full draft budget on the Scottish Government’s website here.