The Scottish Government has published the Scottish Budget for 2024 to 2025, with measures that include a new tax band of 45p in the pound that will apply to those earning between £75,000 and £125,140.
The top rate of tax, levied against those earning more than £125,140, will rise by 1% next year to 48p in the pound.
The three lowest rates of tax will see no increase to their rates while the starter and basic rate bands will increase by the level of inflation.
Other announcements include freezing business rates for premises valued at less than £51,000 and giving 100% rates relief to hospitality businesses in Scotland’s islands.
Funding for NHS boards will rise by £550 million – or 4.3% – and amounts to £13.2 billion.
There will be £6.3 billion for social security benefits, which will all be increased in line with inflation.
Finance Secretary Shona Robison said: “It is an enormous privilege to present my first Budget. A Budget setting out, in tough times, to protect people, sustain public services, support a growing, sustainable economy, and address the climate and nature emergencies.
“At its heart is our social contract with the people of Scotland, where those with the broadest shoulders are asked to contribute a little more.
“Where everyone can have access to universal services and entitlements, and those in need of an extra helping hand will receive targeted additional support.
“This Budget is set in turbulent circumstances. At the global level the impacts of inflation, the war in Ukraine, and the after-effects of the pandemic continue to create instability.
“In the UK the combined effects of Brexit and disastrous Westminster policies mean that we are uniquely vulnerable to these international shocks.
“We cannot mitigate every cut made by the UK Government. But through the choices we have made, we have been true to our values and rigorous in prioritising our investment where it will have the most impact.
“We choose investment in our people and public services. This is a Budget that reflects our shared values as a nation and speaks to the kind of Scotland that we want to be.”
Scottish Fiscal Commission: “We now forecast resource and capital funding of £53.8 billion in 2024-25, an increase of £1.2 billion since our last forecasts in May 2023.
“Despite this increase in funding the Scottish Government still faces a number of pressures on spending …
“The Commission forecasts that economic growth will remain fragile in the near term with living standards set to fall between 2021-22 and 2023-24 by the largest recorded amount and not returning to their 2021-22 level until 2026-27.
“The Scottish Government has introduced a new 45 per cent income tax band starting at £75,000 and also increased the top rate of income tax by 1 percentage point. These policies affect the top 5 per cent of taxpayers in Scotland. After taking account of behavioural changes, the Commission estimates that these policies will raise an extra £82 million in 2024-25.
“Scottish Government changes to income tax policy since 2017 mean someone in Scotland earning £100,000 will now pay £3,346 more in income tax than they would in the rest of the UK.”
Fraser of Allander Institute: “The overall outlook for spending is a tough one. Overall funding has gone up by 2.6%, but two-thirds of this increase goes towards social security spending, which in 2024-25 will be around £1 billion higher than in 2023-24.
“With local government resource spending also going up by £470m and health spending growing in real terms, pretty much all else bears the brunt of the funding constraints. For example, the Scottish Funding Council sees its funding permanently cut by over £100m, and this will include reductions in first year university places for Scottish-domiciled students, although it is not clear on the extent of this reduction.
“Capital spending in particular is hard-hit, with a 4% cut in real terms – which translates into an actual cut in cash terms by £170m. While there are some areas for which funding grows, others see large falls in allocations. Local government capital grants will be £150m lower next year compared with their 2023-24 budget – a 21% real terms cut.
“The Affordable Housing Supply Programme has been reduced by £196m, and this means a 37% reduction in the past two years. Even areas of important commitment by the Scottish Government such as the Just Transition Fund have been severely restricted, with the allocation cut by 75% for 2024-25.”
Susan Love, Strategic Engagement Lead for Scotland, ACCA, the professional accountancy body: “ACCA understands that setting the 2024-25 budget comes amid some of the most challenging financial conditions faced by a Scottish Finance Secretary. Ministers clearly had extremely difficult choices to make on spending priorities and while there was little Christmas cheer for the business community overall, there were some points of comfort for SMEs.
“On non-domestic rates, while hospitality firms will be disappointed to hear that the Cabinet Secretary has not matched rates relief for the sector England, the announcement that the poundage rate – which had been expected to rise – is to be frozen, extending hospitality relief to island businesses, and protecting the Small Business Bonus Scheme, are all positive steps which offer a little breathing space to small firms.
“The impact of spending decisions on departmental budgets that support the economy, such as enterprise, and the effect this will have on the growth plans of firms looking to invest in Scotland, aren’t yet clear. While continued commitment to support Scotland’s transition to a net zero economy is welcome, investing enough to shift the dial, while keeping up investment in skills and infrastructure will be required to boost Scotland’s productivity and competitiveness.”
David Ovens, Joint Managing Director, Archangels: “Scotland already has a narrow tax base – only 33,000 pay the top tax rate and 40% pay no income tax.
“Repeatedly raising taxes on this limited population risks driving away top earners on whom the system relies.
“Lowering taxes to attract even a small fraction of the much larger base in rUK could stimulate economic growth far more than further strained tax hikes on the existing base without considering long-term consequences.
“Rather than reactive tax increases, Scotland needs a strategic, long-view approach to cultivate sustainable economic prosperity.”
Sandy Begbie, CEO of Scottish Financial Enterprise: “We recognise the challenging position the Scottish government finds itself in, at a time when households and businesses across Scotland are also having to make difficult choices over their finances.
“As we set out in our recent growth strategy, our sector is committed to delivering the sustainable, inclusive economic growth that the Scottish economy desperately needs to increase the tax base and help fund our public services. Key to delivering that is a stable and competitive business environment that allows Scotland to attract investment, create jobs and retain talent.
“The tax measures announced by the Scottish government make our shared ambition of delivering growth more difficult, taking money out of the real economy, putting Scotland at a competitive disadvantage and stifling future revenues. Today’s budget is also likely to inhibit our ability to create jobs and attract and retain the talent our economy and society needs.
“There is a real risk of these measures being counterproductive in the short term as well as damaging in the long term. The potential for further capital flight and the knock-on impact on high value job creation, as a result of increased divergence, is a real concern.”
Joint statement from the Scottish Tourism Alliance, UKHospitality Scotland, the Scottish Licensed Trade Association and the Scottish Beer and Pub Association: “With estimated consequentials of around £230 million coming to Scotland as a result of the 75% rates relief afforded to businesses in England, the Scottish Government has squandered a golden opportunity to support one of the country’s most important sectors for the second year in a row.
“The 100% rates relief which has been announced for hospitality businesses in our island communities is welcomed, given the economic disruption these businesses have experienced from years of underinvestment in our ferry infrastructure. However, this measure falls very short of what has been expected. It is an extreme disappointment for tourism and hospitality businesses across Scotland.”
“The lack of business support measures will see many thousands of tourism and hospitality businesses facing acute financial challenges in the next year, tipping many into crisis.”
“It also entrenches the fact that it is now immeasurably harder to run a hospitality, leisure or tourism business in Scotland, than anywhere else in Britain. This is particularly highlighted by the decision not to support the sector with rates relief, at a time when pubs in Scotland are already closing at twice the rate of those in England.”
“Around 10,000 of our businesses will not benefit from the Small Business Bonus Scheme, leaving them unsupported, and this growing gulf with the rest of Britain will cost jobs, economic growth, investment and, ultimately, tax revenues which are needed to fund public services.”
“The announcement of a new income tax band will also hit our sector’s ability to recruit senior and highly experienced candidates from elsewhere in the UK and potentially retain our emerging leadership talent. Businesses already report that it is challenging to fill vacancies, with higher tax in Scotland being a barrier.”
“One positive is the decision to freeze the poundage, which keeps another multi-million price rise at bay for now, but this will simply maintain the status quo of already extortionate business rates.
“The Scottish Government must now work closely with businesses, as promised in the Budget announcement, to bring forward a clear strategy for economic recovery and growth, including delivering on its commitment to reform business rates through careful examination of the methodology as a starting point.”
David Phillips, Associate Director at the Institute for Fiscal Studies: “Income tax has again ridden to the rescue for the Scottish Budget, generating an additional £700 million in funding for the 2024-25 budget than was expected this time last year.
“This isn’t really about the income tax rises announced in the Budget – which only raise £82 million, equivalent to less than 36 hours of Scottish NHS spending – but because of improved underlying revenue performance.
“The Scottish Fiscal Commission (SFC) has substantially revised up its forecasts for income tax revenues in each of the next 5 years, following better-than-expected revenues since 2021, and forecasts for earnings growth in the coming years that substantially exceed the OBR’s.
“If it turns out that earnings in Scotland do grow faster than in the rest of the UK, that will genuinely be a sizeable boon to the Scottish Budget. But if instead either the OBR is being too pessimistic about UK-wide revenues or the SFC too optimistic about Scottish revenues, as is perhaps more likely, this boost to revenues would not materialise.”
“While small beer in the context of the Budget, the income tax increases announced in the Budget are more sizeable for those affected by them.
“For example, a Scottish taxpayer with an income of £125,000 will pay £5,221 more in income tax than they would in rUK – equivalent to a 7% hit to their post-tax income. In addition, the SFC estimates that behavioural responses offset 90% of the increase in the top rate of tax from 47p to 48p in the pound.
“At some stage, the Scottish Government will have to look beyond income tax (for example to council tax) if it wants to continue raising revenue from richer Scots.”
“On the spending side of the Budget, rather than publish medium-term spending plans as expected, the Scottish Government chose to publish plans for next year only. The Scottish Government’s figures, which compare spending plans to initial budgets for the current financial year, show a real-terms increase in funding devolved public services of 2.2%.
“However the SFC’s figures, which compare spending plans to the latest forecast position for this year, imply a real-terms cut in funding for devolved public services of 0.4%.”
“In contrast to the Welsh Budget, also published today, where the NHS was prioritised to the exclusion of almost every other area of spending, the Scottish Budget provides the Health and Social Care budgets with smaller increases than most other departments.
“Compared to the initial budget for 2023-24, funding for Health and Social Care is set to grow by just 1.3% in real-terms (although the amount for frontline services is up a bit more), compared to 2.6% for the Education and Skills portfolio and fully 9.1% for the Justice portfolio.
“This is a strikingly different prioritisation – and it would not be unexpected if, as in the last two years, funding had to be reallocated to the NHS during the course of the year.”