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The Scottish Government set out its spending and taxation plans for the 2018-19 financial year in its annual Draft Budget on Thursday, 14th December.

Finance Secretary, Derek Mackay, outlined the approach of the Scottish National Party (SNP) to a tense audience of MPs in Holyrood with plans to raise funds for public services and grow the Scottish economy.

Just last month, Scotland’s First Minister, Nicola Sturgeon stood alongside Mr Mackay to publish a discussion paper on income tax in Scotland. During Ms Sturgeon’s speech, she outlined that the time was right for higher earners to pay a 'modest' amount more in tax to help protect and improve public services and stimulate productivity throughout Scotland.

Last year’s 2017-18 draft budget was the first time that the Scottish Government had the authority to set the nation’s own income tax rates and bands.

While the Finance Secretary sought to freeze the basic, higher and additional rates of income tax in 2017-18, Mr Mackay this year opted to reform Scotland’s income tax system in a bid to safeguard those on low incomes, protect and grow the economy, generate revenues for public services and make tax fairer.

The other headline measures to come out of Mr Mackay’s 2018-19 draft budget include the protection of the Small Business Bonus Scheme, keeping 100,000 small business properties out of rates altogether; a commitment to bring super-fast broadband to all homes and businesses by 2021; and fresh investment in affordable housing, business R&D and road and rail infrastructure.

Scottish Income Tax reforms

The Finance Secretary has sought to create a ‘progressive’ five-band income tax system for Scottish residents. The basic rate of income tax has been frozen at 20p, but new starter and intermediate rates of income tax have been announced at 19p and 21p respectively. Higher and top rate taxes have been increased by 1% to 41p and 46p respectively.

Scottish Bands Band name Income tax rate %
£11,850 - £13,850 Starter 19
£13,851 - £24,000 Basic 20
£24,001 - £43,430 Intermediate 21
£43,430 - £150,00 Higher 41
Above £150,000 Top 46

Scottish Income Tax Rates and Bands for  NSND (non-savings non dividend)

Those earning more than £100,000 will continue to see their Personal Allowance reduced by £1 for every £2 earned over £100,000.

Mr Mackay confirmed that these proposals have been modelled by the Scottish Fiscal Commission (SFC) and that the reforms mean there will be marginally less tax paid per head than the rest of the UK.


Small Business Bonus Scheme protected

In the Finance Secretary’s inaugural 2017-18 draft budget, he confirmed a raise of the eligibility threshold for 100% business rate relief to rateable values of £15,000, as part of an expansion of the Small Business Bonus Scheme. Mr Mackay confirmed this threshold would be protected, keeping 100,000 small business properties out of business rates altogether.

The Government is providing an additional £96m of investment to ‘maintain the most attractive system of business rates in the UK’.

Reaching 100 Programme commitments

The Finance Secretary reaffirmed the Scottish Government’s commitment to remain at the forefront of the digital revolution. Mr Mackay confirmed that 95% of homes and businesses in Scotland already had access to super-fast broadband connectivity.

Nevertheless, the 2018-19 Draft Budget includes an additional £600m commitment to the Reaching 100 Programme, designed to deliver super-fast connectivity to 100% of Scottish homes and businesses by 2021 – unmatched anywhere else in the UK.

Road and rail infrastructure

The Scottish Government’s priorities for 2018-19 include £1.2bn investment in the country’s transport infrastructure, including crucial roads projects such as the improvements to the A9 – transforming it into an electric highway. Furthermore, investments on the railways will lead to the electrification of the Stirling, Dunblane and Alloa line and improvements to the route between Aberdeen and Inverness and on the Highland Main Line between Inverness and Perth.

The Finance Secretary also confirmed the Government will be doubling its investment in sustainable and active travel to £80m. In total, Mr Mackay said £4bn would be invested in Scottish infrastructure during 2018-19.

Investment in Scottish industry

Mr Mackay announced plans to increase the Economy, Jobs and Fair Work portfolio funding to £270m. He also confirmed £2.4bn of investment in enterprise and skills agencies and a 70% increase in funding for business R&D to £37m. The Government has committed £340m of capitalisation to the new Scottish National Investment Bank for 2019-21 and will create a new fund to support innovation for Scottish businesses while the bank is set up.

An additional £756m has also been allocated to affordable housing in 2018-19 as part of £3bn investment in affordable homes during this parliament. Mr Mackay reiterated the Government’s commitment to deliver 50,000 affordable homes during the five years of this parliament; breathing life into Scotland’s homebuilding industry.

Other measures

Some of the other measures proposed by Derek Mackay included:

  • £10m support South of Scotland Enterprise Agency
  • £1.8bn investment in colleges and universities - funding for teaching, research and to “train the workforce of the future”
  • £18m for a new National Manufacturing Institute
  • Inflationary uplift applied to business rates to be capped at CPI not RPI – reportedly saving Scottish retailers £5m in business rates
  • Relief on Land and Buildings Transaction Tax (LBTT) for first time buyers up to £175,000, bringing 80% of first time buyers out of LBTT altogether

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