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Scotland’s new Finance Secretary, Derek Mackay, announced his first draft budget on 15th December 2016, with Holyrood taking on a series of new tax powers devolved from the Houses of Parliament.

Under the Scotland Act, from the beginning of 2017, Holyrood has the power to set the rates and bands of income tax. Mackay delayed the publication of his first budget beyond the traditional September date until mid-December in order to digest Philip Hammond’s Autumn Statement, giving him a full picture of the fiscal playing field.

Mackay said it would be an “historic budget, delivered in challenging economic and political times”. In his pre-Budget speech, Mackay also insisted his proposals would “support the economy, tackle inequality and provide high-quality public services for all”.

His budget proposals will undergo scrutiny by Parliament and Holyrood committees, with final votes taking place in February. 

The headline measures to come out of the Finance Secretary’s draft budget include the freezing of the basic rate of income tax; the pro-business reduction of business rates poundage by 3.7% to 46.6p; the freezing of residential and non-residential Land and Buildings Transaction Tax (LBTT) bands and the 2017 launch of a new £500m Scottish Growth Scheme, aimed at delivering financial support for small businesses.

To download a PDF of our Scottish Budget summary, please click here



Scottish Income Tax

The Finance Secretary confirmed his intention to freeze the basic, higher and additional rates of income tax. However, at the other end of the spectrum, Mackay added that the higher rate band will rise only in line with inflation to £43,430, confirming that he will not pass on the tax cut announced by the UK Government in the Autumn Statement.

This new higher rate threshold is expected to affect around 15% of Scottish taxpayers (374,000 workers). Mackay confirmed he would not be increasing the top tax rate to 50p as this would risk losing revenue.

Business rates reduction

The Finance Secretary announced the reduction of the business rates poundage by 3.7% to 46.6p. Additionally, Mackay confirmed the expansion of the Small Business Bonus Scheme by raising the eligibility threshold for 100% relief to a rateable value of £15,000 – lifting 100,000 small business properties out of rates altogether.

Mackay stated he would also be reducing the tax burden on 8,000 larger businesses by increasing the large business supplement to £51,000. Finally, rates reliefs for rural areas – announced by the UK Government in the Autumn Statement – have also been matched by Scotland’s Finance Secretary.

Land and Buildings Transaction Tax

The Finance Secretary confirmed that there would be no change to Scotland’s Land and Buildings Transaction Tax (LBTT) thresholds for residential and commercial properties, ensuring no further tax would be applied to transactions where a chargeable interest is acquired.

Scottish Growth Scheme

In a bid to deliver more financial support to SMEs that require access to finance in order to grow, the Finance Secretary set aside £500m worth of investment in Scottish SMEs through a new Scottish Growth Scheme. This will launch in 2017 and run over a three-year period, providing investment guarantees and loans to innovators and entrepreneurs across the country.

Scotland’s connectivity

In terms of connectivity, Scottish businesses were given a boost of £100m investment in digital infrastructure, driving forward super-fast broadband and working towards a commitment of 100% super-fast broadband access for all by 2020/21. The Scottish rail network also received significant investment of £5bn by 2019, along with £3m set aside for targeted fare reductions for rail passengers in areas yet to be announced by the Transport Minister.

Mackay commended his statement to Parliament by saying, in total, the budget delivers £700m of additional spending on “our economy and public services”.

Other measures

Some of the other measures proposed by Derek Mackay included:

•    Government will introduce a Bill to devolve Air Passenger Duty to Scotland: Air Departure Tax – operational from 2018, reducing the tax burden by 50%, improving international connectivity and boosting tourism

•    No transitional relief for business rates bills severely affected by next year’s revaluation

•    50,000 affordable homes to be built during the lifetime of this Parliament – supported by capital funding of £470m

•    Budget secures overall infrastructure investment of around £4bn

•    £140m committed to support energy efficiency programmes

•    £120m to spend at the discretion of Scottish headteachers. Mackay reaffirmed that the Scottish government’s number-one priority was education

•    Flexible workforce development fund to be created to respond to the skills needs of employers

•    Mackay abandons plan to use council tax revenues to tackle attainment gap – instead stating that local authorities will keep extra cash raised as a result of council tax reforms

•    Publishing of a public sector pay policy for 2017-18 that guarantees the Scottish Living Wage, offering those earning less than £22,000 a pay rise of at least 1% and caps other basic awards at 1%, while continuing “our no compulsory redundancy policy”

•    NHS funding to rise above inflation – Government will invest £72m next year in an improvement fund for primary care and GP services and more than £150m in mental health over five years

How we can help

If you would like to receive more detailed, one-to-one advice on any of the issues arising from the announcements, please do not hesitate to get in touch.


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