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Nicola Sturgeon urged to rethink income tax hike after Budget windfall

Nicola Sturgeon meets some of the workforce at BiFab engineering company's yard after the Scottish Government had intervened to avoid the company going into administration - Corbis News
Nicola Sturgeon meets some of the workforce at BiFab engineering company's yard after the Scottish Government had intervened to avoid the company going into administration - Corbis News

Nicola Sturgeon has been urged to abandon her plans to hike income tax and match the Chancellor’s help for first-time buyers in England after being handed an extra £2 billion in his Budget.

Ruth Davidson, the Scottish Tory leader, warned there “is a growing tax gap between people in Scotland and elsewhere in the UK” and demanded the First Minister step back from plans to increase income tax for workers earning more than £31,000.

Ms Sturgeon published a paper earlier this month that outlined plans to raise up to £255 million more in income tax next year, but the Budget gave her government around £183 million extra for public services over the same period.

Scots earning more than £43,000 already pay £400 more income tax after she froze the salary threshold for the 40p higher rate band. The gap could widen even further in April after the Chancellor announced it will increase to £46,350 in England.

Philip Hammond presented her SNP administration with another political headache ahead next month’s Scottish Budget at Holyrood by scrapping stamp duty for all first-time buyers in England on purchases up to £300,000.

Young couples in Scotland have to pay £2,100 Land and Buildings Transaction Tax (LBTT) – the SNP’s version of stamp duty - buying a £250,000 home and Ms Davidson tweeted that it would make a “massive difference” if the SNP matched the Chancellor.

In another change that created a higher tax regime in Scotland, Mr Hammond cut the rate at which business rates in England increase annually.

Chancellor Philip Hammond and Prime Minister Theresa May listen to Labour party leader Jeremy Corbyn speaking after the Chancellor delivered his Budget in the House of Commons - Credit: PA
Chancellor Philip Hammond and Prime Minister Theresa May listen to Labour party leader Jeremy Corbyn speaking after the Chancellor delivered his Budget in the House of Commons Credit: PA

But Ms Sturgeon and Derek Mackay, her Finance Minister, lashed out at a “smoke-and-mirrors” Budget by arguing that most of the extra money could not be spent on the NHS or schools.

Although the Scottish Government’s overall budget will increase by more than inflation over the current spending review period, they said the amount allocated for day-to-day public services will drop by £200 million next year.

Think tank IPPR Scotland calculated that departmental spending will be £700 million lower in 2019/20 than this year, with average cuts of 10.4 per cent to budgets other than health and policing.

The row broke out after Mr Hammond unveiled a huge war chest of capital funding, loans and guarantees to help alleviate the chronic housing shortage south of the Border and billions of pounds extra for English public services.

Under the Barnett formula, this resulted in the SNP government getting nearly £1.7 billion that could be spent on schemes to help the Scottish housing market or businesses over the next four years and around £350 million for day-to-day spending.

The Budget also contained a string of other benefits for Scotland, with Mr Hammond saying he was “getting used to the new experience of having my ear bent by my 13 Scottish Conservative colleagues” following the party’s stunning success in June’s general election.  

They included a widely-expected announcement that Police Scotland the fire service will be able to reclaim £40 million of VAT every year, help for the North Sea oil industry and a growth deal for the Scottish Borders.

Welcoming the spending package, Ms Davidson said: “The budget hands the SNP government a £2 billion Barnett bonus.

“It’s funding that could now be used to help solve Scotland’s housing crisis, to upgrade infrastructure, and to support our schools and hospitals. That extra funding also means that SNP ministers must look again at their reckless plans to raise income tax in Scotland.”

She added: “The SNP can’t keep hitting Scots in the pocket – and need to hold off further tax rises in the Holyrood budget next month.”

Mr Hammond’s announcements meant an extra £215 million of capital spending in the current financial year for Scotland, rising to £587 million in 2020/21.

SNP ministers could use the funds to boost their much-trumpeted Help to Buy scheme for first-time buyers or flagship Scottish Investment Bank for businesses.

In addition, the SNP government will get an extra £8 million for public services this year, £187 million in 2018/19 and £155 million the following year.

Mr Mackay complained the Budget was a “con”, as more than half the additional money was financial instruments and loans that have to be paid back could not be used for day-to-day spending.

The minister added: “On business rates and stamp duty the UK Government are following our lead. We have already moved to make revaluations more frequent and the vast majority of first time buyers are already exempt from tax when they buy a home.”

But business leaders urged Mr Mackay to follow Mr Hammond’s lead by indexing business rates to the Consumer Prices Index, which rises at a lower rate than the Retail Price Index measure used by the Scottish Government.

David Lonsdale, director of the Scottish Retail Consortium, said: “What is crucial is that Scottish Ministers follow suit, otherwise firms here in Scotland will be paying a headline business rate higher than competitors and counterparts down south from April as well as a higher large firms rates supplement.”