Philip Hammond cautions SNP over possible income tax rise

Philip Hammond has warned Nicola Sturgeon against an income tax rise next year, urging caution over a move that would hit household incomes at a time of “uncertainty”.

The Chancellor said it was up to the devolved administrations to make their own decisions and it was a “perfectly legitimate debate” to have about the balance between the needs of public services and the need to stimulate the economy.

But he added that from a UK perspective, and during the critical Brexit negotiations, it did not appear to be the right time “to be looking at significant tax increases”.

Speaking during a visit to Dundee, Mr Hammond added: “Personally, I think one should be cautious at a time of uncertainty, and there is uncertainty, created by the Brexit process itself, there’s uncertainty created by the pressure on real incomes from the spike in inflation following the currency depreciation last year.

“I think one should be cautious about increasing the pressure on household incomes through taxation at a time like this.”

Earlier this month, Ruth Davidson, the Scottish Tory leader, warned the First Minister was “coming for your pay cheque”, after Ms Sturgeon said she was considering whether to increase income tax.

She said the 20 per cent basic rate – levied on income between £11,501 and £43,000 - would be included in cross-party discussions on making Scotland’s income tax system more “progressive”, despite promising in her manifesto for last year’s Holyrood election that it would not be touched.

She said an increase should not be ruled out because she wanted “the highest quality public services” and “well paid public servants”.

Mr Hammond later used his visit to the city, and to Aberdeen, to say the “broad shoulders” of the UK would continue to support Scotland as he announced £5 million of new funding for oil and gas exploration.

He also said there was no doubt the EU Withdrawal Bill would mean powers from Brussels coming back to the devolved administrations, although he could not say which powers.

He added: "Maintaining a smooth operation of the UK single market is critically important. But not all of the powers that come back from Brussels will need to be retained at UK level in order to maintain that single market.

"There definitely will be a flow of powers back to the devolved administrations. Scotland will end up with more powers than it has today as a result of leaving the European Union.”

He was speaking after Damian Green, the First Secretary of State, met John Swinney, the Deputy First Minister, for talks in London in a bid resolve the impasse over the Bill.

Mr Green said after the meeting that he remained “cautiously optimistic” a deal could be done.

The Scottish Government has said that as it stands it can not give its formal approval to the legislation, which would transpose EU law into British law but would see responsibilities in devolved areas initially transferred to Westminster.

Mr Swinney said the talks were constructive, but remained adamant that ministers continued to view the legislation as a "power grab”.