Little tax movement in Scottish Budget

The most notable of the Scottish Government’s tax plans in the coming year were:

• Increasing the basic and intermediate rate thresholds by 3.5 per cent.
• Maintaining existing Scottish tax rates until the 2026 Scottish elections and to uprate the starter and basic rate bands by inflation.
• Increasing the Additional Dwelling Supplement (ADS) of Land and Buildings Transaction Tax (LBTT) from 6 to 8 per cent and maintaining existing residential and non-residential LBTT rates and bands.
• Increasing Scottish Landfill Tax rates, mirroring decisions taken on UK Landfill Tax.
• Freezing the Business Rates basic property rate and extending reliefs for hospitality businesses (up to 100% for businesses in island communities).
• Removing the Council Tax Freeze.

Ministers also published the government’s Tax Strategy, which had been postponed earlier in the year due to the appointment of a new first minister and this summer’s UK General Election.

The strategy has been described as ‘the next step’ in Scotland’s approach to tax and details a list of the government’s priorities and actions.

They include:

• Maintaining existing rates and bands of Scottish income tax.
• Working with local government to deliver ‘fair and sustainable’ local taxes.
• Completing the devolution of Scottish Aggregates Tax and Air Departure Tax.
• Expanding the Scottish tax base and examining the impact of taxation on the ‘competitiveness and attractiveness’ of the economy.
• Improving the understanding, compliance and administration of the Scottish tax system.
• Enhancing the evidence used to inform the development of tax policy.

The government has also indicated in the strategy that it will begin work to consider the further devolution of tax powers, the balance of taxes across labour, income and wealth and the role of tax as an enabler of ‘positive behavioural change’.

Shona Robison, the finance secretary, said the government’s tax policies were ‘protecting and improving’ the economy and public services and ‘delivering for the people of Scotland’.

The Scottish Conservatives accused the government of presiding over an ‘era of high tax and free spending’.

Craig Hoy, the party’s finance spokesperson, said voters were paying ‘a heavy price for years of SNP waste’ and that the government’s approach to tax had ‘failed monumentally’.

At first minister’s question time on Thursday, the party’s leader Russell Findlay accused the first minister of having “dragged more Scots into paying higher income tax” as public services falter. In return, John Swinney accused Findlay’s party of ‘economic incompetence’ over a tax plan he said left a ‘gaping hole’ in public finances.

Labour’s Michael Marra talked up the impact of the extra funding for Scotland announced in October’s UK Budget, while Ross Greer (Green) attributed the ADS increase to pressure from his party. Robison told Greer’s Green colleague, Patrick Harvie, that maintaining existing income tax rates was a recognition that ‘we have asked taxpayers to go as far as we can in the current climate’.

Can a deal be done?

As a minority administration, the Scottish Government will need the support of other parties for its budget to pass. Two extra votes will be needed for the measures to pass, with an early Scottish Parliament election a possibility if a package cannot be agreed between the SNP and other parties.

In a speech at the Royal Society of Edinburgh last week, John Swinney called for partnership and collaboration between the government and opposition MSPs, arguing that “if there is no collaboration, then there is no budget Bill”.

The lead up to Wednesday’s announcement was dominated by discussion on who may be prepared to back John Swinney’s government, with the Scottish Liberal Democrats seen as the most likely to do a deal. Their leader, Alex Cole-Hamilton, told the Herald on Sunday there were “areas of great communality” between the parties on issues like NHS funding and ending the Council Tax freeze.

The SNP’s former partners in government, the Scottish Greens, also want to see an end to the Council Tax freeze but have said they would be prepared to vote against the government if it failed to support their calls for nearly £5 billion of investment in nature and climate action and a commitment to further work on the issue of Scottish independence.

The possibility that neither the Liberal Democrats nor Greens back the Budget would turn attention towards the Scottish Labour Party. Their finance spokesperson, Michael Marra, has hinted they will not back the plans, accusing the SNP of being “out of excuses”. However SNP strategists told the Scottish Sun that they believe Labour does not want an early election, believing that the party voting down a budget that includes the part-restoration in Scotland of the winter fuel payment would go down poorly in an election campaign.

What happens now?

The detail of what happens next was set out in a letter from the Finance Secretary to the Finance and Public Administration Committee.

The government will introduce the Budget Bill to the Scottish Parliament on 18 December. The Finance and Public Administration Committee will begin its scrutiny of the Budget the previous week and will conclude its work with a debate in parliament at the end of January.

The Budget Bill will then be considered in three stages over the course of February. Stage 1 is scheduled to take place on 4 February, followed by Stage 2 (18 February) and Stage 3 on 25 February. The Scottish Rate Resolution which sets Scottish Income Tax for 2025/26 is scheduled to take place on 20 February. This must take place before the parliament can pass the Budget.