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Ministers in Scotland have cut taxes for the lowest earners by a modest £11 a year, as the government dug into its reserves, cut spending and increased borrowing to fund new election pledges.
With four months to go before the Holyrood elections, the Scottish National party government raised the thresholds at which people earning less than £33,500 a year will pay income tax in Scotland by 7.4%.
Shona Robison, the finance secretary, said this meant from April 55% of taxpayers in Scotland would take home up to £40 a year more than if they lived elsewhere in the UK.
The tax cuts, which will cost the devolved government £50m in the next financial year, are designed to shore up the SNP’s efforts to retain power and damage Labour’s chances in the May elections.
Robison announced that Scotland’s child payment for the poorest families would rise to £40 a week for children under one from 2027; private jets would face higher air passenger duty rates from 2028; houses worth over £1m would face new higher council tax rates from 2028; and college funding would increase, after years of cuts, by 10%.
“This is a government that wants what is best for Scotland,” she said. “My message to the people of this country is clear – thanks to our cost-of-living commitments, you will be better off in so many ways because you live in Scotland.”
However, the overall budget package was roundly criticised by opposition parties, the Institute for Public Policy Research (IPPR) and the Institute of Chartered Accountants of Scotland (Icas), which accused Robison of “tinkering” with an over-complex tax system.
Scottish Labour plans to cut taxes for middle earners, to address a quirk in the national insurance system that means some pay a 50% tax rate.
Michael Marra, Labour’s finance spokesperson, said: “We are all paying the price for SNP incompetence. The SNP’s abject failure to grow Scotland’s economy leaves us all poorer and ordinary Scots paying the price. That is the true record of this SNP government.”
Stephen Boyd, director of IPPR Scotland, said it was a “tepid” budget, which failed to properly tackle the big challenges of child poverty, the climate emergency, reforming public services and growing the economy.
“Yet again, short-term politically driven tax changes with minimal real impact are prioritised over the development of a serious, long-term strategy to achieve the revenues necessary to deliver on the FM’s priorities,” he said. “This can’t go on.”
The Institute for Fiscal Studies predicted Robison would need to raid other parts of her budget to fund the NHS and social care budgets because the 0.7% increases in this announcement would not go far enough.
David Phillips, the IFS expert on devolved government financing, accused Robison’s officials of unjustifiably “burying” the most important budget figures in annexes. “That isn’t good enough – especially in an election year, when the electorate deserve a clear picture of how tax and spending are changing,” he said.
João Sousa, deputy director of the Fraser of Allander Institute, an economics thinktank at Strathclyde University, said that compared with last year’s spending plans the finance secretary had actually cut day-to-day spending by £480m and was relying on one-off pots of funding to shore up its finances.
“The devil was very much in the detail and in what wasn’t said by Shona Robison,” Souza said. “What [takes] effect in less than three months’ time is a significant cut in spending, even if you wouldn’t know it from the budget speech.”
Employees earning over £35,000 will continue to pay more than in the rest of UK. The thresholds for higher tax rates will be frozen from April for the next three years, eventually taking the number of people paying Scotland’s three highest tax rates to more than a million by 2030.
The Scottish Fiscal Commission (SFC), an independent watchdog similar to the Office for Budget Responsibility in London, said that threshold freeze meant overall income tax receipts would grow by £200m in 2028/29.
Prof Graeme Roy, the commission’s chair, said the government’s budget relied on its promises to cut the public sector workforce and its “ambitious” efficiency savings working. “If and how these plans are delivered will have implications for future public services and shape the fiscal context beyond May’s election,” he said.
The tax cuts for lower earners follow growing attacks on the accuracy of the Scottish government’s repeated claims over the last few years that most people paid less income tax in Scotland than the rest of the UK.
New data from HMRC and from the SFC found that to be untrue. However, the new decision to raise the thresholds for basic and intermediate rate taxpayers suggests most Scots will pay less from April than they would if they lived in other parts of the UK.
The new policies mean the income tax bills of anyone below Scotland’s median income will fall by £40 a year or 75p a week. However, if inflation is taken into account, only people earning less than £32,000 will be slightly better off than other UK taxpayers.
The housing charity Shelter said Robison’s decision to increase spending on social housing by £34m to build another 36,000 homes was welcome but fell 26,000 short of the government’s 2032 target.
“We must be honest about the real costs of failure. Failing to build the social homes we need means rising homelessness, rising child poverty, rising costs for councils, health boards and the taxpayer,” said Alison Watson, the director of Shelter Scotland.
