Nicola Sturgeon is facing calls to ditch the prospect of income tax rises in Scotland after the Chancellor unveiled a £2 billion funding package for Holyrood in the coming years.
The commitment will mean more than £250 million of extra cash for the Scottish Government next year alone, although the First Minister accused the Chancellor of “smoke and mirrors”, insisting the Holyrood budget is still going down.
Plans to offload Royal Bank of Scotland back into the public sector were also unveiled by Philip Hammond yesterday, with taxpayers facing a £26bn loss on their bailout of the Edinburgh-based giant a decade ago.
A series of tax-cutting measures were at the heart of yesterday’s Budget, but they will not all apply to Scots. Middle earners south of the Border will benefit from a rise in the higher-rate income tax threshold, which the SNP is not extending in Scotland, and first-time buyers in England will also escape stamp duty.
But Scots will benefit from a rise in the personal allowance, which goes up from £11,500 to £11,850.
The contentious £40m VAT bill faced by Police Scotland was also abolished by Mr Hammond, while whisky duty was frozen and fresh support unveiled to support decommissioning in the oil and gas industry.
The First Minister yesterday said more than half of the £2bn Scottish package – £1.1bn spanning the next three years – was in “financial transactions”, which will have to be repaid to the Treasury.
The rest – about £900m – is also split between 2018-19, 2019-20 and 2020-21.
The extra money, which Ms Sturgeon will be free to spend next year, amounts to £183m in revenue cash and £69m of capital spending.
Tory leader Ruth Davidson said the First Minister should now abandon “reckless” plans to put up income tax next year.
“SNP ministers must look again at their reckless plans to raise income tax in Scotland,” she said. “As a result of the Chancellor’s decisions today, they are getting £2bn extra funding to help meet their own spending commitments.
“With income tax and stamp duty being cut south of the Border, there is a growing tax gap between people in Scotland and elsewhere in the UK.
“The SNP can’t keep hitting Scots in the pocket and need to hold off further tax rises in the Holyrood budget next month. The case for raiding the pay packets of ordinary Scottish families has collapsed.”
Ms Sturgeon has set out a range of proposals that ministers are considering for income tax hikes under Holyrood’s new fiscal powers. They would generate £80-£290m in extra cash, depending on the scenario that is favoured by finance secretary Derek Mackay when he sets out his Scottish Budget next month.
The First Minister described the “financial transaction” funding yesterday on Twitter as “money that can be used for limited purposes only and has to be repaid”. The funding has previously been used for the Help to Buy Scotland mortgage support scheme and the Scottish Investment Bank.
The Scottish Government said its budget from Westminster was already facing a cut of about £420m in 2018-19, meaning the extra £183m will take this reduction to about £239m as set out by the First Minister.
Ms Sturgeon added that “not an extra penny” had been provided by the Chancellor to lift the cap on public sector pay increases.
She has already pledged the Scottish Government will end the 1 per cent cap on wage rises that has been imposed on public workers.
The headline announcement in the Budget was the abolition of stamp duty for first-time property buyers on homes worth up to £300,000.
However, this will not apply in Scotland where ministers have introduced the Land and Buildings Transaction Tax, which applies a levy of 2 per cent on property sales between £145,000 and £250,000. This rises to 5 per cent from £250,000 and 10 per cent from £325,000.
Ms Davidson said it would “make a massive difference” if Mr McKay followed the Chancellor’s lead in next month’s Holyrood budget.
The threshold for paying the higher-rate income tax of 40p has been frozen in Scotland at £43,000 while rising this year to £45,000 south of the Border, an effective tax cut for English middle earners.
Mr Hammond yesterday announced this will go up to £46,350 south of the Border as part of a gradual shift towards £50,000.
Ms Sturgeon has blocked this in Scotland, claiming it would be wrong to cut taxes for higher earners at a time of ongoing austerity.
The contentious £40m annual VAT charge on Police Scotland and the Scottish Fire and Rescue Service, which no other UK force faces, will end from April. This was imposed when the new forces were established four years ago because they were deemed to be “national” organisations by the tax authorities.
Mr Hammond insisted SNP ministers had always been aware the new organisations would be subject to the charge.
But the Chancellor said the 13 Scottish Conservative MPs elected in June had persuaded him that “the Scottish people should not lose out because of the obstinacy of the SNP government”.
Mr Mackay said the move was “well overdue”. He added; “The UK government must now pay back the £140m of VAT they have already taken. The realty of today’s Budget is that Scotland continues to be hit by UK austerity.”
Mr Mackay, who will set out his own budget on December 14, said Mr Hammond’s announcements for Scotland were “disappointing”. He contrasted it with the £1bn given to the Democratic Unionist Party in Northern Ireland for supporting the Tory minority government.
Scottish ministers also said that despite a commitment of over £300m of resource funding for the NHS in England this year, Scotland will receive only £8m in Barnett consequentials in 2018-19.
The Chancellor revealed formal negotiations would start for a Borderlands Growth Deal to strengthen links between the north of England and south of Scotland.
Scottish charities will also reap more than £3.3m of Libor funding, while £2.2m will help improve the Lady Haig’s Poppy Factory in Edinburgh.