Budget: Swinney leaves Scots income tax alone

John Swinney. Picture: Scottish Parliament

The Finance Secretary resisted the temptation to set a different income tax rate north of the Border in the first Scottish Budget with new powers to raise or lower the levy by 10p in the pound.

But he did announce an increase in taxes levied on big business, plus a tax on second homes in a Budget that he said was built around growth and reform of public services.

Mr Swinney said he would divert £250 million from the NHS budget into social care in what he described as the most significant reform in health and care since the formation of the NHS in 1948.

He also said he would examine handing councils a share of income tax raised in their areas as he confirmed the council tax freeze would continue.

But the diversion of funds from health to councils failed to mask the dramatic cuts facing local authorities.

Council leaders warned that 15,000 local authority jobs will be lost as a result of cuts imposed by the Scottish budget for 2016-17.

• READ MORE: Budget: What it all means for Scots in 2016

Local authority umbreall group Cosla said the 7.2 per cent cut to council cash was “totally unacceptable”.

According to Mr Swinney’s Budget document, the amount spent on councils will fall by £573.4 million to £7.38 billion in 2016-17.

Despite some of the pain being offset by the £250m coming to local authorities from the health budget, the dramatic fall in council cash led to Cosla issuing a dramatic warning.

Speaking following a special council leaders’ meeting in Edinburgh, Cosla president Councillor David O’Neill said: “Whatever way they spin it, this is an ‘austerity’ budget of straight political choice.

“How else could you describe a low-spend, low-tax budget that will cost 15,000 council jobs – equivalent to 50 Tata Steelworks to put that into some context. Cosla got a very clear steer from council leaders this afternoon that the package of measures for local government is totally unacceptable.

“This is a Budget that hits the council workforce in terms of job losses. It hits the child in care. It hits the elderly struggling with dementia and the vulnerable adults, all of whom solely rely on the support that only a council can provide.

“Make no mistake this is a Budget that has been made in Scotland and imposed on Scottish local government. The 3.5 per cent cut (£350m) coming to us next year cannot be laid at Westminster’s door this time around as we all know that the Scottish Government got a cash increase.

“A cut of 3.5 per cent is catastrophic for jobs and services within Scottish local government because the harsh reality is that it actually translates to real job cuts that hit real families, in real communities throughout Scotland.”

Mr O’Neill added: “This Budget could only have been constructed by someone who has no responsibility for service delivery and who clearly does not understand the reality on the ground or the impact it will have.”

• READ MORE: Budget: Scots culture funding cut by £20m

The new Scottish rate of income tax (SRIT) has seen the Treasury deduct from the Scottish block grant a sum equivalent to 10p worth of income tax applied north of the Border.

From the next financial year, there exists the option of setting a Scottish rate of income tax (SRIT) which could either be lower or higher than the 10p that has been deducted.

Mr Swinney set a 10p rate thus ensuring that income tax rates will remain the same.

He argued that the new powers did not give him the option of varying rates in different bands, which inhibited his ability to help the needy.

The Scottish Government’s stamp duty replacement –the land and buildings transaction tax (LBTT) will also remain the same. Although those buying another property such as a second home or a buy-to-let property are to be hit by an additional charge.

Mr Swinney copied the initiative introduced south of the Border in George Osborne’s Autumn Statement by imposing a levy of 3 per cent of the value of properties worth more than £40,000.

Last night property experts said the new charge, which the Scottish Government believes could raise up to £29m, would harm the property market.

Blair Stewart, of Strutt & Parker, said: “Since the introduction of LBTT in April this year top-end property sales slowed dramatically, having seen unprecedented activity before the introduction of the new tax. With this increased LBTT for buy-to-let (BTL) and second homes we predict that there will be a similar pattern in this sector of the market.”

Meanwhile last night business organisations expressed concern at Mr Swinney’s plan for a “modest increase” for the Large Business Supplement, a measure he believes will raise £130m.

On health, the Finance Secretary said his transfer of £250m into the social care sector would build the capacity of community-based services ensuring that fewer people are forced to go to hospital.

He said he would give more than £500m to NHS budgets resulting in spending of nearly £13bn next year. He said primary care would be reformed and £200m would be spent in six new treatment centres that will specialise in carrying out hip and knee replacements and cataract operations for the elderly.

CBI Scotland said the income tax rate remaining unchanged would provide “stability” as Scotland awaits new powers.

Director Hugh Aitken said: “Companies will also welcome the business rates review and the CBI looks forward to working with the government ahead of its conclusion to ensure rates remain competitive.

“But companies will be seeking urgent clarification from the government on the proposed increase to the large business supplement.”

BMA Scotland welcomed the announcement of increased funding for the NHS but said an ageing population continues to put pressure on services.