Shona Robison presented her first budget to parliament yesterday afternoon, setting out the tax and spending plans for 2024/25.
The big news of the Budget (for good or ill) is likely to be the introduction of the new tax band between £75,000 and 125,140 with a marginal tax rate of 45%.
In a less well-trailed move, the Scottish Government also decided to raise the top rate by a further penny to 48%.
In spite of the coverage these changes are likely to generate, the implications for the overall budget are relatively modest: the addition of the 45% Advanced band raises £74m, and the extra penny on the Top rate raises £8m.
Of course, for those taxpayers who earn more than £75,000, the changes are more consequential.
For someone earning £100,000, these changes today meant they will pay £750 more in tax than they would have otherwise.
This is on top of already significant differences between Scotland and the rest of the UK on income tax policy.
In total, now,someone earning £100,000 pays £3,350 more than if the UK rates prevailed in Scotland.
The introduction of this additional band has also complicated the marginal income tax schedule in Scotland. This is the rate someone pays on each additional pound they earn.
Interestingly, the marginal rate someone faces at £75,000 in Scotland is now the same as people earning £125,140 or above in the rest of the UK, at 45%.
Has the council tax freeze been fully funded? Well, it depends, but the amount announced is unlikely to settle the matter for Scottish Councils.
The Scottish Government continued to claim it was ‘fully funding’ the freeze in rates for next year, and allocated £140m on the basis of a 5% increase. While this is about right for an average 5% increase in rates, we know some councils were planning on increasing rates by more than 5%, and are unlikely to receive compensation for that.
This funding also excludes compensation for the planned increase in multipliers for higher band properties, which was consulted on over the Summer and many councils would have assumed in their planning, and which would have required an additional £180m.
On non-domestic rates, the cabinet secretary resisted calls from those in the retail, hospitality and leisure sector to replicate the 75% relief that has been in place in England this financial year and extended to next year.
Around £230m of Barnett formula consequentials were generated by the Autumn Statement, but the deputy FM chose to dedicate only some of this funding to non-domestic rates.
Overall, the main announcement was that the basic poundage was frozen, at a cost of £199m – but this was coupled with an increase in poundage for higher properties, which raises £170m extra.
The only place for which a targeted hospitality relief was announced was for the Scottish Islands, at a cost of £4m.
Less clear from the budget statement was where some of the relatively large cuts to funding would fall.
For that, we have been going through the detailed tables released alongside the Budget.
The overall outlook for spending is a tough one.
Overall funding has gone up by 2.6%, but two-thirds of this increase goes towards social security spending, which in 2024/25 will be around £1bn higher than in 2023/24.
With local government resource spending also going up by £470m and health spending growing in real terms, pretty much all else bears the brunt of the funding constraints.
For example, the Scottish Funding Council sees its funding permanently cut by over £100m, and this will include reductions in first year university places for Scottish-domiciled students, although it is not clear on the extent of this reduction.
Capital spending in particular is hard-hit, with a 4% cut in real terms – which translates into an actual cut in cash terms by £170m.
While there are some areas for which funding grows, others see large falls in allocations. Local government capital grants will be £150m lower next year compared with their 2023/24 budget – a 21% real terms cut.
The Affordable Housing Supply Programme has been reduced by £196m, and this means a 37% reduction in the past two years.
Even areas of important commitment by the Scottish Government such as the Just Transition Fund have been severely restricted, with the allocation cut by 75% for 2024/25.
By Fraser of Allander Institute director Mairi Spowage, deputy directors João Sousa and Emma Congreve, and Associate Economists Calum Fox and Ciara Crummey
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