The tax difference between Scotland and the rest of the UK has widened to a new record after Humza Yousaf’s first budget ramped up bills for high earners.

Experts warned the gap could become bigger still if, as expected, Chancellor Jeremy Hunt cuts income tax south of the border as a pre-election giveaway in the spring.

Businesses and opposition parties warned it could deter investment and growth in Scotland and make it harder to recruit and retain skilled workers such as doctors and dentists.

The budget also drew ferocious criticism from housing and anti-poverty campaigners over deep cuts to spending and broken pledges on benefits. 

Hospitality, leisure and retail firms criticised a failure to mirror English business rate reliefs. 

It followed the First Minister’s finance secretary, Shona Robison, creating a sixth Scottish income tax band covering earnings between £75,000 and the top rate threshold, to help tackle a projected spending gap of £1.5billion.

It means that from April someone in Scotland will pay income tax at 45% on any earnings between £75,000 and £125,140, compared to 40% in England and Wales.

Scots earning more than £125,140 next year will also pay a top rate of 48% (up from 47%), compared to 45% in England and Wales, where there are just three income tax bands.

The Scottish Government estimated the new “advanced” rate of income tax of 45p would be paid by 114,000 people, with 40,000 paying the 48% top rate.

The Scottish Fiscal Commission, the independent watchdog which sets the envelope for Holyrood’s budget, said the two changes would raise a modest £74m and £8m respectively, around £120m less than in theory as people would actively try to avoid paying them.  

However Ms Robison said extra £307m would come from keeping the threshold for the 42% higher rate of income tax frozen for a fourth year at £43,663.

The freeze is expected to drag another 62,000 people, who had been paying the 21% intermediate rate, into paying the 42% rate because of rising wages.

The Chartered Institute of Taxation said the changes meant people in Scotland earning below £28,627 would be at best £23 better off than their counterparts south of the border.

Above that they would pay progressively more, with someone in Scotland earning £50,000 paying £1,542 more income tax than their English and Welsh peers; £2,100 more on earnings of £75,000; £3,350 more on £100,000; and £5,230 more on £125,000.

The Institute said the increasingly complicated system in Scotland was creating a “disjointed approach” that was harder for taxpayers to understand.

Scottish spokesman Sean Cockburn said: “The Scottish Government’s income tax plans increase divergence between higher earners in Scotland and the rest of the UK and we cannot rule out the possibility that divergence could widen further in the spring.

“A sixth income tax band will inevitably mean further complications for affected taxpayers. 

“That can include difficulties in knowing when different rates of income tax apply and how to ensure the appropriate amount of tax relief is applied to Gift Aid and pension contributions.”

David Ovens, Joint Managing Director of the Archangel Investors groups, said repeatedly raising taxes on top earners risked driving people away.

“Lowering taxes to attract even a small fraction of the much larger base in the rest of the UK could stimulate economic growth far more than further strained tax hikes. 

“Rather than reactive tax increases, Scotland needs a strategic, long-view approach to cultivate sustainable economic prosperity.”

Delivering the £60bn draft budget for 2024/25, Mr Robison said she would give local authorities £144m to freeze council tax next year, equivalent to a 5% rise in the annual levy.

However councils have demanded around £300m to make up for Mr Yousaf also axing plans to increase the bills for Band E to H homes, which would have raised another £180m.

The council umbrella group Cosla said the “reality” for local authorities was a £251m cut as a result of the budget, £156m of it due to being short-changed on the freeze.

Council leaders are due to discuss their response to the offer on Thursday, with sources suggesting weeks of negotiations lie ahead over the gulf in calculations.

Although she failed to name them in the Holyrood chamber, Ms Robison also cut hundreds of millions of pounds from public spending programmes, including £200m from house building, £120m from rail, £100m from colleges and universities, £60m from enterprise, £35m from agriculture, £30m from renewable energy, and £3m from tackling child poverty.

Ms Robison blamed Westminster for cutting Holyrood’s capital budget and prioritising tax cuts instead of spending on services that would have generated extra money for Scotland.

She told MSPs: “Our block grant funding for this budget, derived from UK Government spending decisions, has fallen by 1.2% in real terms since 2022/23.

“Our capital spending power is due to contract by almost 10% in real terms over 5 years.

"Devolution has brought many benefits, but it has also exposed quite how beholden we are to the decisions of Westminster.

"We are fighting Westminster austerity with one hand tied behind our back."

She said hers was a budget for “tough times… to protect people, sustain public services, support a growing, sustainable economy, and address the climate and nature emergencies”.

She said: “At its heart is our social contract with the people of Scotland, where those with the broadest shoulders are asked to contribute a little more. 

“Where everyone can have access to universal services and entitlements, and those in need of an extra helping hand will receive targeted additional support.

“We choose investment in our people and public services. This is a Budget that reflects our shared values as a nation and speaks to the kind of Scotland that we want to be.”

Asked by the media if she had done a good job of her first budget, she said: "I've tried my best, and that's all my late mother would have expected of me."

But there was scathing criticism of her cut of £200m from affordable social house building.

Shelter Scotland said ministers had chosen to exacerbate the homelessness crisis.

Director Alison Watson said: “If there is money for a council tax freeze then there should be money for homelessness services, if there is money to build bigger roads there should be money to build social homes. Instead of rising to the challenge of ending Scotland’s housing emergency the Scottish Government has chosen to make it worse.” 

Sally Thomas, chief executive of the Scottish Federation of Housing Associations, said the budget was “an absolute hammer blow for tackling homelessness and poverty” and would have long-lasting consequences for almost 250,000 people on social housing waiting lists. 

“It is devastating that the First Minister would abandon his defining mission to tackle poverty by failing to support people who need social homes. 

“It is the worst possible budget at the worst possible time.” 

Mr Yousaf was also attacked by anti-poverty campaigners, who said he had reneged on his SNP leadership plan to raise the Scottish Child Payment from £25 to £30 a week.

The devolved benefit, which is targeted at low income families, was instead raised by the legal minimum, increasing in line with inflation to £26.70. 

John Dickie, director of the Child Poverty Action Group, said it was “bitterly disappointing”..

Tory finance spokesperson Liz Smith MSP said: “Under the SNP, Scotland was already the highest taxed part of the UK – and the income tax rises announced by Shona Robison have only widened that gap and increased the burden on hard-working Scots.

“They mean that 100,000 more Scots are now paying the higher rate of tax.

“This will have a devastating effect on our ability to recruit and retain skilled workers, including the doctors and dentists Scotland’s under-resourced NHS desperately needs.”

She said the decision not to mirror England’s 75% business rates relief was “shameful”, adding: “This betrayal again exposes Humza Yousaf’s ‘reset’ with business as a sham, because it increases Scottish firms’ competitive disadvantage with the rest of the UK.” 

Labour’s Michael Marra added: “This is a chaotic budget from an incompetent government that will leave ordinary Scots paying more and getting less in return.

“The SNP’s mismanagement of our public finances has left us with a massive gap to be filled - that is an SNP waste gap, an SNP incompetence gap and a huge SNP growth gap.”

Visiting Scotland on Monday, Prime Minister Rishi Sunak said tax hikes would be “disappointing” and said the Scottish Government owed voters an explanation.

His Scottish Secretary, Alister Jack, also attacked the widening cross-border tax gap.

He said: “Making Scotland the highest taxed part of the United Kingdom is bad for our economy. It deters business investment and punishes hard-working people.

“The UK Government is cutting tax for individuals and for businesses. The Scottish Government should do the same.”