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The Scottish government’s budget for 2016/17 can rightly be seen as historic; historic in the sense that for the first time ever a Scottish Rate of Income Tax (SRIT) has been announced.
However anyone hoping that Finance Secretary John Swinney would use the new power to break with George Osborne’s austerity will have been disappointed. Instead of seeking to ameliorate the Westminster imposed reductions by raising income tax – one penny would raise £500m – Scotland’s chancellor has chosen continuity rather than change.
The SRIT’s introduction is a direct result of the Calman Commission proposals that led to the Scotland Act 2012: the income tax rate set by Westminster will be cut by 10p for Scots, with the Scottish government responsible for determining the full rate through its own budget.
So, by setting the SRIT at 10% (10p in the pound) the Scottish government set the basic rate at the same as the current UK rate – 20p; so income tax levels remain exactly the same north and south of the border.
He has also copied other measures unveiled by George Osborne. Like Osborne he has added a 3% Land and Building Transaction Tax levy on the purchase of second homes from April 2016 and he has increased business rates through the Large Business Supplement.
However, unlike Osborne, he has not given local councils any flexibility. The UK chancellor allowed councils to raise their council tax by 2% to help towards increased social care costs. In Scotland not only does the council tax freeze continue for a ninth year, but council budgets have been cut by 3.5%, leading to speculation that this could result in 15,000 job losses.
The power to set a SRIT is the first step in a two step process. For financial year 2017/18, the Smith Commission recommendations, which led to the Scotland Bill currently making its way through Westminster, will come into force. These new powers will allow the Scottish government to set both income tax rates and bands.
Scottish Labour has already said that it would increase tax on those earning in excess of £150,000 by 5p while the SNP has said that it will outline its plans prior to the May 2016 Scottish elections. And it would not be surprising for the Scottish Conservatives to go into these elections promising an income tax cut.