The SNP has resurrected the council tax freeze and there will be no new raid on pay packets as the party unveiled a budget designed to woo the middle classes three months out from the Holyrood election.
Kate Forbes, the finance secretary, also extended a business rates holiday and promised a cut in bills once it expires, as part of measures designed to help firms through the coronavirus crisis.
The spending plans were revealed at Holyrood on Thursday against a backdrop of grim economic forecasts, with the Scottish economy now not expected to recover to pre-pandemic levels until 2024.
Unemployment is also set to rise to 7.6 per cent this year with the expiration of the furlough scheme, the independent Scottish Fiscal Commission said, compared to 4.4 per cent currently.
The measures were generally welcomed by businesses, although they called for an initial three month extension to business rates relief for retail, hospitality, leisure and aviation businesses, which will be paid for by large companies voluntarily handing back Covid-19 support, to be extended to cover the full year.
Ms Forbes promised to do this if a similar policy was announced by the UK Government for England, which would unlock further cash for Holyrood, but warned she would be unable to afford to otherwise.
Unionist MSPs said the biggest budget in Holyrood history, at £44 billion, and a raft of spending increases had only been possible because of the strength of the Treasury.
“As a result of all that extra UK funding, we can welcome that key Scottish Conservative demands on income tax and NHS spending have been met,” Murdo Fraser, finance spokesman for the Scottish Tories, said.
“The SNP have also passed the buck on delivering 100 per cent [business] rates relief for the full year. They have all the funding they need but cash has been incredibly slow to actually reach businesses, and this decision is a further slap in the face.”
Good to hear @KateForbesMSP delivering her budget. As she said I am providing additional flexibilities to help the devolved Scottish Government deal with the economic shock of covid. This includes doubling their day-to-day borrowing to £600m.
— Steve Barclay (@SteveBarclay) January 28, 2021
Income tax rates and bands will remain unchanged in 2021-22, and, unlike last year, the thresholds for the starter, basic, intermediate and higher rates will rise with inflation. However, the threshold for top rate will be frozen at £150,000.
It means those earning more than £27,393 will pay more than their counterparts in the rest of the UK, while those on lower incomes will pay very slightly less.
Meanwhile, the SNP quietly ditched its promise to raise the personal allowance – a manifesto commitment – to £12,750. Instead, it will rise only in line with inflation, to £12,570.
“The Scottish Government has resisted the temptation to raise income tax rates and will be welcome news to Scotland’s working population,” Stewart Mathieson, Head of Tax for EY Scotland, said.
“There is, however, a distinct likelihood that we may see increased taxes down the line in some form as both the UK and Scotland will need to address the deficits caused by coronavirus.”
The Scottish Government is setting aside £90m to compensate town halls who choose to freeze the council tax, as a controversial SNP flagship policy, which was ditched in 2017 after a decade, made its return.
The spending plans include a record £16bn for health services, along with an extra £869m to tackle Covid-19, and £11.6bn in total for local government.
Ms Forbes will now begin negotiations with opposition parties, at least one of which will have to agree not to oppose the budget for it to pass. During the current parliament, the SNP has got its spending plans passed after striking deals with the Scottish Greens.
There will be a wage increase for most public sector workers, but only those earning up to £25,000 a year will get a pay rise at a minimum level of 3 per cent.
The package also included £2.7bn for education and skills – a rise of around £200m – as well as extra funding to “help deal with the backlog in criminal justice caseloads caused by the pandemic”.
More than £800 million was allocated for housing – most of which will go to help build more affordable homes.
With more people working from home, Ms Forbes promised to invest almost £100m in improving digital connectivity – in part to provide better mobile coverage on the 4G and 5G networks.
The Finance Secretary said Scotland has been through “dark times” as a result of coronavirus, but said: “We have never given up hope. Hope for a better future, for a healthier, greener, fairer society.
“This budget seeks to build on that hope, and by focusing on how we continue to protect, recover, rebuild and renew our country, it seeks to make that light at the end of the tunnel shine that bit brighter.”