Scottish Government draft Budget for financial year 2018/19

A summary of the main draft Scottish Budget provisions

announced by Finance Secretary, Derek Mackay 14th December 2017

Photo of Derek Mackay, the Cabinet Secretary for Finance and Constitution

This afternoon saw the Cabinet Secretary for Finance and Constitution, Derek Mackay, deliver the Scottish Government’s draft Budget.

The Scottish Budget sets out the Scottish Government’s tax and spending for the financial year 2018/19.
Here are some of the headlines:

  • New Income Tax system for Scotland
  • Public Sector Pay Cap abandoned and 3% increase announced
  • LBTT Threshold raised for First Time Buyers
  • Additional £400 million to be invested in the Health Service
  • Non-domestic Rates poundage to rise by CPI from next year
We also need to remember that this is a draft Budget and, being a minority administration, the Scottish Government needs to negotiate their proposals through the Scottish Parliament with the assistance of other parties.
This Budget also saw the first forecasts of the Scottish Fiscal Commission, an independent authority that comments on the Scottish Economy and how the Finance Minister’s budget proposals impact on the economy. You can read a very useful summary of its report by clicking here. The full report is available by  clicking here.
As we said earlier, the Scottish Budget focuses on Tax and Spending in Scotland. In this report, we’ll look at each of these to help you judge how you might be affected by the changes.

Spending

There were a number of spending announcement made by the Finance Secretary covering infrastructure and services.
There is an additional £400 million to be invested in the Health Service in the coming year –  this, he said, is £200 million more than the rate of inflation.
The Public Sector pay cap has been abandoned with the announcement that those earning £30,000 or less and working in the Public Sector will receive a pay rise of up to 3%. Those earning more than £30,000 will also see a rise in their earnings. This means that NHS Staff, police, firemen and others in the Public Sector will see a closer to inflation rise in the coming fiscal year.
The continuing saga of Superfast Broadband availability saw the Finance Secretary pledge a further £600 million to ensure every home and business in Scotland has Superfast Broadband available to them by 2021.
There were large spending commitments to other areas of Public Services:
  • £243 million will be invested to allow expansion of free nursery education and childcare;
  • £120 million will be made available to Head Teachers to enable them to ensure all young people can fulfil their potential;
  • £756 million to be invested in the provision of affordable homes in 2018/19
  • An additional £20 million for Police Scotland and £5.5 million for Fire Scotland (this is in addition to their ability to reclaim VAT that is now available as a result of changes announced in the UK Budget);
  • The establishment of a £50 million fund to tackle child poverty;

These were just some of the many announcements made by the Finance Secretary as to how the money he has available to him will be allocated.

Tax

As we have stated earlier, much of the Scottish Budget is funded by a block grant from the UK Government. However, the Scottish Government now has responsibility for setting and raising income tax required to fill the “gap” between what it receives in the block grant and what it wishes to spend. Last year’s Budget saw the Finance Secretary maintaining the same rates as the UK Government in its Budget, however, it did not pass on the increase in the threshold at which the higher rate tax band commenced.
Scottish Income Tax Rate Table

This year, the Finance Secretary has taken a more radical approach by introducing not only alterations in the rates but also the creating additional tax bandings.

This table shows what the  Scottish Income Tax system now looks like.
In addition, in an effort to help first time buyers get onto the property ladder, the Finance Secretary announced that any first-time buyer who purchases a house up to the value of £175,000 will not pay any Land & Buildings Transaction Tax. This announcement mirrors the much more generous announcement in the UK Budget providing relief of Stamp Duty (the English equivalent) for purchases up to £300,000.
For business, the Finance Secretary has taken heed of representations made by business and announced that from the next financial year, the rates poundage will increase by the Consumer Price Index (CPI) figure and not by the higher Retail Price Index (RPI) figure. This brings the rates poundage increases into line with England & Wales.

The Economy

Perhaps the biggest shock of the Scottish Budget was contained in the Scottish Fiscal Commission’s Report where it disclosed very weak economic growth forecasts for the coming years. The challenge Scotland has is to improve productivity in order to increase its economic growth and it remains to be seen if the measures announced in today’s Scottish Budget will help to achieve that.
Also, as we mentioned earlier, today’s announcement is of a draft Scottish Budget and, to put it into effect, the Scottish Government will need support from other political parties – so there may well be changes before it’s passed into law!
You can read the draft Scottish Budget for 2018/19 in full by clicking here.

© Client Communications December 2017

An additional £400 million is to be invested in the Health Service in the coming yearFinance Secretary, Derek Mackay
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