Finance Secretary Shona Robison left businesses feeling “underwhelmed” by a package of budget support for the hospitality, retail and leisure sectors.
Ms Robison announced some income tax cuts, help for skills training and extended the relief on business rates, but was criticised for not going far enough and leaving many businesses concerned about their viability.
It was confirmed after the statement that 11,000 jobs are likely to be cut from the public sector workforce “on a natural attrition and a voluntary basis” in order to balance the budget. The prospect of job losses had emerged in last summer’s medium-term financial strategy.
The budget statement included more funding for the NHS, colleges and skills training and will see the thresholds for the “basic” (20%) and intermediate (21%) rates of income tax increase by 7.4% to £16,537 and £29,526 respectively.
Ms Robison said: “By raising the Basic and Intermediate rate thresholds by substantially more than inflation, this Budget once again provides tax support for low and middle-income earners.”
It also means 55% of people on lower incomes will pay less tax than they would if they were earning the same wages in other parts of the UK, she said.
However, the higher tax rate (42%) will continue to start at £43,663 and the advanced and top rates will remain unchanged.
Ellen Milner at the Chartered Institute of Taxation Scotland, said that the increase in thresholds for the basic and intermediate rates means the point taxpayers start paying more income tax than someone on the same salary elsewhere in the UK will increase to £33,493. Compared with the current tax year, this represents a maximum saving of £31.75 next year.
There was disappointment that the Finance Secretary did not fix the national insurance anomaly affecting taxpayers with earnings between the Scottish and UK higher rate thresholds. This will continue to pay a marginal rate of tax of 50%, compared to 28% elsewhere in the UK.
“The presumption that other thresholds will remain at their current levels until 2029 suggests that more people will continue to be pushed into higher rates of tax as wages grow and thresholds stay where they are,” said Ms Milner.
“Taken together, today’s limited tax changes retain a system that is more generous to those on lower incomes and increasingly less so for those higher up the income scale.”
The budget statement included the introduction of two new council tax bands by 2028 for the most expensive properties in Scotland. Higher rates will be paid on properties worth over £1m based on an up-to-date valuation. She said this will bring greater fairness and increased revenue to councils.
In another measure targeted at the wealthy, the finance secretary announced plans for a departure tax for private jets. An airport departure tax will also be introduced by April next year, with a consultation on a potential exemption for the Highlands and Islands.
“I say to those who choose to travel by private jet: in Scotland you will pay, and you will pay a fair share for that privilege” she said.
The government will provide funding for a breakfast club for every Scottish primary and special school pupil from 2027.
On college funding she announced a 10% increase, delivering £70m extra this year.
There is no change to land and buildings transaction tax. The government is committed to completing dualling the A9 by 2035.
On business rates, Ms Robison is providing relief worth £184 million over the next three years. There will be 15% relief in 2026-27, worth £138m over three years for retail, hospitality and leisure premises.
The small business bonus scheme, which removes rates from 100,000 small business, will be continued for a further three years.
She says this means over 96% of retail, hospitality and leisure businesses “will pay zero or reduced rates.”
The package was received with disappointment by business which had warned of the impact of not delivering a more substantial level of support.
Marc Crothall, chief executive of the Scottish Tourism Alliance, said: “While the Scottish Government has responded with a package of modest short-term mitigation, the underlying issues within the system remain unresolved.
“The introduction of transitional relief, reductions to the basic and intermediate rates, and the modest 15% of non-domestic rates relief for retail, hospitality and leisure businesses will provide temporary breathing space for some, but not nearly enough to prevent potential closures and job losses.
“These measures do not respond to the scale of the challenge facing tourism and hospitality businesses across Scotland. Relief is capped, time-limited, and does not address the volatility created by revaluation or the cumulative burden of rising costs, leaving many businesses still on the precipice of commercial viability.”
Leon Thompson, executive director of UKHospitality Scotland, said: “Today’s Budget has not sufficiently addressed the challenges that hospitality businesses in Scotland face, and the majority will still be paying higher business rates bills in April.
“While the reduction in the poundage is positive, it does not offset significant increases in business revaluations and the loss of 40% relief.”
Guy Hinks, FSB Scotland chair, said: “We are disappointed the Scottish Government has chosen not to go further to protect small businesses from further damaging tax rises.
“We recognise that reducing the poundage rate used to calculate final bills and extending other reliefs will protect local firms from some of the potential increases.
“However, given the extent of the increases small businesses are facing, with rises of up to 400%, this is effectively a drop in the ocean.”
Michelle Ferguson, director of CBI Scotland, said: “The three-year transitional relief and the 15% retail, hospitality and leisure relief announced on business rates may help Scottish firms facing a competitive disadvantage with rivals in England, however these measures will have a limited effect overall.
“Tinkering around the edges fails to tackle the fundamental problem: that the system as a whole is broken.”
Susan Love of ACCA, commented: “We welcome measures to address business concerns about rises in non-domestic rates and the college funding crisis. But, overall, businesses may feel a little underwhelmed by today’s announcements.
“While the Scottish Government stayed true to its commitment to avoid further increases in Income Tax and no new tax bands for the remainder of the Parliament, we’re disappointed in the continued fiscal drag, with the thresholds for the upper three bands remaining frozen for another year, drawing yet more taxpayers into these bands.
“With further announcements on changes to council tax, and a new air departure tax, our tax landscape remains overly-complex.”
David Lonsdale, director of the Scottish Retail Consortium, said: “Scottish Ministers seem to have their heart in the right place by providing a limited business rate discount for retail and hospitality businesses; but we fear they have significantly stumbled on the detail.
“Whilst there appear to be no new significant burdens on retailers, we believe there was scope to do much more at a time when retail sales and footfall are in the doldrums.
“Regrettably the Budget falls short of the industry and government’s shared ambition of making Scotland the best place in the UK to grow a retail business.”
Tory finance spokesman Craig Hoy dismissed what he described as a “pre-election budget as predictable as it is cynical.”
He added: “It does nothing for those in the middle of the tax band. It prioritises welfare over work.”
Scottish Labour’s finance spokesman Michael Marra said the budget does not deliver “real change”.
He said it is “more of the same” adding: “The positive measures in this budget see the SNP desperately trying to fix a few of their own mistakes.”
Liberal Democrat economy and finance spokesperson Jamie Greene said: “In the coming months, I want the Scottish Government to work with me to explore how further, targeted financial support can give more Scottish businesses the proper relief that they desperately need.”
Comment: No sign of a long term growth plan
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