Kate Forbes

The finance secretary stated that ending Scotland’s contribution to climate change, tackling inequalities and investing in the economy and our public services are at the forefront of the 2022-2023 Scottish Budget.

Outlining an “ambitious” funding package, Ms Forbes said the Budget will accelerate Scotland’s COVID recovery and help transition the country towards becoming fairer, greener and more prosperous.

She added that the Budget will deliver certainty and stability for taxpayers, as a foundation for the ongoing recovery. The proposed tax policies will raise the revenues needed to invest in vital public services, including the NHS and the police, as well as provide essential support for those that need it the most.

The proposed tax policies will maintain a progressive approach to taxation, with the majority of taxpayers continuing to pay less Income Tax than they would if they lived elsewhere in the UK.

The budget prioritises a green recovery and economic transformation by investing at least £2bn in infrastructure initiatives that will support green jobs and accelerate efforts to become a net-zero economy, helping to end Scotland’s contribution to climate change and ensure no-one and no region is left behind as a result.

Ms Forbes said the Scottish Government will continue to offer support for the retail, hospitality and leisure sectors, alongside the lowest poundage rate in the UK, and a wider reliefs package worth £745 million. This builds on the current Non-domestic rates policies that have saved businesses in Scotland around £1.6 billion since April 2020.

The finance secretary also announced over £124m for employability and training, including through the Young Person’s Guarantee, National Transition Training Fund and Fair Start Scotland.

Mark Stewart, partner and head of energy, infrastructure and renewables at accountancy firm Johnston Carmichael has welcomed the low-carbon spending commitments announced as part of the Scottish Budget. However, he called for greater collaboration between the public and private sectors to achieve effective change.

He said: “It is great that we have the ambition to become a low-carbon country following COP26 and this Scottish Budget, but the reality is that we need to now turn the very positive commitments made into an investible pipeline of projects. Rhetoric needs to become reality.

“I’d like to see the public sector working with entrepreneurs and investors to develop and implement the projects required to achieve net-zero. Smart cities with more sustainable infrastructure, including housing, heating and transport, will play a key role and ensure that we secure a just and fair transition that supports the supply chain, skills and jobs.”

Sharon Blain, tax director at PwC Scotland, said that for businesses, there wasn’t a great deal to either “cheer or jeer”. She added that companies will be pleased to have advanced notice of continuing business rates relief into the next financial year, particularly given ongoing uncertainties, however many would have hoped for more than 50% on offer for three months from April.

Ms Blain continued: “As promised in the SNP election manifesto, income tax rates remain unchanged, with the higher and additional rate thresholds held at present levels with no increase for inflation. Kate Forbes also highlighted some of the challenges inherent in the income tax position and its interaction with the Fiscal Framework.

“As long as Scotland’s tax base is not growing at the same rate as the UK’s, increasing net tax revenues in the long term will be challenging. The Medium-Term Financial Strategy published today reiterates the Scottish Government’s call for devolution of VAT, and full powers over Income Tax and National Insurance contributions.”

Duncan Reoch, head of personal tax team for EY in Scotland, said: “Perhaps the biggest winners in today’s Scottish Budget are public sector low paid workers. Having previously announced a wage floor of £10.02 per hour for public sector workers, this was further increased to £10.50 per hour with an additional guaranteed cash increase of at least £775 for those earning under £25,000.

“As expected, there were no seismic changes in the Finance Secretary’s Budget relating to income tax rates and bandings. Rates have remained frozen and the basic and intermediate rate thresholds move up by inflation from 6 April next year, meaning that all Scotland’s taxable workers and pensioners will pay up to £5 less income tax next year. However, this needs to be tempered by the already UK wide increase in National Insurance Rates of 1.25% from next April.

“When comparing rates and bandings with the rest of the UK, those earning less than £27,850 will be slightly better off in Scotland (up to £22 a year) while those earning more than this amount will pay more income tax under the Scottish tax system. The higher rate band threshold in Scotland remains at £43,662, which is significant compared to the rest of the UK which remains at £50,270.

“This means that an individual in Scotland with earnings at this level will continue to pay more in income tax in comparison to their UK counterparts. These are individuals who are generally classed as highly skilled and so it is vital that we encourage this top talent to stay in Scotland to help boost the economy, especially as we look towards post-pandemic recovery.”

Vishal Chopra, KPMG UK’s head of tax in Scotland, commented: “Growing uncertainty around the pandemic meant this was a Budget of difficult choices that remained some way from feeling like business as usual. Kate Forbes unwrapped a package of public investment aimed at forecasting what level of support Scotland’s economy will need next year to recover. Rising inflation, challenging business conditions and issues around climate were all front of mind in a transitional budget which offered some early stocking fillers for businesses.

“100% uncapped relief from Business Rates has been available for certain Scottish businesses in retail, hospitality, leisure, and aviation for 2021/22, and so today’s announcement to give businesses in retail, hospitality, and leisure a 50% business rate relief for the first three months of 2022/23, albeit capped at £27,500 per rate payer, will provide a little extra comfort to businesses still dealing with the impact of COVID-19.”

He continued: “Land & Buildings Transactions Tax (LBTT) rates and bands will remain unchanged for both residential and non-domestic properties, and the Government will shortly launch a call for evidence and views on the operation of the Additional Dwelling Supplement which remains unchanged at 4%.

“Noticeable omissions were any changes to encourage environmentally friendly improvements, or an update on the devolved Air Departure Tax, which feel like missed opportunities given the Government’s focus on advancing its green agenda and net zero targets. There was, however, confirmation of investment in energy transition and industrial decarbonisation projects, and landfill tax rates are to increase to maintain alignment with the rest of the UK.

“Other notable green announcements included the expansion of the Business Growth Accelerator relief for property improvements to include the installation of solar panels as a qualifying improvement. That will provide 100% relief on new builds for up to 12 months after first occupation and no rate increases for 12 months after a qualifying property improvement.”

Mr Chopra added: “On income tax, the Starter and Basic Rate bands will increase with inflation, while the Higher and Top Rate thresholds will remain frozen in cash terms. This is estimated to raise an additional £106 million in 2022-23.

“This was a Budget which aimed to pave the way for the Government’s long term ambition of a fairer, greener future. A Resource Spending Review to be released in May 2022 will set out the Government’s long-term funding plans and the roadmap for delivering key commitments. For now though, many will be left wondering whether more could have been done to provide further support on the route to economic recovery, with many businesses undoubtedly feeling that their wish lists will remain unfulfilled this Christmas.”

The Chartered Institute of Taxation (CIOT) noted that the Scottish Government’s decision to increase the starter and basic rate bands by inflation will mean that the point at which Scots start to pay more income tax than someone living elsewhere in the UK rises from £27,393 to £27,850.

Alexander Garden, chair of the CIOT’s Scottish Technical Committee, highlighted that increasing the starter and basic rate bands by inflation means that from April, the level of income that Scottish taxpayers start paying more income tax than those in the rest of the UK will increase by £457 to £27,850.

He said: “Taxpayers with income below this level will save a maximum of £21.62 next year compared to those in the rest of the UK because of the 19p starter rate of tax.

“Above £27,850, the impact of both higher rates of Scottish tax and the planned National Insurance changes will see workers pay more.

“Scottish taxpayers will benefit by a maximum of £4.57 compared to their position this year because of the changes to the bands for Scottish income tax.

“However, this benefit will be offset by the extra National Insurance contributions that workers will pay as a result of the UK-wide increase planned for next April. Because of this, they will actually end up worse off compared to the current tax year.”